SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-11535
BURLINGTON NORTHERN SANTA FE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 41-1804964
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2650 Lou Menk Drive
Fort Worth, Texas 76131
(Address of principal executive offices) (Zip Code)
(817) 333-2000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes__X__ No_____
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Shares
Class Outstanding at October 31, 1996
Common stock, $.01 par value 152,951,692 shares
<PAGE>
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BURLINGTON NORTHERN SANTA FE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
(UNAUDITED)
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Revenues $ 2,050 $ 1,462 $ 6,117 $ 4,098
Operating expenses:
Compensation and benefits 633 459 1,942 1,387
Purchased services 202 128 627 373
Depreciation and amortization 191 116 565 329
Equipment rents 184 120 545 352
Fuel 173 109 524 307
Materials and other 191 170 635 501
Merger, severance and asset charge - 106 - 148
-------- ------- -------- --------
Total operating expenses 1,574 1,208 4,838 3,397
-------- ------- -------- --------
Operating income 476 254 1,279 701
Interest expense 76 52 224 145
Other income (expense), net 4 16 (1) 31
-------- ------- -------- --------
Income before income taxes 404 218 1,054 587
Income tax expense 157 85 409 229
-------- ------- -------- --------
Income before cumulative effect of
change in accounting method 247 133 645 358
Cumulative effect of change in
accounting method, net of tax - - - (100)
-------- ------- -------- --------
Net income $ 247 $ 133 $ 645 $ 258
======== ======= ======== ========
Primary earnings per common share:
Income before cumulative effect of
change in accounting method $ 1.58 $ 1.32 $ 4.14 $ 3.69
Change in accounting method - - - (1.08)
-------- ------- -------- --------
Net income per common share $ 1.58 $ 1.32 $ 4.14 $ 2.61
======== ======= ======== ========
Average shares (in millions) 156.3 96.9 155.8 92.7
======== ======= ======== ========
Fully diluted earnings per common share:
Income before cumulative effect of
change in accounting method $ 1.58 $ 1.28 $ 4.14 $ 3.56
Change in accounting method - - - (.99)
-------- ------- -------- --------
Net income per common share $ 1.58 $ 1.28 $ 4.14 $ 2.57
======== ======= ======== ========
Average shares (in millions) 156.3 104.3 155.8 100.5
======== ======= ======== ========
Dividends declared per common share $ .30 $ .30 $ .90 $ .90
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
BURLINGTON NORTHERN SANTA FE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(DOLLARS IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 34 $ 50
Accounts receivable, net 747 620
Materials and supplies 228 220
Current portion of deferred income taxes 323 320
Other current assets 58 54
-------- --------
Total current assets 1,390 1,264
Property and equipment, net 16,866 16,001
Other assets 1,001 1,004
-------- --------
Total assets $19,257 $18,269
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and other current liabilities $ 2,197 $ 2,289
Long-term debt and commercial paper due
within one year 157 80
-------- --------
Total current liabilities 2,354 2,369
Long-term debt and commercial paper 4,243 4,153
Deferred income taxes 4,496 4,233
Casualty and environmental reserves 583 626
Employee, merger and separation costs 478 530
Other liabilities 1,403 1,321
-------- --------
Total liabilities 13,557 13,232
-------- --------
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value, 300,000,000
shares authorized; 152,893,008 shares and
149,649,930 shares issued, respectively 2 1
Additional paid-in capital 4,764 4,606
Retained earnings 968 459
Other (34) (29)
-------- --------
Total stockholders' equity 5,700 5,037
-------- --------
Total liabilities and stockholders'
equity $19,257 $18,269
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
BURLINGTON NORTHERN SANTA FE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1996 1995
Operating Activities:
<S> <C> <C>
Net income $ 645 $ 258
Adjustments to reconcile net income to net cash
provided by operating activities:
Cumulative effect of change in accounting method - 100
Depreciation and amortization 565 329
Deferred income taxes 259 39
Merger, severance and asset charge - 148
Employee, merger and separation costs paid (153) (58)
Other, net (36) 39
Changes in working capital (47) 16
------------- --------
Net cash provided by operating activities 1,233 871
------------- --------
Investing Activities:
Cash used for capital expenditures (1,353) (592)
Investment in Santa Fe Pacific Corporation - (488)
Other, net 3 (4)
------------- --------
Net cash used for investing activities (1,350) (1,084)
------------- --------
Financing Activities:
Net increase (decrease) in commercial paper (301) 524
Proceeds from issuance of long-term debt 513 522
Payments on long-term debt (69) (713)
Dividends paid (138) (97)
Proceeds from stock options 101 12
Other, net (5) -
------------- --------
Net cash provided by financing activities 101 248
------------- --------
Increase (decrease) in cash and cash equivalents (16) 35
Cash and cash equivalents:
Beginning of period 50 27
------------- --------
End of period $ 34 $ 62
============= ========
Supplemental cash flow information:
Interest paid, net of amounts capitalized $ 218 $ 132
Income taxes paid, net of refunds 64 161
Assets financed through capital lease obligations 33 4
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<PAGE>
BURLINGTON NORTHERN SANTA FE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Accounting policies and interim results
The consolidated financial statements should be read in conjunction with the
Burlington Northern Santa Fe Corporation (BNSF, Registrant or Company) Annual
Report on Form 10-K for the year ended December 31, 1995, including those
financial statements and notes thereto incorporated by reference from the
Registrant's 1995 Annual Report to Shareholders. The principal subsidiaries
of BNSF are Burlington Northern Inc. (BNI), Burlington Northern Railroad
Company (BNRR), Santa Fe Pacific Corporation (SFP) and The Atchison, Topeka
and Santa Fe Railway Company (ATSF). As a result of a business combination,
SFP and ATSF became indirect wholly owned subsidiaries of BNSF on September
22, 1995. The BNSF consolidated balance sheet at December 31, 1995 and
September 30, 1996, consolidated statement of income for the three and nine
month periods ended September 30, 1996 and the consolidated statement of cash
flows for the nine month period ended September 30, 1996 include the results
of both BNI and SFP. The consolidated statement of income for the three and
nine months ended September 30, 1995, and consolidated statement of cash flows
for the nine months ended September 30, 1995 reflect BNI historical amounts
for such periods and SFP's results from September 22, 1995 through September
30, 1995.
The results of operations for any interim period are not necessarily
indicative of the results of operations to be expected for the entire year.
In the opinion of management, all adjustments (consisting of only normal
recurring adjustments, except as disclosed) necessary to present fairly BNSF's
consolidated financial position as of September 30, 1996 and December 31, 1995
and the consolidated results of operations for the three and nine month
periods ended September 30, 1996 and 1995 have been included.
Certain comparative prior year and prior period amounts in the consolidated
financial statements and notes have been reclassified to conform with the
current period presentation.
2. Employee, merger and separation costs
Current and long-term employee merger and separation liabilities totaling $616
million are included in the consolidated balance sheet at September 30, 1996.
During the first nine months of 1996, the Company paid $153 million of
employee, merger and separation costs.
At September 30, 1996, approximately $138 million of the total liability is
included within current liabilities for anticipated costs to be paid over the
next twelve months. The remaining costs are anticipated to be paid over the
next five years, except for certain costs related to conductors, trainmen and
locomotive engineers which will be paid upon the employees' separation or
retirement.
Certain merger and separation costs, primarily including relocation costs
associated with clerical employees, have been recorded as operating expenses
in 1996 and will continue to be recorded as operating expenses during the
remainder of 1996 and future periods. The ultimate timing and magnitude of
any such future expense is presently unknown.
Results for the first nine months of 1995 include $148 million of
merger-related expenses principally related to employee separations and
relocations and to restricted stock which vested upon approval of the merger
by BNI shareholders.
3. Accounting change
Effective January 1, 1995, BNSF changed its method of accounting for periodic
major locomotive overhauls. Under the new method, costs of owned locomotives
relating to components requiring major overhaul are depreciated, on a
straight-line basis, to the first major overhaul date. The remaining cost of
the owned locomotive is depreciated, on a straight-line basis, over the
estimated economic life of the locomotive. The cost of overhauls on owned
units are then capitalized when incurred and depreciated, on a straight-line
basis, until the next anticipated overhaul. In addition, estimated costs for
major overhauls on leased units are accrued on a straight-line basis over the
life of the leases. BNSF previously expensed locomotive overhauls when the
costs were incurred. The cumulative effect of this change on years prior to
1995 was a reduction in net income of $100 million, net of a $63 million tax
benefit.
4. Environmental and other contingencies
BNSF's operations, as well as those of its competitors, are subject to
extensive federal, state and local environmental regulation. BNSF's operating
procedures include practices to protect the environment from the environmental
risks inherent in railroad operations, which frequently involve transporting
chemicals and other hazardous materials.
Additionally, many of BNSF's land holdings are and have been used for
industrial or transportation related purposes or leased to commercial or
industrial companies whose activities may have resulted in discharges onto the
property. As a result, BNSF is subject to environmental clean-up and
enforcement actions. In particular, the Federal Comprehensive Environmental
Response Compensation and Liability Act of 1980 (CERCLA), also known as the
"Superfund" law, as well as similar state laws generally impose joint and
several liability for clean-up and enforcement costs without regard to fault
or the legality of the original conduct on current and former owners and
operators of a site. BNSF has been notified that it is a potentially
responsible party (PRP) for study and clean-up costs at approximately 31
Superfund sites for which investigation and remediation payments are or will
be made or are yet to be determined (the Superfund sites) and, in many
instances, is one of several PRPs. In addition, BNSF may be considered a PRP
under certain other laws. Accordingly, under CERCLA and other federal and
state statutes, BNSF may be held jointly and severally liable for all
environmental costs associated with a particular site. If there are other
PRPs, BNSF generally participates in the clean-up of these sites through
cost-sharing agreements with terms that vary from site to site. Costs are
typically allocated based on relative volumetric contribution of material, the
amount of time the site was owned or operated, and/or the portion of the total
site owned or operated by each PRP.
Environmental costs include initial site surveys and environmental studies of
potentially contaminated sites as well as costs for remediation and
restoration of sites determined to be contaminated. Liabilities for
environmental clean-up costs are initially recorded when BNSF's liability for
environmental clean-up is both probable and a reasonable estimate of
associated costs can be made. Adjustments to initial estimates are recorded
as necessary based upon additional information developed in subsequent
periods. BNSF conducts an ongoing environmental contingency analysis, which
considers a combination of factors including independent consulting reports,
site visits, legal reviews, analysis of the likelihood of participation in and
the ability of other PRPs to pay for clean-up, and historical trend analyses.
BNSF is involved in a number of administrative and judicial proceedings and
other mandatory clean-up efforts at approximately 335 sites, including the
Superfund sites, at which it is being asked to participate in the study or
clean-up of the alleged environmental contamination. BNSF paid approximately
$37 million during the first nine months of 1996 relating to mandatory
clean-up efforts, including amounts expended under federal and state voluntary
clean-up programs. BNSF has accruals of approximately $220 million for
remediation and restoration of all known sites, including $215 million
pertaining to mandated sites, of which approximately $55 million relates to
the Superfund sites. BNSF anticipates that the majority of the accrued costs
at September 30, 1996, will be paid over the next five years. No individual
site is considered to be material.
Liabilities for environmental costs represent BNSF's best estimates for
remediation and restoration of these sites and include both asserted and
unasserted claims. Unasserted claims are not considered to be a material
component of the liability. Although recorded liabilities include BNSF's
best estimates of all costs, without reduction for anticipated recoveries from
third parties, BNSF's total clean-up costs at these sites cannot be predicted
with certainty due to various factors such as the extent of corrective actions
that may be required, evolving environmental laws and regulations, advances in
environmental technology, the extent of other 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, future charges to
income for environmental liabilities could have a significant effect on
results of operations in a particular quarter or fiscal year as individual
site studies and remediation and restoration efforts proceed or as new sites
arise. However, expenditures associated with such liabilities are typically
paid out over a long period, and are therefore not expected to have a material
adverse effect on BNSF's consolidated financial position or liquidity.
