<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
SCHEDULE 14D-1/A
TENDER OFFER STATEMENT
(PURSUANT TO SECTION 14(d)(1) OF THE SECURITIES EXCHANGE ACT OF 1934)
(AMENDMENT NO. 1)
----------------
SANTA FE PACIFIC CORPORATION
(NAME OF SUBJECT COMPANY)
BURLINGTON NORTHERN INC.
(BIDDER)
COMMON STOCK, $1.00 PAR VALUE PER SHARE
(TITLE OF CLASS OF SECURITIES)
802183 1 03
(CUSIP NUMBER OF CLASS OF SECURITIES)
EDMUND W. BURKE, ESQ.
EXECUTIVE VICE PRESIDENT, LAW AND SECRETARY
BURLINGTON NORTHERN INC.
3800 CONTINENTAL PLAZA
777 MAIN STREET
FORT WORTH, TEXAS 76102-5384
(817) 333-2000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE
NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE)
----------------
COPIES TO:
DAVID L. CAPLAN, ESQ.
DAVIS POLK & WARDWELL
450 LEXINGTON AVENUE
NEW YORK, NEW YORK 10017
(212) 450-4000
CALCULATION OF FILING FEE
----------------------------------------------------------
<TABLE>
<CAPTION>
TRANSACTION VALUATION* AMOUNT OF FILING FEE
--------------------------------------------------------------------------
<S> <C>
$500,000,000 $100,000
</TABLE>
----------------------------------------------------------
----------------------------------------------------------
* Assumes purchase of 25,000,000 shares at $20.00 per share.
[X] CHECK BOX IF ANY PART OF THE FEE IS OFFSET AS PROVIDED BY RULE 0-11(a)(2)
AND IDENTIFY THE FILING WITH WHICH THE OFFSETTING FEE WAS PREVIOUSLY PAID.
IDENTIFY THE PREVIOUS FILING BY REGISTRATION STATEMENT NUMBER OR THE FORM OR
SCHEDULE AND THE DATE OF ITS FILING.
Amount Previously Paid: $100,000 Filing Party: Burlington Northern
Inc.
Form or Registration No.: Schedule Date Filed: December 23, 1994
14D-1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
This Amendment No. 1 amends the Tender Offer Statement on Schedule 14D-1
dated December 23, 1994 (the "Statement") of Burlington Northern Inc., a
Delaware corporation (the "Bidder"), relating to an offer by the Bidder to
purchase up to 25,000,000 outstanding shares of Common Stock, par value $1.00
per share (the "Shares"), of Santa Fe Pacific Corporation, a Delaware
corporation (the "Company").
ITEM 1. SECURITY AND SUBJECT COMPANY.
Item 1(b) of the Statement is hereby amended by deleting the last two
sentences therein and substituting the following language: "At December 31,
1994, there were outstanding 188,301,537 Shares and employee stock options to
purchase 14,470,071 Shares. The information set forth in the "Introduction"
sections of the Offer to Purchase and the Supplement to the Offer to Purchase
dated January 13, 1995 (the "Supplement"), a copy of which is attached hereto
as Exhibit (a)(8), is incorporated herein by reference."
ITEM 5. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF THE BIDDER.
Item 5 (a)-(e) of the Statement is hereby amended to read in its entirety as
follows: "The information set forth in the "Introduction," "Recommendation of
SFP Board of Directors," "The Tender Offer--9. Background of the Merger and the
Offer" and "--10. Purpose of the Offer; The Merger Agreement" sections of the
Offer to Purchase and in the "Introduction" and "Recommendation of SFP Board of
Directors" sections of the Supplement is incorporated herein by reference."
ITEM 7. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT
TO THE SUBJECT COMPANY'S SECURITIES.
Item 7 of the Statement is hereby amended to read in its entirety as follows:
"The information set forth in the "Introduction," "The Tender Offer--9.
Background of the Merger and the Offer" "--10. Purpose of the Offer; The Merger
Agreement" and "--18. Certain Additional Information; Miscellaneous" sections,
as well as "Appendix A--The Agreement and Plan of Merger," of the Offer to
Purchase and in the "Introduction" section of the Supplement is incorporated
herein by reference."
ITEM 9. FINANCIAL STATEMENTS OF CERTAIN BIDDERS.
Item 9 of the Statement is hereby amended to read in its entirety as follows:
"The financial information set forth in the "The Tender Offer--8. Certain
Information Concerning BNI" section of the Offer to Purchase and the financial
statements and notes related thereto contained in the Bidder's Annual Report on
Form 10-K/A for the year ended December 31, 1993 filed on October 5, 1994, its
Quarterly Report on Form 10-Q/A for the quarter ended March 31, 1994 filed on
October 5, 1994, its Quarterly Report on Form 10-Q/A for the quarter ended June
30, 1994 filed on October 5, 1994 and its Quarterly Report on Form 10-Q for the
quarter ended September 30, 1994 filed on November 10, 1994 with the Securities
and Exchange Commission are incorporated herein by reference. Copies of such
financial statements and related notes are attached hereto as Exhibits (g)(1),
(g)(2), (g)(3) and (g)(4), respectively."
ITEM 10. ADDITIONAL INFORMATION.
Item 10(b)-(c) of the Statement is hereby amended to read in its entirety as
follows: "The information set forth in the "The Tender Offer--15. Certain Legal
Matters; Regulatory Approvals" section of the Offer to Purchase and in the
"Certain Additional Information" section of the Supplement is incorporated
herein by reference."
Item 10(f) of the Statement is hereby amended to read in its entirety as
follows: "The information set forth in the Offer to Purchase, the Letter of
Transmittal and the Supplement is incorporated herein by reference in its
entirety."
ITEM 11. MATERIAL TO BE FILED AS EXHIBITS.
(a)(8) Form of Supplement to the Offer to Purchase, dated January 13,
1995.
Financial statements and notes related thereto contained in the
(g)(1) Bidder's Annual Report on Form 10-K/A for the year ended December
31, 1993.
(g)(2) Financial statements and notes related thereto contained in the
Bidder's Quarterly Report on Form 10-Q/A for the quarter ended
March 31, 1994.
(g)(3) Financial statements and notes related thereto contained in the
Bidder's Quarterly Report on Form 10-Q/A for the quarter ended
June 30, 1994.
(g)(4)
Financial statements and notes related thereto contained in the
Bidder's Quarterly Report on Form 10-Q for the quarter ended Sep-
tember 30, 1994.
<PAGE>
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify that
the information set forth in this statement is true, complete and correct.
/s/ Edmund W. Burke
By _____________________________________
Name:Edmund W. Burke
Title: Executive Vice President, Law
and Secretary
Dated: January 13, 1995
2
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ----------- ------------
<S> <C> <C>
(a)(8) Form of Supplement to the Offer to Purchase dated January 13, 1995.
(g)(1) Financial statements and notes related thereto contained in the Bidder's
Annual Report on Form 10-K/A for the year ended December 31, 1993.
(g)(2) Financial statements and notes related thereto contained in the Bidder's
Quarterly Report on Form 10-Q/A for the quarter ended March 31, 1994.
(g)(3) Financial statements and notes related thereto contained in the Bidder's
Quarterly Report on Form 10-Q/A for the quarter ended June 30, 1994.
(g)(4) Financial statements and notes related thereto contained in the Bidder's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1994.
</TABLE>
<PAGE>
SUPPLEMENT TO THE OFFER TO PURCHASE DATED DECEMBER 23, 1994
IMPORTANT NOTICE TO STOCKHOLDERS OF
SANTA FE PACIFIC CORPORATION
BURLINGTON NORTHERN INC.
AND
SANTA FE PACIFIC CORPORATION
HEREBY SUPPLEMENT THE OFFER TO PURCHASE FOR CASH
UP TO 63,000,000 SHARES OF COMMON STOCK
(INCLUDING THE ASSOCIATED PREFERRED SHARE PURCHASE RIGHTS)
OF
SANTA FE PACIFIC CORPORATION
AT
$20.00 NET PER SHARE
THE OFFER HAS BEEN EXTENDED. THE OFFER, PRORATION PERIOD AND WITHDRAWAL
RIGHTS WILL NOW EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON WEDNESDAY,
FEBRUARY 8, 1995, UNLESS FURTHER EXTENDED.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (1) AT LEAST 63,000,000
SHARES OF SANTA FE PACIFIC CORPORATION COMMON STOCK BEING VALIDLY TENDERED AND
NOT WITHDRAWN BEFORE THE EXPIRATION OF THE OFFER (THE "MINIMUM CONDITION"),
(2) SANTA FE PACIFIC CORPORATION ("SANTA FE") AND BURLINGTON NORTHERN INC.
