UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-11535
BURLINGTON NORTHERN SANTA FE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 41-1804964
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2650 Lou Menk Drive
Fort Worth, Texas 76131
(Address of principal executive offices) (Zip Code)
(817) 333-2000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes__X__ No_____
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Shares
Class Outstanding at April 30, 1998
Common stock, $.01 par value 157,585,511 shares
<PAGE>
-
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
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BURLINGTON NORTHERN SANTA FE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
(UNAUDITED)
Three Months Ended
March 31,
------------------
1998 1997
---- ----
<S> <C> <C>
Revenues $2,162 $2,024
------ ------
Operating expenses:
Compensation and benefits 702 693
Purchased services 231 216
Depreciation and amortization 202 190
Equipment rents 191 200
Fuel 182 196
Materials and other 207 200
------ ------
Total operating expenses 1,715 1,695
------ ------
Operating income 447 329
Interest expense 88 84
Other income (expense), net 77 (3)
------ ------
Income before income taxes 436 242
Income tax expense 171 92
------ ------
Net income $ 265 $ 150
====== ======
Earnings per common share:
Basic $ 1.69 $ 0.97
====== ======
Diluted $ 1.67 $ 0.96
====== ======
Average shares (in millions)
Basic 156.4 153.9
Dilutive potential common shares 2.0 2.5
------ ------
Diluted 158.4 156.4
====== ======
Dividends declared per common share $ 0.30 $ 0.30
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
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BURLINGTON NORTHERN SANTA FE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(DOLLARS IN MILLIONS)
(UNAUDITED)
March 31, December 31,
1998 1997
--------- --------
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 33 $ 31
Accounts receivable, net 569 635
Materials and supplies 213 205
Current portion of deferred income taxes 333 333
Other current assets 37 30
------- -------
Total current assets 1,185 1,234
Property and equipment, net 19,421 19,211
Other assets 1,062 891
------- -------
Total assets $21,668 $21,336
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and other current liabilities $ 1,905 $ 1,952
Long-term debt due within one year 108 108
------- --------
Total current liabilities 2,013 2,060
Long-term debt and commercial paper 5,158 5,181
Deferred income taxes 5,203 5,175
Casualty and environmental reserves 431 448
Employee, merger and separation costs 444 469
Other liabilities 1,312 1,191
------- -------
Total liabilities 14,561 14,524
------- -------
Commitments and contingencies (See note 3)
Stockholders' equity:
Common stock, $.01 par value, 300,000,000
shares authorized; 158,102,246 shares and
156,746,601 shares issued, respectively 2 2
Additional paid-in capital 5,088 4,995
Retained earnings 2,081 1,863
Accumulated other comprehensive income (7) (7)
Other (57) (41)
------- -------
Total stockholders' equity 7,107 6,812
------- -------
Total liabilities and stockholders'
equity $21,668 $21,336
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
BURLINGTON NORTHERN SANTA FE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN MILLIONS)
(UNAUDITED)
Three Months Ended
March 31,
------------------
1998 1997
---- ----
Operating Activities:
<S> <C> <C>
Net income $ 265 $ 150
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 202 190
Deferred income taxes 28 40
Employee, merger and separation costs paid (30) (31)
Other, net (31) (11)
Sale of accounts receivable 19 20
Other changes in working capital 8 (285)
------ ------
Net cash provided by operating activities 461 73
------ ------
Investing Activities:
Cash used for capital expenditures (366) (296)
Other, net (82) (35)
------ ------
Net cash used for investing activities (448) (331)
------ ------
Financing Activities:
Net increase (decrease) in commercial paper and
bank loans (122) 263
Proceeds from issuance of long-term debt 127 121
Payments on long-term debt (26) (100)
Dividends paid (47) (46)
Proceeds from stock options exercised 63 19
Other, net (6) 1
------ ------
Net cash provided by (used for) financing activities (11) 258
------ ------
Increase in cash and cash equivalents 2 -
Cash and cash equivalents:
Beginning of period 31 47
------ ------
End of period $ 33 $ 47
====== ======
Supplemental cash flow information:
Interest paid, net of amounts capitalized 94 74
Income taxes refunded, net (1) (3)
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
BURLINGTON NORTHERN SANTA FE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Accounting policies and interim results
The consolidated financial statements should be read in conjunction with the
Burlington Northern Santa Fe Corporation Annual Report on Form 10-K for the
year ended December 31, 1997, including the financial statements and notes
thereto incorporated by reference from the Registrant's 1997 Annual Report to
Shareholders. The consolidated financial statements include the accounts of
Burlington Northern Santa Fe Corporation and its majority-owned subsidiaries
(collectively, "BNSF" or "Company"). BNSF was incorporated in Delaware on
December 16, 1994. The Company's principal operating subsidiary is The
Burlington Northern and Santa Fe Railway Company ("BNSF Railway"). All
significant intercompany accounts and transactions have been eliminated.
The results of operations for any interim period are not necessarily
indicative of the results of operations to be expected for the entire year.
In the opinion of management, all adjustments (consisting of only normal
recurring adjustments, except as disclosed) necessary to present fairly BNSF's
consolidated financial position as of March 31, 1998 and December 31, 1997 and
the consolidated results of operations for the three month periods ended March
31, 1998 and 1997 have been included.
The Company adopted Statement of Financial Accounting Standards (SFAS) No. 130
"Reporting Comprehensive Income" on January 1, 1998. SFAS No. 130 requires
the presentation of comprehensive income and its components in a full set of
financial statements, including the restatement of prior periods. For the
quarters ended March 31, 1998 and 1997, the Company's comprehensive income was
equal to net income.
Certain comparative prior year amounts in the consolidated financial
statements have been reclassified to conform with the current year
presentation.
2. Employee, merger and separation costs
Current and long-term employee, merger and separation liabilities totaling
$521 million are included in the consolidated balance sheet at March 31, 1998.
During the first three months of 1998, the Company paid $30 million of
employee, merger and separation costs.
At March 31, 1998, approximately $77 million of the total liability is
included within current liabilities for anticipated costs to be paid over the
next twelve months. The remaining costs are anticipated to be paid over the
next five years, except for certain costs related to conductors, trainmen and
locomotive engineers which will be paid upon the employees' separation or
retirement, as well as certain benefits for clerical employees which may be
paid on an installment basis, generally over five to ten years or in some
cases through retirement. In addition, certain merger-related costs have been
recorded as operating expenses.
3. Environmental and other contingencies
The Company's operations, as well as those of its competitors, are subject to
extensive federal, state and local environmental regulation. BNSF's operating
procedures include practices to protect the environment from the environmental
risks inherent in railroad operations, which frequently involve transporting
chemicals and other hazardous materials. Additionally, many of BNSF's land
holdings are and have been used for industrial or transportation-related
purposes or leased to commercial or industrial companies whose activities may
have resulted in discharges onto the property. As a result, BNSF is subject
to environmental clean-up and enforcement actions. In particular, the Federal
Comprehensive Environmental Response Compensation and Liability Act of 1980,
also known as the "Superfund" law, as well as similar state laws generally
impose joint and several liability for clean-up and enforcement costs without
regard to fault or the legality of the original conduct on current and former
owners and operators of a site.
