<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 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 OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
2650 LOU MENK DRIVE
SECOND FLOOR
FORT WORTH, TEXAS 76131-2830
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
817/333-2000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
<S> <C>
Common Stock, $0.01 par value New York Stock Exchange
Chicago Stock Exchange
Pacific Exchange
</TABLE>
----------------
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirement for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
The aggregate market value of the voting stock held by non-affiliates of the
registrant was approximately $15.5 billion on February 28, 1998. For purposes
of this calculation only, the registrant has excluded stock beneficially owned
by directors and officers. By doing so, the registrant does not admit that
such persons are affiliates within the meaning of Rule 405 under the
Securities Act of 1933 or for any other purpose.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date:
Common Stock, $0.01 par value, 156,807,093 shares outstanding as of February
28, 1998.
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the documents from which parts thereof have been incorporated
by reference and the part of the Form 10-K into which such information is
incorporated:
<TABLE>
<S> <C>
Annual Report to Shareholders for the fiscal year ended
December 31, 1997..................................... PARTS I, II, AND IV
Proxy Statement dated March 9, 1998.................... PART III
</TABLE>
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<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
PART I
<S> <C>
Items 1 and 2. Business and Properties.................................... 1
Item 3. Legal Proceedings................................................. 10
Item 4. Submission of Matters to a Vote of Security Holders............... 15
EXECUTIVE OFFICERS OF THE REGISTRANT...................................... 15
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters.................................................................. 16
Item 6. Selected Financial Data........................................... 16
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................... 16
Item 7A. Quantitative and Qualitative Disclosures About Market Risk....... 16
Item 8. Financial Statements and Supplementary Data....................... 18
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure..................................................... 18
PART III
Item 10. Directors and Executive Officers of the Registrant............... 18
Item 11. Executive Compensation........................................... 19
Item 12. Security Ownership of Certain Beneficial Owners and Management... 19
Item 13. Certain Relationships and Related Transactions................... 19
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. 19
SIGNATURES................................................................ S-1
REPORTS OF INDEPENDENT ACCOUNTANTS AND CONSOLIDATED FINANCIAL STATEMENT
SCHEDULE................................................................. F-1
EXHIBITS.................................................................. E-1
</TABLE>
i
<PAGE>
PART I
ITEMS 1 AND 2. BUSINESS AND PROPERTIES
Burlington Northern Santa Fe Corporation ("BNSF") was incorporated in the
State of Delaware on December 16, 1994. On September 22, 1995, the
stockholders of Burlington Northern Inc. ("BNI") and Santa Fe Pacific
Corporation ("SFP") became the stockholders of BNSF pursuant to a business
combination of the two companies. In order to effect the combination, BNSF was
formed to act as the parent holding company of BNI and SFP.
On October 13, 1994, BNI, Burlington Northern Railroad Company ("BNRR"),
SFP, and The Atchison, Topeka and Santa Fe Railway Company ("ATSF") filed a
railroad merger and control application with the Interstate Commerce
Commission ("ICC"). On August 23, 1995, the ICC issued its written decision
approving and authorizing BNI's acquisition of control of SFP and the business
combination by which BNI and SFP became subsidiaries of BNSF, the resulting
common control of BNRR and ATSF by BNSF, the consolidation of BNRR and ATSF by
BNSF, the consolidation of BNRR and ATSF operations, and the merger of BNRR
and ATSF. Pursuant to the ICC's permissive authority, the business combination
was effected on September 22, 1995.
On December 30, 1996, BNI merged with and into SFP. On December 31, 1996,
ATSF merged with and into BNRR, and BNRR changed its name to The Burlington
Northern and Santa Fe Railway Company ("BNSF Railway"). On January 2, 1998,
SFP merged with and into BNSF Railway.
Through March 6, 1998, BNSF also had an equity interest in Santa Fe Pacific
Pipeline Partners, L.P. and its operating subsidiary, which operated a 3,300-
mile refined petroleum products pipeline system in six western and
southwestern states, substantially all of which interest has now been sold.
See "PIPELINE INVESTMENT."
Through its subsidiaries, BNSF is engaged primarily in the rail
transportation business. At December 31, 1997, BNSF and its subsidiaries had
approximately 44,500 employees.
RAIL
The rail operations of BNSF Railway, BNSF's principal operating subsidiary,
comprise one of the largest railroad systems in the United States. BNSF
Railway's business and operations are described below.
TRACK CONFIGURATION
BNSF Railway operates over a railroad system consisting of, at December 31,
1997, approximately 34,000 route miles of track (excluding, among other
things, second main track), approximately 25,400 miles of which are owned
route miles, including easements, through 28 states and two Canadian
provinces. Approximately 7,800 route miles of BNSF Railway's system consist of
trackage rights which permit BNSF Railway to operate its trains with its crews
over another railroad's tracks.
As of December 31, 1997, the total BNSF Railway system--including first,
second, third and fourth main tracks, yard tracks, and sidings--consisted of
approximately 51,000 operated miles of track, all of which were owned by or
held under easement by BNSF Railway except for approximately 8,600 miles
operated under trackage rights agreements with other parties. At December 31,
1997, approximately 28,000 miles of BNSF Railway's track consisted of 112-
pound per yard or heavier rail, including approximately 18,700 track miles of
131-pound per yard or heavier rail.
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EQUIPMENT CONFIGURATION
BNSF Railway owned or had under non-cancelable leases exceeding one year the
following units of railroad rolling stock (1995 represents pro forma BNSF
Railway):
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Diesel Locomotives................................... 4,697 4,434 4,277
====== ====== ======
Freight Cars:
Box--general purpose............................... 1,042 1,082 1,204
Box--specially equipped............................ 10,533 10,719 10,985
Open Hopper........................................ 10,617 10,430 10,497
Covered Hopper..................................... 43,145 44,112 44,840
Gondola............................................ 11,845 11,714 11,467
Refrigerator....................................... 6,606 6,817 7,216
Autorack........................................... 3,588 3,597 3,600
Flat............................................... 5,454 5,508 5,774
Tank............................................... 491 493 505
Caboose............................................ 389 451 485
Other.............................................. 732 732 734
------ ------ ------
Total Freight Cars................................. 94,442 95,655 97,307
====== ====== ======
Domestic Containers.................................. 15,513 15,595 16,230
Trailers............................................. 721 821 834
Domestic Chassis..................................... 5,152 5,273 5,274
Company Service Cars................................. 5,196 6,140 6,084
Commuter Passenger Cars.............................. 141 141 141
</TABLE>
In addition to the containers, trailers, and chassis shown above, BNSF
Railway had under short-term leases 11,603 containers, 2,157 trailers, and
18,262 chassis, at December 31, 1997. In addition to the owned and leased
locomotives identified above, BNSF Railway operated 196 freight locomotives
under power-purchase agreements as of December 31, 1997. The average age from
date of manufacture of the locomotive fleet at December 31, 1997, was 10.45
years; the average age from date of manufacture or remanufacture of the
freight car fleet at December 31, 1997, was 19.93 years. These averages are
not weighted to reflect the greater capacities of the newer equipment.
CAPITAL EXPENDITURES AND MAINTENANCE
BNSF Railway capital expenditures for the periods indicated were as follows
(1995 represents pro forma BNSF Railway):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1997 1996 1995
------- ------- -------
(IN MILLIONS)
<S> <C> <C> <C>
Maintenance of Way
Rail........................................... $ 286 $ 188 $ 164
Ties........................................... 230 191 163
Surfacing...................................... 124 130 96
Other.......................................... 334 345 215
------- ------- -------
Total Maintenance of Way..................... 974 854 638
Equipment........................................ 572 544 284
Terminal and Line Expansion...................... 428 447 335
Merger Related and Other......................... 208 437 98
------- ------- -------
Total Capital Expenditures....................... $ 2,182 $ 2,282 $ 1,355
Less Non-Cash Capital Expenditures(1)............ -- 48 140
------- ------- -------
Net Cash Capital Expenditures.................... $ 2,182 $ 2,234 $ 1,215
======= ======= =======
</TABLE>
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(1) Consists primarily of directly financed equipment acquisitions.
2
<PAGE>
The above table does not include expenditures for equipment financed through
operating leases (principally, locomotives and rolling stock). BNSF expects
1998 capital expenditures for BNSF Railway to be slightly over $2.0 billion.
Approximately $1.1 billion of these expenditures will be for maintaining
BNSF's track, signals, bridges and tunnels, and to overhaul locomotives and
freight cars. The remainder will be spent on terminal and line expansions,
information system projects and an additional 180 locomotives. In addition to
these capital expenditures on new locomotives, BNSF Railway will acquire 200
new locomotives under long-term leases in 1998.
As of December 31, 1997, General Electric Company, the Electro-Motive
Division of General Motors Corporation and Boise Locomotive Corporation
performed locomotive maintenance and overhauls for BNSF Railway under various
maintenance agreements that covered approximately 2,000 locomotives. These
agreements require the work to be done at BNSF Railway's facilities using BNSF
Railway employees.
The majority of maintenance of way expenditures for track have been for rail
and tie refurbishment and track resurfacing. The extent of the BNSF Railway
track maintenance program (1995 represents pro forma BNSF Railway) is depicted
in the following table:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
--------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Track miles of rail laid: (1)........................ 1,035 1,139 945
Cross ties inserted (thousands)(1)................... 2,941 3,768 2,974
Track resurfaced (miles)(1).......................... 12,430 12,033 11,088
</TABLE>
- --------
(1) Includes expenditures for both maintenance of existing route system and
expansion projects. These expenditures are primarily capitalized.
BNSF Railway anticipates that the 1998 track maintenance of way program,
together with expansion projects, will result in the installation of
approximately 1,000 track miles of rail, the replacement of about 3 million
ties, and the resurfacing of approximately 11,000 miles of track.
PROPERTY AND FACILITIES
BNSF Railway operates facilities and equipment to maintain its track,
locomotives and freight cars. It also owns or leases other equipment to
support rail operations, such as highway trailers, containers and vehicles.
Support facilities for rail operations include yards and terminals throughout
its rail network, system locomotive shops to perform locomotive servicing and
maintenance, a centralized network operations center for train dispatching and
network operations monitoring and management in Fort Worth, Texas, computers,
telecommunications equipment, signal systems, and other support systems.
Transfer facilities are maintained for rail-to-rail as well as intermodal
transfer of containers, trailers and other freight traffic. These include 39
major intermodal hubs located across the system and nine intermodal hub
centers off-line used in connection with haulage agreements with other
railroads. BNSF Railway's largest intermodal facilities in terms of 1997
volume are:
<TABLE>
<CAPTION>
INTERMODAL FACILITIES UNITS
--------------------- -------
<S> <C>
Hobart Yard (Los Angeles)......................................... 824,000
Corwith Yard (Chicago)............................................ 663,000
Willow Springs (Illinois)......................................... 555,000
Chicago Hub Center (Cicero, Illinois)............................. 403,000
Alliance (Texas).................................................. 353,000
Seattle International Gateway (SIG)............................... 207,000
Tacoma............................................................ 195,000
</TABLE>
BNSF Railway owns 28 automotive distribution facilities where automobiles
are loaded or unloaded from multi-level rail cars and serves eight port
facilities. Argentine Yard in Kansas City, Kansas, Barstow Yard in Barstow,
California, and Northtown Yard in Minneapolis, Minnesota are BNSF Railway's
largest freight car classification yards.
3
<PAGE>
A substantial portion of all railroad property, real or personal, owned by
BNSF Railway is subject to liens securing, as of December 31, 1997,
approximately $467 million of mortgage bonds. Certain locomotives and rolling
stock of BNSF Railway are subject to equipment obligations, as referred to in
Note 12 to the consolidated financial statements on page 31 of BNSF's 1997
Annual Report to Shareholders, which information is hereby incorporated by
reference.
EMPLOYEES AND LABOR RELATIONS
Productivity as measured by revenue ton miles per employee has risen
steadily in the last three years, while compensation and benefits expense per
revenue ton mile declined from 1995 to 1996, and increased from 1996 to 1997,
as shown in the table below (1995 represents pro forma BNSF Railway):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
--------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Thousand revenue ton-miles divided by average number of
employees................................................ 9,769 9,398 8,968
Compensation and benefits expense per thousand revenue
ton-miles................................................ $ 6.30 $ 6.23 $ 6.61
</TABLE>
Labor unions represent approximately 88 percent of BNSF Railway employees
under collective bargaining agreements with 13 different labor organizations.
The collective bargaining agreements reached in 1996 and 1997 as a result of
industry-wide and certain local labor contract negotiations will remain in
effect through at least December 31, 1999 and until new agreements are reached
or the Railway Labor Act's procedures are exhausted.
Railroad industry personnel are covered by the Railroad Retirement System
instead of Social Security. BNSF Railway's contributions under the Railroad
Retirement System are approximately triple those in industries covered by
Social Security.
Railroad industry personnel are also covered by the Federal Employers'
Liability Act ("FELA") rather than by state workers' compensation systems.
FELA is a fault-based system, with compensation for injuries settled by
negotiation and litigation, not subject to specific statutory limitations on
the amount of recovery. By contrast, most other industries are covered under
state administered no-fault plans with standard compensation schedules. BNSF
Railway believes it has adequate reserves for its FELA claims. However, the
future costs of FELA claims are uncertain and such costs could be
significantly higher in the future.
BUSINESS MIX
In serving the Midwest, Pacific Northwest and the Western, Southwestern, and
Southeastern regions and ports of the country, BNSF Railway transports a range
of commodities derived from manufacturing, agricultural, and natural resource
industries. Accordingly, its financial performance is influenced by, among
other things, general and industry economic conditions at the international,
national, and regional levels.
Major markets served directly by BNSF Railway include Albuquerque, Amarillo,
Billings, Birmingham, Cheyenne, Chicago, Corpus Christi, Dallas, Denver, Des
Moines, Duluth/Superior, Fargo/Moorhead, Fort Worth, Galveston, Houston,
Kansas City, Lincoln, Little Rock, Los Angeles, Memphis, Mobile, New Orleans,
Oklahoma City, Omaha, Phoenix, Portland, Reno, Salt Lake City, San Antonio,
the San Francisco Bay area, St. Louis, St. Paul/Minneapolis, Seattle, Spokane,
Springfield (Missouri), Tacoma, Tulsa, Wichita, Vancouver (British Columbia),
and Winnipeg (Manitoba). Other major cities are served through Intermodal
Market Extension ("IMX") terminals located at various off-line points. Major
ports served include Galveston, Houston, Long Beach, Los Angeles, New Orleans,
Mobile, Portland, Richmond (Oakland), San Diego, Seattle, Duluth/Superior,
Tacoma and Vancouver (British Columbia). BNSF Railway also accesses the
Mexican market through the United States/Mexico crossings at Brownsville,
Eagle Pass and El Paso, Texas and San Diego, California and, through an
agreement with the Texas Mexican Railway Company, reaches Laredo, Texas, a
major border crossing point.
In 1997, approximately 27 percent of revenues were derived from Intermodal
traffic and approximately 23 percent were derived from the transportation of
Coal. About 13 percent of 1997 revenues reflected the
4
<PAGE>
transportation of Agricultural Commodities, with the balance largely accounted
for by the Chemicals, Forest Products, Consumer Goods, Metals, Automotive, and
Minerals business groups.
Intermodal. The Intermodal freight business consists of the hauling of
freight containers or truck trailers by combinations of water, rail, or motor
carriers. The intermodal business is highly service-driven, and in many cases
motor carriers and railroads work jointly to provide intermodal service. The
first such joint intermodal arrangement was Quantum, through which BNSF
Railway and J. B. Hunt Transport provide customers full service, customized
door-to-door transportation (truck and rail), with a common communication
system and integrated billing at a single rate.
Intermodal 1997 results include revenue from four types of business:
. Direct Marketing. Direct marketing efforts resulted in approximately 33
percent of total intermodal revenue. These center around traffic
contracted from United Parcel Service and the United States Postal
Service, and service for nationwide LTL (Less-Than-Truckload) carriers
including Yellow Freight, Roadway Express, and Consolidated Freightways.
. Truckload. Truckload traffic represented approximately 15 percent of
total intermodal revenue. The joint service arrangement with J.B. Hunt,
referred to as Quantum, represented the largest truckload component,
while Schneider National was the next largest.
. Intermodal Marketing Companies. Approximately 25 percent of total
intermodal revenue was generated through intermodal marketing companies,
primarily shipper agents and consolidators.