("BURLINGTON NORTHERN") HAVING OBTAINED SUFFICIENT FINANCING ON TERMS
SATISFACTORY TO THEM TO PURCHASE 63,000,000 SHARES PURSUANT TO THE OFFER AND
(3) APPROVAL OF THE MERGER REFERRED TO BELOW BY THE STOCKHOLDERS OF SANTA FE
AND BURLINGTON NORTHERN. SANTA FE AND BURLINGTON NORTHERN DO NOT INTEND TO
WAIVE THE MINIMUM CONDITION. THE OFFER IS NOT CONDITIONED ON RECEIPT OF
INTERSTATE COMMERCE COMMISSION APPROVAL OF THE MERGER. SEE "THE TENDER OFFER--
14. CONDITIONS OF THE OFFER" OF THE OFFER TO PURCHASE DATED DECEMBER 23, 1994.
THE OFFER IS BEING MADE IN CONNECTION WITH THE AGREEMENT AND PLAN OF MERGER
BETWEEN BURLINGTON NORTHERN AND SANTA FE, AS AMENDED, PURSUANT TO WHICH SANTA
FE WILL MERGE WITH BURLINGTON NORTHERN (THE "MERGER"). THE BOARD OF DIRECTORS
OF SANTA FE HAS UNANIMOUSLY APPROVED THE OFFER AND THE MERGER AND RECOMMENDS
THAT THOSE SANTA FE STOCKHOLDERS WHO WISH TO RECEIVE CASH FOR A PORTION OF
THEIR SHARES ACCEPT THE OFFER AND TENDER THEIR SHARES. THE OFFER IS BEING
EFFECTED TO FACILITATE THE MERGER. SEE "RECOMMENDATION OF SFP BOARD OF
DIRECTORS."
----------------
Questions and requests for assistance or additional copies of the Offer to
Purchase, this Supplement, the Letter of Transmittal and the Notice of
Guaranteed Delivery may be directed to any of the Information Agents or either
of the Dealer Managers at their respective addresses and telephone numbers set
forth on the back cover of this Supplement. Additional copies of the Offer to
Purchase, this Supplement, the Letter of Transmittal and the Notice of
Guaranteed Delivery may also be obtained from brokers, dealers, commercial
banks or trust companies.
----------------
The Dealer Managers for the Offer are:
GOLDMAN, SACHS & CO. LAZARD FRERES & CO.
----------------
The date of this Supplement is January 13, 1995.
<PAGE>
To the Holders of Common Stock of
Santa Fe Pacific Corporation:
INTRODUCTION
The following information supplements and amends the Offer to Purchase dated
December 23, 1994 (the "Offer to Purchase") of Burlington Northern Inc., a
Delaware corporation ("BNI"), and Santa Fe Pacific Corporation, a Delaware
corporation ("SFP" and, together with BNI, the "Purchasers"), pursuant to which
the Purchasers are severally offering to purchase up to 63,000,000 shares in
the aggregate of the outstanding shares of common stock, par value $1.00 per
share, of SFP (the "SFP Common Stock," including the associated preferred share
purchase rights), upon the terms and subject to the conditions set forth in the
Offer to Purchase, as amended by this Supplement, and in the related Letter of
Transmittal (which collectively constitute the "Offer").
The Purchasers have supplemented the Offer with the information contained
herein. The Offer, proration period and related withdrawal rights were
originally scheduled to expire at 12:00 Midnight, New York City time, on
January 30, 1995. However, the Purchasers have extended the Offer, and the
Offer, proration period and withdrawal rights will now expire at 12:00
Midnight, New York City time, on Wednesday, February 8, 1995, unless further
extended.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (1) AT LEAST 63,000,000
SHARES OF SFP COMMON STOCK BEING VALIDLY TENDERED AND NOT WITHDRAWN BEFORE THE
EXPIRATION OF THE OFFER (THE "MINIMUM CONDITION"), (2) SFP AND BNI HAVING
OBTAINED SUFFICIENT FINANCING ON TERMS SATISFACTORY TO THEM TO PURCHASE
63,000,000 SHARES PURSUANT TO THE OFFER AND (3) APPROVAL OF THE MERGER REFERRED
TO BELOW BY THE STOCKHOLDERS OF SFP AND BNI. THE PURCHASERS DO NOT INTEND TO
WAIVE THE MINIMUM CONDITION. THE OFFER IS NOT CONDITIONED ON INTERSTATE
COMMERCE COMMISSION ("ICC") APPROVAL OF THE MERGER. SEE "THE TENDER OFFER--14.
CONDITIONS OF THE OFFER" OF THE OFFER TO PURCHASE.
THE BOARD OF DIRECTORS OF SFP HAS UNANIMOUSLY APPROVED THE OFFER AND THE
MERGER AND RECOMMENDS THAT THOSE SFP STOCKHOLDERS WHO WISH TO RECEIVE CASH FOR
A PORTION OF THEIR SHARES OF SFP COMMON STOCK ACCEPT THE OFFER. SEE
"RECOMMENDATION OF SFP BOARD OF DIRECTORS."
The Offer is being made pursuant to an Agreement and Plan of Merger dated as
of June 29, 1994, as amended by the Amendment thereto dated as of October 26,
1994 and Amendment No. 2 thereto dated as of December 18, 1994 (as so amended,
the "Merger Agreement") between SFP and BNI. Pursuant to the Merger Agreement,
and on the terms and subject to the conditions set forth therein, SFP will
merge with BNI, with BNI to be the surviving corporation in such Merger, and
each outstanding share of SFP Common Stock will be converted into the right to
receive 0.40 shares of BNI common stock, no par value per share (the "BNI
Common Stock"). See "The Tender Offer--10. Purpose of the Offer; The Merger
Agreement" of the Offer to Purchase. A copy of the Merger Agreement is attached
as Appendix A to the Offer to Purchase. As of January 12, 1995, 0.40 of a share
of BNI Common Stock had a value of $20.55, based on the closing market price of
BNI Common Stock as reported in The Wall Street Journal.
As of December 31, 1994, there were outstanding 188,301,537 shares of SFP
Common Stock and employee stock options ("Options") to purchase 14,470,071
shares of SFP Common Stock.
The purpose of the Offer is to acquire shares of SFP Common Stock and to
facilitate the Merger, which the Board of Directors of SFP believes is in the
best interest of SFP stockholders. The Offer also provides an opportunity to
existing stockholders of SFP to sell shares of SFP Common Stock at a premium
over recent trading prices. See "The Tender Offer--6. Price Range of SFP Common
Stock; Dividends" of the Offer to Purchase.
<PAGE>
Up to 63,000,000 shares of SFP Common Stock are to be purchased in the Offer;
any shares tendered in response to the Offer over and above such amount would
be subject to proration in accordance with the terms of the Offer. Proration
may result in SFP stockholders receiving cash for only a portion of any shares
of SFP Common Stock tendered, with the remaining consideration to be received
in the form of BNI Common Stock pursuant to the Merger after the receipt of ICC
approval and satisfaction or waiver of the other conditions to the Merger.
All information herein concerning BNI has been furnished by BNI, and all
information herein concerning SFP has been furnished by SFP. BNI has
represented and warranted to SFP, and SFP has represented and warranted to BNI,
that the particular information so furnished is true and complete.
The Offer does not constitute a solicitation of proxies for any meeting of
SFP's stockholders. Such solicitation by SFP will be made only pursuant to
separate proxy materials complying with the requirements of Section 14(a) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"). In
addition, this Offer is neither an offer to sell nor a solicitation of offers
to buy any securities which may be issued in the Merger. The issuance of such
securities would have to be registered under the Securities Act of 1933, as
amended (the "Securities Act"), and such securities would be offered only by
means of a prospectus complying with the requirements of the Securities Act.
SFP is distributing a joint proxy statement/prospectus with respect to the
Merger.
IN ORDER TO VOTE FOR THE MERGER, AN SFP STOCKHOLDER IS REQUIRED TO SUBMIT A
PROXY OR VOTE IN PERSON AT THE SFP STOCKHOLDER MEETING SCHEDULED FOR FEBRUARY
7, 1995, OR ANY POSTPONEMENT OR ADJOURNMENT THEREOF.
Stockholders are urged to read the Offer to Purchase, this Supplement and the
related Letter of Transmittal carefully before deciding whether to tender their
shares of SFP Common Stock.
RECOMMENDATION OF SFP BOARD OF DIRECTORS
The Board of Directors of SFP has unanimously approved the Offer and the
Merger and recommends that those SFP stockholders who wish to receive cash for
a portion of their shares of SFP Common Stock accept the Offer.
The Offer is being effected to facilitate the Merger. The SFP Board believes
that a business combination of SFP and BNI is in the best long-term interests
of SFP and its stockholders. The Offer allows stockholders who wish to do so to
receive cash, at a premium over recent trading prices for SFP Common Stock,
without waiting for ICC approval of the Merger. At the same time, the revised
transaction structure allows SFP stockholders to participate in the ownership
of the combined company. The SFP Board believes that a BNI-SFP combination is
an excellent strategic fit, presents substantial long-term benefits and is
likely to receive ICC approval. The SFP Board has also concluded that the
revised Merger Agreement is superior to Union Pacific Corporation's ("UPC")
offer (which includes a tender offer), especially on a long-term basis. The
Board's reasons for reaching this conclusion included: (1) the Board believed
that a BNI-SFP merger is likely to receive ICC approval and, because of
anticipated increases in operating income from the Merger (which are expected
to result from both operating efficiencies and increased revenues), the Merger
will have significant long-term benefits for SFP stockholders; (2) the Board
believed that the long-term value of the UPC stock that SFP stockholders would
receive in a UPC-SFP merger is uncertain because a combination of the UPC and
SFP railroads is unlikely to receive ICC approval and, even if ICC approval
could be obtained, it would probably require UPC to make substantial
concessions to competing railroads; (3) the $20 per share that SFP stockholders
will receive pursuant to the Offer is greater than the $17.50 per share
available in UPC's tender offer; and (4) as of December 18, 1994, the market
value of 0.40 of a BNI common share (the exchange ratio in the Merger) exceeded
the market value of 0.354 of a UPC common share (the exchange ratio proposed by
UPC). See "The Tender Offer--6. Price Range of SFP Common Stock; Dividends" and
"--9. Background of the Merger and the Offer" of the Offer to Purchase.
