UNITED STATES
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, 1997
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, 1997
Common stock, $.01 par value 156,189,507 shares
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
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,
--------------- --------------
1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenues $2,146 $2,044 $6,255 $6,095
Operating expenses:
Compensation and benefits 661 633 2,006 1,939
Purchased services 225 214 673 653
Equipment rents 200 184 601 545
Depreciation and amortization 195 191 574 565
Fuel 173 173 555 525
Materials and other 151 173 517 589
------ ------ ------ ------
Total operating expenses 1,605 1,568 4,926 4,816
------ ------ ------ ------
Operating income 541 476 1,329 1,279
Interest expense 86 76 255 224
Other income (expense), net (10) 4 (13) (1)
------ ------ ------ ------
Income before income taxes 445 404 1,061 1,054
Income tax expense 162 157 393 409
------ ------ ------ ------
Net income $ 283 $ 247 $ 668 $ 645
====== ====== ====== ======
Net income per common share $ 1.79 $ 1.58 $ 4.24 $ 4.14
====== ====== ====== ======
Average shares outstanding 158.3 156.3 157.6 155.8
====== ====== ====== ======
Dividends declared per common share $ 0.30 $ 0.30 $ 0.90 $ 0.90
</TABLE>
See accompanying notes to consolidated financial statements.
<TABLE>
<CAPTION>
BURLINGTON NORTHERN SANTA FE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(DOLLARS IN MILLIONS)
(UNAUDITED)
September 30, December 31,
1997 1996
------- -------
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 45 $ 47
Accounts receivable, net 775 628
Materials and supplies 219 222
Current portion of deferred income taxes 328 307
Other current assets 60 44
------- -------
Total current assets 1,427 1,248
Property and equipment, net 18,653 17,633
Other assets 901 882
------- -------
Total assets $20,981 $19,763
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and other current liabilities $ 1,941 $ 2,063
Long-term debt due within one year 98 165
------- -------
Total current liabilities 2,039 2,228
Long-term debt and commercial paper 5,146 4,546
Deferred income taxes 5,022 4,729
Casualty and environmental reserves 491 543
Employee, merger and separation costs 423 466
Other liabilities 1,235 1,270
------- -------
Total liabilities 14,356 13,782
------- -------
Commitments and contingencies (See note 4)
Stockholders' equity:
Common stock, $.01 par value, 300,000,000
shares authorized; 155,962,745 shares and
154,198,088 shares issued, respectively 2 2
Additional paid-in capital 4,970 4,838
Retained earnings 1,694 1,165
Other (41) (24)
------- -------
Total stockholders' equity 6,625 5,981
------- -------
Total liabilities and stockholders'
equity $20,981 $19,763
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
<TABLE>
<CAPTION>
BURLINGTON NORTHERN SANTA FE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN MILLIONS)
(UNAUDITED)
Nine Months Ended
September 30,
1997 1996
------- -------
<S> <C> <C>
Operating Activities:
Net income $ 668 $ 645
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 574 565
Deferred income taxes 272 259
Employee, merger and separation costs paid (86) (153)
Other, net (106) (36)
Sale of accounts receivable 320 5
Other changes in working capital (532) (52)
------- -------
Net cash provided by operating activities 1,110 1,233
------- -------
Investing Activities:
Cash used for capital expenditures (1,476) (1,353)
Other, net (123) 3
------- -------
Net cash used for investing activities (1,599) (1,350)
------- -------
Financing Activities:
Net increase (decrease) in commercial paper and
bank loans 46 (301)
Proceeds from issuance of long-term debt 654 513
Payments on long-term debt (158) (69)
Dividends paid (139) (138)
Proceeds from stock options exercised 87 101
Other, net (3) (5)
------- -------
Net cash provided by financing activities 487 101
------- -------
Decrease in cash and cash equivalents (2) (16)
Cash and cash equivalents:
Beginning of period 47 50
------- -------
End of period $ 45 $ 34
======= =======
Supplemental cash flow information:
Interest paid, net of amounts capitalized 239 218
Income taxes paid, net of refunds 14 64
Assets financed through capital lease obligations 1 38
</TABLE>
See accompanying notes to consolidated financial statements.
BURLINTON NORTHERN SANTA FE CORPORATION and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANICAL STATEMENTS
(UNAUDITED)
1. Accounting policies and interim results
The consolidated financial statements should be read in conjunction with the
Burlington Northern Santa Fe Corporation Annual Report on Form 10-K for the
year ended December 31, 1996, including the financial statements and notes
thereto incorporated by reference from the Registrant's 1996 Annual Report to
Shareholders. The consolidated financial statements include the accounts of
Burlington Northern Santa Fe Corporation and its majority-owned subsidiaries
(collectively, "BNSF" or "Company"). BNSF was incorporated in Delaware on
December 16, 1994, for the purpose of effecting a business combination between
Burlington Northern Inc. ("BNI") and Santa Fe Pacific Corporation ("SFP")
which was consummated on September 22, 1995. The Company's principal
operating subsidiary is The Burlington Northern and Santa Fe Railway Company
("BNSF Railway"). All significant intercompany accounts and transactions have
been eliminated.
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, 1997 and December 31, 1996
and the consolidated results of operations for the three and nine month
periods ended September 30, 1997 and 1996 have been included.
Certain comparative prior year amounts in the consolidated financial
statements have been reclassified to conform with the current year
presentation.
2. Employee, merger and separation costs
Current and long-term employee merger and separation liabilities totaling $497
million are included in the consolidated balance sheet at September 30, 1997.
During the first nine months of 1997, the Company paid $86 million of
employee, merger and separation costs.
At September 30, 1997, approximately $74 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, as well as certain benefits for clerical employees which may be
paid on an installment basis, generally over five to ten years. In addition,
certain merger related costs, including relocation costs for clerical
employees, have been recorded as operating expenses.
The Company anticipates recording additional charges to operating expense in
the near future principally related to voluntary separations of clerical
employees. The magnitude and exact timing of such future expenses is
presently unknown; however, it is possible that this additional charge could
be taken as early as the fourth quarter of 1997.
3. Accounts receivable, net
As discussed in Note 7 to the consolidated financial statements included in
the 1996 Annual Report to Shareholders, the Company had an accounts receivable
sale agreement effective through 1999 which allowed the sale of up to $300
million in receivables. In June 1997, this agreement was replaced by an
amended and restated agreement which allows BNSF Railway, through a special
purpose subsidiary, to sell up to $600 million of variable rate certificates
which mature in 2002 evidencing undivided interests in an accounts receivable
master trust. The master trust's assets include an ownership interest in a
revolving portfolio of BNSF Railway's accounts receivable which are used to
support the certificates. At September 30, 1997, the maximum of $600 million
of certificates sold were outstanding and were supported by receivables of
approximately $1.3 billion in the master trust. BNSF Railway has retained the
collection responsibility with respect to the accounts receivable held in
trust. BNSF Railway is exposed to credit loss related to collection of
accounts receivable to the extent that the amount of receivables in the master
trust exceeds the amount of certificates sold. Costs related to such
agreements vary on a monthly basis and are generally related to certain
interest rates. These costs are included in Other income (expense), net.
4. Environmental and other contingencies
The Company's operations, as well as those of its competitors, are subject to
extensive federal, state and local environmental regulation. BNSF's operating
procedures include practices to protect the environment from the environmental
risks inherent in railroad operations, which frequently involve transporting
chemicals and other hazardous materials. 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,
also known as the "Superfund" law, as well as similar state laws generally
impose joint and several liability for clean-up and enforcement costs without
regard to fault or the legality of the original conduct on current and former
owners and operators of a site.
BNSF is involved in a number of administrative and judicial proceedings and
other mandatory clean-up efforts at approximately 340 sites, at which it is
being asked to participate in the study or clean-up, or both, of alleged
environmental contamination. BNSF paid approximately $36 million during the
first nine months of 1997 for mandatory clean-up efforts, including amounts
expended under federal and state voluntary clean-up programs. BNSF has
accruals of approximately $206 million for remediation and restoration of all
known sites. BNSF anticipates that the majority of the accrued costs at
September 30, 1997, will be paid over the next five years. No individual site
is considered to be material.
Liabilities recorded for environmental costs represent BNSF's best estimates
for remediation and restoration of these sites and include both asserted and
unasserted claims. Unasserted claims are not considered to be a material
component of the liability. Although recorded liabilities include BNSF's best
estimates of all costs, without reduction for anticipated recoveries from
third parties, BNSF's total clean-up costs at these sites cannot be predicted
with certainty due to various factors such as the extent of corrective actions
that may be required, evolving environmental laws and regulations, advances in
environmental technology, the extent of other parties' participation in
clean-up efforts, developments in ongoing environmental analyses related to
sites determined to be contaminated, and developments in environmental surveys
and studies of potentially contaminated sites. As a result, future charges to
income for environmental liabilities could have a significant effect on
results of operations in a particular quarter or fiscal year as individual
site studies and remediation and restoration efforts proceed or as new sites
arise. However, expenditures associated with such liabilities are typically
paid out over a long period; therefore, management believes that it is
unlikely that any identified matters, either individually or in the aggregate,
will have a material adverse effect on BNSF's consolidated financial position
or liquidity.
The railroad industry, including BNSF Railway, 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 were issued by the Environmental Protection Agency in early
1997, with final regulations to be promulgated by the end of the year. It is
anticipated that these regulations will be effective for new locomotive
engines installed after 1999 and through 2010 and will preempt state
regulation of locomotive emission standards. 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, the State of California has indicated to the Environmental
Protection Agency that it will support the proposed federal rule subject to
slight technical modifications.
Other claims and litigation
BNSF and its subsidiaries are parties to a number of legal actions and claims,
various governmental proceedings and private civil suits arising in the
ordinary course of business, including those related to environmental matters
and personal injury claims. While the final outcome of these items cannot be
predicted with certainty, considering among other things the meritorious legal
defenses available, it is the opinion of management that none of these items,
when finally resolved, will have a material adverse effect on the annual
results of operations, financial position or liquidity of BNSF, although an
adverse resolution of a number of these items could have a material adverse
effect on the results of operations in a particular quarter or fiscal year.
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, and various commodity swap and collar 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 September 30, 1997, BNSF had entered into forward purchases for
approximately 57 million gallons at an average price of approximately 57 cents
per gallon, and fuel swaps for approximately 649 million gallons at an average
price of approximately 54 cents per gallon.
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.