BNSF is involved in a number of administrative and judicial proceedings and
other mandatory clean-up efforts at 352 sites, at which it is being asked to
participate in the study or clean-up, or both, of alleged environmental
contamination. BNSF paid approximately $11 million during the first three
months of 1998 for mandatory clean-up efforts, including amounts expended
under federal and state voluntary clean-up programs. BNSF has accruals of
approximately $200 million for remediation and restoration of all known sites.
BNSF anticipates that the majority of the accrued costs at March 31, 1998,
will be paid over the next five years. No individual site is considered to be
material.
Liabilities recorded for environmental costs represent BNSF's best estimates
for remediation and restoration of these sites and include both asserted and
unasserted claims. Unasserted claims are not considered to be a material
component of the liability. Although recorded liabilities include BNSF's best
estimates of all costs, without reduction for anticipated recoveries from
third parties, BNSF's total clean-up costs at these sites cannot be predicted
with certainty due to various factors such as the extent of corrective actions
that may be required, evolving environmental laws and regulations, advances in
environmental technology, the extent of other parties' participation in
clean-up efforts, developments in ongoing environmental analyses related to
sites determined to be contaminated, and developments in environmental surveys
and studies of potentially contaminated sites. As a result, future charges to
income for environmental liabilities could have a significant effect on
results of operations in a particular quarter or fiscal year as individual
site studies and remediation and restoration efforts proceed or as new sites
arise. However, expenditures associated with such liabilities are typically
paid out over a long period; therefore, management believes that it is
unlikely that any identified matters, either individually or in the aggregate,
will have a material adverse effect on BNSF's consolidated financial position
or liquidity.
The railroad industry, including BNSF Railway, is subject to future
requirements regulating air emissions from diesel locomotives that will
increase their operating costs. Final regulations applicable to new and
rebuilt locomotive engines were promulgated by the Environmental Protection
Agency on April 16, 1998. These regulations, which in most respects become
effective June 15, 1998, 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 Environmental Protection Agency that it will support the federal rule
as proposed subject to slight technical modifications. Presently, the
magnitude of any future expense is unknown.
Other claims and litigation
BNSF and its subsidiaries are parties to a number of legal actions and claims,
various governmental proceedings and private civil suits arising in the
ordinary course of business, including those related to environmental matters
and personal injury claims. While the final outcome of these items cannot be
predicted with certainty, considering among other things the meritorious legal
defenses available, it is the opinion of management that none of these items,
when finally resolved, will have a material adverse effect on the annual
results of operations, financial position or liquidity of BNSF, although an
adverse resolution of a number of these items could have a material adverse
effect on the results of operations in a particular quarter or fiscal year.
<PAGE>
4. Hedging activities
Fuel
BNSF has a program to hedge against fluctuations in the price of its diesel
fuel purchases. This program includes forward purchases for delivery at
fueling facilities, and various commodity swap and collar transactions which
are accounted for as hedges. Any gains or losses associated with changes in
market value of these hedges are deferred and recognized as a component of
fuel expense in the period in which the hedged fuel is purchased and used. To
the extent BNSF hedges portions of its fuel purchases, it may not fully
benefit from decreases in fuel prices.
As of March 31, 1998, BNSF had entered into forward purchases for
approximately 330 million gallons at an average price of approximately 47
cents per gallon, and fuel swaps for approximately 1.2 billion gallons at an
average price of approximately 52 cents per gallon.
The above prices do not include taxes, fuel handling costs, certain
transportation costs and any differences which may occur from time to time
between the price of commodities hedged and the purchase price of BNSF's
diesel fuel.
BNSF's fuel hedging program covers approximately 85 percent of estimated fuel
purchases for the remaining nine months of 1998, and approximately 35 percent,
25 percent and 10 percent of estimated fuel purchases for 1999, 2000 and 2001,
respectively. Hedge positions are closely monitored to ensure that they will
not exceed actual fuel requirements in any period. Unrecognized losses from
BNSF's fuel hedging transactions were approximately $63 million as of March
31, 1998. BNSF also monitors its hedging positions and credit ratings of its
counterparties and does not anticipate losses due to counterparty
nonperformance.
5. Sale of Investment in Pipeline Partnerships
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
March 31, 1998.
In October 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 in cash on March 6,
1998. The Partnership was liquidated as part of the transaction and each
Partnership Units was converted into the right to receive 1.39 Kinder Morgan
common units. SFP Pipelines' 8,148,148 Partnership Units were converted into
the right to receive 11,325,925 Kinder Morgan common units. 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 0.5 percent special limited partnership interest in SFPP,
L.P. The Company recognized a $67 million one-time pre-tax gain ($32 million
or $0.20 per share on a diluted basis after-tax) at the time of the sale.
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 SFP Common 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.
In April 1998, an amendment to the VREDs Registration Statement on Form S-4
announcing the intention to offer to exchange the VREDs for the partnership
units of Kinder Morgan was filed. Subsequently, an exchange prospectus was
distributed to unit holders who have until May 26, 1998 to elect to exchange
the VREDs. Any unit holders who do not elect the exchange will have their
VREDs redeemed in cash.
6. COMMON STOCK
On April 16, 1998, the stockholders of BNSF approved an amendment to the
Company's Amended and Restated Certificate of Incorporation that increased the
number of authorized shares of common stock from 300 million to 600 million.
<PAGE>
BURLINGTON NORTHERN SANTA FE CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's discussion and analysis relates to the financial condition and
results of operations of Burlington Northern Santa Fe Corporation and its
majority-owned subsidiaries (collectively "BNSF", "Registrant" or "Company").
The Company's principal operating subsidiary is The Burlington Northern and
Santa Fe Railway Company ("BNSF Railway"). All earnings per share information
is stated on a diluted basis.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 COMPARED WITH THREE MONTHS ENDED MARCH 31,
1997.
BNSF recorded net income for the first quarter of 1998 of $265 million or
$1.67 per common share, compared with first quarter 1997 net income of $150
million or $0.96 per common share. The increase in net income is a result of
increased revenue in coal, merchandise and intermodal sectors, partially
offset by only a 1 percent increase in operating expense despite an 8 percent
increase in cars and units handled. In addition, more moderate winter weather
in the first quarter of 1998 relative to 1997 and the initial phase of a real
estate portfolio sale contributed to the improvement. Additionally, as
discussed in Note 5 to the consolidated financial statements, the increase in
net income was partially due to a $67 million pre-tax gain ($32 million
after-tax or $0.20 per common share) on the sale of substantially all of the
Company's interest in Santa Fe Pacific Pipeline Partners, L.P. Excluding the
after-tax gain on the pipelines sale, BNSF's adjusted net income was $233
million or $1.47 per common share for the first quarter of 1998.
REVENUES
<TABLE>
<CAPTION>
The following table presents BNSF's revenue information by commodity for the
three months ended March 31, 1998 and 1997 and includes certain
reclassifications of prior year information to conform to current year
presentation.