2
<PAGE>
In making its recommendation, the Board considered the impact of the increase
in SFP debt that the Offer would require and concluded that incurring such debt
is prudent in light of SFP's ability to repay it and the benefits of the Offer
and the Merger for SFP's stockholders. SFP anticipates borrowing up to $1.31
billion (of which approximately $400 million will be to replace existing debt)
in connection with the Offer and related matters from a syndicate of banks
under a new credit agreement. In addition, the new credit agreement will
provide for a $250 million revolving credit facility for general corporate
purposes. The anticipated terms of such financings are summarized in the Offer
to Purchase. See "The Tender Offer--12. Source and Amount of Funds" of the
Offer to Purchase. SFP anticipates that its ability to borrow additional funds
will be restricted by the terms of the new credit agreement. SFP's credit
rating status was placed under review with direction uncertain by Moody's
Investors Service and on Credit Watch with developing implications by Standard
& Poor's prior to announcement of the Offer and continues in that status. It is
possible that SFP's credit ratings would be downgraded upon completion of the
Offer. SFP does not expect that any ratings downgrade, should one occur, would
impair its ability to maintain adequate liquidity to meet its ongoing
obligations.
The interest expense on SFP's anticipated borrowings would reduce SFP's net
income. Principal and interest on the debt being used by SFP to finance the
Offer, as well as other operating expenses and liquidity needs of SFP, are
expected to be funded by SFP during the period prior to the ICC's decision on
the Merger from cash generated before borrowings, currently available cash
balances and borrowings in excess of requirements in connection with the Offer.
Should the ICC not approve the Merger, SFP believes that, on a stand-alone
basis, it will be able to fund the debt service attributable to the debt
incurred in connection with the Offer through a combination of cash generated
before borrowings and refinancings in the capital markets. In either case, SFP
will have access to the $250 million revolving credit facility for general
corporate purposes, if required. Although the SFP Board believes that SFP's
proposed borrowing is prudent, it is possible that the need to repay the debt
incurred in its borrowing will have a detrimental effect on SFP, either before
the Merger or if the Merger cannot be consummated.
3
<PAGE>
UNAUDITED PRO FORMA FINANCIAL STATEMENTS OF SFP
The unaudited pro forma financial statements have been prepared to give
effect to the SFP tender offer for 38 million shares of SFP Common Stock at $20
per share and the related borrowings and debt repayments (the "SFP
Recapitalization"). The SFP Recapitalization is reflected in the pro forma
balance sheet as if it occurred on December 31, 1993 and September 30, 1994 and
in the statements of operations as if it occurred on January 1, 1993.
The unaudited pro forma financial statements are prepared for illustrative
purposes only and are not necessarily indicative of the financial position or
results of operations that might have occurred had the applicable transaction
actually taken place on the dates indicated, or of future results of operations
or financial position. Consummation of the tender offer for SFP Common Stock is
conditioned upon, among other things, approval of the Merger by both SFP and
BNI stockholders.
4
<PAGE>
PRO FORMA SFP RECAPITALIZED BALANCE SHEET
AS OF SEPTEMBER 30, 1994
UNAUDITED
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
SANTA FE SANTA FE
PACIFIC SFP PACIFIC
CORPORATION RECAPITALIZATION CORPORATION
HISTORICAL ADJUSTMENTS RECAPITALIZED
----------- ---------------- -------------
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents......... $ 17 $-- $ 17
Accounts receivable, net.......... 98 -- 98
Other current assets.............. 246 -- 246
------ ---- ------
Total current assets............ 361 -- 361
Property and equipment, net......... 4,684 -- 4,684
Other assets........................ 271 27 (R.1) 298
------ ---- ------
Total assets.................... $5,316 $ 27 $5,343
====== ==== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable.................. $ 253 $-- $ 253
Other current liabilities......... 449 -- 449
Current portion of long-term debt
and commercial paper............. 192 -- 192
------ ---- ------
Total current liabilities....... 894 -- 894
Long-term debt...................... 890 843 (R.2) 1,733
Deferred income taxes............... 1,167 (19)(R.3) 1,148
Other liabilities................... 1,157 (3)(R.4) 1,154
------ ---- ------
Total liabilities............... 4,108 821 4,929
------ ---- ------
Stockholders' equity
Common stock...................... 190 -- 190
Paid-in capital................... 842 15 (R.4) 857
Retained earnings................. 263 (49)(R.4) 214
Treasury stock.................... (87) (760)(R.4) (847)
------ ---- ------
Total stockholders' equity...... 1,208 (794) 414
------ ---- ------
Total liabilities and stock-
holders' equity.............. $5,316 $ 27 $5,343
====== ==== ======
</TABLE>
(See accompanying Notes to Pro Forma SFP Recapitalized Financial Statements)
5
<PAGE>
PRO FORMA SFP RECAPITALIZED BALANCE SHEET
AS OF DECEMBER 31, 1993
UNAUDITED
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
SANTA FE SANTA FE
PACIFIC SFP PACIFIC
CORPORATION RECAPITALIZATION CORPORATION
HISTORICAL ADJUSTMENTS RECAPITALIZED
----------- ---------------- -------------
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents......... $ 71 $ -- $ 71
Accounts receivable, net.......... 96 -- 96
Other current assets.............. 291 -- 291
------ ----- ------
Total current assets............ 458 -- 458
Properties and equipment, net....... 4,360 -- 4,360
Other assets........................ 556 27 (R.1) 583
------ ----- ------
Total assets.................... $5,374 $ 27 $5,401
====== ===== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable.................. $ 241 $ -- $ 241
Other current liabilities......... 429 -- 429
Current portion of long-term debt
and commercial paper............. 185 -- 185
------ ----- ------
Total current liabilities....... 855 -- 855
Long-term debt...................... 991 843 (R.2) 1,834
Deferred income taxes............... 1,116 (19)(R.3) 1,097
Other liabilities................... 1,144 (3)(R.4) 1,141
------ ----- ------
Total liabilities............... 4,106 821 4,927
------ ----- ------
Stockholders' equity
Common stock...................... 190 -- 190
Paid-in capital................... 870 15 (R.4) 885
Retained earnings................. 340 (49)(R.4) 291
Treasury stock.................... (132) (760)(R.4) (892)
------ ----- ------
Total stockholders' equity...... 1,268 (794) 474
------ ----- ------
Total liabilities and stock-
holders' equity.............. $5,374 $ 27 $5,401
====== ===== ======
</TABLE>
(See accompanying Notes to Pro Forma SFP Recapitalized Financial Statements)
6
<PAGE>
PRO FORMA SFP RECAPITALIZED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1994
UNAUDITED
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SANTA FE SANTA FE
PACIFIC SFP PACIFIC
CORPORATION RECAPITALIZATION CORPORATION
HISTORICAL ADJUSTMENTS RECAPITALIZED
----------- ---------------- -------------
<S> <C> <C> <C>
Revenues......................... $ 1,970 $-- $ 1,970
Operating expenses
Compensation and benefits...... 625 -- 625
Fuel........................... 183 -- 183
Materials...................... 92 -- 92
Equipment rents................ 185 -- 185
Purchased services............. 282 -- 282
Depreciation................... 150 -- 150
Other.......................... 147 -- 147
------- ---- -------
Total operating expenses..... 1,664 -- 1,664
------- ---- -------
Operating income................. 306 -- 306
Interest expense................. 90 57 (R.5) 147
Other income (expense), net...... 49 -- 49
------- ---- -------
Income before income taxes....... 265 (57) 208
Income tax expense............... 112 (22)(R.6) 90
------- ---- -------
Income from continuing opera-
tions........................... $ 153 $(35) $ 118
======= ==== =======
Earnings per common share
Income from continuing opera-
tions......................... $ .81 $ .77(R.7)
======= =======
Number of shares used in computa-
tion of earnings per common
share (in thousands)............ 189,700 152,400(R.7)
</TABLE>
(See accompanying Notes to Pro Forma SFP Recapitalized Financial Statements)
7
<PAGE>
PRO FORMA SFP RECAPITALIZED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1993
UNAUDITED
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SANTA FE SANTA FE
PACIFIC SFP PACIFIC
CORPORATION RECAPITALIZATION CORPORATION
HISTORICAL ADJUSTMENTS RECAPITALIZED
----------- ---------------- -------------
<S> <C> <C> <C>
Revenues........................ $ 2,409 $ -- $ 2,409
Operating expenses
Compensation and benefits..... 800 800
Fuel.......................... 239 -- 239
Materials..................... 128 -- 128
Equipment rents............... 229 -- 229
Purchased services............ 322 -- 322
Depreciation.................. 188 -- 188
Other......................... 185 -- 185
------- ----- -------
Total operating expenses.... 2,091 -- 2,091
------- ----- -------
Operating income................ 318 -- 318
Interest expense................ 133 73 (R.5) 206
Gain on sale of California
lines.......................... 145 -- 145
Other income (expense), net..... 24 -- 24
------- ----- -------
Income before income taxes...... 354 (73) 281
Income tax expense.............. 177 (28)(R.6) 149
------- ----- -------
Income from continuing
operations..................... $ 177 $ (45) $ 132
======= ===== =======
Earnings per common share
Income from continuing
operations................... $ .95 $ .88(R.7)
======= =======
Number of shares used in
computation of earnings per
common share (in thousands).... 187,200 149,900(R.7)
</TABLE>
(See accompanying Notes to Pro Forma SFP Recapitalized Financial Statements)
8
<PAGE>
NOTES TO PRO FORMA SFP RECAPITALIZED FINANCIAL STATEMENTS
The SFP Recapitalization plan reflected in the pro forma financial statements
includes borrowing $1,075 million of $1,560 million in available bank
commitments at an assumed average interest rate of 9 percent (see "The Tender
Offer--12. "Source and Amount of Funds" of the Offer to Purchase for further
discussion) with the proceeds principally used for (i) financing the repurchase
of 38 million shares of its outstanding common stock at a price of $20 per
share or $760 million in total, (ii) the early retirement of $200 million of
outstanding senior indebtedness, and (iii) repayment of short-term borrowings
and payment of refinancing transaction costs.
