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 JUNE 30, 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) 352-6856
(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 July 31, 1998
----- ----------------------------
Common stock, $.01 par value 157,680,349 shares
<PAGE>
--
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
BURLINGTON NORTHERN SANTA FE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
(UNAUDITED)
Three Months Ended Six Months Ended
June 30, June 30,
-------------- -------------
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenues $2,219 $2,064 $4,381 $4,088
------ ------ ------ ------
Operating expenses:
Compensation and benefits 690 652 1,393 1,345
Purchased services 233 211 464 427
Depreciation and amortization 205 189 407 379
Equipment rents 203 201 394 401
Fuel 181 186 363 382
Materials and other 178 166 384 366
------ ------ ------ ------
Total operating expenses 1,690 1,605 3,405 3,300
------ ------ ------ ------
Operating income 529 459 976 788
Interest expense 85 85 173 169
Other income (expense), net (4) - 73 (3)
------ ------ ------ ------
Income before income taxes 440 374 876 616
Income tax expense 163 139 334 231
------ ------ ------ ------
Net income $ 277 $ 235 $ 542 $ 385
====== ====== ====== ======
Earnings per share:
Basic $ 1.76 $ 1.53 $ 3.45 $ 2.50
====== ====== ====== ======
Diluted $ 1.74 $ 1.50 $ 3.41 $ 2.46
====== ====== ====== ======
Average shares (in millions)
Basic 157.4 154.2 156.9 154.1
Dilutive potential common shares 2.0 2.3 2.1 2.3
------ ------ ------ ------
Diluted 159.4 156.5 159.0 156.4
====== ====== ====== ======
Dividends declared per common share $ 0.30 $ 0.30 $ 0.60 $ 0.60
Pro forma Earnings Per Share Information Giving Effect
to the Common Stock Split (See note 6):
Earnings per share:
Basic $ 0.59 $ 0.51 $ 1.15 $ 0.83
====== ====== ====== ======
Diluted $ 0.58 $ 0.50 $ 1.14 $ 0.82
====== ====== ====== ======
Average shares (in millions)
Basic 472.1 462.7 470.6 462.2
Diluted potential common shares 6.2 6.9 6.3 7.2
------ ------ ------ ------
Diluted 478.3 469.6 476.9 469.4
====== ====== ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
BURLINGTON NORTHERN SANTA FE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(DOLLARS IN MILLIONS)
(UNAUDITED)
<S> <C> <C>
June 30, December 31,
ASSETS 1998 1997
--------- ----------
Current assets:
Cash and cash equivalents $ 31 $ 31
Accounts receivable, net 568 635
Materials and supplies 211 205
Current portion of deferred income taxes 320 333
Other current assets 49 30
--------- ---------
Total current assets 1,179 1,234
Property and equipment, net 19,839 19,211
Other assets 795 891
--------- ---------
Total assets $ 21,813 $ 21,336
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and other current liabilities $ 1,913 $ 1,952
Long-term debt due within one year 256 108
--------- ---------
Total current liabilities 2,169 2,060
Long-term debt and commercial paper 4,969 5,181
Deferred income taxes 5,302 5,175
Casualty and environmental reserves 412 448
Employee, merger and separation costs 433 469
Other liabilities 1,161 1,191
--------- ---------
Total liabilities 14,446 14,524
--------- ---------
Commitments and contingencies (See notes 3 and 4)
Stockholders' equity:
Common stock, $.01 par value, 600,000,000
shares authorized; 158,488,792 shares and
156,746,601 shares issued, respectively 2 2
Additional paid-in capital 5,122 4,995
Retained earnings 2,311 1,863
Accumulated other comprehensive deficit (7) (7)
Other (61) (41)
--------- ---------
Total stockholders' equity 7,367 6,812
--------- ---------
Total liabilities and stockholders'
equity $ 21,813 $ 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)
<S> <C> <C>
Six Months Ended
June 30,
1998 1997
------ ------
Operating Activities:
Net income $ 542 $ 385
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 407 379
Deferred income taxes 141 146
Employee, merger and separation costs paid (46) (55)
Other, net (91) (46)
Sale of accounts receivable 19 320
Other changes in working capital 29 (496)
------ ------
Net cash provided by operating activities 1,001 633
------ ------
Investing Activities:
Cash used for capital expenditures (952) (845)
Other, net (240) (75)
------ ------
Net cash used for investing activities (1,192) (920)
------ ------
Financing Activities:
Net increase in commercial paper and
bank loans 64 234
Proceeds from issuance of long-term debt 192 213
Payments on long-term debt (50) (125)
Dividends paid (94) (92)
Proceeds from stock options exercised 84 50
Other, net (5) 2
------ ------
Net cash provided by financing activities 191 282
------ ------
Decrease in cash and cash equivalents - (5)
Cash and cash equivalents:
Beginning of period 31 47
------ ------
End of period $ 31 $ 42
====== ======
Supplemental cash flow information:
Interest paid, net of amounts capitalized $ 186 $ 175
Income taxes paid, net of refunds 141 5
</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 June 30, 1998 and December 31, 1997 and
the consolidated results of operations for the three and six month periods
ended June 30, 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
three and six month periods ended June 30, 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
$505 million are included in the consolidated balance sheet at June 30, 1998.
During the first six months of 1998, the Company paid $46 million of employee,
merger and separation costs.
At June 30, 1998, $72 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.
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 349 sites, at which it is being asked to
participate in the study or clean-up, or both, of alleged environmental
contamination. BNSF paid approximately $22 million during the first six
months of 1998 for mandatory clean-up efforts, including amounts expended
under federal and state voluntary clean-up programs. BNSF has accruals of
approximately $194 million for remediation and restoration of all known sites.
BNSF anticipates that the majority of the accrued costs at June 30, 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 United States Environmental
Protection Agency ("EPA") and became effective June 15, 1998. The new
standards will be phased in between 2000 and 2005. BNSF Railway is evaluating
compliance requirements and associated costs. BNSF Railway has also entered
into agreements with the California State Air Resources Board and the EPA
regarding a program to reduce emissions in Southern California through
accelerated deployment of locomotives which comply with the federal standards.
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.
4. Hedging activities and other commitments
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 June 30, 1998, BNSF had entered into forward purchases for approximately
210 million gallons at an average price of approximately 47 cents per gallon,
and fuel swaps for approximately 1.7 billion gallons at an average price of
approximately 50 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 86 percent of estimated fuel
purchases for the remaining six months of 1998, and approximately 56 percent,
40 percent, 19 percent and 4 percent of estimated fuel purchases for 1999,
2000, 2001 and 2002, 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
$65 million as of June 30, 1998. BNSF also monitors its hedging positions and
credit ratings of its counterparties and does not anticipate losses due to
counterparty nonperformance.
Interest Rate
During June 1998, in anticipation of a future debt issuance, BNSF entered into
a treasury lock transaction for $200 million at an average interest rate of
5.67 percent. At June 30, 1998, the total outstanding amount of all treasury
lock transactions in anticipation of future debt issuances was $400 million at
an average interest rate of 5.78 percent. The treasury lock transactions are
based on a 30-year U.S. treasury rate and can be closed by BNSF anytime up to
expiration. The treasury lock transactions expire in January, 1999. The
unrecognized loss on the treasury lock transactions was $9 million at June 30,
1998.
As explained in Note 6, in conjunction with a July 1998 debt issuance, the
Company closed out $200 million of treasury lock transactions.
Equity Put Options
The common stock put options sold by the Company in November 1997 expired
unexercised on May 5, 1998.
During the second quarter of 1998, BNSF sold equity put options for 600,000
shares of the Company's common stock to an independent third party and
received cash proceeds of approximately $1 million. The option contracts have
exercise prices ranging from $87 to $90 per share with expiration dates from
November 1998 to December 1998. The option contracts permit a net-share or
net-cash settlement method at BNSF's election. The Company accounts for the
effects of these transactions within stockholders' equity.
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
December 31, 1997.
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 Unit 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 in June 1998 all VRED holders received either cash equal to the
par value of the VREDs or partnership units of Kinder Morgan. As a result of
this transaction, substantially all of the Company's investment in the
Partnership and SFPP, L.P. and the VREDs were removed from the consolidated
balance sheet.
6. Subsequent Events
Debt Issuance
In July 1998, BNSF issued $200 million of 6.7% debentures due August 1, 2028,
under the March 1998 shelf registration of debt securities. The net proceeds
were used for general corporate purposes including the repayment of commercial
paper. Subsequent to this transaction, the March 1998 shelf registration has
$550 million of potential borrowings remaining.
In conjunction with the debt issuance, the Company closed out $200 million of
treasury lock transactions at a loss of approximately $7 million which has
been deferred and will be amortized as an interest adjustment over the life of
the debt.
Common Stock Split
On July 16, 1998, the Board of Directors approved a three-for-one common stock
split to be effected in the form of a stock dividend of two additional shares
of BNSF common stock payable for each share outstanding or held in treasury on
September 1, 1998, to the stockholders of record on August 17, 1998. All
equity-based benefit plans will reflect the issuance of additional shares or
options due to the declaration of the stock split. An amount equal to the par
value of the common shares issued will be transferred from additional paid-in
capital to common stock. The pro forma earnings per share information
included on the consolidated statement of income reflects the common stock
split as if it had occurred.