These contracts have expiration dates ranging from December 1997 to December
1999, with 189 million gallons expiring in 1997, 454 million gallons expiring
in 1998 and 63 million gallons expiring in 1999. BNSF's current fuel hedging
program covers approximately 70 percent of projected fuel purchases for the
fourth quarter of 1997, approximately 40 percent of estimated 1998 fuel
purchases and approximately 5 percent of estimated 1999 fuel purchases. Hedge
positions are closely monitored to ensure that they will not exceed actual
fuel requirements in any period. Unrecognized gains from BNSF's fuel hedging
transactions were approximately $12 million as of September 30, 1997. BNSF
also monitors its hedging positions and credit ratings of its counterparties
and does not anticipate losses due to counterparty nonperformance.
Interest rate
BNSF has interest rate swap transactions, which fix the interest rate on the
total principal amount of $625 million of its commercial paper debt. The
interest rate swap transactions require payment of a weighted average fixed
interest rate of approximately 6.0 percent, and the receipt of a variable
interest rate based on a commercial paper composite rate and mature from
December 1997 through December 1999. Any gains and losses associated with
changes in market value of these hedges are deferred and recognized as a
component of interest expense in the period that corresponds with interest
expense for the related outstanding debt. Unrecognized losses from BNSF's
swap transactions were not material as of September 30, 1997.
6. Potential Sale of Investment in Pipeline Partnership
Santa Fe Pacific Pipelines, Inc., ("Pipelines") an indirect wholly-owned
subsidiary of BNSF, has a 2 percent general partnership interest and a 42
percent limited partnership interest in Santa Fe Pacific Pipeline Partners,
L.P. ("Pipeline Partnership"). The interest in the Pipeline Partnership is
accounted for under the equity method by BNSF and results are included in
Other income (expense), net in the consolidated statement of income. BNSF's
investment in the Pipeline Partnership at September 30, 1997 was approximately
$284 million and is included in Other assets in the consolidated balance
sheet. On October 18, 1997, Pipelines entered into a Purchase Agreement to
sell substantially all of its interests in the Pipeline Partnership to Kinder
Morgan Energy Partners, L.P. ("Kinder Morgan"). Total cash consideration to
be received by Pipelines for its general partner interest will be
approximately $90 million. Pipelines' limited partnership interest is
represented by 8,148,148 of common units held by Pipelines and upon
consummation, 1.39 Kinder Morgan partnership units will be received in
exchange for each Pipelines common unit held.
Additionally, through its subsidiary, SFP Pipelines Holdings Inc., the Company
has variable rate exchangeable debentures ("VREDs") with a par value of $219
million which are reflected in long-term debt at $268 million in the
consolidated balance sheet at September 30, 1997. The VREDs are exchangeable
for Pipelines' 8,148,148 common units. Consummation of the Kinder Morgan
transaction will cause an "Exchange Event" under the VRED agreement, and
accordingly, VRED holders will be eligible to receive cash equal to the par
value of the VREDs or the Kinder Morgan units received by Pipelines for its
limited partnership interest. The current market value of the Kinder Morgan
units is substantially higher than the par value of the VREDs.
The transaction is subject to a number of conditions, including the approval
by the unitholders of both parties and certain regulatory agencies. The
transaction is expected to be consummated in the first quarter of 1998 and is
anticipated to result in a one-time after-tax gain of approximately $30
million. The ongoing effect on BNSF's financial statements is not
anticipated to be significant as Pipelines' equity income from its interest in
the Pipeline Partnership is largely offset by interest expense related to the
VREDs.
7. Share Repurchase Program
On July 17, 1997, the Board of Directors of BNSF authorized the repurchase of
up to 10 million shares of the Company's common stock from time to time in the
open market. Repurchased shares will be available to satisfy future
requirements of various stock-based employee compensation programs. To date,
no shares have been repurchased under the program.
In November 1997, the Company sold equity put options to an independent third
party and received cash proceeds of approximately $1 million. These options
entitle the holder to sell 500,000 shares of BNSF common stock to the Company
on May 5, 1998 at a price of $88 per share. The option contract is for
physical settlement; however, it permits a net-share or net-cash settlement
method at the Company's election. If the market price is below the option
price on May 5, 1998, it is possible that BNSF would purchase the 500,000
shares at a price of $88 per share resulting in cash outflows of $44 million.
However, as noted above, BNSF can also elect to settle on a net-share or
net-cash basis for the difference between the market price and option price on
that date. The Company will account for the effects of this transaction
within shareholders' equity.
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", "Registrant" or "Company").
The Company's principal operating subsidiary is The Burlington Northern and
Santa Fe Railway Company ("BNSF Railway").
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED WITH THREE MONTHS ENDED
SEPTEMBER 30, 1996
BNSF recorded net income for the third quarter of 1997 of $283 million or
$1.79 per common share, compared with third quarter 1996 net income of $247
million or $1.58 per common share.
REVENUES
The following table presents BNSF's revenue information by commodity for the
three months ended September 30, 1997 and 1996 and includes certain
reclassifications of prior year information to conform to current year
presentation.
<TABLE>
<CAPTION>
Revenue
Revenue Per Thousand
Revenues Ton Miles Ton Miles
------------ ------------- -------------
1997 1996 1997 1996 1997 1996
---- ---- ---- ---- ---- ----
(In Millions) (In Millions)
<S> <C> <C> <C> <C> <C> <C>
Intermodal $ 597 $ 534 20,092 18,183 $29.71 $29.37
Coal 500 520 43,017 44,833 11.62 11.60
Agricultural Commodities 269 238 13,384 10,756 20.10 22.13
Chemicals 196 192 7,446 7,113 26.32 26.99
Forest Products 145 146 6,381 7,001 22.72 20.85
Consumer Goods 131 116 5,108 4,989 25.65 23.25
Automotive 102 92 1,737 1,355 58.72 67.90
Metals 108 108 5,182 5,757 20.84 18.76
Minerals 95 84 3,782 3,547 25.12 23.68
------ ------ ------- ------- ------ ------
Total Freight Revenues 2,143 2,030 106,129 103,534 20.19 19.61
Other Revenues 3 14 - - - -
------ ------ ------- ------- ------ ------
Total Operating Revenues $2,146 $2,044 106,129 103,534 $20.19 $19.61
====== ====== ======= ======= ====== ======
</TABLE>
Intermodal revenues of $597 million for the third quarter of 1997 increased
$63 million or 12 percent reflecting increases in all segments. The direct
segment benefited from increased units shipped for Yellow Freight,
Consolidated Freightways and Roadway slightly offset by approximately $10
million of lost revenue due to the United Parcel Service ("UPS") strike in
August 1997. Intermodal marketing companies revenues were up due to increased
volume from HUB City, Mark VII and Alliance Shippers. International revenues
were up due to volume gains for OOCL, Hyundai, and Cosco. Truckload units
increased due to volume growth from J.B. Hunt and Schneider.
Coal revenues of $500 million for the 1997 third quarter decreased $20 million
compared to revenues for the 1996 third quarter primarily due to general
system congestion.
Agricultural Commodities revenues of $269 million for the 1997 third quarter
were $31 million or 13 percent higher than revenues for the 1996 third quarter
led by higher corn export shipments through the Pacific Northwest ("PNW") and
an increase in market share for a record Southern Plains wheat crop.
Consumer Goods revenues of $131 million for the 1997 third quarter were $15
million or 13 percent higher than the 1996 third quarter primarily due to
increases in volume in the government and machinery and bulk food segments.
Automotive revenues of $102 million for the 1997 third quarter were $10
million or 11 percent higher than the 1996 third quarter primarily due to
increases in shipments for Honda. Revenue per thousand ton miles for the
third quarter of $58.72 decreased 14 percent compared to the third quarter of
1996 primarily due to a shift in traffic mix and average length of haul.
Minerals revenues of $95 million for the 1997 third quarter were $11 million
higher than the third quarter of 1996 reflecting increases in all segments.
EXPENSES
Total operating expenses for the third quarter of 1997 were $1,605 million, an
increase of $37 million or 2 percent, compared with operating expenses for the
1996 third quarter of $1,568 million. The operating ratio was 74.8 percent
for the third quarter of 1997, compared with an 76.7 percent operating ratio
for the third quarter 1996.
Compensation and benefits expenses of $661 million were $28 million or 4
percent higher than the third quarter of 1996. A majority of the increase was
due to scheduled wages related to volume driven increases in train crews
costs and maintenance activities. Additionally, wages were higher because of
1997 wage increases to both salaried and union employees.
Purchased services of $225 million for the 1997 third quarter were $11 million
or 5 percent higher than the 1996 third quarter due principally to increases
in volume.
Equipment rents expenses for the third quarter of 1997 of $200 million were
$16 million or 9 percent higher than the 1996 third quarter reflecting higher
locomotive rents and higher time and mileage payments for freight cars.
Fuel expenses for the third quarter of 1997 were $173 million, equal to the
third quarter of 1996, as a 2 percent increase in consumption was offset by a
2 percent decrease in the average price paid per gallon of diesel fuel.
Materials and other expenses of $151 million for the 1997 third quarter were
$22 million or 13 percent lower than the 1996 third quarter principally
reflecting lower material costs and employee relocation expenses as well as
certain easement sales and tax benefits.
Interest expense for the third quarter of 1997 increased by $10 million to $86
million reflecting higher debt levels.
Other income (expense), net was $14 million lower than the 1996 third quarter
due to lower gains on land sales and higher accounts receivable sale fees due
to the increase in receivables sold.
During the first half of 1997, the Company recorded income tax expense at an
effective tax rate of 37.5 percent. During the third quarter of 1997, BNSF
completed an updated analysis of the rate which resulted in an estimated full
year 1997 effective tax rate of 37.0 percent. Tax expense was recorded during
the third quarter to reflect year to date tax expense at a rate of 37.0
percent of taxable income, resulting in a 36.4 percent effective rate for the
third quarter.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED WITH NINE MONTHS ENDED SEPTEMBER
30, 1996
BNSF net income for the nine-months ended September 30, 1997, was $668
million, or $4.24 per share, compared with 1996 net income for the same period
of $645 million, or $4.14 per share. The increase in net income is primarily
due to improved operating results in the second and third quarters of 1997
largely offset by lower operating results in the first quarter as a result of
severe weather conditions throughout the Northern Plains and the PNW. The
financial impact of recurring and protracted outages on many parts of the
system, the cost of repairing track, signals and equipment, and the operating
inefficiencies caused by the weather is virtually impossible to measure with
precision. However, the Company estimates that the severe weather in the
first quarter of 1997 resulted in lost revenue opportunities of approximately
$100 million and increased operating expenses of at least $50 million.
REVENUES
The following table presents BNSF's revenue information by commodity for the
nine-months ended September 30, 1997 and 1996 and includes certain
reclassifications of prior year information to conform to current year
presentation.