. International. International business consists primarily of traffic from
steamship companies and accounted for approximately 27 percent of
intermodal revenues.
Coal. Based on carloadings and tons hauled, BNSF Railway is the largest
transporter of western low-sulfur coal in the United States. Approximately 90
percent of BNSF Railway's coal traffic originated in the Powder River Basin of
Wyoming and Montana during the three years ended December 31, 1997. These coal
shipments were destined for coal-fired electric generating stations located
primarily in the North Central, South Central and Mountain regions of the
United States.
BNSF Railway also transports increasing amounts of low-sulfur coal from the
Powder River Basin for delivery to markets in the eastern and southeastern
portion of the United States. The low-sulfur coal from the Powder River Basin
is abundant, inexpensive to mine and clean-burning. Because the Clean Air Act
of 1990 requires power plants to reduce harmful emissions either by burning
coal with a lower sulfur content or by installing expensive scrubbing units by
the year 2000, opportunities for increased shipments of this low-sulfur coal
still exist. Also, deregulation in the electric utility industry is expected
to cause utilities to seek lower cost fuel sources and boost demand for Powder
River Basin coal.
Other coal shipments originate principally in Wyoming, Colorado, and New
Mexico and are moved to electrical generating stations and industrial plants
in the Midwest and Southwest.
Agricultural Commodities. Agricultural Commodities include barley, corn,
wheat, soybeans, oils, feeds, flour and mill products, specialty grains,
malts, and milo. The BNSF Railway system is strategically located to serve the
Midwest and Great Plains grain-producing regions where BNSF Railway serves
most major terminal, storage, feeding and food-processing locations.
Additionally, BNSF Railway has access to major export markets in the Pacific
Northwest, western Great Lakes and Texas Gulf regions.
Chemicals. The Chemicals business is comprised of fertilizer, petroleum and
chemical commodities. Chemicals and plastics resins are transported for
industrial and agricultural use. Industrial chemicals and plastics resins are
used by the automotive, housing, and packaging industries, as well as for
feedstocks to produce other chemical and plastic products. Access to
significant additional chemicals producers along the Louisiana and Texas Gulf
Coasts was gained as a result of the agreement and conditions resulting from
the merger of the Union Pacific and Southern Pacific railroads. Agricultural
minerals include sulphur that generally moves to the Gulf
5
<PAGE>
Coast and from there via vessels to Florida and overseas markets for use in
making phosphatic fertilizers. Potash is transported to domestic markets and
to export points for markets in Canada, Mexico, and overseas.
Forest Products. The primary commodities in Forest Products are lumber,
plywood, oriented strand board, paper products, pulpmill feedstock, and wood
pulp. Based on carloadings and tonnage hauled, BNSF Railway is the largest
rail transporter of forest products in the United States. Commodity origins
are primarily from the Pacific Northwest, upper Midwest, and the Southeast for
shipment mainly into domestic markets. Industries served include construction,
furniture, photography, publishing, newspaper, and industrial packaging.
Consumer Goods. Beverages, canned goods, and perishables are the principal
food commodities moved by BNSF Railway. Other consumer products handled
include sugars and sweeteners, cotton, salt, rubber and tires, machinery,
aircraft parts, military and miscellaneous boxcar shipments. Shipments of
waste, ranging from municipal waste to contaminated soil, move to landfills
and reclamation centers across the country.
Metals. The Metals business serves virtually all of the commodities included
in or resulting from the production of steel. Taconite, an iron ore derivative
produced in northern Minnesota, scrap steel, and coal coke are BNSF Railway's
primary input products, while finished steel products range from structural
beams and steel coils to wire and nails. BNSF Railway also hauls both ferrous
and non-ferrous products including recyclable metals. BNSF Railway links the
integrated steel mills in the East with fabricators in the West and Southwest.
Service is also provided to various mini-mills in the Southwest that produce
rebar, beams, and coiled rod to the construction industry. Various non-ferrous
products such as copper, lead, and aluminum are transported for the beverage,
automotive, and telecommunications industries.
Automotive. The Automotive group is responsible for both assembled motor
vehicles and shipments of vehicle parts to numerous destinations throughout
the Midwest, Southwest, West and Pacific Northwest.
Minerals. Commodities in this group include clays, sands, cements,
aggregates, sodium compounds and other industrial minerals. Both the oil and
the construction industries are serviced. Industrial minerals include various
mined and processed commodities such as cement and aggregates (construction
sand, gravel and crushed stone) that generally move to domestic markets for
use in general construction and public work projects, including highways.
Borates and clays move to domestic points as well as to export markets
primarily through West Coast ports. Sodium compounds, primarily soda ash, is
moved to domestic markets for use in the manufacturing of glass and other
industrial products. Sand is utilized in the manufacturing of glass and for
use in foundry and oil drilling applications.
Freight Statistics. The following tables set forth certain freight
statistics relating to rail operations for the periods indicated. Amounts
shown for 1995 represent pro forma BNSF Railway; certain amounts have been
reclassified to reflect changes in the business groups and to conform to
current year presentation.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Revenue ton-miles (millions).................. 424,588 411,059 409,418
Freight revenue per thousand revenue ton-
miles........................................ $ 19.81 $ 19.71 $ 19.69
Average haul per ton (miles).................. 935 875 864
</TABLE>
6
<PAGE>
REVENUES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
--------------------
1997 1996 1995
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
Intermodal........................................... $2,282 $2,039 $1,949
Coal................................................. 1,972 1,973 1,962
Agricultural Commodities............................. 1,087 1,171 1,290
Chemicals............................................ 793 765 712
Forest Products...................................... 573 556 557
Consumer Goods....................................... 505 470 486
Metals............................................... 424 413 397
Automotive........................................... 422 396 396
Minerals............................................. 352 319 313
------ ------ ------
Total Freight Revenue................................ 8,410 8,102 8,062
Other Revenue........................................ 3 39 35
------ ------ ------
Total Revenues................................... $8,413 $8,141 $8,097
====== ====== ======
</TABLE>
CARS/UNITS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------
1997 1996 1995
----- ----- -----
(IN THOUSANDS)
<S> <C> <C> <C>
Intermodal.............................................. 2,854 2,570 2,527
Coal.................................................... 1,862 1,854 1,878
Agricultural Commodities................................ 577 587 664
Chemicals............................................... 467 448 435
Forest Products......................................... 335 334 347
Consumer Goods.......................................... 349 308 332
Metals.................................................. 374 391 399
Automotive.............................................. 264 251 264
Minerals................................................ 263 249 257
----- ----- -----
Total Car/Units..................................... 7,345 6,992 7,103
===== ===== =====
</TABLE>
AVERAGE REVENUE PER CAR/UNIT
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
--------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Intermodal.......................................... $ 800 $ 793 $ 771
Coal................................................ 1,059 1,064 1,045
Agricultural Commodities............................ 1,884 1,995 1,943
Chemicals........................................... 1,698 1,708 1,637
Forest Products..................................... 1,710 1,665 1,605
Consumer Goods...................................... 1,447 1,526 1,464
Metals.............................................. 1,134 1,056 995
Automotive.......................................... 1,598 1,578 1,500
Minerals............................................ 1,338 1,281 1,218
------ ------ ------
AVERAGE REVENUE PER CAR/UNIT.................... $1,145 $1,159 $1,135
====== ====== ======
</TABLE>
7
<PAGE>
GOVERNMENT REGULATION AND LEGISLATION
Rail operations are subject to the regulatory jurisdiction of the Surface
Transportation Board of the United States Department of Transportation
("DOT"), the Federal Railroad Administration of DOT, the Occupational Safety
and Health Administration ("OSHA"), and state regulatory agencies. The Surface
Transportation Board, which is the successor to the Interstate Commerce
Commission, has jurisdiction over certain rates, routes, and services, the
extension, sale, or abandonment of rail lines, and consolidation or merger
with, or acquisition of control of, rail common carriers. DOT and OSHA have
jurisdiction under several federal statutes over a number of safety and health
aspects of rail operations. State agencies regulate some aspects of rail
operations with respect to health and safety in areas not otherwise preempted
by federal law.
BNSF Railway's rail operations, as well as those of its competitors, are
subject to extensive federal, state and local environmental regulation. These
laws cover discharges to waters, air emissions, toxic substances, and the
generation, handling, storage, transportation, and disposal of waste and
hazardous materials. This regulation has the effect of increasing the cost and
liabilities associated with rail operations. Environmental risks are also
inherent in rail operations which frequently involve transporting chemicals
and other hazardous materials.
The railroad industry, including BNSF Railway, will become subject to future
requirements regulating air emissions from diesel locomotives that will
increase operating and capital costs. Regulations applicable to new and
rebuilt locomotives were issued by the United States Environmental Protection
Agency ("EPA") in December 1997. These regulations, which are not yet
effective, will be phased in between 2000 and 2010. 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. The
State of California has previously indicated to the EPA that it will support
the federal rule as proposed subject to slight technical modifications; the
regulations issued in December 1997 are similar in most respects to the
proposed regulations.
Many of BNSF Railway'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 Railway is now subject and will from time to time continue
to be subject to environmental cleanup and enforcement actions. In particular,
the federal Comprehensive Environmental Response, Compensation and Liability
Act ("CERCLA"), also known as the "Superfund" law, generally imposes joint and
several liability for cleanup and enforcement costs, without regard to fault
or the legality of the original conduct, on current and former owners and
operators of a site. Accordingly, BNSF Railway may be responsible under CERCLA
and other federal and state statutes for all or part of the costs to clean up
sites at which certain substances may have been released by BNSF Railway, its
current lessees, former owners or lessees of properties, or other third
parties. For further discussion, reference is made to Note 15 to the
consolidated financial statements on pages 33 and 34 of BNSF's 1997 Annual
Report to Shareholders, which information is hereby incorporated by reference.
COMPETITION
The business environment in which BNSF Railway operates remains highly
competitive. Depending on the specific market, deregulated motor carriers,
other railroads and river barges exert pressure on various price and service
levels. The presence of advanced, high service truck lines with expedited
delivery, subsidized infrastructure and minimal empty mileage continues to
affect the market for non-bulk, time sensitive freight. The potential
expansion of longer combination vehicles could further encroach upon markets
traditionally served by railroads. In order to remain competitive, BNSF
Railway and other railroads continue to develop and implement operating
efficiencies to improve productivity.
As railroads streamline, rationalize and otherwise enhance their franchises,
competition among rail carriers intensifies. BNSF Railway's primary rail
competitor in the western region of the United States is Union Pacific
Railroad Company ("UP"), which now includes the former Southern Pacific
Transportation Company ("SP") and Chicago & North Western Transportation
Company. Other Class I railroads and numerous regional railroads
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and motor carriers also operate in parts of the same territories served by
BNSF Railway. Coal, one of BNSF Railway's primary commodities, has experienced
significant pressure on rates due to competition from the effort of UP as well
as from BNSF Railway's effort to penetrate new markets.
The Surface Transportation Board ("STB") approved the proposed common
control and merger of rail carriers controlled by UP and SP in its written
decision dated August 12, 1996, and the transaction was consummated on
September 11, 1996. As a condition of the merger, BNSF Railway gained rights
to approximately 4,000 miles of track and purchased more than 335 miles of
track from UP/SP. Additionally, in late 1997, BNSF was granted temporary
access to additional UP/SP lines in the Gulf Coast area by order of the STB.
Approval of the UP/SP transaction created an enhanced competitor to BNSF
Railway. The Board's decision also provided BNSF Railway with greater access
to Gulf Coast and West Coast markets and improved its route structure.
On February 13, 1998, BNSF Railway and UP announced their agreement to
exchange half interests in the two pieces of the former SP rail line between
Houston and New Orleans now separately owned by the two railroads. Under the
agreement, both railroads will have access to all customers, including
chemical, steel, gas and other companies, along the entire line, including
former SP branch lines. The two railroads also agreed to set up a joint
regional dispatching center at Spring, Texas in March 1998 for all of their
Gulf Coast train operations in order to better manage train flows in and
through Houston.
BNSF is monitoring the proposed disposition of Consolidated Rail Corporation
(Conrail) between CSX Corporation and Norfolk Southern Corporation and related
filings with the STB to determine the impact, if any, on BNSF Railway.
Conrail, CSX and Norfolk Southern operate the three largest rail systems in
the eastern United States. In February 1998, Canadian National Railway Company
("CN") and Illinois Central Corporation ("IC") entered into a definitive
agreement under which CN will acquire IC, subject to STB approval. CN is
Canada's largest railroad and reaches the U.S. cities of Detroit and Chicago,
while IC has operations extending from Chicago to the Gulf of Mexico, and west
through Iowa. BNSF is monitoring the CN/IC proceeding before the STB to
determine any potential competitive impacts.
PIPELINE INVESTMENT
Santa Fe Pacific Pipelines, Inc. ("SFP Pipelines"), an indirect, wholly-
owned subsidiary of BNSF, served as the general partner of Santa Fe Pacific
Pipeline Partners, L.P. (the "Partnership") and of its operating partnership
subsidiary, SFPP, L.P. SFP Pipelines owned a two percent interest as the
Partnership's and SFPP, L.P.'s general partner and an approximate 42 percent
interest as limited partner of the Partnership. As general partner, SFP
Pipelines received two percent of all amounts available for distribution by
the Partnership and an additional incentive depending upon the level of cash
distributions paid to holders of limited partner interests in the Partnership
("Partnership Units"). SFP Pipeline Holdings, Inc., an indirect, wholly-owned
subsidiary of BNSF ("SFP Holdings"), had outstanding $219 million principal
amount of Variable Rate Exchangeable Debentures due 2010 (the "VREDs") at
December 31, 1997. The VREDs were exchangeable under certain circumstances or
at final maturity, for substantially all of the Partnership Units owned by SFP
Pipelines.
On October 18, 1997, SFP Pipelines and SFP Holdings entered into an
agreement with Kinder Morgan Energy Partners, L.P. ("Kinder Morgan") pursuant
to which Kinder Morgan acquired substantially all of SFP Pipelines' interests
in the Partnership and SFPP, L.P. for approximately $84 million on March 6,
1998. In addition, the agreement called for the interest of SFP Pipelines in
SFPP, L.P. to be partially redeemed for a cash distribution of $5.8 million,
with SFP Pipelines retaining only a .5% special limited partnership interest
in SFPP, L.P. Consummation of the transaction caused an "Exchange Event" under
the VRED agreement and VRED holders became eligible to receive either cash
equal to the par value of the VREDs or substantially all of the Kinder Morgan
units received by SFP Pipelines in exchange for its Partnership Units. Kinder
Morgan has agreed to pay and perform all obligations of SFP Holdings related
to the VREDs and has agreed to indemnify and hold harmless BNSF and its
subsidiaries from and against any and all losses, costs, damages, expenses,
liabilities and claims arising or resulting from or relating to, among other
things, the Partnership, SFPP, L.P. or the VREDs.
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ITEM 3. LEGAL PROCEEDINGS
Set forth below is a description of certain legal proceedings involving BNSF
and its subsidiaries.
WHEAT AND BARLEY TRANSPORTATION RATES
In September 1980, a class action lawsuit was filed against BNSF Railway in
United States District Court for the District of Montana ("Montana District
Court") challenging the reasonableness of BNSF Railway export wheat and barley
rates. The class consists of Montana grain producers and elevators. The
plaintiffs sought a finding that BNSF Railway single car export wheat and
barley rates for shipments moving from Montana to the Pacific Northwest were
unreasonably high and requested damages in the amount of $64 million. In March
1981, the Montana District Court referred the rate reasonableness issue to the
ICC. Subsequently, the state of Montana filed a complaint at the ICC
challenging BNSF Railway's multiple car rates for Montana wheat and barley
movements occurring after October 1, 1980.
The ICC issued a series of decisions in this case from 1988 to 1991. Under
these decisions, the ICC applied a revenue to variable cost test to the rates
and determined that BNSF Railway owed $9,685,918 in reparations plus interest.
In its last decision, dated November 26, 1991, the ICC found BNSF Railway's
total reparations exposure to be $16,559,012 through July 1, 1991. The ICC
also found that BNSF Railway's current rates were below a reasonable maximum
and vacated its earlier rate prescription order.