BNSF expects that it will become subject to future requirements regulating air
emissions from diesel locomotives that may increase their operating costs.
Proposed regulations applicable to new locomotive engines are expected to be
issued by the U.S. Environmental Protection Agency by January 31, 1997, with
final regulations to be promulgated by December 17, 1997. It is anticipated
that these regulations will be effective for locomotive engines installed
after 1999. Under some interpretations of federal law, older locomotive
engines may be regulated by states based on standards and procedures which
the State of California ultimately adopts. At this time, it is unknown
whether California will adopt locomotive emission standards that may differ
from federal standards.
BNSF and its subsidiaries are parties to a number of legal actions and claims,
various governmental proceedings and private civil suits arising in the
ordinary course of business, including those related to environmental matters
and personal injury claims. While the final outcome of these items cannot be
predicted with certainty, considering among other things the meritorious legal
defenses available, it is the opinion of management that none of these items,
when finally resolved, will have a material adverse effect on the annual
results of operations, financial position or liquidity of BNSF, although an
adverse resolution of a number of these items in a single period could have a
material adverse effect on the results of operations in a particular quarter
or fiscal year.
5. Hedging activities
Fuel
BNSF 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. Additionally, this program includes various commodity
swap transactions which are accounted for as hedges. Any gains or losses
associated with changes in market value of these hedges are deferred and
recognized as a component of fuel expense in the period in which the hedged
fuel is purchased and used. To the extent BNSF hedges portions of its fuel
purchases, it may not fully benefit from decreases in fuel prices.
As of October 31, 1996, BNSF had entered into forward purchases for
approximately 11 million gallons at an average price of approximately 49 cents
per gallon and fuel swaps for approximately 340 million gallons at an average
price of approximately 53 cents per gallon. These contracts have expiration
dates ranging from November 1996 to December 1998.
The above prices do not include taxes, fuel handling costs, certain
transportation costs and, except for forward contracts, any differences which
may occur from time to time between the prices of commodities hedged and the
purchase price of BNSF's diesel fuel.
BNSF's current fuel hedging program at October 31, 1996 covers approximately
13 percent of projected fuel purchases for the remaining two months of 1996
and approximately 20 percent and 10 percent of the projected fuel purchases
for 1997 and 1998, respectively. The current and future fuel delivery prices
are monitored and hedge positions are adjusted from time to time. Hedge
positions are also closely monitored to ensure that they will not exceed
actual fuel requirements in any period. Unrealized gains from BNSF's fuel
hedging transactions were approximately $7.2 million at September 30, 1996.
BNSF monitors its hedging positions and credit ratings of its counterparties
and does not anticipate losses due to counterparty nonperformance.
Interest rates
BNSF has interest rate swap transactions to fix interest rates on floating
rate debt with a total principal amount of $500 million. The interest rate
swap transactions require payment of a weighted average fixed interest rate of
approximately 5.4 percent, and the receipt of a variable interest rate based
on a commercial paper composite rate and mature from February 1997 through
December 1997. Unrealized gains from BNSF's swap transactions were
approximately $1.1 million as of September 30, 1996.
<PAGE>
BURLINGTON NORTHERN SANTA FE CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's discussion and analysis relates to the financial condition and
results of operations of Burlington Northern Santa Fe Corporation and its
majority-owned subsidiaries (collectively BNSF or Company). The principal
subsidiaries are Burlington Northern Inc. (BNI), Burlington Northern Railroad
Company (BNRR), Santa Fe Pacific Corporation (SFP) and The Atchison, Topeka
and Santa Fe Railway Company (ATSF).
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED WITH THREE MONTHS ENDED
SEPTEMBER 30, 1995
BNSF recorded net income for the third quarter of 1996 of $247 million or
$1.58 per common share, compared with third quarter 1995 net income of $133
million ($1.32 per common share, primary, on 96.9 million shares and $1.28 per
common share, fully diluted on 104.3 million shares). Results for the third
quarter of 1995 include the results of BNI for the entire period and SFP's
results from September 22, 1995 through September 30, 1995.
REVENUES
The following table presents BNSF's revenue information by commodity for the
three months ended September 30, 1996 and 1995 and includes certain
reclassifications of prior year information to conform to current year
presentation. The revenue, revenue ton miles and revenue per thousand ton
miles for the three month period ended September 30, 1995 include the results
of BNI for the entire period and SFP's results from September 22, 1995 through
September 30, 1995.
<TABLE>
<CAPTION>
Revenue
Revenue Per Thousand
Revenues Ton Miles Ton Miles
1996 1995 1996 1995 1996 1995
(In Millions) (In Millions)
<S> <C> <C> <C> <C> <C> <C>
Intermodal $ 529 $ 225 18,183 7,350 $29.09 $30.61
Coal 520 451 44,833 39,607 11.60 11.39
Agricultural Commodities 236 289 10,756 15,231 21.94 18.97
Chemicals 190 96 7,113 3,806 26.71 25.22
Forest Products 143 112 6,299 5,001 22.70 22.40
Consumer and Food Products 114 81 4,495 2,939 25.36 27.56
Automotive 89 40 1,355 578 65.68 69.20
Metals 106 73 5,015 3,483 21.14 20.96
Minerals and Ores 84 63 3,224 2,542 26.05 24.78
------ ------ -------- ------- ------ ------
Total Freight Revenues 2,011 1,430 101,273 80,537 19.86 17.76
Other Revenues 39 32 - - - -
------ ------ -------- ------- ------ ------
Total Operating Revenues $2,050 $1,462 101,273 80,537 $19.86 $17.76
====== ====== ======== ======= ====== ======
</TABLE>
Total revenues for the third quarter of 1996 were $2,050 million compared with
revenues of $1,462 million for the third quarter of 1995. The increase in
revenues of $588 million is mainly due to additional revenues from the
acquisition of SFP as a result of the business combination effected September
22, 1995 partially offset by lower revenues from agricultural commodities.
Intermodal revenues of $529 million for the 1996 third quarter increased $304
million compared to revenues of $225 million for the 1995 third quarter. The
increase was due to additional revenues from the acquisition of SFP.
Coal revenues of $520 million for the 1996 third quarter increased $69 million
compared to revenues of $451 million for the 1995 third quarter. The increase
in revenues is mainly due to additional revenues from the acquisition of SFP
as a result of the business combination effected September 22, 1995 and
increased shipments from Power River Basin (PRB).
Agricultural Commodities revenues of $236 million for the 1996 third quarter
were $53 million lower than revenues of $289 million for the 1995 third
quarter. The decrease in revenues reflected a decline in corn and wheat
exports, compared with record corn and wheat exports a year ago. Additional
revenues resulting from the acquisition of SFP partially offsets the decline
in third quarter 1996 revenues.
Chemicals revenues of $190 million increased by $94 million for the third
quarter of 1996 compared to the third quarter of 1995. The increase was
principally due to additional revenues from the acquisition of SFP.
Revenue increases in all other commodity groups are principally due to the
acquisition of SFP.
EXPENSES
Total operating expenses for the third quarter of 1996 were $1,574 million, an
increase of $366 million or 30 percent, compared with operating expenses for
the 1995 third quarter of $1,208 million. Operating expenses, including a
$106 million merger, severance and asset charge, for the third quarter of 1995
include the results of BNI for the entire period and SFP's results from
September 22, 1995 through September 30, 1995. The operating ratio was 76.8
percent for the third quarter of 1996 compared to an operating ratio of 75.4
percent for the 1995 third quarter excluding, the merger, severance and asset
charge.
Compensation and benefit expenses of $633 million increased $174 million or 38
percent over third quarter of 1995. A majority of the increase was due to the
acquisition of SFP partially offset by lower costs due to a reduction in the
number of salaried employees.
Purchased services expenses for the 1996 third quarter of $202 million
increased $74 million or 58 percent over third quarter 1995. The increase
principally reflects the additional expenses related to former SFP operations
offset by lower professional service and intermodal drayage expenses.
Depreciation and amortization expense of $191 million for the 1996 third
quarter increased $75 million or 65 percent over $116 million of depreciation
and amortization expense for the third quarter of 1995. This increase was due
to an increase in BNSF's asset base which includes former SFP assets which
have been adjusted to reflect values assigned in the merger.
Equipment rents expenses for the third quarter of 1996 of $184 million was $64
million or 53 percent higher than the 1995 third quarter. The increase was
primarily due to the inclusion of equipment rents expenses related to former
SFP equipment and operations.
Fuel expenses of $173 million for the 1996 third quarter were $64 million
higher than fuel expenses for the third quarter of 1995 primarily due to
additional volume from the acquisition of SFP. An increase of 7 cents in the
average price per gallon of diesel fuel also contributed to the increase.
Materials and other expenses of $191 million for the 1996 third quarter were
$21 million or 12 percent higher than the 1995 third quarter due to the
inclusion of expenses related to former SFP operations.
Interest expense for the third quarter of 1996 was $76 million compared with
interest expense of $52 million for the third quarter of 1995. The increase
is primarily due to interest expense associated with the inclusion of former
SFP debt partially offset by favorable variable interest rates.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED WITH NINE MONTHS ENDED SEPTEMBER
30, 1995
BNSF recorded net income for the first nine months of 1996 of $645 million or
$4.14 per common share, compared with net income of $258 million or $2.57 per
common share for the first nine months of 1995. Results for the first nine
months of 1995 include the results of BNI for the entire period and SFP's
results from September 22, 1995 through September 30, 1995. Additionally,
1995 results reflect a $148 million pre-tax merger, severance and asset charge
and a $100 million after-tax charge for the cumulative effect of a change in
accounting for locomotive overhauls.
REVENUES
The following table presents BNSF's revenue information by commodity for the
nine months ended September 30, 1996 and 1995 and includes certain
reclassifications of prior year information to conform to current year
presentation. The revenue, revenue ton miles and revenue per thousand ton
miles for the nine months ended September 30, 1995 include the results of BNI
for the entire period and SFP's results from September 22, 1995 through
September 30, 1995.
<TABLE>
<CAPTION>
Revenue
Revenue Per Thousand
Revenues Ton Miles Ton Miles
1996 1995 1996 1995 1996 1995
(In Millions) (In Millions)
<S> <C> <C> <C> <C> <C> <C>
Intermodal $1,517 $ 588 52,370 19,486 $28.97 $30.18
Coal 1,487 1,328 127,529 115,909 11.66 11.46
Agricultural Commodities 823 754 42,528 41,750 19.35 18.06
Chemicals 573 277 21,568 11,493 26.57 24.10
Forest Products 406 324 18,479 14,943 21.97 21.68
Consumer and Food Products 345 235 13,328 8,636 25.89 26.68
Automotive 295 118 4,492 1,719 65.67 68.64
Metals 311 209 15,053 9,908 20.66 21.09
Minerals and Ores 236 168 8,985 6,976 26.27 24.23
------ ------ -------- ------- ------ ------
Total Freight Revenues 5,993 4,001 304,332 230,820 19.69 17.33
Other Revenues 124 97 - - - -
------ ------ -------- ------- ------ ------
Total Operating Revenues $6,117 $4,098 304,332 230,820 $19.69 $17.33
====== ====== ======== ======= ====== ======
</TABLE>
Total revenues for the first nine months of 1996 were $6,117 million compared
with revenues of $4,098 million for the first nine months of 1995. The
increase in revenues of $2,019 million is principally due to additional
revenues from the acquisition of SFP as a result of the business combination
effected September 22, 1995.
