<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
Form 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period fromto
__________ __________
Commission File Number: 1-11535
----------------
Burlington Northern Santa Fe Corporation
(Exact name of registrant as specified in its charter)
Delaware 41-1804964
(State of Incorporation) (I.R.S. Employer Identification No.)
2650 Lou Menk Drive
Second Floor
Fort Worth, Texas 76131-2830
(Address of principal executive offices, including zip code)
817/333-2000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Name of each exchange
Title of each class on which registered
------------------- ---------------------
<S> <C>
New York Stock Exchange
Common Stock, $0.01 par value Chicago Stock Exchange
Pacific Exchange
</TABLE>
----------------
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirement for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant was approximately $15.7 billion on February 26, 1999. For
purposes of this calculation only, the registrant has excluded stock
beneficially owned by directors and officers. By doing so, the registrant does
not admit that such persons are affiliates within the meaning of Rule 405
under the Securities Act of 1933 or for any other purpose.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date:
Common Stock, $0.01 par value, 470,373,788 shares outstanding as of
February 26, 1999.
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the documents from which parts thereof have been
incorporated by reference and the part of the Form 10-K into which such
information is incorporated:
<TABLE>
<S> <C>
Annual
Report to
Shareholders
for the
fiscal year
ended
December
31, 1998... PARTS I, II, AND IV
Proxy
Statement
dated March
8, 1999.... PART III
</TABLE>
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<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
PART I
<S> <C>
Items 1 and 2. Business and Properties.................................... 1
Item 3. Legal Proceedings................................................. 9
Item 4. Submission of Matters to a Vote of Security Holders............... 13
EXECUTIVE OFFICERS OF THE REGISTRANT...................................... 13
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters.................................................................. 14
Item 6. Selected Financial Data........................................... 14
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................... 14
Item 7A. Quantitative and Qualitative Disclosures About Market Risk....... 14
Item 8. Financial Statements and Supplementary Data....................... 17
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure..................................................... 17
PART III
Item 10. Directors and Executive Officers of the Registrant............... 18
Item 11. Executive Compensation........................................... 18
Item 12. Security Ownership of Certain Beneficial Owners and Management... 18
Item 13. Certain Relationships and Related Transactions................... 18
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. 18
SIGNATURES................................................................ S-1
REPORT OF INDEPENDENT ACCOUNTANTS AND CONSOLIDATED FINANCIAL STATEMENT
SCHEDULE................................................................. F-1
EXHIBITS.................................................................. E-1
</TABLE>
i
<PAGE>
PART I
ITEMS 1 and 2. Business and Properties
Burlington Northern Santa Fe Corporation ("BNSF") was incorporated in the
State of Delaware on December 16, 1994. On September 22, 1995, the
stockholders of Burlington Northern Inc. ("BNI") and Santa Fe Pacific
Corporation ("SFP") became the stockholders of BNSF pursuant to a business
combination of the two companies. To effect the combination, BNSF was formed
to act as the parent holding company of BNI and SFP. BNI and SFP each owned a
large, Class I railroad: Burlington Northern Railroad Company ("BNRR") and The
Atchison, Topeka and Santa Fe Railway Company ("ATSF"), respectively.
On December 30, 1996, BNI merged with and into SFP. On December 31, 1996,
ATSF merged with and into BNRR, and BNRR changed its name to The Burlington
Northern and Santa Fe Railway Company ("BNSF Railway"). On January 2, 1998,
SFP merged with and into BNSF Railway.
Through March 6, 1998, BNSF also had an equity interest in Santa Fe Pacific
Pipeline Partners, L.P. and its operating subsidiary, which operated a 3,300-
mile refined petroleum products pipeline system in six western and
southwestern states, substantially all of which interest has now been sold.
See the discussion in Note 2 to the Consolidated Financial Statements on pages
30-31 of BNSF's 1998 Annual Report to Shareholders, which information is
hereby incorporated by reference.
Through its subsidiaries, BNSF is engaged primarily in the rail
transportation business. At December 31, 1998, BNSF and its subsidiaries had
approximately 42,900 employees. The rail operations of BNSF Railway, BNSF's
principal operating subsidiary, comprise one of the largest railroad systems
in the United States. BNSF Railway's business and operations are described
below.
Track Configuration
BNSF Railway operates over a railroad system consisting of, at December 31,
1998, approximately 34,000 route miles of track (excluding, among other
things, second main track), approximately 25,000 miles of which are owned
route miles, including easements, through 28 states and two Canadian
provinces. Approximately 7,700 route miles of BNSF Railway's system consist of
trackage rights which permit BNSF Railway to operate its trains with its crews
over another railroad's tracks. BNSF Railway operates over other trackage
through lease or contractual arrangements.
As of December 31, 1998, the total BNSF Railway system--including first,
second, third and fourth main tracks, yard tracks, and sidings--consisted of
approximately 51,000 operated miles of track, all of which were owned by or
held under easement by BNSF Railway except for approximately 8,500 miles
operated under trackage rights agreements with other parties. At December 31,
1998, approximately 27,000 miles of BNSF Railway's track consisted of 112-
pound per yard or heavier rail, including approximately 18,800 track miles of
131-pound per yard or heavier rail.
<PAGE>
Equipment Configuration
BNSF Railway owned or had under non-cancelable leases exceeding one year
the following units of railroad rolling stock as of the dates shown below:
<TABLE>
<CAPTION>
At December 31, 1998
--------------------
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Diesel Locomotives................................... 4,992 4,697 4,434
====== ====== ======
Freight Cars:
Box--general purpose............................... 948 1,042 1,082
Box--specially equipped............................ 10,295 10,533 10,719
Open Hopper........................................ 10,772 10,617 10,430
Covered Hopper..................................... 44,643 43,145 44,112
Gondola............................................ 12,427 11,845 11,714
Refrigerator....................................... 6,476 6,606 6,817
Autorack........................................... 3,304 3,588 3,597
Flat............................................... 6,289 5,454 5,508
Tank............................................... 489 491 493
Caboose............................................ 351 389 451
Other.............................................. 729 732 732
------ ------ ------
Total Freight Cars................................. 96,723 94,442 95,655
====== ====== ======
Domestic Containers.................................. 9,849 15,513 15,595
Trailers............................................. 2,410 721 821
Domestic Chassis..................................... 9,409 5,152 5,273
Company Service Cars................................. 4,685 5,196 6,140
Commuter Passenger Cars.............................. 141 141 141
</TABLE>
In addition to the containers, trailers, and chassis shown above, BNSF
Railway had under short-term leases 12,269 containers, 3,101 trailers, and
15,623 chassis at December 31, 1998. In addition to the owned and leased
locomotives identified above, BNSF Railway operated 99 freight locomotives
under power-purchase agreements as of December 31, 1998. The average age from
date of manufacture of the locomotive fleet at December 31, 1998 was 10.63
years; the average age from date of manufacture or remanufacture of the
freight car fleet at December 31, 1998 was 20.78 years. These averages are not
weighted to reflect the greater capacities of the newer equipment.
Capital Expenditures and Maintenance
BNSF Railway capital expenditures for the periods indicated were as
follows:
<TABLE>
<CAPTION>
Year Ended December
31,
--------------------
1998 1997 1996
------ ------ ------
(in millions)
<S> <C> <C> <C>
Maintenance of Way
Rail.............................................. $ 238 $ 286 $ 188
Ties.............................................. 220 230 191
Surfacing......................................... 136 124 130
Other............................................. 323 334 345
------ ------ ------
Total Maintenance of Way........................ 917 974 854
Equipment........................................... 583 572 544
Terminal and Line Expansion......................... 488 428 439
Other............................................... 159 208 445
------ ------ ------
Total Capital Expenditures.......................... 2,147 2,182 2,282
Less Non-Cash Capital Expenditures(1)............... -- -- 48
------ ------ ------
Net Cash Capital Expenditures....................... $2,147 $2,182 $2,234
====== ====== ======
</TABLE>
- --------
(1) Consists primarily of directly financed equipment acquisitions.
2
<PAGE>
The above table does not include expenditures for equipment financed
through operating leases (principally, locomotives and rolling stock). BNSF's
planned 1999 cash capital expenditures approximate $2.1 billion, although up
to $150 million primarily related to expansion projects may be deferred.
Approximately $1.3 billion of total expenditures will be for maintenance of
business activities, primarily consisting of expenditures to maintain BNSF's
track, signals, bridges and tunnels, and to overhaul locomotives and freight
cars. The remainder will be spent on terminal and line expansions and other
projects, and on approximately $335 million of new locomotive acquisitions. In
addition to the capital expenditures on new locomotives, BNSF Railway expects
to acquire approximately $400 million of new locomotives through long-term
operating leases in 1999.
As of December 31, 1998, General Electric Company, the Electro-Motive
Division of General Motors Corporation, and Boise Locomotive Corporation
performed locomotive maintenance and overhauls for BNSF Railway under various
maintenance agreements that covered approximately 2,300 locomotives. These
agreements require the work to be done at BNSF Railway's facilities using BNSF
Railway employees.
The majority of maintenance of way expenditures for track have been for
rail and tie refurbishment and track resurfacing. The extent of the BNSF
Railway track maintenance program is depicted in the following table:
<TABLE>
<CAPTION>
Year Ended December
31,
--------------------
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Track miles of rail laid (1)......................... 1,029 1,035 1,139
Cross ties inserted (thousands)(1)................... 2,440 2,941 3,768
Track resurfaced (miles)............................. 12,383 12,430 12,033
</TABLE>
- --------
(1) Includes expenditures for both maintenance of existing route system and
expansion projects. These expenditures are primarily capitalized.
BNSF Railway's planned 1999 track maintenance of way program, together with
expansion projects, calls for the installation of approximately 800 track
miles of rail, the replacement of about 2.4 million ties and the resurfacing
of approximately 12,500 miles of track.
Property and Facilities
BNSF Railway operates facilities and equipment to maintain its track,
locomotives and freight cars. It also owns or leases other equipment to
support rail operations, such as highway trailers, containers and vehicles.
Support facilities for rail operations include yards and terminals throughout
its rail network, system locomotive shops to perform locomotive servicing and
maintenance, a centralized network operations center for train dispatching and
network operations monitoring and management in Fort Worth, Texas, computers,
telecommunications equipment, signal systems, and other support systems.
Transfer facilities are maintained for rail-to-rail as well as intermodal
transfer of containers, trailers and other freight traffic. These facilities
include 38 major intermodal hubs located across the system and 11 intermodal
hub centers off-line used in connection with haulage agreements with other
railroads. BNSF Railway's largest intermodal facilities in terms of 1998
volume are:
<TABLE>
<CAPTION>
Intermodal Facilities Units
--------------------- -------
<S> <C>
Hobart Yard (Los Angeles)......................................... 937,000
Corwith Yard (Chicago)............................................ 728,000
Willow Springs.................................................... 637,000
Chicago Hub Center................................................ 426,000
Alliance.......................................................... 377,000
San Bernardino.................................................... 302,000
Seattle International Gateway (SIG)............................... 292,000
</TABLE>
3
<PAGE>
BNSF Railway owns 27 automotive distribution facilities where automobiles
are loaded or unloaded from multi-level rail cars and serves eight port
facilities in the United States and Canada.
BNSF Railway's largest freight car classification yards based on the
average daily number of cars processed (excluding cars that do not change
trains at the terminal and intermodal and coal cars) are shown below:
<TABLE>
<CAPTION>
Daily Average
Classification Yard Cars Processed
------------------- --------------
<S> <C>
Argentine (Kansas)......................................... 1,690
Galesburg (Illinois)....................................... 1,450
Northtown (Minnesota)...................................... 1,400
Memphis (Tennessee)........................................ 1,200
Barstow (California)....................................... 1,170
Pasco (Washington)......................................... 1,080
</TABLE>
Certain BNSF Railway properties and other assets are subject to liens
securing, as of December 31, 1998, $498 million of mortgage debt. Certain
locomotives and rolling stock of BNSF Railway are subject to equipment
obligations, as referred to in Note 8 to the Consolidated Financial Statements
on pages 32-33 of BNSF's 1998 Annual Report to Shareholders, which information
is hereby incorporated by reference.
Employees and Labor Relations
Productivity as measured by revenue ton miles per employee has risen
steadily in the last three years, while compensation and benefits expense per
revenue ton mile decreased from 1997 to 1998, and increased from 1996 to 1997,
as shown in the table below.
<TABLE>
<CAPTION>
Year Ended
December 31,
------------------
1998 1997 1996
------ ----- -----
<S> <C> <C> <C>
Thousand revenue ton-miles divided by average number of
employees.................................................. 10,576 9,769 9,398
Compensation and benefits expense per thousand revenue ton-
miles...................................................... $6.00 $6.30 $6.23
</TABLE>
Approximately 88 percent of BNSF Railway employees are union-represented.
They work under collective bargaining agreements with 13 different labor
organizations. The collective bargaining agreements reached in 1996 and 1997
as a result of industry-wide and certain local labor contract negotiations
will remain in effect through at least December 31, 1999 and until new
agreements are reached or the Railway Labor Act's procedures (which include
mediation, cooling-off periods, and the possibility of Presidential
intervention) are exhausted.
Railroad industry personnel are covered by the Railroad Retirement System
instead of Social Security. BNSF Railway's contributions under the Railroad
Retirement System are approximately triple those in industries covered by
Social Security.
Railroad industry personnel are also covered by the Federal Employers'
Liability Act ("FELA") rather than by state workers' compensation systems.
FELA is a fault-based system, with compensation for injuries settled by
negotiation and litigation, not subject to specific statutory limitations on
the amount of recovery. By contrast, most other industries are covered under
state-administered no-fault plans with standard compensation schedules. BNSF
Railway believes it has adequate recorded liabilities for its FELA claims.
However, the ultimate costs of these FELA claims are uncertain and the actual
costs could be significantly higher than anticipated.
Business Mix
In serving the Midwest, Pacific Northwest and the Western, Southwestern,
and Southeastern regions and ports of the country, BNSF Railway transports,
through one operating transportation services segment, a range of commodities
derived from manufacturing, agricultural, and natural resource industries.
Accordingly, its financial performance is influenced by, among other things,
general and industry economic conditions at the international, national, and
regional levels.
4
<PAGE>
Major markets served directly by BNSF Railway include Albuquerque,
Amarillo, Billings, Birmingham, Cheyenne, Chicago, Corpus Christi, Dallas,
Denver, Des Moines, Duluth/Superior, El Paso, Fargo/Moorhead, Fort Worth,
Galveston, Houston, Kansas City, Lincoln, Little Rock, Los Angeles, Memphis,
Mobile, New Orleans, Oklahoma City, Omaha, Phoenix, Portland, Reno, Salt Lake
City, San Antonio, the San Francisco Bay area, St. Louis, St.
Paul/Minneapolis, Seattle, Spokane, Springfield (Missouri), Tacoma, Tulsa,
Wichita, Vancouver (British Columbia), and Winnipeg (Manitoba). Other major
cities are served through Intermodal Market Extension terminals located at
various off-line points. Major ports served include Galveston, Houston, Long
Beach, Los Angeles, New Orleans, Mobile, Portland, Richmond (Oakland), San
Diego, Seattle, Duluth/Superior, Tacoma and Vancouver (British Columbia).
Canadian traffic is accessed through border crossings in Minnesota, North
Dakota, Montana, and Washington. BNSF Railway also accesses the Mexican market
through the United States/Mexico crossings at Brownsville, Eagle Pass and El
Paso, Texas and San Diego, California and, through an agreement with the Texas
Mexican Railway Company, reaches Laredo, Texas, a major border crossing point.
In 1998, approximately 28 percent of revenues were derived from Intermodal
traffic and approximately 25 percent were derived from the transportation of
Coal. About 12 percent of 1998 revenues reflected the transportation of
Agricultural Commodities, with the balance largely accounted for by the
Chemicals, Metals and Minerals, Forest Products, Consumer Goods, and
Automotive business groups.
Intermodal. The Intermodal freight business consists of the hauling of
freight containers or truck trailers by combinations of water, rail, or motor
carriers. The intermodal business is highly service-driven, and in many cases
motor carriers and railroads work jointly to provide intermodal service.
Intermodal 1998 results include revenue from four types of business:
. Direct Marketing. Direct marketing efforts resulted in approximately 33
percent of total intermodal revenue. These center around traffic
contracted from United Parcel Service and the United States Postal
Service, and service for nationwide LTL (Less-Than-Truckload) carriers
including Yellow Freight, Roadway Express, and Consolidated Freightways.
. International. International business consists primarily of traffic from
steamship companies and accounted for approximately 29 percent of
intermodal revenues.
. Intermodal Marketing Companies. Approximately 22 percent of total
intermodal revenue was generated through intermodal marketing companies,
primarily shipper agents and consolidators.
. Truckload. Truckload traffic represented approximately 16 percent of
total intermodal revenue. The joint service arrangement with J.B. Hunt,
referred to as Quantum, represented the largest truckload component,
while Schneider National was the next largest.
Coal. Based on carloadings and tons hauled, BNSF Railway is the largest
transporter of western low-sulfur coal in the United States. Approximately 90
percent of BNSF Railway's coal traffic originated in the Powder River Basin of
Wyoming and Montana during the three years ended December 31, 1998. These coal
shipments were destined for coal-fired electric generating stations located
primarily in the North Central, South Central and Mountain regions of the
United States.
BNSF Railway also transports increasing amounts of low-sulfur coal from the
Powder River Basin for delivery to markets in the eastern and southeastern
portions of the United States. The low-sulfur coal from the Powder River Basin
is abundant, inexpensive to mine, clean-burning, and has a low delivered-cost
to power plants. Because the Clean Air Act of 1990 requires power plants to
reduce emissions either by burning coal with a lower sulfur content or by
installing expensive scrubbing units by the year 2000, there are opportunities
for increased shipments of this low-sulfur coal. Also, deregulation in the
electric utility industry is expected to cause utilities to seek lower cost
fuel sources and boost demand for Powder River Basin coal.
Other coal shipments originate principally in Colorado, Illinois, New
Mexico, and North Dakota and are moved to electrical generating stations and
industrial plants in the Mountain and North Central regions.
5
<PAGE>
Agricultural Commodities. Agricultural Commodities include barley, corn,
wheat, soybeans, oils, feeds, flour and mill products, specialty grains,
malts, and milo. The BNSF Railway system is strategically located to serve the
grain-producing regions of the Midwest and Great Plains where BNSF Railway
serves most major terminal, storage, feeding and food-processing locations.
Additionally, BNSF Railway has access to major export markets in the Pacific
Northwest, western Great Lakes, and Texas Gulf regions, and in Mexico.
Chemicals. The Chemicals business is comprised of fertilizer, petroleum and
chemical commodities. Chemicals and plastics resins are transported for
industrial and agricultural use. Industrial chemicals and plastics resins are
used by the automotive, housing, and packaging industries, as well as for
feedstocks to produce other chemical and plastic products. Access to
significant additional chemicals producers along the Louisiana and Texas Gulf
Coasts, and in the Central Corridor area in Utah and Nevada, was gained as a
result of the agreement and conditions resulting from the merger of the Union
Pacific and Southern Pacific railroads. Agricultural minerals include sulphur
that generally moves to the Gulf Coast and from there via vessels to Florida
and overseas markets for use in making phosphatic fertilizers. Potash is
transported to domestic markets and to export points for markets in Canada,
Mexico, and overseas.
Metals and Minerals. The Metals and Minerals business serves virtually all
of the commodities included in or resulting from the production of steel.
Taconite, an iron ore derivative produced in northern Minnesota, scrap steel,
and coal coke are BNSF Railway's primary input products, while finished steel
products range from structural beams and steel coils to wire and nails. BNSF
Railway also hauls both ferrous and non-ferrous products including recyclable
metals. BNSF Railway links the integrated steel mills in the East with
fabricators in the West and Southwest. Service is also provided to various
mini-mills in the Southwest that produce rebar, beams, and coiled rod to the
construction industry. Various non-ferrous products such as copper, lead, and
aluminum are transported for the beverage, automotive, and telecommunications
industries. Commodities in the Metals and Minerals group also include clays,
sands, cements, aggregates, sodium compounds and other industrial minerals.
Both the oil and the construction industries are served. Industrial minerals
include various mined and processed commodities such as cement and aggregates
(construction sand, gravel and crushed stone) that generally move to domestic
markets for use in general construction and public work projects, including
highways. Borates and clays move to domestic points as well as to export
markets primarily through West Coast ports. Sodium compounds, primarily soda
ash, is moved to domestic markets for use in the manufacturing of glass and
other industrial products. Sand is utilized in the manufacturing of glass and
for use in foundry and oil drilling applications.
Forest Products. The primary commodities in Forest Products are lumber,
plywood, oriented strand board, paper products, pulpmill feedstock, and wood
pulp. Based on carloadings and tonnage hauled, BNSF Railway is the largest
rail transporter of forest products in the United States. Commodity origins
are primarily from the Pacific Northwest, upper Midwest, and the Southeast for
shipment mainly into domestic markets. Industries served include construction,
furniture, photography, publishing, newspaper, and industrial packaging.
Consumer Goods. Beverages, canned goods, and perishables are the principal
food commodities moved by BNSF Railway. Other consumer goods handled include
sugars and sweeteners, cotton, salt, rubber and tires, machinery, aircraft
parts, military and miscellaneous boxcar shipments. Shipments of waste,
ranging from municipal waste to contaminated soil, are transported to
landfills and reclamation centers across the country.
Automotive. The Automotive group is responsible for both assembled motor
vehicles and shipments of vehicle parts to numerous destinations throughout
the Midwest, Southwest, West and Pacific Northwest.
Freight Statistics. The following tables set forth certain freight
statistics relating to rail operations for the periods indicated. Certain
amounts have been reclassified to reflect changes in the business groups for
years prior to 1998 and to conform to current year presentation.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Revenue ton-miles (millions)...................... 469,045 424,588 411,059
Freight revenue per thousand revenue ton-miles.... $19.02 $19.71 $19.63
Average haul per ton (miles)...................... 970 935 875
</TABLE>
6
<PAGE>
Revenues
<TABLE>
<CAPTION>
Year Ended December
31,
--------------------
1998 1997 1996
------ ------ ------
(in millions)
<S> <C> <C> <C>
Intermodal........................................... $2,469 $2,282 $2,039
Coal................................................. 2,239 1,972 1,973
Agricultural Commodities............................. 1,077 1,087 1,171
Chemicals............................................ 841 812 782
Metals and Minerals.................................. 757 731 693
Forest Products...................................... 598 564 548
Consumer Goods....................................... 553 497 468
Automotive........................................... 388 422 396
------ ------ ------
Total Freight Revenue................................ 8,922 8,367 8,070
Other Revenue........................................ 19 3 39
------ ------ ------
Total Revenues................................... $8,941 $8,370 $8,109
====== ====== ======
</TABLE>
Cars/Units
<TABLE>
<CAPTION>
Year Ended
December 31,
-----------------
1998 1997 1996
----- ----- -----
(in thousands)
<S> <C> <C> <C>
Intermodal.............................................. 3,126 2,854 2,570
Coal.................................................... 2,078 1,862 1,854
Agricultural Commodities................................ 581 577 587
Chemicals............................................... 504 482 460
Metals and Minerals..................................... 660 622 628
Forest Products......................................... 344 335 334
Consumer Goods.......................................... 365 349 308
Automotive.............................................. 226 264 251
----- ----- -----
Total Cars/Units.................................... 7,884 7,345 6,992
===== ===== =====
</TABLE>
Average Revenue Per Car/Unit
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Intermodal....................................... $ 790 $ 800 $ 793
Coal............................................. 1,077 1,059 1,064
Agricultural Commodities......................... 1,854 1,884 1,995
Chemicals........................................ 1,669 1,685 1,700
Metals and Minerals.............................. 1,147 1,175 1,104
Forest Products.................................. 1,738 1,684 1,641
Consumer Goods................................... 1,515 1,424 1,519
Automotive....................................... 1,717 1,598 1,578
Average Revenue Per Car/Unit................. 1,132 1,139 1,154
</TABLE>
Government Regulation and Legislation
Rail operations are subject to the regulatory jurisdiction of the Surface
Transportation Board ("STB") of the United States Department of Transportation
("DOT"), the Federal Railroad Administration of DOT, the Occupational Safety
and Health Administration ("OSHA"), and state regulatory agencies. The STB,
which is
7
<PAGE>
the successor to the Interstate Commerce Commission ("ICC"), has jurisdiction
over certain rates, routes, and services, the extension, sale, or abandonment
of rail lines, and consolidation or merger with, or acquisition of control of,
rail common carriers. DOT and OSHA have jurisdiction under several federal
statutes over a number of safety and health aspects of rail operations. State
agencies regulate some aspects of rail operations with respect to health and
safety in areas not otherwise preempted by federal law.
BNSF Railway's rail operations, as well as those of its competitors, are
subject to extensive federal, state and local environmental regulation. These
laws cover discharges to waters, air emissions, toxic substances, and the
generation, handling, storage, transportation, and disposal of waste and
hazardous materials. This regulation has the effect of increasing the cost and
liabilities associated with rail operations. Environmental risks are also
inherent in rail operations which frequently involve transporting chemicals
and other hazardous materials.
The railroad industry, including BNSF Railway, is subject to future
requirements regulating air emissions from diesel locomotives. Final
regulations applicable to new and rebuilt locomotives 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 has evaluated compliance requirements and associated costs and
believes the costs will not be material in any given year. 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.
Many of BNSF Railway's land holdings are and have been used for industrial
or transportation-related purposes or leased to commercial or industrial
companies whose activities may have resulted in discharges onto the property.
As a result, BNSF Railway is now subject and will from time to time continue
to be subject to environmental cleanup and enforcement actions. In particular,
the federal Comprehensive Environmental Response, Compensation and Liability
Act ("CERCLA"), also known as the "Superfund" law, generally imposes joint and
several liability for cleanup and enforcement costs, without regard to fault
or the legality of the original conduct, on current and former owners and
operators of a site. Accordingly, BNSF Railway may be responsible under CERCLA
and other federal and state statutes for all or part of the costs to clean up
sites at which certain substances may have been released by BNSF Railway, its
current lessees, former owners or lessees of properties, or other third
parties. For further discussion, reference is made to Note 12 to the
Consolidated Financial Statements on pages 35-36 of BNSF's 1998 Annual Report
to Shareholders, which information is hereby incorporated by reference.
Competition
The business environment in which BNSF Railway operates remains highly
competitive. Depending on the specific market, deregulated motor carriers,
other railroads and river barges exert pressure on various price and service
levels. The presence of advanced, high service truck lines with expedited
delivery, subsidized infrastructure and minimal empty mileage continues to
affect the market for non-bulk, time sensitive freight. The potential
expansion of longer combination vehicles could further encroach upon markets
traditionally served by railroads. In order to remain competitive, BNSF
Railway and other railroads continue to develop and implement operating
efficiencies to improve productivity.
As railroads streamline, rationalize and otherwise enhance their
franchises, competition among rail carriers intensifies. BNSF Railway's
primary rail competitor in the western region of the United States is Union
Pacific Railroad Company ("UP"). Other Class I railroads and numerous regional
railroads and motor carriers also operate in parts of the same territories
served by BNSF Railway. Coal, one of BNSF Railway's primary commodities,
continues to be subject to various types of competitive pressures.
In 1998, BNSF Railway and UP entered into an agreement to exchange half
interests in the two pieces of the former Southern Pacific Transportation
Company ("SP") rail line between Houston and New Orleans which are separately
owned by the two railroads. Both railroads now have access to all customers,
including chemical,
8
<PAGE>
steel, gas and other companies, along the entire line, including on former SP
branch lines. The two railroads set up a joint regional dispatching center at
Spring, Texas in March 1998 for much of their Gulf Coast train operations to
better coordinate train flows in and through Houston. In February 1999, BNSF
Railway and UP agreed to coordinate dispatching operations covering Southern
California, the Kansas City area, and the Powder River Basin of Wyoming.