<TABLE>
<CAPTION>
Revenue
Revenue Per Thousand
Revenues Ton Miles Ton Miles
------------ ------------- -------------
1997 1996 1997 1996 1997 1996
---- ---- ---- ---- ---- ----
(In Millions) (In Millions)
<S> <C> <C> <C> <C> <C> <C>
Intermodal $1,687 $1,528 57,994 52,370 $29.09 $29.18
Coal 1,471 1,488 124,724 127,529 11.79 11.67
Agricultural Commodities 800 845 41,205 42,528 19.42 19.87
Chemicals 599 578 22,412 21,568 26.73 26.80
Forest Products 428 419 19,040 19,181 22.48 21.84
Consumer Goods 377 353 14,434 13,822 26.12 25.54
Automotive 317 300 5,059 4,492 62.66 66.79
Metals 314 316 14,420 15,795 21.78 20.01
Minerals 260 238 10,270 9,308 25.32 25.57
------ ------ ------- ------- ------ ------
Total Freight Revenues 6,253 6,065 309,558 306,593 20.20 19.78
Other Revenues 2 30 - - - -
------ ------ ------- ------- ------ ------
Total Operating Revenues $6,255 $6,095 309,558 306,593 $20.20 $19.78
====== ====== ======= ======= ====== ======
</TABLE>
Intermodal revenues of $1,687 million for the first nine months of 1997
increased by $159 million or 10 percent compared to revenues for the same
period of 1996 due to improved results in all segments. The direct segment
benefited from an increase in units shipped for Yellow Freight, Consolidated
Freightways and Roadway slightly offset by the UPS strike in August 1997.
Truckload revenue increased due to volume growth from J.B. Hunt and Schneider.
International revenues were up due to volume gains for OOCL, Hyundai, and
Cosco.
Agricultural Commodities revenues of $800 million for the first nine months of
1997 were $45 million or 5 percent lower than revenues for the same 1996
period. This decrease was due primarily to a decrease in shipments of wheat
for export in the first and second quarter due to United States
uncompetitiveness in the world market and first quarter weather related
service problems in the Northern Plains and PNW. Those decreases were
partially offset by a strong third quarter, led by an increase in export corn
shipments through the PNW.
Consumer Goods revenues of $377 for the first nine months of 1997 were $24
million or 7 percent higher than the first nine months of 1996 led primarily
by growth in volumes for the government and machinery, bulk food and waste
product segments.
Automotive revenues of $317 million for the nine months ended September 30,
1997 increased $17 million or 6 percent compared to the same period of 1996.
The increase was due to higher volume in the motor vehicles segment led by
increased traffic from Honda.
Minerals revenues of $260 for the first nine months of 1997 were $22 million
or 9 percent higher than the first nine months of 1996 led primarily by
increased revenues in the clay and aggregates, rock and specialty minerals and
sodium compounds segments.
EXPENSES
Total operating expenses for the first nine months of 1997 were $4,926
million, an increase of $110 million or 2 percent, compared with operating
expenses for the first nine months of 1996 of $4,816 million. The operating
ratio was 78.8 percent for the first nine months of 1997, compared with an
79.0 percent operating ratio for the same 1996 period.
Compensation and benefit expenses of $2,006 million were $67 million or 3
percent higher than the first nine months of 1996. A majority of the increase
was due to higher costs associated with weather-related repairs to track and
equipment and slower operations. Additionally, wages were higher due to
volume related increases in train crew costs and because of 1997 wage
increases to both salaried and union employees. These increases were
partially offset by lower salaried employee incentive compensation expense due
to the Company's first quarter 1997 performance relative to certain goals.
Purchased services expenses of $673 million increased $20 million or 3 percent
from the first nine months of 1996 due to volume related increases in various
categories.
Equipment rents expenses for the first nine months of 1997 of $601 million
were $56 million or 10 percent higher than the first nine months of 1996. The
increase is due to lower rail equipment utilization, higher leased railcar
expense and increased locomotive rents.
Fuel expenses of $555 million for the first nine months of 1997 were $30
million higher than the first nine months of 1996 due to a 5 percent increase
in the average price paid per gallon of diesel fuel.
Materials and other expenses of $517 million for the first nine months of 1997
were $72 million or 12 percent lower than the first nine months of 1996. The
decrease was primarily due to lower derailment and personal injury expenses
reflecting the continuing benefits of employee safety programs.
Interest expense for the first nine months of 1997 was $255 million compared
with interest expense of $224 million for the first nine months of 1996. The
increase is primarily due to higher debt levels.
CAPITAL RESOURCES AND LIQUIDITY
CASH FROM OPERATIONS
Cash generated from operations is BNSF's principal source of liquidity. BNSF
generally funds any additional requirements through debt issuance, including
commercial paper, or leasing of assets.
Operating activities provided cash of $1,110 million for the nine months,
ended September 30, 1997 compared with $1,233 million for the nine months
ended September 30, 1996. The decrease in cash from operations was in part
caused by a $480 million increase in cash used for working capital. This
variance was primarily attributable to a higher accounts receivable balance
due to integration issues arising from the implementation of an updated
system-wide customer billing and collection system. The Company expects to
reduce the accounts receivable balance throughout the remainder of 1997 and
early 1998. The sale of an additional $300 million of accounts receivable in
June as discussed below partially offset the impact of the changes in working
capital. BNSF's cash outflows from investing activities for the nine months
ended September 30, 1997 principally relate to capital expenditures of $1,476
million while net sources of cash from financing activities of $487 million
principally reflect net proceeds from borrowings used to fund capital
expenditures, both of which are further discussed below.
OTHER CAPITAL RESOURCES
BNSF issues commercial paper from time to time. These borrowings are
supported by bank revolving credit agreements. Outstanding commercial paper
balances are considered as reducing the amount of borrowings available under
these agreements. The bank revolving credit agreements allow borrowings of up
to $500 million on a short-term basis and $1.5 billion on a long-term basis.
Annual facility fees are currently 0.075 percent and 0.11 percent,
respectively, and are subject to change based upon changes in BNSF's senior
unsecured debt ratings. Borrowing rates are based upon i) LIBOR plus a spread
based upon BNSF's senior unsecured debt ratings, ii) money market rates
offered at the option of the lenders, or iii) an alternate base rate. The
commitments of the lenders under the short-term and long-term agreements were
extended on November 12, 1997, and are currently scheduled to expire on
November 11, 1998 and November 12, 2002, respectively.
At September 30, 1997, there were no borrowings against the long-term
revolving credit agreement and the maturity value of commercial paper
outstanding was $933 million, leaving a total remaining capacity of $567
million under the long-term revolving credit agreement available and $500
million under the short-term credit agreement available.
In February 1997, BNSF issued $100 million of 6.1% Medium-Term Notes, due
February 27, 2027. These notes may be redeemed on February 27, 2000, 2003 or
2007, at the option of the holder. In July 1997, BNSF issued $175 million of
6.53% Medium-Term Notes due July 15, 2037 ("Medium-Term Notes") and $200
million of 7.25% Debentures due August 1, 2097. The Medium-Term Notes may be
redeemed on July 15, 2003, at the option of the holder. The net proceeds were
used for general corporate purposes including the repayment of commercial
paper. The notes and the debentures were issued under a BNSF shelf
registration. Additionally, in August 1997 BNSF filed a new shelf
registration of debt securities, including medium-term notes, that may be
issued in one or more series at an aggregate offering price not to exceed $550
million. No borrowings have occurred under this new shelf registration.
As discussed in Note 3 to the financial statements, the Company completed a
new accounts receivable sales agreement in June 1997 to sell up to $600
million of accounts receivable. This agreement replaced an existing accounts
receivable sale agreement which allowed the sale of up to $300 million of
accounts receivable. In June 1997, the Company sold an additional $300
million of accounts receivable which was used to reduce its outstanding
commercial paper.
CAPITAL EXPENDITURES
A breakdown of cash capital expenditures is set forth in the following table
(in millions):
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------
1997 1996
---- ----
<S> <C> <C>
Maintenance of Way $ 694 $ 591
Equipment Projects 389 344
Expansion Projects 257 256
Other 137 200
------ ------
Total $1,477 $1,391
====== ======
</TABLE>
The increase in Maintenance of Way expenditures principally reflects an
increase in spending for rail programs. For the nine months ended September
30, 1997, BNSF Railway laid a total of 617 track miles of new and secondhand
rail compared to 522 track miles for the nine months ended September 30, 1996.
Equipment expenditures were $45 million above 1996 reflecting an increase in
locomotive purchases and locomotive overhauls.
DIVIDENDS
Common stock dividends declared for the nine months ended September 30, 1997
and 1996 were $0.90 per common share. Dividends paid on common stock during
the first nine months of 1997 were $139 million. Dividends paid during the
first nine months of 1996 were $133 million on common stock and $5 million on
preferred stock. On September 18, BNSF's Board of Directors declared a
regular quarterly common stock dividend of $0.30 per share to stockholders of
record on December 5, 1997 to be paid on January 2, 1998.
CAPITAL STRUCTURE
BNSF's ratio of total debt to total capital was 44 percent at September 30,
1997 which was unchanged from December 31, 1996.
OTHER MATTERS
POTENTIAL SALE OF INVESTMENT IN PIPELINE PARTNERSHIP
As discussed in note 6 to the financial statements, Santa Fe Pacific
Pipelines, Inc., ("Pipelines") an indirect wholly-owned subsidiary of BNSF,
entered into a Purchase Agreement to sell substantially all of its interests
in Santa Fe Pacific Pipeline Partners, L.P. ("Pipeline Partnership") to Kinder
Morgan Energy Partners, L.P. Total cash consideration to be received by
Pipelines for its general partner interest will be approximately $90 million.
Pipelines will receive Kinder Morgan units for its 42 percent limited
partnership interests; however, the Company has debt outstanding, through a
subsidiary, which is exchangeable for common units represented by its limited
partnership interest and will become exchangeable for the Kinder Morgan units
to be received by it in the exchange. The transaction is expected to be
consummated in the first quarter of 1998 and is anticipated to result in a
one-time after-tax gain of approximately $30 million. The ongoing effect on
BNSF's financial statements is not anticipated to be significant as Pipelines
equity income from its interest in the Pipeline Partnership is largely offset
by interest expense related to outstanding debt of the Company.
SHARE REPURCHASE PROGRAM
On July 17, 1997, the Board of Directors of BNSF authorized the repurchase of
up to 10 million shares of the Company's common stock from time to time in the
open market. Repurchased shares will be available to satisfy future
requirements of various stock-based employee compensation programs. To date,
no shares have been repurchased under the program. As discussed in note 7 to
the financial statements, in November 1997, the Company sold 500,000 equity
put options as part of its share repurchase program.