Intermodal revenues of $1,517 million for the first nine months of 1996
increased $929 million compared to revenues of $588 million for the same
period of 1995. The increase was due to additional revenues resulting from
the acquisition of SFP.
Coal revenues of $1,487 million for the nine months ended September 30, 1996
increased $159 million compared to revenues of $1,328 million for the same
period of 1995. This increase was due to additional revenues resulting from
the acquisition of SFP and higher volumes as compared to 1995.
Agricultural Commodities revenues of $823 million for the first nine months of
1996 were $69 million greater than revenues of $754 million for the 1995 first
nine months. The increase in revenues is attributable to additional revenues
from the acquisition of SFP, partially offset by declines in corn and wheat
traffic for export markets from 1995's record third quarter.
Chemicals revenues of $573 million increased by $296 million for the first
nine months of 1996 as compared to the first nine months of 1995. The
increase is due to continued strong petroleum products demand as well as
additional revenues from the acquisition of SFP.
Revenue increases in all other commodity groups are principally due to the
acquisition of SFP.
EXPENSES
Total operating expenses for the first nine months of 1996 were $4,838
million, an increase of $1,441 million or 42 percent, compared with operating
expenses for the first nine months of 1995 of $3,397 million. Operating
expenses for the nine months ended September 30, 1995 include the results of
BNI for the entire period, including a $148 million merger, severance and
asset charge, and SFP's results from September 22, 1995 through September 30,
1995. The operating ratio was 79.1 percent for the first nine months of 1996
compared to an operating ratio of 79.3 percent for the 1995 first nine months
excluding the merger, severance and asset charge.
Compensation and benefit expenses of $1,942 million were $555 million or 40
percent higher than the $1,347 million for first nine months of 1995. A
majority of the increase was due to the acquisition of SFP partially offset by
lower costs due to a reduction in the number of salaried employees.
Purchased services expenses for the first nine months of 1996 of $627 million
were $254 million or 68 percent higher than expenses of $373 million for the
same period of 1995. The increase principally reflects the additional
expenses related to former SFP operations.
Depreciation and amortization expense of $565 million for the first nine
months of 1996 was $236 million or 72 percent higher than the $329 million
depreciation and amortization expense for the first nine months of 1995. This
increase was due to an increase in BNSF's asset base which includes former SFP
assets which have been adjusted to reflect values assigned in the merger.
Equipment rents expenses for the first nine months of 1996 of $545 million was
$193 million or 55 percent higher than the $352 million for first nine months
of 1995. The increase was primarily due to the inclusion of equipment rents
expenses related to former SFP equipment and operations.
Fuel expenses of $524 million for the first nine months of 1996 were $217
million higher than the $307 million of fuel expenses for the first nine
months of 1995 primarily due to an increase in volume from the acquisition of
SFP. An increase in the average price paid per gallon of diesel fuel also
contributed to the increase.
Materials and other expenses of $635 million for the first nine months of 1996
were $134 million or 27 percent higher than the $501 million for the first
nine months of 1995 due to the inclusion of expenses related to former SFP
operations and higher costs associated with severe weather and derailments
which occurred in the 1996 first quarter. These increases were partially
offset by reductions in expenses reflecting synergies from the merger and
decreased costs associated with lower personal injuries claims as a result of
decreased employee injuries.
Interest expense for the first nine months of 1996 increased $79 million or
55 percent compared with same period in 1995. The increase is primarily due to
interest expense associated with the inclusion of former SFP debt partially
offset by favorable variable interest rates.
As discussed in Note 3, BNSF changed its accounting for locomotive overhauls,
effective January 1, 1995, resulting in an after-tax charge in 1995 of $100
million for the cumulative effect of the change.
CAPITAL RESOURCES AND LIQUIDITY
CASH FROM OPERATIONS
Cash generated from operations is BNSF's principal source of liquidity. BNSF
generally funds any additional liquidity requirements through debt issuance,
including commercial paper, or leasing of assets.
Operating activities provided cash of $1,233 million for the nine months ended
September 30, 1996 compared with $871 million for the nine months ended
September 30, 1995. The increase in cash from operations was attributable
primarily to a $595 million increase in net income before depreciation and
amortization, deferred income taxes, the 1995 merger, severance and asset
charge and change in accounting. The above was partially offset by an
increase in payments for employee, merger and separation costs. BNSF's net
cash outflows from investing and financing activities for the nine months
ended September 30, 1996 principally relate to capital expenditures of $1.4
billion which are further discussed below and dividend payments of $138
million.
OTHER CAPITAL RESOURCES
BNSF issues commercial paper from time to time. These borrowings are
supported by bank revolving credit agreements. Outstanding commercial paper
balances reduce available borrowings under these agreements. The bank
revolving credit agreements allow borrowings of up to $1.0 billion on a
short-term basis and an additional $1.5 billion on a long-term basis. Annual
facility fees are currently 0.08 percent and 0.125 percent, respectively, and
are subject to change based upon changes in BNSF's senior unsecured debt
ratings. Borrowing rates are based upon LIBOR plus a spread based upon BNSF's
senior unsecured debt ratings, money market rates as offered by the lenders,
or an alternate base rate. The commitments of the banks to make the loans are
currently scheduled to expire on November 19, 1996 and November 21, 2000,
respectively. BNSF is negotiating amendments to both the long and short term
bank credit agreements. The short term credit agreement is anticipated to be
reduced by $500 million while the long term agreement will remain at $1.5
billion. The short and long term agreements will be amended to expire 364
and five years, respectively, from the effective dates of the amendments.
Annual facility fees under both bank credit agreements are expected to be
reduced. The amendments are expected to be effective in mid - November 1996.
At September 30, 1996, there were no borrowings against the revolving credit
agreements. The maturity value of commercial paper outstanding was $756
million, leaving a total of $744 million of the long-term revolving credit
agreement available and $1.0 billion of the short-term revolving credit
agreement available.
In February 1996, BNSF issued $175 million of 6.875% Debentures due February
15, 2016. In June 1996, BNSF issued $200 million of 7.29% Debentures due June
1, 2036. The net proceeds from the sale of the debentures were used primarily
for the repayment of short-term debt. Both debentures were issued under a
BNSF shelf registration which has $475 million remaining. In October 1996,
BNSF filed a prospectus supplement under this shelf registration to provide
for the issuance from time to time of up to $475 million in medium term notes.
CAPITAL EXPENDITURES AND RESOURCES
A breakdown of capital expenditures is set forth in the following table (in
millions):
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1996 1995
<S> <C> <C>
Road, roadway structures and real estate $1,059 $467
Equipment 332 129
------ ----
Total $1,391 $596
====== ====
</TABLE>
Capital roadway expenditures during the nine months ended September 30, 1996
increased compared with the first nine months of 1995 as a result of expanded
maintenance requirements due to the increase in BNSF's route system and
related structures resulting from the business combination with SFP.
Additionally, expenditures increased due to capacity expansion projects in the
Power River Basin. For the nine months ended September 30, 1996, the Company
inserted 2,686,000 cross ties and laid 724 track miles of rail compared to
1,439,000 cross ties inserted and 583 track miles of rail laid for the nine
months ended September 30, 1995. Capital equipment expenditures also
increased for the first nine months of 1996 as compared to the same period of
1995 because of additional purchases of locomotives.
BNSF has a commitment to acquire 132 additional locomotives during the
remainder of 1996 and 1997. These remaining locomotives, costing
approximately $196 million, will be financed from one or a combination of
sources including, but not limited to, cash from operations, leases and debt
issuances. The decision on the method used will depend upon the current
market conditions and other factors.
The Company anticipates that 1996 capital expenditures will exceed $2 billion,
including $150 million for the purchase of 335 miles of track from Union
Pacific Railroad Company (UP) and a subsidiary of Southern Pacific Rail
Corporation (SP) as discussed below.
DIVIDENDS
Common stock dividends declared for the nine months ended September 30, 1996
and 1995 were $.90 per common share. Dividends paid on common stock during
the first nine months of 1996 and 1995 were $138 million and $81 million,
respectively. During the first nine months of 1995, a preferred stock
dividend of $16 million was paid; the Company currently has no preferred stock
outstanding. On October 1, 1996, BNSF paid to stockholders of record on
September 6, 1996 a common stock dividend of $0.30 per share. On October 17,
1996, the Company's Board of Directors declared a regular quarterly common
stock dividend of $0.30 per share to stockholders of record on December 6,
1996 to be paid on January 2, 1997.
CAPITAL STRUCTURE
BNSF's ratio of total debt to total capital was 44 percent at September 30,
1996 compared with 46 percent at December 31, 1995.
OTHER MATTERS
OTHER CLAIMS AND LITIGATION
BNSF and its subsidiaries are parties to a number of legal actions and claims,
various governmental proceedings and private civil suits arising in the
ordinary course of business, including those related to environmental matters
and personal injury claims. While the final outcome of these items cannot be
predicted with certainty, considering among other things the meritorious legal
defenses available, it is the opinion of management that none of these items,
when finally resolved, will have a material adverse effect on the annual
results of operations, financial position or liquidity of BNSF, although an
adverse resolution of a number of these items in a single period could have a
material adverse effect on the results of operations in a particular quarter
or fiscal year.
LABOR
Labor unions represent approximately 87 percent of BNRR and ATSF employees
under collective bargaining agreements with 13 different labor organizations.
BNRR, ATSF and other major railroads have been actively involved in
industry-wide labor contract negotiations since late 1994. Through this
process, wages, health and welfare benefits, work rules and other issues have
now been negotiated for substantially all BNRR and ATSF rail union-represented
employees. BNRR remains in negotiations with employees represented by the
American Train Dispatchers Department (ATDD) of the Brotherhood of Locomotive
Engineers. The ATDD represents approximately 425 employees of BNRR.
The new collective bargaining agreements will remain in effect through at
least December 31, 1999 and until new agreements are reached or the Railway
Labor Act's procedures are exhausted. The new collective bargaining
agreements include provisions for retroactive wage increases, signing bonuses
and lump sum payments. Throughout the negotiation process, the Company has
been providing reserves related to potential union agreements; therefore,
payments related to the retroactive portion of these agreements did not have a
material effect on the Company's 1996 results of operations.
UNION PACIFIC/SOUTHERN PACIFIC MERGER
The Surface Transportation Board (STB) approved the proposed common control
and merger of rail carriers controlled by UP and SP in its written decision
dated August 12, 1996. The transaction was consummated on September 12, 1996.
As a condition of the merger, the STB imposed the provisions of the rights
agreement among BNRR, ATSF and UP/SP which grants rights to BNRR and ATSF to
more than 3,500 miles of track and will require the purchase by BNRR or ATSF
from UP and SP of more than 335 miles of track for $150 million. BNRR
acquired 28 miles of track in September 1996 for $20 million; the remaining
$130 million of track is anticipated to be purchased in the fourth quarter of
1996. The STB decision provides the Company's subsidiaries with greater
access to Gulf Coast and West Coast markets. The Company is currently
evaluating the STB decision and the impact of the UP/SP merger; presently, the
ultimate effect of the UP/SP merger is not known.