Share Repurchase Program
In August 1998, the Company repurchased 400,000 shares at an average price of
$95.72 per share, bringing total repurchases under the Company's share
repurchase program through August 12, 1998 to 465,100 shares at an average
cost of $94.22 per share.
<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 JUNE 30, 1998 COMPARED WITH THREE MONTHS ENDED JUNE 30,
1997.
BNSF recorded net income for the second quarter of 1998 of $277 million or
$1.74 per share, compared with second quarter 1997 net income of $235 million
or $1.50 per share. The increase in net income is a result of increased
revenue in coal, merchandise and intermodal sectors, partially offset by a 5
percent increase in operating expense despite a 9 percent increase in cars and
units handled.
REVENUES
<TABLE>
<CAPTION>
The following table presents BNSF's revenue information by commodity for the
three months ended June 30, 1998 and 1997:
<S> <C> <C> <C> <C> <C> <C>
Average Revenue
Revenues Units Per Unit
--------------- ------------ -------------
1998 1997 1998 1997 1998 1997
(In Millions) (In Thousands)
Intermodal $ 605 $ 554 764 688 $ 792 $ 805
Coal 555 482 512 454 1,084 1,062
Agricultural Commodities 225 239 128 127 1,758 1,882
Chemicals 217 218 130 124 1,669 1,758
Metals and Minerals 209 190 178 154 1,174 1,234
Forest Products 158 147 88 85 1,795 1,729
Consumer Goods 144 128 92 86 1,565 1,488
Automotive 100 108 59 66 1,695 1,636
------ ------ ------ ------ ------ ------
Total Freight Revenues 2,213 2,066 1,951 1,784 $1,134 $1,158
------ ------ ====== ====== ====== ======-
Other Revenues 6 (2)
------ ------
Total Operating Revenues $2,219 $2,064
====== ======
</TABLE>
Total revenues for second quarter of 1998 were $2,219 million or 8 percent
higher compared with revenues of $2,064 million for the second quarter of
1997.
Intermodal revenues of $605 million for the second quarter of 1998 increased
$51 million or 9 percent reflecting increases in the direct marketing,
international and truckload sectors. Direct marketing revenues benefited from
increased units shipped for Yellow Freight, Roadway, ABF and the United States
Postal Service. International revenues were up due to volume gains associated
with diversion of traffic from Union Pacific Corporation ("UP") to BNSF and
due to new business established with Sealand and NYK. Truckload revenues
increased due to volume growth from J.B. Hunt and Schneider.
Coal revenues of $555 million for the 1998 second quarter increased $73
million or 15 percent primarily due to favorable operating conditions as a
result of strong demand and from volume gains associated with the diversion of
business from UP to BNSF.
Agricultural commodities revenues of $225 million for the 1998 second quarter
were $14 million or 6 percent lower than revenues for the 1997 second quarter
due to weak corn, soybean and barley exports through the Pacific Northwest.
Chemicals revenues of $217 million for the second quarter of 1998 were
slightly lower than the second quarter of 1997. Weak fertilizer markets were
partially offset by increases in petroleum and plastics.
Metals and minerals revenues of $209 million for the second quarter of 1998
were $19 million or 10 percent higher than the second quarter of 1997 and were
led primarily by volume increases in steel products. Strength in aluminum and
rock and specialty minerals also contributed to the increase in revenues.
Forest products revenues of $158 million for the 1998 second quarter were $11
million or 7 percent higher than the 1997 second quarter primarily due to
printing paper volume gains as a result of increased Canadian newsprint.
Additionally, lumber volumes increased due to additional cars placed in
service and improved transit times.
Consumer goods revenues of $144 million for the 1998 second quarter were $16
million or 13 percent higher than the 1997 second quarter primarily due to
volume increases in corn syrup traffic to Mexico and sugar traffic moving out
of storage. Additionally, government and machinery revenues increased as a
result of increased Boeing production.
Automotive revenues of $100 million for the 1998 second quarter were $8
million or 7 percent lower than the second quarter of 1997 reflecting
decreases in volumes due to the loss of Ford's Southwestern United States
business, the General Motors strike and a rail industry shortage of equipment.
EXPENSES
Total operating expenses for the second quarter of 1998 were $1,690 million,
an increase of $85 million or 5 percent, compared with operating expenses for
the 1997 second quarter of $1,605 million. The operating ratio improved to
76.2 percent for the second quarter of 1998, compared with an 77.8 percent
operating ratio for the second quarter 1997.
Compensation and benefits expenses of $690 million were $38 million or 6
percent higher than the second quarter of 1997. A majority of the increase
was due to scheduled wages related to volume driven increases in train crew
costs. Additionally, wages were higher because of wage increases to both
salaried and union employees.
Purchased services of $233 million for the second quarter of 1998 were $22
million or 10 percent higher than the 1997 second quarter due principally to
volume driven increases in ramping, drayage and distribution services
expenses. Joint facility costs were also higher due to increased operations
over trackage rights gained from UP.
Equipment rents expenses for the second quarter of 1998 of $203 million were
$2 million or 1 percent higher than the 1997 second quarter reflecting higher
leased equipment and locomotive rent expenses, partially offset by lower
private railcar expense.
Fuel expenses of $181 million for the second quarter of 1998 were $5 million
or 3 percent lower than the second quarter of 1997, as a result of a 6 cent or
8 percent decrease in the average price paid per gallon of diesel fuel
partially offset by a 6 percent increase in consumption.
Materials and other expenses of $178 million for the second quarter of 1998
were $12 million or 7 percent higher than the 1997 second quarter principally
reflecting a decrease in joint facility billing credits due to lower UP
traffic levels.
Interest expense for the second quarter of 1998 was $85 million, equal to the
second quarter of 1997, reflecting higher debt levels offset by lower interest
rates.
Other income (expense), net was $4 million lower than the second quarter of
1997 as the absence of equity in earnings of pipelines due to the first
quarter sale of this investment and higher accounts receivable sale fees were
partially offset by gains on the second phase of a real estate portfolio sale.
SIX MONTHS ENDED JUNE 30, 1998 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1997.
BNSF recorded net income for the six months of 1998 of $542 million or $3.41
per share, compared with first six months 1997 net income of $385 million or
$2.46 per share. The increase in net income is a result of increased revenue
in coal, merchandise and intermodal sectors, partially offset by only a 3
percent increase in operating expense despite a 9 percent increase in units
handled. More moderate winter weather in the first quarter of 1998 relative
to 1997 and gains on real estate portfolio sales 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 first
quarter $67 million pre-tax gain ($32 million after-tax or $0.20 per 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 $510 million or $3.21 per share for the first
six months of 1998.
REVENUES
<TABLE>
<CAPTION>
The following table presents BNSF's revenue information by commodity for the six
months ended June 30, 1998 and 1997:
<S> <C> <C> <C> <C> <C> <C>
Average Revenue
Revenues Units Per Unit
-------------- ----------- -------------
1998 1997 1998 1997 1998 1997
(In Millions) (In Thousands)
Intermodal $1,166 $1,070 1,469 1,334 $ 794 $ 802
Coal 1,113 971 1,022 908 1,089 1,069
Agricultural Commodities 504 531 276 273 1,826 1,945
Chemicals 419 414 252 240 1,663 1,725
Metals and Minerals 398 360 328 293 1,213 1,229
Forest Products 305 283 173 165 1,763 1,715
Consumer Goods 276 246 178 163 1,551 1,509
Automotive 192 214 115 133 1,670 1,609
------ ------ ------ ------ ------ ------
Total Freight Revenues 4,373 4,089 3,813 3,509 $1,147 $1,165
------ ------ ====== ====== ====== ======
Other Revenues 8 (1)
------ ------
Total Operating Revenues $4,381 $4,088
====== ======
</TABLE>
Total revenues for the first six months of 1998 were $4,381 million or 7
percent higher compared with revenues of $4,088 million for the first six
months of 1997.
Intermodal revenues of $1,166 million for the first six months of 1998
increased $96 million or 9 percent reflecting increases in the direct
marketing, international and truckload sectors. Direct marketing revenues
benefited from increased units shipped for Yellow Freight, Roadway, ABF and
the United States Postal Service. International revenues were up due to
volume gains associated with diversion of traffic from UP to BNSF and due to
new business established with Sealand and NYK. Truckload revenues increased
due to volume growth from J.B. Hunt and Schneider.
Coal revenues of $1,113 million for the first six months of 1998 increased
$142 million or 15 percent primarily due to favorable operating conditions as
a result of a more moderate winter in 1998, strong demand and volume gains
associated with the diversion of business from UP to BNSF.
Agricultural commodities revenues of $504 million for the first six months of
1998 were $27 million or 5 percent lower than revenues for the first six
months of 1997 due to weak corn, soybean and barley exports through the
Pacific Northwest.
Chemicals revenues of $419 million for the second quarter of 1998 were $5
million higher than the second quarter of 1997. Increases in petroleum and
plastics were partially offset by weak fertilizer markets.
Metals and minerals revenues of $398 million for the first six months of 1998
were $38 million or 11 percent higher than the first six months of 1997 and
were led primarily by volume increases in steel products. Strength in
aluminum and rock and specialty minerals also contributed to the increase in
revenues.