Additionally, SFP will incur Merger transaction costs, including the
accelerated vesting of restricted stock and certain other transaction costs,
upon stockholder approval of the Merger.
R.1 OTHER ASSETS
Represents estimated debt issuance costs to be paid in connection with the
SFP Recapitalization, net of debt issue costs expensed in conjunction with the
retirement of debt.
R.2 LONG-TERM DEBT
Reflects the $1,075 million SFP Recapitalization borrowing less (i) the early
retirement of outstanding senior debt of $200 million and (ii) the repayment of
$32 million short-term borrowings which were outstanding at September 30, 1994.
After the SFP Recapitalization, projected principal repayments during the five
years 1995 through 1999 would be $203 million, $97 million, $218 million, $144
million and $187 million, respectively.
R.3 DEFERRED INCOME TAXES
Deferred income taxes have been reduced for the tax benefit of the costs of
retiring debt and the accelerated vesting of SFP's restricted stock described
in R.4. below at a rate of 39 percent.
R.4 STOCKHOLDERS' EQUITY
Paid-in capital has been increased by $15 million representing the fair value
of approximately 760,000 shares of restricted stock at an assumed $20 per
share, which vests upon shareholder approval.
Retained earnings has been reduced by $49 million to reflect costs, net of
taxes and costs accrued, associated with the SFP Recapitalization and the
Merger including expenses for early retirement of debt, accelerated vesting of
restricted stock, and estimated legal, investment banking and other transaction
costs. Costs of $22 million after taxes for the early retirement of debt will
be expensed as an extraordinary charge in the period the debt is retired. Costs
for the accelerated vesting of restricted stock of $7 million after taxes
(which is net of amounts already accrued) will be expensed in the period that
restrictions lapse. Merger transaction costs of $20 million will be expensed in
the period incurred.
Treasury stock has been increased by $760 million to reflect the purchase of
38 million shares of SFP Common Stock acquired through SFP's tender offer.
R.5 INTEREST EXPENSE
Reflects the estimated net increase in interest expense associated with debt
borrowings/repayments discussed in R.2. above.
R.6 INCOME TAX EXPENSE
Income tax expense reflects the effect of pro forma adjustments at an
estimated rate of 39 percent.
9
<PAGE>
R.7 EARNINGS PER COMMON SHARE
SFP weighted average shares outstanding have been reduced for SFP's cash
tender offer, net of restricted stock which will vest upon stockholder approval
of the Merger. SFP historical earnings per common share have been reduced to
reflect a decrease in income from continuing operations due to additional
interest expense discussed in R.5. above.
CERTAIN ADDITIONAL INFORMATION
HART-SCOTT-RODINO ACT
The waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, applicable to BNI's purchase of shares of SFP Common Stock
pursuant to the Offer expired at 12:00 Midnight, January 11, 1995. Accordingly,
the condition to the Purchasers' obligation to accept for payment and pay for
shares of SFP Common Stock pursuant to the Offer set forth in clause (iii) of
the first paragraph of "The Tender Offer--14. Conditions of the Offer" in the
Offer to Purchase has been satisfied.
EXTENSION OF THE OFFER
If the Purchasers increase or decrease the number of shares of SFP Common
Stock being sought in the Offer and the Offer is scheduled to expire at any
time before the expiration of a period of 10 business days from, and including,
the date that notice of such increase or decrease is first published, sent or
given in the manner specified in the Offer to Purchase, the Offer will be
extended until the expiration of such period of 10 business days. The
Purchasers do not intend to waive the Minimum Condition nor do they intend to
increase the number of shares of SFP Common Stock being sought pursuant to the
Offer.
TRANSACTION IN SFP COMMON STOCK
On December 27, 1994, Mr. Robert D. Krebs made a charitable contribution of
15,818 shares of SFP Common Stock.
----------------
Except as otherwise set forth in this Supplement, the terms and conditions
set forth in the Offer to Purchase remain applicable in all respects to the
Offer. The information set forth herein should be read in conjunction with the
Offer to Purchase.
Santa Fe Pacific Corporation
Burlington Northern Inc.
January 13, 1995
10
<PAGE>
Facsimile copies of the Letter of Transmittal will be accepted. The Letter of
Transmittal and certificates for SFP Common Stock and any other required
documents should be sent to the Depositary at one of the addresses set forth
below:
The Depositary for the Offer is:
First Chicago Trust Company of New York
By Mail: By Facsimile Transmission: By Hand:
(For Eligible Institutions Only)
Tenders & Exchanges (201) 222-4720 Tenders & Exchanges
P.O. Box 2564 Suite (201) 222-4721 14 Wall Street
4660 SFP Suite 4680 SFP
Jersey City, NJ 07303-2564 8th Floor
New York, NY 10005
Confirm Facsimile by Telephone:
(For Confirmation Only)
(201) 222-4707
Questions or request for assistance or additional copies of the Offer to
Purchase, this Supplement, the Letter of Transmittal and the Notice of
Guaranteed Delivery may be directed to any of the Information Agents or either
of the Dealer Managers at their respective addresses and telephone numbers set
forth below. Stockholders may also contact their broker, dealer, commercial
bank or trust company for assistance concerning the Offer.
The Information Agents are:
D.F. KING & CO., INC. MACKENZIE KISSEL BLAKE INC.
PARTNERS INC.
77 Water Street 156 Fifth Avenue 25 Broadway, 6th Floor
New York, New York New York, New York 10010 New York, New York 10004
10005 CALL TOLL FREE (800) 322-2885 CALL TOLL FREE (800)
CALL TOLL FREE (800) 554-7733
697-6974
The Dealer Managers for the Offer are:
GOLDMAN, SACHS & CO. LAZARD FRERES & CO.
85 Broad Street One Rockefeller Plaza
New York, New York 10004 New York, New York 10020
<PAGE>
EXHIBIT 99.(G)(1)
Item 8. Financial Statements and Supplementary Data
Consolidated Statements of Operations
Burlington Northern Inc. and Subsidiaries
(Dollars in millions, except per share data)
Year ended December 31, 1993 1992 1991
- -----------------------------------------------------------------------------
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
See accompanying notes to consolidated financial statements.
-23-
<PAGE>
Consolidated Balance Sheets
Burlington Northern Inc. and Subsidiaries
(Dollars in millions)
December 31, 1993 1992
- ----------------------------------------------------------------------------
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
====== ======
See accompanying notes to consolidated financial statements.
-24-
<PAGE>
Consolidated Statements of Cash Flows
Burlington Northern Inc. and Subsidiaries
(Dollars in millions)
Year ended December 31, 1993 1992 1991
- -----------------------------------------------------------------------------
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
See accompanying notes to consolidated financial statements.
-25-
<PAGE>
Consolidated Statements of Changes in Stockholders' Equity
Burlington Northern Inc. and Subsidiaries
(Dollars in millions, except per share data)
<TABLE>
<CAPTION>
Convertible Additional Retained
Preferred Common Paid-in Earnings
Three years ended December 31, 1993 Stock Stock Capital (Deficit)
- ------------------------------------------------------------------------------------------------
<S> <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
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
Other (24,726 shares)............................... (1)
----- ------- ------ -----
Balance at December 31, 1991........................ - 1 1,356 (140)
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
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
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
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
===== ======= ====== =====
<CAPTION>
Other
----------------------
Unearned
Compensation, Minimum
Treasury Restricted Pension
Three years ended December 31, 1993 Stock Stock Liability Total
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <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)................. (1) 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........ (14) -
Other (24,726 shares)............................... (1)
--- ---- ---- ------
Balance at December 31, 1991........................ (1) (14) - 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)................. (1) (5) 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........................ (2) (19) (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)................. (2) (4) 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........................ $(4) $(23) $(10) $1,919
=== ==== ==== ======
</TABLE>
See accompanying notes to consolidated financial statements.
-26-
<PAGE>
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.
-27-
<PAGE>
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.
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):
December 31, 1993 1992
- ----------------------------------------------------------------------------
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
====== ======
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
-28-
<PAGE>
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. 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.