The STB has approved the acquisition of Consolidated Rail Corporation
("Conrail") by CSX Corporation and Norfolk Southern Corporation which is
expected to be implemented in 1999. Conrail, CSX and Norfolk Southern operate
the three largest rail systems in the eastern United States. In March 1999,
the STB also approved the acquisition of Illinois Central Corporation ("IC")
by Canadian National Railway Company ("CN"). CN is Canada's largest railroad
and reaches the U.S. cities of Detroit and Chicago, while IC has operations
extending from Chicago to the Gulf of Mexico, and west through Iowa. The
acquisitions of Conrail and IC are not expected to have a material adverse
competitive impact on BNSF Railway.
ITEM 3. Legal Proceedings
Set forth below is a description of certain legal proceedings involving
BNSF and its subsidiaries.
Wheat and Barley Transportation Rates
In September 1980, a class action lawsuit was filed against BNSF Railway in
United States District Court for the District of Montana ("Montana District
Court") challenging the reasonableness of BNSF Railway's export wheat and
barley rates. The class consisted of Montana grain producers and elevators.
The plaintiffs sought a finding that BNSF Railway single car export wheat and
barley rates for shipments moving from Montana to the Pacific Northwest were
unreasonably high and requested damages in the amount of $64 million. In March
1981, the Montana District Court referred the rate reasonableness issue to the
ICC. Subsequently, the State of Montana filed a complaint at the ICC
challenging BNSF Railway's multiple car rates for Montana wheat and barley
movements occurring after October 1, 1980.
The ICC issued a series of decisions in this case from 1988 to 1991. Under
these decisions, the ICC applied a revenue to variable cost test to the rates
and determined that BNSF Railway owed $9,685,918 in reparations plus interest.
In its last decision, dated November 26, 1991, the ICC found BNSF Railway's
total reparations exposure to be $16,559,012 through July 1, 1991. The ICC
also found that BNSF Railway's current rates were below a reasonable maximum
and vacated its earlier rate prescription order.
BNSF Railway appealed to the United States Court of Appeals for the
District of Columbia Circuit ("D.C. Circuit") those portions of the ICC's
decisions concerning the post-October 1, 1980 rate levels. BNSF Railway's
primary contention on appeal was that the ICC erred in using the revenue to
variable cost rate standard to judge the rates instead of Constrained Market
Pricing/Stand Alone Cost principles. The limited portions of decisions that
cover pre-October 1, 1980 rates were appealed to the Montana District Court.
On March 24, 1992, the Montana District Court dismissed plaintiffs' case as
to all aspects other than those relating to pre-October 1, 1980 rates. On
February 9, 1993, the D.C. Circuit served its decision regarding the appeal of
the several ICC decisions in this case. The court held that the ICC did not
adequately justify its use of the revenue to variable cost standard as BNSF
Railway had argued and remanded the case to the ICC for further administrative
proceedings.
On July 22, 1993, the ICC served an order in response to the D.C. Circuit's
February 9, 1993 decision. In its order, the ICC stated it would use the
Constrained Market Pricing/Stand-Alone Cost principles in assessing the
reasonableness of BNSF Railway wheat and barley rates moving from Montana to
Pacific Coast ports from 1978 forward. The ICC assigned the case to the Office
of Hearings to develop a procedural schedule. On October 28, 1994, plaintiffs
filed their opening evidence arguing that the revenue received by BNSF Railway
exceeded
9
<PAGE>
the stand alone costs of transporting that traffic and that BNSF Railway rates
were unreasonably high. BNSF Railway filed its evidence March 29, 1995,
showing that the stand alone costs of transporting the traffic exceeded the
revenue derived by BNSF Railway on that traffic and that consequently, its
rates were not unreasonably high. The parties filed briefs simultaneously on
August 16, 1995. In a decision served August 14, 1997, in McCarty Farms, Inc.
et al. v. Burlington Northern Inc., No. 37808, the STB, successor to the ICC,
ruled that the plaintiffs had failed to demonstrate that BNSF Railway rates
charged to transport export wheat and barley from Montana to West Coast ports
were unreasonable. The STB dismissed the proceeding in its entirety.
The plaintiffs filed petitions to review the STB's decision before the D.C.
Circuit and the Montana District Court. In an October 20, 1998 decision,
McCarty Farms, Inc. et al. v. Surface Transportation Board (No. 97-1632), the
D.C. Circuit affirmed the STB's decision in all respects for those claims as
to which it had jurisdiction (i.e., all claims except those relating to
single-car wheat shipments moving before September 12, 1980). The plaintiffs'
appeal of the STB decision as to single-car wheat shipments moving before
September 12, 1980 was dismissed by the Montana District Court on November 23,
1998. This matter is now considered terminated.
Environmental Proceedings
BNSF Railway had been advised that it was a target of a Grand Jury
investigation in the United States District Court for the Eastern District of
Missouri with respect to former railcar cleaning activities conducted by
independent contractors hired by BNSF Railway's predecessors at a rail siding
near Cherryville, Missouri. The proceeding related to alleged violations of
federal environmental protection statutes with respect to lead contamination
at several sites in the Cherryville area. In addition, BNSF Railway had
received personal injury claims from certain individuals formerly residing at
or near some of these sites. The Missouri Department of Natural Resources
("DNR") also was investigating the matter with respect to possible violations
of state environmental protection laws and BNSF Railway has been implementing
remediation plans developed in conjunction with DNR.
On December 4, 1998, BNSF Railway entered a plea in federal district court
to one felony count under CERCLA for failure to immediately report to the
federal government a release of a reportable quantity of lead sulfide and one
misdemeanor count under the Clean Water Act for a negligent discharge of a
pollutant into a waterway. BNSF Railway agreed in the settlement to pay a fine
of $7 million and to make restitution payments to the State of Missouri of $3
million, and committed to spend $9 million, which includes amounts previously
paid, in remediation costs in connection with its ongoing remediation efforts.
In the plea agreement, the parties agreed that BNSF Railway had taken remedial
safety and procedural actions in an effort to reduce the likelihood of
recurrence of such matters.
In addition, BNSF Railway has negotiated a settlement with the State of
Missouri that requires a payment of $900,000 in penalties and $500,000 in
natural resource damage. With the public comment period having ended January
26, 1999, BNSF Railway is executing the settlement agreement for entry by the
court as a consent decree. Implementation costs of the investigation and
remediation activities pursuant to the consent decree are not considered
material. The Company considers the federal Grand Jury matter to be
terminated, and all pending related matters, including personal injury claims
received from certain individuals residing at or near the area, are not
considered material.
On December 18, 1995, the State of Illinois filed a Complaint captioned
People of the State of Illinois v. Burlington Northern Railroad Company,
Beazer East, Inc. and Koppers Industries, Inc. (PCB No. 96-132) before the
Illinois Pollution Control Board against BNSF Railway, Beazer East, Inc. and
Koppers Industries, Inc. alleging violations of the Illinois Environmental
Protection Act with respect to a facility in Galesburg, Illinois. This
facility is not operated by BNSF Railway. The proceeding may result in
monetary sanctions in excess of $100,000. BNSF Railway and Beazer East, Inc.
have made an offer to the State of Illinois to settle this matter.
Merger-Related Litigation
Numerous complaints were filed arising out of the Agreement and Plan of
Merger dated June 29, 1994, as amended, between BNI and SFP. On June 30, 1994,
shortly after announcement of the proposed BNI-SFP merger
10
<PAGE>
("Merger"), two purported stockholder class action suits were filed in the
Court of Chancery of the State of Delaware (Miller v. Santa Fe Pacific
Corporation, C.A. No. 13587; Cosentino v. Santa Fe Pacific Corporation, C.A.
No. 13588). On July 1, 1994, two additional purported stockholder class action
suits were filed in the Court of Chancery of the State of Delaware (Fielding
v. Santa Fe Pacific Corporation, C.A. No. 13591; Wadsworth v. Santa Fe Pacific
Corporation, C.A. No. 13597).
The actions named as defendants SFP, the individual members of the SFP
Board of Directors, and BNI. In general, the actions variously alleged that
SFP's directors breached their fiduciary duties to the stockholders by
agreeing to the proposed merger for allegedly "grossly inadequate"
consideration in light of recent operating results of SFP, recent trading
prices of SFP's common stock and other alleged factors, by allegedly failing
to take all necessary steps to ensure that stockholders will receive the
maximum value realizable for their shares (including allegedly failing to
actively pursue the acquisition of SFP by other companies or conducting an
adequate "market check"), and by allegedly failing to disclose to stockholders
the full extent of the future earnings potential of SFP, as well as the
current value of its assets. The Miller and Fielding cases further alleged
that the proposed Merger was unfairly timed and structured and, if
consummated, would allegedly unfairly deprive the stockholders of standing to
pursue certain pending stockholder derivative litigation. Plaintiffs also
alleged that BNI was responsible for aiding and abetting the alleged breach of
fiduciary duty committed by the SFP Board. The actions sought certification of
a class action on behalf of SFP's stockholders. In addition, the actions
sought injunctive relief against consummation of the Merger and, in the event
that the Merger was consummated, the rescission of the Merger, an award of
compensatory or rescissory damages and other damages, including court costs
and attorneys' fees, an accounting by defendants of all profits realized by
them as a result of the Merger, and various other forms of relief.
On October 6, 1994, shortly after Union Pacific Corporation ("UPC") issued
a press release in which it announced a proposal for UPC to acquire SFP (the
"UPC Proposal"), plaintiffs in the four lawsuits described above filed in the
Court of Chancery of the State of Delaware a Consolidated Amended Complaint
(Miller v. Santa Fe Pacific Corporation, C.A. No. 13587). In their
Consolidated Amended Complaint, plaintiffs repeated the allegations contained
in their earlier lawsuits and further alleged that, in light of the UPC
Proposal, SFP's directors had breached their fiduciary duties by failing to
fully inform themselves about and to adequately explore available alternatives
to the merger with BNI, including the alternative of a merger transaction with
UPC, and by failing to fully inform themselves about the value of SFP. The
Consolidated Amended Complaint sought the same relief sought in plaintiffs'
earlier lawsuits and, in addition, requested that SFP's directors be ordered
to explore alternative transactions and to negotiate in good faith with all
interested persons, including UPC.
Also, on October 6, 1994, five additional purported stockholder class
action suits relating to SFP's proposed participation in the Merger with BNI
were filed in the Court of Chancery of the State of Delaware (Weiss v. Santa
Fe Pacific Corporation, C.A. No. 13779; Lifshitz v. Krebs, C.A. No. 13780;
Stein v. Santa Fe Pacific Corporation, Lewis v. Santa Fe Pacific Corporation,
C.A. No. 13783; Abramson v. Lindig, C.A. No. 13784). On October 7, 1994, three
more purported stockholder class action suits relating to SFP's proposed
participation in the Merger with BNI were filed in the Court of Chancery of
the State of Delaware (Graulich v. Santa Fe Pacific Corporation, C.A. No.
13786; Anderson v. Santa Fe Pacific Corporation, C.A. No. 13787; Green v.
Santa Fe Pacific Corporation, C.A. No. 13788). All of these lawsuits named as
defendants SFP and the individual members of the SFP Board of Directors; the
Lifshitz case further named BNI as a defendant. In general, these actions
variously alleged that, in light of SFP's recent operating results and the UPC
Proposal, SFP's directors breached their fiduciary duties to stockholders by
purportedly not taking the necessary steps to ensure that SFP's stockholders
would receive "maximum value" for their shares of SFP stock, including
purportedly refusing to negotiate with UPC or to "seriously consider" the UPC
Proposal and failing to announce any active auction or open bidding
procedures. The actions generally sought relief that is materially identical
to the relief sought in the Miller case, and in addition sought entry of an
order requiring SFP's directors to immediately undertake an evaluation of
SFP's worth as a merger/acquisition candidate and to establish a process
designed to obtain the highest possible price for SFP, including taking steps
to "effectively expose" SFP to the marketplace in an effort to create an
"active auction" in SFP. The Weiss case further sought entry of an order
enjoining SFP's directors from implementing any poison pill or other device
designed to thwart the UPC Proposal or any other person's proposal to acquire
SFP.
11
<PAGE>
The Anderson lawsuit was subsequently withdrawn. On October 14, 1994, the
Chancery Court entered an order consolidating the remaining 11 purported
stockholder class action suits under the heading In Re Santa Fe Pacific
Corporation Shareholder Litigation, C.A. No. 13587 (the "Shareholder
Litigation").
On October 26, 1994, BNI filed a Motion to Dismiss the Consolidated and
Amended Complaint.
On March 6, 1995, plaintiffs in the Shareholder Litigation filed a Revised
Second Consolidated and Amended Complaint, which superseded their previously
filed complaints. The Revised Second Consolidated and Amended Complaint
generally repeated many of the same allegations, and requested relief similar
to that requested in plaintiffs' earlier complaints. In addition, the Revised
Second Consolidated and Amended Complaint alleged that SFP's directors
breached their fiduciary duties: by proceeding with and completing the joint
SFP-BNI Tender Offer; by approving and implementing the Shareholder Rights
Plan, which purportedly resulted in a "premature ending" of the "bidding
process" by allegedly deterring and defeating UPC's acquisition overtures,
exempting BNI from its provisions, and "coercing" SFP stockholders to vote in
favor of the Merger; by approving the termination fee and expense
reimbursement provisions of the Merger Agreement by authorizing the stock
repurchase provisions of the Merger Agreement, which allegedly were designed
to "lock-up" the Merger by providing stockholders with an "illusory promise"
that the Merger Agreement exchange ratio would increase, while reserving SFP's
right not to repurchase such stock; and by purportedly failing to disclose all
material facts necessary for SFP's stockholders to evaluate in an informed
manner and vote on the Merger, including purportedly failing to fully disclose
the risks that the ICC would not approve the Merger and purportedly failing to
fully disclose SFP's intentions with respect to the repurchase of SFP stock,
as permitted by the Merger Agreement, as well as whether there will be a fair
opportunity for all SFP stockholders to "participate" in any SFP stock
repurchases, and on what basis. As additional relief to that requested in the
earlier complaints, plaintiffs requested injunctive and other relief:
enjoining consummation of the Merger; ordering SFP, SFP's directors, and BNI
to make unspecified supplemental disclosures to stockholders; requiring SFP to
conduct a new vote on the Merger subsequent to such disclosures; enjoining SFP
from improperly or discriminatorily implementing the Shareholder Rights Plan
or any other "defensive" tactic; ordering SFP's directors to take all
appropriate steps to enhance SFP's value and attractiveness as a merger or
acquisition candidate, including "effectively exposing" SFP to the marketplace
by means of an active auction on a "level playing field"; and declaring the
termination fee and expense reimbursement provisions of the Merger Agreement
invalid and unenforceable.
On March 13, 1995, SFP and SFP's directors filed a motion to dismiss the
Shareholder Litigation on the grounds that the Plaintiffs failed to state a
cause of action upon which relief may be granted. BNI also filed a motion to
dismiss the Revised Second Consolidated and Amended Complaint. On May 31,
1995, the Delaware Chancery Court rendered its decision granting the motion to
dismiss that was filed by SFP and SFP's directors on March 13, 1995 and the
motion to dismiss filed by BNI. The plaintiffs appealed the dismissal to the
Delaware Supreme Court.
On November 22, 1995, the Delaware Supreme Court issued an opinion that
affirmed in part and reversed in part the May 31, 1995 decision of the
Delaware Chancery Court. The Delaware Supreme Court reversed the Chancery
Court's dismissal of plaintiffs' claims that, in taking the alleged
"defensive" actions identified in the Revised Second Consolidated and Amended
Complaint, including approval and implementation of the Shareholder Rights
Plan, SFP's directors violated their fiduciary duties to stockholders. The
Delaware Supreme Court affirmed the Chancery Court's dismissal of all other
claims asserted by plaintiffs in the litigation, including all claims against
BNI.
On December 11, 1995, the SFP defendants filed with the Delaware Chancery
Court a motion for summary judgment against plaintiffs' remaining claims in
the Shareholder Litigation, which motion is pending. On December 29, 1995, the
SFP defendants filed their Answer to plaintiffs' Revised Second Consolidated
and Amended Complaint.
BNSF believes this lawsuit is meritless and continues to oppose it
vigorously.
12
<PAGE>
Other Claims
BNSF and its subsidiaries also are parties to a number of other legal
actions and claims, various governmental proceedings and private civil suits
arising in the ordinary course of business, including those related to
environmental matters and personal injury claims. While the final outcome of
these and other legal actions referred to under Item 3 of this Report on Form
10-K cannot be predicted with certainty, considering among other things the
meritorious legal defenses available, it is the opinion of BNSF management that
none of these items, when finally resolved, will have a material adverse effect
on the annual results of operations, financial position or liquidity of BNSF,
although an adverse resolution of a number of these items could have a material
adverse effect on the results of operations in a particular quarter or fiscal
year.
Reference is made to Note 4 to the consolidated financial statements on page
31 of BNSF's 1998 Annual Report to Shareholders for information concerning
certain pending administrative appeals with the Internal Revenue Service, which
information is hereby incorporated by reference.
ITEM 4. Submission Of Matters To a Vote Of Security Holders
No matters were submitted by BNSF to a vote of its securities holders during
the fourth quarter of 1998.
EXECUTIVE OFFICERS OF THE REGISTRANT
Listed below are the names, ages, and positions of all executive officers of
BNSF (excluding Robert D. Krebs, an executive officer who is also a director of
BNSF, information as to whom is included in BNSF's Proxy Statement dated March
8, 1999) and their business experience during the past five years. Executive
officers hold office until their successors are elected or appointed, or until
their earlier death, resignation, or removal.
Douglas J. Babb, 46
Senior Vice President-Merchandise Business Unit since August 1997. Prior to
that, Senior Vice President and Chief of Staff from September 1995 to August
1997, and Vice President and General Counsel of BNRR from December 1986 to
September 1995.
Thomas N. Hund, 45
Vice President and Controller since September 1995. Prior to that, Vice
President and Controller of SFP from July 1990 to January 1998.
Jeffrey R. Moreland, 54
Senior Vice President-Law and Chief of Staff since February 1998. Prior to
that, Senior Vice President-Law and General Counsel from September 1995, and
Vice President-Law and General Counsel of SFP from October 1994 to January
1998, and Vice President-Law and General Counsel of ATSF from June 1989 to
December 1996.
Matthew K. Rose, 39
Senior Vice President and Chief Operations Officer since August 1997. Prior
to that, Senior Vice President-Merchandise Business Unit from May 1996, Vice
President-Chemicals and Plastics of ATSF and BNRR from January 1996, Vice
President, South Region Field Marketing of BNRR from January 1995, Vice
President, Automotive of BNRR from June 1994, and General Manager, Automotive
Facilities and Technology of BNRR from January 1993. Prior to that, Vice
President-Transportation of Triple Crown Services, a subsidiary of Norfolk
Southern Corporation.
Charles L. Schultz, 51
Senior Vice President-Intermodal and Automotive Business Unit since February
1996. Prior to that, Vice President-Intermodal of ATSF and BNRR from September
1995, Vice President-Intermodal of ATSF from January 1994, Vice President-
Management Services of ATSF from June 1991, and Vice President-Information
Services of ATSF from July 1989.
13
<PAGE>
Denis E. Springer, 53
Senior Vice President and Chief Financial Officer since September 1995.
Prior to that, Senior Vice President and Chief Financial Officer of SFP from
October 1993 to January 1998, and Senior Vice President, Treasurer and Chief
Financial Officer of SFP from January 1991.
Gregory T. Swienton, 49
Senior Vice President-Coal and Agricultural Commodities Business Unit since
May 1996. Prior to that, Senior Vice President-Consumer and Industrial
Business Unit from February 1996, Senior Vice President-Industrial Business
Unit from September 1995, Executive Vice President, Intermodal Business of
BNRR from June 1994, and Executive Director-Europe and Africa (Brussels) of
DHL Worldwide Express (international freight company) from January 1991.
PART II
ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters
BNSF's common stock is listed on the New York Stock Exchange under the
symbol "BNI." The common stock is also listed on the Chicago Stock Exchange
and Pacific Exchange. Information as to the high and low sales prices of such
stock for the two years ending December 31, 1998 and the frequency and amount
of dividends declared on such stock during such period, is set forth in Note
16 to the Consolidated Financial Statements on page 40 of BNSF's 1998 Annual
Report to Shareholders and such information is hereby incorporated by
reference. The approximate number of record holders of the common stock at
January 31, 1999 was 56,000.
ITEM 6. Selected Financial Data
Selected financial data of BNSF for each of the last five fiscal years, and
data with respect to the following topics disclosed on page 1 of BNSF's 1998
Annual Report to Shareholders are hereby incorporated by reference: Revenues;
Operating income; Income before extraordinary item and cumulative effect of
change in accounting method; Accounting change/Extraordinary item; Net income;
Basic earnings per share; Diluted earnings per share; Dividends declared per
common share; Total assets; and Long-term debt and commercial paper, including
current portion.
ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Management's Discussion and Analysis of Financial Condition and Results of
Operations appearing on pages 15 through 24 of BNSF's 1998 Annual Report to
Shareholders is hereby incorporated by reference.
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk
In the ordinary course of business, BNSF utilizes various financial
instruments which inherently have some degree of market risk. The quantitative
information presented below and the additional qualitative information
presented in the Management's Discussion and Analysis of Financial Condition
and Results of Operations section and Notes 8, 10, 11, and 15 of the
Consolidated Financial Statements contained in the 1998 Annual Report to
Shareholders describe significant aspects of BNSF's financial instrument
programs which have a material market risk.
Interest Rate Sensitivity
The tables below provide information about BNSF's derivative financial
instruments and other financial instruments that are sensitive to changes in
interest rates, including interest rate swaps and debt obligations as of
December 31, 1998 and 1997. For debt obligations, the tables present principal
cash flows and related weighted average interest rates by contractual maturity
dates. Notional amounts are used to calculate the contractual payments to be
exchanged under the contract. Weighted average variable rates are based on
implied forward rates in the yield curve at the reporting date.
14
<PAGE>
Long-term Debt
<TABLE>
<CAPTION>
December 31, 1998
-------------------------------------------------------
Maturity Date
---------------------------- Fair
1999 2000 2001 2002 2003 Thereafter Total Value
---- ---- ---- ---- ---- ---------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed Rate Debt (in
millions).............. $268 $146 $222 $248 $130 $3,946 $4,960 $5,216
Average Interest Rate... 7.41% 6.45% 7.75% 7.10% 7.22% 7.13% 7.10% --
Variable Rate Debt (in
millions).............. -- -- -- $496 -- -- $ 496 $ 496
Average Interest Rate... -- -- -- 5.43% -- -- 5.43% --
</TABLE>
<TABLE>
<CAPTION>
December 31, 1997
-------------------------------------------------------
Maturity Date
---------------------------- Fair
1998 1999 2000 2001 2002 Thereafter Total Value
---- ---- ---- ---- ---- ---------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed Rate Debt (in
millions).............. $108 $256 $138 $204 $258 $3,587 $4,551 $4,734
Average Interest Rate... 7.78% 7.46% 6.47% 7.96% 7.16% 7.31% 7.33% --
Variable Rate Debt (in
millions).............. -- -- -- -- $738 -- $ 738 $ 738
Average Interest Rate... -- -- -- -- 5.84% -- 5.84% --
</TABLE>
BNSF has included $471 million and $668 million of commercial paper
borrowings in 2002 maturities in the 1998 and 1997 tables, respectively. The
commercial paper program is supported by BNSF's $1.5 billion, five-year
revolving credit agreement which is scheduled to expire on November 12, 2002.
BNSF classified commercial paper borrowings as long-term debt in the
consolidated balance sheet at December 31, 1998 and 1997. In addition,
maturities in 2000 included in the 1998 and 1997 tables exclude $100 million
of 6.1 percent notes due 2027, which may be redeemed in 2000 at the option of
the holder.
In addition, the maturities in the 1998 table exclude $200 million of 6.29
percent debentures due 2029 and $100 million of 6.05 percent notes due 2031,
which will either be remarketed by the holder of a call option on the debt and
mature in 2029 and 2031, respectively; or will otherwise be repurchased by
BNSF in 1999 and 2001, respectively. Maturities in 2003 exclude $175 million
of 6.53 percent notes due 2037, which may be redeemed in 2003 at the option of
the holder.
On March 5, 1999, BNSF issued $200 million of 6.125 percent notes due 2009
and $200 million of 6.75 percent debentures due 2029. At the time of the 10-
year debt issuance, BNSF closed out a $100 million treasury lock transaction
scheduled to expire in 1999 at a gain of approximately $8 million which will
be deferred and amortized to interest expense over the life of the debt.
Interest Rate Swaps
From time to time, BNSF enters into various interest rate hedging
transactions for purposes of managing exposure to fluctuations in interest
rates. At December 31, 1998 and 1997, BNSF had entered into swap transactions
reflected in the tables below, which fixed the interest rate on a portion of
its commercial paper debt.
<TABLE>
<CAPTION>
December 31, 1998
----------------------------
Maturity Date
-------------
1999 Fair Value (1)
------------- --------------
<S> <C> <C>
Variable to Fixed Swaps (in millions)........ $ 125 $ (2)
Average Pay Rate............................. 6.14% --
Average Receive Rate......................... 4.95% --
</TABLE>
<TABLE>
<CAPTION>
December 31, 1997
----------------------------------
Maturity
Date
------------
1998 1999 Total Fair Value (1)
----- ----- ----- -------------
<S> <C> <C> <C> <C>
Variable to Fixed Swaps (in millions)....... $ 250 $ 125 $ 375 $ (2)
Average Pay Rate............................ 6.04% 6.14% 6.07% --
Average Receive Rate........................ 5.67% 5.73% 5.69% --
</TABLE>
- --------
(1) Represents unrecognized losses in millions.
15
<PAGE>
Treasury Locks
In anticipation of future debt issuances, BNSF had entered into treasury
lock transactions, based on the 10-year and 30-year U.S. treasury rates as of
December 31, 1998 and based on the 30-year U.S. treasury rate as of December
31, 1997, which are summarized in the tables below. Additionally, as discussed
above, at the time of a March 1999 debt issuance, BNSF closed out the $100
million treasury lock transaction scheduled to expire in 1999 at a gain of
approximately $8 million.
<TABLE>
<CAPTION>
December 31, 1998
------------------------------------------
Maturity Date
-------------------
1999 2000 2001 Total Fair Value (1)
----- ----- ----- ----- --------------
<S> <C> <C> <C> <C> <C>
Fixed Rate Treasury Locks (in
millions).......................... $ 100 $ 200 $ 200 $ 500 $ 19
Average Pay Rate.................... 4.37% 4.80% 4.84% 4.73% --
</TABLE>
<TABLE>
<CAPTION>
December 31, 1997
----------------------------
Maturity Date
-------------
1998 Fair Value (1)
------------- --------------
<S> <C> <C>
Fixed Rate Treasury Locks (in millions)............ $ 200 $ 0
Average Pay Rate................................... 5.88% --
</TABLE>
- --------
(1) Represents unrecognized gains in millions.
Commodity Price Sensitivity
During 1998 and 1997, fuel expenses approximated 11 percent of total
operating expenses. Due to the significance of diesel fuel expenses to the
operations of the railroad and the historical volatility of fuel prices, BNSF
has established a program to hedge against fluctuations in the price of its
diesel fuel purchases. The intent of the program is to protect BNSF's
operating margins and overall profitability from adverse fuel price changes.
However, to the extent BNSF hedges portions of its fuel purchases, it will not
realize the impact of decreases in fuel prices. The fuel-hedging program in
1998 and 1997 includes the use of commodity swap transactions that are
accounted for as hedges. Additionally, the 1997 fuel-hedging program also
includes forward purchases for delivery at fueling facilities. Any gains or
losses associated with changes in the market value of these hedging
instruments are deferred and recognized as a component of fuel expense in the
period in which the fuel is purchased and used.