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.
RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share" which specifies the computation, presentation, and disclosure
requirements for earnings per share ("EPS") for entities with publicly held
common stock. The statement is effective for periods ending after December
15, 1997 and early adoption is prohibited. SFAS No. 128 requires the
presentation of basic and diluted EPS calculated pursuant to the requirements
of the standard. Had the Company adopted SFAS No. 128 in the third quarter of
1997, basic EPS would have been $1.82 and $1.62 for the three months ended
September 30, 1997 and 1996, respectively and $4.32 and $4.25 for the nine
months ended September 30, 1997 and 1996, respectively. Diluted EPS per share
would have approximated net income per common share included in the
accompanying consolidated statement of income.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income"
and SFAS No. 131 "Disclosures about Segments of an Enterprise and Related
Information." The Statements are effective for fiscal years beginning after
December 15, 1997; however, earlier adoption is permitted. SFAS No. 130
requires the presentation of comprehensive income and its components in a full
set of financial statements. SFAS No. 131 requires the disclosure of
financial and descriptive information about reportable operating segments.
Both SFAS No. 130 and 131 are modifications of disclosure requirements which
will have no effect on the results of operations or financial condition of the
Company. The Company is currently evaluating the standards, their potential
impact on disclosures and whether it will adopt these pronouncements prior to
the required effective date.
BURLINGTON NORTHERN SANTA FE CORPORATION AND SUBSIDIARIES
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
CROW RESERVATION CROSSING ACCIDENT CASE
Reference is made to the discussion in Registrant's Report on Form 10-K
for the fiscal year ended December 31, 1996 and in its Current Reports on
Form 10-Q for the quarter ended March 31, 1997 and June 30, 1997 of the
lawsuit filed in Crow Tribal Court (Estates of Red Wolf, Red Horse and Bull
Tail v. Burlington Northern Railroad Company, Case No. 94-31) arising out of
a 1993 accident at a BNSF Railway crossing located within the boundaries of
the Crow reservation in which three members of the Crow tribe were killed.
The lawsuit was filed on behalf of the estates of the driver of the vehicle
and the two passengers in the vehicle involved. One of the passenger cases
was severed and has yet to go to trial. The other two cases proceeded to
trial in January 1996. On February 6, 1996, a Crow Tribal Court jury
rendered a verdict against BNSF Railway for compensatory damages in the total
amount of $250 million. On August 19, 1997, the Tribal Court entered an
amended judgment reducing the total amount of the judgment to $25 million.
BNSF Railway's appeal from the amended judgment is pending before the Tribal
Appellate Court.
On February 26, 1996, the Federal District Court for the District of
Montana entered an order enjoining any action by the Tribal Court plaintiffs
to enforce the judgment pending appeal through the tribal court and federal
court systems. Upon appeal of that decision by the Tribal Court plaintiffs
to the United States Court of Appeals for the Ninth Circuit, the Ninth
Circuit on January 29, 1997, issued an opinion which reversed the district
court and remanded the matter to the trial court with instructions to
dissolve the injunction. The basis for the appellate court's decision was
that BNSF Railway had failed to exhaust its remedies in the tribal court.
On April 10, 1997, the Ninth Circuit denied BNSF Railway's petition for
rehearing and, on April 17, 1997, issued an order granting a stay of its
mandate to the district court. BNSF Railway petitioned the United States
Supreme Court for a writ of certiorari on May 16, 1997 with respect to the
Ninth Circuit's decision. On October 6, 1997, the Supreme Court issued an
order in which it granted BNSF Railway's petition, vacated the Ninth
Circuit's judgment and remanded the case to the Ninth Circuit for further
consideration in light of the Supreme Court's recent decision in Strate v.
A-1 Contractors, 117 S. Ct. 1404 (1997).
WHEAT AND BARLEY TRANSPORTATION RATES
Reference is made to the discussion in Registrant's Report on Form 10-K
for the year ended December 31, 1996 of the class action lawsuit filed
against BNSF Railway in the United States District Court for the District of
Montana challenging the reasonableness of single-line transportation rates
assessed from 1978 onward for transporting export wheat and barley from
origins in Montana to ocean ports in the Pacific Northwest. In McCarty
Farms, Inc., et al. v. Burlington Northern Inc., No. 37808 (August 14, 1997),
a proceeding before the Interstate Commerce Commission ("ICC") reopened upon
appellate court remand and transferred to the Surface Transportation Board
("STB"), successor to the ICC, the STB found that the challenged rates of
BNSF Railway for export wheat and barley were not shown to be unreasonably
high. The STB dismissed the proceeding in its entirety. Plaintiffs have
appealed the decision to the United States Court of Appeals for the District
of Columbia.
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 has filed no Current Reports on Form 8-K since those
reported on its Quarterly Report on Form 10-Q for the second quarter of
1997.
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
Thomas N. Hund
Vice President and Controller
(On behalf the Registrant and as
principal accounting officer)
Schaumburg, Illinois
November 13, 1997
BURLINGTON NORTHERN SANTA FE CORPORATION
EXHIBIT INDEX
3.1 Burlington Northern Santa Fe Corporation By-laws as amended
September 18, 1997.
11 Computation of earnings per common share.
12 Computation of ratio of earnings to fixed charges.
27 Financial Data Schedule.
E-1
Exhibit 3.1
As Amended September 18, 1997
BY-LAWS
OF
BURLINGTON NORTHERN SANTA FE CORPORATION
BY-LAWS
OF
BURLINGTON NORTHERN SANTA FE CORPORATION
TABLE OF CONTENTS
ARTICLE I.
OFFICES 1
SECTION 1. Registered Office and Agent 1
SECTION 2. Other Offices 1
ARTICLE II.
MEETINGS OF STOCKHOLDERS 1
SECTION 1. Annual Meetings 1
SECTION 2. Special Meetings 1
SECTION 3. Place of Meetings 1
SECTION 4. Notice of Meetings 1
SECTION 5. Quorum 2
SECTION 6. Organization 2
SECTION 7. Voting 2
SECTION 8. Inspectors 3
SECTION 9. List of Stockholders 3
SECTION 10. Business at Meetings of Stockholders 3
SECTION 11. No Stockholder Action by Consent 4
ARTICLE III.
BOARD OF DIRECTORS 4
SECTION 1. Number, Qualification and Term of Office 4
SECTION 2. Vacancies 4
SECTION 3. Resignations 4
SECTION 4. Removals 4
SECTION 5. Place of Meetings; Books and Records 4
SECTION 6. Annual Meeting of the Board 4
SECTION 7. Regular Meetings 5
SECTION 8. Special Meetings 5
SECTION 9. Quorum and Manner of Acting 5
SECTION 10. Chairman of the Board 5
SECTION 11. Organization 5
SECTION 12. Consent of Directors in Lieu of Meeting 6
SECTION 13. Telephonic Meetings 6
SECTION 14. Compensation 6
ARTICLE IV.
COMMITTEES OF THE BOARD OF DIRECTORS 6
SECTION 1. Executive Committee 6
SECTION 2. Audit Committee 7
SECTION 3. Compensation Committee 7
SECTION 4. Directors and Corporate Governance Committee 7
SECTION 5. Committee Chairman, Books and Records 8
SECTION 6. Alternates 8
SECTION 7. Other Committees 8
SECTION 8. Quorum and Manner of Acting 8
ARTICLE V.
OFFICERS 8
SECTION 1. Number 8
SECTION 2. Election, Term of Office and Qualifications 9
SECTION 3. Resignations 9
SECTION 4. Removals 9
SECTION 5. Vacancies 9
SECTION 6. Compensation of Officers 9
SECTION 7 President and Chief Executive Officer 9
SECTION 8. Vice President and Chief Financial Officer 9
SECTION 9. Vice President-Law 9
SECTION 10. Secretary 10
SECTION 11. Treasurer 10
SECTION 12. Absence or Disability of Officers 10
ARTICLE VI.
STOCK CERTIFICATES AND TRANSFER THEREOF 10
SECTION 1. Stock Certificates 10
SECTION 2. Transfer of Stock 10
SECTION 3. Transfer Agent and Registrar 11
SECTION 4. Additional Regulations 11
SECTION 5. Lost, Destroyed or Mutilated Certificates 11
SECTION 6. Record Date 11
ARTICLE VII.
DIVIDENDS, SURPLUS, ETC. 11
ARTICLE VIII.
SEAL 12
ARTICLE IX.
FISCAL YEAR 12
ARTICLE X.
INDEMNIFICATION 12
SECTION 1. Right to Indemnification 12
SECTION 2. Right of Indemnitee to Bring Suit 12
SECTION 3. Nonexclusivity of Rights 13
SECTION 4. Insurance, Contracts and Funding 13
SECTION 5. Definition of Director and Officer 13
SECTION 6. Indemnification of Employees and Agents of
the Corporation 13
ARTICLE XI.
CHECKS, DRAFTS, BANK ACCOUNTS, ETC. 13
SECTION 1. Checks, Drafts, Etc.; Loans 13
SECTION 2. Deposits 13
ARTICLE XII.
NOMINATIONS OF DIRECTOR CANDIDATES 14
SECTION 1. General 14
SECTION 2. Nominations by Board of Directors 14
SECTION 3. Nominations by Stockholders 14
SECTION 4. Substitute Nominees 14
SECTION 5. Void Nominations 14
ARTICLE XIII.
AMENDMENTS 15
BY-LAWS
OF
BURLINGTON NORTHERN SANTA FE CORPORATION
ARTICLE I.
OFFICES
SECTION 1. Registered Office and Agent.
The registered office of the corporation is located at 1209 Orange Street
in the City of Wilmington, County of New Castle, State of Delaware 19801, and
the name of its registered agent at such address is The Corporation Trust
Company.
SECTION 2. Other Offices.
The corporation may have offices at such other places both within and
without the State of Delaware as the Board of Directors may from time to time
determine or the business of the corporation may require.
ARTICLE II.
MEETINGS OF STOCKHOLDERS
SECTION 1. Annual Meetings.
A meeting of the stockholders for the purpose of electing directors and
for the transaction of such other business as may properly be brought before
the meeting shall be held annually at 10 A.M. on the third Thursday of April,
or at such other time on such other day as shall be fixed by resolution of the
Board of Directors. If the day fixed for the annual meeting shall be a legal
holiday, such meeting shall be held on the next succeeding business day.
SECTION 2. Special Meetings.