-29-
<PAGE>
4. Debt
Debt outstanding was as follows (in millions):
December 31, 1993 1992
- -----------------------------------------------------------------------------
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
====== ======
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.
-30-
<PAGE>
The agreement contains an event of default arising out of the occurrence
and continuance of a "Change in Control." A "Change in Control" is generally
defined as the acquisition of more than 50 percent of the voting securities of
BNI, which has not been approved by the BNI Board of Directors, a change in
the control relationship between BNI and Railroad, and finally, a "Change in
Control" is deemed to occur when a majority of the seats on the BNI Board of
Directors is occupied by persons who are neither nominated by BNI management
nor appointed by directors so nominated.
The commercial paper program is further summarized as follows (dollars in
millions):
December 31, 1993 1992
- -----------------------------------------------------------------------------
Balance at year end............................... $ 26 $ -
Weighted average interest rate.................... 3.55% -
Maximum outstanding during the year............... $ 179 $ 427
Average daily amount outstanding during the year.. $ 41 $ 129
Weighted daily average interest rate during the
year........................................... 3.27% 4.07%
Maturities of commercial paper averaged 4 and 14 days in 1993 and 1992,
respectively.
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.
-31-
<PAGE>
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:
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.
-32-
<PAGE>
The carrying amount and estimated fair values of BN's financial instruments
were as follows (in millions):
December 31, 1993 1992
- -----------------------------------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- ----- -------- -----
Cash and short-term investments...... $ 17 $ 17 $ 57 $ 57
Notes receivable..................... 9 11 9 9
Accrued interest payable............. 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
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, 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.
-33-
<PAGE>
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>
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>
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<PAGE>
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):
Current tax expense.............................. $ 2
Deferred tax benefit............................. (19)
----
Total tax benefit.............................. $(17)
====
Increase in earnings per common share............ $.19
====
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
-35-
<PAGE>
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.
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.
-36-
<PAGE>
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:
Exercise
Options SARs Price per Share
- ------------------------------------------------------------------------------
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
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
Shares issued upon exercise of options may be issued from treasury shares
or from authorized but unissued shares.
-37-
<PAGE>
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 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.
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<PAGE>
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.
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<PAGE>
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.
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):
December 31, 1993 1992
- ------------------------------------------------------------------------------
Health Life Health Life
------ ---- ------ ----
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
== === == ===
Components of the postretirement benefit cost were as follows (in
millions):
Year ended December 31, 1993 1992
- ------------------------------------------------------------------------------
Health Life Health Life
------ ---- ------ ----
Service cost....................... $- $- $- $-
Interest cost...................... - 1 - 1
-- -- -- --
Net postretirement benefit cost $- $1 $- $1
== == == ==
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.
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<PAGE>
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.
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 approximately 55 sites (the PRP
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.
BN is involved in administrative and judicial proceedings and other
mandatory clean-up efforts at approximately 170 sites for which it is being
asked to participate in the clean-up of contaminated material discharged into
the environment. These approximate 170 sites include the PRP sites. BN paid $27
million, $20 million and $21 million during 1993, 1992 and 1991, respectively,
relating to mandatory clean-up efforts, including amounts
-41-
<PAGE>
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, $115 million of which pertains to mandated sites, of which
approximately $55 million pertains to the PRP sites. Of the $120 million
accrued, BN expects to spend $38 million during 1994. Also, BN anticipates that
the majority of the $120 million will be paid out over a period of less than 7
years; however, some costs will be paid out over a longer period, in some cases
up to 40 years. In addition, 19 sites account for approximately $95 million of
the accrual; however, no individual site is considered to be material.
Liabilities for environmental costs represent BN's best estimates for
remediation and restoration of these sites and include asserted and unasserted
claims. At December 31, 1993, BN had accrued $120 million for estimated
future environmental costs and believes it is reasonably possible, although
not probable, that actual environmental costs could be lower than the recorded
reserve or as much as 50 percent higher. 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.
-42-
<PAGE>
Minimum annual rental commitments were as follows (in millions):
Capital Operating
Year ended December 31, Leases Leases
- --------------------------------------------------------------------
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
===
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.
At December 31, 1993, BN had entered into agreements with fuel suppliers
setting the price of certain quantities of fuel to be obtained by taking
physical delivery from such suppliers in 1994. The average price per gallon
of the approximately 78 million gallons which BN had committed to purchase was
approximately 50 cents per gallon, exclusive of taxes, certain transportation
costs and other charges.
-43-
<PAGE>
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.
15. Other income (expense), net
Other income (expense), net includes the following (in millions):
Year ended December 31, 1993 1992 1991
- -----------------------------------------------------------------------------
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)
=== ==== ====
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.
-44-
<PAGE>
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.
. $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 $185 million restructuring component of the special charge was
determined utilizing models projecting traffic, crew starts, through trains
and crew sizes in accordance with the parameters prescribed by the reports of
Presidential Emergency Board #219.
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.
-45-
<PAGE>
Quarterly financial data-unaudited
<TABLE>
<CAPTION>
(Dollars in millions, except per share data) 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
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.
-47-
<PAGE>
EXHIBIT 99.(G)(2)
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
BURLINGTON NORTHERN INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars In Millions, Except Per Share Data)
(Unaudited)
Three Months Ended
March 31,
------------------
1994 1993
------ ------
Revenues............................................... $1,210 $1,170
Costs and expenses:
Compensation and benefits............................ 447 441
Fuel................................................. 83 88
Materials............................................ 85 80
Equipment rents...................................... 102 92
Purchased services................................... 117 105
Depreciation......................................... 87 86
Other................................................ 107 110
------ ------
Total costs and expenses........................... 1,028 1,002
------ ------
Operating income....................................... 182 168
Interest expense....................................... 39 33
Other expense, net..................................... (1) (3)
------ ------
Income before income taxes and cumulative effect of
change in accounting method.......................... 142 132
Income tax expense..................................... 55 50
------ ------
Income before cumulative effect of change in accounting
method............................................... 87 82
Cumulative effect of change in accounting for
postemployment benefits, net of tax.................. (10) -
------ ------
Net income............................................. $ 77 $ 82
====== ======
Earnings (loss) per common share:
Income before cumulative effect of change in
accounting method.................................. $ .90 $ .86
Cumulative effect of change in accounting for
postemployment benefits............................ (.11) -
------ ------
Earnings per common share.............................. $ .79 $ .86
====== ======
Number of shares used in computation of earnings (loss)
per common share (in thousands)...................... 90,290 89,142
Dividends declared per common share.................... $ .30 $ .30
See accompanying notes to consolidated financial statements.
-1-
<PAGE>
BURLINGTON NORTHERN INC. and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars In Millions)
(Unaudited)
ASSETS March 31, December 31,
1994 1993
------ ------
Current assets:
Cash and cash equivalents.................. $ 23 $ 17
Accounts receivable, net................... 590 589
Materials and supplies..................... 121 91
Current portion of deferred income taxes... 159 167
Other current assets....................... 98 27
------ ------
Total current assets..................... 991 891
Property and equipment, net.................. 5,929 5,909
Other assets................................. 270 245
------ ------
Total assets............................. $7,190 $7,045
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................... $ 513 $ 492
Casualty and environmental reserves........ 269 286
Compensation and benefits payable.......... 240 271
Taxes payable.............................. 140 123
Accrued interest........................... 51 44
Other current liabilities.................. 81 102
Current portion of long-term debt.......... 183 185
Commercial paper........................... 127 26
------ ------
Total current liabilities................ 1,604 1,529
Long-term debt............................... 1,515 1,526
Deferred income taxes........................ 1,348 1,342
Casualty and environmental reserves.......... 427 426
Other liabilities............................ 319 303
------ ------
Total liabilities........................ 5,213 5,126
------ ------
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;
89,088,403 shares and 88,881,675 shares
issued, respectively..................... 1 1
Additional paid-in capital................. 1,431 1,420
Retained earnings.......................... 243 198
Treasury stock, at cost, 86,575 shares and
85,536 shares, respectively.............. (4) (4)
Other...................................... (31) (33)
------ ------
Total stockholders' equity............... 1,977 1,919
------ ------
Total liabilities and stockholders'
equity................................. $7,190 $7,045
====== ======
See accompanying notes to consolidated financial statements.
-2-
<PAGE>
BURLINGTON NORTHERN INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars In Millions)
(Unaudited)
Three Months Ended
March 31,
---------------------
1994 1993
------ ------
Cash flows from operating activities:
Net income....................................... $ 77 $ 82
Adjustments to reconcile net income to net
cash provided by operating activities:
Cumulative effect of change in accounting
method..................................... 10 -
Depreciation................................. 87 86
Deferred income taxes........................ 21 25
Changes in current assets and liabilities:
Accounts receivable, net................... (1) 10
Materials and supplies..................... (29) (20)
Other current assets....................... (71) (5)
Accounts payable........................... 21 (2)
Casualty and environmental reserves........ (17) (11)
Compensation and benefits payable.......... (29) (19)
Taxes payable.............................. 19 26
Accrued interest........................... 7 14
Other current liabilities.................. (21) (20)
Changes in long-term casualty and
environmental reserves..................... 1 6
Other, net................................... (26) (14)
------ ------
Net cash provided by operating activities.......... 49 158
------ ------
Cash flows from investing activities:
Additions to property and equipment.............. (104) (106)
Proceeds from property and equipment dispositions 5 8
Other, net....................................... (4) (5)
------ ------
Net cash used in investing activities.............. (103) (103)
------ ------
Cash flows from financing activities:
Net increase in commercial paper................. 101 -
Payments on long-term debt....................... (14) (35)
Dividends paid................................... (32) (29)
Proceeds from exercise of common stock options... 5 5
------ ------
Net cash provided by (used in) financing activities 60 (59)
------ ------
Increase (decrease) in cash and cash equivalents... 6 (4)
Cash and cash equivalents:
Beginning of period.............................. 17 57
------ ------
End of period.................................... $ 23 $ 53
====== ======
Supplemental cash flow information:
Interest paid.................................... $ (30) $ (26)
Income tax (paid) refund received, net........... (1) 1
See accompanying notes to consolidated financial statements.