Revenue
Revenue Per Thousand
Revenues Ton Miles Ton Miles
------------ ------------- -------------
1998 1997 1998 1997 1998 1997
---- ---- ---- ---- ---- ----
(In Millions) (In Millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Intermodal $ 561 $ 516 19,448 18,232 $28.85 $28.30
Coal 558 489 49,160 39,653 11.35 12.33
Agricultural Commodities 279 292 14,481 15,153 19.27 19.27
Chemicals 197 191 8,051 7,201 24.47 26.52
Metals and Minerals 194 175 8,792 7,350 22.07 23.81
Forest Products 147 136 6,829 6,049 21.53 22.48
Consumer Goods 132 118 4,852 4,407 27.21 26.78
Automotive 92 106 1,501 1,579 61.29 67.13
------ ------ -------- ------ ------ ------
Total Freight Revenues 2,160 2,023 113,114 99,624 $19.10 $20.31
======== ====== ====== ======
Other Revenues 2 1
------ ------
Total Operating Revenues $2,162 $2,024
====== ======
</TABLE>
Total revenues for first quarter of 1998 were $2,162 million or 7 percent
higher compared with revenues of $2,024 million for the first quarter of 1997.
Intermodal revenues of $561 million for the first quarter of 1998 increased
$45 million or 9 percent reflecting increases in all sectors. Direct
marketing revenues benefited from increased units shipped for Yellow Freight.
International revenues were up due to volume gains associated with diversion
of traffic from Union Pacific Corporation ("UP") to BNSF. Truckload revenues
increased due to volume growth from J.B. Hunt and Schneider, and from new
Triple Crown business.
Coal revenues of $558 million for the 1998 first quarter increased $69 million
or 14 percent primarily due to favorable operating conditions as a result of a
more moderate winter in 1998 and from volume gains associated with the
diversion of business from UP to BNSF.
Agricultural Commodities revenues of $279 million for the 1998 first quarter
were $13 million or 4 percent lower than revenues for the 1997 first quarter
due to weak corn and wheat export markets through the Pacific Northwest.
Metals and minerals revenues of $194 million for the first quarter of 1998
were $19 million or 11 percent higher than the first quarter of 1997 and were
led primarily by volume increases in steel products. Strength in the
aluminum, clay and rock and specialty minerals also contributed to the
increase in revenues.
Forest products revenues of $147 million for the 1998 first quarter were $11
million or 8 percent higher than the 1997 first quarter primarily due to
pulpboard volume gains as a result of the diversion of traffic from UP to
BNSF. Additionally, lumber volumes increased due to higher construction
activity.
Consumer goods revenues of $132 million for the 1998 first quarter were $14
million or 12 percent higher than the 1997 first quarter primarily due to
volume increases in corn syrup traffic to Mexico and a milder winter in 1998
which favorably impacted sugar traffic. Additionally, government and
machinery revenues increased due primarily to higher movements for Boeing.
Automotive revenues of $92 million for the 1998 first quarter were $14 million
or 13 percent lower than the first quarter of 1997 reflecting decreases in
volume due to the loss of Ford's Southwestern United States business and a
rail industry shortage of vehicle carriers.
EXPENSES
Total operating expenses for the first quarter of 1998 were $1,715 million, an
increase of $20 million or 1 percent, compared with operating expenses for the
1997 first quarter of $1,695 million. The operating ratio improved
significantly to 79.3 percent for the first quarter of 1998, compared with an
83.7 percent operating ratio for the first quarter 1997.
Compensation and benefits expenses of $702 million were $9 million or 1
percent higher than the first quarter of 1997. The increase was primarily due
to wage increases, higher incentive compensation expense (minimal amounts were
earned in the first quarter of 1997) and increased employment, partially
offset by increased operating efficiency due to less severe weather in the
first quarter of 1998.
Purchased services of $231 million for the first quarter of 1998 were $15
million or 7 percent higher than the 1997 first quarter due principally to
volume driven increases in ramping, drayage and distribution services
expenses.
Equipment rents expenses for the first quarter of 1998 of $191 million were $9
million or 5 percent lower than the 1997 first quarter reflecting lower
private railcar expense and lower time and mileage payments for freight cars
as a result of improved equipment utilization.
Fuel expenses of $182 million for the first quarter of 1998 were $14 million
or 7 percent lower than the first quarter of 1997, as a result of a 9 cent or
13 percent decrease in the average price paid per gallon of diesel fuel
partially offset by a 7 percent increase in consumption.
Materials and other expenses of $207 million for the first quarter of 1998
were $7 million or 4 percent higher than the 1997 first quarter principally
reflecting a decrease in credits from the sale of easements, and higher
casualty and locomotive material expenses, partially offset by lower personal
injury and employee relocation expenses.
Interest expense for the first quarter of 1998 increased by $4 million to $88
million reflecting higher debt levels partially offset by lower interest
rates.
Other income (expense), net was $80 million higher than the 1997 first quarter
due primarily to the $67 million pre-tax gain on the pipelines sale in 1998.
Excluding the gain on the pipeline partnerships sale, other income (expense),
net for the first quarter of 1998 was $13 million higher than 1997 due to
gains on the initial phase of a real estate portfolio sale. This increase was
partially offset by higher accounts receivable sale fees due to the increase
in receivables sold.
Income tax expense of $171 million was $79 million higher in the first quarter
of 1998 due to higher pre-tax income and a higher effective tax rate resulting
from the sale of the Company's interest in the pipeline partnerships.
CAPITAL RESOURCES AND LIQUIDITY
CASH FROM OPERATIONS
Cash generated from operations is BNSF's principal source of liquidity. BNSF
generally funds any additional liquidity requirements through debt issuance,
including commercial paper, or leasing of assets.
Operating activities provided cash of $461 million for the three months ended
March 31, 1998 compared with $73 million for the three months ended March 31,
1997. The increase in cash from operations was in part caused by higher net
income and a $293 million decrease in cash used for working capital. This
variance was partially a result of the Company's efforts to reduce the higher
accounts receivable balances due to the integration issues arising from the
implementation of a new revenue system in 1997. In addition, higher accrued
federal income taxes, due principally to the pipelines sale and increases in
accounts payable and accrued incentive compensation liabilities also
contributed to decreased cash used for working capital. BNSF's cash outflows
from investing activities for the three months ended March 31, 1998
predominately consisted of capital expenditures of $366 million. Cash
outflows for financing activities of $11 million principally reflect a
decrease in commercial paper borrowings and dividends paid, partially offset
by net proceeds from long-term debt borrowings and proceeds from the exercise
of employee stock options.
OTHER CAPITAL RESOURCES
BNSF issues commercial paper from time to time. These borrowings are
supported by bank revolving credit agreements. Outstanding commercial paper
balances are considered as reducing the amount of borrowings available under
these agreements. The bank revolving credit agreements allow borrowings of up
to $500 million on a short-term basis and $1.5 billion on a long-term basis.
Annual facility fees are currently 0.075 percent and 0.11 percent,
respectively, and are subject to change based upon changes in BNSF's senior
unsecured debt ratings. Borrowing rates are based upon i) LIBOR plus a spread
based upon BNSF's senior unsecured debt ratings, ii) money market rates
offered at the option of the lenders, or iii) an alternate base rate. The
commitments of the lenders under the short-term and long-term agreements were
extended on November 12, 1997, and are currently scheduled to expire on
November 11, 1998 and November 12, 2002, respectively.
At March 31, 1998, there were no borrowings against either the long-term or
short-term revolving credit agreements and the maturity value of commercial
paper outstanding was $623 million, leaving a total remaining capacity of $877
million under the long-term revolving credit agreement available and $500
million under the short-term credit agreement available.