Special meetings of the stockholders for any purpose or purposes may be
called at any time by a majority of the Board of Directors, by the Chairman of
the Board, or by the President and shall be called by the Secretary at the
request of the holders of not less than fifty-one percent of all issued and
outstanding shares of the corporation entitled to vote at the meeting.
SECTION 3. Place of Meetings.
The annual meeting of the stockholders of the corporation shall be held
at the general offices of the corporation in the City of Fort Worth, State of
Texas, or at such other place in the United States as may be stated in the
notice of the meeting. All other meetings of the stockholders shall be held
at such places within or without the State of Delaware as shall be stated in
the notice of the meeting.
SECTION 4. Notice of Meetings.
Except as otherwise provided by law, written notice of each meeting of
the stockholders, whether annual or special, shall be given not less than ten
nor more than sixty days before the date of the meeting to each stockholder
entitled to vote at such meeting. If mailed, notice shall be given when
deposited in the United States mails, postage prepaid, directed to such
stockholder at his address as it appears in the stock ledger of the
corporation. Each such notice shall state the place, date and hour of the
meeting, and, in the case of a special meeting, the purpose or purposes for
which the meeting is called.
When a meeting is adjourned to another time and place, notice of the
adjourned meeting need not be given if the time and place thereof are
announced at the meeting at which the adjournment is given. If the
adjournment is for more than thirty days, or if after the adjournment a new
record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each stockholder of record entitled to vote at the
meeting.
SECTION 5. Quorum.
At any meeting of the stockholders the holders of record of a majority of
the total number of outstanding shares of stock of the corporation entitled to
vote at the meeting, present in person or represented by proxy, shall
constitute a quorum for all purposes, provided that at any meeting at which
the holders of any series of class of stock shall be entitled, voting as a
class, to elect Directors, the holders of record of a majority of the total
number of outstanding shares of such series or class, present in person or
represented by proxy, shall constitute a quorum for the purpose of such
election.
In the absence of a quorum at any meeting, the holders of a majority of
the shares of stock entitled to vote at the meeting, present in person or
represented by proxy at the meeting, may adjourn the meeting, from time to
time, until the holders of the number of shares requisite to constitute a
quorum shall be present in person or represented at the meeting. At any
adjourned meeting at which a quorum is present, any business may be transacted
that might have been transacted at the meeting as originally convened.
SECTION 6. Organization.
At each meeting of the stockholders, the Chairman of the Board, or if he
so designates or is absent, the President, shall act as Chairman of the
meeting. In the absence of both the Chairman of the Board and the President,
such person as shall have been designated by the Board of Directors, or in the
absence of such designation a person elected by the holders of a majority in
number of shares of stock present in person or represented by proxy and
entitled to vote at the meeting, shall act as Chairman of the meeting.
The Secretary or, in his absence, an Assistant Secretary or, in the
absence of the Secretary and all of the Assistant Secretaries, any person
appointed by the Chairman of the meeting shall act as Secretary of the
meeting.
SECTION 7. Voting.
Unless otherwise provided in the Certificate of Incorporation or a
resolution of the Board of Directors creating a series of stock, at each
meeting of the stockholders, each holder of shares of any series or class of
stock entitled to vote at such meeting shall be entitled to one vote for each
share of stock having voting power in respect of each matter upon which a vote
is to be taken, standing in his name on the stock ledger of the corporation on
the record date fixed as provided in these By-Laws for determining the
stockholders entitled to vote at such meeting or, if no record date be fixed,
at the close of business on the day next preceding the day on which notice of
the meeting is given. Shares of its own capital stock belonging to the
corporation, or to another corporation if a majority of the shares entitled to
vote in the election of directors of such other corporation is held by the
corporation, shall neither be entitled to vote nor counted for quorum
purposes.
At all meetings of stockholders for the election of Directors the voting
shall be by ballot, and the persons having the greatest number of votes shall
be deemed and declared elected. All other elections and questions submitted
to a vote of the stockholders shall, unless otherwise provided by law or the
Certificate of Incorporation, be decided by the affirmative vote of the
majority of shares which are present in person or represented by proxy at the
meeting and entitled to vote on the subject matter.
SECTION 8. Inspectors.
Prior to each meeting of stockholders, the Board of Directors shall
appoint two Inspectors who are not directors, candidates for directors or
officers of the corporation, who shall receive and determine the validity of
proxies and the qualifications of voters, and receive, inspect, count and
report to the meeting in writing the votes cast on all matters submitted to a
vote at such meeting. In case of failure of the Board of Directors to make
such appointments or in case of failure of any Inspector so appointed to act,
the Chairman of the Board shall make such appointment or fill such vacancies.
Each Inspector, immediately before entering upon his duties, shall
subscribe to an oath or affirmation faithfully to execute the duties of
Inspector at such meeting with strict impartiality and according to the best
of his ability.
SECTION 9. List of Stockholders.
The Secretary or other officer or agent having charge of the stock ledger
of the corporation shall prepare and make, at least ten days before every
meeting of stockholders, a complete list of the stockholders entitled to vote
at said meeting, arranged in alphabetical order and showing the address of
each stockholder and the number of shares of each class and series registered
in the name of each such stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting or, if not so
specified, at the place where the meeting is to be held. Such list shall also
be produced and kept at the time and place of the meeting during the whole
time thereof and may be inspected by any stockholder who is present. The
stock ledger shall be the only evidence as to who are the stockholders
entitled to examine the stock ledger, the list required by this Section, or
the books of the corporation, or to vote in person or by proxy at any such
meeting.
SECTION 10. Business at Meetings of Stockholders.
To be properly brought before the meeting, business must be either (a)
specified in the notice of meeting (or any supplement thereto) given by or at
the direction of the Board of Directors, including matters included pursuant
to Rule 14a-8 of the Securities and Exchange Commission, (b) otherwise
properly brought before the meeting by or at the direction of the Board, or
(c) otherwise properly brought before the meeting by a stockholder. In
addition to any other applicable requirements, for business to be otherwise
properly brought before an annual meeting by a stockholder, the business must
be a proper matter for stockholder action and the stockholder must have given
timely notice thereof in writing to the Secretary of the corporation. To be
timely, a stockholder's notice must be addressed to and received at the
principal executive offices of the corporation, not more than 150 days and not
less than 120 days prior to the first anniversary of the preceding year's
annual meeting; provided, however, that in the event that the date of the
meeting is more than 30 days before or after such anniversary date, notice by
the stockholder to be timely must be so received not later than the close of
business on the 15th day following the day on which notice of the date of the
annual meeting was mailed or public disclosure was made, whichever first
occurs. A stockholder's notice to the Secretary shall set forth as to each
matter the stockholder proposes to bring before the annual meeting (i) a brief
description of the business desired to be brought before the annual meeting
and the reasons for conducting such business at the annual meeting, (ii) the
name and record address of the stockholder proposing such business and of each
beneficial owner on behalf of which the stockholder is acting, (iii) the class
and number of shares of the corporation which are beneficially owned by the
stockholder and by any such beneficial owner, (iv) any material interest of
the stockholder and of any such beneficial owner in such business, and (v)
whether the proponent intends or is part of a group which intends to solicit
proxies from other stockholders in support of such proposal.
Notwithstanding anything in the By-Laws to the contrary, no business
shall be conducted at the annual meeting except in accordance with the
procedures set forth in this Section 10 of Article II, provided, however,
that nothing in this Section 10 of Article II shall be deemed to preclude
discussion by any stockholder of any business properly brought before the
annual meeting.
The Chairman of an annual meeting shall, if the facts warrant, determine
and declare to the meeting that business was not properly brought before the
meeting in accordance with the provisions of this Section 10 of Article II,
and if he should so determine, he shall so declare to the meeting and any such
business not properly brought before the meeting shall not be transacted.
SECTION 11. No Stockholder Action by Consent. Any action by stockholders
of the corporation shall be taken at a meeting of stockholders and no action
may be taken by written consent of stockholders entitled to vote upon such
action.
ARTICLE III.
BOARD OF DIRECTORS
SECTION 1. Number, Qualification and Term of Office.
The business, property and affairs of the corporation shall be managed by
a Board consisting of not less than three or more than twenty-one Directors.
The Board of Directors shall from time to time by a vote of a majority of the
Directors then in office fix within the maximum and minimum limits the number
of Directors to constitute the Board. At each annual meeting of stockholders
a Board of Directors shall be elected by the stockholders for a term of one
year. Each Director shall serve until his successor is elected and shall
qualify.
SECTION 2. Vacancies.
Vacancies in the Board of Directors and newly created directorships
resulting from any increase in the authorized number of Directors may be
filled by a majority of the Directors then in office, although less than a
quorum, or by a sole remaining Director, at any regular or special meeting of
the Board of Directors.
SECTION 3. Resignations.
Any Director may resign at any time upon written notice to the Secretary
of the corporation. Such resignation shall take effect on the date of receipt
of such notice or at any later date specified therein; and the acceptance of
such resignation, unless required by the terms thereof, shall not be necessary
to make it effective. When one or more Directors shall resign effective at a
future date, a majority of the Directors then in office, including those who
have resigned, shall have power to fill such vacancy or vacancies to take
effect when such resignation or resignations shall become effective.
SECTION 4. Removals.
Any Director may be removed, with cause, at any special meeting of the
stockholders called for that purpose, by the affirmative vote of the holders
of a majority in number of shares of the corporation entitled to vote for the
election of Directors, and the vacancy in the Board caused by any such removal
may be filled by the stockholders at such a meeting.
SECTION 5. Place of Meetings; Books and Records.
The Board of Directors may hold its meetings, and have an office or
offices, at such place or places within or without the State of Delaware as
the Board from time to time may determine.
The Board of Directors, subject to the provisions of applicable law, may
authorize the books and records of the corporation, and offices or agencies
for the issue, transfer and registration of the capital stock of the
corporation, to be kept at such place or places outside of the State of
Delaware as, from time to time, may be designated by the Board of Directors.
SECTION 6. Annual Meeting of the Board.
The first meeting of each newly elected Board of Directors, to be known
as the Annual Meeting of the Board, for the purpose of electing officers,
designating committees and the transaction of such other business as may come
before the Board, shall be held as soon as practicable after the adjournment
of the annual meeting of stockholders, and no notice of such meeting shall be
necessary to the newly elected Directors in order legally to constitute the
meeting, provided a quorum shall be present. In the event such meeting is not
held due to the absence of a quorum, the meeting may be held at such time and
place as shall be specified in a notice given as hereinafter provided for
special meetings of the Board of Directors or as shall be specified in a
written waiver signed by all of the newly elected Directors.
SECTION 7. Regular Meetings.
The Board of Directors shall, by resolution, provide for regular meetings
of the Board at such times and at such places as it deems desirable. Notice
of regular meetings need not be given.