Swap transactions are typically based on the price of pipeline delivery of
Gulf Coast #2 heating oil and require BNSF to purchase a defined quantity at a
defined price. Swap transactions are generally settled in cash with the
counterparty. Based on historical information, BNSF believes there is a
significant correlation between the market prices of diesel fuel and Gulf
Coast #2 heating oil.
The tables below provide information about BNSF's diesel fuel hedging
instruments that are sensitive to changes in commodity prices. The tables
present notional amounts in gallons and the weighted average contract price by
contractual maturity date. The prices included in the tables do not include
taxes, transportation costs, certain other fuel handling costs and, except for
forward contracts, any differences which may occur from time to time between
the prices of commodities hedged and the purchase price of BNSF's diesel fuel.
<TABLE>
<CAPTION>
December 31, 1998
----------------------------------------
Maturity Date
----------------------- Fair
1999 2000 2001 2002 Total Value (1)
----- ----- ----- ----- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Diesel Fuel Swaps:
Gallons (in millions)................ 907 491 277 101 1,776 $(174)
Weighted average price per gallon.... $0.48 $0.50 $0.49 $0.50 $ 0.49 --
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
December 31, 1997
----------------------------------
Maturity Date
------------------ Fair
1998 1999 2000 Total Value (1)
----- ----- ------ ------ --------
<S> <C> <C> <C> <C> <C>
Diesel Fuel Swaps:
Gallons (in millions).................... 479 302 189 970 $(24)
Weighted average price per gallon........ $0.54 $0.52 $ 0.52 $ 0.53 --
Diesel Fuel Forward Purchase Contracts:
Gallons (in millions).................... 144 -- -- 144 $ 2
Weighted average price per gallon........ $0.48 -- -- $ 0.48 --
</TABLE>
- --------
(1) Represents unrecognized gains (losses) (in millions) based on the price of
Gulf Coast #2 heating oil.
Additionally, at December 31, 1998 and 1997, BNSF maintained fuel
inventories for use in normal operations which were not material to BNSF's
overall financial position and therefore represent no significant market
exposure.
Equity Price Sensitivity
During the second and third quarter of 1998, BNSF sold equity put options
for 3 million shares of BNSF's common stock to an independent third party and
received cash proceeds of $2 million. The option contracts had exercise prices
ranging from $29.00 to $30.00 per share with expiration dates ranging from
November 1998 to February 1999. In November 1997, BNSF sold equity put options
for 1.5 million shares of BNSF's common stock to an independent third party
and received cash proceeds of approximately $1 million. The option contracts
had an exercise price of $29.33 and an expiration date of May 5, 1998. All of
the option contracts discussed above permitted a net-share or net-cash
settlement method at BNSF's election and expired unexercised.
The tables below present the notional amounts in shares of BNSF common
stock and the contract price by contractual maturity date of equity put
options outstanding at December 31, 1998 and 1997.
<TABLE>
<CAPTION>
December 31, 1998
-------------------
Maturity Date
------------- Fair
1999 Value
------------- -----
<S> <C> <C>
Contract Number of Shares............................. 1,200,000 $ 0
Option Strike Price................................... $29.67 to $30 --
<CAPTION>
December 31, 1997
-------------------
Maturity Date
------------- Fair
1998 Value
------------- -----
<S> <C> <C>
Contract Number of Shares............................. 1,500,000 $ 0
Option Strike Price................................... $29.33 --
</TABLE>
ITEM 8. Financial Statements and Supplementary Data
The consolidated financial statements of BNSF and subsidiary companies,
together with the reports thereon, appearing in Part IV of this Report on Form
10-K and on pages 25 through 40 of BNSF's 1998 Annual Report to Shareholders,
are hereby incorporated by reference.
ITEM 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
None.
17
<PAGE>
PART III
ITEM 10. Directors and Executive Officers of the Registrant
Information concerning the directors of BNSF is provided on pages 11-12
under the heading "NOMINEES FOR DIRECTORS" of BNSF's proxy statement dated
March 8, 1999, and the information under that heading is hereby incorporated
by reference.
Information concerning the executive officers of BNSF (excluding one
executive officer who is also a director of BNSF) is included in Part I of
this Report.
Information concerning compliance with Section 16(a) of the Securities
Exchange Act of 1934 is provided on page 4 under the heading "Section 16(a)
Beneficial Ownership Reporting Reporting Compliance" in BNSF's Proxy Statement
dated March 8, 1999, and the information under that heading is hereby
incorporated by reference.
ITEM 11. Executive Compensation
Information concerning the compensation of directors and executive officers
of BNSF is provided on page 6 under the heading "Directors' Compensation" and
pages 24 through 30 under the headings "Summary Compensation Table," "Stock
Option Grants in 1998," "Option Exercises and Holdings," "Pension Plans,"
"Employment Contracts and Change in Control Arrangements" and "Trust
Agreements," in BNSF's proxy statement dated March 8, 1999, and the
information under those headings is hereby incorporated by reference.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
Information concerning the ownership of BNSF equity securities by certain
beneficial owners and by management is provided on pages 8 through 10 under
the heading "STOCK OWNERSHIP IN THE COMPANY" in BNSF's proxy statement dated
March 8, 1999, and is the information under that heading hereby incorporated
by reference.
ITEM 13. Certain Relationships and Related Transactions
Information concerning certain relationships and related transactions is
provided on page 8 under the heading "Certain Relationships" of BNSF's proxy
statement dated March 8, 1999, and the information under that heading is
hereby incorporated by reference.
PART IV
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) The following documents are filed as a part of this report:
<TABLE>
<CAPTION>
Page
--------
<S> <C>
1. Consolidated Financial Statements:
Report of PricewaterhouseCoopers LLP................................. [25*]
Consolidated Statement of Income for the three years ended December
31, 1998............................................................ [26*]
Consolidated Balance Sheet at December 31, 1998 and 1997............. [27*]
Consolidated Statement of Cash Flows for the three years ended
December 31, 1998................................................... [28*]
Consolidated Statement of Changes In Stockholders' Equity for the
three years ended December 31, 1998................................. [29*]
Notes to Consolidated Financial Statements........................... [30-40*]
</TABLE>
- --------
(*Incorporated by reference from the indicated pages of BNSF's 1998 Annual
Report to Shareholders.)
18
<PAGE>
<TABLE>
<S> <C>
2. Consolidated Financial Statement Schedules for the three years ended
December 31, 1998:
Report of PricewaterhouseCoopers LLP...................................... F-1
Schedule II--Valuation and Qualifying Accounts............................ F-2
</TABLE>
Schedules other than that listed above are omitted because they are not
required or applicable, or the required information is included in the
consolidated financial statements or related notes.
3. Exhibits:
See Index to Exhibits on pages E-1--E-4 for a description of the exhibits
filed as a part of this Report.
(b) Reports on Form 8-K
BNSF filed the following Current Reports on Form 8-K during the quarter
ended December 31, 1998, or subsequently:
Current Report on Form 8-K (Date of earliest event reported: February 8,
1999), as amended, which referenced under Item 5, Other Events, and filed as
an exhibit under Item 7, Financial Statements, Pro Forma Financial Information
and Exhibits, the following material from the registrant's 1998 Annual Report
to Shareholders: Consolidated Financial Highlights; Management's Discussion
and Analysis of Financial Condition and Results of Operations; and
Consolidated Financial Statements and Footnotes and Report of Management and
Report of Independent Accountants thereon, dated February 8, 1999, and two
other exhibits.
Current Report on Form 8-K (Date of earliest event reported: December 4,
1998) which referenced under Item 5, Other Events, and filed as an exhibit
under Item 7, Financial Statements, Pro Forma Financial Information and
Exhibits the registrant's fourth quarter 1998 and annual earnings press
release, and also disclosed under Item 5 the resolution of claims by federal
and State of Missouri authorities as to environmental contamination near
Cherryville, Missouri stemming from former railcar cleaning activities
conducted by independent contractors of BNSF Railway's predecessors.
Current Report on Form 8-K (Date of earliest event reported: October 20,
1998) which referenced under Item 5, Other Events, and filed as an exhibit
under Item 7, Financial Statements, Pro Forma Financial Information and
Exhibits the following: the registrant's third quarter 1998 earnings press
release; a table with selected financial data for the five years ended
December 31, 1997, with earnings per share restated to reflect to registrant's
three-for-one stock split, effected in the form of a stock dividend payable
September 1, 1998, for each share of common stock outstanding or held in the
registrant's treasury as of the close of business on August 17, 1998; and a
statement regarding computation of ratio of earnings to fixed charges (as of
September 30, 1998).
19
<PAGE>
SIGNATURES
Burlington Northern Santa Fe Corporation, pursuant to the requirements of
Section 13 or 15(d) of the Securities Exchange Act of 1934, has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Burlington Northern Santa Fe
Corporation
/s/ Robert D. Krebs
By: _________________________________
Robert D. Krebs
Chairman, President and Chief
Executive Officer
Dated: March 29, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of Burlington
Northern Santa Fe Corporation and in the capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ Robert D. Krebs Chairman, President and Chief Executive
___________________________________________ Officer (Principal Executive Officer),
Robert D. Krebs and Director
/s/ Denis E. Springer Senior Vice President and Chief Financial
___________________________________________ Officer (Principal Financial Officer)
Denis E. Springer
/s/ Thomas N. Hund Vice President and Controller (Principal
__________________________________________ Accounting Officer)
Thomas N. Hund
/s/ Joseph F. Alibrandi* Director
___________________________________________
Joseph F. Alibrandi
/s/ Jack S. Blanton* Director
___________________________________________
Jack S. Blanton
/s/ John J. Burns, Jr.* Director
___________________________________________
John J. Burns, Jr.
/s/ George Deukmejian* Director
___________________________________________
George Deukmejian
/s/ Bill M. Lindig* Director
__________________________________________
Bill M. Lindig
/s/ Vilma S. Martinez* Director
___________________________________________
Vilma S. Martinez
</TABLE>
S-1
<PAGE>
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ Roy S. Roberts* Director
___________________________________________
Roy S. Roberts
/s/ Marc J. Shapiro* Director
___________________________________________
Marc J. Shapiro
/s/ Arnold R. Weber* Director
___________________________________________
Arnold R. Weber
/s/ Robert H. West* Director
___________________________________________
Robert H. West
/s/ J. Steven Whisler* Director
___________________________________________
J. Steven Whisler
/s/ Edward E. Whitacre, Jr.* Director
___________________________________________
Edward E. Whitacre, Jr.
/s/ Ronald B. Woodard* Director
___________________________________________
Ronald B. Woodard
/s/ Michael B. Yanney* Director
___________________________________________
</TABLE> Michael B. Yanney
/s/ Jeffrey R. Moreland
*By:_________________________________
Jeffrey R. Moreland
Senior Vice President-Law and Chief of Staff Attorney in Fact
Dated: March 29, 1999
S-2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of
Burlington Northern Santa Fe Corporation and Subsidiaries
Our audits of the consolidated financial statements referred to in our
report dated February 8, 1999 appearing on page 25 of the 1998 Annual Report
to Shareholders of Burlington Northern Santa Fe Corporation (which report and
consolidated financial statements are incorporated by reference in this Annual
Report on Form 10-K) also included an audit of the Financial Statement
Schedule listed in Item 14(a)2. of this Form 10-K. In our opinion, the
Financial Statement Schedule presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements.
PricewaterhouseCoopers LLP
Fort Worth, Texas
February 8, 1999
F-1
<PAGE>
SCHEDULE II
BURLINGTON NORTHERN SANTA FE CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
For the years ended December 31, 1998, 1997 and 1996
(In Millions)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
-------- --------- --------- ---------- --------
Balance
Balance Additions at End
at Charged of
Beginning to Deductions Period
Description of Period Income (1) (2)
----------- --------- --------- ---------- --------
<S> <C> <C> <C> <C>
December 31, 1998
Personal injury and environmental
liabilities......................... $711 $177 $253 $635
==== ==== ==== ====
December 31, 1997
Personal injury and environmental
liabilities......................... $810 $165 $264 $711
==== ==== ==== ====
December 31, 1996
Personal injury and environmental
liabilities......................... $916 $188 $294 $810
==== ==== ==== ====
</TABLE>
- --------
(1) Principally represents cash payments
(2) Classified in the consolidated balance sheet as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Accounts payable and other current liabilities............ $246 $263 $267
Casualty and environmental liabilities.................... 389 448 543
---- ---- ----
$635 $711 $810
==== ==== ====
</TABLE>
F-2
<PAGE>
BURLINGTON NORTHERN SANTA FE CORPORATION
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
------- ----------------------------------------------------------------------
<C> <S>
3.1 Amended and Restated Certificate of Incorporation of BNSF (amended as
of April 21, 1998). Incorporated by reference to Exhibit 3.1 to BNSF's
Report on Form 10-Q for the quarter ended June 30, 1998.
3.2 By-Laws of BNSF (amended as of September 18, 1997). Incorporated by
reference to Exhibit 3.1 to BNSF's Report on Form 10-Q for the quarter
ended September 30, 1997.
4.1 Indenture, dated as of December 1, 1995, between BNSF and The First
National Bank of Chicago, as Trustee. Incorporated by reference to
Exhibit 4 to BNSF's Registration Statement on Form S-3 (No. 333-
72013).
4.2 Form of BNSF's 6 1/8% Note Due March 15, 2009.
4.3 Form of BNSF's 6 3/4% Debenture Due March 15, 2029.
4.4 Form of BNSF's 6.70% Debenture Due August 1, 2028.
4.5 Certain instruments evidencing long-term indebtedness of BNSF are not
being filed as exhibits to this Report because the total amount of
securities authorized under any single such instrument does not exceed
10% of BNSF's total assets. BNSF will furnish copies of any material
instruments upon request of the Securities and Exchange Commission.
10.1* Burlington Northern Santa Fe Non-Employee Directors' Stock Plan.
Incorporated by reference to Appendix A to BNSF's Proxy Statement
dated March 5, 1996. Amendment to Burlington Northern Santa Fe Non-
Employee Directors' Stock Plan dated January 16, 1997 is incorporated
by reference to Exhibit 10.1 to BNSF's Report on Form 10-K for the
fiscal year ended December 31, 1996.
10.2* Burlington Northern Santa Fe Corporation 1987 Stock Option Incentive
Plan. Incorporated by reference to BNSF's Registration Statement on
Form S-8 (File No. 33-62833).
10.3* Burlington Northern Santa Fe Corporation Incentive Compensation Plan.
Incorporated by reference to BNSF's Registration Statement on Form S-8
(File No. 33-62833).
10.4* Burlington Northern Inc. Senior Executive Survivor Benefit Plan as of
April 1, 1986. Incorporated by reference to Amendment No. 1 to BNI's
Report on Form 10-K for the fiscal year ended December 31, 1987.
10.5* Burlington Northern Santa Fe Corporation Deferred Compensation Plan,
as amended and restated effective September 17, 1998. Incorporated by
reference to Exhibit 10.1 to BNSF's Report on Form 10-Q for the
quarter ended September 30, 1998 (formerly, Burlington Northern Inc.
Deferred Compensation Plan).
10.6* Burlington Northern Santa Fe Corporation Senior Management Stock
Deferral Plan. Incorporated by reference to Exhibit 10.37 to BNFS's
Report on Form 10-K for the fiscal year ended December 31, 1997.
10.7* Burlington Northern Inc. 1987 Performance Share Unit Plan as of
January 1, 1988. Incorporated by reference to Amendment No. 1 to BNI's
Report on Form 10-K for the fiscal year ended December 31, 1987.
10.8* Burlington Northern Inc. Supplemental Benefits Plan (as amended and
restated effective September 21, 1995). Incorporated by reference to
Exhibit 10.8 to BNSF's Report on Form 10-K for the fiscal year ended
December 31, 1995.
10.9* 1989 Burlington Northern Inc. Restricted Stock Incentive Plan.
Incorporated by reference to BNI's Report on Form 10-K for the fiscal
year ended December 31, 1990.
</TABLE>
- --------
* Management contract or compensatory plan or arrangement.
E-1
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- ----------------------------------------------------------------------
<C> <S>
10.10* Burlington Northern Santa Fe Corporation 1990 Directors Stock Option
Plan. Incorporated by reference to BNSF's Registration Statement on
Form S-8 (File No. 33-62825).
10.11* Burlington Northern Santa Fe Incentive Bonus Stock Program.
Incorporated by reference to Exhibit 10.11 to BNSF's Report on Form
10-K for the fiscal year ended December 31, 1995. Amendment of
Burlington Northern Santa Fe Incentive Bonus Stock Program dated
January 14, 1998 is incorporated by reference to Exhibit 10.11 to
BNSF's Report on Form 10-K for the fiscal year ended December 31,
1997.
10.12* Burlington Northern Santa Fe Corporation 1992 Stock Option Incentive
Plan. Incorporated by reference to BNSF's Registration Statement on
Form S-8 (File No. 33-62839).
10.13* Burlington Northern Santa Fe 1996 Stock Incentive Plan. Incorporated
by reference to Appendix B to BNSF's Proxy Statement dated March 5,
1996. Amendment of Burlington Northern Santa Fe 1996 Stock Incentive
Plan dated January 15, 1998 is incorporated by reference to Exhibit
10.13 to BNSF's Report on Form 10-K for the fiscal year ended December
31, 1997.
10.14* Burlington Northern Santa Fe Supplemental Retirement Plan.
Incorporated by reference to Exhibit 10.1 to BNSF's Report on Form 10-
Q for the quarter ended September 30, 1996.
10.15* Burlington Northern Santa Fe Estate Enhancement Program, as amended
and restated effective October 1, 1996. Incorporated by reference to
Exhibit 10.15 to BNSF's Report on Form 10-K for the fiscal year ended
December 31, 1996.
10.16* Agreement between BNSF and Robert D. Krabs dated as of January 30,
1997. Incorporated by reference to Exhibit 10.16 to BNSF's Report on
Form 10-K for the fiscal year ended December 31, 1996.
10.17* Form of BNSF Change-in-Control Agreement (applicable to Messrs. Babb,
Moreland, Schultz, Springer, and Hund). Incorporated by reference to
Exhibit 10.17 to BNSF's Report on Form 10-K for the fiscal year ended
December 31, 1996.
10.18* Employment Agreement by and between Burlington Northern Inc. and
Gregory T. Swienton. Incorporated by reference to Exhibit 10.23 to
BNI's Report on Form 10-K for the fiscal year ended December 31, 1994.
10.19* Burlington Northern Santa Fe Deferred Compensation Plan for Directors
as amended January 16, 1997. Incorporated by reference to Exhibit
10.19 to BNSF's Report on Form 10-K for the fiscal year ended December
31, 1996.
10.20* Burlington Northern Inc. Nonqualified 401(k) Restoration Plan.
Incorporated by reference to Exhibit 10.20 to BNSF's Report on Form
10-K for the fiscal year ended December 31, 1995.
10.21* Burlington Northern Inc. Form of Severance Agreement and amendments
through September 18, 1995, (applicable to Messrs. Rose and Swienton
as of March 13, 1998). Incorporated by reference to Exhibit 10.21 to
BNSF's Report on Form 10-K for the fiscal year ended December 31,
1995. Amendment to Form of Severance Agreement dated December 3, 1997
is incorporated by reference to Exhibit 10.21 to BNSF's Report on Form
10-K for the fiscal year ended December 31, 1997.
10.22* Burlington Northern Inc. Director's Charitable Award Program.
Incorporated by reference to Exhibit 10.22 to BNSF's Report on Form
10-K for the fiscal year ended December 31, 1995.
</TABLE>
- --------
* Management contract or compensatory plan or arrangement.
E-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- ----------------------------------------------------------------------
<C> <S>
10.23* Burlington Northern Santa Fe Salary Exchange Option Program.
Incorporated by reference to Exhibit 10.23 to BNSF's Report on Form
10-K for the fiscal year ended December 31, 1995. Amendment to
Burlington Northern Santa Fe Salary Exchange Option Program dated
January 15, 1997 is incorporated by reference to Exhibit 10.23 to
BNSF's Report on Form 10-K for the fiscal year ended December 31,
1996. 10.24* Santa Fe Pacific Corporation Supplemental Retirement Plan
("Supplemental Plan"). Incorporated by reference to Exhibit 10(d) to
SFP's Report on Form 10-K for the fiscal year ended December 31, 1984.
Supplemental Plan as amended October 1, 1989, and Amendment to
Supplemental Plan dated February 27, 1990, are incorporated by
reference to Exhibit 10(d) to SFP's Report on Form 10-K for the fiscal
year ended December 31, 1969. Amendment to Supplemental Plan dated
March 22, 1994, and effective January 1, 1994, is incorporated by
reference to Exhibit 10.24 to BNSF's Report on Form 10-K for the
fiscal year ended December 31, 1995.
10.25* Burlington Northern Santa Fe Incentive Stock Compensation Plan.
Incorporated by reference to BNSF's Registration Statement on Form S-8
(File No. 33-63253).
10.26* SFP Form of Severance Agreement dated November 2, 1987 (applicable to
Mr. Springer as of March 13, 1998), as adopted in May 1987 and amended
in October 1987. Incorporated by reference to Exhibit 10(j) to SFP's
Report on Form 10-K for the fiscal year ended December 31, 1987.
Amendment to Form of Severance Agreement dated July 24, 1990 is
incorporated by reference to SFP's Report on Form 10-Q for the quarter
ended June 30, 1990. Amendment to Form of Severance Agreement adopted
January 25, 1994 is incorporated by reference to Exhibit 10.1 to SFP's
Report on Form 10-Q for the quarter ended June 30, 1994. Amendment to
Form of Severance Agreement dated March 28, 1995 is incorporated by
reference to Exhibit 10.5 to SFP's Report on Form 10-K for the fiscal
year ended December 31, 1994. Amendment to Form of Severance Agreement
dated December 3, 1997. Amendment to Form of Severance Agreement dated
December 3, 1997. Amendment to Form of Severance Agreement dated
February 6, 1998 (Mr. Hund) is incorporated by reference to Exhibit
10.26 to BNSF's Report on Form 10-K for the fiscal year ended December
31, 1997.
10.27* Burlington Northern Santa Fe Directors' Retirement Plan. Incorporated
by reference to Exhibit 10.29 to BNSF's Report on Form 10-K for the
fiscal year ended December 31, 1995.
10.28* Benefits Protection Trust Agreement dated as of January 22, 1996 by
and between BNSF and Bankers Trust Company. Incorporated by reference
to Exhibit 10.28 to BNSF's Report on Form 10-K for the fiscal year
ended December 31, 1996.
10.29* Retirement Benefit Agreement dated February 26, 1992 between SFP and
R. D. Krebs. Incorporated by reference to Exhibit 10(1) to SFP's
Report on Form 10-K for the fiscal year ended December 31, 1991.
10.30* Amended and Restated Trust Agreement dated as of April 1, 1994 by and
between SFP and The Bank of New York. Incorporated by reference to
Exhibit 10.31 to BNSF's Report on Form 10-K for the fiscal year ended
December 31, 1995.
10.31* Trust Agreement dated as of July 26, 1994 by and between SFP and The
Bank of New York. Incorporated by reference to Exhibit 10.33 to BNSF's
Report on Form 10-K for the fiscal year ended December 31, 1995.
10.32* The Atchison, Topeka and Santa Fe Railway Company Incentive
Compensation plan. Incorporated by reference to Exhibit 10(n) to SFP's
Report on Form 10-K for the fiscal year ended December 31, 1991.
10.33* Burlington Northern Santa Fe Long Term Incentive Stock Plan.
Incorporated by reference to BNSF's Registration Statement on Form S-8
(File No. 33-63247).
10.34* Santa Fe Pacific Corporation Supplemental Retirement and Savings Plan.
Incorporated by reference to Exhibit 10(s) to SFP's Report on Form 10-
K for the fiscal year ended December 31, 1993.
</TABLE>
- --------
* Management contract or compensatory plan or arrangement.
E- 3
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- ---------------------------------------------------------------------
<C> <S>
10.35* The Burlington Northern and Santa Fe Railway Company Severance Plan.
Incorporated by reference to Exhibit 10.36 to BNSF's Report on Form
10-K for the fiscal year ended December 31, 1997.
10.36* Burlington Northern Santa Fe 1999 Stock Incentive Plan. Incorporated
by reference to Appendix to BNSF's Proxy Statement dated March 8,
1999.
10.37* Form of indemnification agreement dated as of September 17, 1998
between BNSF and directors.
10.38* Form of indemnification agreement dated as of September 17, 1998
between BNSF and certain officers.
12 Computation of Ratio of Earnings to Fixed Charges. Incorporated by
reference to Exhibit 12 to BNSF's Current Report on Form 8-K/A (Date
of earliest event reported: February 8, 1999).
13 1998 Annual Report to Shareholders of BNSF (Consolidated Financial
Highlights on page 1, and pages 15-40, only.)
21 Subsidiaries of BNSF.
23 Consent of PricewaterhouseCoopers LLP.
24 Power of Attorney
27.1 Financial Data Schedule (for the year ended December 31, 1998).
27.2 Financial Data Schedule (restated for the quarter ended March 31,
1998).
27.3 Financial Data Schedule (restated for the quarter ended June 30,
1998).
27.4 Financial Data Schedule (restated for the quarter ended September 30,
1998).
27.5 Financial Data Schedule (restated for the year ended December 31,
1997).
27.6 Financial Data Schedule (restated for the quarter ended March 31,
1997).
27.7 Financial Data Schedule (restated for the quarter ended June 30,
1997).
27.8 Financial Data Schedule (restated for the quarter ended September 30,
1997).
27.9 Financial Data Schedule (restated for the year ended December 31,
1996).
</TABLE>
- --------
* Management contract or compensatory plan or arrangement.
E-4
<PAGE>
EXHIBIT 4.2
BURLINGTON NORTHERN SANTA FE CORPORATION
6 1/8% NOTE DUE MARCH 15, 2009
CUSIP NO. 12189TAM6 $200,000,000.00
THIS SECURITY IS A GLOBAL, SECURITY WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR
A NOMINEE THEREOF, THIS SECURITY MAY NOT BE EXCHANGED IN WHOLE OR IN PART
FOR A SECURITY REGISTERED, AND NO TRANSFER OF THIS SECURITY IN WHOLE OR
IN PART MAY BE REGISTERED, IN THE NAME OF ANY PERSON OTHER THAN SUCH
DEPOSITARY OR A NOMINEE THEREOF, EXCEPT IN THE LIMITED CIRCUMSTANCES
DESCRIBED IN THE INDENTURE.
BURLINGTON NORTHERN SANTA FE CORPORATION, a corporation duly organized and
existing under the laws of Delaware (herein called the "Company", which term
includes any successor Person under the Indenture hereinafter referred to), for
value received, hereby promises to pay to CEDE & CO. or registered assigns, the
principal sum of Two Hundred Million Dollars on March 15, 2009, and to pay
interest thereon from March 10, 1999 or from the most recent Interest Payment
Date to which interest has been paid or duly provided for, semi-annually on
March 15 and September 15 in each year, commencing September 15, 1999, at the
rate of 6.125% per annum, until the principal hereof is paid or made available
for payment. The interest so payable, and punctually paid or duly provided for,
on any Interest Payment Date will, as provided in such Indenture, be paid to the
Person in whose name this Security (or one or more Predecessor Securities) is
registered at the close of business on the Regular Record Date for such
interest, which shall be the March 1 or September 1 (whether or not a Business
Day), as the case may be, next preceding such Interest Payment Date. Any such
interest not so punctually paid or duly provided for will forthwith cease to be
payable to the Holder on such Regular Record Date and may either be paid to the
Person in whose name this Security (or one or more Predecessor Securities) is
registered at the close of business on a Special Record Date for the payment of
such Defaulted Interest to be fixed by the Trustee, notice whereof shall be
given to Holders of Securities of this series not less than 10 days prior to
such Special Record Date, or be paid at any time in any other lawful manner not
inconsistent with the requirements of any securities exchange on which the
Securities of this series may be listed, and upon such notice as may be required
by such exchange, all as more fully provided in said Indenture.