In March 1998, BNSF issued $100 million of 6.05% medium-term notes due March
15, 2031, under the August 1997 shelf registration of debt securities. These
notes can be put back to the Company in March 2001. The net proceeds were
used for general corporate purposes including the repayment of commercial
paper. Subsequent to this transaction, the August 1997 shelf registration had
$250 million of potential borrowings remaining.
In March 1998, the Company filed a new shelf registration of debt securities,
including medium-term notes, that may be issued in one or more series at an
aggregate offering price not to exceed $500 million. Additionally, in April
1998, prior to the effective date of the new shelf registration, the Company
amended the August 1997 shelf registration to combine it with the March 1998
shelf registration. The combined shelf registration has $750 million of
borrowing capacity remaining.
CAPITAL EXPENDITURES
<TABLE>
<CAPTION>
A breakdown of cash capital expenditures is set forth in the following table
(in millions):
Three Months Ended
March 31,
------------------
1998 1997
---- ----
<S> <C> <C>
Maintenance of Way $201 $121
Equipment 73 87
Expansion Projects 77 50
Other 15 38
---- ----
Total $366 $296
==== ====
</TABLE>
The increase in Maintenance of Way expenditures principally reflects an
acceleration of spending for rail programs due to mild winter weather in the
first quarter of 1998. For the three months ended March 31, 1998, BNSF laid a
total of 98 track miles of new and secondhand rail compared to 65 track miles
for the three months ended March 31, 1997. Equipment expenditures were $14
million lower than 1997 reflecting a decrease in locomotive purchases
partially offset by minor increases in locomotive overhauls and remanufactured
freight cars. Expansion projects increased to $77 million from $50 million
due to additional capacity expansion projects to meet higher demand and
relieve congestion. The $23 million decrease in other is a result of lower
merger related improvements in yards, line connections and information
systems.
DIVIDENDS
Common stock dividends declared for the three months ended March 31, 1998 and
1997 were $0.30 per common share. Dividends paid on common stock during the
first three months of 1998 and 1997 were $47 million and $46 million,
respectively. On January 15, 1998, BNSF's Board of Directors declared a
regular quarterly common stock dividend of $0.30 per share to stockholders of
record on March 10, 1998 to be paid on April 1, 1998.
CAPITAL STRUCTURE
BNSF's ratio of total debt to total capital was 43 percent and 44 percent at
March 31, 1998 and December 31, 1997, respectively.
<PAGE>
OTHER MATTERS
SURFACE TRANSPORTATION BOARD REVIEW OF RAIL INDUSTRY
Certain interest groups have long sought to subject the rail industry to
renewed federal economic regulation. In 1998, these efforts have been focused
before Congress and the Surface Transportation Board (the "STB"). In response
to a Congressional request, the STB held hearings in which rail access and
competition issues were raised by shippers and shipper groups. On April 17,
1998, in Review of Rail Access and Competition Issues, STB Ex Parte No. 575,
the STB initiated a review of several rail access and competition issues. The
STB stated it would begin rulemaking proceedings to consider revisions to its
competitive access rules--under which shippers served by one railroad can
obtain service from another--to address quality of service issues, and to
consider eliminating the use of product and geographic competition from its
analysis in rate relief proceedings to determine if a carrier has market
dominance over the traffic involved. On other issues, the STB requested that
members of the shipping community and rail industry meet and make
recommendations to address competitive access issues not related to quality of
service, to consider expanding the role of short-line railroads and other
smaller carriers, to establish a formalized dialogue on a regular basis
between carriers, their employees, and shippers, and, through a panel of
disinterested experts selected by rail and shipping interests, to examine and
recommend an appropriate standard for whether railroad revenues are
"adequate." Management cannot predict at this time the outcome of these
proceedings or the impact, if any, on the Company's results of operations,
liquidity or financial position.
YEAR 2000
BNSF has established a committee to evaluate and manage the cost and risk
associated with the Company's computer hardware and software becoming year
2000 compliant and to minimize the impact on the Company's operations. The
committee has identified the major areas of BNSF's information system that
will be affected by year 2000 non-compliance and is in the process of
implementing changes and recommending alternative solutions. To date specific
spending on year 2000 activities has not been significant. Additionally, BNSF
has completed year 2000 compliance on certain systems in conjunction with the
merger-related systems integration. Currently, the cost of making the
Company's remaining information systems and software year 2000 compliant is
estimated to be approximately $20 million and will be incurred over the next
two years. Management is also evaluating the impact of year 2000 compliance
on other areas of the Company. It is the opinion of management that year 2000
will not have a material adverse effect on the annual results of operations,
liquidity or financial position of the Company.
OTHER CLAIMS AND LITIGATION
BNSF and its subsidiaries are parties to a number of legal actions and claims,
various governmental proceedings and private civil suits arising in the
ordinary course of business, including those related to environmental matters
and personal injury claims. While the final outcome of these items cannot be
predicted with certainty, considering among other things the meritorious legal
defenses available, it is the opinion of management that none of these items,
when finally resolved, will have a material adverse effect on the annual
results of operations, financial position or liquidity of BNSF, although an
adverse resolution of a number of these items in a single period could have a
material adverse effect on the results of operations in a particular quarter
or fiscal year.
RECENT ACCOUNTING PRONOUNCEMENTS
In February 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 132 "Disclosure about
Pensions and Other Postretirement Benefits." The Statement is effective for
the Company's fiscal year 1998 and provides for modified disclosure about
pension and other postretirement benefit plans. The Company does not
anticipate significant changes in its disclosures as a result of adopting SFAS
No. 132.
In the first quarter of 1998, the Accounting Standards Executive Committee of
the American Institute of Certified Public Accountants issued Statement of
Position ("SoP") 98-1 "Accounting for the Costs of Computer Software Developed
or Obtained for Internal Use." The SoP is required to be adopted by the
Company in 1999 and provides prospective guidance on accounting for internally
developed software, and proceeds from the sale of internally developed
software. The Company currently capitalizes certain costs related to
internally developed software and is presently evaluating the SoP's impact on
its results of operations.
ITEM 3. 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 qualitative
and quantitative information presented in the Managements Discussion and
Analysis of Financial Condition and Results of Operations section of the 1997
Annual Report to Shareholders and in Item 7A of the Company's Annual Report on
Form 10-K for the year ended December 31, 1997, describe significant aspects
of BNSF's financial instrument programs which have material market risk.
Presented below updated quantitative information for those programs that have
changed significantly from the information reported in Form 10-K.
Commodity Price Sensitivity
As discussed in Note 4 to the Company's consolidated financial statements,
BNSF has a program to hedge against fluctuations in the price of its diesel
fuel purchases. The table below provides information about the BNSF's diesel
fuel hedging instruments that are sensitive to changes in diesel fuel 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 March 31, 1998. The prices included in the
table below do not include taxes, transportation costs, certain other fuel
handling costs and 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
----------------------------------
Fair
<S> <C> <C> <C> <C> <C> <C>
1998 1999 2000 2001 Total Value(1)
------- ------- ------- ------- ------- ----------
Diesel Fuel Swaps:
Gallons (in millions) 400 403 290 113 1,206 $ (55)
Weighted average
price per gallon $0.5284 $0.5127 $0.5094 $0.4991 $0.5158 -
Diesel Fuel Forward
Purchase Contracts:
Gallons (in millions) 329 - - - 329 $ (8)
Weighted average
price per gallon $0.4692 - - - $0.4692 -
</TABLE>
(1) Represents unrealized loss (in millions) based on the price of Gulf Coast
#2 heating oil at March 31, 1998.