BNSF Railway appealed to the United States Court of Appeals for the District
of Columbia Circuit ("D.C. Circuit") those portions of the ICC's decisions
concerning the post-October 1, 1980 rate levels. BNSF Railway's primary
contention on appeal was that the ICC erred in using the revenue to variable
cost rate standard to judge the rates instead of Constrained Market
Pricing/Stand Alone Cost principles. The limited portions of decisions that
cover pre-October 1, 1980 rates were appealed to the Montana District Court.
On March 24, 1992, the Montana District Court dismissed plaintiffs' case as
to all aspects other than those relating to pre-October 1, 1980 rates. On
February 9, 1993, the D.C. Circuit served its decision regarding the appeal of
the several ICC decisions in this case. The court held that the ICC did not
adequately justify its use of the revenue to variable cost standard as BNSF
Railway had argued and remanded the case to the ICC for further administrative
proceedings.
On July 22, 1993, the ICC served an order in response to the D.C. Circuit's
February 9, 1993 decision. In its order, the ICC stated it would use the
Constrained Market Pricing/Stand-Alone Cost principles in assessing the
reasonableness of BNSF Railway wheat and barley rates moving from Montana to
Pacific Coast ports from 1978 forward. The ICC assigned the case to the Office
of Hearings to develop a procedural schedule. On October 28, 1994, plaintiffs
filed their opening evidence arguing that the revenue received by BNSF Railway
exceeded the stand alone costs of transporting that traffic and that BNSF
Railway rates were unreasonably high. BNSF Railway filed its evidence March
29, 1995, showing that the stand alone costs of transporting the traffic
exceeded the revenue derived by BNSF Railway on that traffic and that
consequently, its rates were not unreasonably high. The parties filed briefs
simultaneously on August 16, 1995. In a decision served August 14, 1997, in
McCarty Farms, Inc. et al. v. Burlington Northern Inc., No. 37808, the STB,
successor to the ICC, found that the challenged rates of BNSF Railway for
export wheat and barley were not shown to exceed a maximum reasonable level.
The STB dismissed the proceeding in its entirety. Plaintiffs have filed
petitions to review the STB decision before the D.C. Circuit and the Montana
District Court. The Montana District Court case has been stayed pending
decision by the D. C. Circuit Court where oral argument is presently scheduled
for September 1998.
COAL TRANSPORTATION CONTRACT LITIGATION
On April 26, 1991, an action was filed against BNSF Railway in the 102nd
Judicial District Court for Bowie County, Texas, seeking a reduction of the
transportation rates required to be paid under two contracts (Southwestern
Electric Power Company v. Burlington Northern Railroad Company, No. D-102-CV-
91-0720). The plaintiff, Southwestern Electric Power Company ("SWEPCO"), was
challenging the contract rates for
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transportation of coal to its electric generating facilities at Cason, Texas,
and Flint Creek, Arkansas. SWEPCO contended that productivity gains achieved
by BNSF Railway constituted unusual economic conditions giving rise to a
"gross inequity" because BNSF Railway's costs of providing service have been
reduced over the contracts' terms. On August 2, 1994, plaintiff amended its
complaint to further allege that BNSF Railway had been unjustly enriched by
retaining differences between the rates actually charged and those that SWEPCO
alleged should have been charged. SWEPCO sought both prospective rate relief
and recovery of alleged past overcharges.
BNSF Railway's primary contention was that both parties anticipated
productivity gains in the rail industry when negotiating the contracts and
agreed that BNSF Railway would retain most of its productivity gains. BNSF
Railway further contended that there was no agreement that transportation
rates paid by SWEPCO would be based on BNSF Railway's cost of providing
service.
On November 18, 1994, the jury rendered a verdict denying plaintiff's
request for prospective rate relief and that plaintiff take nothing on its
principal claims of "gross inequity." However, BNSF Railway was assessed
damages approximating $56 million relating to plaintiff's alternative claim of
unjust enrichment. On January 20, 1995, the trial court rendered a judgment on
the verdict in an amount approximating $74 million, which included attorneys'
fees and interest. The judgment further awarded post-judgment interest at 10
percent per annum and issued declaratory orders pertaining to the two
contracts. BNSF Railway filed its notice of appeal in the case on February 17,
1995 and posted a bond staying enforcement of the judgment in the Court of
Appeals for the Sixth Court of Appeals District of Texas, Texarkana, Texas
(Burlington Northern Railroad Company v. Southwestern Electric Power Company,
No. 06-95-00024-CV). By decision dated April 30, 1996, the Court of Appeals
reversed the judgment of the trial court and rendered judgment in favor of
BNSF Railway. SWEPCO was assessed costs of appeal, and was denied two motions
for rehearing before the Court of Appeals. The Texas Supreme Court
subsequently granted SWEPCO's application for discretionary review of the
appellate decision. The matter was argued on October 8, 1997. On March 13,
1998, the Texas Supreme Court affirmed the judgment of the Court of Appeals in
all respects.
ENVIRONMENTAL PROCEEDINGS
BNSF Railway has been advised that it is a target of a Grand Jury
investigation in the United States District Court for the Eastern District of
Missouri with respect to former railcar cleaning activities conducted by
independent contractors at Cherryville, Missouri. The proceeding relates to
alleged violations of federal environmental protection statutes with respect
to lead contamination at several sites in the Cherryville area. In addition,
BNSF Railway has received personal injury claims from certain individuals
formerly residing at or near some of these sites. The Missouri Department of
Natural Resources ("DNR") also is investigating the matter with respect to
possible violations of state environmental protection laws and has indicated
that it may seek a civil penalty from BNSF Railway. BNSF Railway and another
potentially responsible party had previously prepared investigation and
remediation plans in conjunction with the DNR. BNSF Railway modified the plans
and is expediting and implementing a response with DNR approval.
On December 18, 1995, the State of Illinois filed a Complaint captioned
People of the State of Illinois v. Burlington Northern Railroad Company,
Beazer East, Inc. and Koppers Industries, Inc. (PCB No. 96-132) before the
Illinois Pollution Control Board against BNSF Railway, Beazer East, Inc. and
Koppers Industries, Inc. alleging violations of the Illinois Environmental
Protection Act with respect to a facility in Galesburg, Illinois. This
facility is not operated by BNSF Railway. The proceeding may result in
monetary sanctions in excess of $100,000. BNSF Railway and Beazer East, Inc.
have made an offer to the State of Illinois to settle this matter.
On December 30, 1996, BNSF Railway was named a defendant in a lawsuit by the
Wisconsin Department of Natural Resources (State of Wisconsin v. Burlington
Northern Railroad Company, Case No. 96 CV403, Circuit Court, Douglas County)
in connection with two separate matters in Superior, Wisconsin. One of the
matters involves the alleged obligation to close a waste water holding pond
located on property which BNSF Railway does not own. The State alleges that
BNSF Railway is an owner or operator of the pond and is subject to the
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obligation because of its discharge of treated wastewater into the pond. The
other matter relates to petroleum impacts to property formerly owned by BNSF
Railway. The current owner discovered the petroleum and debris when excavating
the property. It is possible that BNSF Railway will be required to pay
monetary sanctions to the State in excess of $100,000 in connection with the
resolution of these two matters.
MERGER-RELATED LITIGATION
Numerous complaints were filed arising out of the Agreement and Plan of
Merger dated June 29, 1994, as amended, between BNI and SFP. On June 30, 1994,
shortly after announcement of the proposed BNI-SFP merger ("Merger"), two
purported stockholder class action suits were filed in the Court of Chancery
of the State of Delaware (Miller v. Santa Fe Pacific Corporation, C.A. No.
13587; Cosentino v. Santa Fe Pacific Corporation, C.A. No. 13588). On July 1,
1994, two additional purported stockholder class action suits were filed in
the Court of Chancery of the State of Delaware (Fielding v. Santa Fe Pacific
Corporation, C.A. No. 13591; Wadsworth v. Santa Fe Pacific Corporation, C.A.
No. 13597).
The actions named as defendants SFP, the individual members of the SFP Board
of Directors, and BNI. In general, the actions variously alleged that SFP's
directors breached their fiduciary duties to the stockholders by agreeing to
the proposed merger for allegedly "grossly inadequate" consideration in light
of recent operating results of SFP, recent trading prices of SFP's common
stock and other alleged factors, by allegedly failing to take all necessary
steps to ensure that stockholders will receive the maximum value realizable
for their shares (including allegedly failing to actively pursue the
acquisition of SFP by other companies or conducting an adequate "market
check"), and by allegedly failing to disclose to stockholders the full extent
of the future earnings potential of SFP, as well as the current value of its
assets. The Miller and Fielding cases further alleged that the proposed Merger
was unfairly timed and structured and, if consummated, would allegedly
unfairly deprive the stockholders of standing to pursue certain pending
stockholder derivative litigation. Plaintiffs also alleged that BNI was
responsible for aiding and abetting the alleged breach of fiduciary duty
committed by the SFP Board. The actions sought certification of a class action
on behalf of SFP's stockholders. In addition, the actions sought injunctive
relief against consummation of the Merger and, in the event that the Merger
was consummated, the rescission of the Merger, an award of compensatory or
rescissory damages and other damages, including court costs and attorneys'
fees, an accounting by defendants of all profits realized by them as a result
of the Merger, and various other forms of relief.
On October 6, 1994, shortly after Union Pacific Corporation ("UPC") issued a
press release in which it announced a proposal for UPC to acquire SFP (the
"UPC Proposal"), plaintiffs in the four lawsuits described above filed in the
Court of Chancery of the State of Delaware a Consolidated Amended Complaint
(Miller v. Santa Fe Pacific Corporation, C.A. No. 13587). In their
Consolidated Amended Complaint, plaintiffs repeated the allegations contained
in their earlier lawsuits and further alleged that, in light of the UPC
Proposal, SFP's directors had breached their fiduciary duties by failing to
fully inform themselves about and to adequately explore available alternatives
to the merger with BNI, including the alternative of a merger transaction with
UPC, and by failing to fully inform themselves about the value of SFP. The
Consolidated Amended Complaint sought the same relief sought in plaintiffs'
earlier lawsuits and, in addition, requested that SFP's directors be ordered
to explore alternative transactions and to negotiate in good faith with all
interested persons, including UPC.
Also, on October 6, 1994, five additional purported stockholder class action
suits relating to SFP's proposed participation in the Merger with BNI were
filed in the Court of Chancery of the State of Delaware (Weiss v. Santa Fe
Pacific Corporation, C.A. No. 13779; Lifshitz v. Krebs, C.A. No. 13780; Stein
v. Santa Fe Pacific Corporation, Lewis v. Santa Fe Pacific Corporation, C.A.
No. 13783; Abramson v. Lindig, C.A. No. 13784). On October 7, 1994, three more
purported stockholder class action suits relating to SFP's proposed
participation in the Merger with BNI were filed in the Court of Chancery of
the State of Delaware (Graulich v. Santa Fe Pacific Corporation, C.A. No.
13786; Anderson v. Santa Fe Pacific Corporation, C.A. No. 13787; Green v.
Santa Fe Pacific Corporation, C.A. No. 13788). All of these lawsuits named as
defendants SFP and the individual members of the SFP Board of Directors; the
Lifshitz case further named BNI as a defendant. In general, these actions
variously alleged that, in light of SFP's recent operating results and the UPC
Proposal, SFP's directors
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breached their fiduciary duties to stockholders by purportedly not taking the
necessary steps to ensure that SFP's stockholders would receive "maximum
value" for their shares of SFP stock, including purportedly refusing to
negotiate with UPC or to "seriously consider" the UPC Proposal and failing to
announce any active auction or open bidding procedures. The actions generally
sought relief that is materially identical to the relief sought in the Miller
case, and in addition sought entry of an order requiring SFP's directors to
immediately undertake an evaluation of SFP's worth as a merger/acquisition
candidate and to establish a process designed to obtain the highest possible
price for SFP, including taking steps to "effectively expose" SFP to the
marketplace in an effort to create an "active auction" in SFP. The Weiss case
further sought entry of an order enjoining SFP's directors from implementing
any poison pill or other device designed to thwart the UPC Proposal or any
other person's proposal to acquire SFP.
The Anderson lawsuit was subsequently withdrawn. On October 14, 1994, the
Chancery Court entered an order consolidating the remaining 11 purported
stockholder class action suits under the heading In Re Santa Fe Pacific
Corporation Shareholder Litigation, C.A. No. 13587 (the "Shareholder
Litigation").
On October 26, 1994, BNI filed a Motion to Dismiss the Consolidated and
Amended Complaint.
On March 6, 1995, plaintiffs in the Shareholder Litigation filed a Revised
Second Consolidated and Amended Complaint, which superseded their previously
filed complaints. The Revised Second Consolidated and Amended Complaint
generally repeated many of the same allegations, and requested relief similar
to that requested in plaintiffs' earlier complaints. In addition, the Revised
Second Consolidated and Amended Complaint alleged that SFP's directors
breached their fiduciary duties: by proceeding with and completing the joint
SFP-BNI Tender Offer; by approving and implementing the Shareholder Rights
Plan, which purportedly resulted in a "premature ending" of the "bidding
process" by allegedly deterring and defeating UPC's acquisition overtures,
exempting BNI from its provisions, and "coercing" SFP stockholders to vote in
favor of the Merger; by approving the termination fee and expense
reimbursement provisions of the Merger Agreement by authorizing the stock
repurchase provisions of the Merger Agreement, which allegedly were designed
to "lock-up" the Merger by providing stockholders with an "illusory promise"
that the Merger Agreement exchange ratio would increase, while reserving SFP's
right not to repurchase such stock; and by purportedly failing to disclose all
material facts necessary for SFP's stockholders to evaluate in an informed
manner and vote on the Merger, including purportedly failing to fully disclose
the risks that the ICC would not approve the Merger and purportedly failing to
fully disclose SFP's intentions with respect to the repurchase of SFP stock,
as permitted by the Merger Agreement, as well as whether there will be a fair
opportunity for all SFP stockholders to "participate" in any SFP stock
repurchases, and on what basis. As additional relief to that requested in the
earlier complaints, plaintiffs requested injunctive and other relief:
enjoining consummation of the Merger; ordering SFP, SFP's directors, and BNI
to make unspecified supplemental disclosures to stockholders; requiring SFP to
conduct a new vote on the Merger subsequent to such disclosures; enjoining SFP
from improperly or discriminatorily implementing the Shareholder Rights Plan
or any other "defensive" tactic; ordering SFP's directors to take all
appropriate steps to enhance SFP's value and attractiveness as a merger or
acquisition candidate, including "effectively exposing" SFP to the marketplace
by means of an active auction on a "level playing field"; and declaring the
termination fee and expense reimbursement provisions of the Merger Agreement
invalid and unenforceable.
On March 13, 1995, SFP and SFP's directors filed a motion to dismiss the
Shareholder Litigation on the grounds that the Plaintiffs failed to state a
cause of action upon which relief may be granted. BNI also filed a motion to
dismiss the Revised Second Consolidated and Amended Complaint. On May 31,
1995, the Delaware Chancery Court rendered its decision granting the motion to
dismiss that was filed by SFP and SFP's directors on March 13, 1995 and the
motion to dismiss filed by BNI. The plaintiffs appealed the dismissal to the
Delaware Supreme Court.
On November 22, 1995, the Delaware Supreme Court issued an opinion that
affirmed in part and reversed in part the May 31, 1995 decision of the
Delaware Chancery Court. The Delaware Supreme Court reversed the Chancery
Court's dismissal of plaintiffs' claims that, in taking the alleged
"defensive" actions identified in the
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Revised Second Consolidated and Amended Complaint, including approval and
implementation of the Shareholder Rights Plan, SFP's directors violated their
fiduciary duties to stockholders. The Delaware Supreme Court affirmed the
Chancery Court's dismissal of all other claims asserted by plaintiffs in the
litigation, including all claims against BNI.
On December 11, 1995, the SFP defendants filed with the Delaware Chancery
Court a motion for summary judgment against plaintiffs' remaining claims in
the Shareholder Litigation, which motion is pending. On December 29, 1995, the
SFP defendants filed their Answer to plaintiffs' Revised Second Consolidated
and Amended Complaint.
BNSF believes this lawsuit is meritless and continues to oppose it
vigorously.
CROW RESERVATION CROSSING ACCIDENT CASE
In November 1993, there was an 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 crossing, which is located on a rural gravel road
just south of Lodge Grass, Montana, was protected by crossbucks and advance
warning signs.