Forest products revenues of $305 million for the first six months of 1998 were
$22 million or 8 percent higher than the first six months of 1997 primarily
due to printing paper volume gains as 1997 was impacted by severe winter
weather, increased Canadian newsprint imports and 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 $276 million for the first six months of 1998 were
$30 million or 12 percent higher than the first six months of 1997 primarily
due to volume increases in corn syrup traffic to Mexico and increased sugar
traffic as 1997 was impacted by severe winter weather. Additionally,
government and machinery revenues increased as a result of increased Boeing
production.
Automotive revenues of $192 million for the first six months of 1998 were $22
million or 10 percent lower than the first six months of 1997 reflecting
decreases in volumes due to the loss of Ford's Southwestern United States
business, the General Motors strike and a rail industry shortage of equipment.
EXPENSES
Total operating expenses for the first six months of 1998 were $3,405 million,
an increase of $105 million or 3 percent, compared with operating expenses for
the first six months of 1997 of $3,300 million. The operating ratio improved
significantly to 77.7 percent for the first six months of 1998, compared with
an 80.7 percent operating ratio for the first six months 1997.
Compensation and benefits expenses of $1,393 million were $48 million or 4
percent higher than the first six months of 1997. The increase was primarily
due to higher scheduled wages related to volume driven increases to both
salaried and union employees as well as higher incentive compensation expenses
(1997 incentive compensation expense was substantially lower due to the impact
of the severe winter weather). Additionally, wages were higher because of wage
increases to both salaried and union employees.
Purchased services of $464 million for the first six months of 1998 were $37
million or 9 percent higher than the first six months of 1997 due principally
to volume driven increases in ramping, drayage and distribution services
expenses. Joint facility costs were also higher due to increased operations
over trackage rights gained from UP.
Equipment rents expenses for the first six months of 1998 of $394 million were
$7 million or 2 percent lower than the first six months of 1997 reflecting
lower private railcar expense, partially offset by higher leased equipment and
locomotive rent expenses.
Fuel expenses of $363 million for the first six months of 1998 were $19
million or 5 percent lower than the first six months of 1997, as a result of
an 8 cent or 11 percent decrease in the average price paid per gallon of
diesel fuel partially offset by a 6 percent volume driven increase in
consumption.
Materials and other expenses of $384 million for the first six months of 1998
were $18 million or 5 percent higher than the first six months of 1997
principally reflecting a decrease in credits from the sale of easements and
joint facility billings, partially offset by lower employee relocation and
material expenses.
Interest expense for the first six months of 1998 increased by $4 million to
$173 million reflecting higher debt levels partially offset by lower interest
rates.
Other income (expense), net was $76 million higher than the first six months
of 1997 due primarily to the $67 million pre-tax gain on the pipelines sale in
the first quarter of 1998. Excluding the gain on the pipeline partnerships
sale, other income (expense), net for the first six months of 1998 was $9
million higher than 1997 due to gains on real estate portfolio sales,
partially offset by higher accounts receivable sale fees and lower equity in
earnings of pipelines due to the first quarter sale of this investment.
Income tax expense of $334 million was $103 million higher in the first six
months 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 $1,001 million for the six months ended
June 30, 1998 compared with $633 million for the six months ended June 30,
1997. The increase in cash from operations was in part caused by higher net
income and a $525 million decrease in cash used for working capital, partially
offset by a $301 million decrease in accounts receivable sold. The working
capital 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. Cash inflows for
financing activities of $191 million principally reflect net proceeds from
borrowings used to fund capital expenditures and other investing activities
not funded through cash from operations.
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
are currently scheduled to expire on November 11, 1998 and November 12, 2002,
respectively.
At June 30, 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 $806 million, leaving a total remaining capacity of $694
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.
In July 1998, BNSF issued $200 million of 6.70% debentures due August 1, 2028,
under the March 1998 shelf registration of debt securities. The net proceeds
were used for the repayment of commercial paper. Subsequent to this
transaction, the March 1998 shelf registration had $550 million of potential
borrowings remaining.
CAPITAL EXPENDITURES
<TABLE>
<CAPTION>
The following table presents a breakdown of BNSF's cash capital expenditures
for the six months ended June 30, 1998 and 1997:
<S> <C> <C>
June 30,
----------------
1998 1997
------ ------
(In Millions)
Maintenance of Way $ 487 $ 408
Equipment 210 196
Expansion Projects 206 128
Other 49 113
------ ------
Total $ 952 $ 845
====== ======
</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 six months ended June 30, 1998, BNSF laid a
total of 389 track miles of new and secondhand rail compared to 324 track
miles for the six months ended June 30, 1997. Equipment expenditures were $14
million higher than 1997 primarily due to increases in capitalized locomotive
overhauls and in remanufactured freight cars. Expansion projects increased to
$206 million from $128 million due to additional capacity expansion projects
to meet higher demand and relieve congestion. The $64 million decrease in
other is primarily a result of lower merger-related improvements.
<PAGE>
CAPITAL STRUCTURE
BNSF's ratio of total debt to total capital was 42 percent and 44 percent at
June 30, 1998 and December 31, 1997, respectively.
On July 16, 1998, the Board of Directors approved a three-for-one common stock
split to be effected in the form of a stock dividend of two additional shares
of BNSF common stock payable for each share outstanding or held in treasury on
September 1, 1998, to the stockholders of record on August 17, 1998. All
equity-based benefit plans will reflect the issuance of additional shares or
options due to the declaration of the stock split. An amount equal to the par
value of the common shares issued will be transferred from additional paid-in
capital to common stock.
DIVIDENDS
Common stock dividends declared for the six months ended June 30, 1998 and
1997 were $0.60 per common share. Dividends paid on common stock during the
first six months of 1998 and 1997 were $94 million and $92 million,
respectively. On April 16, 1998, BNSF's Board of Directors declared a regular
quarterly common stock dividend of $0.30 per share to stockholders of record
on June 9, 1998 to be paid on July 1, 1998.
On July 16, 1998, the Board of Directors increased by 20 percent the amount of
its regular quarterly dividend. A dividend of $0.12 per share will be paid on
October 1, 1998, with respect to the post-split stock to stockholders of
record on September 14, 1998.
<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 subsequently began 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 a committee to evaluate and manage the cost and risk associated with
the Company becoming year 2000 compliant and to minimize the impact of year
2000 on the Company's operations. The committee has identified the major
areas of BNSF's information system and technology infrastructure that will be
affected by year 2000 and is in the process of implementing changes and
recommending alternative solutions. In addition, BNSF has initiated formal
communications with its suppliers, customers and other third parties to
determine the extent to which the Company is vulnerable if those third parties
fail to become year 2000 compliant. BNSF has completed year 2000 compliance
on certain systems in conjunction with the merger-related systems integration.
To date, other specific spending on year 2000 activities has not been
significant. Currently, the cost of making the Company's remaining
information systems and technology infrastructure year 2000 compliant is
estimated to be approximately $20 million.
While it is the opinion of management that the effect of year 2000 on BNSF's
internal information systems and technology infrastructure will not result in
a material adverse effect on the annual results of operations, liquidity or
financial position of the Company, there can be no assurance that the systems
of other companies which interact with BNSF's systems will be compliant on a
timely basis and will not have year 2000 failures. BNSF is developing
contingency plans in the event that key third parties do not become year 2000
compliant.
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 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 estimates that the impact of adopting this SoP will not
have a material effect on its results of operations or financial condition.
In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities." The Statement is effective for the
Company's fiscal year 2000; however, early adoption is permitted. SFAS No.
133 requires that all derivative instruments be recorded on the balance sheet
at their fair value. Changes in fair value of derivatives are recorded each
period in current earnings or other comprehensive income, depending on whether
a derivative is designated as part of a hedge transaction and, if it is, the
type of hedge transaction. For fair value hedge transactions in which the
Company is hedging changes in the fair value of an asset, liability or an
unrecognized firm commitment, changes in the fair value of the derivative
instrument will generally be offset in the income statement by changes in the
hedged item's fair value. For cash-flow hedge transactions in which the
Company is hedging the variability of cash flows related to a variable rate
asset, liability, or a forecasted transaction, changes in the fair value of
the derivative instrument will be reported in other comprehensive income. The
gains and losses on the derivative instrument that are reported in other
comprehensive income will be reclassified as earnings in the periods in which
earnings are impacted by the variability of the cash flows of the hedged item.
The ineffective portion of all hedges will be recognized in current-period
earnings.
The Company is currently evaluating SFAS No. 133 and whether it will adopt
this pronouncement prior to the effective date. Based on hedging instruments
outstanding at June 30, 1998 and previously deferred losses from past interest
rate hedging transactions, all of which are cash-flow hedge transactions, the
Company currently estimates that the impact of SFAS No. 133 would result in a
net-of-tax cumulative-effect charge to accumulated other comprehensive deficit
of approximately $60 million and an immaterial impact to current period
earnings upon adoption.
<PAGE>
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 Management's 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, describes significant aspects
of BNSF's financial instrument programs which have material market risk.
Presented below is updated quantitative information for those programs that
have changed significantly from the information reported in BNSF's Form 10-K
for the year ended December 31, 1997.
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 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 June 30, 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 BNSF's diesel fuel.