Payment of the principal of (and premium, if any) and interest on this
Security will be made at the office or agency of the Company maintained for that
purpose in the Borough of Manhattan, The City of New York, in such coin or
currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts; provided, however, that at the
option of the Company payment of interest may be made by check mailed to the
address of the Person entitled thereto as such address shall appear in the
Security Register.
Reference is hereby made to the further provisions of this Security set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by the
Trustee referred to on the reverse hereof by manual signature, this Security
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.
Dated: March 10, 1999 BURLINGTON NORTHERN SANTA FE CORPORATION
By....................................
Patrick J. Ottensmeyer
Vice President - Finance and Treasurer
Attest:
............................
Jeffrey T. Williams
Assistant Secretary
This is one of the Securities of the series designated therein referred to
in the within-mentioned Indenture.
THE FIRST NATIONAL BANK OF CHICAGO,
As Trustee
By.....................................
Authorized Officer
<PAGE>
This Security is one of a duly authorized issue of securities of the
Company (herein called the "Securities"), issued and to be issued in one or more
series under an Indenture, dated as of December 1, 1995 (herein called the
"Indenture", which term shall have the meaning assigned to it in such
instrument), between the Company and The First National Bank of Chicago, as
Trustee (herein called the "Trustee", which term includes any successor trustee
under the Indenture), and reference is hereby made to the Indenture for a
statement of the respective rights, limitations of rights, duties and immunities
thereunder of the Company, the Trustee and the Holders of the Securities and of
the terms upon which the Securities are, and are to be, authenticated and
delivered. This Security is one of the series designated on the face hereof,
limited in aggregate principal amount to $200,000,000.
The Securities of this series are subject to redemption upon not less than
30 and not more than 60 days' notice by mail, at any time, as a whole or in
part, at the election of the Company, at a redemption price equal to the greater
of (i) 100% of their principal amount or (ii) the sum of the present values of
the remaining scheduled payments of principal and interest thereon discounted to
the date of redemption on a semiannual basis (assuming a 360-day year
consisting of twelve 30-day months) at the Treasury Rate (as defined in the
Officers' Certificate establishing the Securities of this series), plus 15 basis
points, plus in either case accrued interest to the date of redemption.
In the event of redemption of this Security in part only, a new Security or
Securities of this series and of like tenor for the unredeemed portion hereof
will be issued in the name of the Holder, upon the cancellation hereof.
The Indenture contains provisions for defeasance at any time of the entire
indebtedness of this Security or certain restrictive covenants and Events of
Default with respect to this Security, in each case upon compliance with certain
conditions set forth in the Indenture.
If an Event of Default with respect to Securities of this series shall
occur and be continuing, the principal of the Securities of this series may be
declared due and payable in the manner and with the effect provided in the
Indenture.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Securities of each series to be
affected under the Indenture at any time by the Company and the Trustee with the
consent of the Holders of a majority in principal amount of the Securities at
the time Outstanding of each series to be affected. The Indenture also contains
provisions permitting the Holders of specified percentages in principal amount
of the Securities of each series at the time Outstanding, on behalf of the
Holders of all Securities of such series, to waive compliance by the Company
with certain provisions of the Indenture and certain past defaults under the
Indenture and their consequences. Any such consent or waiver by the Holder of
this Security shall be conclusive and binding upon such Holder and upon all
future Holders of this Security and of any Security issued upon the registration
of transfer hereof or in exchange herefor or in lieu hereof, whether or not
notation of such consent or waiver is made upon this Security.
As provided in and subject to the provisions of the Indenture, the Holder
of this Security shall not have the right to institute any proceeding with
respect to the Indenture or for the appointment of a receiver or trustee or for
any other remedy thereunder, unless such Holder shall have previously given the
Trustee written notice of a continuing Event of Default with respect to the
Securities of this series, the Holders of not less than 25% in principal amount
of the Securities of this series at the time Outstanding shall have made written
request to the Trustee to institute proceedings in respect of such Event of
Default as Trustee and offered the Trustee reasonable indemnity, and the Trustee
shall not have received from the Holders of a majority in principal amount of
Securities of this series at the time Outstanding a direction inconsistent with
such request, and the Trustee shall have failed to institute any such
proceeding. For 60 days after receipt of such notice, request and offer of
indemnity. The foregoing shall not apply to any suit instituted by the Holder of
this Security for the enforcement of any payment of principal hereof or any
premium or interest hereon on or after the respective due dates expressed
herein.
No reference herein to the Indenture and no provision of this Security or
of the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of and any premium and interest
on this Security at the times, place and rate, and in the coin or currency,
herein prescribed.
As provided in the Indenture and subject to certain limitations therein set
forth, the transfer of this Security is registrable in the Security Register,
upon surrender of this Security for registration of transfer at the office or
agency of the Company in any place where the principal of and any premium and
interest on this Security are payable, duly endorsed by, or accompanied by a
written instrument of transfer in form satisfactory to the Company and the
Security Registrar duly executed by, the Holder hereof or his attorney duly
authorized in writing, and thereupon one or more new Securities of this series
and of like tenor, of authorized denominations and for the same aggregate
principal amount, will be issued to the designated transferee or transferees.
The Securities of this series are issuable only in registered form without
coupons in denominations of $1,000 and any integral multiple thereof. As
provided in the Indenture and subject to certain limitations therein set forth,
Securities of this series are exchangeable for a like aggregate principal amount
of Securities of this series and of like tenor of a different authorized
denomination, as requested by the Holder surrendering the same.
No service charge shall be made for any such registration of transfer or
exchange, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Security for registration of transfer, the
Company, the Trustee and any agent of the Company or the Trustee may treat the
Person in whose name this Security is registered as the owner hereof for all
purposes, whether or not this Security is overdue, and neither the Company, the
Trustee nor any such agent shall be affected by notice to the contrary.
All terms used in this Security which are defined in the Indenture shall
have the meanings assigned to them in the Indenture.
<PAGE>
EXHIBIT 4.3
BURLINGTON NORTHERN SANTA FE CORPORATION
6 3/4% DEBENTURE DUE MARCH 15, 2029
CUSIP NO. 12189TAN4 $200,000,000.00
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY
OR A NOMINEE THEREOF. THIS SECURITY MAY NOT BE EXCHANGED IN WHOLE OR
IN PART FOR A SECURITY REGISTERED, AND NO TRANSFER OF THIS SECURITY IN
WHOLE OR IN PART MAY BE REGISTERED, IN THE NAME OF ANY PERSON OTHER
THAN SUCH DEPOSITARY OR A NOMINEE THEREOF, EXCEPT IN THE LIMITED
CIRCUMSTANCES DESCRIBED IN THE INDENTURE.
BURLINGTON NORTHERN SANTA FE CORPORATION, a corporation duly organized and
existing under the laws of Delaware (herein called the "Company", which term
includes any successor Person under the Indenture hereinafter referred to), for
value received, hereby promises to pay to CEDE & CO. or registered assigns, the
principal sum of Two Hundred Million Dollars on March 15, 2029, and to pay
interest thereon from March 10, 1999 or from the most recent Interest Payment
Date to which interest has been paid or duly provided for, semi-annually on
March 15 and September 15 in each year, commencing September 15, 1999, at the
rate of 6.750% per annum, until the principal hereof is paid or made available
for payment. The interest so payable, and punctually paid or duly provided for,
on any Interest Payment Date will, as provided in such Indenture, be paid to the
Person in whose name this Security (or one or more Predecessor Securities) is
registered at the close of business on the Regular Record Date for such
interest, which shall be the March 1 or September 1 (whether or not a Business
Day), as the case may be, next preceding such Interest Payment Date. Any such
interest not so punctually paid or duly provided for will forthwith cease to be
payable to the Holder on such Regular Record Date and may either be paid to the
Person in whose name this Security (or one or more Predecessor Securities) is
registered at the close of business on a Special Record Date for the payment of
such Defaulted Interest to be fixed by the Trustee, notice whereof shall be
given to Holders of Securities of this series not less than 10 days prior to
such Special Record Date, or be paid at any time in any other lawful manner not
inconsistent with the requirements of any securities exchange on which the
Securities of this series may be listed, and upon such notice as may be required
by such exchange, all as more fully provided in said Indenture.
Payment of the principal of (and premium, if any) and interest on this
Security will be made at the office or agency of the Company maintained for that
purpose in the Borough of Manhattan, The City of New York, in such coin or
currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts; provided, however, that at the
option of the Company payment of interest may be made by check mailed to the
address of the Person entitled thereto as such address shall appear in the
Security Register.
Reference is hereby made to the further provisions of this Security set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by the
Trustee referred to on the reverse hereof by manual signature, this Security
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.
Dated: March 10, 1999 BURLINGTON NORTHERN SANTA FE CORPORATION
By.......................................
Patrick J. Ottensmeyer
Vice President - Finance and Treasurer
Attest:
...........................
Jeffrey T. Williams
Assistant Secretary
This is one of the Securities of the series designated therein referred to
in the within-mentioned Indenture.
THE FIRST NATIONAL BANK OF CHICAGO.
As Trustee
By.......................................
Authorized Officer
<PAGE>
This Security is one of a duly authorized issue of securities of the
Company (herein called the "Securities"), issued and to be issued in one or more
series under an Indenture, dated as of December 1, 1995 (herein called the
"Indenture", which term shall have the meaning assigned to it in such
instrument), between the Company and The First National Bank of Chicago, as
Trustee (herein called the "Trustee", which term includes any successor trustee
under the Indenture), and reference is hereby made to the Indenture for a
statement of the respective rights, limitations of rights, duties and immunities
thereunder of the Company, the Trustee and the Holders of the Securities and of
the terms upon which the Securities are, and are to be, authenticated and
delivered. This Security is one of the series designated on the face hereof,
limited in aggregate principal amount to $200,000,000.
The Securities of this series are subject to redemption upon not less than
30 and not more than 60 days' notice by mail, at any time, as a whole or in
part, at the election of the Company, at a redemption price equal to the greater
of (i) 100% of their principal amount or (ii) the sum of the present values of
the remaining scheduled payments of principal and interest thereon discounted
to the date of redemption on a semiannual basis (assuming a 360-day year
consisting of twelve 30-day months) at the Treasury Rate (as defined in the
Officers' Certificate establishing the Securities of this series), plus 15 basis
points, plus in either case accrued interest to the date of redemption.
In the event of redemption of this Security in part only, a new Security or
Securities of this series and of like tenor for the unredeemed portion hereof
will be issued in the name of the Holder, upon the cancellation hereof.
The Indenture contains provisions for defeasance at any time of the entire
indebtedness of this Security or certain restrictive covenants and Events of
Default with respect to this Security, in each case upon compliance with certain
conditions set forth in the Indenture.
If an Event of Default with respect to Securities of this series shall
occur and be continuing, the principal of the Securities of this series may be
declared due and payable in the manner and with the effect provided in the
Indenture.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Securities of each series to be
affected under the Indenture at any time by the Company and the Trustee with the
consent of the Holders of a majority in principal amount of the Securities at
the time Outstanding of each series to be affected. The Indenture also contains
provisions permitting the Holders of specified percentages in principal amount
of the Securities of each series at the time Outstanding, on behalf of the
Holders of all Securities of such series, to waive compliance by the Company
with certain provisions of the Indenture and certain past defaults under the
Indenture and their consequences. Any such consent or waiver by the Holder of
this Security shall be conclusive and binding upon such Holder and upon all
future Holders of this Security and of any Security issued upon the registration
of transfer hereof or in exchange herefor or in lieu hereof, whether or not
notation of such consent or waiver is made upon this Security.
As provided in and subject to the provisions of the Indenture, the Holder
of this Security shall not have the right to institute any proceeding with
respect to the Indenture or for the appointment of a receiver or trustee or for
any other remedy thereunder, unless such Holder shall have previously given the
Trustee written notice of a continuing Event of Default with respect to the
Securities of this series, the Holders of not less than 25% in principal amount
of the Securities of this series at the time Outstanding shall have made written
request to the Trustee to institute proceedings in respect of such Event of
Default as Trustee and offered the Trustee reasonable indemnity, and the Trustee
shall not have received from the Holders of a majority in principal amount of
Securities of this series at the time Outstanding a direction inconsistent with
such request, and the Trustee shall have failed to institute any such
proceeding, for 60 days after receipt of such notice, request and offer of
indemnity. The foregoing shall not apply to any suit instituted by the Holder of
this Security for the enforcement of any payment of principal hereof or any
premium or interest hereon on or after the respective due dates expressed
herein.
No reference herein to the Indenture and no provision of this Security or
of the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of and any premium and interest
on this Security at the times, place and rate, and in the coin or currency,
herein prescribed.
As provided in the Indenture and subject to certain limitations therein set
forth, the transfer of this Security is registrable in the Security Register,
upon surrender of this Security for registration of transfer at the office or
agency of the Company in any place where the principal of and any premium and
interest on this Security are payable, duly endorsed by, or accompanied by a
written instrument of transfer in form satisfactory to the Company and the
Security Registrar duly executed by, the Holder hereof or his attorney duly
authorized in writing, and thereupon one or more new Securities of this series
and of like tenor, of authorized denominations and for the same aggregate
principal amount, will be issued to the designated transferee or transferees.
The Securities of this series are issuable only in registered form without
coupons in denominations of $1,000 and any integral multiple thereof. As
provided in the Indenture and subject to certain limitations therein set forth.
Securities of this series are exchangeable for a like aggregate principal amount
of Securities of this series and of like tenor of a different authorized
denomination, as requested by the Holder surrendering the same.
No service charge shall be made for any such registration of transfer or
exchange, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Security for registration of transfer, the
Company, the Trustee and any agent of the Company or the Trustee may treat the
Person in whose name this Security is registered as the owner hereof for all
purposes, whether or not this Security is overdue, and neither the Company, the
Trustee nor any such agent shall be affected by notice to the contrary.
All terms used in this Security which are defined in the Indenture shall
have the meanings assigned to them in the Indenture.
<PAGE>
Exhibit 4.4
-----------
Burlington Northern Santa Fe Corporation
6.70% Debenture due August 1, 2028
CUSIP No.12189TAJ3 $200,000,000.00
This Security is a Global Security within the meaning of the Indenture
hereinafter referred to and is registered in the name of a Depositary or a
nominee thereof. This Security may not be exchanged in whole or in part for
a Security registered, and no transfer of this Security in whole or in part
may be registered, in the name of any Person other than such Depositary or
a nominee thereof, except in the limited circumstances described in the
Indenture.
BURLINGTON NORTHERN SANTA FE CORPORATION, a corporation duly organized and
existing under the laws of Delaware (herein called the "Company", which term
includes any successor Person under the Indenture hereinafter referred to), for
value received, hereby promises to pay to CEDE & CO. or registered assigns, the
principal sum of Two Hundred Million Dollars on August 1, 2028, and to pay
interest thereon from July 30, 1998 or from the most recent Interest Payment
Date to which interest has been paid or duly provided for, semi-annually on
February 1 and August 1 in each year, commencing February 1, 1999, at the rate
of 6.70% per annum, until the principal hereof is paid or made available for
payment. The interest so payable, and punctually paid or duly provided for, on
any Interest Payment Date will, as provided in such Indenture, be paid to the
Person in whose name this Security (or one or more Predecessor Securities) is
registered at the close of business on the Regular Record Date for such
interest, which shall be the January 15 or July 15 (whether or not a Business
Day), as the case may be, next preceding such Interest Payment Date. Any such
interest not so punctually paid or duly provided for will forthwith cease to be
payable to the Holder on such Regular Record Date and may either be paid to the
Person in whose name this Security (or one or more Predecessor Securities) is
registered at the close of business on a Special Record Date for the payment of
such Defaulted Interest to be fixed by the Trustee, notice whereof shall be
given to Holders of Securities of this series not less than 10 days prior to
such Special Record Date, or be paid at any time in any other lawful manner not
inconsistent with the requirements of any securities exchange on which the
Securities of this series may be listed, and upon such notice as may be required
by such exchange, all as more fully provided in said Indenture.
Payment of the principal of (and premium, if any) and interest on this
Security will be made at the office or agency of the Company maintained for that
purpose in the Borough of Manhattan, The City of New York, in such coin or
currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts; provided, however, that at the
option of the Company payment of interest may be made by check mailed to the
address of the Person entitled thereto as such address shall appear in the
Security Register.
Reference is hereby made to the further provisions of this Security set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by the
Trustee referred to on the reverse hereof by manual signature, this Security
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
In Witness Whereof, the Company has caused this instrument to be duly
executed under its corporate seal.
Dated: July 30, 1998 BURLINGTON NORTHERN SANTA FE CORPORATION
By.......................................
Paul J. Weyandt
Assistant Vice President - Finance and
Assistant Treasurer
Attest:
...............................
Jeffrey T. Williams
Assistant Secretary
<PAGE>
This is one of the Securities of the series designated therein referred to
in the within-mentioned Indenture.
THE FIRST NATIONAL BANK OF CHICAGO,
As Trustee
By.......................................
Authorized Officer
<PAGE>
This Security is one of a duly authorized issue of securities of the
Company (herein called the "Securities"), issued and to be issued in one or more
series under an Indenture, dated as of December 1, 1995 (herein called the
"Indenture", which term shall have the meaning assigned to it in such
instrument), between the Company and The First National Bank of Chicago, as
Trustee (herein called the "Trustee", which term includes any successor trustee
under the Indenture), and reference is hereby made to the Indenture for a
statement of the respective rights, limitations of rights, duties and immunities
thereunder of the Company, the Trustee and the Holders of the Securities and of
the terms upon which the Securities are, and are to be, authenticated and
delivered. This Security is one of the series designated on the face hereof,
limited in aggregate principal amount to $200,000,000.
The Securities of this series are subject to redemption upon not less than
30 and not more than 60 days' notice by mail, at any time, as a whole or in
part, at the election of the Company, at a redemption price equal to the greater
of (i) 100% of their principal amount or (ii) as determined by an Independent
Investment Banker (as defined in the Officers' Certificate establishing the
Securities of this series), the sum of the present values of the remaining
scheduled payments of principal and interest thereon (not including any portion
of such payments of interest accrued as of the date of redemption) discounted to
the date of redemption on a semiannual basis (assuming a 360-day year consisting
of twelve 30-day months) at the Adjusted Treasury Rate (as defined in the
Officers' Certificate establishing the Securities of this series), plus, in each
case, accrued interest thereon to the date of redemption. Unless the Company
defaults in payment of the redemption price, on and after the date of
redemption, interest will cease to accrue on the Securities or portions thereof
called for redemption.
In the event of redemption of this Security in part only, a new Security or
Securities of this series and of like tenor for the unredeemed portion hereof
will be issued in the name of the Holder, upon the cancellation hereof.
The Indenture contains provisions for defeasance at any time of the entire
indebtedness of this Security or certain restrictive covenants and Events of
Default with respect to this Security, in each case upon compliance with certain
conditions set forth in the Indenture.
If an Event of Default with respect to Securities of this series shall
occur and be continuing, the principal of the Securities of this series may be
declared due and payable in the manner and with the effect provided in the
Indenture.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Securities of each series to be
affected under the Indenture at any time by the Company and the Trustee with the
consent of the Holders of a majority in principal amount of the Securities at
the time Outstanding of each series to be affected. The Indenture also contains
provisions permitting the Holders of specified percentages in principal amount
of the Securities of each series at the time Outstanding, on behalf of the
Holders of all Securities of such series, to waive compliance by the Company
with certain provisions of the Indenture and certain past defaults under the
Indenture and their consequences. Any such consent or waiver by the Holder of
this Security shall be conclusive and binding upon such Holder and upon all
future Holders of this Security and of any Security issued upon the registration
of transfer hereof or in exchange herefor or in lieu hereof, whether or not
notation of such consent or waiver is made upon this Security.
As provided in and subject to the provisions of the Indenture, the Holder
of this Security shall not have the right to institute any proceeding with
respect to the Indenture or for the appointment of a receiver or trustee or for
any other remedy thereunder, unless such Holder shall have previously given the
Trustee written notice of a continuing Event of Default with respect to the
Securities of this series, the Holders of not less than 25% in principal amount
of the Securities of this series at the time Outstanding shall have made written
request to the Trustee to institute proceedings in respect of such Event of
Default as Trustee and offered the Trustee reasonable indemnity, and the Trustee
shall not have received from the Holders of a majority in principal amount of
Securities of this series at the time Outstanding a direction inconsistent with
such request, and the Trustee shall have failed to institute any such
proceeding, for 60 days after receipt of such notice, request and offer of
indemnity. The foregoing shall not apply to any suit instituted by the Holder of
this Security for the enforcement of any payment of principal hereof or any
premium or interest hereon on or after the respective due dates expressed
herein.
No reference herein to the Indenture and no provision of this Security or
of the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of and any premium and interest
on this Security at the times, place and rate, and in the coin or currency,
herein prescribed.
As provided in the Indenture and subject to certain limitations therein set
forth, the transfer of this Security is registrable in the Security Register,
upon surrender of this Security for registration of transfer at the office or
agency of the Company in any place where the principal of and any premium and
interest on this Security are payable, duly endorsed by, or accompanied by a
written instrument of transfer in form satisfactory to the Company and the
Security Registrar duly executed by, the Holder hereof or his attorney duly
authorized in writing, and thereupon one or more new Securities of this series
and of like tenor, of authorized denominations and for the same aggregate
principal amount, will be issued to the designated transferee or transferees.
The Securities of this series are issuable only in registered form without
coupons in denominations of $1,000 and any integral multiple thereof. As
provided in the Indenture and subject to certain limitations therein set forth,
Securities of this series are exchangeable for a like aggregate principal amount
of Securities of this series and of like tenor of a different authorized
denomination, as requested by the Holder surrendering the same.
No service charge shall be made for any such registration of transfer or
exchange, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith.
<PAGE>
Prior to due presentment of this Security for registration of transfer, the
Company, the Trustee and any agent of the Company or the Trustee may treat the
Person in whose name this Security is registered as the owner hereof for all
purposes, whether or not this Security is overdue, and neither the Company, the
Trustee nor any such agent shall be affected by notice to the contrary.
All terms used in this Security which are defined in the Indenture shall
have the meanings assigned to them in the Indenture.
<PAGE>
Exhibit 10.37
INDEMNIFICATION AGREEMENT
This INDEMNIFICATION AGREEMENT is made as of the 17th day of September,
1998 by and between Burlington Northern Santa Fe Corporation, a Delaware
corporation (the "Company"), and the undersigned (the "Indemnitee" and, together
with other persons who may execute similar agreements, the "Indemnitees").
The Indemnitee currently is and in the future may be serving in one or
more capacities as a director or officer of the Company or, at the request of
the Company, as a director, officer, employee, agent, fiduciary, or trustee of,
or in a similar capacity for, another corporation, partnership, joint venture,
trust, employee benefit plan, or other entity, and in so doing is and will be
performing a valuable service to or on behalf of the Company. The Board of
Directors of the Company has determined that, in order to attract and retain
qualified individuals, the Company will supplement the Company's liability
insurance for officers and directors and the protection provided by the
Company's By-Laws by providing the contractual assurances herein contained. The
Indemnitee is willing to continue to serve and to undertake such additional
duties and responsibilities for and on behalf of the Company as may be agreed to
on the condition that he be indemnified contractually by the Company. As an
inducement to the Indemnitee to continue to serve the Company, and in
consideration for such continued service, the Company has therefore agreed to
indemnify the Indemnitee and to advance certain expenses upon the terms set
forth herein.
In consideration of the promises and mutal covenants contained herein,
and intending to be legally bound hereby, the Company and the Indemnitee agree
as follows:
1. Indemnification
---------------
(a) Except as provided in Sections 3 and 5 hereof, the Company shall
indemnify the Indemnitee to the full extent permitted by law against any
Liability incurred by or assessed against the Indemnitee in connection with any
Proceeding in which the Indemnitee may be involved, as a party, a witness or
otherwise, by reason of the fact that the Indemnitee is or was serving in any
Official Capacity held now or in the future, including, without limitation, any
Liability resulting from actual or alleged breach or neglect of duty, error,
misstatement, misleading statement, omission, negligence, act giving rise to
strict or product liability, act giving rise to liability for environmental
contamination, or other act or omission, whether occurring prior to or after the
date of this Agreement. As used in this Agreement:
(1) "Liability" means any damage, judgement, amount paid in
settlement, fine, penalty, punitive damage, or expense of any nature (including
attorney's fees and expenses);
<PAGE>
(2) "Proceeding" means any threatened, pending, or completed action,
suit, appeal, arbitration, or other proceeding of any nature, whether civil,
criminal, administrative, or investigative, whether formal or informal, and
whether brought by or in the right of the Company, a class of its security
holders, or any other party; and
(3) "Official Capacity" means service to the Company as director or
officer or, at the request of the Company, as a director, officer, employee,
agent, fiduciary, or trustee of, or in a similar capacity for, another
corporation, partnership, joint venture, trust, employee benefit plan (including
a plan qualified under the Employee Retirement Income Security Act of 1974), or
other entity.
(b) Notwithstanding Section 1(a) hereof, except for a Proceeding brought
pursuant to Section 5(e) of this Agreement, the Company shall not indemnify the
Indemnitee under this Agreement for any Liability incurred in a Proceeding
initiated by the Indemnitee unless the Proceeding is authorized, either before
or after commencement of the Proceeding, by the majority vote of a quorum of the
Board of Directors of the Company. An affirmative defense or counterclaim of an
Indemnitee shall not be deemed to constitute a Proceeding initiated by the
Indemnitee.
2. Agreement to Serve and to Cooperate with the Company in any Proceeding.
----------------------------------------------------------------------
The Indemnitee agrees to serve or continue to serve for or on behalf of the
Company in each Official Capacity held now or in the future for so long as the
Indemnitee is duly elected or appointed or until such time as the Indemnitee
tenders a resignation in writing or such service is otherwise terminated
pursuant to the Company's Certificate of Incorporation, By-Laws or the Delaware
General Corporation law. The Indemnitee also agrees to cooperate with the
Company in connection with the investigation, prosecution or defense of any
proceeding for which indemnification or the advancement of expenses may be
claimed hereunder. The foregoing notwithstanding, this Agreement shall continue
in force after the Indemnitee has ceased to serve in any Official Capacity for
or on behalf of the Company or any of its subsidiaries with respect to claims
based on matters occurring before the Indemnitee ceased to serve in any Official
Capacity.
3. Exclusions.
----------
(a) The Company shall not be liable under this Agreement to make any
payment in connection with any Liability incurred by the Indemnitee:
(1) to the extent payment for such Liability is made to or on behalf
of the Indemnitee under an insurance policy obtained by the Company;
(2) to the extent payment is made to or on behalf of the Indemnitee
for such Liability by the Company under its Certificate of Incorporation,
By-Laws, the Delaware General Corporation Law, or otherwise than pursuant to
this Agreement;
2
<PAGE>
(3) to the extent such Liability is determined in a final judgment
pursuant to Section 5(e) hereof to be based upon or attributable to the
Indemnitee gaining any personal profit or advantage to which such Indemnitee was
not legally entitled;
(4) for any claim by or on behalf of the Company for recovery of
profits resulting from the purchase and sale or sale and purchase by such
Indemnitee of equity securities of the Company pursuant to Section 16(b) of the
Securities Exchange Act of 1934, as amended;
(5) for which the conduct of the Indemnitee has been determined in a
final judgment pursuant to Section 5(e) hereof to constitute bad faith or active
and deliberate dishonesty, in either such case material to the cause of action
or claim at issue in the Proceeding; or
(6) to the extent such indemnification has been determined in a
final judgment pursuant to Section 5(e) hereof to be unlawful.