A lawsuit was filed in the Crow Tribal Court (Estates of Red Wolf, Red Horse
and Bull Tail v. Burlington Northern Railroad Company, Case No. 94-31) on
behalf of the estates of the driver and the two passengers. One of the
passenger cases was severed and has yet to go to trial. The other two cases
proceeded to trial in January 1996 and, 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, pursuant to the request
of plaintiffs, the Tribal Court entered an amended judgment reducing the
amount of the judgment from $250 million to $25 million.
BNSF Railway has filed an appeal to the Crow Court of Appeals in and for the
Crow Indian Reservation seeking, among other things, to have the case
dismissed on the basis that the Crow Tribal Court lacks subject matter
jurisdiction over these claims. If the appellate court fails to grant relief
to BNSF Railway, BNSF Railway will pursue its defenses in federal 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. BNSF Railway was required to post a $5 million bond with the federal
court. The Tribal Court plaintiffs appealed that decision to the United States
Court of Appeals for the Ninth Circuit.
On January 29, 1997, the Ninth Circuit issued an opinion which reversed the
district court and remanded the matter to that trial court with directions to
dissolve the injunction. The basis for the appellate court's decision was a
determination that BNSF Railway had failed to exhaust its remedies in the
tribal court. Following denial of BNSF Railway's petition for rehearing, BNSF
Railway petitioned the United States Supreme Court for a writ of certiorari
with respect to the Ninth Circuit's decision on May 16, 1997. 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
decision in Strate v. A-1 Contractors, 117 S. Ct. 1404 (1997). In light of the
reduction of the judgment against BNSF Railway to $25 million, this matter is
no longer considered a possible material legal proceeding and therefore no
further information will be given as to this matter.
OTHER CLAIMS
BNSF and its subsidiaries also are parties to a number of other 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 and other legal actions referred to under Item 3 of this Report on Form
10-K cannot be predicted with certainty, considering among other things the
meritorious legal defenses available, it is the opinion of BNSF management
that none of
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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.
Reference is made to Note 6 to the consolidated financial statements on page
29 of BNSF's 1997 Annual Report to Shareholders for information concerning
certain pending administrative appeals with the Internal Revenue Service,
which information is hereby incorporated by reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted by BNSF to a vote of its securities holders during
the fourth quarter of 1997.
EXECUTIVE OFFICERS OF THE REGISTRANT
Listed below are the names, ages, and positions of all executive officers of
BNSF (excluding Robert D. Krebs, an executive officer who is also a director
of BNSF, information as to whom is included in BNSF's Proxy Statement dated
March 9, 1998) and their business experience during the past five years.
Executive officers hold office until their successors are elected or
appointed, or until their earlier death, resignation, or removal.
DOUGLAS J. BABB, 45
Senior Vice President-Merchandise Business Unit since August 1997. Prior to
that, Senior Vice President and Chief of Staff from September 1995 to August
1997, and Vice President and General Counsel of BNRR from December 1986 to
September 1995.
THOMAS N. HUND, 44
Vice President and Controller since September 1995. Prior to that, Vice
President and Controller of SFP from July 1990.
JEFFREY R. MORELAND, 53
Senior Vice President-Law and Chief of Staff since February 1998. Prior to
that, Senior Vice President-Law and General Counsel from September 1995, and
Vice President-Law and General Counsel of SFP from October 1994 to January
1998, and Vice President-Law and General Counsel of ATSF from June 1989 to
December 1996.
MATTHEW K. ROSE, 38
Senior Vice President and Chief Operations Officer since August 1997. Prior
to that, Senior Vice President-Merchandise Business Unit from May 1996, Vice
President-Chemicals and Plastics of ATSF and BNRR from January 1996, Vice
President, South Region Field Marketing of BNRR from January 1995, Vice
President, Automotive of BNRR from June 1994, and General Manager, Automotive
Facilities and Technology of BNRR from January 1993. Prior to that, Vice
President-Transportation of Triple Crown Services, a subsidiary of Norfolk
Southern Corporation.
CHARLES L. SCHULTZ, 50
Senior Vice President-Intermodal and Automotive Business Unit since February
1996. Prior to that, Vice President-Intermodal of ATSF and BNRR from September
1995, Vice President-Intermodal of ATSF from January 1994, Vice President-
Management Services of ATSF from June 1991, and Vice President-Information
Services of ATSF from July 1989.
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DENIS E. SPRINGER, 52
Senior Vice President and Chief Financial Officer since September 1995.
Prior to that, Senior Vice President and Chief Financial Officer of SFP from
October 1993 to January 1998, and Senior Vice President, Treasurer and Chief
Financial Officer of SFP from January 1992.
GREGORY T. SWIENTON, 48
Senior Vice President-Coal and Agricultural Commodities Business Unit since
May 1996. Prior to that, Senior Vice President-Consumer and Industrial
Business Unit from February 1996, Senior Vice President-Industrial Business
Unit from September 1995, Executive Vice President, Intermodal Business of
BNRR from June 1994, and Executive Director-Europe and Africa (Brussels) of
DHL Worldwide Express (international freight company) from January 1991.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
BNSF's common stock is listed on the New York Stock Exchange under the
symbol "BNI." The common stock is also listed on the Chicago Stock Exchange
and Pacific Exchange. Information as to the high and low sales prices of such
stock for the two years ending December 31, 1997 and the frequency and amount
of dividends declared on such stock during such period, is set forth below the
heading "Quarterly Financial Data-Unaudited" on page 39 of BNSF's 1997 Annual
Report to Shareholders and is hereby incorporated by reference. The
approximate number of record holders of the common stock at January 31, 1998
was 64,000.
ITEM 6. SELECTED FINANCIAL DATA
There is disclosed on page 1 of BNSF's 1997 Annual Report to Shareholders
selected financial data of BNSF for each of the last five fiscal years. Such
data with respect to the following topics are incorporated by reference to
Registrant's Current Report on Form 8-K (Date of earliest event reported:
February 6, 1998): Revenues; Operating income; Income before extraordinary
item and cumulative effect of change in accounting method; Accounting
change/Extraordinary item; Net income; Basic earnings per share; Diluted
earnings per share; Dividends declared per common share; Total assets; and
Long-term debt and commercial paper, including current portion.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations appearing on pages 13 through 20 of BNSF's 1997 Annual Report to
Shareholders is hereby incorporated by reference to Registrant's Current
Report on Form 8-K (Date of earliest event reported: February 6, 1998).
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
In the ordinary course of business, BNSF utilizes various financial
instruments which inherently have some degree of market risk. The quantitative
information presented below and the additional qualitative information
presented in the Managements Discussion and Analysis of Financial Condition
and Results of Operations section of the 1997 Annual Report to Shareholders
describe significant aspects of BNSF's financial instrument programs which
have material market risk.
Interest Rate Sensitivity
The table below provides information about BNSF's derivative financial
instruments and other financial instruments that are sensitive to changes in
interest rates, including interest rate swaps and debt obligations as of
December 31, 1997. For debt obligations, the table presents principal cash
flows and related weighted average
16
<PAGE>
interest rates by contractual maturity dates. Notional amounts are used to
calculate the contractual payments to be exchanged under the contract.
Weighted average variable rates are based on implied forward rates in the
yield curve at the reporting date.
Long-term Debt
<TABLE>
<CAPTION>
MATURITY DATE
---------------------------------------- FAIR
1998 1999 2000 2001 2002 THEREAFTER TOTAL VALUE
---- ---- ---- ---- ---- ---------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed Rate Debt (in
millions)............ $108 $256 $138 $204 $258 $3,587 $4,551 $4,734
Average Interest Rate. 7.78% 7.46% 6.47% 7.96% 7.16% 7.31% 7.33% --
Variable Rate Debt (in
millions)............ -- -- -- -- $738 -- $ 738 $ 738
Average Interest Rate. -- -- -- -- 5.84% -- 5.84% --
</TABLE>
In the above table, BNSF has included $668 million of commercial paper
borrowings in 2002 maturities. As discussed in Note 12 to the consolidated
financial statements contained in the 1997 Annual Report to Shareholders, the
commercial paper program is supported by BNSF's $1.5 billion, five-year
revolving credit agreement which is scheduled to expire on November 12, 2002.
BNSF classified commercial paper borrowings as long-term debt in the
consolidated balance sheet at December 31, 1997.
Interest Rate Swaps
From time to time, BNSF enters into various interest rate hedging
transactions for purposes of managing exposure to flucuations in interest
rates. At December 31, 1997, BNSF had entered into swap transactions reflected
in the table below which fixed the interest rate on its commercial paper debt.
<TABLE>
<CAPTION>
MATURITY
DATE
----------
FAIR
1998 1999 TOTAL VALUE(1)
---- ---- ----- --------
<S> <C> <C> <C> <C>
Variable to Fixed Swaps (in millions)......... $250 $125 $375 $ (2)
Average Pay Rate.............................. 6.04% 6.14% 6.07% --
Average Receive Rate.......................... 5.67% 5.73% 5.69% --
</TABLE>
- --------
(1) Represents unrealized loss as of December 31, 1997.
Treasury Lock
In anticipation of a future debt issuance, BNSF had entered into treasury
lock transactions, based on the 30-year U.S. treasury rate, as reflected in
the following table as of December 31, 1997.
<TABLE>
<CAPTION>
MATURITY DATE
------------- FAIR
1998 VALUE(1)
------------- --------
<S> <C> <C>
Variable to Fixed Lock (in millions)............... $200 $ 0
Average Pay Rate................................... 5.88% --
</TABLE>
- --------
(1) Represents unrealized gain (loss) as of December 31, 1997.
Commodity Price Sensitivity
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. Swap transactions are typically based on the
price of pipeline delivery Gulf Coast #2 heating oil and require BNSF to
purchase a defined quantity at a defined price. Swap transactions are
generally settled in cash with the counterparty. Based on historical
information, BNSF believes there is a significant correlation between the
market prices of diesel fuel and Gulf Coast #2 heating oil.
The table below provides information about BNSF's diesel fuel hedging
instruments that are sensitive to changes in commodity prices. For diesel fuel
swaps and forward purchase contracts the table presents notional amounts in
gallons and the weighted average contract price by contractual maturity date
as of December 31, 1997. The prices included in the table below do not include
taxes, transportation costs, certain other fuel handling
17
<PAGE>
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 BNSFs diesel fuel.
<TABLE>
<CAPTION>
MATURITY DATE
-----------------------
1998 1999 2000 TOTAL FAIR VALUE (1)
------- ------- ------- ------- --------------
<S> <C> <C> <C> <C> <C>
Diesel Fuel Swaps:
Gallons (in millions)........ 479 302 189 970 $(24)
Weighted average price per
gallon...................... $0.5384 $0.5207 $0.5174 $0.5288 --
Diesel Fuel Forward Purchase
Contracts:
Gallons (in millions)........ 144 -- -- 144 $ 2
Weighted average price per
gallon...................... $0.4790 -- -- $0.4790 --
</TABLE>
- --------
(1) Represents unrealized gain (loss) (in millions) based on the price of Gulf
Coast #2 heating oil at December 31, 1997.
Additionally, at December 31, 1997, BNSF maintained fuel inventories for use
in normal operations which were not material to BNSF's overall financial
position and therefore represent no significant market exposure.
Equity Price Sensitivity
In November 1997, BNSF sold equity put options to an independent third party
and received cash proceeds of approximately $1 million. The option contract is
for physical settlement on May 5, 1998; however, it permits a net-share or
net-cash settlement method at the BNSF's election. The table below presents
notional amounts in shares of BNSF common stock and the contract price by
contractual maturity date as of December 31, 1997.
Common Stock Put Options
<TABLE>
<CAPTION>
MATURITY
DATE
--------
1998 FAIR VALUE(1)
-------- -------------
<S> <C> <C>
Contract Number of Shares.......................... 500,000 $ 0
Option Strike Price................................ $88 --
</TABLE>
- --------
(1) Represents unrealized gain (loss) (in millions) as of December 31, 1997.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of BNSF and subsidiary companies,
together with the reports thereon, appearing in Part IV of this Report on Form
10-K and on pages 21 through 39 of BNSF's 1997 Annual Report to Shareholders,
are hereby incorporated by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning the directors of BNSF is provided on pages 3 through
5 of BNSF's proxy statement dated March 9, 1998, under the heading "Name, Age
and Business Experience of the Company's Nominees for Directors" and the
information under that heading is hereby incorporated by reference.
Information concerning the executive officers of BNSF (excluding one
executive officer who is also a director of BNSF) is included in Part I of
this Report.
18
<PAGE>
Information concerning compliance with Section 16(a) of the Securities
Exchange Act of 1934 is provided in the last paragraph on page 8 of BNSF's
Proxy Statement dated March 9, 1998, and that information is hereby
incorporated by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information concerning the compensation of directors and executive officers
of BNSF is provided on page 6 under the heading "Directors' Compensation" and
pages 15 through 20 under the heading "EXECUTIVE COMPENSATION AND OTHER
INFORMATION" in BNSF's proxy statement dated March 9, 1998, and the
information under those headings is hereby incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information concerning the ownership of BNSF equity securities by management
is provided on pages 7 through 8 under the heading "SECURITY OWNERSHIP OF
MANAGEMENT" of BNSF's proxy statement dated March 9, 1998, and is hereby
incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information concerning certain relationships and related transactions is
provided on page 7 under the heading "Certain Relationships and Related
Transactions" of BNSF's proxy statement dated March 9, 1998, and the
information under that heading is hereby incorporated by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this report:
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
1. Consolidated Financial Statements:
Report of Price Waterhouse LLP........................................ [21*]
Report of Coopers & Lybrand L.L.P..................................... F-2
Consolidated Statement of Income for the three years ended December
31, 1997............................................................. [22*]
Consolidated Balance Sheet at December 31, 1997 and 1996.............. [23*]
Consolidated Statement of Cash Flows for the three years ended
December 31, 1997.................................................... [24*]
Consolidated Statement of Changes In Stockholders' Equity for the
three years ended December 31, 1997.................................. [25*]
Notes to Consolidated Financial Statements............................ [26-39*]
</TABLE>
- --------
(*Incorporated by reference from the indicated pages of BNSF's 1997 Annual
Report to Shareholders.)
<TABLE>
<S> <C>
2. Consolidated Financial Statement Schedules for the three years ended
December 31, 1997:
Report of Price Waterhouse LLP............................................ F-1
Report of Coopers & Lybrand L.L.P......................................... F-2
Schedule II--Valuation and Qualifying Accounts............................ F-3
</TABLE>
Schedules other than that listed above are omitted because they are not
required or applicable, or the required information is included in the
consolidated financial statements or related notes.
19
<PAGE>
3. Exhibits:
See Index to Exhibits on pages E-1E-4 for a description of the exhibits
filed as a part of this Report.
(b) Reports on Form 8-K
BNSF filed the following Current Reports on Form 8-K during the quarter
ended December 31, 1997, or subsequently:
Current Report on Form 8-K (Date of earliest event reported: February 6,
1998) which referenced under Item 5, Other Events, and filed as an exhibit
under Item 7, Financial Statements, Pro Forma Financial Information and
Exhibits, the following material from the registrant's 1997 Annual Report to
Shareholders: Consolidated Financial Highlights, Management's Discussion and
Analysis of Financial Condition and Results of Operations, and Consolidated
Financial Statements and Footnotes and Report of Management and Reports of
Independent Accountants thereon.
20
<PAGE>
SIGNATURES
BURLINGTON NORTHERN SANTA FE CORPORATION, PURSUANT TO THE REQUIREMENTS OF
SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934, HAS DULY CAUSED
THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED.
Burlington Northern Santa Fe
Corporation
/s/ Robert D. Krebs
By: _________________________________
Robert D. Krebs
Chairman, President and
Chief Executive Officer
Dated: March 30, 1998
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF BURLINGTON
NORTHERN SANTA FE CORPORATION AND IN THE CAPACITIES AND ON THE DATE INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ Robert D. Krebs Chairman, President and Chief Executive
___________________________________________ Officer (Principal Executive Officer),
Robert D. Krebs and Director
/s/ Denis E. Springer Senior Vice President and Chief Financial
___________________________________________ Officer (Principal Financial Officer)
Denis E. Springer
/s/ Thomas N. Hund Vice President and Controller (Principal
___________________________________________ Accounting Officer)
Thomas N. Hund
/s/ Joseph F. Alibrandi* Director
___________________________________________
Joseph F. Alibrandi
/s/ Jack S. Blanton* Director
___________________________________________
Jack S. Blanton
/s/ John J. Burns, Jr.* Director
___________________________________________
John J. Burns, Jr.