<TABLE>
<CAPTION>
Maturity Date
--------------
<S> <C> <C> <C> <C> <C> <C> <C>
Fair
1998 1999 2000 2001 2002 Total Value (1)
----- ----- ----- ----- ----- ------ --------
Diesel Fuel Swaps:
Gallons (in millions) 290 668 491 239 50 1,738 $ (52)
Weighted average
price per gallon $0.52 $0.49 $0.50 $0.50 $0.51 $ 0.50 -
Diesel Fuel Forward
Purchase Contracts:
Gallons (in millions) 210 - - - - 210 $ (13)
Weighted average
price per gallon $0.47 - - - - $ 0.47 -
<FN>
(1) Represents unrealized loss (in millions) based on the price of Gulf Coast
#2 heating oil at June 30, 1998.
</TABLE>
Treasury Lock Transactions
In anticipation of future debt issuances, BNSF has entered into treasury lock
transactions, based on the 30-year U.S. treasury rate, as reflected in the
following table as of June 30, 1998.
<TABLE>
<CAPTION>
<S> <C> <C>
Maturity Fair
Date Value (1)
-------------------
1999
-------
Variable to Fixed Lock (in millions) $ 400 $ (9)
Average pay rate 5.78% -
<FN>
(1) Represents unrealized loss as of June 30, 1998. As explained in Note 6 to
the consolidated financial statements, in conjunction with a July 1998 debt
issuance, the Company closed out $200 million of treasury lock transactions.
</TABLE>
Equity Price Sensitivity
The common stock put options sold by the Company in November 1997 expired
unexercised on May 5, 1998.
During the second quarter of 1998, BNSF sold equity put options for 600,000
shares of the Company's common stock to an independent third party and
received cash proceeds of approximately $1 million. The option contracts have
exercise prices ranging from $87 to $90 per share with expiration dates from
November 1998 to December 1998. The option contracts permit a net-share or
net-cash settlement method at 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 and its Report on Form 10-Q for the
quarterly period ended March 31, 1998, of the action originally filed against
BNSF Railway by Southwestern Electric Power Company ("SWEPCO") in the 102nd
Judicial District 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 Supreme Court of Texas
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. The Supreme Court
of Texas overruled SWEPCO's motion for rehearing on June 5, 1998. This matter
is now considered terminated.
ENVIRONMENTAL PROCEEDINGS
Reference is made to the discussion in Registrant's Report on Form 10-K for
the year ended December 31, 1997 and its Report on Form 10-Q for the quarterly
period ended March 31, 1998, 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). On May 13, 1998, the Circuit Court entered a
judgment based on a stipulated settlement between BNSF Railway and the State
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. This matter is now considered terminated.
ITEM 5. OTHER INFORMATION
Under new Securities Exchange Commission Rule 14a-4(e)(2), public companies
are required to disclose in their proxy statements the date after which
shareholder proposals submitted outside the processes of Rule 14a-8 are
considered untimely pursuant to an advance notice by-law provision or
otherwise. Because the new rule became effective June 29, 1998, after the
mailing of the Company's 1998 proxy statement, the Company hereby discloses
that under its By-Laws (as amended September 18, 1997) shareholders must give
advance notice in writing of business proposed to be brought before the
Company's 1999 annual meeting of stockholders no later than December 17, 1998
and no earlier than November 17, 1998. This requirement applies to
shareholder proposals not submitted pursuant to Rule 14a-8, the rule
pertaining to shareholder proposals submitted for inclusion in the Company's
proxy statement and form of proxy for its annual meeting. Such advance must
also meet the other requirements set forth in Article II, Section 10 of the
Company's By-Laws. In the event that the date of the 1999 meeting is more
than 30 days before or after April 16, 1999 (the first anniversary of the 1998
annual meeting of stockholders), notice by a shareholder to be timely must be
received not later than the close of business on the 15th day following the
day on which notice of the date of the annual meeting was mailed or public
disclosure was made, whichever first occurs.
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
On July 24, 1998, the Registrant filed a Current Report on Form 8-K (Date of
earliest event reported: July 16, 1998), in which it reported, under Item 5,
Other Events, press releases for Burlington Northern Santa Fe Corporation's
announcement of a stock split and increased dividend rate and Second Quarter
1998 earnings.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BURLINGTON NORTHERN SANTA FE CORPORATION
(Registrant)
By: /s/ THOMAS N. HUND
-----------------------
Thomas N. Hund
Vice President and Controller
(On behalf of the Registrant and as
principal accounting officer)
Fort Worth, Texas
August 13, 1998
<PAGE>
BURLINGTON NORTHERN SANTA FE CORPORATION AND SUBSIDIARIES
EXHIBIT INDEX
3.1 Amended and Restated Certificate of Incorporation (as
amended April 21, 1998).
12 Computation of ratio of earnings to fixed charges.
27 Financial Data Schedule.
E-1
<PAGE>
Exhibit 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
BNSF CORP.
BNSF CORP., a corporation organized and existing under the laws of the State
of Delaware, hereby certifies as follows:
1. The name of the corporation is BNSF Corp. The date of filing of its
original Certificate of Incorporation with the Secretary of State was December
16, 1994.
2. The Restated Certificate of Incorporation restates and integrates and
further amends the Certificate of Incorporation of this corporation by
increasing the number of authorized shares, changing the par value,
authorizing the creation of a Preferred Stock, furthering the powers of the
Board of Directors and the prohibition of stockholders acting by unanimous
written consent and adding provisions regarding the compromise or arrangement
with creditors or stockholders.
3. The text of the Certificate of Incorporation as amended or supplemented
heretofore is further amended hereby to read as herein set forth in full:
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
BNSF CORPORATION
FIRST: The name of the corporation is BNSF Corporation.
SECOND: The registered office of the corporation in the State of
Delaware is located at 1209 Orange Street in the City of Wilmington, County of
New Castle, and the name of its registered agent at such address is The
Corporation Trust Company.
THIRD: The nature of the business or purposes to be conducted or
promoted by the corporation is to engage in any lawful act or activity for
which corporations may be organized under the General Corporation Law of
Delaware.
FOURTH: The total number of shares of all classes of stock which the
corporation shall have authority to issue is 375,000,000 shares, of which
25,000,000 shall be Preferred Stock, $0.01 par value per share (hereinafter
referred to as the "$0.01 Par Value Preferred Stock"), 50,000,000 shall be
Class A Preferred Stock, $0.01 par value per share (hereinafter referred to as
the "Class A Preferred Stock") (such $0.01 Par Value Preferred Stock and Class
A Preferred Stock being hereinafter referred to collectively as the "Preferred
Stock"), and 300,000,000 shall be Common Stock, $0.01 par value per share.
SECTION I. PROVISIONS RELATING TO $0.01 PAR VALUE PREFERRED STOCK
Part A. Authorization of Series of $0.01 Par Value Preferred Stock.
1. The Board of Directors is expressly authorized to adopt, from
time to time, a resolution or resolutions providing for the issue of $0.01 Par
Value Preferred Stock in one or more series to fix the number of shares in
each such series and to fix the designations and the powers, preferences and
relative participating, optional or other special rights, and the
qualifications, limitations and restrictions, of each such series. The
authority of the Board of Directors with respect to each such series shall
include determination of the following (which may vary as between the
different series of $0.01 Par Value Preferred Stock):
(a) The number of shares constituting the series and the distinctive
designation of the series;
(b) The dividend rate on the shares of the series and the extent, if
any, to which dividends thereon shall be cumulative;
(c) Whether shares of the series shall be redeemable and, if
redeemable, the redemption price payable on redemption thereof, which price
may, but need not, vary according to the time or circumstances of such
redemption;
(d) The amount or amounts payable upon the shares of the series in
the event of voluntary or involuntary liquidation, dissolution or winding up
of the corporation prior to any payment or distribution of the assets of the
corporation to any class or classes of stock of the corporation ranking junior
to the Preferred Stock, provided, however, that the aggregate amount payable
upon the shares of all series of $0.01 Par Value Preferred Stock upon
voluntary or involuntary liquidation shall not exceed $500,000,000;
(e) Whether the shares of the series shall be entitled to the benefit
of a sinking or retirement fund to be applied to the purchase or redemption of
shares of the series and, if so entitled, the amount of such fund and the
manner of its application, including the price or prices at which the shares
may be redeemed or purchased through the application of such fund;
(f) Whether the shares of the series shall be convertible into, or
exchangeable for, shares of any other class or classes or of any other series
of the same or any other class or classes of stock of the corporation and, if
so convertible or exchangeable, the conversion price or prices, or the rates
of exchange, and the adjustments thereof, if any, at which such conversion or
exchange may be made, and any other terms and conditions of such conversion or
exchange;
(g) The extent, if any, to which the holders of shares of the series
shall be entitled to vote on any question or in any proceedings or to be
represented at or to receive notice of any meeting of stockholders of the
corporation; and
(h) Any other preferences, privileges and powers, and relative,
participating, optional or other special rights, and qualifications,
limitations or restrictions of such series, as the Board of Directors may deem
advisable, which shall not affect adversely any other class or series of
Preferred Stock at the time outstanding and which shall not be inconsistent
with the provisions of this certificate of incorporation.
Part B. Provisions Applicable to All Series of $0.01 Par Value Preferred
Stock.