SECTION 8. Special Meetings.
Special meetings of the Board of Directors may be called by the Chairman
of the Board or the President and shall be called by the Secretary on the
written request of three Directors on such notice as the person or persons
calling the meeting shall deem appropriate in the circumstances. Notice of
each such special meeting shall be mailed to each Director or delivered to him
by telephone, telegraph or any other means of electronic communication, in
each case addressed to his residence or usual place of business, or delivered
to him in person or given to him orally. The notice of meeting shall state
the time and place of the meeting but need not state the purpose thereof.
Attendance of a Director at any meeting shall constitute a waiver of notice of
such meeting except when a Director attends a meeting for the express purpose
of objecting to the transaction of any business because the meeting was not
lawfully called or convened.
SECTION 9. Quorum and Manner of Acting.
Except as otherwise provided by statute, the Certificate of Incorporation
or these By-Laws, the presence of a majority of the total number of Directors
shall constitute a quorum for the transaction of business at any regular or
special meeting of the Board of Directors, and the act of a majority of the
Directors present at any such meeting at which a quorum is present shall be
the act of the Board of Directors. In the absence of a quorum, a majority of
the Directors present may adjourn the meeting, from time to time, until a
quorum is present. Notice of any such adjourned meeting need not be given.
SECTION 10. Chairman of the Board.
A Chairman of the Board shall be elected by the Board of Directors from
among its members for a prescribed term and may, or may not be, at the
discretion of the Board of Directors, an employee or an officer of the
corporation. If the Chairman is neither an employee nor an officer of the
corporation he may be designated "non-executive." The Chairman of the Board
shall perform such duties as shall be prescribed by the Board of Directors
and, when present, shall preside at all meetings of the stockholders and the
Board of Directors. In the absence or disability of the Chairman of the
Board, the Board of Directors shall designate a member of the Board to serve
as Chairman of the Board and such designated Board Member shall have the
powers and perform the duties of the office; provided, however, that if the
Chairman of the Board shall so designate or shall be absent from a meeting of
stockholders, the President shall preside at such meeting of stockholders.
SECTION 11. Organization.
At every meeting of the Board of Directors, the Chairman of the Board or,
in his absence the President or, if both of these individuals are absent, a
Chairman chosen by a majority of the Directors present shall act as Chairman
of the meeting. The Secretary or, in his absence, an Assistant Secretary or,
in the absence of the Secretary and all the Assistant Secretaries, any person
appointed by the Chairman of the meeting shall act as Secretary of the
meeting.
SECTION 12. Consent of Directors in Lieu of Meeting.
Unless otherwise restricted by the Certificate of Incorporation or by
these By-Laws, any action required or permitted to be taken at any meeting of
the Board of Directors, or any committee designated by the Board, may be taken
without a meeting if all members of the Board or committee consent thereto in
writing, and such written consent is filed with the minutes of the proceedings
of the Board or committee.
SECTION 13. Telephonic Meetings.
Members of the Board of Directors, or any committee designated by the
Board, may participate in a meeting of the Board or committee by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and participation in
such a meeting shall constitute presence in person at such meeting.
SECTION 14. Compensation.
Each Director who is not a full-time salaried officer of the corporation
or any of its wholly owned subsidiaries, when authorized by resolution of the
Board of Directors may receive as a Director a stated salary or an annual
retainer and in addition may be allowed a fixed fee and his reasonable
expenses for attendance at each regular or special meeting of the Board or any
Committee thereof.
ARTICLE IV.
COMMITTEES OF THE BOARD OF DIRECTORS
SECTION 1. Executive Committee.
The Board of Directors may, in its discretion, designate annually an
Executive Committee consisting of not less than five Directors as it may from
time to time determine. The Committee shall have and may exercise all the
powers and authority of the Board of Directors in the management of the
business and affairs of the corporation and may authorize the seal of the
corporation to be affixed to all papers which may require it, but the
Committee shall have no power or authority to amend the Certificate of
Incorporation (except that the Committee may, to the extent authorized in the
resolution or resolutions providing for the issuance of shares of stock
adopted by the Board of Directors, fix any of the preferences or rights of
such shares relating to dividends, redemption, dissolution, any distribution
of assets of the corporation or the conversion into, or the exchange of such
shares for, shares of any other class or classes or any other series of the
same or any other class or classes of stock of the corporation), adopt an
agreement of merger or consolidation, recommend to the stockholders the sale,
lease or exchange of all or substantially all of the corporation's property
and assets, recommend to the stockholders a dissolution of the corporation or
a revocation of a dissolution, amend the ByLaws of the corporation, elect
officers or fill vacancies on the Board of Directors or any Committee of the
Board, declare a dividend, authorize the issuance of stock, or such other
powers as the Board may from time to time eliminate.
SECTION 2. Audit Committee.
The Board of Directors shall designate annually an Audit Committee
consisting of not less than three Directors as it may from time to time
determine, none of whom shall be an officer of the corporation, to assist the
Board in fulfilling its responsibilities with respect to overseeing the
accounting, auditing and financial reporting practices and the internal
control policies and procedures of the corporation.
Specifically, the Audit Committee is authorized and directed on behalf of
the Board to:
(a) Review with the independent accountants the corporation's
financial statements, basic accounting and financial policies and practices,
competency of control personnel, standard and special tests used in verifying
the corporation's statements of account and in determining the soundness of
the corporation's financial condition and report to the Board the results of
such reviews.
(b) Review the policies and practices pertaining to publication
of quarterly and annual statements to assure consistency with audited results
and the implementing of policies and practices recommended by the independent
accountants.
(c) Ensure that suitable independent audits are made of the
operations and results of subsidiary corporations and affiliates.
(d) Review and approve the audit program to be conducted by the
corporation's internal auditors and the results of completed audits.
(e) Review the nature of, and fees charged for, all audit and
non-audit services performed by the corporation's independent auditing firm.
(f) Retain at its discretion independent auditors and legal
counsel, at the expense of the corporation, to assist the Committee in
performing the responsibilities delegated to it in this By-Law and conduct
any additional reviews, discussions or investigations which in its discretion
would be of assistance in fulfilling its responsibilities under this By-Law.
(g) Monitor compliance with the corporation's code of business
conduct, and such other duties, functions and powers as the Board may from
time to time prescribe.
SECTION 3. Compensation Committee.
The Board of Directors may, in its discretion, designate annually a
Compensation Committee, consisting of not less than five Directors as it may
from time to time determine. The Committee shall review, report and make
recommendations to the Board of Directors on the following matters:
(a) The compensation of the Chairman of the Board, the
compensation of the President following the Chairman of the Board's
recommendation as to the compensation of the President, and the compensation
of all senior officers of the corporation and its principal operating
subsidiaries reporting directly to the President following an annual review
of management's recommendations for such senior officers. If circumstances
involving such senior officers require a salary adjustment between such
reviews, a recommendation may be made directly to the Board of Directors by
the President without the necessity of a meeting of the Compensation
Committee.
(b) Management recommendations for individual stock options to
be granted under existing stock option plans to key executives of the
corporation and its subsidiary companies.
(c) The performance of the trustee of the corporation's pension
trust fund and any proposed change in the investment policy of the trustee
with respect to such fund.
(d) Any proposed stock option plans, stock purchase plans,
retirement plans and any other plans, systems and practices of the
corporation relating to the compensation of any employees of the corporation
and any proposed plans of any subsidiary company involving the issuance or
purchase of capital stock of the corporation.
(e) The evaluation of the performance of the officers of the
corporation and, together with management, the selection and recommendation
to the Board of Directors of appropriate individuals for election,
appointment and promotion as officers of the corporation to ensure management
effectiveness and continuity.
(f) Such other matters as the Board may from time to time
prescribe.
SECTION 4. Directors and Corporate Governance Committee.
The Board of Directors may, in its discretion, designate annually a
Directors and Corporate Governance Committee, consisting of not less than five
Directors as it may from time to time determine. The Committee shall review,
report and make recommendations to the Board of Directors on the following
matters:
(a) The size and composition of the Board of Directors and
nominees for Directors, the evaluation of the performance of the Board of
Directors of the corporation, and the recommendation to the Board of
Directors of compensation and benefits for Directors.
(b) Such other matters as the Board may from time to time
prescribe.
SECTION 5. Committee Chairman, Books and Records.
Unless designated by the Board of Director,each Committee shall elect a
Chairman to serve for such term as it may determine. Each committee shall fix
its own rules of procedure and shall meet at such times and places and upon
such call or notice as shall be provided by such rules. It shall keep a
record of its acts and proceedings, and all action of the Committee shall be
reported to the Board of Directors at the next meeting of the Board.
SECTION 6. Alternates.
Alternate members of the Committees prescribed by this Article IV may be
designated by the Board of Directors from among the Directors to serve as
occasion may require. Whenever a quorum cannot be secured for any meeting of
any such Committees from among the regular members thereof and designated
alternates, the member or members of such Committee present at such meeting
and not disqualified from voting, whether or not he or they constitute a
quorum, may unanimously appoint another member of the Board to act at the
meeting in the place of such absent or disqualified member.
Alternate members of such Committees shall receive a reimbursement for
expenses and compensation at the same rate as regular members of such
Committees.
SECTION 7. Other Committees.
The Board of Directors may designate such other Committees, each to
consist of two or more Directors, as it may from time to time determine, and
each such Committee shall serve for such term and shall have and may exercise,
during intervals between meetings of the Board of Directors, such duties,
functions and powers as the Board of Directors may from time to time
prescribe.
SECTION 8. Quorum and Manner of Acting.
At each meeting of any Committee the presence of a majority of the
members of such Committee, whether regular or alternate, shall be necessary to
constitute a quorum for the transaction of business, and if a quorum is
present the concurrence of a majority of those present shall be necessary for
the taking of any action; provided, however, that no action may be taken by
the Executive Committee when two or more officers of the corporation are
present as members at a meeting of either such Committee unless such action
shall be concurred in by the vote of a majority of the members of such
Committee who are not officers of the corporation.
ARTICLE V.
OFFICERS
SECTION 1. Number.
The officers of the corporation shall be a President, a Vice President
and Chief Financial Officer, a Vice President-Law, a Secretary, and a
Treasurer, each of which officers shall be elected by the Board of Directors,
and such other officers as the Board of Directors may determine, in its
discretion, to elect. Any number of offices may be held by the same person.
Any officer may hold such additional title descriptions or qualifiers such as
"Chief Executive Officer", "Chief Operating Officer", "Senior Vice President",
"Executive Vice President" or "Assistant Secretary" or such other title as the
Board of Directors shall determine.