/s/ George Deukmejian* Director
___________________________________________
George Deukmejian
/s/ Daniel J. Evans* Director
___________________________________________
Daniel J. Evans
/s/ Bill M. Lindig* Director
___________________________________________
Bill M. Lindig
/s/ Vilma S. Martinez* Director
___________________________________________
Vilma S. Martinez
</TABLE>
S-1
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ Roy S. Roberts* Director
___________________________________________
Roy S. Roberts
/s/ Marc J. Shapiro* Director
___________________________________________
Marc J. Shapiro
Director
___________________________________________
Arnold R. Weber
/s/ Robert H. West* Director
___________________________________________
Robert H. West
/s/ J. Steven Whisler* Director
___________________________________________
J. Steven Whisler
/s/ Edward E. Whitacre, Jr. Director
___________________________________________
Edward E. Whitacre, Jr.
/s/ Ronald B. Woodard Director
___________________________________________
Ronald B. Woodard
/s/ Michael B. Yanney Director
___________________________________________
</TABLE> Michael B. Yanney
/s/ Jeffrey R. Moreland
*By: ________________________________
Jeffrey R. Moreland
Senior Vice President-Law and
Chief of Staff
Attorney in Fact
Dated: March 30, 1998
S-2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of
Burlington Northern Santa Fe Corporation and Subsidiaries
Our audits of the consolidated financial statements for the years ended
December 31, 1997 and 1996 referred to in our report dated February 6, 1998
appearing on page 21 of the 1997 Annual Report to Shareholders of Burlington
Northern Santa Fe Corporation (which report and consolidated financial
statements are incorporated by reference in this Annual Report on Form 10-K)
also included an audit of the Financial Statement Schedule listed in Item
14(a)2. of this Form 10-K. In our opinion, the Financial Statement Schedule
presents fairly, in all material respects, the information set forth therein
for the years ended December 31, 1997 and 1996 when read in conjunction with
the related consolidated financial statements.
Price Waterhouse LLP
Chicago, Illinois
February 6, 1998
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of
Burlington Northern Santa Fe Corporation and Subsidiaries
We have audited the consolidated financial statements of Burlington Northern
Santa Fe Corporation and Subsidiaries for the year ended December 31, 1995,
which financial statements are included on pages 22 through 39 of the 1997
Annual Report to Shareholders of Burlington Northern Santa Fe Corporation and
incorporated by reference herein. We have also audited the financial statement
schedule for the year ended December 31, 1995 listed in Item 14(a) of this
Form 10-K. These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and financial statement schedule
based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated results of operations and cash
flows of Burlington Northern Santa Fe Corporation and Subsidiaries for the
year ended December 31, 1995, in conformity with generally accepted accounting
principles. In addition, in our opinion, the financial statement schedule
referred to above, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material respects, the
information required to be included therein.
As discussed in Note 7 to the consolidated financial statements, the Company
changed its method of accounting for periodic major locomotive overhauls in
1995.
Coopers & Lybrand, L.L.P.
Fort Worth, Texas
February 15, 1996, except as to the information presented in Note 8 for which
the date is February 6, 1998
F-2
<PAGE>
SCHEDULE II
BURLINGTON NORTHERN SANTA FE CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN MILLIONS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
-------- ---------- --------- ----------- ------------- ----------
BALANCE AT ADDITIONS ADDITION OF BALANCE AT
BEGINNING CHARGED SFP END OF
DESCRIPTION OF PERIOD TO INCOME ACCRUAL(1) DEDUCTIONS(2) PERIOD(3)
----------- ---------- --------- ----------- ------------- ----------
<S> <C> <C> <C> <C> <C>
December 31, 1997
Casualty and
environmental
liabilities........... $810 $165 $ - $264 $711
==== ==== ==== ==== ====
December 31, 1996
Casualty and
environmental
liabilities........... $916 $188 $ - $294 $810
==== ==== ==== ==== ====
December 31, 1995
Casualty and
environmental
liabilities........... $637 $164 $320 $205 $916
==== ==== ==== ==== ====
</TABLE>
- --------
(1) Represents SFP's recorded liability at date of merger of BNI and SFP.
(2) Principally represents cash payments.
(3)Classified in the consolidated balance sheet as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Casualty and environmental liabilities (current
liabilities)............................................. $263 $267 $290
Casualty and environmental liabilities (noncurrent
liabilities)............................................. 448 543 626
---- ---- ----
$711 $810 $916
==== ==== ====
</TABLE>
F-3
<PAGE>
BURLINGTON NORTHERN SANTA FE CORPORATION
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
XHIBITE
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
3.1 Amended and Restated Certificate of Incorporation of BNSF (amended as of September
11, 1995). Incorporated by reference to Exhibit 3.1 to BNSF's Report on Form 10-Q
for the quarter ended September 30, 1995.
3.2 By-Laws of BNSF (amended as of September 18, 1997). Incorporated by reference to
Exhibit 3.1 to BNSF's Report on Form 10-Q for the quarter ended September 30,
1997.
4 BNSF is not filing any instruments evidencing indebtedness because the total
amount of securities authorized under any single such instrument does not exceed
10% of BNSF's total assets. BNSF will furnish copies of any material instruments
upon request of the Securities and Exchange Commission.
10.1* Burlington Northern Santa Fe Non-Employee Directors' Stock Plan. Incorporated by
reference to Appendix A to BNSF's Proxy Statement dated March 5, 1996. Amendment
to Burlington Northern Santa Fe Non-Employee Directors' Stock Plan dated January
16, 1997 is incorporated by reference to Exhibit 10.1 to BNSF's Report on Form 10-
K for the fiscal year ended December 31, 1996.
10.2* Burlington Northern Santa Fe Corporation 1987 Stock Option Incentive Plan.
Incorporated by reference to BNSF's Registration Statement on Form S-8 (File No.
33-62833).
10.3* Burlington Northern Santa Fe Corporation Incentive Compensation Plan. Incorporated
by reference to BNSF's Registration Statement on Form S-8 (File No. 33-62835).
10.4* Burlington Northern Inc. Senior Executive Survivor Benefit Plan as of April 1,
1986. Incorporated by reference to Amendment No. 1 to BNI's Report on Form 10-K
for the fiscal year ended December 31, 1987.
10.5* Burlington Northern Inc. Deferred Compensation Plan as amended effective January
1, 1991. Incorporated by reference to Exhibit 10.5 to BNSF's Report on Form 10-K
for the fiscal year ended December 31, 1995.
10.6* Burlington Northern Inc. Performance Share Unit Plan (1981) as of January 1, 1988.
Incorporated by reference to Amendment No. 1 to BNI's Report on Form 10-K for the
fiscal year ended December 31, 1987.
10.7* Burlington Northern Inc. 1987 Performance Share Unit Plan as of January 1, 1988.
Incorporated by reference to Amendment No. 1 to BNI's Report on Form 10-K for the
fiscal year ended December 31, 1987.
10.8* Burlington Northern Inc. Supplemental Benefits Plan (as amended and restated
effective September 21, 1995). Incorporated by reference to Exhibit 10.8 to BNSF's
Report on Form 10-K for the fiscal year ended December 31, 1995.
10.9* 1989 Burlington Northern Inc. Restricted Stock Incentive Plan. Incorporated by
reference to BNI's Report on Form 10-K for the fiscal year ended December 31,
1990.
10.10* Burlington Northern Santa Fe Corporation 1990 Directors Stock Option Plan.
Incorporated by reference to BNSF's Registration Statement on Form S-8 (File No.
33-62825).
10.11* Burlington Northern Santa Fe Incentive Bonus Stock Program. Incorporated by
reference to Exhibit 10.11 to BNSF's Report on Form 10-K for the fiscal year ended
December 31, 1995. Amendment of Burlington Northern Santa Fe Incentive Bonus Stock
Program dated January 14, 1998.
</TABLE>
- --------
*Management contract or compensatory plan or arrangement.
E-1
<PAGE>
<TABLE>
<S> <C>
10.12* Burlington Northern Santa Fe Corporation 1992 Stock Option Incentive Plan.
Incorporated by reference to BNSF's Registration Statement on Form S-8 (File No.
33-62839).
10.13* Burlington Northern Santa Fe 1996 Stock Incentive Plan. Incorporated by reference
to Appendix B to BNSF's Proxy Statement dated March 5, 1996. Amendment of
Burlington Northern Santa Fe 1996 Stock Incentive Plan dated January 15, 1998.
10.14* Burlington Northern Santa Fe Supplemental Retirement Plan. Incorporated by
reference to Exhibit 10.1 to BNSF's Report on Form 10-Q for the quarter ended
September 30, 1996.
10.15* Burlington Northern Santa Fe Estate Enhancement Program, as amended and restated
effective October 1, 1996. Incorporated by reference to Exhibit 10.15 to BNSF's
Report on Form 10-K for the fiscal year ended December 31, 1996.
10.16* Agreement between BNSF and Robert D. Krebs dated as of January 30, 1997.
Incorporated by reference to Exhibit 10.16 to BNSF's Report on Form 10-K for the
fiscal year ended December 31, 1996.
10.17* Form of BNSF Change-in-Control Agreement (applicable to Messrs. Babb, Moreland,
Schultz, Springer, and Hund). Incorporated by reference to Exhibit 10.17 to BNSF's
Report on Form 10-K for the fiscal year ended December 31, 1996.
10.18* Employment Agreement by and between Burlington Northern Inc. and Gregory T.
Swienton. Incorporated by reference to Exhibit 10.23 to BNI's Report on Form 10-K
for the fiscal year ended December 31, 1994.
10.19* Burlington Northern Santa Fe Deferred Compensation Plan for Directors as amended
January 16, 1997. Incorporated by reference to Exhibit 10.19 to BNSF's Report on
Form 10-K for the fiscal year ended December 31, 1996.
10.20* Burlington Northern Inc. Nonqualified 401(k) Restoration Plan. Incorporated by
reference to Exhibit 10.20 to BNSF's Report on Form 10-K for the fiscal year ended
December 31, 1995.
10.21* Burlington Northern Inc. Form of Severance Agreement and amendments through
September 18, 1995 (applicable to Messrs. Rose and Swienton as of March 13, 1998).
Incorporated by reference to Exhibit 10.21 to BNSF's Report on Form 10-K for the
fiscal year ended December 31, 1995. Amendment to Form of Severance Agreement
dated December 3, 1997.
10.22* Burlington Northern Inc. Director's Charitable Award Program. Incorporated by
reference to Exhibit 10.22 to BNSF's Report on Form 10-K for the fiscal year ended
December 31, 1995.
10.23* Burlington Northern Santa Fe Salary Exchange Option Program. Incorporated by
reference to Exhibit 10.23 to BNSF's Report on Form 10-K for the fiscal year ended
December 31, 1995. Amendment to Burlington Northern Santa Fe Salary Exchange
Option Program dated January 15, 1997 is incorporated by reference to Exhibit
10.23 to BNSF's Report on Form 10-K for the fiscal year ended December 31, 1996.
10.24* Santa Fe Pacific Corporation Supplemental Retirement Plan ("Supplemental Plan").
Incorporated by reference to Exhibit 10(d) to SFP's Report on Form 10-K for the
fiscal year ended December 31, 1984. Supplemental Plan as amended October 1, 1989,
and Amendment to Supplemental Plan dated February 27, 1990, are incorporated by
reference to Exhibit 10(d) to SFP's Report on Form 10-K for the fiscal year ended
December 31, 1989. Amendment to Supplemental Plan dated March 22, 1994, and
effective January 1, 1994, is incorporated by reference to Exhibit 10.24 to BNSF's
Report on Form 10-K for the fiscal year ended December 31, 1995.
10.25* SFP Incentive Stock Compensation Plan. Incorporated by reference to Exhibit 10(e)
to SFP's Report on Form 10-K for the fiscal year ended December 31, 1985.
Amendments to SFP Incentive Stock Compensation Plan dated May 28, 1987 and October
29, 1987 are incorporated by reference to Exhibit
</TABLE>
- --------
*Management contract or compensatory plan or arrangement.
E-2
<PAGE>
<TABLE>
<S> <C>
10(e) to SFP's Report on Form 10-K for the fiscal year ended December 31, 1987.
Amendments to SFP Incentive Stock Compensation Plan dated March 8, 1989, June 8,
1989, and February 27, 1990 are incorporated by reference to Exhibit 10(e) to
SFP's Report on Form 10-K for the fiscal year ended December 31, 1989. Amendment
to SFP Incentive Stock Compensation Plan effective as of July 24, 1990 is
incorporated by reference to SFP's Report on Form 10-Q for the quarter ended June
30, 1990. Amendment to SFP Incentive Stock Compensation Plan dated December 4,
1990, is incorporated by reference to Exhibit 10(e) to SFP's Report on Form 10-K
for the fiscal year ended December 31, 1990.
10.26* SFP Form of Severance Agreement dated November 2, 1987 (applicable to Mr. Springer
as of March 13, 1998), as adopted in May 1987 and amended in October 1987.
Incorporated by reference to Exhibit 10(j) to SFP's Report on Form 10-K for the
fiscal year ended December 31, 1987. Amendment to Form of Severance Agreement
dated July 24, 1990 is incorporated by reference to SFP's Report on Form 10-Q for
the quarter ended June 30, 1990. Amendment to Form of Severance Agreement adopted
January 25, 1994 is incorporated by reference to Exhibit 10.1 to SFP's Report on
Form 10-Q for the quarter ended June 30, 1994. Amendment to Form of Severance
Agreement dated March 28, 1995 is incorporated by reference to Exhibit 10.5 to
SFP's Report on Form 10-K for the fiscal year ended December 31, 1994. Amendment
to Form of Severance Agreement dated December 3, 1997. Amendment to Form of
Severance Agreement dated February 6, 1998 (Mr. Hund).
10.27* Burlington Northern Santa Fe Directors' Retirement Plan. Incorporated by reference
to Exhibit 10.29 to BNSF's Report on Form 10-K for the fiscal year ended December
31, 1995.
10.28* Benefits Protection Trust Agreement dated as of January 22, 1996 by and between
BNSF and Bankers Trust Company. Incorporated by reference to Exhibit 10.28 to
BNSF's Report on Form 10-K for the fiscal year ended December 31, 1996.
10.29* Retirement Benefit Agreement dated February 26, 1992 between SFP and R. D. Krebs.
Incorporated by reference to Exhibit 10(l) to SFP's Report on Form 10-K for the
fiscal year ended December 31, 1991.
10.30* Amended and Restated Trust Agreement dated as of April 1, 1994 by and between SFP
and The Bank of New York. Incorporated by reference to Exhibit 10.32 to BNSF's
Report on Form 10-K for the fiscal year ended December 31, 1995.
10.31* Trust Agreement dated as of July 26, 1994 by and between SFP and The Bank of New
York. Incorporated by reference to Exhibit 10.33 to BNSF's Report on Form 10-K for
the fiscal year ended December 31, 1995.
10.32* The Atchison, Topeka and Santa Fe Railway Company Incentive Compensation Plan.
Incorporated by reference to Exhibit 10(n) to SFP's Report on Form 10-K for the
fiscal year ended December 31, 1991.
10.33* Burlington Northern Santa Fe Long Term Incentive Stock Plan. Incorporated by
reference to BNSF's Registration Statement on Form S-8 (File No. 33-63247).
10.34* Santa Fe Pacific Corporation Supplemental Retirement and Savings Plan.
Incorporated by reference to Exhibit 10(s) to SFP's Report on Form 10-K for the
fiscal year ended December 31, 1993.
10.35* Burlington Northern Santa Fe Incentive Stock Compensation Plan. Incorporated by
reference to BNSF's Registration Statement on Form S-8 (File No. 33-63253).
10.36* The Burlington Northern and Santa Fe Railway Company Severance Plan.
10.37* Burlington Northern Santa Fe Corporation Senior Management Stock Deferral Plan.
12 Computation of Ratio of Earnings to Fixed Charges. Incorporated by reference to
Exhibit 12 to BNSF's Registration Statement on Form S-3 (File No. 333-48227).
13 1997 Annual Report to Shareholders of BNSF (Consolidated Financial Highlights on
page 1, and pages 13-39, only.)
</TABLE>
- --------
*Management contract or compensatory plan or arrangement.