(b) No act, omission, liability, knowledge, or other fact of or relating
to any other person, including any other person who is also an Indemnitee, shall
be imputed to the Indemnitee for the purposes of determining the applicability
of any exclusion set forth herein.
(c) The termination of a proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent shall not, of
---- ----------
itself, create a presumption that the Indemnitee is not entitled to
indemnification under this Agreement.
4. Advancement of Expenses. The Company shall pay any Liability in the
nature of an expense (including attorneys' fees and expenses) incurred in good
faith by the Indemnitee in advance of the final disposition of a Proceeding
within twenty days of receipt of a demand for payment by the Indemnitee, and the
Indemnitee undertakes to repay any such amount if it shall ultimately be
determined pursuant to Section 5(e) hereof that the Indemnitee is not entitled
to be indemnified by the Company pursuant to this Agreement. The financial
ability of the Indemnitee to repay an advance shall not be a prerequisite to the
making of such advance.
3
<PAGE>
5. Indemnification Procedure.
-------------------------
(a) The Indemnitee shall notify promptly the Secretary of the Company of
the commencement of any Proceeding or the occurrence of any event which might
give rise to a Liability under this Agreement, but the failure to so notify the
Company shall not relieve the Company of any obligation which it may have to the
Indemnitee under this Agreement or otherwise.
(b) The Company shall be entitled, upon notice to the Indemnitee, to
assume the defense of any Proceeding with counsel reasonably satisfactory to the
Indemnitee involved in such Proceeding or, if there be more than one Indemnitee
involved in such Proceeding, to a majority of the Indemnitees involved in such
Proceeding. The foregoing notwithstanding, the Indemnitee may elect to retain
separate counsel to participate in the defense of such Proceeding and the fees
and expenses of such separate counsel shall be borne by Indemnitee unless: (i)
the engagement of sepatate counsel shall have been authorized by the Company, or
(ii) the Company shall not in fact have employed counsel reasonably satisfactory
to such Indemnitee or to the majority of Indemnitees if more than one is
involved, to assume the defense of such Proceeding.
(c) The Company shall not be required to obtain the consent of the
Indemnitee to the settlement of any Proceeding which the Company has undertaken
to defend if the Company assumes full and sole responsibility for such
settlement and the settlement grants the Indemnitee a complete and unqualified
release in respect of the potential Liability. The Company shall not be liable
for any amount paid by an Indemnitee in settlement of any Proceeding unless the
Company has consented to such settlement, which consent shall not be
unreasonably withheld.
(d) In the event that a claim for indemnificatiion against liabilities
arising under the Securities Act of 1933 (the "Act") (other than the payment by
the Company of expenses incurred or paid by a director, officer, or controlling
person of the Company in the successful defense of any action, suit, or
proceeding) is asserted by a director, officer, or controlling person in
connection with securities being registered under the Act, the Company will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of competent jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(e) If a claim under Section 1 of this Agreement is not paid in full by
the Company within sixty days after a written claim has been received by the
Company, except in the case of a claim for an advancement of expenses, in which
case the applicable period shall be twenty days, the Indemnitee may at any time
thereafter bring suit against the Company to recover the unpaid amount of the
claim and, to the extent successful in whole or in part, the Indemnitee shall
also be entitled to be paid the expense of prosecuting such suit. Any suit by
the Indemnitee under this Agreement must be brought in the Delaware Court of
Chancery. The Indemnitee shall be presumed to be entitled to indemnification
under this Agreement upon submission of a written
4
<PAGE>
claim, and thereafter the Company shall have the burden of proof to overcome the
presumption that the Indemnitee is not so entitled. Neither the failure of the
Company (including its Board of Directors, independent legal counsel or its
stockholders) to have made a determination prior to the commencement of such
suit that indemnification of the Indemnitee is proper in the circumstances nor
any actual determination by the Company (including its Board of Directors,
independent legal counsel or its stockholders) that the Indemnitee is not
entitled to indemnification shall be a defense to the suit or create a
presumption that the Indemnitee is not so entitled except to the extent required
by law.
(f) Upon a payment under this Agreement to the Indemnitee with respect
to any Liability, the Company shall be subrogated to the extent of such payment
to all of the rights of the Indemnitee to recover against any person with
respect to such Liability, and the Indemnitee shall execute all documents and
instruments required and shall take such other actions as may be necessary to
secure such rights, including the execution of such documents as may be
necessary for the Company to bring suit to enforce such rights.
6. Non-Exclusivity. The rights granted to the Indemnitee pursuant to this
---------------
Agreement shall not be deemed exclusive of any other rights to which the
Indemnitee may be entitled under statute, the provisions of any certificate of
incorporation, by-laws, or agreement, a vote of stockholders or directors, or
otherwise, both as to action in an Official Capacity and in any other capacity.
7. Reliance on Provisions. The Indemnitee shall be deemed to be acting in
----------------------
any Official Capacity in reliance upon the rights of indemnification provided by
this Agreement. Without limiting the generality of the foregoing, the Company
and the Indemnitee acknowledge the existence of Article X of the Company's
By-Laws, and confirm that the Indemnitee is also acting in reliance thereon.
8. Severability and Reformation. Any provision of this Agreement which is
----------------------------
determined to be invalid or unenforceable in any jurisdiction or under any
circumstances shall be ineffective only to the extent of such invalidity or
unenforceability and shall be deemed reformed to the extent necessary to conform
to the applicable law of such jurisdiction and still give maximum effect to the
intent of the parties hereto. Any such determination shall not invalidate or
render unenforceable the remaining provisions hereof and shall not invalidate or
render unenforceable such provision in any other jurisdiction or under any other
circumstances.
9. Notices. Any notice, claim, request, or demand required or permitted
-------
hereunder shall be in writing and shall be deemed given if delivered personally
or sent by facsimile or by registered or certified mail, first class, postage
prepaid: (i) if to the Company, to Burlington Northern Santa Fe Corporation,
2650 Lou Menk Drive, Second Floor Fort Worth, Texas 76131-2830, Attention:
Secretary, or (ii) if to any Indemnitee, to the address of such Indemnitee
listed on the signature page hereto, or to such other address as any party
hereto shall have specified in a notice duly given in accordance with this
Section 10.
5
<PAGE>
10. Amendments; Binding Effect. No amendment, modification, termination, or
--------------------------
cancellation of this Agreement shall be effective unless signed in writing by
the Company and the Indemnitee. This Agreement shall be binding upon the Company
and its successors and assigns and shall inure to the benefit of the
Indemnitee's heirs, executors, administrators, and personal representatives.
11. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of Delaware, without regard to the
conflict of laws provisions thereof.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
day and year first set forth above.
BURLINGTON NORTHERN SANTA FE
CORPORATION
By: __________________________
Name: Robert D. Krebs
Chairman, President and
Chief Executive Officer
Attest:
______________________
Secretary
Indemnitee
______________________________
Name:
Address:
6
<PAGE>
Exhibit 10.38
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT is made as of the 17th day of September,
1998 by and between Burlington Northern Santa Fe Corporation, a Delaware
corporation (the "Company"), and the undersigned (the "Indemnitee" and, together
with other persons who may execute similar agreements, the "Indemnitees").
The Indemnitee currently is and in the future may be serving in one or
more capacities as a director or officer of the Company or, at the request of
the Company, as a director, officer, employee, agent, fiduciary, or trustee of,
or in a similar capacity for, another corporation, partnership, joint venture,
trust, employee benefit plan, or other entity, and in so doing is and will be
performing a valuable service to or on behalf of the Company. The Board of
Directors of the Company has determined that, in order to attract and retain
qualified individuals, the Company will supplement the Company's liability
insurance for officers and directors and the protection provided by the
Company's By-Laws by providing the contractual assurances herein contained. The
Indemnitee is willing to continue to serve and to undertake such additional
duties and responsibilities for and on behalf of the Company as may be agreed to
on the condition that [he] [she] be indemnified contractually by the Company. As
an inducement to the Indemnitee to continue to serve the Company, and in
consideration for such continued service, the Company has therefore agreed to
indemnify the Indemnitee and to advance certain expenses upon the terms set
forth herein.
In consideration of the promises and mutual covenants contained herein,
and intending to be legally bound hereby, the Company and the Indemnitee agree
as follows:
1. Indemnification
---------------
(a) Except as provided in Sections 3 and 5 hereof, the Company shall
indemnify the Indemnitee to the full extent permitted by law against any
Liability incurred by or assessed against the Indemnitee in connection with any
Proceeding in which the Indemnitee may be involved, as a party, a witness or
otherwise, by reason of the fact that the Indemnitee is or was serving in any
Official Capacity held now or in the future, including, without limitation, any
Liability resulting from actual or alleged breach or neglect of duty, error,
misstatement, misleading statement, omission, negligence, act giving rise to
strict or product liability, act giving rise to liability for environmental
contamination, or other act or omission, whether occurring prior to or after the
date of this Agreement. As used in this Agreement:
(1) "Liability" means any damage, judgment, amount paid in
settlement, fine, penalty, punitive damage, or expense of any nature (including
attorney's fees and expenses);
<PAGE>
(2) "Proceeding" means any threatened, pending, or completed action,
suit, appeal, arbitration, or other proceeding of any nature, whether civil,
criminal, administrative, or investigative, whether formal or informal, and
whether brought by or in the right of the Company, a class of its security
holders, or any other party; and
(3) "Official Capacity" means service to the Company as director or
officer or, at the request of the Company, as a director, officer, employee,
agent, fiduciary, or trustee of, or in a similar capacity for, another
corporation, partnership, joint venture, trust, employee benefit plan (including
a plan qualified under the Employee Retirement Income Security Act of 1974), or
other entity.
(b) Notwithstanding Section 1(a) hereof, except for a Proceeding brought
pursuant to Section 5(e) of this Agreement, the Company shall not indemnify the
Indemnitee under this Agreement for any Liability incurred in a Proceeding
initiated by the Indemnitee unless the Proceeding is authorized, either before
or after commencement of the Proceeding, by the majority vote of a quorum of the
Board of Directors of the Company. An affirmative defense or counterclaim of an
Indemnitee shall not be deemed to constitute a Proceeding initiated by the
Indemnitee.
2. Agreement to Serve and to Cooperate with the Company in any Proceeding.
----------------------------------------------------------------------
The Indemnitee agrees to serve or continue to serve for or on behalf of the
Company in each Official Capacity held now or in the future for so long as the
Indemnitee is duly elected or appointed or until such time as the Indemnitee
tenders a resignation in writing [for outside Directors - or such service is
otherwise terminated pursuant to the Company's Certificate of Incorporation,
By-Laws or the Delaware General Corporation Law]. [For officers - This Agreement
shall not be deemed an employment contract between the Company or any of its
subsidiaries and any Indemnitee who is an employee of the Company or any of its
subsidiaries. The Indemnitee specifically acknowledges that the Indemnitee's
employment with the Company or any of its subsidiaries, if any, is at will, and
that the Indemnitee may be discharged at any time for any reason, with or
without cause, except as may be otherwise provided in any written employment
contract between the Indemnitee and the Company or any of its subsidiaries, or
other applicable formal severance policies duly adopted by the board of
directors of the Indemnitee's employer.] The Indemnitee also agrees to cooperate
with the Company in connection with the investigation, prosecution or defense of
any proceeding for which indemnification or the advancement of expenses may be
claimed hereunder. The foregoing notwithstanding, this Agreement shall continue
in force after the Indemnitee has ceased to serve in any Official Capacity for
or on behalf of the Company or any of its subsidiaries with respect to claims
based on matters occurring before the Indemnitee ceased to serve in any Official
Capacity.
3. Exclusions.
----------
(a) The Company shall not be liable under this Agreement to make any
payment in connection with any Liability incurred by the Indemnitee:
2
<PAGE>
(1) to the extent payment for such Liability is made to or on behalf
of the Indemnitee under an insurance policy obtained by the Company;
(2) to the extent payment is made to or on behalf of the Indemnitee
for such Liability by the Company under its Certificate of Incorporation,
By-Laws, the Delaware General Corporation Law, or otherwise than pursuant to
this Agreement;
(3) to the extent such Liability is determined in a final judgment
pursuant to Section 5(e) hereof to be based upon or attributable to the
Indemnitee gaining any personal profit or advantage to which such Indemnitee was
not legally entitled;
(4) for any claim by or on behalf of the Company for recovery of
profits resulting from the purchase and sale or sale and purchase by such
Indemnitee of equity securities of the Company pursuant to Section 16(b) of the
Securities Exchange Act of 1934, as amended;
(5) for which the conduct of the Indemnitee has been determined in a
final judgment pursuant to Section 5(e) hereof to constitute bad faith or active
and deliberate dishonesty, in either such case material to the cause of action
or claim at issue in the Proceeding; or
(6) to the extent such indemnification has been determined in a
final judgment pursuant to Section 5(e) hereof to be unlawful.
(b) No act, omission, liability, knowledge, or other fact of or relating
to any other person, including any other person who is also an Indemnitee, shall
be imputed to the Indemnitee for the purposes of determining the applicability
of any exclusion set forth herein.
(c) The termination of a proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent shall not, of
---- ----------
itself, create a presumption that the Indemnitee is not entitled to
indemnification under this Agreement.
4. Advancement of Expenses. The Company shall pay any Liability in the
-----------------------
nature of an expense (including attorneys' fees and expenses) incurred in good
faith by the Indemnitee in advance of the final disposition of a Proceeding
within twenty days of receipt of a demand for payment by the Indemnitee, and the
Indemnitee undertakes to repay any such amount if it shall ultimately be
determined pursuant to Section 5(e) hereof that the Indemnitee is not entitled
to be indemnified by the Company pursuant to this Agreement. The financial
ability of the Indemnitee to repay an advance shall not be a prerequisite to the
making of such advance.
3
<PAGE>
5. Indemnification Procedure.
-------------------------
(a) The Indemnitee shall notify promptly the Secretary of the Company of
the commencement of any Proceeding or the occurrence of any event which might
give rise to a Liability under this Agreement, but the failure to so notify the
Company shall not relieve the Company of any obligation which it may have to the
Indemnitee under this Agreement or otherwise.
(b) The Company shall be entitled, upon notice to the Indemnitee, to
assume the defense of any Proceeding with counsel reasonably satisfactory to the
Indemnitee involved in such Proceeding or, if there be more than one Indemnitee
involved in such Proceeding, to a majority of the Indemnitees involved in such
Proceeding. The foregoing notwithstanding, the Indemnitee may elect to retain
separate counsel to participate in the defense of such Proceeding and the fees
and expenses of such separate counsel shall be borne by Indemnitee unless; (i)
the engagement of separate counsel shall have been authorized by the Company, or
(ii) the Company shall not in fact have employed counsel reasonably satisfactory
to such Indemnitee or to the majority of Indemnitees if more than one is
involved, to assume the defense of such Proceeding.
(c) The Company shall not be required to obtain the consent of the
Indemnitee to the settlement of any Proceeding which the Company has undertaken
to defend if the Company assumes full and sole responsibility for such
settlement and the settlement grants the Indemnitee a complete and unqualified
release in respect of the potential Liability. The Company shall not be liable
for any amount paid by an Indemnitee in settlement of any Proceeding unless the
Company has consented to such settlement, which consent shall not be
unreasonably withheld.
(d) In the event that a claim for indemnification against liabilities
arising under the Securities Act of 1933 (the "Act") (other than the payment by
the Company of expenses incurred or paid by a director, officer, or controlling
person of the Company in the successful defense of any action, suit, or
proceeding) is asserted by a director, officer, or controlling person in
connection with securities being registered under the Act, the Company will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of competent jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(e) If a claim under Section 1 of this Agreement is not paid in full by
the Company within sixty days after a written claim has been received by the
Company, except in the case of a claim for an advancement of expenses, in which
case the applicable period shall be twenty days, the Indemnitee may at any time
thereafter bring suit against the Company to recover the unpaid amount of the
claim and, to the extent successful in whole or in part, the Indemnitee shall
also be entitled to be paid the expense of prosecuting such suit. Any suit by
the Indemnitee under this Agreement must be brought in the Delaware Court of
Chancery. The Indemnitee shall be presumed to be entitled to indemnification
under this Agreement upon submission of a written
4
<PAGE>
claim, and thereafter the Company shall have the burden of proof to overcome the
presumption that the Indemnitee is not so entitled. Neither the failure of the
Company (including its Board of Directors, independent legal counsel or its
stockholders) to have made a determination prior to the commencement of such
suit that indemnification of the Indemnitee is proper in the circumstances nor
any actual determination by the Company (including its Board of Directors,
independent legal counsel or its stockholders) that the Indemnitee is not
entitled to indemnification shall be a defense to the suit or create a
presumption that the Indemnitee is not so entitled except to the extent required
by law.
(f) Upon a payment under this Agreement to the Indemnitee with respect
to any Liability, the Company shall be subrogated to the extent of such payment
to all of the rights of the Indemnitee to recover against any person with
respect to such Liability, and the Indemnitee shall execute all document and
instruments required and shall take such other actions as may be necessary to
secure such rights, including the execution of such documents as may be
necessary for the Company to bring suit to enforce such rights.
6. Non-Exclusivity. The rights granted to the Indemnitee pursuant to this
---------------
Agreement shall not be deemed exclusive of any other rights to which the
Indemnitee may be entitled under statute, the provisions of any certificate of
incorporation, by-laws, or agreement, a vote of stockholders or directors, or
otherwise, both as to action in an Official Capacity and in any other capacity.
7. Reliance on Provisions. The Indemnitee shall be deemed to be acting in
----------------------
any Official Capacity in reliance upon the rights of indemnification provided by
this Agreement Without limiting the generality of the foregoing, the Company and
the Indemnitee acknowledge the existence of Article X of the Company's By-Laws,
and confirm that the Indemnitee is also acting in reliance thereon.
8. Severability and Reformation. Any provision of this Agreement which is
----------------------------
determined to be invalid or unenforceable in any jurisdiction or under any
circumstances shall be ineffective only to the extent of such invalidity or
unenforceability and shall be deemed reformed to the extent necessary to conform
to the applicable law of such jurisdiction and still give maximum effect to the
intent of the parties hereto. Any such determination shall not invalidate or
render unenforceable the remaining provisions hereof and shall not invalidate or
render unenforceable such provision in any other jurisdiction or under any other
circumstances.
9. Notices. Any notice, claim, request, or demand required or permitted
-------
hereunder shall be in writing and shall be deemed given if delivered personally
or sent by facsimile or by registered or certified mail, first class, postage
prepaid: (i) if to the Company, to Burlington Northern Santa Fe Corporation,
_________________, Attention: Secretary, or (ii) if to any Indemnitee, to the
address of such Indemnitee listed on the signature page hereto, or to such other
address as any party hereto shall have specified in a notice duly given in
accordance with this Section 10.
5
<PAGE>
10. Amendments; Binding Effect. No amendment, modification, termination, or
--------------------------
cancellation of this Agreement shall be effective unless signed in writing by
the Company and the Indemnitee. This Agreement shall be binding upon the Company
and its successors and assigns and shall inure to the benefit of the
Indemnitee's heirs, executors, administrators, and personal representatives.
11. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of Delaware, without regard to the
conflict of laws provisions thereof.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
day and year first set forth above.
BURLINGTON NORTHERN SANTA FE
CORPORATION
By: _______________________
Name: Robert D. Krebs
Chairman, President & CEO
Attest:
_____________________
[Assistant] Secretary
Indemnitee
____________________________
Name:
Address:
6
<PAGE>
EXHIBIT 13.1
CONSOLIDATED FINANCIAL HIGHLIGHTS
Burlington Northern Santa Fe Corporation and Subsidiaries
(Dollars in millions, except per share data)
The selected financial data shown below include BNSF results for each of the
years ended December 31, 1998, 1997 and 1996, Burlington Northern Inc. results
for each of the two years ended December 31, 1995, and Santa Fe Pacific
Corporation results from September 22, 1995 through December 31, 1995.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
December 31, 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED:
Revenues $ 8,941 $ 8,370 $ 8,109 $ 6,099 $4,894
Operating income/(1)/ 2,158 1,767 1,748 526 853
Income before extraordinary item and cumulative
effect of change in accounting method/(2)/ 1,155 885 889 198 426
Accounting change/Extraordinary item/(3)(4)/ -- -- -- (106) (10)
Net income $ 1,155 $ 885 $ 889 $ 92 $ 416
Earnings available for common stockholders $ 1,155 $ 885 $ 889 $ 71 $ 394
Basic earnings per share:/(5)/
Before extraordinary item and change in
accounting method $ 2.45 $ 1.91 $ 1.95 $ .57 $ 1.51
Accounting change/Extraordinary item -- -- -- (.34) (.04)
Basic earnings per share $ 2.45 $ 1.91 $ 1.95 $ .23 $ 1.47
Average shares (in millions) 470.5 464.4 456.3 313.2 267.3
Diluted earnings per share:/(5)/
Before extraordinary item and change in
accounting method $ 2.43 $ 1.88 $ 1.91 $ .55 $ 1.46
Accounting change/Extraordinary item -- -- -- (.33) (.03)
Diluted earnings per share $ 2.43 $ 1.88 $ 1.91 $ .22 $ 1.43
Average shares (in millions) 476.2 471.1 464.4 317.7 291.3
Dividends declared per common share/(5)/ $ .44 $ .40 $ .40 $ .40 $ .40
- -------------------------------------------------- ------- ------- ------- ------- ------
AT YEAR END:
Total assets $22,690 $21,336 $19,763 $18,269 $7,592
Long-term debt and commercial paper,
including current portion 5,456 5,289 4,711 4,233 1,819
Stockholders' equity 7,770 6,812 5,981 5,037 2,237
Total debt to capital 41% 44% 44% 46% 45%
- -------------------------------------------------- ------- ------- ------- ------- ------
FOR THE YEAR ENDED:
Capital expenditures $ 2,147 $ 2,182 $ 2,234 $ 890 $ 698
Depreciation and amortization 832 773 760 520 362
Operating ratio/(6)/ 75.9% 77.8% 78.4% 79.3% 82.6%
- -------------------------------------------------- ------- ------- ------- ------- ------
</TABLE>
(1) 1997 and 1995 include $90 million ($57 million after-tax) and $735 million
($453 million after-tax), respectively, for special charges principally
related to employee merger and separation costs.
(2) Includes items in note (1) above. Additionally, 1998 includes a $32 million
after tax gain on the sale of substantially all of the Company's interest in
Santa Fe Pacific Pipeline Partners, L.P. as discussed in Note 2 of the
financial statements.
(3) 1995 includes the cumulative effect of the change in accounting method for
locomotive overhauls which decreased net income by $100 million.
Additionally, 1995 includes an extraordinary loss on retirement of debt of
$6 million (after tax).
(4) 1994 includes the cumulative effect of the implementation of the accounting
standard for post-employment benefits.
(5) Information for prior periods has been restated to reflect the 1998 three-
for-one common stock split.
(6) 1997 and 1995 operating ratios exclude the pre-tax charges discussed in note
(1) above.
BURLINGTON NORTHERN SANTA FE CORPORATION 1
<PAGE>
FINANCIAL CONTENTS
15 Management's Discussion and Analysis
25 Report of Management
25 Report of Independent Accountants
26 Consolidated Statement of Income
27 Consolidated Balance Sheet
28 Consolidated Statement of Cash Flows
29 Consolidated Statement of Changes in Stockholders' Equity
30 Notes to Consolidated Financial Statements
- --------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's discussion and analysis relates to the financial condition and
results of operations of Burlington Northern Santa Fe Corporation and its
majority-owned subsidiaries (collectively BNSF or Company). The principal
subsidiary of BNSF 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
YEAR ENDED DECEMBER 31, 1998 COMPARED WITH
YEAR ENDED DECEMBER 31, 1997
BNSF recorded net income for 1998 of $1,155 million ($2.43 per share), compared
with net income of $885 million ($1.88 per share) for 1997 principally
reflecting increased revenues in intermodal, coal and other sectors. More
moderate winter weather in the first quarter of 1998 relative to 1997, gains on
real estate portfolio sales and a first quarter 1998 $67 million pre-tax gain
($32 million after-tax or $0.07 per share) on the sale of substantially all of
the Company's interest in Santa Fe Pacific Pipeline Partners, L.P. also
contributed to the improvement. In addition, 1997 included a $90 million pre-tax
special charge ($57 million after-tax or $0.12 per share) principally related to
the consolidation of clerical functions (see Other Matters: Employee Merger and
Separation Costs).
Excluding the 1998 gain on the pipelines sale and the 1997 special charge,
BNSF's adjusted net income for 1998 was $1,123 million ($2.36 per share)
compared with 1997 adjusted net income of $942 million ($2.00 per share).
- --------------------------------------------------------------------------------
REVENUE TABLE
The following table presents BNSF's revenue information by commodity for the
years ended December 31, 1998, 1997 and 1996 and includes certain
reclassifications of prior year information to conform to current year
presentation.
<TABLE>
<CAPTION>
Revenues Car/Units Average Revenue Per Car/Units
------------------------------ ---------------------------- -----------------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
(IN MILLIONS) (IN THOUSANDS)
------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Intermodal $2,469 $2,282 $2,039 3,126 2,854 2,570 $ 790 $ 800 $ 793
Coal 2,239 1,972 1,973 2,078 1,862 1,854 1,077 1,059 1,064
Agriculture Commodities 1,077 1,087 1,171 581 577 587 1,854 1,884 1,995
Chemicals 841 812 782 504 482 460 1,669 1,685 1,700
Metals and Minerals 757 731 693 660 622 628 1,147 1,175 1,104
Forest Products 598 564 548 344 335 334 1,738 1,684 1,641
Consumer Goods 553 497 468 365 349 308 1,515 1,424 1,519
Automotive 388 422 396 226 264 251 1,717 1,598 1,578
------ ------ ------ ------ ------ ------ ------ ------ ------
Total Freight Revenues 8,922 8,367 8,070 7,884 7,345 6,992 $1,132 $1,139 $1,154
====== ====== ====== ====== ====== ======
Other Revenues 19 3 39
- ------------------------- ------ ------ ------
Total Revenues $8,941 $8,370 $8,109
========================= ====== ====== ======
</TABLE>
REVENUES
Total revenues for 1998 were $8,941 million, 7 percent or $571 million higher
than revenues of $8,370 million for 1997. The increase primarily reflects
increases in the intermodal, coal, chemicals, metals and minerals, forest
products, and consumer goods sectors partially offset by lower agricultural
commodities and automotive revenues. Average revenue per car/unit decreased
slightly in 1998 to $1,132 from $1,139 in 1997. During 1998, BNSF's share of the
Western United States (U.S.) rail traffic market, based on reporting to the
Association of American Railroads (AAR), increased 2.9 points to 44.3 percent.
This gain was primarily the result of the trackage rights gained from Union
Pacific Corporation (UP) and operating problems experienced by the UP associated
with consolidating operations.
Intermodal revenues of $2,469 million improved $187 million or 8 percent
compared with 1997 reflecting increases in the direct marketing, international
and truckload sectors. Direct marketing revenues benefited from increased units
shipped for UPS, less than truckload (LTL) customers and the United States
Postal Service. International revenues were up due to higher volume associated
with market share gains
BURLINGTON NORTHERN SANTA FE CORPORATION 15
<PAGE>
and new business established with Sealand, NYK, Maersk and K-Line. Truckload
revenues increased primarily due to volume growth from J.B. Hunt and Schneider.
Coal revenues of $2,239 million for 1998 increased $267 million or 14
percent primarily due to strong demand, volume gains associated with market
share improvements and favorable operating conditions as a result of a more
moderate winter in 1998.