SECTION 2. Election, Term of Office and Qualifications.
The officers of the corporation shall be elected annually by the Board of
Directors. Each officer elected by the Board of Directors shall hold office
until his successor shall have been duly elected and qualified, or until he
shall have died, resigned or been removed in the manner hereinafter provided.
SECTION 3. Resignations.
Any officer may resign at any time upon written notice to the Secretary
of the corporation. Such resignation shall take effect at the date of its
receipt, or at any later date specified therein; and the acceptance of such
resignation, unless required by the terms thereof, shall not be necessary to
make it effective.
SECTION 4. Removals.
Any officer elected or appointed by the Board of Directors may be
removed, with or without cause, by the Board of Directors at a regular meeting
or special meeting of the Board. Any officer or agent appointed by any
officer or committee may be removed, either with or without cause, by such
appointing officer or committee.
SECTION 5. Vacancies.
Any vacancy occurring in any office of the corporation shall be filled
for the unexpired portion of the term in the same manner as prescribed in
these By-Laws for regular election or appointment to such office.
SECTION 6. Compensation of Officers.
The compensation of all officers elected by the Board of Directors shall
be approved or authorized by the Board of Directors or by the President when
so authorized by the Board of Directors or these By-Laws.
SECTION 7. President and Chief Executive Officer.
The President shall be the chief executive officer of the corporation and
shall have, subject to the control of the Board of Directors, the general
executive responsibility for the management and direction of the business and
affairs of the corporation, and the general supervision of its officers,
employees and agents. He shall have the power to appoint any and all
officers, employees and agents of the corporation not required by these
By-Laws to be elected by the Board of Directors or not otherwise elected by
the Board of Directors in its discretion. He shall have the power to accept
the resignation of or to discharge any and all officers, employees and agents
of the corporation not elected by the Board of Directors. He shall sign all
papers and documents to which his signature may be necessary or appropriate
and shall have such other powers and duties as shall devolve upon the chief
executive officer of a corporation, and such further powers and duties as may
be prescribed for him by the Board of Directors.
SECTION 8. Vice President and Chief Financial Officer.
The Vice President and Chief Financial Officer shall have responsibility
for development and administration of the corporation's financial plans and
all financial arrangements, its insurance programs, its cash deposits and
short-term investments, its accounting policies, and its federal and state tax
returns. Such officer shall also be responsible for the corporation's
internal control procedures and for its relationship with the financial
community.
SECTION 9. Vice President-Law.
The Vice President-Law shall be the chief legal advisor of the
corporation and shall have charge of the management of the legal affairs and
litigation of the corporation.
SECTION 10. Secretary.
The Secretary shall record the proceedings of the meetings of the
stockholders and directors, in one or more books kept for that purpose; see
that all notices are duly given in accordance with the provisions of the
By-Laws or as required by law; have charge of the corporate records and of the
seal of the corporation; affix the seal of the corporation or a facsimile
thereof, or cause it to be affixed, to all certificates for shares prior to
the issue thereof and to all documents the execution of which on behalf of the
corporation under its seal is duly authorized by the Board of Directors or
otherwise in accordance with the provisions of the By-Laws; keep a register of
the post office address of each stockholder, director or member, sign with the
Chairman of the Board or President certificates for shares of stock of the
corporation, the issuance of which shall have been duly authorized by
resolution of the Board of Directors; have general charge of the stock
transfer books of the corporation; and in general, perform all duties incident
to the office of Secretary and such other duties as from time to time may be
assigned by the Board of Directors, the Chairman of the Board, the President
or the Vice President-Law.
SECTION 11. Treasurer.
The Treasurer shall have the responsibility for the custody and
safekeeping of all funds of the corporation and shall have charge of their
collection, receipt and disbursement; shall receive and have authority to sign
receipts for all monies paid to the corporation and shall deposit the same in
the name and to the credit of the corporation in such banks or depositories as
the Board of Directors shall approve; shall endorse for collection on behalf
of the corporation all checks, drafts, notes and other obligations payable to
the corporation; shall sign or countersign all notes, endorsements, guaranties
and acceptances made on behalf of the corporation when and as directed by the
Board of Directors; shall give bond for the faithful discharge of his duties
in such sum and with such surety or sureties as the Board of Directors may
require; shall have the responsibility for the custody and safekeeping of all
securities of the corporation; and in general shall have such other powers and
perform such other duties as are incident to the office of Treasurer and as
from time to time may be prescribed by the Board of Directors or delegated
by the President or the Vice President and Chief Financial Officer.
SECTION 12. Absence or Disability of Officers.
In the absence or disability of the Chairman of the Board or the
President, the Board of Directors may designate, by resolution, individuals to
perform the duties of those absent or disabled. The Board of Directors may
also delegate this power to a committee or to a senior corporate officer.
ARTICLE VI.
STOCK CERTIFICATES AND TRANSFER THEREOF
SECTION 1. Stock Certificates.
Except as otherwise permitted by law, the Certificate of Incorporation or
resolution or resolutions of the Board of Directors, every holder of stock in
the corporation shall be entitled to have a certificate, signed by or in the
name of the corporation by the Chairman of the Board, the President or a Vice
President, and by the Treasurer or an Assistant Treasurer, or the Secretary or
an Assistant Secretary of the corporation, certifying the number of shares,
and the class and series thereof, owned by him in the corporation. Any and
all of the signatures on the certificate may be a facsimile. In case any
officer, transfer agent or registrar who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer, transfer agent or registrar before such certificate is issued, it may
be issued by the corporation with the same effect as if he were such officer,
transfer agent or registrar at the date of issue.
SECTION 2. Transfer of Stock.
Transfer of shares of the capital stock of the corporation shall be made
only on the books of the corporation by the holder thereof, or by his attorney
thereunto duty authorized, and on surrender of the certificate or certificates
for such shares. A person in whose name shares of stock stand on the books of
the corporation shall be deemed the owner thereof as regards the corporation,
and the corporation shall not, except as expressly required by statute, be
bound to recognize any equitable or other claim to, or interest in, such
shares on the part of any other person whether or not it shall have express or
other notice thereof.
SECTION 3. Transfer Agent and Registrar.
The corporation shall at all times maintain a transfer office or agency
in the Borough of Manhattan, The City of New York, in charge of a transfer
agent designated by the Board of Directors (who shall have custody, subject to
the direction of the Secretary, of the original stock ledger and stock records
of the corporation), where the shares of the capital stock of the corporation
of each class shall be transferable, and also a registry office in the Borough
of Manhattan, The City of New York, other than its transfer office or agency
in said city, in charge of a registrar designated by the Board of Directors,
where its stock of each class shall be registered. The corporation may, in
addition to the said offices, if and whenever the Board of Directors shall so
determine, maintain in such place or places as the Board shall determine, one
or more additional transfer offices or agencies, each in charge of a transfer
agent designated by the Board, where the shares of capital stock of the
corporation of any class or classes shall be transferable, and also one or
more additional registry offices, each in charge of a registrar designated by
the Board of Directors, where such shares of stock of any class or classes
shall be registered. Except as otherwise provided by resolution of the Board
of Directors in respect of temporary certificates, no certificates for shares
of capital stock of the corporation shall be valid unless countersigned by a
transfer agent and registered by a registrant authorized as aforesaid.
SECTION 4. Additional Regulations.
The Board of Directors may make such additional rules and regulations as
it may deem expedient concerning the issue, transfer and registration of
certificates for shares of the capital stock of the corporation.
SECTION 5. Lost, Destroyed or Mutilated Certificates.
The Board of Directors may provide for the issuance of new certificates
of stock to replace certificates of stock lost, stolen, mutilated or
destroyed, or alleged to be lost, stolen, mutilated or destroyed, upon such
terms and in accordance with such procedures as the Board of Directors shall
deem proper and prescribe.
SECTION 6. Record Date.
In order that the corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders or any adjournment
thereof, or entitled to receive payment of any dividend or other distribution
or allotment of any rights, or entitled to exercise any rights in respect of
any change, conversion or exchange of stock or for the purpose of any other
lawful action, the Board of Directors may fix, in advance, a record date,
which shall not be more than sixty nor less than ten days before the date of
such meeting, nor more than sixty days prior to any other action. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for
the adjourned meeting.
ARTICLE VII.
DIVIDENDS, SURPLUS, ETC.
Except as otherwise provided by statute or the Certificate of
Incorporation, the Board of Directors may declare dividends upon the shares of
its capital stock either (1) out of its surplus, or (2) in case there shall be
no surplus, out of its net profits for the fiscal year, whenever, and in such
amounts as, in its opinion, the condition of the affairs of the corporation
shall render it advisable. Dividends may be paid in cash, in property or in
shares of the capital stock of the corporation.
ARTICLE VIII.
SEAL
The corporate seal shall have the name of the corporation inscribed
thereon and shall be in such form as may be approved from time to time by the
Board of Directors. The seal may be used by causing it or a facsimile
thereof to be impressed or affixed or in any other manner reproduced.
ARTICLE IX.
FISCAL YEAR
The fiscal year of the corporation shall begin on the first day of
January of each year.
ARTICLE X.
INDEMNIFICATION
SECTION 1. Right to Indemnification.
Each person who was or is made a party or is threatened to be made a
party to or is involved (including, without limitation, as a witness) in any
actual or threatened action, suit or proceeding, whether civil, criminal,
administrative or investigative (hereinafter a "proceeding"), by reason of the
fact that he or she is or was a director or officer of the corporation or is
or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation or of a partnership, joint venture,
trust or other enterprise, including service with respect to an employee
benefit plan (hereinafter an "indemnitee"), whether the basis of such
proceeding is alleged action in an official capacity as a director, officer,
employee or agent or in any other capacity while serving as a director,
officer, employee or agent, shall be indemnified and held harmless by the
corporation to the full extent authorized by the Delaware General Corporation
Law, as the same exists or may hereafter be amended (but, in the case of any
such amendment, only to the extent that such amendment permits the corporation
to provide broader indemnification rights than said law permitted the
corporation to provide prior to such amendment), or by other applicable law as
then in effect, against all expense, liability and loss (including attorney's
fees, judgments, fines, ERISA excise taxes or penalties and amounts to be paid
in settlement) actually and reasonably incurred or suffered by such indemnitee
in connection therewith and such indemnification shall continue as to an
indemnitee who has ceased to be a director, officer, employee or agent and
shall inure to the benefit of the indemnitee's heirs, executors and
administrators, provided, however, that except as provided in Section 2 of this
Article with respect to proceedings seeking to enforce rights to
indemnification, the corporation shall indemnify any such indemnitee seeking
indemnification in connection with a proceeding (or part thereof) initiated by
such indemnitee only if such proceeding (or part thereof) was authorized by
the Board of Directors of the corporation. The right to indemnification
conferred in this Section shall be a contract right and shall include the
right to be paid by the corporation the expenses incurred in defending any
such proceeding in advance of its final disposition (hereinafter an
"advancement of expenses"); provided, however, that, if the Delaware General
Corporation Law requires, an advancement of expenses incurred by an indemnitee
in his or her capacity as a director or officer (and not in any other capacity
in which service was or is rendered by such indemnitee while a director or
officer, including, without limitation, service to an employee benefit plan)
shall be made only upon delivery to the corporation of an undertaking, by or
on behalf of such indemnitee, to repay all amounts so advanced if it shall
ultimately be determined that such indemnitee is not entitled to be
indemnified under this Section 1, or otherwise.