1. (a) Except as otherwise specifically provided by the laws of
the State of Delaware or by this certificate of incorporation or by the
resolution of the Board of Directors creating any series of $0.01 Par Value
Preferred Stock, the holders of the $0.01 Par Value Preferred Stock shall not
be entitled to vote on any question or in any proceedings or to be represented
at or to receive notice of any meeting of stockholders of the corporation;
provided, however, that whenever accrued dividends on any series of the $0.01
Par Value Preferred Stock shall not be paid in an aggregate amount equivalent
to six full quarterly dividends, the holders of the shares of such series
shall have the special right, voting together with the holders of any other
series of the $0.01 Par Value Preferred Stock, if they shall then have such
right, as a single class separately from the holders of any other class of
stock of the corporation, to elect at the next annual meeting of the
stockholders of the corporation two directors of the corporation, and the
remaining directors shall be elected by the other class, classes or series of
stock entitled to vote therefor. Such right of election shall continue until
such time as all dividends on the shares of the series having such right
accrued to the date of payment, if the date of payment shall be a quarterly
dividend payment date, or to the last preceding quarterly dividend payment
date, if the date of payment shall be other than a quarterly dividend payment
date, shall have been paid in full, or declared and set apart for payment, at
which time such right of election shall terminate, subject to revesting in the
event of each and every subsequent failure to pay in an aggregate amount
equivalent to six full quarterly dividends. In the exercise of the special
voting rights provided in this paragraph 1, the holders of shares shall have
one vote per share. Nothing herein contained shall in any way restrict the
power of the Board of Directors to increase or decrease the number of
directors in accordance with the laws of the State of Delaware, this
certificate of incorporation and the By-Laws of the corporation.
(b) At any annual meeting of stockholders at which holders of any
series of the $0.01 Par Value Preferred Stock shall have the right of election
provided in this paragraph 1, the presence, in person or by proxy, of the
holders of a majority of the shares of $0.01 Par Value Preferred Stock
entitled to participate in such election shall be required to constitute a
quorum of such shares for the election of any director by the holders of such
shares. At any such meeting or adjournment thereof, (i) the absence of a
quorum of such shares of $0.01 Par Value Preferred Stock shall not prevent the
election of the directors to be elected by the other class, classes or series
of stock entitled to vote therefor, and the absence of a quorum of such other
class, classes or series of stock shall not prevent the election of the
directors to be elected by such shares of $0.01 Par Value Preferred Stock, and
(ii) in the absence of either or both such quorums, a majority of the holders
present in person or by proxy of the class, classes or series of stock which
lack a quorum shall have power to adjourn the meeting for the election of
directors which they are entitled to elect, from time to time, without notice
other than announcement at the meeting, until a quorum shall be present.
(c) The directors elected by the holders of shares of $0.01 Par Value
Preferred Stock in exercise of the right of election provided in this
paragraph 1 shall continue in office until their successors shall have been
elected by such holders or until termination of such right of election. The
vacancies in the Board of Directors so occurring upon the termination of such
right of election shall be filled by the majority vote of the remaining
directors. Any vacancies in the Board of Directors occurring during any
period when the holders of shares of $0.01 Par Value Preferred Stock have such
right of election shall be filled only by vote of a majority (even if that be
only a single director) of the remaining directors theretofore elected by the
holders of the class, classes or series of stock which elected the director
whose office shall have become vacant.
2. Except as otherwise specifically provided with respect to any
series of $0.01 Par Value Preferred Stock, so long as any of the $0.01 Par
Value Preferred Stock is outstanding, the corporation will not:
(a) declare or pay, or set apart for payment, any dividends (other
than dividends payable in shares of stock of the corporation ranking junior to
the $0.01 Par Value Preferred Stock, both as to dividends and upon
liquidation) or make any distribution, on any class or classes of stock of the
corporation ranking junior to the $0.01 Par Value Preferred Stock either as to
dividends or upon liquidation, and will not redeem, purchase or otherwise
acquire, whether voluntarily, for a mandatory or optional sinking or
retirement fund or otherwise, or permit any subsidiary to purchase or
otherwise acquire, any shares of any such junior class if at the time of
making such declaration, payment, distribution, redemption, purchase or
acquisition the corporation shall not have paid, or declared and set apart for
payment, all dividends accrued on the $0.01 Par Value Preferred Stock to the
date of such declaration, payment, distribution, redemption, purchase or
acquisition, if such date shall be a quarterly dividend payment date, or to
the last preceding quarterly dividend payment date, if such date shall be
other than a quarterly dividend payment date, or shall not have redeemed, or
set aside funds necessary for the redemption of, any shares of $0.01 Par Value
Preferred Stock required to be redeemed pursuant to this certificate of
incorporation or the resolution or resolutions of the Board of Directors
creating any series of $0.01 Par Value Preferred Stock; provided, however,
that the corporation may at any time redeem, purchase or otherwise acquire
shares of any such junior class in exchange for, or out of the net cash
proceeds from the substantially concurrent sale of, shares of any class of
stock of the corporation ranking junior to the $0.01 Par Value Preferred Stock
both as to dividends and upon liquidation;
(b) without the affirmative vote or consent of the holders of at
least 66 2/3% of all the $0.01 Par Value Preferred Stock at the time
outstanding, voting together as a single class separate from the holders of
any other class of stock of the corporation, given in person or by proxy,
either in writing or by resolution adopted at a special meeting called for the
purpose, (i) create any other class or classes of stock ranking prior to the
$0.01 Par Value Preferred Stock, either as to dividends or upon liquidation,
or increase the authorized number of shares of any such other class of stock
or (ii) amend, alter or repeal any of the provisions of this Article so as to
affect adversely the preferences, special rights or powers of the $0.01 Par
Value Preferred Stock; provided, however, that if such amendment, alteration
or repeal affects adversely the preferences, special rights or powers of one
or more but not all series of $0.01 Par Value Preferred Stock at the time
outstanding, only the affirmative vote or consent of at least 66 2/3% of the
number of shares at the time outstanding of the series so affected shall be
required; and provided, further, that no vote or consent of the $0.01 Par
Value Preferred Stock shall be required to increase the authorized amount of
the $0.01 Par Value Preferred Stock or for the creation of one or more classes
of preferred stock so long as such class or classes do not rank prior to the
$0.01 Par Value Preferred Stock, either as to dividends or upon liquidation;
(c) without the affirmative vote or consent of the holders of at
least a majority of all the $0.01 Par Value Preferred Stock at the time
outstanding, voting together as a single class separately from the holders of
any other class of stock of the corporation, given in person or by proxy,
either in writing or by resolution adopted at a special meeting called for the
purpose, voluntarily dissolve, liquidate or wind up.
SECTION II. PROVISIONS RELATING TO CLASS A PREFERRED STOCK $0.01 PAR VALUE
1. The Class A Preferred Stock $0.01 Par Value shall constitute a
single class of Preferred Stock and shall be designated "Class A Preferred
Stock $0.01 Par Value."
2. The Board of Directors is expressly authorized to adopt, from time
to time, a resolution or resolutions providing for the issuance of Class A
Preferred Stock $0.01 Par Value in one or more series, to fix the number of
shares in each such series and to fix the designations and powers, preferences
and relative, participating, optional or other special rights, and the
qualifications, limitations and restrictions, of each such series. The
authority of the Board of Directors with respect to each such series shall
include determination of the following (which may vary as between the
different series of Class A Preferred Stock $0.01 Par Value).
(a) The number of shares constituting the series and the distinctive
designation of the series;
(b) The dividend rate on the shares of the series and the extent, if
any, to which dividends thereon shall be cumulative;
(c) Whether shares of the series shall be redeemable and, if
redeemable, the redemption price payable on redemption thereof, which price
may, but need not, vary according to the time or circumstances of such
redemption;
(d) The amount or amounts payable upon the shares of the series in
the event of voluntary or involuntary liquidation, dissolution or winding up
of the corporation prior to any payment or distribution of the assets of the
corporation to any class or classes of stock of the corporation ranking junior
to the Preferred Stock;
(e) Whether the shares of the series shall be entitled to the benefit
of a sinking or retirement fund to be applied to the purchase or redemption of
shares of the series and, if so entitled, the amount of such fund and the
manner of its application, including the price or prices at which the shares
may be redeemed or purchased through the application of such fund;
(f) Whether the shares of the series shall be convertible into, or
exchangeable for, shares of any other class or classes or of any other series
of the same or any other class or classes of stock of the corporation, and if
so convertible or exchangeable, the conversion price or prices, or the rates
of exchange, and the adjustments thereof, if any, at which such conversion or
exchange may be made, and any other terms and conditions of such conversion or
exchange;
(g) The extent, if any to which the holders of shares of the series
shall be entitled to vote on any question or in any proceedings or to be
represented at or to receive notice of any meeting of stockholders of the
corporation;
(h) Whether, and the extent to which, any of the voting powers,
designations, preferences, rights and qualifications, limitations or
restrictions of any such series may be made dependent upon facts ascertainable
outside of the Certificate of Incorporation or of any amendment thereto, or
outside the resolution or resolutions providing for the issuance of such
series adopted by the Board of Directors, provided that the manner in which
such facts shall operate upon the voting powers, designations, preferences,
rights and qualifications, limitations or restrictions of such series is
clearly and expressly set forth in the resolution or resolutions providing for
the issuance of such series adopted by the Board of Directors; and
(i) Any other preferences, privileges and powers and relative,
participating, optional or other special rights, and qualifications,
limitations or restrictions of such series, as the Board of Directors may deem
advisable, which shall not affect adversely any other class or series of
Preferred Stock at the time outstanding and which shall not be inconsistent
with the provisions of this Certificate of Incorporation.