Agricultural commodities revenues of $1,077 million for 1998 were $10
million or 1 percent lower than 1997 due to poor Pacific Northwest (PNW) corn
and soybeans exports as well as weak barley exports. This was partially offset
by increased movements of minor oilseeds exports.
Chemicals revenues of $841 million for 1998 were $29 million or 4 percent
higher than 1997. Increases in industrial chemicals, petroleum products and
plastics were partially offset by weak fertilizer markets.
Metals and minerals revenues of $757 million for 1998 were $26 million or 4
percent higher than 1997 and were led primarily by strength in aluminum and non-
ferrous materials as well as volume increases in steel products, cement and rock
and specialty minerals.
Forest products revenues of $598 million for 1998 were $34 million or 6
percent higher than 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 market share gains. Lumber volumes
increased due to higher levels of construction activity.
Consumer goods revenues of $553 million for 1998 were $56 million or 11
percent higher than 1997 primarily due to volume increases in corn syrup traffic
to Mexico, Texas and California and increased sugar traffic as 1997 was impacted
by severe winter weather. Government and machinery revenues increased as a
result of increased Boeing traffic.
Automotive revenues of $388 million for 1998 were $34 million or 8 percent
lower than 1997 reflecting decreases in volumes due to the loss of Ford's
Southwestern U.S. business and the impact of the 1998 General Motors strike,
partially offset by strong Honda loadings.
EXPENSES
Total operating expenses for 1998 were $6,783 million, an increase of $180
million or 3 percent higher than 1997. As discussed above, 1997 included a $90
million ($57 million after-tax) special charge principally related to the
consolidation of clerical functions. Excluding the special charge, 1998
operating expenses were $270 million or 4 percent higher than 1997. The
operating ratio improved to 75.9 percent for 1998 compared with a 77.8 percent
adjusted operating ratio for 1997.
Compensation and benefits expenses of $2,812 million were $137 million or 5
percent higher than 1997. Wages were higher due to volume related increases
primarily in train crew costs, wage increases for salaried and union employees,
and increased incentive compensation expense. These increases were partially
offset by lower labor costs associated with repairs to track and equipment as
1997 was unusually high because of severe winter weather.
Purchased services expenses of $894 million for 1998 were $71 million or 9
percent higher than 1997 due principally to higher joint facility costs from
increased operations over trackage rights obtained from UP, increased equipment
maintenance costs, and higher ramping costs related to increased intermodal
volumes.
Equipment rents expenses of $804 million were $16 million or 2 percent
lower than 1997. Improved equipment utilization and lower performance penalties
for grain cars were partially offset by volume driven increases for leased coal
cars and locomotives.
Fuel expenses of $724 million for 1998 were $23 million or 3 percent lower
than 1997, as a result of a 6 cent or 8 percent decrease in the average all-in
cost per gallon of diesel fuel, partially offset by a 6 percent volume driven
increase in consumption from 1,092 million gallons to 1,155 million gallons. The
decrease in the average all-in cost per gallon of diesel fuel includes a 13 cent
decrease in the average purchase price, partially offset by current year losses
related to BNSF's fuel hedging program. Gross ton-miles per gallon of fuel
increased 4 percent reflecting a continuing favorable operating trend resulting
from new, fuel efficient locomotives and more fuel efficient operating
practices.
Materials and other expenses of $717 million for 1998 were $42 million or 6
percent higher than 1997 principally due to lower credits from joint facility
billings due to lower UP traffic levels on BNSF facilities. Other expenses in
1997 also included more income from the sale of easements and higher tax
incentives from the State of Nebraska related to investment and employment
levels in the state.
Interest expense for 1998 increased by $10 million to $354 million
reflecting higher debt levels which increased to $5,456 million at December 31,
1998 from $5,289 million at December 31, 1997, partially offset by lower
interest rates.
Other income (expense), net was favorable by $64 million compared to 1997
primarily due to the $67 million pre-tax gain on the pipeline partnership sale
in the first quarter of 1998 as discussed in Note 2: Sale of Investment in
Pipeline Partnership. In addition, lower equity in earnings of pipelines due to
the first quarter sale of this investment was offset by gains on real estate
portfolio sales.
16 BURLINGTON NORTHERN SANTA FE CORPORATION
<PAGE>
YEAR ENDED DECEMBER 31, 1997 COMPARED WITH YEAR ENDED DECEMBER 31, 1996
BNSF recorded net income for 1997 of $885 million ($1.88 per share), compared
with net income of $889 million ($1.91 per share) for 1996. The decrease in net
income is primarily due to a fourth quarter special charge of $90 million ($57
million after-tax or $.12 per share) principally related to the consolidation of
clerical functions (see Other Matters: Employee Merger and Separation Costs).
This was largely offset by improved operating results in 1997 despite severe
weather conditions in the first quarter of 1997 throughout the Northern Plains
and the PNW. The financial impact of recurring and protracted outages on many
parts of the system, the cost of repairing track, signals and equipment, and the
operating inefficiencies caused by the weather is virtually impossible to
measure with precision. However, the Company estimates that the severe weather
in the first quarter of 1997 resulted in lost revenue opportunities of
approximately $100 million and increased operating expenses by at least $50
million. Excluding the fourth quarter special charge, net income for 1997 was
$942 million ($2.00 per share) compared with 1996 net income of $889 million
($1.91 per share).
REVENUES
Total revenues for 1997 were $8,370 million or 3 percent higher compared with
revenues of $8,109 million for 1996. The $261 million increase primarily
reflects increases in the intermodal, consumer goods, metals and minerals,
chemicals, automotive, and forest products sectors partially offset by lower
agricultural commodities revenues. Average revenue per car/unit decreased
slightly in 1997 to $1,139 from $1,154 in 1996. During 1997, BNSF'S share of the
Western U.S. rail traffic market, based on reporting to the AAR, increased 1.8
points to 41.4 percent. This gain was primarily the result of the trackage
rights gained from UP and operating problems experienced by the UP associated
with consolidating operations.
Intermodal revenues improved $243 million or 12 percent compared with 1996,
due to increased volume growth in the direct, international, truckload, and
international marketing companies sectors. The direct sector experienced a 14
percent growth in revenues primarily due to an 18 percent gain in loadings.
Direct sector growth was due to volume increases from LTL shipments led by
Yellow Freight, Consolidated Freightways and Roadway. LTL volume from Yellow
Freight, Consolidated Freightways, and Roadway has grown substantially all year
with growth accelerating in the 2nd, 3rd, and 4th quarters in particular due to
Yellow Freight's change of operations completed in April 1997. International
revenues increased 10 percent from 1996 due to an 8 percent increase in units
moved. International growth has been the result of a strong import economy and
increased market share by steamship lines such as Hyundai, OOCL, and Cosco.
Truckload revenues increased 21 percent due to a 20 percent increase in
loadings, primarily attributable to strength in the Company's Chicago to
California and Southeast to California corridors.
Agricultural commodities revenues decreased $84 million, or 7 percent, due
primarily to a decrease in shipments of wheat for export in the first and second
quarters due to the U.S. uncompetitiveness in the world market and severe
weather conditions in the Northern Plains and PNW in the first quarter. Some of
the volume losses were partially offset by an increased number of shorter haul,
lower revenue movements from the southern U.S. plains wheat region. Agricultural
commodities revenues were also unfavorably impacted by lower revenue per car for
corn movements and volume declines in barley traffic.
Chemicals revenues increased $30 million, or 4 percent, primarily due to
higher demand for petroleum products and plastics. Chemicals carloadings
increased 4 percent due to additional traffic from Texas Gulf Coast shippers.
Rate increases in petroleum products offset average revenue per car decreases in
agricultural minerals and industrial products.
Metals and minerals revenues increased $38 million, or 5 percent, primarily
due to strength in steel products as well as volume increases in clay and
aggregates, sand, rock and specialty minerals and sodium compounds. This was
partially offset by a decrease in shipments of cement, gypsum and lime.
Consumer goods revenues increased $29 million, or 6 percent, primarily due to
growth in the government and machinery and bulk foods sectors. Overall consumer
goods carloadings increased 13 percent. Volume gains in bulk foods were the
result of strong corn syrup and sugar loadings, while gains in government and
machinery was the result of special moves for Boeing and additional military
movements.
Automotive revenues increased $26 million, or 7 percent, due to a 5 percent
volume gain in motor vehicle and vehicle parts traffic. BNSF experienced gains
in units moved for Honda and General Motors which were partially offset by
reduced Ford shipments. Revenue per revenue ton mile decreased 9 percent due to
changes in the traffic mix.
EXPENSES
Total operating expenses for 1997 were $6,603 million or $242 million higher
compared with expenses of $6,361 million for 1996. As discussed above, the
Company recorded a $90 million ($57 million after-tax) special charge in the
fourth quarter of 1997 primarily related to the consolidation of clerical
functions. Excluding the special charge, operating expenses for 1997 were $6,513
million, $152 million or 2 percent higher than 1996. The adjusted operating
ratio for 1997 was 77.8 percent, compared with an operating ratio of 78.4
percent for 1996.
Compensation and benefits expenses of $2,675 million were $114 million or 4
percent higher than 1996. A majority
BURLINGTON NORTHERN SANTA FE CORPORATION 17
<PAGE>
of the increase was due to higher labor costs associated with weather-related
repairs to track and equipment and slower operations. Wages were also higher due
to volume related increases in train crew costs and wage increases for salaried
and union employees.
Purchased services expenses of $823 million increased $23 million, or 3
percent, compared with 1996 due to higher ramping and drayage costs related to
increased intermodal volumes. Joint facility costs were also higher due to
operations over trackage rights gained as a condition of the merger of UP and
Southern Pacific Corporation. This increase was partially offset by lower
professional service expenses.
Equipment rents expenses of $820 million were $84 million, or 11 percent,
higher than 1996. Lower equipment utilization and higher volumes resulted in
increased locomotive rents and higher time and mileage expenses for rail car and
intermodal trailers and flat cars. In addition, equipment related performance
penalties for grain cars increased $19 million from 1996.
Fuel expenses of $747 million were $20 million higher than in 1996 due to a 1
percent increase in the average price paid per gallon of diesel fuel as well as
a 2 percent increase in consumption due to volume. Gross ton miles per gallon of
fuel increased by 2 percent due to additional new, fuel-efficient locomotives
and the adoption of more fuel-efficient operating practices.
Materials and other expenses of $675 million were $102 million lower than 1996
partially due to lower derailment and personal injury expenses reflecting the
continuing benefits of employee safety programs. Other expenses were also
reduced by income from the sale of signboard easements and tax incentives from
the State of Nebraska related to investment and employment levels in the state.
Interest expense of $344 million was $43 million higher than in 1996,
primarily due to higher debt levels, which increased from $4,711 million at
December 31, 1996 to $5,289 million at December 31, 1997.
Other income (expense), net was $12 million below 1996. The increase in
expense is due to higher fees from the sale of accounts receivable reflecting an
increase in receivables sold and lower profits from land sales.
Income tax expense of $519 million was $32 million lower in 1997 due to lower
pre-tax income and a lower effective tax rate due to adjustments to prior years'
tax estimates.
CAPITAL RESOURCES AND LIQUIDITY
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.
BNSF issues commercial paper from time to time which is supported by bank
revolving credit agreements. Outstanding commercial paper balances are
considered as reducing the amount of borrowings available under these ageements.
The bank revolving credit agreements allow borrowings of up to $425 million on a
short-term basis and $1.5 billion on a long-term basis. Annual facility fees are
currently 0.075 percent and 0.09 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
agreement were extended on November 12, 1998 and are currently scheduled to
expire on June 15, 1999. The commitments of the lenders under the long-term
agreement are scheduled to expire on November 12, 2002.
At December 31, 1998, there were no borrowings against the revolving credit
agreements and the maturity value of commercial paper outstanding was $474
million, leaving a total remaining capacity of $1,026 million available under
the long-term revolving credit agreement and $425 million available under the
short-term credit agreement.
OPERATING ACTIVITIES
Net cash provided by operating activities was $2,218 million during 1998
compared with $1,814 million during 1997. The increase in cash from operations
was primarily due to higher net income before depreciation and amortization and
deferred taxes, a decrease in cash used for working capital reflecting the
timing of payments, and a decrease in payments for employee merger and
separation costs.
INVESTING ACTIVITIES
Net cash used for investing activities during 1998 was $2,418 million,
principally comprised of $2,147 million in capital expenditures.
A breakdown of cash capital expenditures is set forth in the following table
(in millions):
<TABLE>
<CAPTION>
Year ended December 31, 1998 1997 1996
- ----------------------- ------ ------ ------
<S> <C> <C> <C>
Maintenance of Way $ 917 $ 974 $ 854
Equipment 583 572 514
Expansion Projects 488 428 439
Other 159 208 427
- ----------------------- ------ ------ ------
Total $2,147 $2,182 $2,234
- ----------------------- ------ ------ ------
</TABLE>
18 BURLINGTON NORTHERN SANTA FE CORPORATION
<PAGE>
Maintenance of way expenditures for 1998 decreased primarily due to use of a
higher proportion of second hand rail and reduced tie renewal projects.
Equipment expenditures were higher in 1998 reflecting increases for
remanufactured freight cars, mechanical shops and shop machinery, partially
offset by lower locomotive purchases as more locomotives were acquired through
operating leases. Expansion projects in both 1998 and 1997 principally reflect
double and triple tracking of main line track and expansion of intermodal
terminals. Other projects for 1998 decreased primarily as a result of spending
for merger related improvements in 1997 which did not occur in 1998, partially
offset by higher capitalized software and computer hardware costs.
BNSF has entered into commitments to acquire 476 locomotives in 1999. The
locomotives will be financed from one or a combination of sources including, but
not limited to, cash from operations, capital or operating leases, and debt
issuances. The decision on the method used will depend upon the current market
conditions and other factors at the time of financing. Beginning in 2000, the
Company expects new locomotive acquisitions to significantly decline compared to
1999. BNSF has currently committed to acquire 196 and 50 locomotives in 2000 and
2001, respectively.
FINANCING ACTIVITIES
Net cash provided by financing activities during 1998 was $194 million,
primarily related to net proceeds from total debt of $440 million and proceeds
from stock options exercised of $111 million, partially offset by dividend
payments of $197 million and common share repurchases of $153 million.
In March 1998, BNSF issued $100 million of 6.05 percent medium-term notes due
March 15, 2031, under the August 1997 shelf registration of debt securities. The
notes included a provision that gave the Company a call option to purchase all
of the notes from the holders in 2001. In connection with the debt issuance, the
Company sold the call option to a third party and received cash of $4 million,
which has been deferred and is being amortized to interest expense over the life
of the debt. If the third party exercises the call option, the third party will
repurchase the notes from the holders and remarket them. If the call option is
not exercised, the Company must repurchase the notes from the holders. The net
proceeds from the sale of the notes 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 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. In April 1998, prior to the
effective date of the March 1988 shelf registration, the Company amended the
August 1997 shelf registration to combine it with the March 1998 shelf
registration.
In July 1998, BNSF issued $200 million of 6.70 percent debentures due August
1, 2028, and in November 1998 BNSF issued $200 million of puttable reset
debentures (PURS) due May 13, 2029, under the March 1998 shelf registration of
debt securities. The net proceeds from the sale of the debentures were used for
general corporate purposes, including the repayment of commercial paper. As of
December 31, 1998, the March 1998 shelf registration had $350 million of
potential borrowings remaining.
The PURS included a provision that gave the Company a call option to purchase
all of the debentures from the holders on May 13, 1999. In connection with the
debt issuance, the Company sold the call option to a third party and received
cash of $12 million, which was deferred and is being amortized to interest
expense over the life of the debt. In addition, the Company closed out $200
million of treasury lock transactions at a loss of approximately $11 million
which was deferred and is being amortized to interest expense over the life of
the debt. Until May 13, 1999, the PURS will have a floating interest rate based
upon the one month LIBOR rate plus 0.75 percent. On May 13, 1999, either the
third party will exercise the call option or the PURS will be put back to the
Company by the holders. If the third party exercises the call option, the third
party will repurchase the PURS from the holders and remarket them. The interest
rate paid by the Company will be reset to a fixed interest rate until maturity
in 2029 of approximately 5.67 percent plus a credit spread to be determined at
that time. If the call option is not exercised, the Company must repurchase the
PURS from the holders.
During 1998, BNSF Railway entered into $258 million of equipment secured debt
of which $173 million was recorded as capital lease obligations.
In February 1999, the Company filed a new shelf registration of debt
securities that may be issued in one or more series at an aggregate offering
price not to exceed $750 million. As of February 8, 1999, the shelf registration
had not yet been declared effective. When it becomes effective, the Company will
have $1.1 billion of borrowing capacity available through the combined shelf
registrations.
Aggregate long-term debt scheduled to mature in 1999 is $268 million,
excluding the $200 million PURS due 2029 which may be redeemed in 1999 as
discussed above. BNSF's ratio of total debt to total capital was 41 percent at
the end of 1998 and 44 percent at the end of both 1997 and 1996.
During 1998, the Company began share repurchase activity under a 30 million
share common stock repurchase program approved by the Board of Directors in July
1997.
BURLINGTON NORTHERN SANTA FE CORPORATION 19
<PAGE>
During 1997 there were no share repurchases made under this program. During
1998, the Company repurchased approximately 5 million shares of its common stock
at an average price of $30.75 per share. In connection with its share repurchase
program, during 1998 BNSF sold equity put options for 3 million shares of BNSF
common stock to an independent third party and received cash proceeds of $2
million. All of the equity put options expired unexercised. Repurchased shares
are available to satisfy future requirements of various stock-based employee
compensation programs. Management considers many factors which include, among
other things, economic and market business conditions and outlook, alternative
uses of cash and debt, balance sheet ratios, and stockholder returns when
evaluating the timing of share repurchases.
COMMON STOCK SPLIT
On July 16, 1998, the Board of Directors approved a three-for-one common stock
split which was 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 stockholders of record on August 17, 1998. All
equity-based benefit plans reflect the issuance of additional shares or options
due to the declaration of the stock split. All share and per share data have
been restated to reflect the stock split.
DIVIDENDS
Common stock dividends declared were $0.44, $0.40 and $0.40 per common share
annually for 1998, 1997 and 1996, respectively. Dividends paid on common stock
were $197 million, $185 million and $184 million during 1998, 1997 and 1996,
respectively. On July 16, 1998, the Board of Directors increased by 20 percent
the amount of its regular quarterly dividend from 10 cents per share to 12 cents
per share. The dividend increase was effective beginning with the 1998 third
quarter dividend which was paid on October 1, 1998.
On January 21, 1999, the Board of Directors declared a quarterly dividend of
12 cents per share upon its outstanding shares of common stock, $.01 par value,
payable April 1, 1999, to stockholders of record on March 10, 1999.
OTHER MATTERS
CASUALTY AND ENVIRONMENTAL
Personal injury claims, including work-related injuries to employees, are a
significant expense for the railroad industry. Employees of BNSF are compensated
for work-related injuries according to the provisions of the Federal Employers'
Liability Act (FELA). FELA's system of requiring finding of fault, coupled with
unscheduled awards and reliance on the jury system, contributed to significant
increases in expense in past years. BNSF has implemented a number of safety
programs to reduce the number of personal injuries as well as the associated
claims and personal injury expense. BNSF made personal injury payments of
approximately $193 million, $210 million, and $249 million in 1998, 1997 and
1996, respectively.
As discussed in more detail in Note 12: 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. 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 clean-up efforts at approximately 400 sites, including the Superfund
sites, at which it is participating in the study or clean-up, or both, of
alleged environmental contamination. BNSF paid approximately $64 million, $55
million and $47 million during 1998, 1997 and 1996, respectively, for mandatory
and unasserted clean-up efforts, including amounts expended under federal and
state voluntary clean-up programs. BNSF has accruals of approximately $185
million for remediation and restoration of all known sites. BNSF anticipates
that the majority of the accrued costs at December 31, 1998 will be paid over
the next five years. No individual site is considered to be material.
During 1998, BNSF settled an environmental matter in the State of Missouri
related to release of a reportable quantity of lead sulfide into a waterway.
BNSF agreed in the settlement to pay a fine of $7 million, make restitution
payments to the State of Missouri of $3 million and committed to spend $9
million, which includes amounts previously paid, in connection with its ongoing
remediation efforts. BNSF has made payments of approximately $16 million related
to this settlement, including approximately $12 million that was paid during
1998 which is included in total 1998 payments discussed above.
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
20 BURLINGTON NORTHERN SANTA FE CORPORATION
<PAGE>
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, 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. 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 has
evaluated compliance requirements and associated costs and believes the costs
will not be material in any given year. 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.
EMPLOYEE MERGER AND SEPARATION COSTS
LIABILITY BALANCE AND ACTIVITY
Current and long-term employee merger and separation liabilities totaling $474
million and $551 million are included in the consolidated balance sheet at
December 31, 1998 and 1997, respectively, and principally represent: (i)
employee-related severance costs for the consolidation of clerical functions;
(ii) deferred benefits payable upon separation or retirement to certain active
conductors, trainmen and locomotive engineers; and (iii) certain non-union
employee severance costs.
Liabilities related to the consolidation of clerical functions (the
Consolidation Plan) were $211 million and $259 million at December 31, 1998 and
1997, respectively. These liabilities provide for severance costs associated
with the Consolidation Plan adopted in 1995 upon consummation of the merger of
BNSF's predecessor companies Burlington Northern Inc. and Santa Fe Pacific
Corporation (the Merger). The Consolidation Plan will result in the elimination
of approximately 1,600 permanent positions, of which approximately 1,500
positions have been eliminated through 1998, including approximately 250
positions that were eliminated in 1998. Upon adoption in 1995, the Consolidation
Plan was expected to be completed by early 1999. However, the Consolidation Plan
was partially delayed as a result of the timing related to completion of merger
integration and other issues and is now expected to be completed by 2001.
Remaining clerical positions to be eliminated by the Company will result in
involuntary separations. Benefits paid to affected employees are in the form of
lump-sum payments or payments made over five to ten years or in some cases
through retirement.
Liabilities related to deferred benefits payable upon separation or retirement
to certain active conductors, trainmen and locomotive engineers were $207
million and $224 million at December 31, 1998 and 1997, respectively. These
costs were incurred in connection with labor agreements reached prior to the
Merger which, among other things, reduced train crew sizes and allowed for more
flexible work rules.
Liabilities principally related to certain remaining non-union employee
severances resulting from the Merger were $56 million and $68 million at
December 31, 1998 and 1997, respectively. These costs will be paid over the next
several years based on deferral elections made by affected employees.
Approximately 1,500 non-union employees received or are receiving severance
payments and special termination benefits under the Company's retirement and
health and welfare plans resulting from the Merger.
During 1998, 1997 and 1996, BNSF made employee merger and separation payments
of $77 million, $116 million and $183 million, respectively. At December 31,
1998, $65 million of the remaining liabilities are included within current
liabilities for anticipated costs to be paid in 1999.
1997 SPECIAL CHARGE
In the fourth quarter of 1997, the Company recorded a $90 million pre-tax
special charge. Approximately $65 million of the charge related to the
Consolidation Plan and the remainder of the charge related to severance and
other costs for non-union employees. BNSF recorded an initial charge in 1995 for
the Consolidation Plan, however, the 1995 charge excluded costs associated with
voluntary severance for employees who were given the opportunity to relocate and
follow their work, but elected severance.
BURLINGTON NORTHERN SANTA FE CORPORATION 21
<PAGE>
YEAR 2000
BACKGROUND
The Company has established a committee of managers and employees,
chaired by the Company's Chief Information Officer, to evaluate and manage the
costs and risks associated with becoming Year 2000 compliant and to minimize the
impact of the Year 2000 problem on the Company. Because many existing computer
programs and microprocessors recognize only the last two digits of years (and
not the century designation), they may be unable to accurately recognize and
process dates beyond December 31, 1999, and consequently may fail or produce
erroneous data. The Year 2000 problem may adversely affect the Company's
operations and financial performance if its remediation efforts are not
successfully implemented or if the railroads with which the Company connects,
critical customers or suppliers fail to become Year 2000 compliant.
STATE OF READINESS
Year 2000 issues were reviewed in September 1995 following the approval of the
merger of the two railroads that now constitute BNSF Railway. The core mainframe
systems for the merged railroad were selected in part because they were
substantially Year 2000 compliant. These systems integrate all transportation-
related activities and computer systems that support BNSF's transportation
network, including operations, customer information, and revenue data. This
merger-related information systems integration and upgrade activity was
substantially completed by July 1997.
Following this systems integration, BNSF adopted a three-phase approach to
Year 2000: Inventory and Assessment; Remediation; and Certification Testing.
Separate teams address technologies administered or maintained by the
Information Systems Services department (ISS technologies) and other enterprise-
wide products and technologies used by the Company, including embedded
microprocessor technology (Enterprise technologies). BNSF has completed the
Inventory and Assessment phase for both ISS and Enterprise technologies. During
this phase, BNSF inventoried all ISS-administered source code, hardware,
software and communications equipment that could be affected by the Year 2000
problem, and identified items potentially needing remediation. In addition, the
Enterprise team completed a company-wide audit of Enterprise technologies and
associated suppliers and service providers for potential Year 2000 problems.
The Remediation phase is more than three-fourths complete. Remediation
includes converting source code and replacing or upgrading purchased software
and hardware. Remediation is substantially complete for ISS technologies and is
expected to be completed by July 1999 for Enterprise technologies.
The Certification Testing phase includes validating the performance of ISS and
Enterprise technologies in a Year 2000 test environment. The Certification
Testing phase also includes validating Year 2000 compliance for critical third
party suppliers and service providers. This phase, which is ongoing, overlaps
with the Remediation phase. Certification testing for ISS technologies began in
November 1998, with critical applications receiving priority; testing for all
applications is scheduled for completion by the end of September 1999.
Certification testing of all critical Enterprise technologies began in May 1998
and is scheduled for completion in February 1999; testing for non-critical
Enterprise technologies is scheduled for completion by July 1999.
COSTS
As a result of its merger-related systems integration that was completed
in 1997, BNSF achieved substantial Year 2000 compliance on its core mainframe
systems. In addition, spending on Year 2000 activities approximates $8 million
to date. Currently, the total cost of achieving Year 2000 compliance for the
Company's ISS and Enterprise technologies is estimated to be approximately $20
million.
YEAR 2000 RISKS AND CONTINGENCY PLANS
Certain BNSF business processes rely on third parties for the efficient
functioning of its transportation network. The Association of American Railroads
(AAR) administers systems that benefit all North American railroads and their
customers, including interline settlement, shipment tracing and waybill
processing. BNSF and other AAR-member railroads are participating in a process
to test and certify these systems for Year 2000 compliance. The AAR expects that
these systems will be compliant and pilot tested by specific carriers by April
1999, with open carrier testing conducted promptly thereafter. BNSF plans to
develop contingency plans for the business processes supported by AAR systems.
Certain BNSF routes and resulting revenues are dependent on the use of
trackage rights over other railroads, including UP, Montana Rail Link and the
Arizona and California Railroad. Other BNSF traffic may originate or terminate
on other carriers' lines or may otherwise involve use of a foreign connection en
route. Approximately 60 percent of units handled by BNSF run over BNSF
facilities only. BNSF's traffic levels and revenues could be significantly
reduced and/or its operational network significantly impaired through congestion
and other factors if other railroads are not able to accommodate BNSF trains or
interchange traffic for any extended period of time due to Year 2000 problems.
However, as a result of its work with other railroads to address Year 2000
problems on an industry-wide basis, management believes that the possibility of
extended failures on other railroads is not significant. At present, the Company
generally has not determined which of its customers may have Year 2000 problems
that could result in reduced traffic for the Company.