Equity Price Sensitivity
The common stock put options sold by the Company in November 1997 expired
unexercised on May 5, 1998.
In May 1998, BNSF sold equity put options for 100,000 shares of the Company's
common stock at $90 per share to an independent third party and received cash
proceeds of approximately $200,000. The option contract is for physical
settlement on November 20, 1998; however, it permits a net-share or net-cash
settlement method at the BNSF's election.
<PAGE>
BURLINGTON NORTHERN SANTA FE CORPORATION AND SUBSIDIARIES
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
COAL TRANSPORTATION CONTRACT LITIGATION
Reference is made to the discussion in Registrant's Report on Form 10-K
for the year ended December 31, 1997 of the action originally filed against
BNSF Railway by Southwestern Electric Power Company ("SWEPCO") in the 102nd
Judicial Court for Bowie County, Texas seeking a reduction of the
transportation rates required to be paid under two coal transportation
contracts (Southwestern Electric Power Company v. Burlington Northern
Railroad Company, No. D-102-CV-91-0720). On March 13, 1998, the Texas
Supreme Court rendered judgment in favor of BNSF Railway, unanimously
affirming the decision of the Court of Appeals for the Sixth Court of Appeals
District of Texas, and assessing SWEPCO costs of appeal (Southwestern
Electric Power Company v. Burlington Northern Railroad Company, No. 96-0684,
Supreme Court of Texas). On April 7, 1998, SWEPCO served its Motion for
Rehearing which is pending.
ENVIRONMENTAL PROCEEDINGS
Reference is made to the discussion in Registrant's Report on Form 10-K
for the year ended December 31, 1997 of the action originally filed against
BNSF Railway by the Wisconsin Department of Natural Resources (State of
Wisconsin v. Burlington Northern Railroad Company, Case No. 96 CV-403, Circuit
Court, Douglas County, Wisconsin). BNSF Railway and the State have reached a
settlement in principle calling for BNSF Railway to reimburse the State for
$30,000 in costs and to pay a civil forfeiture of $85,000, a penalty
assessment of $18,700, an environmental assessment of $8,500, and costs and
attorneys' fees of $10,000, for a total of $152,200. A stipulation
signed by the parties would be subject to court approval.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the April 16, 1998, annual meeting of stockholders, the Company's
stockholders elected 15 directors, each for a one-year term, and voted on one
Company proposal, one stockholder proposal included in the Company's proxy
materials, and three stockholder proposals raised from the floor at the
meeting.
<PAGE>
Election of Fifteen Directors
- -----------------------------
The stockholders elected the Company's fifteen nominees to the fifteen
directors positions by the vote shown below; one stockholder nominee
received the votes shown below but was not elected.
Nominees (Elected*) Votes For Withheld
------------------- --------- --------
Joseph F. Alibrandi* 138,687,726 1,158,120
Jack S. Blanton* 137,423,134 2,422,712
John J. Burns, Jr.* 138,756,102 1,089,744
George Deukmejian* 137,422,881 2,422,965
Robert D. Krebs* 138,550,968 1,294,878
Bill M. Lindig* 137,504,295 2,341,551
Vilma S. Martinez* 138,658,559 1,187,287
Roy S. Roberts* 138,777,785 1,068,061
Marc J. Shapiro* 120,710,678 19,135,168
Arnold R. Weber* 137,369,962 2,475,884
Robert H. West* 138,768,698 1,077,148
J. Steven Whisler* 138,785,266 1,060,580
Edward E. Whitacre, Jr.* 138,770,204 1,075,642
Ronald B. Woodard* 138,771,830 1,074,011
Michael B. Yanney* 138,762,026 1,083,820
William S. Purdy 1,960 0
Company Proposal
- ----------------
The stockholders approved a Company proposal to amend the Company's Amended
and Restated Certificate of Incorporation to increase authorized shares from
300,000,000 to 600,000,000 by the following vote:
For 123,184,797
Against 16,144,537
Abstentions 516,512
Broker Non-Votes 0
Stockholder Proposals
The stockholders did not approve a stockholder proposal recommending the
establishment of a dividend policy tying dividends to performance benchmarks
similar to the manner in which executive compensation is tied to
performance-based goals by the following vote:
For 8,068,658
Against 113,733,355
Abstentions 6,843,718
Broker Non-Votes 11,200,115
The stockholders did not approve a stockholder proposal raised from the floor
recommending that the directors increase the size of the Board by two and
nominate one female and one current or former non-officer railroad employee to
these positions, and that the Board "nominate and otherwise encourage" the
election of persons to the Board of "diverse racial, ethnic and gender
background" by the following vote:
For 1,155
Against 139,844,691
Abstentions 0
Broker Non-Votes 0
<PAGE>
The stockholders did not approve a stockholder proposal raised from the floor
recommending that the Board immediately declare a 4-for-1 stock split by the
following vote:
For 1,155
Against 139,844,691
Abstentions 0
Broker Non-Votes 0
The stockholders did not approve a stockholder proposal raised from the floor
recommending that the Board shorten the advance notice required to be given
for stockholder proposals and nominations, that interested stockholders be
invited to attend and give their opinions at Board meetings, that a committee
be appointed to make corporate governance more "open" and include employees
and former employees in all decisions affecting railroad safety, that the
Company terminate officers who have "inappropriately disciplined" employees
"for attempting to work in a safe manner and consistent with railroad safety
or operating rules," and that the Company give safety commendations and
publicly accept safety commendations from other organizations awarded to its
employees, by the following vote:
For 1,155
Against 139,844,691
Abstentions 0
Broker Non-Votes 0
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
See Index to Exhibits on page E-1 for a description of the exhibits
filed as part of this report.
B. Reports on Form 8-K
The Registrant has filed no Current Reports on Form 8-K since those
reported on Annual Report on Form 10-K for 1997.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BURLINGTON NORTHERN SANTA FE CORPORATION
(Registrant)
By: /s/ THOMAS N. HUND
Thomas N. Hund
Vice President and Controller
(On behalf the Registrant and as
principal accounting officer)
Schaumburg, Illinois
May 14, 1998
BURLINGTON NORTHERN SANTA FE CORPORATION
EXHIBIT INDEX
4 Form of Note for BNSF's Medium-Term Notes, Series B,
$100,000,000 6.05% Reset Put Securities
12 Computation of ratio of earnings to fixed charges.
27 Financial Data Schedule.
E-1
EXHIBIT 4
CUSIP NO.: 12189QAC4 PRINCIPAL AMOUNT: $100,000,000
REGISTERED NO.: R-1
BURLINGTON NORTHERN SANTA FE CORPORATION
MEDIUM-TERM FIXED RATE NOTE, SERIES B
Due Nine Months or More From Date of Issue
/X/ Check this box if the Note is a Global Note.