SECTION 2. Right of Indemnitee to Bring Suit.
If a claim under Section 1 of this Article is not paid in full by the
corporation within sixty days after a written claim has been received by the
corporation, except in the case of a claim for an advancement of expenses, in
which case the applicable period shall be twenty days, the indemnitee may at
any time thereafter bring suit against the corporation to recover the unpaid
amount of the claim and, to the extent successful in whole or in part, the
indemnitee shall be entitled to be paid also the expense of prosecuting such
suit. The indemnitee shall be presumed to be entitled to indemnification
under this Article upon submission of a written claim (and, in an action
brought to enforce a claim for an advancement of expenses where the required
undertaking, if any is required, has been tendered to the corporation), and
thereafter the corporation shall have the burden of proof to overcome the
presumption that the indemnitee is not so entitled. Neither the failure of
the corporation (including its Board of Directors, independent legal counsel
or its stockholders) to have made a determination prior to the commencement of
such suit that indemnification of the indemnitee is proper in the
circumstances nor an actual determination by the corporation (including its
Board of Directors, independent legal counsel or its stockholders) that the
indemnitee is not entitled to indemnification shall be a defense to the suit
or create a presumption that the indemnitee is not so entitled.
SECTION 3. Nonexclusivity of Rights.
The rights to indemnification and to the advancement of expenses
conferred in this Article shall not be exclusive of any other right which any
person may have or hereafter acquire under any statute, provision of the
Certificate of Incorporation, By-Laws, agreement, vote of stockholders or
disinterested directors or otherwise.
SECTION 4. Insurance, Contracts and Funding.
The corporation may maintain insurance, at its expense, to protect itself
and any director, officer, employee or agent of the corporation or another
corporation, partnership, joint venture, trust or other enterprise against any
expense, liability or loss, whether or not the corporation would have the
power to indemnify such person against such expense, liability or loss under
the Delaware General Corporation Law. The corporation may enter into
contracts with any indemnitee in furtherance of the provisions of this Article
and may create a trust fund, grant a security interest or use other means
(including, without limitation, a letter of credit) to ensure the payment of
such amounts as may be necessary to effect indemnification as provided in this
Article.
SECTION 5. Definition of Director and Officer.
Any person who is or was serving as a director of a wholly owned
subsidiary of the corporation shall be deemed, for purposes of this Article
only, to be a director or officer of the corporation entitled to
indemnification under this Article.
SECTION 6. Indemnification of Employees and Agents of the Corporation.
The corporation may, by action of its Board of Directors from time to
time, grant rights to indemnification and advancement of expenses to employees
and agents of the corporation with the same scope and effects as the
provisions of this Article with respect to the indemnification and advancement
of expenses of directors and officers of the corporation.
ARTICLE XI.
CHECKS, DRAFTS, BANK ACCOUNTS, ETC.
SECTION 1. Checks, Drafts, Etc.; Loans.
All checks, drafts or other orders for the payment of money, notes or
other evidences of indebtedness issued in the name of the corporation shall be
signed by such officer or officers, agent or agents of the corporation and in
such manner as shall, from time to time, be determined by resolution of the
Board of Directors. No loans shall be contracted on behalf of the corporation
unless authorized by the Board of Directors. Such authority may be general or
confined to specific circumstances.
SECTION 2. Deposits.
All funds of the corporation shall be deposited, from time to time, to
the credit of the corporation in such banks, trust companies or other
depositories as the Board of Directors may select, or as may be selected by
any officer or officers, agent or agents of the corporation to whom such power
may, from time to time, be delegated by the Board of Directors; and for the
purpose of such deposit, the Chairman, the President, any Vice President, the
Treasurer or any Assistant Treasurer, the Secretary or any Assistant Secretary
or any other officer or agent to whom such power may be delegated by the Board
of Directors, may endorse, assign and deliver checks, drafts and other order
for the payment of money which are payable to the order of the corporation.
ARTICLE XII.
NOMINATIONS OF DIRECTOR CANDIDATES
SECTION 1. General. Nomination of candidates for election as directors
of the corporation at any meeting of stockholders called for election of
directors (an "Election Meeting") may be made by the Board of Directors or by
any stockholder entitled to vote at such Election Meeting.
SECTION 2. Nominations by Board of Directors. Nominations made by the
Board of Directors shall be made at a meeting of the Board of Directors, or by
written consent of directors in lieu of a meeting, not less than 30 days prior
to the date of the Election Meeting. At the request of the Secretary of the
corporation each proposed nominee shall provide the corporation with such
information concerning himself as is required, under the rules of the
Securities and Exchange Commission, to be included in the corporation's proxy
statement soliciting proxies for his election as a director.
SECTION 3. Nominations by Stockholders. Any stockholder who intends to
make a nomination at the annual meeting of stockholders shall deliver a notice
addressed to the Secretary of the corporation and received at the principal
executive offices of the corporation in compliance with the timeliness
requirements applicable to a stockholder's notice under Article II, Section 10
of these By-laws and setting forth (a) as to each nominee whom the stockholder
proposes to nominate for election as a director, (i) the name, age, business
address and residence address of the nominee, (ii) the principal occupation or
employment of the nominee, (iii) the class and number of shares of capital
stock of the corporation which are beneficially owned by the nominee and (iv)
any other information concerning the nominee that would be required, under the
rules of the Securities and Exchange Commission, in a proxy statement
soliciting proxies for the election of such nominee; and (b) as to the
stockholder giving the notice, (i) the name and record address of the
stockholder, (ii) the class and number of shares of capital stock of the
corporation which are beneficially owned by the stockholder and (iii) whether
the proponent intends or is part of a group which intends to solicit proxies
from other stockholders in support of the nomination; provided, however, that
in the event that an Election Meeting is called that is not the annual meeting
of stockholders, notice by the stockholder to be timely must be so delivered
not later than the close of business on the 15th day following the day on
which such notice of the date of the meeting was mailed or public disclosure
of such date was made, whichever first occurs. Such notice shall include a
signed consent to serve as a director of the corporation, if elected, of each
such nominee. The corporation may require any proposed nominee to furnish
such other information as may reasonably be required by the corporation to
determine the eligibility of such proposed nominee to serve as a director of
the corporation.
SECTION 4. Substitute Nominees. In the event that a person is validly
designated as a nominee in accordance with Section 2 or Section 3 of this
Article XII and shall thereafter become unable or unwilling to stand for
election to the Board of Directors, the Board of Directors or the stockholder
who proposed such nominee, as the case may be, may designate a substitute
nominee.
SECTION 5. Void Nominations. If the Chairman of the Election Meeting
determines that a nomination was not made in accordance with the foregoing
procedures, such nomination shall be void.
ARTICLE XIII.
AMENDMENTS
These By-Laws may be altered or repealed and new By-Laws may be made by
the affirmative vote, at any meeting of the Board, of a majority of the whole
Board of Directors, subject to the rights of the stockholders of the
corporation to amend or repeal By-Laws made or amended by the Board of
Directors by the affirmative vote of the holders of record of a majority in
number of shares of the outstanding stock of the corporation present or
represented at any meeting of the stockholders and entitled to vote thereon,
provided that notice of the proposed action be included in the notice of such
meeting.
EXHIBIT 11
<TABLE>
<CAPTION>
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,
------------ ------------
1997 1996 1997 1996
---- ---- ---- ----
Net income
<S> <C> <C> <C> <C>
Primary:
Net income available for
common shareholders $ 283 $ 247 $ 668 $ 645
====== ====== ====== ======
Weighted average number of shares
Primary:
Average common shares outstanding 155.3 152.7 154.5 151.7
Common share equivalents resulting
from assumed exercise of stock
options 3.0 3.6 3.1 4.1
------ ------ ------ ------
158.3 156.3 157.6 155.8
====== ====== ====== ======
Net income per common share
Primary $ 1.79 $ 1.58 $ 4.24 $ 4.14
</TABLE>
Primary 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. Fully diluted
earnings per share are not included as the computation results in less than
three percent dilution compared to primary earnings per share.
EXHIBIT 12
<TABLE>
<CAPTION>
BURLINGTON NORTHERN SANTA FE CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(IN MILLIONS, EXCEPT RATIO AMOUNTS)
(UNAUDITED)
Nine Months
Ended September 30,
------------------
1997 1996
Earnings: ---- ----
<S> <C> <C>
Pre-tax income $1,061 $1,054
Add:
Interest and fixed charges,
excluding capitalized interest 255 224
Portion of rent under long-term
operating leases representative
of an interest factor 139 133
Amortization of capitalized interest 3 2
Less: Undistributed equity in earnings
of investments accounted for
under the equity method 8 7
------ ------
Total earnings available for fixed charges $1,450 $1,406
====== ======
Fixed charges:
Interest and fixed charges $ 268 $ 234
Portion of rent under long-term operating
leases representative of an interest
factor 139 133
------ ------
Total fixed charges $ 407 $ 367
====== ======
Ratio of earnings to fixed charges 3.56x 3.83x
</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-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 45
<SECURITIES> 0
<RECEIVABLES> 845
<ALLOWANCES> 70
<INVENTORY> 219
<CURRENT-ASSETS> 1427
<PP&E> 23334
<DEPRECIATION> 4681
<TOTAL-ASSETS> 20981
<CURRENT-LIABILITIES> 2039
<BONDS> 5146
<COMMON> 2
0
0
<OTHER-SE> 6623
<TOTAL-LIABILITY-AND-EQUITY> 20981
<SALES> 0
<TOTAL-REVENUES> 6255
<CGS> 0
<TOTAL-COSTS> 4926
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 255
<INCOME-PRETAX> 1061
<INCOME-TAX> 393
<INCOME-CONTINUING> 668
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 668
<EPS-PRIMARY> 4.24
<EPS-DILUTED> 4.24
</TABLE>