22 BURLINGTON NORTHERN SANTA FE CORPORATION
<PAGE>
It is the opinion of management that Year 2000 problems in BNSF's internal
information systems and technology infrastructure will not have a materially
adverse effect on the results of operations, liquidity or financial position of
the Company. However, there can be no assurance that the systems or equipment of
other parties which interact with BNSF's systems will be compliant on a timely
basis. BNSF believes that the failure of systems or equipment of one or more of
its key third parties or customers is the most reasonably likely worst case Year
2000 scenario, and that an extended failure could have a material adverse effect
on the results of operations, liquidity or financial position of the Company.
Where appropriate, BNSF is developing contingency plans in the event that BNSF's
key third parties do not become Year 2000 compliant on a timely basis, which
effort includes the formalization of existing disaster recovery plans.
Contingency plans are expected to be in place by the end of the first quarter
1999.
HEDGING ACTIVITIES
FUEL
During 1998, 1997 and 1996 fuel expenses approximated 11 percent of total
operating expenses. Due to the significance of diesel fuel expenses to the
operations of the railroad and the historical volatility of fuel prices, the
Company has established a program to hedge against fluctuations in the price of
its diesel fuel purchases. The intent of the program is to protect the Company's
operating margins and overall profitability from adverse fuel price changes.
However, to the extent the Company hedges portions of its fuel purchases, it
will not realize the impact of decreases in fuel prices. The fuel-hedging
program includes the use of commodity swap transactions that are accounted for
as hedges. Any gains or losses associated with changes in the market value of
the fuel swaps are deferred and recognized as a component of fuel in expense in
the period in which the fuel is purchased and used. Based on 1998 fuel
consumption and excluding the impact of the hedging program, each one-cent
increase in the price of fuel would result in approximately $12 million of
additional fuel expense on an annual basis.
As of February 8, 1999, BNSF had entered into fuel swaps for approximately
1,776 million gallons at an average price of approximately 49 cents per gallon.
The above price does 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.
Currently, BNSF's fuel hedging program covers approximately 75 percent, 40
percent, 22 percent and 7 percent of estimated annual and quarterly 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 swap transactions were
approximately $174 million as of December 31, 1998, of which $120 million
relates to swap transactions that will expire in 1999. BNSF also monitors its
hedging positions and credit ratings of its counterparties and does not
anticipate losses due to counterparty nonperformance.
INTEREST RATE
From time to time, the Company enters into various interest rate hedging
transactions for the purpose of managing exposure to fluctuations in interest
rates and establishing rates in anticipation of future debt issuances. As of
February 8, 1999, BNSF had interest rate swap transactions which fix the
interest rate on the total principal amount of $125 million of its commercial
paper debt. The interest rate swap transactions require payment of a weighted
average fixed interest rate of approximately 6.1 percent and the receipt of a
variable interest rate based on a commercial paper composite rate. The swap
transactions expire in December 1999. Any gains and losses associated with
changes in market value of these swaps are not recognized. BNSF recognizes, on
an accrual basis, a fixed rate of interest on the principal amount of commercial
paper hedged over the term of the swap agreements. Unrecognized losses from
BNSF's interest rate swap transactions were approximately $2 million as of
December 31, 1998.
During July 1998, at the time of a $200 million debt issuance, the Company
closed out $200 million of treasury lock transactions at a loss of approximately
$7 million which has been deferred and is being amortized to interest expense
over the life of the debt.
As discussed under Capital Resources and Liquidity: Financing Activities, in
November 1998, at the time of the $200 million PURS issuance, the Company closed
out $200 million of treasury lock transactions at a loss of approximately $11
million which has been deferred and is being amortized to interest expense over
the life of the debt.
In anticipation of future debt issuances, BNSF has entered into treasury lock
transactions, based on the 10-year and 30-year U.S. treasury rates, totaling
$300 million and $200 million, respectively. The 10-year and 30-year treasury
lock transactions have average interest rates of approximately 4.5 percent and
5.0 percent, respectively, and expire between 1999 and 2001. These rates do not
include a credit spread which will be determined at the time of the actual debt
issuance and included in the all-in interest rate. The treasury locks can be
closed by BNSF anytime up to expiration. Unrecognized gains on the treasury lock
transactions were approximately $19 million as of December 31, 1998.
BURLINGTON NORTHERN SANTA FE CORPORATION 23
<PAGE>
LABOR
Labor unions represent approximately 88 percent of BNSF Railway employees under
collective bargaining agreements with 13 different labor organizations. The
collective bargaining agreements reached in 1995 and 1996 as a result of
industry-wide labor contract negotiations will remain in effect through at least
December 31, 1999 and until new agreements are reached or the Railway Labor
Act's procedures are exhausted.
INFLATION
Due to the capital intensive nature of BNSF's business, the full effect of
inflation is not reflected in operating expenses because depreciation is based
on historical cost. An assumption that all operating assets were depreciated at
current price levels would result in substantially greater expense than
historically reported amounts.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (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 to the extent it offsets changes
in the cash flows related to the variable rate asset, liability or forecasted
transaction, with the difference reported in current period earnings. The gains
and losses on the derivative instrument that are reported in other comprehensive
income will be reclassified in 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 interest rate and fuel
hedging instruments outstanding at December 31, 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 $125 million if adopted December 31,
1998. The Company is presently evaluating the impact SFAS No. 133 will have on
its ongoing results of operations.
FORWARD-LOOKING INFORMATION
The Year 2000 discussion above contains forward-looking statements, including
those concerning the Company's plans and estimated completion dates, cost
estimates, assessments of Year 2000 readiness of BNSF and third parties, and
possible consequences of any failure on the part of the Company or third parties
to be Year 2000 compliant on a timely basis. Forward-looking statements involve
a number of risks and uncertainties that could cause actual results to differ
materially from those projected in the forward-looking statements. Such factors
include, but are not limited to, the following: continued availability of
qualified personnel to assess, remediate, and test ISS and Enterprise
technologies at current estimated costs; emergence of unforeseen software or
hardware problems, including where applications interact with each other in ways
not anticipated, which could delay or hinder commercial transactions or other
operations; the ability to locate and remediate Year 2000 problems with software
source code and embedded computer chips in equipment; the failure, in whole or
in part, of other railroads or AAR-supported systems to be Year 2000 compliant;
the Year 2000 compliance of its business partners and customers and reduced
traffic levels due to their failure, in whole or part, to be Year 2000
compliant; business interruption due to delays in obtaining supplies, parts, or
equipment from key vendors or suppliers that are affected by Year 2000 problems;
the ripple effect of Year 2000-related failures in industries supporting the
nation's basic infrastructure, including fuel vendors and pipelines, gas,
electric, and water utilities, communications companies, banks and financial
institutions, and highway, water, and air transportation systems; and any
significant downturn in the general economy, and adverse industry-specific
economic conditions at the international, national, and regional levels, wholly
or partially caused by Year 2000 problems.
To the extent that all other written statements include predictions concerning
future operations and results of operations, such statements are forward-looking
statements that involve risks and uncertainties, and actual results may differ
materially. Factors that could cause actual results to differ materially
include, but are not limited to, general economic downturns, which may limit
demand and pricing; labor matters, which may affect the costs and feasibility of
certain operations; and competition and commodity concentrations, which may
affect traffic and pricing levels.
24 BURLINGTON NORTHERN SANTA FE CORPORATION
<PAGE>
REPORT OF MANAGEMENT
TO THE STOCKHOLDERS OF BURLINGTON NORTHERN SANTA FE CORPORATION
The accompanying consolidated financial statements of Burlington Northern Santa
Fe Corporation and subsidiary companies were prepared by management, who are
responsible for their integrity and objectivity. They were prepared in
accordance with generally accepted accounting principles and properly include
amounts that are based on management's best judgments and estimates. Other
financial information included in this annual report is consistent with that in
the consolidated financial statements.
The Company maintains a system of internal accounting controls to provide
reasonable assurance that assets are safeguarded and that the books and records
reflect the authorized transactions of the Company. Limitations exist in any
system of internal accounting controls based upon the recognition that the cost
of the system should not exceed the benefits derived. The Company believes its
system of internal accounting controls, augmented by its internal auditing
function, appropriately balances the cost/benefit relationship.
Independent accountants provide an objective assessment of the degree to which
management meets its responsibility for fairness of financial reporting. They
regularly evaluate the system of internal accounting controls and perform such
tests and other procedures as they deem necessary to express an opinion on the
fairness of the consolidated financial statements.
The Board of Directors pursues its responsibility for the Company's financial
statements through its Audit Committee which is composed solely of directors who
are not officers or employees of the Company. The Audit Committee meets
regularly with the independent accountants, management and internal auditors.
The independent accountants and the Company's internal auditors have direct
access to the Audit Committee, with and without the presence of management
representatives, to discuss the scope and results of their work and their
comments on the adequacy of internal accounting controls and the quality of
financial reporting.
/s/ Robert D. Krebs
Robert D. Krebs
Chairman, President and Chief Executive Officer
/s/ Denis E. Springer
Denis E. Springer
Senior Vice President and Chief Financial Officer
/s/ Thomas N. Hund
Thomas N. Hund
Vice President and Controller
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE STOCKHOLDERS AND BOARD OF DIRECTORS OF BURLINGTON NORTHERN SANTA FE
CORPORATION AND SUBSIDIARIES
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, of cash flows and of changes in stockholders'
equity present fairly, in all material respects, the financial position of
Burlington Northern Santa Fe Corporation and subsidiary companies at December
31, 1998 and 1997, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1998, in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Fort Worth, Texas
February 8, 1999
BURLINGTON NORTHERN SANTA FE CORPORATION 25
<PAGE>
CONSOLIDATED STATEMENT OF INCOME
Burlington Northern Santa Fe Corporation and Subsidiaries
<TABLE>
<CAPTION>
(Dollars in millions, except per share data)
- -----------------------------------------------------------------------
Year ended December 31, 1998 1997 1996
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $8,941 $8,370 $8,109
------ ------ ------
Operating expenses:
Compensation and benefits 2,812 2,675 2,561
Purchased services 894 823 800
Depreciation and amortization 832 773 760
Equipment rents 804 820 736
Fuel 724 747 727
Materials and other 717 675 777
Special charge -- 90 --
------ ------ ------
Total operating expenses 6,783 6,603 6,361
- --------------------------------------------- ------ ------ ------
Operating income 2,158 1,767 1,748
Interest expense 354 344 301
Other income (expense), net 45 (19) (7)
------ ------ ------
Income before income taxes 1,849 1,404 1,440
Income tax expense 694 519 551
------ ------ ------
Net income $1,155 $ 885 $ 889
- --------------------------------------------- ------ ------ ------
Earnings per share:
Basic $ 2.45 $ 1.91 $ 1.95
Diluted $ 2.43 $ 1.88 $ 1.91
- --------------------------------------------- ----- ------ ------
Average shares (in millions):
Basic 470.5 464.4 456.3
Dilutive effect of stock options 5.7 6.7 8.1
----- ------ ------
Diluted 476.2 471.1 464.4
- --------------------------------------------- ------ ------ ------
</TABLE>
See accompanying notes to consolidated financial statements.
26 BURLINGTON NORTHERN SANTA FE CORPORATION
<PAGE>
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
Burlington Northern Santa Fe Corporation and Subsidiaries
(Shares in thousands. Dollars in millions)
- --------------------------------------------------------------------------------------------------------------------------
December 31, 1998 1997
- ---------------------------------------------------------------------------------------------------- ------- -------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 25 $ 31
Accounts receivable, net 594 635
Materials and supplies 244 205
Current portion of deferred income taxes 335 333
Other current assets 8 30
------- -------
Total current assets 1,206 1,234
Property and equipment, net 20,662 19,211
Other assets 822 891
------- -------
Total assets $22,690 $21,336
- ---------------------------------------------------------------------------------------------------- ------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and other current liabilities $ 1,929 $ 1,952
Long-term debt due within one year 268 108
------- -------
Total current liabilities 2,197 2,060
Long-term debt and commercial paper 5,188 5,181
Deferred income taxes 5,662 5,175
Casualty and environmental liabilities 389 448
Employee merger and separation costs 409 469
Other liabilities 1,075 1,191
------- -------
Total liabilities 14,920 14,524
- ---------------------------------------------------------------------------------------------------- ------- ------
Commitments and contingencies (see Notes 8, 11 and 12)
Stockholders' equity:
Common stock, $.01 par value, 600,000 shares authorized;
477,436 shares and 470,240 shares issued, respectively 5 5
Additional paid-in capital 5,177 4,992
Retained earnings 2,811 1,863
Treasury stock, at cost, 6,961 shares and 1,329 shares, respectively (213) (39)
Accumulated other comprehensive deficit (8) (7)
Other (2) (2)
------- -------
Total stockholders' equity 7,770 6,812
------- -------
Total liabilities and stockholders' equity $22,690 $21,336
- ---------------------------------------------------------------------------------------------------- ------- -------
</TABLE>
See accompanying notes to consolidated financial statements.
BURLINGTON NORTHERN SANTA FE CORPORATION 27
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
Burlington Northern Santa Fe Corporation and Subsidiaries
(Dollars in millions)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Year ended December 31, 1998 1997 1996
- ------------------------------------------------------------------------------------ ------- ------- -------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 1,155 $ 885 $ 889
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 832 773 760
Deferred income taxes 489 433 453
Special charge -- 90 --
Employee merger and separation costs paid (77) (116) (183)
Other, net (243) (221) (62)
Changes in current assets and liabilities:
Accounts receivable:
Sale of accounts receivable 19 301 40
Other changes 20 (333) (140)
Materials and supplies (39) 17 (2)
Other current assets 22 4 (6)
Accounts payable and other current liabilities 40 (19) 122
------- ------- -------
Net cash provided by operating activities 2,218 1,814 1,871
- ------------------------------------------------------------------------------------ ------- ------- -------
INVESTING ACTIVITIES
Capital expenditures (2,147) (2,182) (2,234)
Other, net (271) (147) (10)
------- ------- -------
Net cash used for investing activities (2,418) (2,329) (2,244)
- ------------------------------------------------------------------------------------ ------- ------- -------
FINANCING ACTIVITIES
Net decrease in commercial paper and bank borrowings (242) (235) (98)
Proceeds from issuance of long-term debt 794 1,002 626
Payments on long-term debt (112) (177) (83)
Dividends paid (197) (185) (184)
Proceeds from stock options exercised 111 102 118
Purchase of BNSF common stock (153) -- --
Other, net (7) (8) (9)
------- ------- -------
Net cash provided by financing activities 194 499 370
------- ------- -------
Decrease in cash and cash equivalents (6) (16) (3)
Cash and cash equivalents:
Beginning of year 31 47 50
------- ------- -------
End of year $ 25 $ 31 $ 47
- ------------------------------------------------------------------------------------ ------- ------- -------
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid, net of amounts capitalized $ 370 $ 346 $ 306
Income taxes paid, net of refunds 220 32 69
Directly financed asset acquisitions -- -- 43
- ------------------------------------------------------------------------------------ ------- ------- -------
</TABLE>
See accompanying notes to consolidated financial statements.
28 BURLINGTON NORTHERN SANTA FE CORPORATION
<PAGE>
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Burlington Northern Santa Fe Corporation and Subsidiaries
(Shares in thousands. Dollars in millions, except per share data.)
<TABLE>
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Common
Shares of Stock and Accumulated
Common Shares of Additional Other
Stock Treasury Paid-in Retained Treasury Comprehensive
Issued Stock Capital Earnings Stock Deficit Other Total
- ------------------------------------------- --------- ---------- -------- -------- ------------- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 448,950 (135) $4,607 $ 459 $ (3) $(19) $(7) $5,037
Comprehensive income:
Net income 889 889
Minimum pension liability
adjustment (net of tax of $9) 15 15
------
Total comprehensive income 904
------
Common stock dividends,
$0.40 per share (183) (183)
Adjustments associated with
unearned compensation,
restricted stock 1,683 (66) 8 (2) 3 9
Exercise of stock options and
related tax benefit 10,749 (387) 191 (11) 180
Acquisition of a subsidiary 1,089 31 31
Other 123 3 3
- ------------------------------------------- --------- ---------- -------- -------- ------------- ----- ------
Balance at December 31, 1996 462,594 (588) 4,840 1,165 (16) (4) (4) 5,981
Comprehensive income:
Net income 885 885
Minimum pension liability
adjustment (net of tax
benefit of $2) (3) (3)
------
Total comprehensive income 882
------
Common stock dividends,
$0.40 per share (187) (187)
Adjustments associated with
unearned compensation,
restricted stock 366 (117) 13 (4) 2 11
Exercise of stock options and
related tax benefit 7,197 (624) 140 (19) 121
Other 83 4 4
- ------------------------------------------- --------- ---------- -------- -------- ------------- ----- ------
Balance at December 31, 1997 470,240 (1,329) 4,997 1,863 (39) (7) (2) 6,812
Comprehensive income:
Net income 1,155 1,155
Minimum pension liability
adjustment (net of tax
benefit of $0.5) (1) (1)
------
Total comprehensive income 1,154
------
Common stock dividends,
$0.44 per share (207) (207)
Adjustments associated with
unearned compensation,
restricted stock 527 (132) 15 (4) 2 13
Exercise of stock options and
related tax benefit 6,669 (537) 167 (17) 150
Purchase of BNSF common stock (4,963) (153) (153)
Other 3 (2) 1
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 477,436 (6,961) $5,182 $2,811 $(213) $ (8) $(2) $7,770
==================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
BURLINGTON NORTHERN SANTA FE CORPORATION 29
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BURLINGTON NORTHERN SANTA FE CORPORATION
AND SUBSIDIARIES
1 ACCOUNTING POLICIES
THE COMPANY AND PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Burlington
Northern Santa Fe Corporation and its majority-owned subsidiaries, all of which
are separate legal entities (collectively, BNSF or Company). All significant
inter-company accounts and transactions have been eliminated. Through its
principal subsidiary, The Burlington Northern and Santa Fe Railway Company (BNSF
Railway), BNSF operates one of the largest railroad networks in the United
States, with 34,000 route miles covering 28 states and two Canadian provinces.
Through one operating transportation services segment, BNSF Railway transports a
wide range of products and commodities including the transportation of
containers and trailers (intermodal), coal and agricultural commodities which
constituted 28 percent, 25 percent and 12 percent, respectively, of total
revenues for the year ended December 31, 1998. Revenues derived from sources
other than transportation services are not significant.
USE OF ESTIMATES
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the periods presented.
RECLASSIFICATIONS
Certain comparative prior year amounts in the consolidated financial statements
and notes have been reclassified to conform with the current year presentation.
CASH AND CASH EQUIVALENTS
All short-term investments with original maturities of less than 90 days are
considered cash equivalents. Cash equivalents are stated at cost, which
approximates market value.
MATERIALS AND SUPPLIES
Materials and supplies, which consist mainly of rail, ties and other items for
construction and maintenance of property and equipment, as well as diesel fuel,
are valued at the lower of average cost or market.
PROPERTY AND EQUIPMENT
Property and equipment are depreciated and amortized on a straight-line basis
over their estimated useful lives. Upon normal sale or retirement of depreciable
railroad property, cost less net salvage is charged to accumulated depreciation
and no gain or loss is recognized. Significant premature retirements are
recorded as gains or losses at the time of their occurrence. Expenditures which
significantly increase asset values or extend useful lives are capitalized.
Repair and maintenance expenditures are charged to operating expense when the
work is performed. Property and equipment are stated at cost.
The Company incurs certain direct labor, contract service and other costs
associated with the development and installation of computer software. Costs for
newly developed software or significant enhancements to existing software are
typically capitalized. Research, operations and maintenance costs are charged to
operating expense when the work is performed.
REVENUE RECOGNITION
Transportation revenues are recognized based upon the proportion of service
provided.
COMMON STOCK SPLIT
On April 16, 1998, the Company's stockholders approved an amendment to the
Company's certificate of incorporation to increase authorized common shares from
300 million to 600 million. On July 16, 1998, the Board of Directors approved a
three-for-one common stock split which was 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 reflect the issuance
of additional shares or options due to the declaration of the stock split. All
share and per share data have been restated to reflect the stock split.
2 SALE OF INVESTMENT IN PIPELINE PARTNERSHIP
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. (Pipeline Partnership) and of its operating partnership
subsidiary, SFPP, L.P. SFP Pipelines owned a two percent interest as the
Pipeline Partnership's and SFPP, L.P.'s general partner and an approximate 42
percent interest as limited partner of the Pipeline 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
Pipeline 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
(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
Pipeline Partnership and SFPP, L.P. for approximately
30 BURLINGTON NORTHERN SANTA FE CORPORATION
<PAGE>
$84 million in cash on March 6, 1998. The Pipeline 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 $0.07 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 partnership units of
Kinder Morgan or cash equal to the par value of the VREDs. As a result of this
transaction, substantially all of the Company's investment in the Pipeline
Partnership and SFPP, L.P. and the VREDs were removed from the consolidated
balance sheet.
3 OTHER INCOME (EXPENSE), NET
Other income (expense), net includes the following (in millions):
<TABLE>
<CAPTION>
Year ended December 31, 1998 1997 1996
- ----------------------------------------------- ---- ---- ----
<S> <C> <C> <C>
Gain on sale of Pipeline Partnership $ 67 $ -- $ --
Gain on property dispositions 48 14 23
Equity in earnings of Pipeline Partnership 4 30 24
Accounts receivable sale fees (34) (27) (14)
Miscellaneous, net (40) (36) (40)
- ----------------------------------------------- ---- ---- ----
Total $ 45 $(19) $ (7)
=============================================== ==== ==== ====
</TABLE>
4 INCOME TAXES
Income tax expense was as follows (in millions):
<TABLE>
<CAPTION>
Year ended December 31, 1998 1997 1996
- ----------------------------------------------- ---- ---- ----
<S> <C> <C> <C>
Current:
Federal $191 $ 72 $ 81
State 14 14 17
- ----------------------------------------------- ---- ---- ----
205 86 98
- ----------------------------------------------- ---- ---- ----
Deferred:
Federal 410 372 396
State 79 61 57
- ----------------------------------------------- ---- ---- ----
489 433 453
- ----------------------------------------------- ---- ---- ----
Total $694 $519 $551
=============================================== ==== ==== ====
</TABLE>
Reconciliation of the federal statutory income tax rate to the effective tax
rate was as follows:
<TABLE>
<CAPTION>
Year ended December 31, 1998 1997 1996
- --------------------------------------------- ----- ----- -----
<S> <C> <C> <C>
Federal statutory income tax rate 35.0% 35.0% 35.0%
State income taxes,
net of federal tax benefit 3.3 3.5 3.4
Other, net (0.7) (1.5) (0.1)
- --------------------------------------------- ----- ----- -----
Effective tax rate 37.6% 37.0% 38.3%
============================================= ===== ===== =====
</TABLE>
The components of deferred tax assets and liabilities were as follows (in
millions):
<TABLE>
<CAPTION>
December 31, 1998 1997
- --------------------------------------------- -------- -------
<S> <C> <C>
Deferred tax liabilities:
Depreciation and amortization $(5,868) $(5,677)
Other (417) (331)
- --------------------------------------------- -------- -------
Total deferred tax liabilities (6,285) (6,008)
- --------------------------------------------- -------- -------
Deferred tax assets:
Casualty and environmental 253 270
Employee merger and separation costs 182 213
Post-retirement benefits 89 86
Non-expiring AMT credit carryforwards -- 36
Other 434 561
- --------------------------------------------- ------- -------
Total deferred tax assets 958 1,166
- --------------------------------------------- ------- -------
Net deferred tax liability $(5,327) $(4,842)
- --------------------------------------------- ------- -------
Noncurrent deferred income tax liability $(5,662) $(5,175)
Current deferred income tax asset 335 333
- --------------------------------------------- ------- -------
Net deferred tax liability $(5,327) $(4,842)
- --------------------------------------------- ------- -------
</TABLE>
BNSF filed its first federal income tax return for 1995. The federal income
tax returns of BNSF's predecessor companies, Burlington Northern Inc. (BNI) and
Santa Fe Pacific Corporation (SFP) have been examined through 1994 and 1992,
respectively. All years prior to 1989 for BNI and 1991 for SFP are closed.
Issues relating to the years 1991-1992 for SFP and for the years 1989-1994 for
BNI are being contested through various stages of administrative appeal. In
addition, BNSF and its subsidiaries have various state income tax returns in the
process of examination, administrative appeal or litigation. Management believes
that adequate provision has been made for any adjustment that might be assessed
for open years through 1998.
5 ACCOUNTS RECEIVABLE, NET
Effective June 1997, an accounts receivable sale agreement which allowed the
sale of up to $300 million in receivables effective through 1999, was replaced
by an amended and restated agreement which allows BNSF Railway, through a
special purpose subsidiary, to sell up to $600 million of variable rate
certificates which mature in 2002 evidencing undivided interests in an accounts
receivable master trust. The master trust's assets include an ownership interest
in a revolving portfolio of BNSF Railway's accounts receivable which are used to
support the certificates. At December 31, 1998, $600 million of certificates
were outstanding and were supported by receivables of approximately $1.1
billion in the master trust. Certificates outstanding were $581 million at
December 31, 1997. BNSF Railway has retained the collection responsibility with
respect to the accounts receivable held in trust. BNSF Railway is exposed to
credit loss related to collection of accounts receivable to the extent that the
amount of receivables in the master trust exceeds the amount of certificates
sold. Costs related to such agreements vary on
BURLINGTON NORTHERN SANTA FE CORPORATION 31
<PAGE>
a monthly basis and are generally related to certain interest rates. These costs
are included in Other income (expense), net.
BNSF maintains an allowance for corrections to and collectibility of freight
and other billings. At December 31, 1998 and 1997, $84 million and $70 million
of such allowances had been recorded, respectively. BNSF believes the allowance
is adequate to cover disputed and uncollectible receivables at December 31,
1998.
6 PROPERTY AND EQUIPMENT, NET
Property and equipment, net (in millions), and the weighted average annual
depreciation rate (%) were as follows:
<TABLE>
<CAPTION>
1998
Depreciation
December 31, 1998 1997 Rate
- -------------------------------- ------- ------- ------------
<S> <C> <C> <C>
Land $ 1,431 $ 1,416 --%
Track structure 11,340 10,527 4.0
Other roadway 8,389 7,856 2.5
Locomotives 2,276 1,874 4.9
Freight cars and
other equipment 1,860 1,870 4.0
Computer hardware
and software 405 412 15.5
- -------------------------------- ------- -------
Total cost 25,701 23,955
Less accumulated depreciation
and amortization (5,039) (4,744)
- -------------------------------- ------- -------
Property and equipment, net $20,662 $19,211
================================ ======= =======
</TABLE>
The consolidated balance sheet at December 31, 1998 and 1997 included $1,082
million and $875 million, respectively, for property and equipment under capital
leases.
7 ACCOUNTS PAYABLE AND OTHER CURRENT LIABILITIES
Accounts payable and other current liabilities consisted of the following (in
millions):
<TABLE>
<CAPTION>
December 31, 1998 1997
- ---------------------------------------- ------ ------
<S> <C> <C>
Compensation and benefits payable $ 386 $ 399
Casualty and environmental liabilities 272 291
Accounts payable 174 222
Rents and leases 155 144
Tax liabilities 117 132
Employee merger and separation costs 65 82
Other 760 682
- ---------------------------------------- ------ ------
Total $1,929 $1,952
======================================== ====== ======
</TABLE>
8 DEBT
Debt outstanding was as follows
(in millions):
<TABLE>
<CAPTION>
December 31, 1998 1997
- -------------------------------------------- ------ ------
<S> <C> <C>
Notes and debentures, weighted average
rate of 7.04%, due 1999 to 2097 $3,073 $2,842
Capitalized lease obligations, weighted
average rate of 6.65%, due 1999 to 2012 818 695
Equipment obligations, weighted average
rate of 7.62%, due 1999 to 2016 595 565
Mortgage bonds, weighted average rate of
7.56%, due 1999 to 2047 498 467
Commercial paper, 5.71% (variable) 471 668
Bank borrowings, 5.35% (variable) 25 70
Unamortized discount and other, net (24) (18)
- -------------------------------------------- ------ ------
Total 5,456 5,289
Less current portion of long-term debt (268) (108)
- -------------------------------------------- ------ ------
Long-term debt $5,188 $5,181
============================================ ====== ======
</TABLE>
<PAGE>
BNSF issues commercial paper from time to time which is 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 $425
million on a short-term basis and $1.5 billion on a long-term basis. Annual
facility fees are currently 0.075 percent and 0.09 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 agreement were extended on November 12, 1998 and are
currently scheduled to expire on June 15, 1999. The commitments of the lenders
under the long-term agreement are scheduled to expire on November 12, 2002.