<PAGE>
BURLINGTON NORTHERN SANTA FE CORPORATION AND SUBSIDIARIES
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
COAL TRANSPORTATION CONTRACT LITIGATION
Reference is made to the discussion in Registrant's Report on Form 10-K for
the fiscal year ended December 31, 1995, and in its Reports on Form 10-Q for
the quarters ended March 31 and June 30, 1996, concerning the action filed by
Southwestern Electric Power Company ("SWEPCO") against Burlington Northern
Railroad Company ("BNRR") in the 102nd Judicial District Court for Bowie
County, Texas seeking a reduction of the coal transportation rates required to
be paid under two contracts (Southwestern Electric Power Company v. Burlington
Northern Railroad Company, No. D-102-CV-91-0720). BNRR had appealed the trial
court's judgment (which approximated $74 million and contained other relief)
to the Court of Appeals for the Sixth District of Texas, Texarkana, Texas
(Burlington Northern Railroad Company v. Southwestern Electric Power Company,
No. 06-95-00024-CV), and SWEPCO had filed a notice of cross appeal. By
decision dated April 30, 1996, the Court of Appeals reversed the judgment of
the trial court and rendered judgment in favor of BNRR. SWEPCO was assessed
costs of appeal. SWEPCO has been denied two motions for rehearing before the
Court of Appeals. On October 14, 1996, SWEPCO applied for discretionary
review of the decision by the Texas Supreme Court.
CHERRYVILLE, MISSOURI INVESTIGATION
BNRR has been advised that it is a target of a Grand Jury investigation in the
United States District Court for the Eastern District of Missouri with respect
to former railcar cleaning activities conducted by independent contractors at
Cherryville, Missouri. The proceeding relates to alleged violations of
federal environmental protection statutes with respect to lead contamination
at several sites in the Cherryville area. In addition, BNRR has received
personal injury claims from certain individuals formerly residing at or near
some of these sites. The Missouri Department of Natural Resources ("DNR")
also is investigating the matter with respect to possible violations of state
environmental protection laws and has indicated that it may seek a civil
penalty from BNRR. BNRR and another potentially responsible party had
previously prepared investigation and remediation plans in conjunction with
the DNR. BNRR modified the plans and is expediting a response and
implementing remediation with DNR approval. Based upon information currently
available, BNSF does not believe that this matter will have a material adverse
effect on the financial condition or results of operations of BNSF, BNI or
BNRR.
PIPELINE MATTERS
During the quarter ended September 30, 1996, Santa Fe Pacific Pipeline
Partners, L.P. (the Partnership) entered into a stipulation with the United
States Environmental Protection Agency, whereby the Partnership will pay
$300,000 in fines to settle a June 1993 Notice of Violations associated with
an oxygenate blending equipment malfunction at the Partnership's Phoenix
terminal.
Also during the quarter ended September 30, 1996, the Partnership entered into
a stipulation with the California Department of Fish and Game to settle the
agency's claims arising from a January 1994 pipeline product release in
Martinez, California. The Partnership agreed to pay a total of $200,000 in
restoration costs and to reimburse $50,000 in agency oversight costs.
For a description of certain claims against the Partnership, see the section
entitled "FERC Proceeding" under Item 3. Legal Proceedings, of the
Partnership's Report on Form 10-Q for the quarter ended September 30, 1996,
which section is hereby incorporated by reference.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
See Index to Exhibits on page E-1 for a description of the exhibits filed as
part of this report.
B. Reports on Form 8-K
The Registrant filed the following Current Reports on Form 8-K during the
quarter ended September 30, 1996:
Registrant filed a current report on Form 8-K (Date of earliest event
reported: October 22, 1996), in which it reported under Item 5. Other Events
and Item 7. Financial Statements and Exhibits, the Third Quarter 1996
Burlington Northern Santa Fe Corporation Press Release on earnings.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BURLINGTON NORTHERN SANTA FE CORPORATION
(Registrant)
By: /s/ T. N. HUND
T. N. Hund
Vice President and Controller
(On behalf of the Registrant and as
principal accounting officer)
Schaumburg, Illinois
November 14, 1996
<PAGE>
BURLINGTON NORTHERN SANTA FE CORPORATION AND SUBSIDIARIES
EXHIBIT INDEX
10.1 Burlington Northern Santa Fe Supplemental Retirement Plan.
10.2 Burlington Northern Santa Fe Estate Enhancement program.
11 Computation of earnings per common share.
12 Statement regarding computation of ratio
of earnings to fixed charges.
27 Financial Data Schedule.
THE BURLINGTON NORTHERN SANTA FE SUPPLEMENTAL RETIREMENT PLAN
Section 1
General
1.1 Purpose
Burlington Northern Santa Fe Corporation has established the Burlington
Northern Supplemental Retirement Plan (the "Supplemental Plan"), effective
October 1, 1996 to enable eligible employees of the Company and its affiliates
to receive retirement income and other benefits in addition to the retirement
income and other benefits payable under the qualified plans of the Company.
The Company and any of its affiliates that adopts the Supplemental Plan with
the consent of the Company's Employee Benefits Committee are referred to below
collectively as the "Employers" and individually as an "Employer".
1.2 ERISA
For purposes of applying Title I of ERISA, the Supplemental Plan consists
of two components: (a) an "excess benefit" plan, within the meaning of
section 3(36) of ERISA (the "Excess Plan") and (b) a plan maintained primarily
for the purpose of providing supplemental retirement benefits for a select
group of management or highly compensated employees within the meaning of
section 301(a)(3) of ERISA (the "Management Plan"). All benefits provided
under the Supplemental Plan will be provided under the Excess Plan component,
except to the extent that such benefits may not be provided under an excess
plan as defined under section 3(36) of ERISA. Any benefits that may not be
provided under the Excess Plan component will be provided under the Management
Plan component.
1.3 Administration
The Supplemental Plan shall be administered by the BNSF Employee Benefits
Committee as more fully described in Section 5 hereof.
1.4 Source of Benefits
The amount of any benefit payable under the Supplemental Plan will be
paid in cash from the general assets of the Employers or from one or more
trusts, the assets of which are subject to the claims of the Employers'
general creditors in the event of bankruptcy or insolvency. Such amounts
payable shall be reflected on the accounting records of the Employers but
shall not be construed to create, or require the creation of, a trust,
custodial or escrow account. Nothing contained in this Supplemental Plan and
no action taken pursuant to its provisions, shall create a trust or fiduciary
relationship of any kind between an Employer and an employee or any other
person. Neither an employee or beneficiary of an employee shall acquire any
interest greater than that of an unsecured creditor, subject to any
preferences provided by federal bankruptcy laws.
1.5 Applicable Laws
The Supplemental Plan shall be construed and administered in accordance
with the internal laws of the State of Texas to the extent that such laws are
not preempted by the laws of the United States.
1.6 Gender and Number
Where the context admits, words in any gender shall include any other
gender, words in the singular shall include the plural and the plural shall
include the singular.
1.7 Capitalized Terms
Capitalized terms shall have the meaning as defined herein or as defined
in the Burlington Northern Santa Fe Retirement Plan ("Retirement Plan").
1.8 Action by Employers
Any action required of or permitted by the Company or the Employers under
the Supplemental Plan shall be by approval of the Committee or any person or
persons authorized by the Committee.
1.9 Severability of Plan Provisions
In the event any provision of the Supplemental Plan shall be held invalid
or illegal for any reason, any invalidity or illegality shall not affect the
remaining parts of the Supplemental Plan, but the Supplemental Plan shall be
construed and enforced as if the invalid or illegal provision had never been
inserted, and the Company shall have the right to correct and remedy such
questions of invalidity or illegality by amendment as provided in the
Supplemental Plan.
1.10 Notices
Any notice or document required to be filed with the Committee under the
Supplemental Plan will be properly filed if delivered or mailed by certified
mail to the Committee or its delegate, in care of the Company, at its
principal executive offices or such other address as may be specified by the
Committee. Any notice required under the Supplemental Plan may be waived by
the party entitled to notice.
Section 2
Participation
2.1 Participation
Subject to any conditions or limitations of the Supplemental Plan, each
individual who was a Participant in the Santa Fe Pacific Supplemental
Retirement Plan and the Burlington Northern Inc. Supplemental Benefits Plan
immediately prior to the Effective Date under the provisions of the
predecessor supplemental plans relating to pension make-up benefits will
continue to be a Participant under this Section 2 on and after that date, and
each other employee of an Employer who was not a Participant immediately prior
to the Effective Date will automatically be enrolled in and become a
Participant in the Supplemental Plan under this section on the first day upon
which he satisfies the following requirements:
(a) he is a participant in the Burlington Northern Santa Fe Retirement Plan;
and
(b) his benefits under the Retirement Plan are limited as a result of any of
the provisions set forth in subparagraphs (i) and/or (ii) below:
(i) the compensation limitations of section 401(a)(17) of the Code or
the benefit limitation of sections 415(b) or 415(e) of the Code; or
(ii) the Retirement Plan does not take into account as compensation any
non-qualified deferred compensation, compensation foregone in exchange for a
Company stock award as set forth in Schedule A to this Supplemental Plan, or
any other such compensatory arrangement as may be established by the Company
as set forth in Schedule A. Schedule A is hereby attached hereto and
incorporated by reference.
2.2 Plan Not Contract of Employment
The Supplemental Plan does not constitute a contract of employment, and
participation in the Supplemental Plan will not give any employee the right to
be retained in the employ of any Employer nor any right or claim to any
benefit under the Supplemental Plan, unless such right or claim has
specifically accrued under the terms of the Supplemental Plan.
Section 3
Amount of Supplemental Plan Benefits
3.1 Amount of Benefits
A Participant under this Section 3 shall be eligible for a supplemental
retirement benefit under this Supplemental Plan in an amount equal to:
(a) the amount of the monthly benefit to which the Participant,
surviving spouse, or contingent annuitant as defined in the Retirement Plan
would be entitled under the Retirement Plan, if (i) such benefit were
determined without regard to the compensation limitations of section
401(a)(17) of the Code and without regard to the limitations imposed by
section 415 of the Code, and (ii) if not credited under the Retirement Plan,
the Retirement Plan included as compensation any Participant contributions
under a non-qualified deferred compensation arrangement, compensation foregone
in exchange for a Company stock award as set forth in Schedule A to this
Supplemental Plan, or any other such compensatory arrangement as may be
established by the Company as set forth in Schedule A. To the extent that any
compensation is taken into account under the Excess Plan, such compensation
shall not be taken into account on the Management Plan.
REDUCED BY
(b) the amount of the actual benefit payable under the Retirement Plan
to or on account of the Participant, surviving spouse, or contingent
annuitant.
Section 4
Vesting and Payment of Supplemental Benefits
4.1 Vesting
A Participant shall have become vested and have a nonforfeitable interest
in his benefits determined under Section 4 of the Supplemental Plan when and
to the extent that his accrued benefit under the Retirement Plan becomes
vested and nonforfeitable. Notwithstanding the foregoing provisions of this
subsection 4.1, a Participant or his beneficiary shall have no right to any
benefits under the Supplemental Plan, if the Committee or his Employer
determines that he engaged in a willful, deliberate or grossly negligent act
of commission or omission which is substantially injurious to the finances or
reputation of the Employers.
4.2 Payment of Plan Benefits to Participants
A Participant's vested benefits under the Supplemental Plan will be paid
to him in the same form, on the same dates and for the same period during
which benefits are payable to him under the Retirement Plan. Notwithstanding
any other provision of this Supplemental Plan to the contrary, a Participant
may elect not less than one (1) year prior to a Participant's retirement date
under the Supplemental Plan, subject to the discretion of the Committee, to
receive a single sum in full satisfaction of any liability of the Supplemental
Plan to such Participant calculated in accordance with Article 9.02(g) of the
Retirement Plan. If a Participant retires less than one year after making
such an election, the election shall have no force and effect.
4.3 Payment of Plan Benefits to Beneficiaries
If a Participant dies before he has commenced the receipt of vested
benefits, his surviving spouse shall receive such death benefits or
pre-retirement surviving spouse benefits, if any, as would be provided under
the Retirement Plan, calculated and paid in the same form and manner as under
the Retirement Plan. If a Participant dies after he has commenced the receipt
of benefits, there are no death benefits payable under the Supplemental Plan
except as may be provided under the distribution method applicable to such
benefits in accordance with subsection 4.2 herein.