E-3
<PAGE>
<TABLE>
<S> <C>
21 Subsidiaries of BNSF.
23.1 Consent of Price Waterhouse LLP.
23.2 Consent of Coopers & Lybrand L.L.P.
24 Powers of Attorney
27 Financial Data Schedule.
</TABLE>
- --------
*Management contract or compensatory plan or arrangement.
E-4
<PAGE>
EXHIBIT 10.11
BURLINGTON NORTHERN SANTA FE CORPORATION
COMPENSATION COMMITTEE
January 14, 1998
AMENDMENT TO BURLINGTON NORTHERN SANTA FE BONUS STOCK PROGRAM
WHEREAS, the Compensation Committee wishes to encourage the identity of
shareholder interests with employee interests through stock ownership under the
Burlington Northern Santa Fe Incentive Bonus Stock Program ("Program") Exchange
Procedures;
WHEREAS, it is deemed appropriate to amend the Program from time to time;
RESOLVED, that effective immediately and in respect to outstanding awards,
paragraph 10 of the Burlington Northern Santa Fe Incentive Bonus Stock Program
Exchange Procedures be deleted and the following paragraph inserted in its
stead:
In the event that a participant with an Exchange Grant is
involuntarily terminated by the Company other than for Cause, the
Committee agrees to permit a participant to elect to receive (i) a
proration of the outstanding award as set forth in the Plan or (ii) to
surrender the Exchange Grant in exchange for the amount of the cash
award previously foregone and the award of Restricted Stock will
terminate as if never granted. In the event of retirement as defined
in the Burlington Northern Santa Fe Retirement Plan, the Committee
agrees to permit a participant to receive a proration of the
outstanding award as set forth in Plan. Notwithstanding the foregoing,
the Committee reserves the right to withdraw its consent to permit
participants who terminate due to retirement from electing the
benefits of this subparagraph.
FURTHER RESOLVED, that each of the Secretary and other officers of the
Company are authorized and empowered by and on behalf and in the name of the
Company to do and perform, or cause to be done and performed, all such acts,
deeds and things and to make, execute, and deliver, or cause to be made,
executed, and delivered, all such agreements, undertakings, documents,
instruments, or certificates, as each such officer may deem necessary or
appropriate to effectuate or carry out fully the purpose and intent of the
foregoing resolutions.
Fort Worth, Texas
January 14, 1998
<PAGE>
EXHIBIT 10.13
BURLINGTON NORTHERN SANTA FE CORPORATION
COMPENSATION COMMITTEE
January 14, 1998
AMENDMENT TO THE BURLINGTON NORTHERN SANTA FE 1996 STOCK INCENTIVE PLAN
WHEREAS, Burlington Northern Santa Fe Corporation ("Company") maintains the
Burlington Northern Santa Fe 1996 Stock Incentive Plan ("Plan");
WHEREAS, amendment of the Plan is now desirable;
NOW, THEREFORE, effective upon the date of the adoption of this amendment,
the Plan is amended as set forth below:
1. Section 13.1 of the Plan shall be amended by inserting the words "early
retirement under the terms of a Qualified Retirement Plan of an Employer," after
the word "Disability" where it appears therein.
2. Section 13.3 of the Plan shall be amended by inserting the words "early
retirement under the terms of a Qualified Retirement Plan of an Employer," after
the word "Disability" where it appears therein.
3. Section 13.5 of the Plan shall be amended by inserting the words "early
retirement under the terms of a Qualified Retirement Plan of an Employer," after
the word "Disability" where it first appears therein and at the end of the first
sentence of Section 13.5.
4. Section 13.5 of the Plan shall be amended by deleting the second sentence
therein and inserting the following:
Incentive Stock Options which are or become exercisable by reason of
death, Disability, early retirement under the terms of a Qualified Retirement
Plan of an Employer, or Retirement shall expire on the expiration date set forth
in the award or, if earlier:
(a) three years after the Date of Termination, if the Participant's
termination occurs because of death or Disability; and
(b) three months after the Date of Termination, if the Participant is
terminated by the Participant's employer for reasons other than
Cause, early retirement under the terms of a Qualified Retirement
Plan of an Employer, or Retirement.
<PAGE>
EXHIBIT 10.21
Date: December 3, 1997
To: CIC Person in Schaumburg (BN)
From: Ricci Gardner
Subject: Change in Control
Burlington Northern Santa Fe Corporation (the "Company") is willing to
offer you the opportunity to extend the date by which you may receive benefits
as described in your Burlington Northern Letter Agreement dated February 9,
1990, as amended, between you and Burlington Northern, Inc. ("Letter
Agreement"), and which was assumed by the Company on September 22, 1995.
Notwithstanding any provision of the Burlington Northern Santa Fe Employee
Retention Agreements adopted January 16, 1997 to the contrary, and in
consideration of your continued employment, the Company is agreeable to
extending the date so that benefits of the Letter Agreement would be available
to you to the earlier of June 30, 2001, or the date upon which your position is
relocated to Fort Worth, Texas; provided however, the benefits set forth in
Section 5 (iii) (b) of the Letter Agreement shall not exceed two (2) times your
Base Compensation in effect as of the Date of Termination. During this period,
the benefits of the Letter Agreement would be available if you satisfy the
conditions of a termination for Good Reason under the Letter Agreement (other
than Good Reason relating to the relocation of the Company's headquarters to
Fort Worth, Texas), if you are relocated to Fort Worth or by the Company's
termination of your employment for reasons other than for cause. This
supplement to your Letter Agreement will expire the earlier of June 30, 2001, or
upon the relocation of your position to Fort Worth, Texas.
By signing below, you are accepting the terms and conditions of this
supplement to your Letter Agreement, which extends the date of any right to
receive benefits you may have until June 30, 2001, or until relocation of your
position to Fort Worth, Texas.
- ---------------------------- ----------------------------
Signature Date
- ---------------------------- ----------------------------
Print Name Social Security Number
<PAGE>
EXHIBIT 10.26
Ricci L. Gardner
Vice President, Human Resources
December 3, 1997
Mr. Thomas N. Hund
6 Windsor Court
South Barrington, Illinois 60010
Dear Mr. Hund:
Burlington Northern Santa Fe Corporation (the "Company") is willing to
offer you the opportunity to receive the benefits as described in your Santa Fe
Pacific Letter Agreement (change in control) dated June 20, 1994, as amended,
between you and Santa Fe Pacific Corporation, and which was assumed by the
Company on September 22, 1995.
As you know, the opportunity for you to receive the benefits of your
Agreement expires February 6, 1998. Notwithstanding any provision of the
Burlington Northern Santa Fe Employee Retention Agreements adopted January 16,
1997 to the contrary, in consideration of your continued employment, the Company
is agreeable to providing you with the benefits of the Agreement including the
provision of the benefits of Section 4(iii)(b)(1) on an after-tax basis subject
to the limitations of the Agreement if you are not appointed to the position of
Senior Vice President and Chief Financial Officer by December 31, 1999 or if a
person other than yourself is appointed to this position by such time and you
give Notice of Termination as provided for in the Agreement. This Letter
Agreement will expire on January 3, 2000.
By signing below, you are accepting the terms and conditions of this Letter
Agreement.
Sincerely,
Ricci L. Gardner
Vice President - Human Resources
Agreed:
/s/ THOMAS N. HUND
Signature
February 6, 1998
<PAGE>
EXHIBIT 10.26
Date: December 3, 1997
To: CIC Person in Schaumburg (SF)
From: Ricci Gardner
Subject: Change in Control
Burlington Northern Santa Fe Corporation (the "Company") is willing to
offer you the opportunity to extend the date by which you may receive benefits
as described in your Santa Fe Pacific Letter Agreement dated June 20, 1994, as
amended, between you and Santa Fe Pacific Corporation ("Letter Agreement"), and
which was assumed by the Company on September 22, 1995.
As you know, the opportunity for you to receive the benefits of your Letter
Agreement expires February 6, 1998. Notwithstanding any provision of the
Burlington Northern Santa Fe Employee Retention Agreements adopted January 16,
1997 to the contrary, in consideration of your continued employment, the Company
is agreeable to extending the date so that benefits of the Letter Agreement
would be available to you (as set forth in Section 1 of the Letter Agreement) to
the earlier of June 30, 2001, or the date upon which your position is relocated
to Fort Worth, Texas. During this period, the benefits of the Letter Agreement
would be available if you satisfy the conditions of a termination for Good
Reason under the Letter Agreement (other than Good Reason relating to the
relocation of the Company's headquarters to Fort Worth, Texas), if you are
relocated to Fort Worth or by the Company's termination of your employment for
reasons other than for cause. This supplement to your Letter Agreement will
expire the earlier of June 30, 2001, or upon the relocation of your position to
Fort Worth, Texas.
By signing below, you are accepting the terms and conditions of this
supplement to your Letter Agreement, which extends the date of any right to
receive benefits you may have until June 30, 2001, or until relocation of your
position to Fort Worth, Texas.
- ------------------------------------ ------------------------------------
Signature Date
- ------------------------------------ ------------------------------------
Print Name Security Number
<PAGE>
EXHIBIT 10.36
Effective January 1, 1998
THE BURLINGTON NORTHERN AND SANTA FE RAILWAY COMPANY
SEVERANCE PLAN
PURPOSE OF THE PLAN
- -------------------
The Burlington Northern and Santa Fe Railway Company Severance Plan
("Plan") is intended to provide separation pay to salaried, exempt employees of
The Burlington Northern and Santa Fe Railway Company ("Company") whose
employment is terminated by the Company under the circumstances outlined in this
Plan. With the adoption of this Plan, the Company has also terminated all prior
severance arrangements adopted by predecessor companies except to the extent
that an individual is eligible to receive benefits under such program.
ELIGIBILITY
- -----------
A person shall be an "Eligible Employee" if he or she is an active,
regularly assigned, full-time salaried employee not covered by a collective
bargaining agreement, who is terminated by the Company for other than Cause, and
who executes a general release agreement in the form as established by the
Company or the Committee under this Plan; provided, however, an employee who is
party to an individual severance agreement with the Company or its affiliates
and under which benefits are paid upon termination shall not constitute an
Eligible Employee. Notwithstanding the foregoing, an employee who does not
execute a general release and who otherwise satisfies the requirements of an
Eligible Employee shall be entitled to two weeks' Base Salary as severance, but
no other benefits under this Plan.
On an exception basis, the Company may, in its sole discretion, offer the
benefit of this Plan on an individual basis as an inducement to a mutually-
agreed termination of employment.
DEFINITIONS
- -----------
1. "Credited Service" shall be defined as months of vesting service
for which each employee is credited under the BNSF Retirement Plan. A
partial month of service shall be credited as a full month.
2. "Base Salary" means the Eligible Employee's highest regular base
salary during the 24 month period prior to the date of termination of
employment, excluding overtime and bonuses, computed on a weekly basis.
3. "Committee" means a committee comprised of the Senior Vice
President Law and Chief of Staff and Vice President- Human Resources.
The Committee shall have discretionary authority to administer,
to construe and interpret the Plan, to decide all questions of eligibility,
to determine the amount, manner and time of payment of any benefits
hereunder, and to make all other determinations deemed necessary or
advisable for the administration of the Plan.
The Company or the President of the Company reserves the right to
amend or terminate all or any portion of the Plan at any time.
4. "Company" means The Burlington Northern and Santa Fe Railway
Company, and its wholly owned subsidiaries which elect to participate.
5. "Severance Allowance" means the total Severance Allowance
available to an Eligible Employee pursuant to the Plan.
6. "BNSF Retirement Plan" means the qualified retirement plan
maintained by the Company.
<PAGE>
7. "Incentive Payments" means gross cash payments earned under the
Incentive Compensation Plan (ICP).
8. "Vacation" means the vacation amount as provided under the
Company's existing vacation policy. In the event an Eligible Employee has a
written agreement providing additional vacation benefits, that agreement
will govern.
9. "Cause" shall mean (a) the failure by the employee to
substantially perform the assigned duties with the Company in accordance
with the standards of the Company (other than any such failure resulting
from incapacity due to physical or mental illness), or (b) the willful
engaging by the employee in conduct which is demonstrably and materially
injurious to the Company, monetarily or otherwise. For purposes of this
Subsection, no act, or failure to act, shall be deemed "willful" unless
done, or omitted to be done, by the employee not in good faith and without
reasonable belief that such action or omission was in the best interest of
the Company.
DURATION AND TIMETABLE
- ----------------------
1. This Plan shall continue in effect through December 31, 1998;
provided, however, that commencing on January 1, 1999, and each January 1
thereafter, the Plan shall automatically be extended for one additional
year unless, not later than September 30 of the preceding year, the Board
of Directors determines that the Plan shall not be so extended.
2. The Company will determine the date an Eligible Employee's
termination will be effective. In the event an Eligible Employee resigns or
otherwise terminates employment with the Company prior to the effective
Date of Termination, he/she forfeits all further participation in this
Plan.
3. The adoption of this Plan is entirely voluntary on the part of
the Company and is not intended nor shall be construed as creating a
contract of employment between the Company or its successors and an
Eligible Employee, nor be construed as a term of employment.
SEVERANCE ALLOWANCE
- -------------------
The Plan will provide an Eligible Employee a specified amount of money
based upon your Base Salary (excluding Incentive Payments) at the time of
separation and certain other benefits.
The amount of the Severance Allowance will be determined under one of the
following schedules:
A lump sum allowance in an amount equal to the higher of (1) or (2)
1. One week base salary times years of Credited Service, plus
One week base salary per $4,000 of annual base salary, plus
One week base salary for each year over 40 years of age.
2. Two weeks' Base Salary times the years of Credited Service.
The minimum payment under this schedule will be eight (8) weeks' Base
Salary and the maximum benefit will be two (2) years' Base Salary.
2
<PAGE>
In respect to Eligible Employees who are covered by Northern Lines merger
protection and who terminate prior to July 1, 1998, the amount of the severance
allowance shall be no less than two times annual Base Salary.
The time and method of payment of a Severance Allowance will be determined
by the Company, but it is intended that payments will be made within 30 days of
receipt of the general release by Human Resources. Severance Allowance payments
will be subject to withholdings for Federal Income Tax, State Income Tax where
applicable, and Railroad Retirement Tax and other appropriate deductions, but
shall not constitute compensation under any Company retirement plan.
Notwithstanding the foregoing provisions of this Plan, the amount of any
payment provided under this Plan shall be reduced by any similar payment made by
the Company required by any federal or state law including but not limited to
the Worker Adjustment and Retraining Notification Act with respect to such
termination of employment. In addition, notwithstanding the foregoing provisions
of the Plan, no payments will be made to an Eligible Employee or his or her
spouse or beneficiary, if a pension commences to be paid to the Eligible
Employee, spouse or beneficiary pursuant to Supplement A of the BNSF Retirement
Plan.
UNPAID LEAVE OF ABSENCE
- -----------------------
Eligible Employees who are eligible to retire under the early retirement
provisions of the BNSF Retirement Plan as of their date of termination may elect
to be placed upon an Unpaid Leave of Absence until the earlier of the date the
Eligible Employee elects to begin receiving benefits under the BNSF Retirement
Plan, reaches age 65 or reaches 30 years of service at or after age 62; or
Eligible Employees whose age and Credited Service when added together total
70, or who are 50 years of age with five (5) years of Credited Service and who
are not eligible under paragraph 1 above, may elect to be placed upon an Unpaid
Leave of Absence until eligible to commence an early retirement benefit under
the BNSF Retirement Plan.
An Eligible Employee may irrevocably elect to spread his or her Severance
Allowance for a period of up to two years from the date of termination provided
such election is made prior to termination and in accordance with such
restrictions as the Committee may impose. In the event the Eligible Employee
terminates his employment, any remaining amounts due shall be paid in a lump
sum.
An Eligible Employee who elects to be placed upon Unpaid Leave of Absence
will continue to accrue benefit and vesting service under the BNSF Retirement
Plan to the extent consistent with applicable IRS requirements.
If the Employee elects the Unpaid Leave of Absence, there are other special
rules applicable as described below.
BENEFITS
- --------
All welfare benefits and participation in compensation plans shall cease
upon your date of termination or the date your unpaid leave commences except as
described below.
HEALTH CARE BENEFITS
--------------------
The Company will pay the premiums for continuation coverage under the
medical and dental plan pursuant to the Consolidated Omnibus Budget
Reconciliation Act ("COBRA") for six (6) months and the Eligible Employee
may purchase up to an additional twelve (12) months COBRA coverage or the
number of months required by law; provided coverage will terminate when an
individual is covered under another group medical and dental plan.