SECTION III. PROVISIONS RELATING TO ALL PREFERRED STOCK
1. All shares of Preferred Stock shall be of equal rank as to
dividends and as to distribution upon liquidation, dissolution or winding up
except to the extent otherwise provided with respect to any series of the
$0.01 Par Value Preferred Stock or any series of the Class A Preferred Stock
$0.01 Par Value by the resolution or resolutions of the Board of Directors
creating such series.
<PAGE>
2. The provisions of this paragraph 2 shall be applicable, except to the
extent otherwise provided with respect to any series of $0.01 Par Value
Preferred Stock or any series of Class A Preferred Stock $0.01 Par Value in
the resolution or resolutions of the Board of Directors creating such series,
to the redemption of any Preferred Stock which is redeemable under this
Certificate of Incorporation or the resolution or resolutions of the Board of
Directors creating any series of the $0.01 Par Value.
(a) In the case of any redemption of Preferred Stock, whether with or
without premium, notice of redemption shall be mailed at least 30 days in
advance of the date designated for such redemption to the holders of record of
the shares of Preferred Stock so to be redeemed at their respective addresses
as the same shall appear on the books of the corporation. In order to
facilitate the redemption of any shares of Preferred Stock that may be
selected for redemption as provided in this paragraph 2, the Board of
Directors is authorized to cause the transfer books of the corporation to be
closed as to such shares at any time not exceeding 50 days prior to the date
designated for redemption thereof. In case of the redemption of less than all
of any series of the $0.01 Par Value Preferred Stock at the time outstanding,
the shares so to be redeemed shall be selected by lot or in such other
equitable manner as the Board of Directors may determine.
(b) If notice shall have been given as aforesaid, and if on or before
the redemption date the funds necessary for such redemption shall have been
set aside by the corporation, separate and apart from its other funds, for the
pro rata benefit of the holders of the shares so called for redemption, then,
notwithstanding that any certificates for shares of Preferred Stock so called
for redemption shall not have been surrendered for cancellation, the shares
represented thereby shall no longer be deemed outstanding, the right to
receive dividends thereon shall cease to accrue from and after the date for
redemption so designated and all rights of holders of the shares of Preferred
Stock so called for redemption shall forthwith, after such redemption date,
cease and terminate, except the right of the holders thereof to receive the
amount payable to them upon such redemption, without interest, and except the
right, if any, of the holders of such shares to convert such shares on or
before the third day prior to the date designated for such redemption or any
other date (not later than the date designated for such redemption) specified
in the resolution or resolutions of the Board of Directors creating the series
of Preferred Stock of which such shares are a part. Any moneys so set aside
by the corporation and unclaimed at the end of six years from the date fixed
for such redemption shall revert to the general funds of the corporation after
which reversion the holders of such shares so called for redemption shall look
only to the corporation for payment of the amount payable to them upon such
redemption and such shares shall still not be deemed to be outstanding. Any
moneys so set aside by the corporation which shall not be required for such
redemption because of the exercise of any conversion right of any shares to be
redeemed shall revert to the general funds of the corporation forthwith.
3. No holder of Preferred Stock as such shall have any preemptive
right to subscribe to stock, obligations, warrants, rights to subscribe to
stock or other securities of the corporation of any class, whether now or
hereafter authorized.
4. Except as otherwise provided in the resolution or resolutions of
the Board of Directors creating a series of $0.01 Par Value Preferred Stock or
a series of Class A Preferred Stock $0.01 Par Value, dividends on all shares
of Preferred Stock shall be cumulative from the date on which such shares are
first issued and sold or from the last dividend payment date to which
dividends have been paid in full, or declared and set apart for payment,
whichever is later.
5. For the purposes of this Article:
(a) The term "subsidiary" shall mean any corporation of which the
corporation, directly or indirectly, owns or controls such number of shares of
outstanding stock as have ordinary voting power to elect a majority of the
board of directors of such corporation;
(b) The term "outstanding", when used in reference to shares of
stock, shall mean issued shares, excluding shares held by the corporation or a
subsidiary and shares called for redemption funds for the redemption of which
shall have been set aside in accordance with paragraph 2 of this Section IV;
(c) The amount of dividends "accrued" on any share of Preferred Stock
at any quarterly dividend payment date shall be the amount of any unpaid
dividends accumulated thereon to and including such quarterly dividend payment
date, whether or not earned or declared and whether or not there shall be
funds legally available for the payment of dividends thereon, and the amount
of dividends "accrued" on any share of Preferred Stock as at any date other
than a quarterly dividend payment date shall be the amount of dividends
accrued thereon at the last preceding quarterly dividend payment date plus a
pro rata portion of the annual dividend for the period after such last
preceding quarterly dividend payment date to and including the date as of
which the calculation is made, calculated on the basis of a 360-day year of
twelve 30-day months.
(d) Any class, classes or series of stock of the corporation shall be
deemed to rank
(i) prior to any other class, classes or series of stock of the
corporation either as to dividends or upon liquidation if the holders of such
class, classes or series shall be entitled to the receipt of dividends or of
amounts distributable upon liquidation, dissolution or winding up, as the case
may be, in preference or priority to the holders of the class, classes or
series as to which such determination is being made;
(ii) junior to any class, classes or series of stock of the
corporation either as to dividends or upon liquidation if the rights of the
holders of such class, classes or series shall be subject or subordinate to
the rights of the holders of the class, classes or series as to which such
determination is being made in respect of the receipt of dividends or of
amounts distributable upon liquidation, dissolution or winding up, as the case
may be.
SECTION IV. PROVISIONS RELATING TO COMMON STOCK
1. At all times each holder of Common Stock of the corporation shall be
entitled to one vote for each share of such stock standing in the name of such
holder on the books of the corporation. This paragraph shall not affect the
special voting rights of the Preferred Stock hereinabove set forth.
2. No holder of the Common Stock as such shall have any preemptive right
to subscribe to stock, obligations, warrants, rights to subscribe to stock or
other securities of the corporation of any class, whether now or hereafter
authorized.
3. The rights of holders of the Common Stock shall be subject and
subordinate to the rights of the holders of the Preferred Stock in respect of
dividends and amounts distributable upon liquidation, dissolution or winding
up.
4. The corporation shall reserve and shall at all times have reserved
out of its authorized but unissued shares of the Common Stock enough shares of
the Common Stock to permit the conversion of the then outstanding shares of 6
1/4% Cumulative Convertible Preferred Stock, Series A, No Par Value of
Burlington Northern Inc. (the "Burlington Northern Preferred Stock"). All
shares of Common Stock which may be issued upon conversion of the Burlington
Preferred Stock shall be validly issued, fully paid and nonassessable. In
order that the corporation may issue shares of Common Stock upon conversion of
the Burlington Northern Preferred Stock, the corporation will endeavor to
comply with all applicable Federal and State securities laws and will endeavor
to list such shares of Common Stock to be issued upon conversion on each
securities exchange on which the Common Stock is listed. The Burlington
Northern Preferred Stock shall otherwise be convertible into the same number
of shares of Common Stock, at the same conversion price and upon the same
terms and conditions as with respect to the common stock, no par value of
Burlington Northern Inc., including with respect to required adjustments to
the conversion price upon the occurrence of certain events, all as set forth
in the instruments governing the terms of the Burlington Northern Preferred
Stock.
FIFTH: In furtherance and not in limitation of the powers conferred by
law, the Board of Directors is expressly authorized:
1. To adopt, amend or repeal the By-Laws of the corporation subject
to the power of the stockholders of the corporation having voting power to
adopt By-Laws and to amend or repeal By-Laws adopted or amended by the Board
of Directors.
2. To remove at any time any officer elected or appointed by the
Board of Directors by such vote of the Board of Directors as may be provided
for in the By-Laws. Any other officer of the corporation may be removed at
any time by a vote of the Board of Directors, or by any committee or superior
officer upon whom such power of removal may be conferred by the By-Laws or by
a vote of the Board of Directors.
3. To establish bonus, profit sharing, stock option, stock purchase,
retirement or other types of incentive or compensation plans for the employees
(including officers and directors) of the corporation and to fix the terms of
such plans and to determine, or prescribe the method for determining, the
persons to participate in any such plans and the amount of their respective
participations.
4. From time to time to determine whether and to what extent, and at
what time and places and under what conditions and regulations, the accounts
and books of the corporation (other than the stock ledger) or any of them,
shall be open to the inspection of the stockholders; and no stockholder shall
have any right to inspect any account or book or document of the corporation,
except as conferred by the laws of the State of Delaware or as authorized by
the Board of Directors.
SIXTH: In addition to any affirmative vote required by law, this
Certificate of Incorporation, any agreement with any national securities
exchange or otherwise, any "Business Combination" (as hereinafter defined)
involving the corporation shall be subject to approval in the manner set forth
in this Article.
Section I--Definitions
For the purposes of Article SIXTH and Article SEVENTH of this
Certificate of Incorporation:
(a) "Affiliate" and "beneficial owner" are used herein as defined in
Rule 12b-2 and Rule 13d-3, respectively, under the Securities Exchange Act of
1934 as in effect on the date of adoption of this Section I by the
stockholders of the corporation ("1934 Act"). The term "Affiliate" as used
herein shall exclude the corporation, but shall include the definition of
"Associate" as contained in said Rule 12b-2.