4.4 Alienation of Benefits
The benefits payable to, or on account of, any individual under the
Supplemental Plan may not be voluntarily or involuntarily assigned or
alienated.
4.5 Tax Liability
The Employers may withhold from any payment of benefits hereunder any
taxes required to be withheld and such sum as the Employers may reasonably
estimate to be necessary to cover any taxes for which the Employers may be
liable and which may be assessed with regard to such payment.
4.6 Committee Discretion to Accelerate
The Committee may accelerate the date of distribution of any benefits
payable under the Supplemental Plan to or on behalf of any Participant to the
extent that the Committee determines that such acceleration is in the best
interests of the Employers because of changes in tax laws, tax regulations or
accounting principles, Department of Labor regulations, or any other reason
which negates or diminishes the continued value of the Supplemental Plan to
any Employer or Participant. The amount distributed will be paid in the form
of a lump sum calculated in accordance with Article 9.02(g) of the Retirement
Plan.
Section 5
Committee Administration
5.1 Committee Membership and Authority
The Committee referred to in Section 1 shall consist of the BNSF Employee
Benefits Committee. The Committee shall act by a majority of its then
members, by meeting or by writing filed without meeting, and shall have the
following discretionary authority, powers, rights and duties in addition to
those vested in it elsewhere in the Supplemental Plan:
(a) to adopt and apply in a uniform and nondiscriminatory manner to all
persons similarly situated, such rules of procedure and regulations as, in its
opinion, may be necessary for the proper and efficient administration of the
Supplemental Plan and as are consistent with the provisions of the
Supplemental Plan;
(b) to enforce the Supplemental Plan in accordance with its terms and
with such applicable rules and regulations as may be adopted by the Committee;
(c) to determine conclusively all questions arising under the
Supplemental Plan, including the power to determine the eligibility of
employees and the rights of Participants and other persons entitled to
benefits under the Supplemental Plan and their respective benefits, to make
factual findings and to remedy ambiguities, inconsistencies or omissions of
whatever kind;
(d) to maintain and keep adequate records concerning the Supplemental
Plan and concerning its proceedings and acts in such form and detail as the
Committee may decide;
(e) to direct all payment of benefits under the Supplemental Plan; and
(f) to employ such agents, attorney, accountants or other persons (who
may also be employed by or represent the Employers) for such purposes as the
Committee considers necessary or desirable to discharge its duties.
5.2 Information to be Furnished to the Committee
The Employers shall furnish to the Committee such data, tax withholding
certifications and information as may be required for it to discharge its
duties and the records of the Employers shall be conclusive on all persons
unless determined to be incorrect. Participants and other persons entitled to
benefits under the Supplemental Plan must furnish to the Committee such
evidence, data or information as the
Committee considers desirable to carry out the Supplemental Plan.
5.3 Committee's Decision Final
Any interpretation of the Supplemental Plan and any decision on any
matter within the discretion of the Committee made by the Committee shall be
binding on all persons. A misstatement or other mistake of fact shall be
corrected when it becomes known, and the Committee shall make such adjustment
on account thereof as it considers equitable and practicable.
Section 6
Amendment and Termination
6.1 Amendment and Termination
The Company and the Committee shall have the right to amend the
Supplemental Plan from time to time, and the right to terminate it; provided,
however, that no such amendment or termination of the Supplemental Plan will:
(a) reduce or impair the interests of Participants in benefits being
paid under the Supplemental Plan as of the date of the amendment or
termination, as the case may be; or
(b) reduce the amount of Supplemental benefits payable to or on account
of any employee of an Employer to an amount which is less that the amount to
which he would be entitled in accordance with the provisions of the
Supplemental Plan if the employee terminated employment immediately prior to
the date of the amendment or termination, as the case may be.
6.2 Merger
No Employer will merge or consolidate with any other corporation, or
liquidate or dissolve, without making suitable arrangements, satisfactory to
the Committee, for the payment of any benefits payable under the Supplemental
Plan.
Section 7
Change in Control
7.1 Definition.
A "Change in Control" shall be deemed to have occurred if:
(1) any "person" as such term is used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act") (other
than the Company, any trustee or other fiduciary holding securities under an
employee benefit plan of the Company, or any company owned, directly or
indirectly, by the stockholders of the Company in substantially the same
proportions as their ownership of stock of the Company), is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Company representing 25% or more
of the combined voting power of the Company's then outstanding securities;
(2) during any period of two consecutive years (not including any
period prior to the effective date of this provision), individuals who at the
beginning of such period constitute the Board, and any new director (other
than a director designated by a person who has entered into an agreement with
the Company to effect a transaction described in clause (1), (3) or (4) of
this definition) whose election by the Board or nomination for election by
the Company's stockholders was approved by a vote of at least two-thirds
(2/3) of the directors then still in office who either were directors at the
beginning of the period or whose election or nomination for election was
previously so approved, cease for any reason to constitute at least a
majority thereof;
(3) the stockholders of the Company approve a merger or consolidation
of the Company with any other company other than (i) a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than 80% of the combined voting power of the voting
securities of the Company (or such surviving entity) outstanding immediately
after such merger or consolidation, or (ii) a merger or consolidation
effected to implement a recapitalization of the Company (or similar
transaction) in which no "person" (as hereinabove defined) acquires more than
25% of the combined voting power of the Company's then outstanding
securities; or
(4) the stockholders of the Company adopt a plan of complete
liquidation of the Company or approve an agreement for the sale or
disposition by the Company of all or substantially all of the Company's
assets. For purposes of this clause (4), the term "the sale or disposition
by the Company of all or substantially all of the Company's assets" shall
mean a sale or other disposition transaction or series of related
transactions involving assets of the company or of any direct or indirect
subsidiary of the Company (including the stock of any direct or indirect
subsidiary of the Company) in which the value of the assets or stock being
sold or otherwise disposed of (as measured by the purchase price being paid
therefor or by such other method as the Board of Directors of the Company
determines is appropriate in a case where there is no readily ascertainable
purchase price) constitutes more than two-thirds of the fair market value of
the Company (as hereinafter defined). For purposes of the preceding sentence,
the "fair market value of the Company" shall be the aggregate market value of
the outstanding shares of Stock (on a fully diluted basis) plus the aggregate
market value of the Company's other outstanding equity securities. The
aggregate market value of the shares of Stock (on a fully diluted basis)
outstanding on the date of the execution and delivery of a definitive
agreement with respect to the transaction or series of related transactions
(the "Transaction Date") shall be determined by the average closing price of
the shares of Stock for the ten trading days immediately preceding the
Transaction Date. The aggregate market value of any other equity securities
of the Company shall be determined in a manner similar to that prescribed in
the immediately preceding sentence for determining the aggregate market value
of the shares of Stock or by such other method as the Board of Directors of
the Company shall determine is appropriate.
Notwithstanding the foregoing, a merger, consolidation, acquisition
of common control, or business combination of the Company and a Class I
Railroad or a holding company of a Class I railroad that is approved by the
Board shall not constitute a "Change in Control" unless the Board makes a
determination that the transaction shall constitute a "Change in Control".
7.2 Effect of a Change in Control
Notwithstanding any other provision of the Supplemental Plan to the
contrary, in the event of a Change in Control, (i) each Participant shall
immediately be fully vested in the amounts accrued under the Supplemental Plan
and (ii) the present value of any benefits payable under this Supplemental
Plan shall be deposited in cash in the BNSF rabbi trust established for such
purpose.
<PAGE>
SCHEDULE A
Burlington Northern Inc. Deferred Compensation Plan
Santa Fe Pacific Supplemental Deferred Compensation Plan
Burlington Northern Santa Fe Incentive Bonus Stock Program
Burlington Northern Santa Fe Salary Exchange Option Program
Burlington Northern Santa Fe Estate Enhancement Program
Retirement Benefit Agreement between R. D. Krebs and Santa
Fe Pacific Corporation dated February 26, 1992
Retirement Benefit Agreement between M. D. Dealy and the Atchison,
Topeka and Santa Fe Railway Company dated July 19, 1993
Santa Fe Pacific Supplemental Retirement and Savings Plan
Burlington Northern Santa Fe Supplemental Investment and
Retirement Plan
BURLINGTON NORTHERN SANTA FE
ESTATE ENHANCEMENT PROGRAM
TABLE OF CONTENTS
SECTION PAGE
SECTION 1 1
General 1
History, Purpose and Effective Date 1
Governing Documents 1
Plan Administration 1
Non-Alienation 1
Source of Benefits 2
Plan Year 2
Policy Year 2
Notices 2
Applicable Laws 2
Gender and Number 2
SECTION 2 2
Participation 2
Participation 2
Plan Not Contract of Employment 2
SECTION 3 3
Benefits 3
Available Coverage 3
Elected Increases and Decreases in Coverage 3
Cost 3
Cash Value 3
Limitation on Benefits 3
Election to Forego Salary 4
SECTION 4 4
Split-Dollar and Collateral-Assignment Agreements 4
Introduction 4
Insurance Policy 5
Policy Ownership 5
Payment of Premiums 5
Collateral-Assignment Agreement 7
Limitations on Owner's Rights under Policy 8
Collection and Payment of Death Benefit 8
Termination of Split-Dollar Agreement 9
Payments on Termination of Split-Dollar Agreement 12
SECTION 5 13
Plan Administration 13
Plan Administrator; Administration 13
Determination of Benefits 14
SECTION 6 14
Miscellaneous 14
Amendment and Termination 14
Validity 14
SECTION 7 14
Change in Control and Potential Change in Control 14
BURLINGTON NORTHERN SANTA FE
ESTATE ENHANCEMENT PROGRAM
SECTION 1
General
1.1 History, Purpose and Effective Date. Effective April 18, 1996
(the "Effective Date"), as amended and restated effective November 1, 1996,
Burlington Northern Santa Fe, a Delaware corporation (the "Company"),
established the Burlington Northern Santa Fe Estate Enhancement Program (the
"Plan"). The purpose of this Plan is to provide senior management employees
of the Company and any subsidiary of the Company which adopts this Plan (a
"Subsidiary") an opportunity to either individually purchase a life insurance
policy or to make available to other persons the opportunity to purchase a
life insurance policy insuring either (a) the life of such employee and
providing a death benefit upon the death of the employee, or (b) the lives of
such employee and his spouse and providing a death benefit upon the death of
the survivor of the employee and his spouse (a "Policy"), pursuant to a
collateral assignment, split-dollar arrangement with the Company.
1.2 Governing Documents. In the event of any inconsistency between
the terms of this Plan as described herein and the terms of any Policy
purchased by an Owner (as defined in subsection 2.1), or any related
Split-Dollar Agreement or Collateral-Assignment Agreement (as described in
Section 4) executed by an Owner, the terms of such policy or agreement shall
be controlling as to that Owner, Participant, his spouse (if any), his
assignee (if any), his successor-in-interest (if any) and his beneficiary or
beneficiaries.
1.3 Plan Administration. The authority to control and manage the
day-to-day operation and administration of this Plan is vested in the
Company's Vice President - Human Resources (the "Plan Administrator") or such
other officer of the Company as its Board of Directors shall designate;
provided, however, that any action required or permitted to be taken by the
Plan Administrator may be taken by the Compensation Committee of the Company's
Board of Directors (the "Committee").
1.4 Non-Alienation. Except to the extent provided under subsection
4.5 and under the terms of a Policy and the related Split-Dollar and
Collateral-Assignment Agreements, no Participant's or Owner's benefits under
this Plan may be voluntarily or involuntarily assigned or alienated.
1.5 Source of Benefits. Any benefit payable to or on account of a
Participant under this Plan shall be paid by the insurance company issuing the
Policy (the "Insurer").