-3-
<PAGE>
BURLINGTON NORTHERN INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Accounting policies
The 1993 Annual Report on Form 10-K for Burlington Northern Inc. (BNI) and
its majority-owned subsidiaries (collectively BN) includes a summary of
significant accounting policies and should be read in conjunction with
this Form 10-Q. The principal subsidiary is Burlington Northern Railroad
Company (Railroad). The statements for the periods presented are
condensed and do not contain all information required by generally
accepted accounting principles to be included in a full set of financial
statements. In the opinion of management, all adjustments (consisting of
only normal recurring adjustments) necessary to present fairly BN's
financial position as of March 31, 1994 and December 31, 1993 and the
results of operations and cash flows for the three months ended March 31,
1994 and 1993 have been included. The results of operations for any
interim period are not necessarily indicative of the results of operations
to be expected for the entire year.
2. Environmental reserves and other contingencies
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 approximately 50 sites (the PRP 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.
BN is involved in administrative and judicial proceedings and other
mandatory clean-up efforts at approximately 150 sites for which it is being
asked to participate in the clean-up of contaminated material discharged
into the environment. These approximate 150 sites include the PRP sites. BN
paid approximately $5 million during the three months ended
-4-
<PAGE>
BURLINGTON NORTHERN INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
March 31, 1994 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, $115 million of which pertains to mandated sites,
of which approximately $60 million pertains to the PRP sites. Of the $120
million, BN expects to spend $33 million during the remainder of 1994. Also,
BN anticipates that the majority of the $120 million will be paid out over a
period of less than 7 years; however, some costs will be paid out over a
longer period, in some cases up to 40 years. In addition, 21 sites account
for approximately $100 million of the accrual; however, no individual site
is considered to be material.
Liabilities for environmental costs represent BN's best estimates for
remediation and restoration of these sites and include asserted and
unasserted claims. At March 31, 1994, BN had accrued approximately $120
million for estimated future environmental costs and believes it is
reasonably possible, although not probable, that actual environmental
costs could be lower than the recorded reserve or as much as 50 percent
higher. BN's best estimate of unasserted claims was approximately $5
million as of March 31, 1994. 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.
3. Hedging activities
BN has a program to hedge against fluctuations in the price of its diesel
fuel purchases. This program includes forward purchases for delivery at
fueling facilities and exchange-traded petroleum futures contracts. The
futures contracts are accounted for as hedges which are marked to market
with any gains or losses associated with changes in market value being
deferred and recognized as a component of fuel expense in the period in
which the designated fuel is purchased and used. At March 31, 1994, BN
had entered into agreements with fuel suppliers setting the price of
certain quantities of fuel to be obtained by taking physical delivery
directly from such suppliers at a future date. The average price of the
approximately 98 million gallons which BN had committed to purchase was
approximately 49 cents per gallon, exclusive of taxes, certain
-5-
<PAGE>
BURLINGTON NORTHERN INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
transportation costs, and other charges. In addition, BN held petroleum
futures contracts representing approximately 67 million gallons at an
average price of approximately 46 cents per gallon. These contracts have
expiration dates ranging from April to December 1994.
BN's current fuel hedging program is designed to cover no more than 50
percent of projected fuel requirements for the subsequent 12-month period;
therefore, hedge positions will not exceed actual fuel requirements. The
current and future fuel delivery prices are monitored continuously and
hedge positions are adjusted accordingly. In order to reduce risk
associated with market movements, fuel hedging transactions do not extend
beyond a 12-month period. BN purchases petroleum futures contracts only
through regulated exchanges (e.g. New York Merchantile Exchange). In
order to effectively monitor the fuel hedging activities, results of the
program are summarized and reported to senior management on a regular
basis.
4. Other expense, net
Other income (expense), net includes the following (in millions):
Three Months Ended
March 31,
------------------
1994 1993
------ ------
Gain on property dispositions............. $ 2 $ -
Interest income........................... 1 1
Loss on sale of receivables............... (2) (3)
Miscellaneous, net........................ (2) (1)
------ ------
Total..................................... $ (1) $ (3)
====== ======
5. Accounting change
Effective January 1, 1994, BN adopted Statement of Financial Accounting
Standards No. 112, "Employers' Accounting for Postemployment Benefits."
The cumulative effect, net of $7 million income tax benefit, of this
change in accounting attributable to years prior to 1994, at the time of
adoption, was to decrease 1994 first quarter income by $10 million, or
$.11 per common share.
-6-
<PAGE>
EXHIBIT 99.(G)(3)
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
BURLINGTON NORTHERN INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars In Millions, Except Per Share Data)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
1994 1993 1994 1993
------ ------ ------ ------
Revenues.............................. $1,192 $1,142 $2,402 $2,312
Costs and expenses:
Compensation and benefits........... 426 416 873 857
Fuel................................ 89 89 172 177
Materials........................... 70 74 155 154
Equipment rents..................... 111 96 217 188
Purchased services.................. 115 117 232 222
Depreciation........................ 89 86 176 172
Other............................... 114 116 217 226
------ ------ ------ ------
Total costs and expenses.......... 1,014 994 2,042 1,996
------ ------ ------ ------
Operating income...................... 178 148 360 316
Interest expense...................... 39 36 78 69
Other income (expense), net........... (5) 3 (6) -
------ ------ ------ ------
Income before income taxes and
cumulative effect of change in
accounting method................... 134 115 276 247
Income tax expense.................... 52 43 107 93
------ ------ ------ ------
Income before cumulative effect of
change in accounting method......... 82 72 169 154
Cumulative effect of change in
accounting method, net of tax....... - - (10) -
------ ------ ------ ------
Net income............................ $ 82 $ 72 $ 159 $ 154
====== ====== ====== ======
Earnings (loss) per common share:
Income before cumulative effect of
change in accounting method....... $ .85 $ .74 $ 1.75 $ 1.60
Cumulative effect of change in
accounting method................. - - (.11) -
------ ------ ------ ------
Earnings per common share............. $ .85 $ .74 $ 1.64 $ 1.60
====== ====== ====== ======
Number of shares used in computation
of earnings (loss) per common share
(in thousands)...................... 90,244 89,709 90,286 89,439
Dividends declared per common share... $ .30 $ .30 $ .60 $ .60
See accompanying notes to consolidated financial statements.
-1-
<PAGE>
BURLINGTON NORTHERN INC. and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars In Millions)
(Unaudited)
ASSETS June 30, December 31,
1994 1993
------ ------
Current assets:
Cash and cash equivalents.................. $ 18 $ 17
Accounts receivable, net................... 569 589
Materials and supplies..................... 117 91
Current portion of deferred income taxes... 170 167
Other current assets....................... 162 27
------ ------
Total current assets..................... 1,036 891
Property and equipment, net.................. 6,074 5,909
Other assets................................. 284 245
------ ------
Total assets............................. $7,394 $7,045
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................... $ 509 $ 492
Casualty and environmental reserves........ 274 286
Compensation and benefits payable.......... 254 271
Taxes payable.............................. 138 123
Accrued interest........................... 46 44
Other current liabilities.................. 79 102
Current portion of long-term debt.......... 36 185
Commercial paper........................... 204 26
------ ------
Total current liabilities................ 1,540 1,529
Long-term debt............................... 1,694 1,526
Deferred income taxes........................ 1,388 1,342
Casualty and environmental reserves.......... 410 426
Other liabilities............................ 332 303
------ ------
Total liabilities........................ 5,364 5,126
------ ------
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;
89,311,412 shares and 88,881,675 shares
issued, respectively..................... 1 1
Additional paid-in capital................. 1,442 1,420
Retained earnings.......................... 293 198
Treasury stock, at cost, 96,224 shares and
85,536 shares, respectively.............. (5) (4)
Other...................................... (38) (33)
------ ------
Total stockholders' equity............... 2,030 1,919
------ ------
Total liabilities and stockholders'
equity................................. $7,394 $7,045
====== ======
See accompanying notes to consolidated financial statements.