(b) An "Interested Stockholder" is a person other than the corporation
who is (i) the beneficial owner of ten percent or more of the stock of the
corporation entitled to vote for the election of directors ("Voting Stock"),
or (ii) an Affiliate of the corporation and (A) at any time within a two-year
period prior to the record date to vote on a Business Combination was the
beneficial owner of ten percent or more of the Voting Stock, or (B) at the
completion of the Business Combination will be the beneficial owner of ten
percent or more of the Voting Stock.
(c) A "Person" is a natural person or a legal entity of any kind,
together with any Affiliate of such person or entity, or any person or entity
with whom such person, entity or an Affiliate has any agreement or
understanding relating to acquiring, voting, or holding Voting Stock.
(d) A "Disinterested Director" is a member of the Board of Directors of
the corporation (other than the Interested Stockholder) who was a director
prior to the time the interested stockholder became an Interested Stockholder,
or any director who was recommended for election by the Disinterested
Directors. Any action to be taken by the Disinterested Directors shall
require the affirmative vote of at least two-thirds of the Disinterested
Directors.
(e) A "Business Combination" is (i) a merger or consolidation of the
corporation of any of its subsidiaries with an Interested Stockholder; (ii)
the sale, lease, exchange, pledge, transfer or other disposition (A) by the
corporation or any of its subsidiaries of all or a Substantial Part of the
corporation's Assets to an Interested Stockholder, or (B) by an Interested
Stockholder of corporation or any of its subsidiaries; (iii) the issuance of
stock or other securities of the corporation or any of its subsidiaries to an
Interested Stockholder, other than on a pro rata basis to all holders of
Voting Stock of the same class held by the Interested Stockholder or rights;
(iv) the adoption of any plan or proposal for the liquidation or dissolution
of the corporation proposed by or on behalf of an Interested Stockholder; (v)
any reclassification of securities, recapitalization, merger or consolidation
or other transaction which has effect, directly or indirectly, of increasing
the proportionate share of any Voting Stock beneficially owned by an
Interested Stockholder; or (vi) any agreement, contract or other arrangement
providing for any of the foregoing transactions.
(f) A "Substantial Part of the corporation's Assets" shall mean assets
of the corporation or any of its subsidiaries in an amount equal to twenty
percent or more of the fair market value, as determined by the Disinterested
Directors, of the total consolidated assets of the corporation and its
subsidiaries taken as a whole as of the end of its most recent fiscal year
ended prior to the time the determination is made.
Section II--Vote Required For Business Combinations
The affirmative vote of not less than fifty-one percent of the
Voting Stock, excluding the Voting Stock of an Interested Stockholder who is a
party to the Business Combination, shall be required for the adoption or
authorization of a Business Combination, unless the Disinterested Directors
determine that:
(a) The Interested Stockholder is the beneficial owner of not less than
eighty percent of the Voting Stock and has declared its intention to vote in
favor of or approve such Business Combination; or
(b) (i) The fair market value of the consideration per share to be
received or retained by the holders of each class or series of stock of the
corporation in a Business Combination is equal to or greater than the
consideration per share (including brokerage commissions and soliciting
dealer's fees) paid by such Interested Stockholder in acquiring the largest
number of shares of such class of transactions, whether before or after the
Interested Stockholder became an Interested Stockholder and (ii) the
Interested Stockholder shall not have received the benefit, directly or
indirectly (except proportionately as a stockholder), of any loans, advances,
guarantees, pledges or other financial assistance provided by the corporation,
whether in anticipation of or in connection with such Business Combination or
otherwise.
Section III--Information Requirements
In the event any vote of holders of Voting Stock is required for the
adoption or approval of any Business Combination, a proxy or information
statement describing the Business Combination and complying with the
requirements of the 1934 Act shall be mailed at a date determined by the
Disinterested directors to all stockholders of the corporation whether or not
such statement is required under the 1934 Act. The statement shall contain
any recommendations as to the advisability of the Business Combination which
the Disinterested Directors, or any of them, may choose to state and, if
deemed advisable by the Disinterested Directors, an opinion of an investment
banking firm as to the fairness of the terms of such Business Combination.
Such firm shall be selected by the Disinterested Directors and paid a fee for
its services by the corporation as approved by the Disinterested Directors.
SEVENTH: Any action by stockholders of the corporation shall be taken at
a meeting of stockholders and no action may be taken by written consent of
stockholders entitled to vote upon such action. No amendment to the
Certificate of Incorporation shall amend, alter, change or repeal any of the
provisions of Article SIXTH hereof or of this Article SEVENTH unless such
amendment shall receive the affirmative vote of not less than fifty-one
percent of the voting Stock, excluding the Voting Stock of any Interested
Stockholder as defined in Article SIXTH.
EIGHTH: To the full extent that the Delaware General Corporation Law, as
it exists on the date hereof or may hereafter be amended, permits the
limitation or elimination of the liability of directors, a director of the
corporation shall not be liable to the corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director. Any amendment to
or repeal of this Article EIGHTH shall not adversely affect any right or
protection of a director of the corporation for or with respect to any acts or
omissions of such director occurring prior to such amendment or repeal.
NINTH: Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this corporation under
the provisions of section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers
appointed for this corporation under the provisions of section 279 of Title 8
of the Delaware Code order a meeting of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of this corporation, as
the case may be, to be summoned in such manner as the said court directs. If
a majority in number representing three-fourths in value of the creditors or
class of creditors, and/or of the stockholders or class of stockholders of
this corporation, as the case may be, agree to any compromise or arrangement
and to any reorganization of this corporation as consequence of such
compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of creditors, and/or
on all the stockholders or class of stockholders, of this corporation, as the
case may be, and also on this corporation.
4. This Restated Certificate of Incorporation was duly adopted by the sole
incorporator in accordance with Sections 241 and 245 of the General
Corporation Law of the State of Delaware.
5. This Restated Certificate of Incorporation shall be effective on December
23, 1994.
IN WITNESS WHEREOF, said BNSF Corp. has caused this Certificate to be signed
by Dennis Hersch its sole incorporate this 21st of December, 1994.
BNSF CORP.
By: /s/ Dennis Hersch
-------------------
Dennis Hersch
<PAGE>
CERTIFICATE OF CORRECTION OF
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF
BNSF CORPORATION
BNSF Corporation, a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware (the
"Company"), does hereby certify:
1. A Certificate of Incorporation of the Company (the
"Certificate") was filed with the Secretary of State of the State of Delaware
on December 16, 1994, as amended and restated on December 21, 1994, which
contains an inaccurate record of the corporate action taken therein referred
to, and said Certificate requires correction as permitted by subsection (f) of
Section 103 of the General Corporation Law of the State of Delaware.
2. The inaccuracy in said Certificate is that it was not intended
that Article SIXTH and Article SEVENTH of the Certificate be effective until
such time as Burlington Northern Inc. ("BNI") and Santa Fe Pacific Corporation
("SFP") become direct or indirect subsidiaries of the Company.
3. Articles SIXTH and SEVENTH of the Certificate are corrected to
read as follows:
SIXTH: Immediately following the time at which BNI and SFP become direct
or indirect subsidiaries of the corporation, in addition to any affirmative
vote required by law, this Certificate of Incorporation, any agreement with
any national securities exchange or otherwise, any "Business Combination" (as
hereinafter defined) involving the corporation shall be subject to approval in
the manner set forth in this Article.
Section I--Definitions
For the purposes of Article SIXTH and Article SEVENTH of this
Certificate of Incorporation:
(a) "Affiliate" and "beneficial owner" are used herein as
defined in Rule 12b-2 and Rule 13d-3, respectively, under the Securities
Exchange Act of 1934 as in effect on the date of adoption of this Section I by
the stockholders of the corporation ("1934 Act"). The term "Affiliate" as
used herein shall exclude the corporation, but shall include the definition of
"Associate" as contained in said Rule 12b-2.
(b) An "Interested Stockholder" is a person other than the
corporation who is (i) the beneficial owner of ten percent or more of the
stock of the corporation entitled to vote for the election of directors
("Voting Stock"), or (ii) an Affiliate of the corporation and (A) at any time
within a two-year period prior to the record date to vote on a Business
Combination was the beneficial owner of ten percent or more of the Voting
Stock, or (B) at the completion of the Business Combination will be the
beneficial owner of ten percent or more of the Voting Stock.
(c) A "Person" is a natural person or a legal entity of any
kind, together with any Affiliate of such person or entity, or any person or
entity with whom such person, entity or an Affiliate has any agreement or
understanding relating to acquiring, voting, or holding Voting Stock.
(d) A "Disinterested Director" is a member of the Board of
Directors of the corporation (other than the Interested Stockholder) who was a
director prior to the time the interested stockholder became an Interested
Stockholder, or any director who was recommended for election by the
Disinterested Directors. Any action to be taken by the Disinterested
Directors shall require the affirmative vote of at least two-thirds of the
Disinterested Directors.