If an Eligible Employee elects to be placed on an Unpaid Leave of
Absence, the Eligible Employee will at the end of the six (6) month period,
be eligible to elect to commence COBRA coverage or retiree medical coverage
under the retiree
3
<PAGE>
medical plan for which the Eligible Employee would have become eligible. If
you do not elect retiree medical at the end of your six month (or 18 month
period), you will be eligible to elect retiree medical on your retirement
date at the conclusion of your Unpaid Leave of Absence.
If an Eligible Employee does not qualify for group life insurance as a
retiree under the BNSF Group Life Insurance Plan, a conversion privilege for
employee life insurance will be provided within 31 days of the date coverage
ceases.
INVESTMENT AND RETIREMENT PLAN
------------------------------
Eligible Employees may elect to keep their accounts in the Investment
and Retirement Plan or to receive account balance upon termination, however
Eligible Employees on an Unpaid Leave of Absence will not be eligible for a
distribution until the termination of the Unpaid Leave of Absence and loan
payments will be required to be made while on leave.
If the Eligible Employee leaves his/her account in the plan until
January 31 of the year following termination, an additional Company match may
be available consistent with the terms of the Investment and Retirement Plan
in effect at such time.
STOCK PLANS
-----------
If the Eligible Employee is terminated under this Plan, stock awards
will become exercisable or restrictions shall lapse in an amount and for the
limited period of time set forth in the applicable stock plan. Under the BNSF
1996 Stock Incentive Plan, stock awards will be prorated based upon your
termination date and stock options shall be exercisable for three months as
described in the plan. If the Eligible Employee elects the Unpaid Leave of
Absence, the right to an Unpaid Leave of Absence is contingent upon the
Eligible Employee's agreement that stock options and non-performance based
restricted stock will be treated as if the Eligible Employee had terminated,
i.e., stock options will not continue to vest, will be prorated, and will be
exercisable for a limited period of time as if the Eligible Employee had
terminated on the date leave commenced and restricted stock will vest on a
prorated basis.
INCENTIVE PAYMENTS
------------------
An Eligible Employee shall be entitled to a pro rata ICP payment based
upon the date of termination or the day the Unpaid Leave of Absence commences
and based upon Company performance. The ICP payment will be made at the same
time active employees receive their payments.
VACATION
--------
Accrued and earned vacation will be paid in a lump sum following the
date of termination or the date the Unpaid Leave of Absence commences.
OUTPLACEMENT COUNSELING
-----------------------
The Company may provide at times and places specified outplacement
counseling as designated by the Company to Eligible Employees. The Company
will have sole discretion in selection of the outside vendor and services to
be provided.
CLAIM REVIEW PROCEDURE
- ----------------------
1. All inquiries concerning claims under the Plan shall be submitted
to the Company and shall be addressed as
4
<PAGE>
follows: Mr. Ricci Gardner, Vice President-Human Resources, BNSF, 2650 Lou
Menk Drive, Ft. Worth, Texas, 76131.
In the event that any claim for benefits is denied in whole or in
part, the Company shall notify the claimant in writing of such denial and
shall advise the claimant of his or her right to a review thereof. Such
written notice shall set forth, in a manner calculated to be understood by
the claimant, specific reasons for such denial, specific references to the
Plan provisions on which such denial is based, a description of any
information or material necessary for the claimant to perfect the claim, an
explanation of why such material is necessary and an explanation of the
Plan's review procedure. Such written notice shall be given to the claimant
within a reasonable period of time after the claim is filed with the
Company.
2. Any person or his or her duly authorized representative, whose claim
for benefits is denied in whole or in part may appeal from such denial by
submitting to the Company a request for a review of the claim within 65
days after receiving written notice of such denial from the Company. The
Company shall give the claimant an opportunity to review pertinent
documents in preparing his or her request for review.
3. The request for review must be in writing and shall be addressed as
follows: Mr. Ricci Gardner, Vice President-Human Resources, BNSF, 2650 Lou
Menk Dr., Fort Worth, Texas 76131. The request for review shall set forth
all of the grounds upon which it is based, all facts and support thereof
and any other matters which the claimant deems pertinent. The Company may
require the claimant to submit such additional facts, documents or other
material as the Company may deem necessary or appropriate in making its
review.
4. The Company shall act upon each request for review within 60 days
after receipt thereof unless special circumstances require further time for
processing, but in no event shall the decision on review be rendered more
than 120 days after the Company receives the request for review.
5. The Company shall give written notice of its decision to the
claimant. In the event that the Company confirms the denial of application
for benefits in whole or in part, such notice shall set forth, in a manner
calculated to be understood by the claimant, the specific reasons for such
denial and specific references to the Plan provisions on which the decision
is based.
ERISA REQUIREMENTS
- ------------------
The following paragraphs contain specific information required by the
Employee Retirement Income Security Act of 1974 (ERISA):
The name of the Plan is The Burlington Northern and Santa Fe Railway
Company Severance Plan.
The Sponsor of the Plan is:
The Burlington Northern and Santa Fe Railway Company
2650 Lou Menk Drive
Fort Worth, Texas 76131
The administrator of the plan is the Committee. The Committee can be
contacted by writing:
The BNSF Severance Plan Committee
c/o Ricci Gardner
2650 Lou Menk Drive
5
<PAGE>
Fort Worth, Texas 76131
The Plan Administrator may be contacted by calling (817) 352-6009.
Mr. Jeffrey Moreland, Senior Vice President-Law and Chief of Staff, The
Burlington Northern and Santa Fe Railway Company, 1700 East Golf Road,
Schaumburg, Illinois 60173, is designated as agent for legal process. Service
of legal process may also be made upon written request to the Plan
Administrator.
The Employer Identification Number (EIN) assigned by the Internal Revenue
Service is 41-6034000.
You are entitled to certain rights and protections under the Employee
Retirement Income Security Act of 1974 (ERISA). ERISA provides that all plan
participants shall be entitled to:
examine, without charge at the office of the Plan Administrator, all
plan documents and copies of all documents filed by the plan with the U.S.
Department of Labor, such as detailed annual reports and plan descriptions.
obtain copies of all plan documents and other plan information upon
written request to the Plan Administrator. A reasonable charge may be made
for the copies.
receive a summary of the plan's annual report. The Plan Administrator
is required by law to furnish each participant with a copy of this summary
annual report.
In addition to creating rights for plan participants, ERISA imposes duties upon
people who are responsible for the operation of the plan. The people who operate
your plan, called "fiduciaries" of the plan, have the duty to do so prudently
and in the interest of you and other plan participants and beneficiaries. No
one, including your employer or any other person, may fire you or otherwise
discriminate against you in any way to prevent you from obtaining a benefit or
exercising your rights under ERISA. If your claim for a benefit is denied in
whole or in part, you must receive a written explanation of the reason for the
denial. You have a right to have the plan reviewed and reconsider your claim.
Under ERISA, there are steps you can take to enforce the above rights. For
instance, if you request materials from the plan and do not receive them within
30 days, you may file suit in a federal court. In such a case, the court may
require the Plan Administrator to provide the materials and pay you up to $100 a
day until you receive the materials, unless the materials were not sent because
of reasons beyond the control of the administrator. If you have a claim for
benefits which is denied or ignored, in whole or in part, you may file suit in a
state or federal court. If it should happen that plan fiduciaries misuse the
plan's money, or if you are discriminated against for asserting your rights, you
may seek assistance from the U. S. Department of Labor, or you may file suit in
a federal court. The court will decide who should pay court costs and legal
fees. If you are successful, the court may order the person you have sued to pay
these costs and fees. If you lose, the court may order you to pay these costs
and fees; for example, if it finds your claim is frivolous.
If you have any questions about this statement or your rights under ERISA, you
should contact the Plan Administrator or the Area Office of the U.S. Labor-
Management Service Administration, Department of Labor.
DISCLAIMER
- ----------
This plan is set forth in this summary plan description is not a condition of
employment nor is it intended to be and does not constitute a contract of
employment and all participants are employees at the will of the Company.
6
<PAGE>
EXHIBIT 10.37
Burlington Northern Santa Fe Corporation
Senior Management Stock Deferral Plan
-------------------------------------
The following sets forth the rules that apply to the Burlington Northern
Santa Fe Corporation Senior Management Stock Deferral Plan (the "Plan"):
1. Purpose. The purpose of the Plan is to permit eligible employees of
Burlington Northern Santa Fe Corporation and its principal subsidiary, The
Burlington Northern and Santa Fe Railway Company (collectively, the "Company")
to defer delivery of common stock ("Stock") of Burlington Northern Santa Fe
Corporation otherwise distributable to Eligible Employees (as defined below),
and thereby to allow the employees to defer a portion of their Stock income on a
pre-tax basis. The "Effective Date" of the Plan is December 1, 1996. The "Plan
Year" is the calendar year.
2. Eligible Employees. Participation in the Plan shall be limited to
"Eligible Employees." The determination of the persons selected as "Eligible
Employees" shall be made by the Committee (as described below), and shall be
limited to a select group of management or highly compensated employees.
Beginning as of the Effective Date (as described below), and until revised by
the Committee, the "Eligible Employees" shall consist of each of those Senior
Management employees of the Company who: (i) is at salary band 34 or higher; and
(ii) has a total base salary plus target bonus of at least $100,000. An
Eligible Employee who defers the delivery of Stock in accordance with the Plan
shall thereby become a "Participant" in the Plan.
3. Deferral Election. An employee may elect to defer the delivery of
Stock otherwise distributable to him or her under the Burlington Northern Santa
Fe 1996 Stock Incentive Plan and any other stock-based compensation plan of the
Company, as well as any other predecessor plans and successor plans (the "Stock
Plans") pursuant to (a) stock options ("Options"); and (b) restricted stock,
including matching stock with respect to such restricted stock (collectively,
"Restricted Stock"). Such deferral shall be made by filing a "Deferral
Election" with the Company in accordance with the Plan, subject to the
following:
(a) A Deferral Election shall be effective only if the employee satisfies the
requirements for an Eligible Employee at the time the Stock would have been
delivered in the absence of the Deferral Election.
(b) A Participant's Deferral Election with respect to Restricted Stock or
Options shall identify the shares to be covered by the election, and may
apply to all or
<PAGE>
any portion of the shares of such stock, provided that if the Participant
elects deferral of an award of Restricted Stock or Options worth $20,000 or
less, the entire stock award shall be subject to the Deferral Election.
The election with respect to Restricted Stock must be made prior to the
date of grant of the Restricted Stock (or such earlier date established by
the Committee), and will be irrevocable.
(c) A Participant's Deferral Election with respect to Options shall identify
the Options that are covered by the election, and may apply to any non-
qualified stock option that is outstanding on the date the Deferral
Election is made; provided that any Deferral Election shall apply to all
(but not less than all) of the shares subject to any outstanding non-
qualified stock options granted to the Participant on any grant date. The
same deferral period shall apply to all Options granted to a Participant on
a single grant date, but, subject to the Plan, the Participant may elect
different deferral periods for Options granted on different grant dates. A
Deferral Election may be made with respect to the delivery of Option stock
by an Eligible Employee at any time the employee holds Options, except that
no election may be made after the Participant's employment has terminated.
The Deferral Election with respect to any Option will be irrevocable.
(d) The Deferral Election with respect to any shares of Stock shall specify the
method of distribution of those shares at the end of the deferral period,
as elected by the Participant and subject to the terms of the Plan.
(e) A Deferral Election will be deemed to be filed with the Company on the date
it is received by the Director of Compensation.
4. Special Rules for Exercise of Options. The exercise of an Option
subject to a Deferral Election shall be subject to the following:
(a) The Deferral Election for any Option shall be effective for Option
exercises occurring on or after the six-month anniversary of the date of
such election. The Deferral Election shall remain in effect for the period
specified in such election but shall not be less than one year. The
Deferral Election shall expire upon the earlier of the date set forth in
such election or the Option expiration date.
(b) After the Deferral Election is filed for any Option but before it becomes
effective, the Option shall not be exercisable; provided, however, that the
Deferral Election shall be cancelled, and the Option shall become
exercisable
-2-
<PAGE>
(to the extent that it would have otherwise have been exercisable in the
absence of the Deferral Election) upon the occurrence, prior to the date
the election has become effective, of either a Change in Control or the
Participant's termination of employment.
(c) Subject to the Plan, Options providing for deferred delivery of Option
stock may be exercised by delivery to the Secretary of the Company of a
notice of exercise specifying the number of shares to be purchased, and
accompanied by shares of Stock then owned by the Participant having value
sufficient to satisfy the exercise price (or, if permitted by the Company,
by submitting a signed statement to the Director of Compensation that the
Participant then owns sufficient shares). The Company shall require
evidence or attestation that the shares have been continuously owned by the
Participant for not less than six months prior to the exercise. For
purposes of the foregoing requirement as to continuous ownership of shares,
(i) shares subject to deferred delivery are not deemed owned until delivery
occurs, and (ii) continuous ownership of the shares shall be deemed
interrupted by delivery for a prior option exercise (so that the same
shares may not be used to satisfy the purchase price of an Option more than
once in any six-month period). Shares which are delivered by the
Participant to satisfy the exercise price shall be returned to the
Participant as soon as practicable after delivery and exercise.
5. Withholding. Any tax withholding due at the time of crediting of Share
Units to a Participant's Account, or at the time of vesting of such Share Units,
shall be payable by the Participant by check to the Company. The Participant may
elect to have the withholding obligation which arises upon distribution of the
Deferral Account satisfied by the Stock credited to the Participant's Deferred
Account (or that would otherwise be credited to that account) sufficient to
satisfy the withholding obligation.
6. Deferred Accounts. The Company shall establish a Deferred Account (or
more than one Deferred Account, as described below) for each Participant. A
separate Deferred Account shall be established for each separate Restricted
Stock award that is subject to deferral, and for each exercise of an Option
award that is subject to deferral. Each Deferred Account for a Participant shall
be subject to the following adjustments:
(a) For each Restricted Stock award subject to deferral, the Participant's
Deferred Account established for that award will be credited with the
number of Share Units equal to the number of shares of Stock that the
Participant would have received in the absence of the deferral, with such
crediting occurring as of the date the shares would have been distributed
in the absence of the deferral.
-3-
<PAGE>
(b) For each Option award subject to deferral, the Participant's Deferred
Account established for that award will be credited with the number of
Share Units equal to the net additional number of shares of Stock resulting
from the Option exercise that the Participant would have received in the
absence of the deferral, with such crediting occurring as of the date the
shares would have been distributed in the absence of the deferral.
(c) As of the date of any distribution of shares of Stock with respect to a
Participant's Deferred Account under the Plan, the Share Units credited to
a Participant's Deferred Account shall be reduced by the number of Shares
distributed to the Participant.
(d) The number of Share Units to be credited to a Participant's Deferred
Account in accordance with paragraphs (a) and (b), and the number of Share
Units in the Deferred Account balance as of any date, shall be equitably
adjusted by the Company for any change in the outstanding shares of common
stock of the Company by reason of any stock dividend, split, spinoff,
recapitalization or other similar change, to the same extent such
adjustments would be made under the applicable Stock Plan with respect to
shares of Stock, as necessary to preserve the benefit of the Plan for the
Participant and the Company.
7. Dividends. As of each dividend record date for Stock occurring on or
after the date any Share Units are credited to a Deferred Account of a
Participant, and prior to the date of distribution of shares of Stock with
respect to those Share Units (or, if applicable, the date of forfeiture of the
Share Units), the Participant shall receive a cash payment equal to the amount
of the dividend that would be payable with respect to the number of shares of
Stock equal to the number of Share Units credited to the Participant's Deferred
Account on the dividend record date, with such payment made on the date of
payment of the applicable dividend.
8. Vesting in Share Units. The vesting provisions that would have been
applicable to the shares of Stock in the absence of a Deferral Election shall
apply to Share Units credited to the Participant's Deferred Account as though
each Share Unit represented one share of Stock; provided that dividends shall be
fully vested, to the extent that such dividends are payable with respect to
Stock for record dates occurring on or after the date the Share Units are
credited to the Participant's Deferred Account and prior to any forfeiture of
Share Units, and would have been vested if the Stock were not subject to a
Deferral Election.