-2-
<PAGE>
BURLINGTON NORTHERN INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars In Millions)
(Unaudited)
Six Months Ended
June 30,
---------------------
1994 1993
------ ------
Cash flows from operating activities:
Net income........................................ $ 159 $ 154
Adjustments to reconcile net income to net
cash provided by operating activities:
Cumulative effect of change in accounting
method...................................... 10 -
Depreciation.................................. 176 172
Deferred income taxes......................... 50 43
Changes in current assets and liabilities:
Accounts receivable, net.................... 20 15
Materials and supplies...................... (27) 1
Other current assets........................ (135) (26)
Accounts payable............................ 17 (13)
Casualty and environmental reserves......... (12) 17
Compensation and benefits payable........... (15) (27)
Taxes payable............................... 17 16
Accrued interest............................ 2 4
Other current liabilities................... (23) (23)
Changes in long-term casualty and
environmental reserves...................... (16) (25)
Other, net.................................... (23) (29)
------ ------
Net cash provided by operating activities........... 200 279
------ ------
Cash flows from investing activities:
Additions to property and equipment............... (294) (283)
Proceeds from property and equipment dispositions 22 15
Other, net........................................ (13) (16)
------ ------
Net cash used in investing activities............... (285) (284)
------ ------
Cash flows from financing activities:
Net increase in commercial paper.................. 178 98
Proceeds from issuance of long-term debt.......... 149 -
Payments on long-term debt........................ (181) (72)
Dividends paid.................................... (64) (62)
Proceeds from exercise of common stock options.... 5 9
Other, net........................................ (1) -
------ ------
Net cash provided by (used in) financing activities. 86 (27)
------ ------
Increase (decrease) in cash and cash equivalents.... 1 (32)
Cash and cash equivalents:
Beginning of period............................... 17 57
------ ------
End of period..................................... $ 18 $ 25
====== ======
Supplemental cash flow information:
Interest paid, net of amounts capitalized......... $ 74 $ 70
Income taxes paid, net of refunds................. 39 46
Supplemental noncash investing and financing
activities information:
Assets financed through a capital lease obligation $ 50 $ -
See accompanying notes to consolidated financial statements.
-3-
<PAGE>
BURLINGTON NORTHERN INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Accounting policies
The 1993 Annual Report on Form 10-K for Burlington Northern Inc. (BNI) and
its majority-owned subsidiaries (collectively BN) includes a summary of
significant accounting policies and should be read in conjunction with
this Form 10-Q. The principal subsidiary is Burlington Northern Railroad
Company (Railroad). The statements for the periods presented are
condensed and do not contain all information required by generally
accepted accounting principles to be included in a full set of financial
statements. In the opinion of management, all adjustments (consisting of
only normal recurring adjustments) necessary to present fairly BN's
financial position as of June 30, 1994 and December 31, 1993 and the
results of operations for the three-month and six-month periods ended June
30, 1994 and 1993 and cash flows for the six-month periods ended June 30,
1994 and 1993 have been included. The results of operations for any
interim period are not necessarily indicative of the results of operations
to be expected for the entire year.
2. Environmental reserves and other contingencies
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 approximately 55
sites (the PRP 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.
BN is involved in administrative and judicial proceedings and other
mandatory clean-up efforts at approximately 150 sites for which it is
being asked to participate in the clean-up of contaminated material
discharged into the environment. These approximate 150 sites include the
PRP sites. BN paid approximately $9 million during the six months ended
-4-
<PAGE>
BURLINGTON NORTHERN INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 30, 1994 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 $115 million in
future years to remediate and restore these sites, $110 million of which
pertains to mandated sites, of which approximately $55 million pertains to
the PRP sites. Of the $115 million, BN expects to spend $24 million during
the remainder of 1994. Also, BN anticipates that the majority of the $115
million will be paid out over a period of less than 7 years; however, some
costs will be paid out over a longer period, in some cases up to 40 years.
In addition, 21 sites account for approximately $90 million of the accrual;
however, no individual site is considered to be material.
Liabilities for environmental costs represent BN's best estimates for
remediation and restoration of these sites and include asserted and
unasserted claims. At June 30, 1994, BN had accrued approximately $115
million for estimated future environmental costs and believes it is
reasonably possible, although not probable, that actual environmental
costs could be lower than the recorded reserve or as much as 50 percent
higher. BN's best estimate of unasserted claims was approximately $5
million as of June 30, 1994. 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.
3. Hedging activities
BN has a program to hedge against fluctuations in the price of its diesel
fuel purchases. This program includes forward purchases for delivery at
fueling facilities and exchange-traded petroleum futures contracts. The
futures contracts are accounted for as hedges which are marked to market
with any gains or losses associated with changes in market value being
deferred and recognized as a component of fuel expense in the period in
which the designated fuel is purchased and used. At June 30, 1994, BN had
entered into agreements with fuel suppliers setting the price of fuel to
be obtained by taking physical delivery directly from such suppliers at a
future date. The average price of the approximately 61 million gallons
which BN had committed to purchase was approximately 49 cents per gallon,
exclusive of taxes, certain transportation costs and other charges. In
addition, BN held petroleum futures contracts representing approximately
-5-
<PAGE>
BURLINGTON NORTHERN INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
67 million gallons at an average price of approximately 47 cents per gallon.
These contracts have expiration dates ranging from July 1994 to March 1995.
BN's current fuel hedging program is designed to cover no more than 50
percent of projected fuel requirements for the subsequent 12-month period;
therefore, hedge positions will not exceed actual fuel requirements. The
current and future fuel delivery prices are monitored continuously and hedge
positions are adjusted accordingly. In order to reduce risk associated with
market movements, fuel hedging transactions do not extend beyond a 12-month
period. BN purchases petroleum futures contracts only through regulated
exchanges (e.g. New York Mercantile Exchange). In order to effectively
monitor the fuel hedging activities, results of the program are summarized
and reported to senior management on a regular basis.
In the second quarter of 1994, BN entered into a three-year $50 million
notional amount interest rate swap to hedge against interest rate exposure
on one of its debt issuances. Under the terms of this swap, BN receives
semiannual fixed-rate payments of 6.33 percent from a AA-rated
counterparty and makes semiannual floating rate payments tied to the
six-month London Interbank Offered Rate (LIBOR). The value of the swap to
BN would decline if LIBOR increases. BN monitors the credit rating of its
counterparty and does not anticipate losses due to counterparty
nonperformance. The swap is accounted for as a hedge with realized gains
or losses being recognized as a component of interest expense. During the
quarter ended June 30, 1994, the effect of this swap on interest expense
was immaterial and there were no deferred gains or losses on the balance
sheet at June 30, 1994.
4. Other income (expense), net
Other income (expense), net includes the following (in millions):
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
1994 1993 1994 1993
------ ------ ------ ------
Gain (loss) on property dispositions $ (1) $ 4 $ 1 $ 4
Loss on sale of receivables......... (2) (2) (4) (5)
Interest income..................... - - 1 1
Miscellaneous, net.................. (2) 1 (4) -
------ ------ ------ ------
Total............................... $ (5) $ 3 $ (6) $ -
====== ====== ====== ======
5. Accounting change
Effective January 1, 1994, BN adopted Statement of Financial Accounting
Standards No. 112, "Employers' Accounting for Postemployment Benefits."
The cumulative effect, net of $7 million income tax benefit, of this
change in accounting attributable to years prior to 1994, at the time of
adoption, was to decrease 1994 income by $10 million, or $.11 per common
share.
-6-
<PAGE>
EXHIBIT 99.(G)(4)
1
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
BURLINGTON NORTHERN INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars In Millions, Except Per Share Data)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1994 1993 1994 1993
Revenues............................... $1,249 $1,141 $3,651 $3,453
Costs and expenses:
Compensation and benefits............ 437 429 1,310 1,286
Fuel................................. 95 83 267 260
Materials............................ 70 73 225 227
Equipment rents...................... 97 100 314 288
Purchased services................... 120 120 352 342
Depreciation......................... 91 89 267 261
Other................................ 110 126 327 352
Total costs and expenses........... 1,020 1,020 3,062 3,016
Operating income....................... 229 121 589 437
Interest expense....................... 40 38 118 107
Other income (expense), net............ (1) 2 (7) 2
Income before income taxes and
cumulative effect of change in
accounting method.................... 188 85 464 332
Income tax expense..................... 73 61 180 154
Income before cumulative effect of
change in accounting method.......... 115 24 284 178
Cumulative effect of change in
accounting method, net of tax........ - - (10) -
Net income............................. 115 24 274 178
Preferred stock dividends.............. 5 5 16 16
Net income available for common
stockholders......................... $ 110 $ 19 $ 258 $ 162
Primary earnings (loss) per common share:
Income before cumulative effect of
change in accounting method........ $ 1.22 $ .21 $ 2.97 $ 1.81
Cumulative effect of change in
accounting method.................. - - (.11) -
Primary earnings per common share...... $ 1.22 $ .21 $ 2.86 $ 1.81
Shares used in computation (in
thousands)........................... 90,167 89,850 90,230 89,582
Fully diluted earnings (loss) per
common share:
Income before cumulative effect of
change in accounting method........ $ 1.18 $ .21 $ 2.92 $ 1.80
Cumulative effect of change in
accounting method.................. - - (.11) -
Fully diluted earnings per common share $ 1.18 $ .21 $ 2.81 $ 1.80
Shares used in computation (in
thousands)........................... 97,507 89,851 97,571 89,651
Dividends declared per common share.... $ .30 $ .30 $ .90 $ .90
See accompanying notes to consolidated financial statements.