1.6 Plan Year. The "Plan Year" shall be the period beginning April
18, 1996 and ending December 31, 1996 and each calendar year thereafter.
1.7 Policy Year. The "Policy Year" shall mean the 12-consecutive
month period designated as such in a Policy or such other period as determined
by the Plan Administrator.
1.8 Notices. Any notice or document required to be given to or filed
with the Plan Administrator shall be considered to be given or filed if
delivered to the Administrator of this Plan or mailed by registered mail,
postage prepaid to the Administrator, in care of the Company, at its principal
corporate office.
1.9 Applicable Laws. This Plan shall be construed and administered in
accordance with the internal laws of the State of Illinois, except to the
extent preempted by Federal law.
1.10 Gender and Number. Where the context admits, words in any gender
shall include any other gender, words in the singular shall include the plural
and the plural shall include the singular.
SECTION 2
Participation
2.1 Participation. Each Senior Management Employee (as defined below)
shall become a "Participant" in this Plan as of the date on or after the
Effective Date on which he or another person purchases a Policy pursuant to
the terms of this Plan and executes a related "Split-Dollar Agreement" and
"Collateral-Assignment Agreement" as set forth in Section 4 hereof; provided
that such Senior Management Employee has executed an "Agreement to Forego
Salary" in accordance with subsection 3.6 hereof. The term "Owner" means the
Participant or other person purchasing a Policy pursuant to the terms of this
Plan. The term "Senior Management Employee" means a full-time employee on the
active roll of the Company or any Subsidiary who holds the position of
President or Senior Vice President of the Company or a Subsidiary.
2.2 Plan Not Contract of Employment. This Plan does not constitute a
contract of employment, and nothing in this Plan will give any employee or
Participant the right to be retained in the employ of the Company or a
Subsidiary, nor the right to any incentive award, nor any right or claim to
any benefit under this Plan, except to the extent specifically provided under
the terms of this Plan.
SECTION 3
Benefits
3.1 Available Coverage. Subject to the Participant satisfying any
insurability requirements of the Insurer, an Owner may purchase a Policy on
the life of the Participant or on the lives of the Participant and his spouse.
The death benefit coverage that may be purchased under a Policy may not
exceed the amount which may be purchased in accordance with the amounts to be
contributed as premiums by the Company and the Owner in accordance with the
related Split-Dollar Agreement.
3.2 Elected Increases and Decreases in Coverage. In accordance with
the terms of this Plan, and subject to the Participant satisfying any
insurability requirements of the Insurer, the Owner, prior to the
Participant's termination of employment with the Company and the Subsidiaries,
may elect to increase or decrease the amount payable as a death benefit
(within the limits set forth in subsection 3.1), with such election to be in
such form and made at such time as the Company and the Insurer may require.
3.3 Cost. The cost of providing the life insurance coverage under any
Policy purchased by an Owner shall be shared between the Owner and the Company
in accordance with the terms of such Policy and the related Split-Dollar
Agreement and Collateral-Assignment Agreement executed by the Owner, as
described in subsection 4.4.
3.4 Cash Value. Each Policy purchased by an Owner shall be designed
to have a cash value. In accordance with the specific terms of the Policy
purchased by an Owner and subject to the related Split-Dollar Agreement and
Collateral-Assignment Agreement executed by that Owner, the Owner may be
entitled to withdraw his interest in such cash value, surrender it for a lump
sum cash payment or convert it to an annuity, with a corresponding reduction
in the death benefit payable under the Policy.
3.5 Limitation on Benefits. The amount of benefits payable to or on
account of a Participant pursuant to this Plan shall not exceed the total
amount of death proceeds and other benefits payable by the Insurer under any
Policy purchased by the Owner with respect to such Participant, reduced by the
amount of such death proceeds to which the Company is entitled pursuant to the
Split-Dollar Agreement and Collateral-Assignment Agreement executed by the
Owner.
3.6 Election to Forego Salary. As a condition of participating in
this Plan, each Participant will be required to make a one-time irrevocable
election to forego a specified portion of his salary for each 12-month period
beginning on and after the Policy Date of the Policy (as defined in the
Policy), with such election to remain in effect until the first to occur of
(a) the date which is the fifth (5th) annual anniversary of the Policy Date,
(b) the date on which the Participant terminates employment with the Company
or Subsidiary, or (c) the date on which the related Split-Dollar Agreement
terminates in accordance with subsection 4.8. The Participant shall make such
election by execution of an "Agreement to Forego Salary" prior to the Policy
Date, which agreement shall specify a level dollar amount of salary which the
Participant elects to forego during each such 12-month period, which dollar
amount will be at least $50,000 and no more than $100,000 for each 12-month
period. The amounts which a Participant agrees to forego pursuant to this
subsection 3.6 shall be included in determining the amounts of the
Participant's "compensation" under any nonqualified supplemental pension plan
or group life insurance plan maintained by the Company but shall be
disregarded for purposes of all other plans or arrangements maintained by the
Company and the Subsidiaries. If the Participant's election to forego salary
is no longer in effect because of his termination of employment with the
Company or Subsidiary as described in (b) of this subsection 3.6, and such
termination is for a reason other than the Participant's disability (as
determined by the Plan Administrator) or death, then, in accordance with
subsection 4.4(c), the Owner will be required to pay to the Company, as part
of the Owner's Policy Year Contribution to Premium for the remainder of the
Policy Year in which such termination occurs and for each succeeding Policy
Year until the date that is five (5) years after the Policy Date, an amount
equal to the level amount of salary which the Participant had elected to
forego for a 12-month period under this subsection 3.6 (such amount to be
pro-rated for payments made for the remainder of the Policy year in which the
termination of employment occurs), reduced by thirty-five percent (35%), each
such reduced amount hereinafter referred to as the "Owner's Special
Contribution."
SECTION 4
Split-Dollar and Collateral-Assignment Agreements
4.1 Introduction. The Split-Dollar Agreement and Collateral-Assignment
Agreement executed by the Owner in conjunction with his purchase of a Policy
shall establish the rights of the Company to the proceeds of any such Policy
acquired by the Owner and shall include such terms and conditions, not
inconsistent with this Plan, as the Plan Administrator may, with the consent
of the Vice President - Law and General Counsel, prescribe. The terms of the
particular Split-Dollar Agreement and Collateral-Assignment Agreement executed
by an Owner shall apply solely to that Owner.
4.2 Insurance Policy. The Policy shall be purchased by the Owner from
any insurance company chosen by the Owner, provided that such insurance
company must either (a) have a rating of "AA" or better, as determined by any
major rating company other than A.M. Best, or (b) be approved by the Company's
Chief Financial Officer. The Company shall take all reasonable steps
necessary to enable the Insurer to issue the Policy, and to comply with any
reasonable request to take any further action which may be necessary to cause
the Policy to conform to the provisions of this Plan. The Owner's rights
under any Policy purchased by such Owner shall be subject to the terms and
conditions of the related Split-Dollar Agreement and Collateral-Assignment
Agreement executed by the Owner.
4.3 Policy Ownership. The Owner shall be the sole and absolute owner
of any Policy purchased by such Owner, and may exercise all ownership rights
granted to the owner thereof by the terms of the Policy, except as may
otherwise be provided in the related Split-Dollar and Collateral-Assignment
Agreements executed by the Owner.
4.4 Payment of Premiums. While the Split-Dollar Agreement remains in
effect:
(a) Except as otherwise provided in the Split-Dollar Agreement, the
premium to be paid to the Insurer for the Policy in each Policy Year ("Total
Policy Year Premium") shall be set forth in an exhibit ("Exhibit B") attached
to the Split-Dollar Agreement.
(b) Except as otherwise provided in the Split-Dollar Agreement, on or
before the date of such Split-Dollar Agreement as to the first Policy Year
and on or before the first day of each next succeeding Policy Year, or within
the grace period provided in the Policy, the Company shall pay to the Insurer
the Total Policy Year Premium set forth in the Exhibit for that Policy
Year. However, for purposes of determining the amount due the Company as a
result of its payments toward the premiums on the Policy, in each Policy Year
the Company shall be deemed to have paid only that portion of the premium
(the "Company's Policy Year Net Premium Payment") for which it has not
received payment from the Owner as the Owner's Policy Year Contribution to
Premium as provided for in subsection (c) next below; provided that the
Owner's Special Contributions, if any, as defined in section 3.6, shall not
be considered part of the Owner's Policy Year Contribution to Premium for
this purpose.
(c) Except as otherwise provided herein, as to each Policy Year, a
certain amount of contribution to the premium shall be due from the Owner
(the "Owner's Policy Year Contribution to Premium") for such Plan Year. This
amount shall be based upon the annual cost of the current life insurance
coverage provided on behalf of the Participant for such Policy Year and shall
be equal to the "economic benefit" of such current life insurance coverage
for Federal income tax purposes, as provided in Revenue Ruling 64-328 (or the
corresponding applicable provisions of any future Revenue Ruling) or as
otherwise provided for Federal income tax purposes. The Owner shall be
required to pay the Owner's Policy Year Contribution to Premium to the
Company for each such Policy Year, subject to any assignment of the Policy in
accordance with the terms thereof and of the related Split-Dollar and
Collateral-Assignment Agreements.
(i) If the Participant is the Owner of the Policy, and so long
as the Participant's employment with the Company continues and unless the
Company and the Participant agree otherwise, the Company shall deduct the
Owner's Policy Year Contribution to Premium from the Participant's normal
salary payments on a level basis during the Policy Year, except as to the
first Policy Year, during which the Owner's Policy Year Contribution to
Premium shall be deducted on a level basis beginning as of the date of
enrollment, and except as to the last Policy Year, during which the Owner's
Policy Year Contribution to Premium shall be deducted on a level basis ending
as of the date of the termination of the Split-Dollar Agreement. Upon the
termination of the Participant's employment with the Company or a Subsidiary
in any Policy Year and continuing until the termination of the Split-Dollar
Agreement, the Participant shall be required to pay the balance of the
Owner's Policy Year Contribution to Premium for such Policy Year (which has
not theretofore been deducted from the Participant's salary) generally within
ninety (90) days of such termination of the Participant's employment with the
Company, and the Participant shall be required to pay the Owner's Policy Year
Contribution to Premium for each succeeding Policy Year generally within
ninety (90) days of the premium payment date for the Policy for each such
Policy Year.
(ii) If the Owner of the Policy is not the Participant, the
Owner shall pay the Owner's Policy Year Contribution to Premium for each
Policy Year generally within ninety (90) days of the premium payment date for
the Policy for each such Policy Year. In all events, the Owner shall pay the
Owner's Policy Year Contribution to Premium prior to the end of each such
Policy Year.
(iii) For the Policy Year in which the Participant dies (or,
with respect to a Policy insuring the lives of the Participant and his
spouse, for the Policy Year in which the survivor of the Participant and his
spouse dies), an appropriate adjustment shall be made to the Owner's Policy
Year Contribution to Premium for such Policy Year (and any applicable Policy
Year thereafter) to reflect such event.
Any provision of this subsection (c) to the contrary notwithstanding, if
the Participant's employment with the Company or a Subsidiary shall be
terminated for any reason other than the Participant's disability (as
determined by the Plan Administrator) or death before the date that is five
(5) years after the Policy Date, then the Owner's Policy Year Contribution to
Premium for each succeeding Policy Year until the date that is five (5) years
after the Policy Date shall be increased by the Owner's Special
Contributions, as defined in section 3.6.