Applicable if the Note is a Global Note:
Unless this certificate is presented by an authorized representative of
The Depository Trust Company, a New York corporation, to the issuer or its
agent for registration of transfer, exchange or payment, and any certificate
issued is registered in the name of Cede & Co. or such other name as requested
by an authorized representative of The Depository Trust Company (and any
payment is made to Cede & Co. or to such other entity as is requested by an
authorized representative of The Depository Trust Company), ANY TRANSFER,
PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS
WRONGFUL since the registered owner hereof, Cede & Co., has an interest
herein.
ORIGINAL ISSUE DATE: March 24, 1998
INTEREST RATE PER ANNUM: To but excluding March 15, 2001, 6.05%. From
and including March 15, 2001, as described under "Interest Rate and
Interest Payment Dates" on the reverse of this Note.
MATURITY DATE: March 15, 2031, subject to mandatory repayment of
principal to the existing Holder hereof pursuant to the Call Option and Put
Option described on the reverse of this Note
ISSUE PRICE: 99.90% (as a percentage of principal amount)
SPECIFIED CURRENCY: U.S. dollars (if other than U.S. dollars): N/A
INITIAL DATE ON WHICH THE NOTE IS REPAYABLE AT THE OPTION OF THE HOLDER: N/A
INITAL REPAYMENT PERCENTAGE: N/A
INITAL REDEMPTION PERCENTAGE: N/A
EXCHANGE RATE AGENT: N/A
(Only applicable if Specified Currency is other than U.S. dollars)
ANNUAL REPAYMENT PERCENTAGE REDUCTION: N/A
ANNUAL REDEMPTION PERCENTAGE REDUCTION: N/A
DEFAULT RATE: N/A
(Only applicable if Note issued at original issue discount)
AUTHORIZED DENOMINATIONS: N/A
(Only applicable if Specified Currency is other than U.S. dollars)
DEPOSITARY: The Depository Trust Company
(Only applicable if Note is a Global Note)
INTEREST PAYMENT DATES:
March 15 and September 15 of each year,
commencing September 15, 1998
SINKING FUND: N/A
ORIGINAL ISSUE DISCOUNT SECURITY: N/A
TOTAL AMOUNT OF OID: N/A
YIELD TO MATURITY: N/A
SHORT ACCRUAL PERIOD OID: N/A
METHOD USED TO DETERMINE YIELD FOR SHOURT ACCRUAL PERIOD: N/A
OID DEFAULT AMOUNT: N/A
DEFAULT RATE: N/A
CALL OPTION: The Notes may be called by the Callholder prior to the Maturity
Date, as described on the reverse of this Note under "Call Option; Put Option"
REPAYMENT/PUT OPTION: The Notes are subject to repayment by the Company prior
to the Maturity Date pursuant to the Put Option, as described on the reverse
of this Note under "Call Option; Put Option"
CALLHOLDER: The Company or its assignee.
Burlington Northern Santa Fe Corporation, a corporation duly organized
and existing under the laws of the State of Delaware (herein called the
"Company"), for value received, hereby promises to pay to CEDE & CO., or
registered assigns, the principal sum of U.S.$100,000,000 on the
Maturity Date, and to pay interest on said principal sum at the rate per annum
(computed on the basis of a 360-day year of twelve 30-day months) shown above,
semiannually on each Interest Payment Date set forth above from and including
the immediately preceding Interest Payment Date in respect of which interest
has been paid or duly made available for payment (or from and including March
24, 1998, if no interest has been paid or duly made available for payment)
to but excluding the applicable Interest Payment Date or Maturity Date, as the
case may be.
The interest payable, and punctually paid or duly provided for, on any
Interest Payment Date will be paid to the Person in whose name this Security
is registered at the close of business on the fifteenth calendar day next
preceding such Interest Payment Date (each such date a "Record Date"). Any
such interest not so punctually paid or duly provided for will forthwith cease
to be payable to the holder on such Record Date and may either be paid to the
Person in whose name this Note is registered at the close of business on a
special Record Date for the payment of such defaulted Interest to be fixed by
the Trustee, notice whereof shall be given to holders of Securities of this
series not less than 10 days prior to such special Record Date, or be
paid at any time in any other lawful manner not inconsistent with the
requirements of any securities exchange on which the Securities of this series
may be listed, and upon such notice as may be required by such exchange, all
as more fully provided in said Indenture.
Additional provisions of this Note are contained on the reverse hereof,
and such provisions shall for all purposes have the same effect as though
fully set forth at this place.
This Note shall not be valid or become obligatory for any purpose
until the Certificate of Authentication hereon shall have been signed by an
authorized officer of the Trustee or its duly authorized agent under the
Indenture referred to hereinbelow.
IN WITNESS WHEREOF, Burlington Northern Santa Fe Corporation has caused
this instrument to be signed by its duly authorized officer, and has caused a
facsimile of its corporate seal to be affixed hereto or imprinted hereon.
<PAGE>
Dated: March 24, 1998 Burlington Northern Santa Fe Corporation
By: ________________________________
Name:
Title:
[SEAL]
Attest:
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the series designated
therein referred to in the
within-mentioned Indenture
The First National Bank of Chicago, as
Trustee
By: ________________________________
Authorized Officer
<PAGE>
(REVERSE OF NOTE)
Burlington Northern Santa Fe Corporation
MEDIUM-TERM FIXED RATE NOTE, SERIES B
Due Nine Months or More From Date of Issue
This Note is one of a duly authorized issue of debentures, notes or other
evidences of indebtedness of the Company (the "Debt Securities"), all issued
or to be issued under and pursuant to an indenture dated as of December
1, 1995 (the "Indenture"), duly executed and delivered by the Company to The
First National Bank of Chicago, as Trustee (the "Trustee"), to which Indenture
and all indentures supplemental thereto reference is hereby made for a
description of the rights, duties and immunities thereunder of the Trustee and
the rights thereunder of the holders of the Debt Securities. This Note is one
of a series of the Debt Securities, which series is limited in aggregate
principal amount to $550,000,000 designated as the Medium-Term Notes, Series
B (the "Series B Notes"), of the Company. This Note represents 6.05%
REset Put Securities ("REPSSM") (the "Notes") constituting a tranche of the
Series B Notes.
INTEREST RATE AND INTEREST PAYMENT DATES
The Notes will bear interest at the rate of 6.05% from and including
March 24, 1998 to but excluding March 15, 2001 (the "Coupon Reset
Date"). Interest on the Notes will be payable semiannually on March 15
and September 15 of each year, commencing September 15, 1998 (each,
an "Interest Payment Date"). Interest will be calculated based on a 360-day
year consisting of twelve 30-day months. "Business Day" means any day other
than a Saturday, a Sunday or a day on which banking institutions in The City
of New York are authorized or required by law or regulation to be closed.
If the Callholder elects to purchase the Notes pursuant to the Call
Option (as defined below), the Calculation Agent (as defined below) will reset
the interest rate for the Notes effective on the Coupon Reset Date, pursuant
to the Coupon Reset Process described below. In such circumstance, (i) this
Note will be purchased by the Callholder at 100% of the principal amount
hereof on the Coupon Reset Date, on the terms and subject to the conditions
described herein (interest accrued to but excluding the Coupon Reset Date will
be paid by the Company on such date to the Holder hereof on the most recent
Record Date), and (ii) from and including the Coupon Reset Date, the Notes
will bear interest at the rate determined by the Calculation Agent in
accordance with the procedures set forth under "Coupon Reset Process if Notes
are Called" below.