<PAGE>
2
BURLINGTON NORTHERN INC. and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars In Millions)
(Unaudited)
ASSETS September 30, December 31,
1994 1993
Current assets:
Cash and cash equivalents.................. $ 17 $ 17
Accounts receivable, net................... 609 589
Materials and supplies..................... 117 91
Current portion of deferred income taxes... 180 167
Other current assets....................... 129 27
Total current assets..................... 1,052 891
Property and equipment, net.................. 6,203 5,909
Other assets................................. 281 245
Total assets............................. $7,536 $7,045
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................... $ 579 $ 492
Casualty and environmental reserves........ 259 286
Compensation and benefits payable.......... 272 271
Taxes payable.............................. 181 123
Accrued interest........................... 50 44
Other current liabilities.................. 104 102
Current portion of long-term debt.......... 33 185
Commercial paper........................... 70 26
Total current liabilities................ 1,548 1,529
Long-term debt............................... 1,688 1,526
Deferred income taxes........................ 1,422 1,342
Casualty and environmental reserves.......... 424 426
Other liabilities............................ 338 303
Total liabilities........................ 5,420 5,126
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;
89,322,415 shares and 88,881,675 shares
issued, respectively..................... 1 1
Additional paid-in capital................. 1,443 1,420
Retained earnings.......................... 376 198
Treasury stock, at cost, 98,911 shares and
85,536 shares, respectively.............. (5) (4)
Other...................................... (36) (33)
Total stockholders' equity............... 2,116 1,919
Total liabilities and stockholders'
equity................................. $7,536 $7,045
See accompanying notes to consolidated financial statements.
<PAGE>
3
BURLINGTON NORTHERN INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars In Millions)
(Unaudited)
Nine Months Ended
September 30,
1994 1993
Cash flows from operating activities:
Net income........................................ $ 274 $ 178
Adjustments to reconcile net income to net
cash provided by operating activities:
Cumulative effect of change in accounting
method...................................... 10 -
Depreciation.................................. 267 261
Deferred income taxes......................... 73 90
Changes in current assets and liabilities:
Accounts receivable, net.................... (20) (25)
Materials and supplies...................... (28) 5
Other current assets........................ (102) (64)
Accounts payable............................ 85 16
Casualty and environmental reserves......... (27) 23
Compensation and benefits payable........... 5 (34)
Taxes payable............................... 60 29
Accrued interest............................ 6 15
Other current liabilities................... 2 1
Changes in long-term casualty and
environmental reserves...................... (2) (33)
Other, net.................................... (13) (45)
Net cash provided by operating activities........... 590 417
Cash flows from investing activities:
Additions to property and equipment............... (513) (473)
Proceeds from property and equipment dispositions 34 29
Other, net........................................ (21) (28)
Net cash used in investing activities............... (500) (472)
Cash flows from financing activities:
Net increase in commercial paper.................. 44 38
Proceeds from issuance of long-term debt.......... 149 146
Payments on long-term debt........................ (191) (79)
Dividends paid.................................... (96) (93)
Proceeds from exercise of common stock options.... 6 13
Redemption of redeemable preferred stock.......... - (9)
Other, net........................................ (2) -
Net cash provided by (used in) financing activities. (90) 16
Decrease in cash and cash equivalents............... - (39)
Cash and cash equivalents:
Beginning of period............................... 17 57
End of period..................................... $ 17 $ 18
Supplemental cash flow information:
Interest paid, net of amounts capitalized......... $ 108 $ 96
Income taxes paid, net of refunds................. 54 49
Supplemental noncash investing and financing
activities information:
Assets financed through a capital lease obligation $ 50 $ -
See accompanying notes to consolidated financial statements.
<PAGE>
4
BURLINGTON NORTHERN INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Accounting policies
The 1993 Annual Report on Forms 10-K and 10-K/A for Burlington Northern
Inc. (BNI) and its majority-owned subsidiaries (collectively BN) includes
a summary of significant accounting policies and should be read in
conjunction with this Form 10-Q. The principal subsidiary is Burlington
Northern Railroad Company (Railroad). The statements for the periods
presented are condensed and do not contain all information required by
generally accepted accounting principles to be included in a full set of
financial statements. In the opinion of management, all adjustments
(consisting of only normal recurring adjustments) necessary to present
fairly BN's financial position as of September 30, 1994 and December 31,
1993 and the results of operations for the three-month and nine-month
periods ended September 30, 1994 and 1993 and cash flows for the
nine-month periods ended September 30, 1994 and 1993 have been included.
The results of operations for any interim period are not necessarily
indicative of the results of operations to be expected for the entire year.
2. Earnings (loss) per common share
Primary earnings (loss) per common share are computed by dividing net
income, 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 per
common share. Convertible preferred stock was excluded from the fully
diluted earnings per common share computation for the three-month and
nine-month periods ended September 30, 1993 as it was anti-dilutive for
those periods.
3. Environmental reserves and other contingencies
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 approximately 60
sites (the PRP sites) and, in many instances, is one of several PRPs. BN
generally participates in the clean-up of these sites through cost-sharing
<PAGE>
5
BURLINGTON NORTHERN INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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.
BN is involved in administrative and judicial proceedings and other
mandatory clean-up efforts at approximately 160 sites, including the PRP
sites, for which it is being asked to participate in the clean-up of
contaminated material discharged into the environment. BN paid
approximately $13 million during the nine months ended September 30, 1994
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 $115 million in future years to remediate and
restore all known sites, $105 million of which pertains to mandated sites,
of which approximately $65 million pertains to the PRP sites. Of the $115
million, BN expects to spend $6 million during the remainder of 1994.
Also, BN anticipates that the majority of the $115 million will be paid
out over a period of less than 7 years; however, some costs will be paid
out over a longer period, in some cases up to 40 years. At September 30,
1994, 22 sites were accountable for approximately $70 million of the
accrual and no individual site was considered to be material.
Liabilities for environmental costs represent BN's best estimates for
remediation and restoration of these sites and include asserted and
unasserted claims. At September 30, 1994, BN had accrued approximately
$115 million for estimated future environmental costs and believes it is
reasonably possible, although not probable, that actual environmental
costs could be lower than the recorded reserve or as much as 50 percent
higher. BN's best estimate of unasserted claims was approximately $10
million as of September 30, 1994. 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
<PAGE>
6
BURLINGTON NORTHERN INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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.
4. Hedging activities
BN has a program to hedge against fluctuations in the price of its diesel
fuel purchases. This program includes forward purchases for delivery at
fueling facilities and exchange-traded petroleum futures contracts. The
futures contracts are accounted for as hedges which are marked to market
with any gains or losses associated with changes in market value being
deferred and recognized as a component of fuel expense in the period in
which the designated fuel is purchased and used. At September 30, 1994,
BN had entered into agreements with fuel suppliers setting the price of
fuel to be obtained by taking physical delivery directly from such
suppliers at a future date. The average price of the approximately 67
million gallons which BN had committed to purchase was approximately 52
cents per gallon, exclusive of taxes, certain transportation costs and
other charges. In addition, BN held petroleum futures contracts
representing approximately 52 million gallons at an average price of
approximately 50 cents per gallon. These contracts have expiration dates
ranging from October 1994 to June 1995.
BN's current fuel hedging program is designed to cover no more than 50
percent of projected fuel requirements for the subsequent 12-month period;
therefore, hedge positions will not exceed actual fuel requirements. The
current and future fuel delivery prices are monitored continuously and
hedge positions are adjusted accordingly. In order to reduce risk
associated with market movements, fuel hedging transactions do not extend
beyond a 12-month period. BN purchases petroleum futures contracts only
through regulated exchanges (e.g. New York Mercantile Exchange). In order
to effectively monitor the fuel hedging activities, results of the program
are summarized and reported to senior management on a regular basis.
In the second quarter of 1994, BN entered into a three-year interest rate
swap on a notional amount of $50 million to hedge against interest rate
exposure on one of its debt issuances. Under the terms of this swap, BN
receives semiannual fixed-rate payments of 6.33 percent from a AA-rated
counterparty and makes semiannual floating rate payments tied to the
six-month London Interbank Offered Rate (LIBOR). The value of the swap to
BN declines if LIBOR increases. BN monitors the credit rating of its
counterparty and does not anticipate losses due to counterparty
nonperformance. The swap is accounted for as a hedge with realized gains
or losses being recognized as a component of interest expense. During the
<PAGE>
7
BURLINGTON NORTHERN INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
first nine months of 1994, the effect of this swap on interest expense was
immaterial and there were no deferred gains or losses on the balance sheet
at September 30, 1994.
5. Other income (expense), net
Other income (expense), net includes the following (in millions):
Three Months Ended Nine Months Ended
September 30, September 30,
1994 1993 1994 1993
Gain on property dispositions $ 6 $ 6 $ 7 $ 10
Loss on sale of receivables.. (3) (2) (7) (7)
Interest income.............. 1 1 2 2
Miscellaneous, net........... (5) (3) (9) (3)
Total........................ $ (1) $ 2 $ (7) $ 2
6. Accounting change
Effective January 1, 1994, BN adopted Statement of Financial Accounting
Standards No. 112, "Employers' Accounting for Postemployment Benefits." The
cumulative effect, net of $7 million income tax benefit, of this change in
accounting attributable to years prior to 1994, at the time of adoption, was
to decrease 1994 income by $10 million, or $.11 per common share.