4.5 Collateral-Assignment Agreement. To secure the payment to the
Company of the amount due it hereunder as a result of its payments toward the
premiums on the Policy, the Owner shall contemporaneously with its purchase
and the execution of the Split-Dollar Agreement assign the Policy in favor of
the Company as collateral pursuant to a written agreement, which collateral
assignment shall specifically provide that the sole right of the Company
thereunder is to be paid the amount due it under the Split-Dollar Agreement as
a result of its payments toward the premiums on the Policy, including payments
attributable to the Owner's Special Contributions, if any. Such payment shall
be made from the cash value of the Policy (as defined therein) if the
Split-Dollar Agreement is terminated or if the Owner surrenders or cancels the
Policy while the related Split-Dollar Agreement remains in effect, or from the
death benefit provided under the Policy, if the Participant dies (or with
respect to a Policy insuring the lives of the Participant and his spouse, if
both the Participant and his spouse die) while the Policy and the related
Split-Dollar Agreement remain in effect. In no event shall the Company have
any right to borrow against or withdraw amounts from the Policy, to surrender
or cancel the Policy, or take any other action which would impair or defeat
the rights of the Owner as the owner of the Policy. The collateral
assignment of the Policy to the Company shall not be terminated, altered or
amended by the Owner while the Split-Dollar Agreement is in effect. The
Owner and the Company shall take all action necessary to cause such collateral
assignment to conform to the provisions of the Split-Dollar Agreement.
4.6 Limitations on Owner's Rights under Policy. As the sole and
absolute owner of the Policy, the Owner may exercise all of the rights,
options, privileges and other incidents of ownership granted to the owner
thereof by the terms of the Policy (including, without limitation, the
unlimited ability to borrow against or withdraw amounts from the cash value of
the Policy and to surrender or cancel the Policy). Notwithstanding the
foregoing, so long as the Split-Dollar Agreement remains in effect: (a) if
the Policy is a variable policy, investment decisions with respect to the
Policy will be made by the Owner, subject to approval by the Company's Chief
Financial Officer or Vice President-Finance, or as otherwise specifically
provided in the related Split-Dollar Agreement; (b) the Owner shall not take
any action with respect to the Policy which would have a direct or indirect
adverse effect on the Company's interests under the Split-Dollar Agreement in
the Policy without the prior written consent of the Committee or the Company's
Chief Executive Officer; and (c) except with respect to the Owners's right to
change the beneficiaries of the Participant's Death Benefit, as defined in
subparagraph (iii) of subsection 4.7(b), and to assign the Owner's interests
in the Policy and under the related Split-Dollar Agreement as may be provided
therein, the Owner shall not take any other action with respect to the Policy
(regardless of whether it would directly or indirectly adversely affect the
Company's interests under the Split-Dollar Agreement in the Policy) without
the prior written consent of the Committee or the Company's Chief Executive
Officer. For purposes of this subsection 4.6, the Owner may borrow against or
withdraw from the cash value of the Policy any amounts which may be required
to be paid to the Company and which are due the Company under subsection
4.4(c) or subsection 4.9, so long as the amount of any such loan or withdrawal
made to pay the Company under subsection 4.4(c) is chargeable solely against
the Participant's Death Benefit and that portion of the cash value of the
Policy which is in excess of the cash value of the Policy due the Company
under the related Split-Dollar Agreement as a result of its payments toward
the premiums on the Policy pursuant to the Collateral-Assignment Agreement.
4.7 Collection and Payment of Death Benefit.
(a) Upon the death of the Participant (or with respect to a Policy
insuring the lives of the Participant and his spouse, upon the death of the
survivor of the Participant and his spouse) while the related Split-Dollar
Agreement remains in effect, the Company and the Owner's beneficiary shall
promptly take all action necessary to obtain the death benefit provided
under the Policy and payable as a result of the maturity of the Policy
(the "Death Benefit").
(b) The Death Benefit shall be paid as follows:
(i) The Company shall first be paid from the Death Benefit any
unpaid amount of the Participant's Plan Year Contribution to Premium owed to
it by the Participant under subsection 4.4(c).
(ii) The Company shall next be paid from the Death Benefit the
total net amount of the payments made by it toward the premiums of the
Policy. Such amount shall be the sum of the Company's Policy Year Net
Premium Payment amounts under subsection 4.4(b), which amount shall include,
as provided in subsection 4.4(b), the Owner's Special Contributions, if any
(the "Company's Cumulative Net Premium Payment").
(iii) The Owner's beneficiary under a Policy shall next be paid,
in the manner and in the amount or amounts provided in the beneficiary
designation provision of such Policy, from the Death Benefit an amount equal
to the Participant's Death Benefit. For purposes of this subparagraph (iii),
the "Participant's Death Benefit" shall be that portion of the Death Benefit
remaining after the payments provided for in items (i) and (ii) of this
subsection 4.7(b), and then reduced by any loan chargeable against the
Participant's Death Benefit.
(c) The beneficiary designation provision of the Policy shall conform
to the provisions hereof.
4.8 Termination of Split-Dollar Agreement.
(a) A Split-Dollar Agreement shall terminate, without notice, on the
first day of the month following the month during which the first of the
following events occurs:
(i) The Owner fails to make any premium payment required under
subsection 4.4(c) for any Policy Year by the end of such Policy Year or the
Owner notifies the Company that the Owner intends to surrender or cancel the
Policy.
(ii) The Participant's employment with the Company or a
Subsidiary terminates before the date that is five (5) years after the Policy
Date as a result of the Participant's involuntary termination of employment
for cause.
(iii) The Participant's employment with the Company or a
Subsidiary terminates before the date that is five (5) years after the Policy
Date as a result of the Participant's voluntary termination of employment.
(iv) The Participant's employment with the Company or a
Subsidiary terminates before the date that is five (5) years after the Policy
Date as a result of the Participant's retirement (as defined below) and
neither the Committee nor the Company's Chief Executive Officer consent to
the continuation of the Split-Dollar Agreement; provided that with respect to
the retirement of the Company's Chief Executive Officer before the date that
is five (5) years after the Policy Date, the consent of the Committee shall
be necessary for the continuation of the Split-Dollar Agreement.
(v) The Participant establishes a relationship with a competitor
of the Company or engages in any activity which is in conflict with or
adverse to the interests of the Company, as determined by the Committee in
its sole discretion, whether before or after the Participant's employment
with the Company or a Subsidiary has terminated and whether before, on or
after the date upon which the Participant retires or becomes eligible to
retire, and neither the Committee nor the Company's Chief Executive Officer
consent to the continuation of the Split-Dollar Agreement; provided that with
respect to a Participant who is the Company's Chief Executive Officer, the
consent of the Committee shall be necessary for the continuation of the
Split-Dollar Agreement under the circumstances described in this subparagraph
(v) of subsection 4.8(a).
(vi) The date immediately before the date that is fifteen (15)
years after the Policy Date.
(vii) The Company terminates the Split-Dollar Agreement by
written notice to the Owner. Such notice shall be effective as of the date
of such notice.
(viii) The Owner terminates the Split-Dollar Agreement by
written notice to the Company. Such notice shall be effective as of the date
of such notice.
(b) The following events shall not result in the termination of a
Split-Dollar Agreement:
(i) The Participant's employment with the Company or a
Subsidiary terminates after the date that is five (5) years after the Policy
Date as a result of the Participant's voluntary termination of employment.
(ii) The Participant's employment with the Company or a
Subsidiary terminates after the date that is five (5) years after the Policy
Date as a result of the Participant's involuntary termination of employment
for cause.
(iii) The Participant's employment with the Company or a
Subsidiary terminates after the date that is five (5) years after the Policy
Date as a result of the Participant's retirement.
(iv) The Participant's employment with the Company or a
Subsidiary terminates before the date that is five (5) years after the Policy
Date as a result of the Participant's retirement and the Committee or the
Company's Chief Executive Officer consent to the continuation of the
Split-Dollar Agreement; provided that with respect to the retirement of the
Company's Chief Executive Officer before the date that is five (5) years
after the Policy Date, the consent of the Committee shall be necessary for
the continuation of the Split-Dollar Agreement.
(v) The Participant dies.
(vi) The Participant's employment with the Company or a
Subsidiary terminates as a result of the Participant's disability (as
determined by the Plan Administrator).
(vii) The Participant's employment with the Company or a
Subsidiary terminates as a result of the Participant's involuntary
termination of employment not for cause.
(c) For purposes of this Plan, the Participant shall be deemed to
have terminated employment as a result of retirement if the Participant
either (i) terminates employment on or after the attainment of age 65 or
(ii) terminates employment on or after the attainment of age 55 after having
earned 10 years of service, as defined in the Burlington Northern Pension
Plan or the Santa Fe Pacific Retirement Plan, whichever is applicable.
For purposes of this subsection (b), each of the Company's plans identified
above shall also include any successor plan.
4.9 Payments on Termination of Split-Dollar Agreement.
(a) Upon termination of a Split-Dollar Agreement upon the occurrence
of any of the events described in Section 4.8, the Company shall be entitled
to receive from the cash value of the related Policy an amount equal to the
sum of (i) the Company's Cumulative Net Premium Payment, including the total
amount of the Owner's Special Contributions, as defined in subsection 3.6, if
any, plus (ii) any amount of the Participant's Plan Year Contribution to
Premium owed to the Company by the Participant under subsection 4.4(c), if
any. Such amount is hereinafter referred to as the "Company's Cumulative Net
Premium Payment at Termination."
(b) If the Company shall terminate the Split-Dollar Agreement by
written notice to the Owner as provided in subsection 4.8(a)(vii), the
Company shall make a payment to the Owner equal to the sum of (i) the amount
of salary foregone by the Participant pursuant to the terms of the "Agreement
to Forego Salary" entered into by the Participant in accordance with
subsection 3.6, plus (ii) the total amount of the Owner's Special
Contributions, as defined in subsection 3.6, if any, plus (iii) interest on
the amounts described in (i) and (ii) of this subsection (b) at the
Applicable Rate (as hereinafter defined) from the date of such Agreement to
Forego Salary until the date the Company terminates the Split-Dollar
Agreement by written notice to the Owner, compounded annually. The
"Applicable Rate" shall mean one percent (1%) plus the annual average
composite yield on Moody's Seasoned Corporate Bond Yield Index for the twelve
month period ending on the last day of the month immediately preceding the
date on which the Company terminates the Split-Dollar Agreement, as
determined from Moody's Bond Record published by Moody's Investors Service,
Inc. (or any successors thereto), or, if such yield is no longer published, a
substantially similar average selected by the Company.
(c) For thirty (30) days after the date of the termination of the
Split-Dollar Agreement, the Owner shall have the option of obtaining the
release of the collateral assignment of the Policy to the Company. To obtain
such release, the Owner shall pay to the Company an amount equal to the
Company's Cumulative Net Premium Payment at Termination, and, notwithstanding
any other provision hereof, the Owner shall specifically be allowed to borrow
against or withdraw from the cash value of the Policy for this purpose. Upon
receipt of such amount, the Company shall release the collateral assignment
of the Policy by the execution and delivery of an appropriate instrument of
release.
(d) If the Owner fails to exercise such option within such thirty
(30) day period, then, at the request of the Company, the Owner shall execute
any document or documents required by the Insurer to transfer the interest of
the Owner in the Policy to the Company. Alternatively, the Company may
enforce its right to be paid an amount equal to the Company's Cumulative Net
Premium Payment at Termination under the collateral assignment of the Policy.
Thereafter, neither the Owner, nor the Owner's successors, assigns, heirs,
executors, administrators or beneficiaries shall have any further interest in
and to the Policy, either under the terms thereof or under this Plan.
However, in no event shall the Owner be liable to the Company in the event
the cash value of a Policy at the time of the termination of the related
Split-Dollar Agreement is insufficient to pay the Company an amount equal to
the Company's Cumulative Net Premium Payment at Termination.
<PAGE>
SECTION 5
Plan Administration
5.1 Plan Administrator; Administration. The Vice President - Human
Resources of the Company or such other officer of the Company as its Board of
Directors shall designate shall be the Plan Administrator under this Plan.