MATURITY DATE
The Notes will mature on March 15, 2031 (the "Maturity Date"). On
the Coupon Reset Date, the Holder hereof will be entitled to receive 100% of
the principal amount hereof from either (i) the Callholder, if the
Callholder purchases this Note pursuant to the Call Option, or (ii) the
Company, by exercise of the Put Option (as defined below) by the Trustee for
and on behalf of the Holder hereof, if the Callholder does not purchase this
Note pursuant to the Call Option.
CALL OPTION; PUT OPTION
(i) Call Option. The Callholder, by giving notice to the Trustee (the
"Call Notice"), has the right to purchase the aggregate principal amount of
this Note, in whole but not in part (the "Call Option"), on the Coupon Reset
Date, at a price equal to 100% of the principal amount hereof (the "Call
Price") (interest accrued to but excluding the Coupon Reset Date will be paid
by the Company on such date to the Holder hereof on the most recent Record
Date). The Call Notice is required to be given to the Trustee, in writing,
prior to 4:00 p.m., New York time, no later than fifteen calendar days
prior to the Coupon Reset Date for the Notes. The Call Notice must contain
the requisite delivery details, including the identity of the Callholder's
Depositary account.
If the Callholder exercises the Call Option, unless terminated in
accordance with its terms, (i) not later than 2:00 p.m., New York time,
on the Business Day prior to the Coupon Reset Date, the Callholder will
deliver the Call Price in immediately available funds to the Trustee for
payment of the Call Price on the Coupon Reset Date and (ii) the Holder
hereof will be required to deliver and will be deemed to have delivered this
Note to the Callholder against payment therefor on the Coupon Reset Date
through the facilities of the Depositary. No holder of any Notes or any
interest in such Notes will have any right or claim against the Callholder as
a result of the Callholders decision whether or not to exercise the Call
Option or performance or nonperformance of its obligations with respect
thereto.
The Callholder may at any time assign its rights and obligations under
its Call Option; provided, however, that (i) such rights and
obligations are assigned in whole and not in part; (ii) it provides the
Trustee and the Company with notice of such assignment contemporaneously with
such assignment; and (iii) such assignment may be made only to Affiliates
of Morgan Stanley & Co. Incorporated. Upon receipt of notice of
assignment, the Trustee will treat the assignee as Callholder for all purposes
hereunder. The Callholder may assign its rights under the Call Option without
notice to, or consent of, the holders of the Notes (including, if applicable,
the Holder hereof). "Affiliate" shall mean, in relation to any party, any
entity controlled, directly or indirectly, by the party, any entity that
controls, directly or indirectly, the party or any entity directly or
indirectly under a common control with the party. For this purpose, "control"
of any entity or party means ownership of a majority of the voting power of
the entity or party.
Except as otherwise specified in clause (i) below, the Call Option
will automatically and immediately terminate, no payment will be due hereunder
from the Callholder, and the Coupon Reset Process will terminate, if any of
the following occurs: (i) an Event of Default occurs under Section
501(1), 501(2), 501(3) or 501(4) under the Indenture (in such event,
termination is at the Callholder's option) or under Section 501(5) or
501(6) under the Indenture (in such event, termination is automatic); (ii)
the Callholder fails to deliver the Call Notice to the Trustee prior to 4:00
p.m., New York time, on the fifteenth calendar day prior to the Coupon Reset
Date or revokes the Call Notice; (iii) on the Bid Date (as defined
below), fewer than two Dealers (as defined below) submit timely Bids (as
defined below) substantially as provided below; or (iv) the Callholder
fails to pay the Call Price by 2:00 p.m., New York time, on the Business Day
prior to the Applicable Coupon Reset Date.
If the Call Option is terminated by the Callholder or the Company, notice
of such termination will be immediately given in writing to the Trustee by the
Callholder or the Company, as the case may be. If the Call Option so
terminates or is automatically terminated, the Trustee will exercise the Put
Option described below with respect to the Notes.
(ii) Put Option. If the Call Option is not exercised or if the Call
Option otherwise terminates, the Trustee will exercise the right of the
holders of the Notes (including, if applicable, the Holder hereof) to require
the Company to purchase the aggregate principal amount of Notes, in whole but
not in part (the "Put Option"), on the Coupon Reset Date at a price equal to
100% of the principal amount thereof (the "Put Price"), plus accrued but
unpaid interest to but excluding the Coupon Reset Date, in each case, to be
paid by the Company to the Holders of the Notes (including, if applicable, the
Holder hereof) in immediately available funds on the Coupon Reset Date. If
the Trustee exercises the Put Option then the Company will deliver the Put
Price in immediately available funds to the Trustee by no later than 10:00
a.m., New York time, on the Coupon Reset Date and the holders of the
Notes will be required to deliver and will be deemed to have delivered the
Notes to the Company against payment therefor on the Coupon Reset Date through
the facilities of the Depositary. By its purchase of Notes, each Holder
irrevocably agrees that the Trustee shall exercise the Put Option relating to
such Notes for or on behalf of the Notes as provided herein. No holder of any
Notes or any interest therein has the right to consent or object to the
exercise of the Trustee's duties under the Put Option.
NOTICE TO HOLDERS BY TRUSTEE
In anticipation of the exercise of the Call Option or the Put Option on
the Coupon Reset Date, the Trustee will notify the Holder hereof, not less
than 30 days nor more than 60 days prior to the Coupon Reset Date, that all
Notes will be delivered on the Coupon Reset Date through the facilities of the
Depositary against payment of the Call Price by the Callholder under the Call
Option or payment of the Put Price by the Company under the Put Option. The
Trustee will notify the Holder hereof once it is determined whether the Call
Price or the Put Price will be delivered in accordance with the provisions
hereof.
COUPON RESET PROCESS IF NOTES ARE CALLED
The following steps shall be taken in order to determine the interest
rate to be paid on the Notes on and after the Applicable Coupon Reset Date in
the event the Call Option has been exercised with respect to the Notes.
Pursuant to and subject to the terms of a Calculation Agency Agreement,
dated March 24, 1998, between the Company and Morgan Stanley & Co.
Incorporated, Morgan Stanley & Co. Incorporated has been appointed the
calculation agent for the Notes (in such capacity as calculation agent, the
"Calculation Agent"). If the Callholder has exercised the Call Option, then
the following steps (the "Coupon Reset Process") will be taken in order to
determine the interest rate to be paid on the Notes from and including the
Coupon Reset Date to but excluding the Maturity Date. The Company and the
Calculation Agent will use reasonable efforts to cause the actions
contemplated below to be completed in as timely a manner as possible.
(a) The Company will provide the Calculation Agent with (i) a list (the
"Dealer List"), no later than five Business Days prior to the Applicable
Coupon Reset Date, containing the names and addresses of at least three but
not more than five dealers, one of which shall be Morgan Stanley & Co.
Incorporated, from whom the Company desires the Calculation Agent to obtain
the Bids for the purchase of such Notes and (ii) such other material as
may reasonably be requested by the Calculation Agent to facilitate a
successful Coupon Reset Process.