(e) A "Business Combination" is (i) a merger or consolidation
of the corporation of any of its subsidiaries with an Interested Stockholder;
(ii) the sale, lease, exchange, pledge, transfer or other disposition (A) by
the corporation or any of its subsidiaries of all or a Substantial Part of the
corporation's Assets to an Interested Stockholder, or (B) by an Interested
Stockholder of corporation or any of its subsidiaries; (iii) the issuance of
stock or other securities of the corporation or any of its subsidiaries to an
Interested Stockholder, other than on a pro rata basis to all holders of
Voting Stock of the same class held by the Interested Stockholder or rights;
(iv) the adoption of any plan or proposal for the liquidation or dissolution
of the corporation proposed by or on behalf of an Interested Stockholder; (v)
any reclassification of securities, recapitalization, merger or consolidation
or other transaction which has effect, directly or indirectly, of increasing
the proportionate share of any Voting Stock beneficially owned by an
Interested Stockholder; or (vi) any agreement, contract or other arrangement
providing for any of the foregoing transactions.
(f) A "Substantial Part of the corporation's Assets" shall
mean assets of the corporation or any of its subsidiaries in an amount equal
to twenty percent or more of the fair market value, as determined by the
Disinterested Directors, of the total consolidated assets of the corporation
and its subsidiaries taken as a whole as of the end of its most recent fiscal
year ended prior to the time the determination is made.
Section II--Vote Required For Business Combinations
The affirmative vote of not less than fifty-one percent of the
Voting Stock, excluding the Voting Stock of an Interested Stockholder who is a
party to the Business Combination, shall be required for the adoption or
authorization of a Business Combination, unless the Disinterested Directors
determine that:
(a) The Interested Stockholder is the beneficial owner of not
less than eighty percent of the Voting Stock and has declared its intention to
vote in favor of or approve such Business Combination; or
(b) (i) The fair market value of the consideration per share
to be received or retained by the holders of each class or series of stock of
the corporation in a Business Combination is equal to or greater than the
consideration per share (including brokerage commissions and soliciting
dealer's fees) paid by such Interested Stockholder in acquiring the largest
number of shares of such class of transactions, whether before or after the
Interested Stockholder became an Interested Stockholder and (ii) the
Interested Stockholder shall not have received the benefit, directly or
indirectly (except proportionately as a stockholder), of any loans, advances,
guarantees, pledges or other financial assistance provided by the corporation,
whether in anticipation of or in connection with such Business Combination or
otherwise.
Section III--Information Requirements
In the event any vote of holders of Voting Stock is required for the
adoption or approval of any Business Combination, a proxy or information
statement describing the Business Combination and complying with the
requirements of the 1934 Act shall be mailed at a date determined by the
Disinterested directors to all stockholders of the corporation whether or not
such statement is required under the 1934 Act. The statement shall contain
any recommendations as to the advisability of the Business Combination which
the Disinterested Directors, or any of them, may choose to state and, if
deemed advisable by the Disinterested Directors, an opinion of an investment
banking firm as to the fairness of the terms of such Business Combination.
Such firm shall be selected by the Disinterested Directors and paid a fee for
its services by the corporation as approved by the Disinterested Directors.
SEVENTH: Any action by stockholders of the corporation shall be
taken at a meeting of stockholders and no action may be taken by written
consent of stockholders entitled to vote upon such action. No amendment to
the Certificate of Incorporation shall amend, alter, change or repeal any of
the provisions of Article SIXTH hereof or of this Article SEVENTH unless such
amendment shall receive the affirmative vote of not less than fifty-one
percent of the voting Stock, excluding the Voting Stock of any Interested
Stockholder as defined in Article SIXTH. This Article SEVENTH shall not
become effective until immediately following the time at which BNI and SFP
become direct or indirect subsidiaries of the corporation.
BNSF Corporation has caused this Certificate of Correction of
Amended and Restated Certificate of Incorporation to be signed by Jeffrey R.
Moreland, its Vice President, authorized officer, this 7th day of September,
1995.
By: /s/ Jeffrey R. Moreland
--------------------------
Name: Jeffrey Moreland
Title: Vice President & Secretary
<PAGE>
AMENDMENT TO THE
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF
BNSF CORPORATION
BNSF Corporation (the "Corporation"), a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware (the "GCL"), does hereby amend the Amended and Restated Certificate
of Incorporation of the Corporation, which was originally filed on December
16, 1994. The undersigned hereby certifies that this Amendment to the Amended
and Restated Certificate of Incorporation has been duly adopted in accordance
with Section 242 of the GCL.
Article 1. is hereby deleted in its entirety and replaced with:
"FIRST: The name of the Corporation is Burlington Northern Santa Fe
Corporation."
THE UNDERSIGNED, being an officer of BNSF Corporation for the purpose of
amending the Amended and Restated Certificate of Incorporation of the
Corporation pursuant to the General Corporation Law of the State of Delaware,
does make this Amended Certificate of Incorporation, hereby declaring and
certifying that this is my act and deed and the facts herein stated are true,
and accordingly have hereunto set my hand this 11th day of September, 1995.
BNSF Corporation
By: /s/ Douglas J. Babb
------------------------
Name: Douglas Babb
Title: President
ATTEST
By:/s/ Jeffrey Moreland
----------------------
Name: Jeffrey Moreland
Title: Vice President & Secretary
<PAGE>
CERTIFICATE OF AMENDMENT OF THE
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF
BURLINGTON NORTHERN SANTA FE CORPORATION
Burlington Northern Santa Fe Corporation, a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware,
DOES HEREBY CERTIFY:
FIRST: That, on January 15, 1998, the Board of Directors of said
corporation adopted a resolution proposing and declaring advisable the
following amendment to the Amended and Restated Certificate of Incorporation
of said corporation:
RESOLVED, that the Board of Directors declares it advisable that the
Amended and Restated Certificate of Incorporation of the Company, which was
originally filed on December 16, 1994, be amended to increase the number of
authorized shares of Common Stock, $0.01 par value per share from 300,000,000
to 600,000,000, and recommends that the first paragraph of Article FOURTH of
the Amended and Restated Certificate of Incorporation be amended to read as
follows:
The total number of shares of all classes of stock which the
corporation shall have authority to issue is 675,000,000 shares, of which
25,000,000 shall be preferred stock, $0.01 par value per share (hereinafter
referred to as the "$0.01 Par Value Preferred Stock"), 50,000,000 shall be
Class A Preferred Stock, $0.01 par value per share (hereinafter referred to as
the "Class A Preferred Stock") (such $0.01 Par Value Preferred Stock and Class
A Preferred Stock being hereinafter referred to collectively as the "Preferred
Stock"), and 600,000,000 shall be Common Stock, $0.01 par value per share.
FURTHER RESOLVED, that the proposed amendment to the Amended and
Restated Certificate of Incorporation be submitted to the shareholders for
their approval at the 1998 annual meeting of shareholders, and that, if
approved, any officer of the Company, including the Secretary and any
Assistant Secretary, is hereby authorized and directed, in the name and on
behalf of the Company, to execute and deliver such amendment for filing with
the Secretary of State of the State of Delaware and to take any and all
actions necessary to effect the amendment of the Amended and Restated
Certificate of Incorporation.
SECOND: That, thereafter, the regular annual meeting of the shareholders
of said corporation was duly called and held on April 16, 1998, at which
meeting the necessary number of shares as required by statute were voted in
favor of the amendment.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, the said Burlington Northern Santa Fe Corporation has
caused this certificate to be signed by Jeffrey T. Williams, its Assistant
Secretary, this 21st day of April, 1998.
BURLINGTON NORTHERN SANTA FE CORPORATION
By: /s/ J.T. Williams
--------------------
Jeffrey T. Williams
Its Assistant Secretary
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 12
BURLINGTON NORTHERN SANTA FE CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(IN MILLIONS, EXCEPT RATIO AMOUNTS)
(UNAUDITED)
<S> <C> <C> <C>
Six Months
Ended June 30,
----------------
1998 1997
------ ------
Earnings:
Pre-tax income $ 876 $ 616
Add:
Interest and fixed charges,
excluding capitalized interest 173 169
Portion of rent under long-term
operating leases representative
of an interest factor 94 94
Amortization of capitalized interest 2 2
Less: Undistributed equity in earnings
of investments accounted for
under the equity method (8) (3)
------ ------
Total earnings available for fixed charges $1,137 $ 878
====== ======
Fixed charges:
Interest and fixed charges $ 180 $ 177
Portion of rent under long-term operating
leases representative of an interest
factor 94 94
------ ------
Total fixed charges $ 274 $ 271
====== ======
Ratio of earnings to fixed charges 4.15x(1) 3.24x
<FN>
(1) Earnings for the six months ended June 30, 1998 include a pre-tax
gain on the pipeline partnerships sale of $67 million. Excluding this
gain, the ratio for the six months ended June 30, 1998 would have
been 3.91x.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Burlington Northern Santa Fe Corporation's Consolidated Financial Statements
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 31
<SECURITIES> 0
<RECEIVABLES> 644
<ALLOWANCES> 76
<INVENTORY> 211
<CURRENT-ASSETS> 1179
<PP&E> 24624
<DEPRECIATION> 4785
<TOTAL-ASSETS> 21813
<CURRENT-LIABILITIES> 2169
<BONDS> 4969
<COMMON> 2
0
0
<OTHER-SE> 7365
<TOTAL-LIABILITY-AND-EQUITY> 21813
<SALES> 0
<TOTAL-REVENUES> 4381
<CGS> 0
<TOTAL-COSTS> 3405
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 173
<INCOME-PRETAX> 876
<INCOME-TAX> 334
<INCOME-CONTINUING> 542
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 542
<EPS-PRIMARY> 3.45
<EPS-DILUTED> 3.41
</TABLE>