Except as otherwise specifically provided herein, the Plan Administrator shall
have discretionary authority to control and manage the operation and
administration of this Plan. The Plan Administrator shall also have the power
to establish, adopt, or revise such rules and regulations as the Plan
Administrator may deem advisable for the administration of this Plan. The
interpretation and construction of this Plan by the Plan Administrator and any
action taken thereunder, shall be binding and conclusive upon all persons.
The Plan Administrator shall not, in any event, be liable to any person for
any action taken or omitted to be taken in connection with the interpretation,
construction or administration of this Plan, so long as such action or
omission to act is made in good faith. The Plan Administrator shall be
eligible to participate in this Plan but shall not vote or act upon any matter
that relates solely to his interest in this Plan as a Participant.
5.2 Determination of Benefits. Except as otherwise specifically
provided herein, the Plan Administrator shall make all determinations
concerning rights to benefits under this Plan. Any decision by the Plan
Administrator denying a claim by a Participant or his beneficiary for benefits
under this Plan shall be stated in writing and delivered or mailed to the
Participant or such beneficiary. Such decision shall set forth the specific
reasons for the denial, written to the best of the Plan Administrator's
ability in a manner that may be understood without legal or actuarial counsel.
In addition, the Plan Administrator shall afford a reasonable opportunity to
the Participant or such beneficiary for a full and fair review of the decision
denying such claim.
SECTION 6
Miscellaneous
6.1 Amendment and Termination. This Plan may be amended or terminated
by the Company or its successor, in its discretion, at any time and without
the consent or approval of any other person. The power to amend this Plan may
be delegated by the Board of Directors of the Company to the Vice President -
Human Resources, provided that the Vice President - Human Resources shall not
amend this Plan if such amendment would expand the group of employees who is
eligible to participate in this Plan or if such amendment would increase the
cost of premiums payable by the Company or would otherwise increase the
Company's cost of maintaining this Plan. Further, the Vice President - Human
Resources shall not terminate this Plan without the prior written consent of
the Board of Directors of the Company.
6.2 Validity. In the event any provision of this Plan is held
invalid, void, or unenforceable, the same shall not affect, in any respect
whatsoever, the validity of any other provision of this Plan.
SECTION 7
Change in Control and Potential Change in Control
Notwithstanding any other provision of this Plan, no change shall be made
to this Plan, the related Split-Dollar Agreements or Collateral Assignment
Agreements which are adverse to the interests of an Owner without the consent
of the Owner, in the event of a Change in Control or Potential Change in
Control. For purposes of this Section 7, "Change in Control" and "Potential
Change in Control" are defined as follows:
(a) Change in Control. A "Change in Control" shall be deemed to
have occurred if:
(i) Any "person" as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")
(other than the Company, any trustee or other fiduciary holding securities
under an employee benefit plan of the Company, or any company owned, directly
or indirectly, by the stockholders of the Company in substantially the same
proportions as their ownership of stock of the Company), is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Company representing 25% or more
of the combined voting power of the Company's then outstanding securities;
(ii) During any period of two consecutive years (not including
any period prior to the effective date of this provision), individuals who at
the beginning of such period constitute the Board of Directors of the
Company, and any new director (other than a director designated by a person
who has entered into an agreement with the Company to effect a transaction
described in item (i), (iii) or (iv) of this definition) whose election by
the Board of Directors of the Company or nomination for election by the
Company's stockholders was approved by a vote of at least two-thirds (2/3) of
the directors then still in office who either were directors at the beginning
of the period or whose election or nomination for election was previously so
approved, cease for any reason to constitute at least a majority thereof;
(iii) The stockholders of the Company approve a merger or
consolidation of the Company with any other company other than (A) a merger
or consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than 80% of the combined voting power of the voting
securities of the Company (or such surviving entity) outstanding immediately
after such merger or consolidation, or (B) a merger or consolidation effected
to implement a recapitalization of the Company (or similar transaction) in
which no "person" (as hereinabove defined) acquires more than 25% of the
combined voting power of the Company's then outstanding securities; or
(iv) The stockholders of the Company adopt a plan of complete
liquidation of the Company or approve an agreement for the sale or
disposition by the Company of all or substantially all of the Company's
assets. For purposes of this item (iv), the term "the sale or disposition by
the Company of all or substantially all of the Company's assets" shall mean a
sale or other disposition transaction or series of related transactions
involving assets of the company or of any direct or indirect subsidiary of
the Company (including the stock of any direct or indirect subsidiary of the
Company) in which the value of the assets or stock being sold or otherwise
disposed of (as measured by the purchase price being paid therefor or by such
other method as the Board of Directors of the Company determines is
appropriate in a case where there is no readily ascertainable purchase price)
constitutes more than two-thirds of the fair market value of the Company (as
hereinafter defined). For purposes of the preceding sentence, the "fair
market value of the Company" shall be the aggregate market value of the
outstanding shares of Stock (on a fully diluted basis) plus the aggregate
market value of the Company's other outstanding equity securities. The
aggregate market value of the shares of Stock (on a fully diluted basis)
outstanding on the date of the execution and delivery of a definitive
agreement with respect to the transaction or series of related transactions
(the "Transaction Date") shall be determined by the average closing price of
the shares of Stock for the ten trading days immediately preceding the
Transaction Date. The aggregate market value of any other equity securities
of the Company shall be determined in a manner similar to that prescribed in
the immediately preceding sentence for determining the aggregate market value
of the shares of Stock or by such other method as the Board of Directors of
the Company shall determine is appropriate.
Notwithstanding the foregoing, a merger, consolidation,
acquisition of common control, or business combination of the Company and a
Class I Railroad or a holding company of a Class I railroad that is approved
by the Board of Directors of the Company shall not constitute a "Change in
Control" unless the Board of Directors of the Company makes a determination
that the transaction shall constitute a "Change in Control."
(b) Potential Change in Control. A Potential Change in Control
shall exist during any period in which the circumstances described in item
(i), (ii), (iii) or (iv), below, exist (provided, however, that a Potential
Change in Control shall cease to exist not later than the occurrence of a
Change in Control):
(i) The Company or any successor or assign thereof enters into
an agreement, the consummation of which would result in the occurrence of a
Change in Control; provided that a Potential Change in Control described in
this item (i) shall cease to exist upon the expiration or other termination
of all such agreements;
(ii) Any person (including the Company) publicly announces an
intention to take or to consider taking actions which if consummated would
constitute a Change in Control; provided that a Potential Change in Control
described in this item (ii) shall cease to exist upon the withdrawal of such
intention, or upon a reasonable determination by the directors that there is
no reasonable chance that such actions would be consummated;
(iii) Any "person", as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended (other than the
Company, any trustee or other fiduciary holding securities under an employee
benefit plan of the Company, or any corporation owned, directly or
indirectly, by the stockholders of the Company in substantially the same
proportions as their ownership of stock of the Company) is the beneficial
owner, directly or indirectly, of securities of the Company representing 9.5%
or more of the combined voting power of the Company's then outstanding
securities. However, a Potential Change in Control shall not be deemed to
exist by reason of ownership of securities of the Company by any person, to
the extent that such securities of the Company are acquired pursuant to a
reorganization, recapitalization, spin-off or other similartransactions
(including a series of prearranged related transactions) to the
extent that immediately after such transaction or transactions, such
securities are directly or indirectly owned in substantially the same
proportions as the proportions of ownership of the Company's securities
immediately prior to the transaction or transactions; or
(iv) The Board of Directors of the Company adopts a resolution
to the effect that, for purposes of this Plan, a potential change in control
exists; provided that a Potential Change in Control described in this item
(iv) shall cease to exist upon a reasonable determination by the Board of
Directors of the Company that the reasons that gave rise to the resolution
providing for the existence of a potential change in control have expired or
no longer exist.
<TABLE>
<CAPTION>
EXHIBIT 11
BURLINGTON NORTHERN SANTA FE CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Three Months Nine Months
Ended Ended
September 30, September 30,
1996 1995 1996 1995
------ ------- ------ -------
Net income
- --------------------------------------------
Primary:
<S> <C> <C> <C> <C>
Net income $ 247 $ 133 $ 645 $ 258
Convertible preferred stock dividends - (5) - (16)
------ ------- ------ -------
Net income available for
common shareholders $ 247 $ 128 $ 645 $ 242
====== ======= ====== =======
Fully diluted:
Net income $ 247 $ 133 $ 645 $ 258
====== ======= ====== =======
Weighted average number of shares
- -------------------------------------------
Primary:
Average common shares outstanding 152.7 94.9 151.7 91.3
Common share equivalents resulting
from assumed exercise of stock
options 3.6 2.0 4.1 1.4
------ ------- ------ -------
156.3 96.9 155.8 92.7
====== ======= ====== =======
Fully diluted:
Average common shares outstanding 152.7 94.9 151.7 91.3
Common share equivalents resulting from
assumed conversion of convertible
preferred stock - 7.3 - 7.3
Common share equivalents resulting
from assumed exercise of stock
options assuming full dilution 3.6 2.1 4.1 1.9
------ ------- ------ -------
156.3 104.3 155.8 100.5
====== ======= ====== =======
Net income per common share
- -------------------------------------------
Primary $ 1.58 $ 1.32 $ 4.14 $ 2.61
Fully diluted 1.58 1.28 4.14 2.57
</TABLE>
Primary earnings 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. Fully diluted
earnings per common share are computed by dividing net income by the weighted
average number of common shares and common share equivalents outstanding.
Common share equivalents are computed using 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 was used for convertible preferred stock when computing fully diluted
earnings per common share.
<TABLE>
<CAPTION>
EXHIBIT 12
BURLINGTON NORTHERN SANTA FE CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(IN MILLIONS, EXCEPT RATIO AMOUNTS)
(UNAUDITED)
Three Months Nine Months
Ended Ended
September 30, September 30,
1996 1995 1996 1995
-------- -------- ------- --------
Earnings:
<S> <C> <C> <C> <C>
Pre-tax income $ 404 $ 218 $1,054 $ 587
Add:
Interest and fixed charges,
excluding capitalized interest 76 52 224 145
Portion of rent under long-term
operating leases representative
of an interest factor 45 30 133 85
Less: Undistributed equity in earnings
of investments accounted for
under the equity method (1) (18) (8) (18)
-------- -------- ------- --------
Total earnings available for
fixed charges $ 524 $ 282 $1,403 $ 799
======== ======== ======= ========
Fixed charges:
Interest and fixed charges $ 79 $ 53 $ 234 $ 148
Portion of rent under long-term operating
leases representative of an interest
factor 45 30 133 85
-------- -------- ------- --------
Total fixed charges $ 124 $ 83 $ 367 $ 233
======== ======== ======= ========
Ratio of earnings to fixed charges 4.23x 3.40x 3.82x 3.43x
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Burlington Northern Santa Fe Corporation's Consolidated Financial Statements
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 34
<SECURITIES> 0
<RECEIVABLES> 815
<ALLOWANCES> (68)
<INVENTORY> 228
<CURRENT-ASSETS> 1390
<PP&E> 21341
<DEPRECIATION> (4475)
<TOTAL-ASSETS> 19257
<CURRENT-LIABILITIES> 2354
<BONDS> 4243
<COMMON> 2
0
0
<OTHER-SE> 5698
<TOTAL-LIABILITY-AND-EQUITY> 19257
<SALES> 0
<TOTAL-REVENUES> 6117
<CGS> 0
<TOTAL-COSTS> 4838
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 224
<INCOME-PRETAX> 1054
<INCOME-TAX> 409
<INCOME-CONTINUING> 645
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 645
<EPS-PRIMARY> 4.14
<EPS-DILUTED> 4.14
</TABLE>