(b) Within one Business Day following receipt by the Calculation Agent of
the Dealer List, the Calculation Agent shall provide to each dealer ("Dealer")
on the Dealer List (i) a copy of the Pricing Supplement dated March 13,
1998, together with the Prospectus Supplement dated August 20, 1997 and
Prospectus dated August 12, 1997, relating to the offering of the Notes
(collectively, the "Pricing Supplement"), (ii) a copy of the form of
Notes and (iii) a written request that each Dealer submit a Bid to the
Calculation Agent by 12:00 noon, New York time, on the third Business Day
prior to the Coupon Reset Date (the "Bid Date"). "Bid" means an irrevocable
written offer given by a Dealer for the purchase of all the Notes, settling on
the Coupon Reset Date, and shall be quoted by such Dealer as a stated yield to
maturity on the Notes ("Yield to Maturity"). Each Dealer will also be
provided with (i) the name of the Company, (ii) an estimate of the Purchase
Price (which shall be stated as a US Dollar amount and be calculated by the
Calculation Agent in accordance with paragraph (c) below), (iii) the
principal amount and maturity of the Notes and (iv) the method by which
interest will be calculated on the Notes.
(c) The purchase price for the Notes in connection with the exercise of
the Call Option (the "Purchase Price") shall be equal to (i) the principal
amount of the Notes, plus (ii) a premium (the "Notes Premium") which shall be
equal to the excess, if any, on the Coupon Reset Date of (A) the discounted
present value to the Coupon Reset Date of a bond with a maturity of thirty
years from the Coupon Reset Date which has an interest rate of 5.892%,
semiannual interest payments on each March 15 and September 15
commencing September 15, 2001 following the Coupon Reset Date, and a
principal amount equal to the principal amount of the Notes, and assuming a
discount rate equal to the Treasury Rate over (B) such principal amount
of Notes. The "Treasury Rate" means the per annum rate equal to the offer
side yield to maturity of the current on-the-run thirty-year United States
Treasury Security per Telerate page 500, or any successor page, at 11:00
a.m., New York time, on the Bid Date (or such other time or date that may
be agreed upon by the Company and the Calculation Agent) or, if such rate does
not appear on Telerate page 500, or any successor page, at such time, the
rates on GovPX End-of-Day Pricing at 3:00 p.m., New York time, on
the Bid Date (or such other time or date that may be agreed upon by the
Company and the Calculation Agent).
(d) The Calculation Agent will provide written notice to the Company by
12:30 p.m., New York time on the Bid Date, setting forth (i) the names of
each of the Dealers from whom the Calculation Agent received Bids on the Bid
Date, (ii) the Bid submitted by each such Dealer and (iii) the Purchase Price
as determined pursuant to paragraph (c) above. The Calculation Agent will
thereafter select from the Bids received the Bid with the lowest Yield to
Maturity (the "Selected Bid"); provided, however, that (i) if the
Calculation Agent has not received a timely Bid from a Dealer on or before the
Bid Date, the Selected Bid shall be the lowest of all Bids received by such
time and (ii) if any two or more of the lowest Bids submitted are
equivalent, the Company shall in its sole discretion select any of such
equivalent Bids (and such selected Bid shall be the Selected Bid). The
Calculation Agent will set the Coupon Reset Rate equal to the interest rate
that would amortize the Notes Premium fully over the term of the Notes at the
Yield to Maturity indicated by the Selected Bid (the Coupon Reset Rate). The
Calculation Agent will notify the Dealer that submitted the Selected Bid by
4:00 p.m., New York time, on the Bid Date that its Bid was determined to be
the Selected Bid.
(e) Immediately after calculating the Coupon Reset Rate for the Notes,
the Calculation Agent will provide written notice to the Company and the
Trustee, setting forth the Coupon Reset Rate. The Coupon Reset Rate for the
Notes will be effective from and including the Applicable Coupon Reset Date to
but excluding the Maturity Date.
GENERAL MATTERS
Terms used herein which are defined in the Indenture shall have the
respective meanings assigned thereto in the Indenture.
This Note shall be governed by and construed in accordance with the laws
of the State of New York.
<PAGE>
___________________________
ABBREVIATIONS
The following abbreviations, when used in the inscription on the face of
this instrument, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM as tenants in common UNIF GIFT MIN ACT______CUSTODIAN_______
TEN ENT as tenants by the entireties (Cust) (Minor)
JT TEN as joint tenants with right Under Uniform Gifts to Minors Act
of survivorship and not as
tenants in common ______________________________
(State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and
transfer(s) unto
Please Insert Social Security or
Other Identifying Number of Assignee
________________
/________________/_________________________________________________________
______________________________
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP
CODE OF ASSIGNEE
_____________________________________________________________________________
___________________________
_____________________________________________________________________________
___________________________
the within Series B Note of Burlington Northern Santa Fe Corporation and
does hereby irrevocably constitute and appoint ____________________________
attorney to transfer said Series B Note on the books of the Company, with full
power of substitution in the premises.
Dated: _________________________ _______________________
_________________________
NOTICE: The signature to this assignment must correspond with the name as
written upon the face of the within instrument in every particular, without
alteration or enlargement or any change whatever.
<PAGE>
EXHIBIT 12
<TABLE>
<CAPTION>
BURLINGTON NORTHERN SANTA FE CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(IN MILLIONS, EXCEPT RATIO AMOUNTS)
(UNAUDITED)
Three Months
Ended March 31,
----------------
1998 1997
Earnings: ---- ----
<S> <C> <C> <C>
Pre-tax income $ 436 $ 242
Add:
Interest and fixed charges,
excluding capitalized interest 88 84
Portion of rent under long-term
operating leases representative
of an interest factor 45 47
Amortization of capitalized interest 1 1
Less: Undistributed equity in earnings
of investments accounted for
under the equity method 3 (2)
------ ------
Total earnings available for fixed charges $ 567 $ 376
====== ======
Fixed charges:
Interest and fixed charges $ 91 $ 87
Portion of rent under long-term operating
leases representative of an interest
factor 45 47
------ ------
Total fixed charges $ 136 $ 134
====== ======
Ratio of earnings to fixed charges 4.17x (1) 2.81x
</TABLE>
(1) Earnings for the quarter ended March 31, 1998 include a pre-tax
gain on the pipeline partnerships sale of $67 million. Excluding this
gain, the ratio for the quarter ended March 31, 1998 would have
been 3.68x.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Burlington Northern Santa Fe Corporation's Consolidated Financial Statements
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 33
<SECURITIES> 0
<RECEIVABLES> 634
<ALLOWANCES> 65
<INVENTORY> 213
<CURRENT-ASSETS> 1185
<PP&E> 24135
<DEPRECIATION> 4714
<TOTAL-ASSETS> 21668
<CURRENT-LIABILITIES> 2013
<BONDS> 5158
<COMMON> 2
0
0
<OTHER-SE> 7105
<TOTAL-LIABILITY-AND-EQUITY> 21668
<SALES> 0
<TOTAL-REVENUES> 2162
<CGS> 0
<TOTAL-COSTS> 1715
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 88
<INCOME-PRETAX> 436
<INCOME-TAX> 171
<INCOME-CONTINUING> 265
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 265
<EPS-PRIMARY> 1.69
<EPS-DILUTED> 1.67
</TABLE>