9. Distribution of Account. The Participant shall receive a distribution
of shares of Stock equal to the number of Share Units credited to each of his or
her
-4-
<PAGE>
Deferred Accounts (excluding Share Units that are not vested), in accordance
with the terms of the applicable Deferral Election and subject to the terms of
the Plan. Such shares may consist, either in whole or in part, of the Company's
authorized and unissued Stock or shares of the Company's authorized and issued
Stock reacquired by the Company and held in its treasury.
10. Distribution Elections. Subject to the provisions of the Plan,
distributions with respect to a Participant's Deferred Accounts shall be made in
accordance with the election of the Participant. Except as otherwise provided
in the Plan, the Participant may make a different distribution election with
respect to each Deferred Account.
11. Distributions While Employed. A Participant's Deferral Election for
any Deferred Account may provide that all of a Deferred Account balance will be
paid while the Participant is employed by the Company or its subsidiaries;
provided, however, that the distribution during employment must be not less than
three years from the date on which the Deferral Account is established.
Distributions made to a Participant while employed will be made in a lump sum.
12. Distributions after Termination. Distributions with respect to a
Participant's Deferred Account following the Participant's termination of
employment shall be subject to the following:
(a) Retirement. A Participant's Deferral Election for any Deferred Account may
provide that the Deferred Account balance will be paid after the
Participant's Retirement, in a lump sum, or in annual payments over a
period of from two (2) to fifteen (15) years. If distributions are made
under this paragraph (a), all of the Participant's Deferred Accounts shall
be made in the same manner. Distributions following Retirement will be
made or commence not later than 60 days after the Participant's date of
Retirement. A Participant will be considered to have terminated employment
by reason of "Retirement" if the Participant's termination of employment
occurs at the earlier of: (i) after the Participant has attained age 55 and
completed at least ten (10) years of service; or (ii) after the Participant
has attained age 65.
(b) Termination before Retirement. A Participant's Deferred Account balances
will be paid after the Participant's termination of employment for reasons
other than Retirement or death in a lump sum. However, if the
Participant's employment is terminated by his or her employer for reasons
other than cause, the benefits may be distributed in one, two or three
annual installments, but only if the Participant has elected this form of
payment at least one year prior to termination of employment. Payments
under this paragraph (b) shall be made
-5-
<PAGE>
or commence within 60 days following the Participant's termination of
employment.
(c) Death. A Participant's Deferred Account balances will be paid after the
Participant's termination of employment by reason of death in a lump sum.
(d) Beneficiary. If a Participant dies after termination of employment, but
prior to receiving all of his or her benefits under the Plan, the
Participant's beneficiary will continue to receive the benefits at the time
they would have been distributed to the Participant if the Participant had
survived.
13. Changes to Distribution Elections. A Participant may revise his or
her election with respect to distribution of any Deferred Account in accordance
with the following:
(a) Subject to paragraphs (b) and (c) below, the Participant may revise the
election to provide for a later distribution date, but only if all of the
following requirements are satisfied: (i) the election is filed with the
Company at least one year prior to the date that such distribution would
otherwise commence under the original election for that Deferred Account;
(ii) the Participant has not previously revised the election for that
Deferred Account to delay the distribution date; and (iii) the revised
distribution date is not later than a date that would have been permitted
if the date were selected as part of the initial Deferral Election.
(b) The Participant may revise the election to provide for a different form of
distribution following the Participant's date of Retirement, but only if
the election is filed with the Company at least three years prior to the
Participant's date of Retirement.
(c) The Participant may revise the election to provide for a different form of
distribution following the Participant's termination of employment on
account of the Participant's death, if the election is filed with the
Company prior to the date of death.
14. Hardship Withdrawals. In the discretion of the Committee, upon a
showing of hardship, a Participant may receive a distribution with respect to
Share Units credited to his or her Deferred Accounts prior to the date otherwise
scheduled for distribution.
-6-
<PAGE>
15. Change in Control Distributions. All Deferral Elections shall be
cancelled upon the occurrence of a Change in Control, and delivery of the shares
may not be deferred to a date that is later than the date of a Change in
Control. For purposes of the Plan, the term "Change in Control" shall have the
meaning set forth in the Burlington Northern Santa Fe 1996 Stock Incentive Plan,
as it may be amended from time to time.
16. Designation of Beneficiary. Each Participant from time to time, by
signing a form furnished by the Committee, may designate any legal or natural
person or persons (who may be designated contingently or successively) to whom
his or her benefits under the Plan are to be paid if the Participant dies before
receiving all of his or her benefits. A beneficiary designation form will be
effective only when the signed form is filed with the Company while the
Participant is alive and will cancel all beneficiary designation forms filed
earlier. If a deceased Participant failed to designate a beneficiary as
provided above, or if the designated beneficiary of a deceased Participant dies
before the Participant or before complete payment of the Participant's benefits,
the benefits shall be paid to the legal representative or representatives of the
estate of the last to die of the Participant and designated beneficiary.
17. Statement of Deferred Accounts. As soon as practicable after the end
of each Plan Year, the Company shall provide each Participant with a statement
of the transactions in each of his or her Deferred Accounts during that year and
his or her Deferred Account balances as of the end of the year.
18. Election Forms. Participant election forms made under the Plan shall
be in such form as may be established by the Committee. The Committee may
establish additional rules applicable to such elections as may be set forth in
the election forms.
19. Restrictions on Share Units. Until distribution, Share Units may not
be sold, assigned transferred, pledged or otherwise encumbered, and the
Participant shall not be treated as a stockholder with respect to Share Units.
20. Rights to Shares. Neither the Participant nor any other person shall,
by reason of the Plan, acquire any right in or title to any assets, funds or
property of the Company whatsoever prior to the date shares of Stock are
distributed. The Participant shall have only a contractual right to the shares
and cash distributable under the Plan, unsecured by any assets of the Company or
any subsidiary.
-7-
<PAGE>
21. Plan Not Contract of Employment. The Plan does not constitute a
contract of employment, and does not give the Participant the right to be
retained in the employ of the Company.
22. Successors and Assigns. The Plan shall be binding upon, and inure to
the benefit of, the Company and its successors and assigns, and upon any person
acquiring, whether by merger, consolidation, purchase of assets or otherwise,
all or substantially all of the Company's assets and business.
23. Administration. The authority to manage and control the operation and
administration of the Plan shall be vested in the BNSF Employee Benefits
Committee (the "Committee"). The Committee is authorized to make appropriate
modifications of the Stock award agreements (including Stock Option and
Restricted Stock agreements) to reflect deferral elections under the Plan.
Subject to the provisions of the Plan, the Committee will have the authority and
discretion to interpret the Plan, to establish, amend, and rescind any rules and
regulations relating to the Plan, to determine the terms and provisions of any
agreements made pursuant to the Plan, and to make all other determinations that
may be necessary or advisable for the administration of the Plan. Any
interpretation of the Plan by the Committee and any decision made by it under
the Plan is final and binding on all persons. Except to the extent prohibited
by applicable law or the rules of any stock exchange, the Committee may allocate
all or any portion of its responsibilities and powers to any one or more of its
members and, except as otherwise provided by the Committee from time to time,
the Committee delegates its responsibilities to the Human Resources Department.
Any such allocation or delegation may be revoked by the Committee at any time.
24. Amendment. The Plan may be amended from time to time by the Chief
Executive Officer of the Company, and additional rules may be established by the
Chief Executive Officer of the Company, except that amendments of the rules
relating to distributions of the Chief Executive Officer's benefits may be
amended by the Chief Executive Officer only with the approval of the Committee.
-8-
<PAGE>
The Burlington Northern Santa Fe Corporation Senior Management Stock
Deferral Plan is hereby adopted, effective January 1, 1997 by Burlington
Northern Santa Fe Corporation.
IN WITNESS WHEREOF, the President and Chief Executive Officer of Burlington
Northern Santa Fe Corporation has caused the adoption of this Plan to be duly
executed on this _____ day of December, 1997.
BURLINGTON NORTHERN SANTA FE
CORPORATION
------------------------------------
Robert D. Krebs
President and Chief Executive Officer
-9-
<PAGE>
Exhibit 21.
Subsidiaries of the Registrant
BURLINGTON NORTHERN SANTA FE CORPORATION
BNSF Acquisition, Inc. (DE) 100%
Burlington Northern Santa Fe British Columbia, Ltd. (DE) 100%
The Burlington Northern and Santa Fe Railway Company (DE) 100%
Alameda Belt Line (CA) 50%
The Belt Railway Company of Chicago (IL) 16.6%
BN Leasing Corporation (DE) 100%
The Burlington Northern and Santa Fe Railway
Company de Mexico, S.A. de C.V. (Mexico) 50%
Burlington Northern Dock Corporation (DE) 100%
Burlington Northern International Services, Inc. (DE) 100%
The Burlington Northern and Santa Fe Railway
Company de Mexico, S.A. de C.V. (Mexico) 50%
Burlington Northern (Manitoba) Limited (Manitoba) 100%
Burlington Northern - Mexico Inc. (DE) 100%
Burlington Northern Railroad Holdings, Inc. (DE) 100%
Burlington Northern Relocation Services Inc. (TX) 100%
Burlington Northern Santa Fe Manitoba, Inc. (DE) 100%
Burlington Northern Worldwide, Inc. (DE) 100%
Camas Prairie Railroad Company (OR) 50%
Central California Traction Company (CA) 33.3%
Constellation 130, Inc. (CA) 100%
The Dodge City and Cimarron Valley Railway Company (KS) 100%
Electro Northern, Inc. (DE) 100%
The Gulf and Inter-State Railway Company of Texas (TX) 100%
Houston Belt & Terminal Railway Company (TX) 50%
INB Corp. (NV) 100%
Iowa Transfer Railway Company (IA) 25%
Kansas City Terminal Railway Company (MO) 25%
Limited Partnership Management, Inc. (DE) 100%
Longview Switching Company (WA) 25%
Los Angeles Junction Railway Company (CA) 100%
Metrovias S.A. (Argentina) 16.6%
Midwest/Northwest Properties Inc. (DE) 100%
M-R Holdings Acquisition Company (DE) 100%
M T Properties, Inc. (MN) 37.8%
Northern Radio Limited (British Columbia) 100%
The Oakland Terminal Railway (CA) 50%
Oklahoma City Junction Railway Company (OK) 100%
Paducah & Illinois Railroad Company (KY) 33.3%
Pine Canyon Land Company (DE) 100%
Portland Terminal Railroad Company (OR) 40%
Rio Grande, El Paso and Santa Fe Railroad Company (TX) 100%
Santa Fe Forwarding Company (DE) 100%
Santa Fe Pacific Insurance Company (VT) 100%
Santa Fe Pacific Railroad Company (Act of Congress) 100%
Santa Fe Rail Equipment Company (DE) 100%
Santa Fe Receivables Corporation (DE) 100%
Santa Fe Terminal Services, Inc. (DE) 100%
<PAGE>
SFP Pipeline Holdings, Inc. (DE) 100%
Santa Fe Pacific Pipelines, Inc. (DE) 100%
Star Lake Railroad Company (DE) 100%
St. Joseph Terminal Railroad Company (MO) 50%
Sunset Communications Company (DE) 100%
Sunset Railway Company (CA) 50%
Terminal Railroad Association of St. Louis (MO) 14.3%
Texas City Terminal Railway Company (TX) 33.3%
Trenes de Buenos Aires S.A. 16.6%
TTX Company (DE) 17%
Walker-Kurth Lumber Company (TX) 100%
Western Fruit Express Company (DE) 100%
The Wichita Union Terminal Railway Company (KS) 66.6%
Winona Bridge Railway Company (MN) 100%
The Zia Company (DE) 100%
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in (i) the Prospectus
constituting part of the Registration Statements on Form S-3 (Nos. 333-25627 and
333-32879; and 333-48227) and (ii) the Registration Statements on Form S-8 (Nos.
33-62823; 33-62825; 33-62827; 33-62829; 33-62831; 33-62833; 33-62835; 33-62837;
33-62839; 33-62841; 33-62943; 33-63247; 33-63249; 33-63253; 33-63255; 333-03275;
333-03277; 333-19241), of Burlington Northern Santa Fe Corporation of our report
dated February 6, 1998 appearing on page 21 of the Annual Report to Shareholders
which is incorporated in this Annual Report on Form 10-K. We also consent to the
incorporation by reference of our report on the Financial Statement Schedule,
which appears on page F-1 of this Form 10-K.
/s/ PRICE WATERHOUSE LLP
Price Waterhouse LLP
Chicago, Illinois
March 30, 1998
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements of
Burlington Northern Santa Fe Corporation on Form S-8 (File Nos. 33-62823, 33-
62825, 33-62827, 33-62829, 33-62831, 33-62833, 33-62835, 33-62837, 33-62839, 33-
62841, 33-62943, 33-63247, 33-63249, 33-63253, 33-63255, 333-03275, 333-03277,
333-19241), and Form S-3 (File Nos. 333-25627, 333-32879 and 333-48227) of our
report dated February 15, 1996, except as to the information presented in Note 8
for which the date is February 6, 1998, on our audit of the consolidated
financial statements and financial statement schedule of Burlington Northern
Santa Fe Corporation for the year ended December 31, 1995, which report is
included in this Annual Report on Form 10-K.
/s/ COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
Fort Worth, Texas
March 31, 1998
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
WHEREAS, BURLINGTON NORTHERN SANTA FE CORPORATION, a Delaware corporation
(the "Company"), will file with the Securities and Exchange Commission, under
the provisions of the Securities Exchange Act of 1934, as amended, its Annual
Report on Form 10-K for the fiscal year ended December 31, 1997; and
WHEREAS, the undersigned serve the Company in the capacity indicated;
NOW, THEREFORE, the undersigned hereby constitutes and appoints DENIS E.
SPRINGER and JEFFREY R. MORELAND, his or her attorney with full power to act for
him or her in his or her name, place and stead, to sign his or her name in the
capacity set forth below, to the Annual Report on Form 10-K of the Company for
the fiscal year ended December 31, 1997, and to any and all amendments to such
Annual Report on Form 10-K, and hereby ratifies and confirms all that said
attorney may or shall lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, this Power of Attorney has been executed by the
undersigned this 19th day of March, 1998.
<TABLE>
<CAPTION>
<S> <C>
/s/ JOSEPH F. ALIBRANDI /s/ JACK S. BLANTON
- ----------------------------- ----------------------------
Joseph F. Alibrandi, Director Jack S. Blanton, Director
/s/ JOHN J. BURNS /s/ DANIEL J. EVANS
- ----------------------------- ----------------------------
John J. Burns, Director Daniel J. Evans, Director
/s/ GEORGE DEUKMEJIAN /s/ BILL M. LINDIG
- ----------------------------- ----------------------------
George Deukmejian, Director Bill M. Lindig, Director
/s/ ROBERT D. KREBS /s/ ROY S. ROBERTS
- ----------------------------- ----------------------------
Robert D. Krebs, Chairman, President and Roy S. Roberts, Director
Chief Executive Officer, and Director
/s/ VILMA S. MARTINEZ
- ----------------------------- ----------------------------
Vilma S. Martinez, Director Arnold R. Weber, Director
/s/ MARC J. SHAPIRO /s/ ROBERT H. WEST
- ----------------------------- ----------------------------
Marc J. Shapiro, Director Robert H. West, Director
/s/ J. STEVEN WHISLER /s/ EDWARD E. WHITACRE, JR.
- ----------------------------- ----------------------------
J. Steven Whisler, Director Edward E. Whitacre, Jr., Director
/s/ RONALD B. WOODARD /s/ MICHAEL B. YANNEY
- ----------------------------- ----------------------------
Ronald B. Woodard, Director Michael B. Yanney, Director
</TABLE>
<TABLE> <S> <C>
<PAGE>
<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> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 31
<SECURITIES> 0
<RECEIVABLES> 705
<ALLOWANCES> 70
<INVENTORY> 205
<CURRENT-ASSETS> 1,234
<PP&E> 23,955
<DEPRECIATION> 4,744
<TOTAL-ASSETS> 21,336
<CURRENT-LIABILITIES> 2,060
<BONDS> 5,181
0
0
<COMMON> 2
<OTHER-SE> 6,810
<TOTAL-LIABILITY-AND-EQUITY> 21,336
<SALES> 0
<TOTAL-REVENUES> 8,413
<CGS> 0
<TOTAL-COSTS> 6,646
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 344
<INCOME-PRETAX> 1,404
<INCOME-TAX> 519
<INCOME-CONTINUING> 885
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 885
<EPS-PRIMARY> 5.72
<EPS-DILUTED> 5.64
</TABLE>