At December 31, 1998, there were no borrowings against the revolving credit
agreements and the maturity value of commercial paper outstanding was $474
million, leaving a total remaining capacity of $1,026 million available under
the long-term revolving credit agreement and $425 million available under the
short-term credit agreement. A portion of commercial paper has been hedged to
fix interest rates through interest rate swap transactions (see Note 11: Hedging
Activities, Leases and Other Commitments). The financial covenants of the bank
revolving credit agreements require that BNSF's consolidated tangible net worth,
as defined in the agreements, be at least $4.4 billion, and that its debt cannot
exceed 55 percent of its consolidated total capital as defined in the
agreements. BNSF was in compliance with these financial covenants at December
31, 1998.
In March 1998 the Company filed a 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
32 BURLINGTON NORTHERN SANTA FE CORPORATION
<PAGE>
$500 million. In April 1998, prior to the effective date of the March 1998 shelf
registration, the Company amended its August 1997 shelf registration to combine
it with the March 1998 shelf registration. As of December 31, 1998, the March
1998 shelf registration had $350 million of potential borrowings remaining. In
February 1999, the Company filed a new shelf registration of debt securities
that may be issued in one or more series at an aggregate offering price not to
exceed $750 million. As of February 8, 1999, the shelf registration had not yet
been declared effective. When it becomes effective, the Company will have $1.1
billion of borrowing capacity available through the combined shelf
registrations.
Aggregate long-term debt scheduled maturities are $268 million, $146
million, $222 million, $744 million and $130 million for 1999 through 2003,
respectively. Commercial paper of $471 million is included in maturities for
2002. Maturities in 1999 exclude $200 million of variable rate debentures due
2029 and maturities in 2001 exclude $100 million of 6.05 percent notes due 2031,
which will either be remarketed by the holder of a call option on the debt and
mature in 2029 and 2031, respectively; or will otherwise be repurchased by the
Company in 1999 and 2001, respectively. In addition, maturities in 2000 exclude
$100 million of 6.1 percent notes due 2027 and maturities in 2003 exclude $175
million of 6.53 percent notes due 2037, which may be redeemed in 2000 and 2003,
respectively, at the option of the holder.
Most BNSF Railway properties and certain other assets are pledged as
collateral to, or are otherwise restricted under, the various BNSF Railway long-
term debt agreements. Equipment obligations and capital leases are secured by
the underlying equipment.
An indirect wholly-owned subsidiary of BNSF, in connection with its
remaining 0.5 percent special limited partner interest in a pipeline
partnership, is contingently liable for $190 million of certain debt of the
pipeline partnership assumed by Kinder Morgan pursuant to the sale discussed in
Note 2: Sale of Investment in Pipeline Partnership. In addition, BNSF and
another major railroad jointly and severally guarantee $75 million of debt of
KCT Intermodal Transportation Corporation, the proceeds of which are being used
to finance the construction of a double track grade separation bridge in Kansas
City, Missouri, to be operated and used by Kansas City Terminal Railway Company.
9 EMPLOYEE MERGER AND SEPARATION COSTS
LIABILITY BALANCE AND ACTIVITY
Current and long-term employee merger and separation liabilities totaling
$474 million and $551 million are included in the consolidated balance sheet at
December 31, 1998 and 1997, respectively, and principally represent: (i)
employee-related severance costs for the consolidation of clerical functions;
(ii) deferred benefits payable upon separation or retirement to certain active
conductors, trainmen and locomotive engineers; and (iii) certain non-union
employee severance costs.
Liabilities related to the consolidation of clerical functions (the
Consolidation Plan) were $211 million and $259 million at December 31, 1998 and
1997, respectively. These liabilities provide for severance costs associated
with the Consolidation Plan adopted in 1995 upon consummation of the merger of
BNSF's predecessor companies Burlington Northern Inc. and Santa Fe Pacific
Corporation (the Merger). The Consolidation Plan will result in the elimination
of approximately 1,600 permanent positions, of which approximately 1,500
positions have been eliminated through 1998, including approximately 250
positions that were eliminated in 1998. Upon adoption in 1995, the Consolidation
Plan was expected to be completed by early 1999. However, the Consolidation Plan
was partially delayed as a result of the timing related to completion of merger
integration and other issues and is now expected to be completed by 2001.
Remaining clerical positions to be eliminated by the Company will result in
involuntary separations. Benefits paid to affected employees are in the form of
lump-sum payments or payments made over five to ten years or in some cases
through retirement.
Liabilities related to deferred benefits payable upon separation or
retirement to certain active conductors, trainmen and locomotive engineers were
$207 million and $224 million at December 31, 1998 and 1997, respectively. These
costs were incurred in connection with labor agreements reached prior to the
Merger which, among other things, reduced train crew sizes and allowed for more
flexible work rules.
Liabilities principally related to certain remaining non-union employee
severances resulting from the Merger were $56 million and $68 million at
December 31, 1998 and 1997, respectively. These costs will be paid over the next
several years based on deferral elections made by affected employees.
Approximately 1,500 non-union employees received or are receiving severance
payments and special termination benefits under the Company's retirement and
health and welfare plans resulting from the Merger.
During 1998, 1997 and 1996, BNSF made employee merger and separation
payments of $77 million, $116 million and $183 million, respectively. At
December 31, 1998, $65 million of the remaining liabilities are included within
current liabilities for anticipated costs to be paid in 1999.
1997 SPECIAL CHARGE
In the fourth quarter of 1997, the Company recorded a $90 million pre-tax
special charge. Approximately $65 million of the charge related to the
Consolidation Plan and the remainder of the charge related to severance and
other costs for non-union employees. BNSF recorded an initial charge in 1995 for
the Consolidation Plan, however, the 1995 charge excluded costs associated with
voluntary severance for employees who were given the opportunity to relocate and
follow their work, but elected severance.
BURLINGTON NORTHERN SANTA FE CORPORATION 33
<PAGE>
10 DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of BNSF's financial instruments at December 31,
1998 and 1997 and the methods and assumptions used to estimate the fair value of
each class of financial instruments held by BNSF, were as follows (see also Note
11: Hedging Activities, Leases and Other Commitments regarding the fair values
of BNSF's outstanding hedging instruments):
CASH AND CASH EQUIVALENTS
The carrying amount approximated fair value because of the short maturity of
these instruments.
LONG-TERM DEBT AND COMMERCIAL PAPER
The fair value of long-term debt was primarily based on quoted market prices for
the same or similar issues, or on the current rates that would be offered for
debt of the same remaining maturities. The carrying amount of commercial paper
approximated fair value because of the short maturity of these instruments. The
carrying amounts of long-term debt and commercial paper at December 31, 1998 and
1997 were $5,456 million and $5,289 million, respectively, while the estimated
fair values at December 31, 1998 and 1997 were $5,712 million and $5,472
million, respectively.
11 HEDGING ACTIVITIES, LEASES AND OTHER COMMITMENTS
HEDGING ACTIVITIES
FUEL
During 1998, 1997 and 1996 fuel expenses approximated 11 percent of total
operating expenses. Due to the significance of diesel fuel expenses to the
operations of the railroad and the historical volatility of fuel prices, the
Company has established a program to hedge against fluctuations in the price of
its diesel fuel purchases. The intent of the program is to protect the Company's
operating margins and overall profitability from adverse fuel price changes.
However, to the extent the Company hedges portions of its fuel purchases, it
will not realize the impact of decreases in fuel prices. The fuel-hedging
program includes the use of commodity swap transactions that are accounted for
as hedges. Any gains or losses associated with changes in the market value of
the fuel swaps are deferred and recognized as a component of fuel expense in the
period in which the fuel is purchased and used. Based on 1998 fuel consumption
and excluding the impact of the hedging program, each one-cent increase in the
price of fuel would result in approximately $12 million of additional fuel
expense on an annual basis.
As of February 8, 1999, BNSF had entered into fuel swaps for approximately
1,776 million gallons at an average price of approximately 49 cents per gallon.
The above price does 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.
Currently, BNSF's fuel hedging program covers approximately 75 percent, 40
percent, 22 percent and 7 percent of estimated annual and quarterly 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 swap transactions were
approximately $174 million as of December 31, 1998, of which $120 million
relates to swap transactions that will expire in 1999. BNSF also monitors its
hedging positions and credit ratings of its counterparties and does not
anticipate losses due to counterparty nonperformance.
INTEREST RATE
From time to time, the Company enters into various interest rate hedging
transactions for the purpose of managing exposure to fluctuations in interest
rates and establishing rates in anticipation of future debt issuances. As of
February 8, 1999, BNSF had interest rate swap transactions which fix the
interest rate on the total principal amount of $125 million of its commercial
paper debt. The interest rate swap transactions require payment of a weighted
average fixed interest rate of approximately 6.1 percent, and the receipt of a
variable interest rate based on a commercial paper composite rate. The swap
transactions expire in December 1999. Any gains and losses associated with
changes in market value of these swaps are not recognized. BNSF recognizes, on
an accrual basis, a fixed rate of interest on the principal amount of commercial
paper hedged over the term of the swap agreements. Unrecognized losses from
BNSF's interest rate swap transactions were approximately $2 million as of
December 31, 1998.
In anticipation of future debt issuances, BNSF has entered into treasury
lock transactions, based on the 10-year and 30-year U.S. treasury rates,
totaling $300 million and $200 million, respectively. The 10-year and 30-year
treasury lock transactions have average interest rates of approximately 4.5
percent and 5.0 percent, respectively, and expire between 1999 and 2001. These
rates do not include a credit spread which will be determined at the time of the
actual debt issuance and included in the all-in interest rate. The treasury
locks can be closed by BNSF anytime up to expiration. Unrecognized gains on the
treasury lock transactions were approximately $19 million as of December 31,
1998.
During 1998, at the time of issuing $400 million of debt, the Company
closed out $400 million of treasury lock transactions at a loss of approximately
$18 million which has been deferred and is being amortized to interest expense
over the life of the debt.
34 BURLINGTON NORTHERN SANTA FE CORPORATION
<PAGE>
LEASES
BNSF has substantial lease commitments for locomotives, freight cars, trailers,
office buildings and other property. Most of these leases provide the option to
purchase the equipment at fair market value at the end of the lease. However,
some provide fixed price purchase options. Future minimum lease payments (which
reflect leases having non-cancelable lease terms in excess of one year) as of
December 31, 1998 are summarized as follows (in millions):
<TABLE>
<CAPTION>
Capital Operating
Year ended December 31 Leases Leases
- ------------------------------------------- ------- ---------
<S> <C> <C>
1999 $ 116 $ 350
2000 105 256
2001 116 206
2002 110 175
2003 109 164
Thereafter 594 1,814
- ------------------------------------------- ------- ---------
Total 1,150 $2,965
---------
Less amount representing interest 332
- ------------------------------------------- -------
Present value of minimum lease payments $ 818
=========================================== =======
</TABLE>
Lease rental expense for all operating leases was $503 million, $456 million
and $446 million for the years ended December 31, 1998, 1997 and 1996,
respectively. Contingent rentals and sublease rentals were not significant.
OTHER COMMITMENTS
BNSF has entered into commitments to acquire 476 locomotives in 1999. The
locomotives will be financed from one or a combination of sources including, but
not limited to, cash from operations, capital or operating leases, and debt
issuances. The decision on the method used will depend upon the current market
conditions and other factors at the time of financing. Additionally, BNSF has
committed to acquire 196 and 50 locomotives in 2000 and 2001, respectively.
In connection with the closing of the sale of rail lines in Southern
California in 1992 and 1993, BNSF has a $50 million liability recorded for an
obligation retained by BNSF which under certain conditions requires the Company
to repurchase a portion of the properties sold.
12 ENVIRONMENTAL AND OTHER CONTINGENCIES
ENVIRONMENTAL
BNSF's operations, as well as those of its competitors, are subject to extensive
federal, state and local environmental regulation. BNSF's operating procedures
include practices to protect the environment from the environmental risks
inherent in railroad operations, which frequently involve transporting chemicals
and other hazardous materials. Additionally, many of BNSF's land holdings are
and have been used for industrial or transportation-related purposes or leased
to commercial or industrial companies whose activities may have resulted in
discharges onto the property. As a result, BNSF is subject to environmental
clean-up and enforcement actions. In particular, the Federal Comprehensive
Environmental Response, Compensation and Liability Act of 1980 (CERCLA), also
known as the "Superfund" law, as well as similar state laws generally impose
joint and several liability for clean-up and enforcement costs without regard to
fault or the legality of the original conduct on current and former owners and
operators of a site. BNSF has been notified that it is a potentially responsible
party (PRP) for study and clean-up costs at approximately 32 Superfund sites for
which investigation and remediation payments are or will be made or are yet to
be determined (the Superfund sites) and, in many instances, is one of several
PRPs. In addition, BNSF may be considered a PRP under certain other laws.
Accordingly, under CERCLA and other federal and state statutes, BNSF may be held
jointly and severally liable for all environmental costs associated with a
particular site. If there are other PRPs, BNSF generally participates in the
clean-up of these sites through cost-sharing agreements with terms that vary
from site to site. Costs are typically allocated based on relative volumetric
contribution of material, the amount of time the site was owned or operated,
and/or the portion of the total site owned or operated by each PRP.
Environmental costs include initial site surveys and environmental studies of
potentially contaminated sites as well as costs for remediation and restoration
of sites determined to be contaminated. Liabilities for environmental clean-up
costs are initially recorded when BNSF's liability for environmental clean-up is
both probable and a reasonable estimate of associated costs can be made.
Adjustments to initial estimates are recorded as necessary based upon additional
information developed in subsequent periods. BNSF conducts an ongoing
environmental contingency analysis, which considers a combination of factors
including independent consulting reports, site visits, legal reviews, analysis
of the likelihood of participation in and the ability of other PRPs to pay for
clean-up, and historical trend analyses.
BNSF is involved in a number of administrative and judicial proceedings and
other clean-up efforts at approximately 400 sites, including the Superfund
sites, at which it is participating in the study or clean-up, or both, of
alleged environmental contamination. BNSF paid approximately $64 million, $55
million and $47 million during 1998, 1997 and 1996 respectively, for mandatory
and unasserted clean-up efforts, including amounts expended under federal and
state voluntary clean-up programs. BNSF has accruals of approximately $185
million for remediation and restoration of all known sites. BNSF anticipates
that the majority of the accrued costs at December 31, 1998, will be paid over
the next five years. No individual site is considered to be material.
BURLINGTON NORTHERN SANTA FE CORPORATION 35
<PAGE>
During 1998, BNSF settled an environmental matter in the State of Missouri
related to the release of a reportable quantity of lead sulfide into a waterway.
BNSF agreed in the settlement to pay a fine of $7 million, make restitution
payments to the State of Missouri of $3 million and committed to spend $9
million, which includes amounts previously paid, in connection with its ongoing
remediation efforts. BNSF has made payments of approximately $16 million related
to this settlement, including approximately $12 million that was paid during
1998, which is included in total 1998 payments discussed above.
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,
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. 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 has
evaluated compliance requirements and associated costs and believes the costs
will not be material in any given year. 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.
13 RETIREMENT PLANS AND OTHER POSTEMPLOYMENT BENEFIT PLANS
BNSF sponsors two significant defined benefit pension plans: the noncontributory
qualified BNSF Retirement Plan, which covers substantially all non-union
employees, and the nonqualified BNSF Supplemental Retirement Plan, which covers
certain officers and other employees. The benefits under BNSF's plans are based
on years of credited service and the highest five-year average compensation
levels. BNSF's funding policy is to contribute annually not less than the
regulatory minimum and not more than the maximum amount deductible for income
tax purposes.
Certain salaried employees of BNSF that have met certain age and years of
service requirements are eligible for medical benefits and life insurance
coverage during retirement. The retiree medical plan is contributory and
provides benefits to retirees, their covered dependents and beneficiaries.
Retiree contributions are adjusted annually. The plan also contains fixed
deductibles, coinsurance and out-of-pocket limitations. The life insurance plan
is noncontributory and covers retirees only. BNSF's policy is to fund benefits
payable under the medical and life insurance plans as they come due. Employees
beginning salaried employment with BNSF subsequent to September 22, 1995 are not
eligible for benefits under these plans.
Components of the net benefit costs for these plans were as follows (in
millions):
<TABLE>
<CAPTION>
Pension Benefits
----------------------------
Year ended December 31, 1998 1997 1996
- ----------------------------------------- ------ ----- -----
<S> <C> <C> <C>
Service cost $ 15 $ 14 $ 17
Interest cost 101 100 97
Expected return on plan assets (117) (112) (113)
Net amortization and deferred amounts 4 4 8
- ----------------------------------------- ------ ----- -----
Net benefit cost $ 3 $ 6 $ 9
========================================= ====== ===== =====
Medical and Life Benefits
----------------------------
Year ended December 31, 1998 1997 1996
- ----------------------------------------- ------ ----- -----
Service cost $ 4 $ 4 $ 5
Interest cost 16 14 16
Net amortization and deferred amounts -- (1) --
- ----------------------------------------- ------ ----- -----
Net benefit cost $ 20 $ 17 $ 21
========================================= ====== ===== =====
</TABLE>
36 BURLINGTON NORTHERN SANTA FE CORPORATION
<PAGE>
The following tables show the change in benefit obligation and plan assets of
these plans (in millions):
<TABLE>
<CAPTION>
Pension Medical and
Benefits Life Benefits
---------------- ---------------
Change in benefit obligation 1998 1997 1998 1997
- ------------------------------------- ------ ------ ----- -----
<S> <C> <C> <C> <C>
Benefit obligation at
beginning of year $1,404 $1,286 $ 190 $ 210
Service cost 15 14 4 4
Interest cost 101 100 16 14
Plan participants' contributions -- -- 3 5
Amendments -- -- 13 --
Actuarial (gain) loss 85 117 39 (22)
Benefits paid (118) (113) (16) (21)
- ------------------------------------- ------ ------ ----- -----
Benefit obligation at year end $1,487 $1,404 $ 249 $ 190
===================================== ====== ====== ===== =====
</TABLE>
<TABLE>
<CAPTION>
Pension Medical and
Benefits Life Benefits
---------------- ---------------
Change in plan assets 1998 1997 1998 1997
- ------------------------------------- ------ ------ ----- -----
<S> <C> <C> <C> <C>
Fair value of plan assets
at beginning of year $1,540 $1,320 $ -- $ --
Actual return on plan assets 43 329 -- --
Employer contribution 4 4 13 16
Plan participants' contributions -- -- 3 5
Benefits paid (118) (113) (16) (21)
- ------------------------------------- ------ ------ ----- -----
Fair value of plan assets
at year end $1,469 $1,540 $ -- $ --
===================================== ====== ====== ===== =====
</TABLE>
The following tables show the reconciliation of the funded status of these
plans with amounts recorded in the consolidated balance sheet (in millions):
<TABLE>
<CAPTION>
Pension Medical and
Benefits Life Benefits
---------------- ---------------
December 31, 1998 1997 1998 1997
- ------------------------------------- ------ ------ ----- -----
<S> <C> <C> <C> <C>
Funded status $ (18) $ 136 $(249) $(190)
Unrecognized net (gain) loss 7 (151) 4 (16)
Unrecognized prior service cost (8) (8) 13 --
Unamortized net
transition obligation 11 14 -- --
- ------------------------------------- ------ ------ ----- -----
Net amount recognized $ (8) $ (9) $(232) $(206)
===================================== ====== ====== ===== =====
</TABLE>
<TABLE>
<CAPTION>
Pension Medical and
Benefits Life Benefits
---------------- ---------------
December 31, 1998 1997 1998 1997
- ------------------------------------- ------ ------ ----- -----
<S> <C> <C> <C> <C>
Amounts recognized in the
consolidated balance sheet:
Prepaid benefit cost $ 20 $ 17 $ -- $ --
Accrued benefit liability (43) (39) (232) (206)
Intangible asset 2 2 -- --
Accumulated other
comprehensive income 13 11 -- --
- ------------------------------------- ------ ------ ----- -----
Net amount recognized $ (8) $ (9) $(232) $(206)
===================================== ====== ====== ===== =====
</TABLE>
BNSF uses a September 30 measurement date. The assumptions used in accounting
for the BNSF plans were as follows:
<TABLE>
<CAPTION>
Pension Medical and
Benefits Life Benefits
---------------- ---------------
Assumptions 1998 1997 1998 1997
- ------------------------------------- ------ ------ ----- -----
<S> <C> <C> <C> <C>
Discount rate 7.0% 7.5% 7.0% 7.5%
Rate of increase in
compensation levels 4.0% 4.0% N/A N/A
Expected return on plan assets 9.5% 9.5% N/A N/A
- ------------------------------------- ------ ------ ----- -----
</TABLE>
For purposes of the medical and life benefits calculations for 1998, the
assumed health care cost trend rate for both managed care and non-managed care
medical costs is 9 percent and is assumed to decrease gradually to 5 percent by
2005 and remain constant thereafter. Increasing the assumed health care cost
trend rates by one percentage point would increase the accumulated
postretirement benefit obligation by $18 million and the combined service and
interest components of net postretirement benefit cost recognized in 1998 by $1
million. Decreasing the assumed health care cost trend rates by one percentage
point would decrease the accumulated postretirement benefit obligation by $17
million and the combined service and interest components of net postretirement
benefit cost recognized in 1998 by $1 million.
OTHER PLANS
Under collective bargaining agreements, BNSF participates in multiemployer
benefit plans which provide certain postretirement health care and life
insurance benefits for eligible union employees. Insurance premiums paid
attributable to retirees, which are generally expensed as incurred, were $18
million, $15 million and $14 million, in 1998, 1997 and 1996, respectively.
DEFINED CONTRIBUTION PLANS
BNSF sponsors 401(k) thrift and profit sharing plans which cover substantially
all non-union employees and certain union employees. BNSF matches 50 percent of
the first 6 percent of non-union employees' contributions, which are subject to
certain percentage limits of the employees' earnings, at each pay period.
Depending on BNSF's performance, an additional matching contribution of up to 30
percent of the first 6 percent can be made at the end of the year. Employer
contributions for all non-union employees are subject to a five year length of
service vesting schedule. BNSF's 401(k) matching expense was $16 million, $14
million and $13 million in 1998, 1997 and 1996, respectively.
BURLINGTON NORTHERN SANTA FE CORPORATION 37
<PAGE>
14 STOCK OPTIONS AND OTHER INCENTIVE PLANS
Under BNSF's stock option plans, options may be granted to officers and
salaried employees at the fair market value of the Company's common stock on the
date of grant. Approximately 3.9 million common shares were available for future
grant at December 31, 1998. All options generally vest within one year and
expire within 10 years from the date of grant. Shares issued upon exercise of
options may be issued from treasury shares or from authorized but unissued
shares.
The Company applies Accounting Principles Board (APB) Opinion 25 and related
interpretations in accounting for its stock option plans. Accordingly, no
compensation expense has been recognized for its fixed stock option plans as the
exercise price equals the stock price on the date of grant. Had compensation
expense been determined for stock options granted in 1998, 1997 and 1996 based
on the fair value at grant dates consistent with Statement of Financial
Accounting Standards No. 123 "Accounting for Stock Based Compensation," the
Company's pro forma net income and earnings per share would have been as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
- ----------------------------------- ------ ----- -----
<S> <C> <C> <C>
Net income (in millions) $1,124 $ 857 $ 871
Basic earnings per share $ 2.39 $1.85 $1.91
Diluted earnings per share $ 2.36 $1.82 $1.88
- ----------------------------------- ------ ----- -----
</TABLE>
The pro forma amounts were estimated using the Black-Scholes option pricing
model with the following assumptions:
<TABLE>
<CAPTION>
1998 1997 1996
- ----------------------------------- ------ ----- -----
<S> <C> <C> <C>
Weighted average expected
life (years) 3.0 3.0 3.0
Expected volatility 20% 20% 20%
Annual dividend per share $ 0.48 $0.40 $0.40
Risk free interest rate 5.11% 5.81% 6.11%
Weighted average fair value
of options granted $ 5.13 $5.15 $4.45
- ----------------------------------- ------ ----- -----
</TABLE>
A summary of the status of the stock option plans as of December 31, 1998,
1997 and 1996, and changes during the years then ended, is presented below:
<TABLE>
<CAPTION>
1998 1997 1996
----------------------------- ------------------------------- -----------------------------
Weighted Average Weighted Average Weighted Average
Options Exercise Prices Options Exercise Prices Options Exercise Prices
- ----------------------- ---------- ---------------- ---------- ---------------- ---------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of
year 25,761,369 $20.98 24,765,855 $16.49 28,795,959 $12.48
Granted 9,587,926 29.33 8,778,036 29.40 7,318,140 25.26
Exercised (6,666,864) 18.66 (7,092,690) 15.46 (10,748,892) 11.46
Cancelled (546,562) 26.25 (689,832) 23.58 (599,352) 21.34
---------- ---------------- ---------- ---------------- ---------- ----------------
Balance at end of year 28,135,869 $24.27 25,761,369 $20.98 24,765,855 $16.49
---------- ---------------- ---------- ---------------- ---------- ----------------
Options exercisable at
year end 17,763,770 $21.45 16,419,858 $16.31 17,082,372 $13.06
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The following table summarizes information regarding stock options outstanding
at December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------------------- ------------------------------
Range of Number Weighted Average Weighted Average Number Weighted Average
Exercise prices Outstanding Remaining Life Exercise Prices Exercisable Exercise Prices
- ---------------- ----------- ---------------- ---------------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
$ 3.01 to $16.55 4,091,142 3.6 Years $7.93 4,091,142 $7.93
$16.86 to $29.08 8,407,778 6.6 Years $22.70 7,259,231 $21.90
$29.10 to $29.10 8,595,519 9.0 Years $29.10 -- --
$29.38 to $35.19 7,041,430 8.0 Years $29.76 6,413,397 $29.56
- ---------------- ----------- ---------------- ---------------- ----------- ---------------
$ 3.01 to $35.19 28,135,869 7.2 Years $24.27 17,763,770 $21.45
- ---------------- ----------- ---------------- ---------------- ----------- ---------------
</TABLE>
38 BURLINGTON NORTHERN SANTA FE CORPORATION
<PAGE>
OTHER INCENTIVE PLANS
BNSF has other long-term incentive programs in addition to stock options which
are administered separately on behalf of employees.
Under the BNSF 1996 Stock Incentive Plan and the Non-Employee Directors'
Stock Plan (NEDS), up to 30 million and 900,000 shares of BNSF common stock,
respectively, have been authorized to be issued in the form of stock options,
restricted stock, performance shares and performance units.
During 1996, BNSF awarded a total of approximately 1.2 million shares of
restricted stock to eligible employees and directors. No cash payment is
required by the individual. Shares awarded under the plans may not be sold,
transferred or used as collateral by the holder until the shares awarded become
free of restrictions. The restrictions will be lifted in thirds over three years
beginning on the third anniversary of the grant date if certain stock price
based performance goals are met. If, however, the performance goals are not met,
the restricted shares will be forfeited. All shares still subject to
restrictions are generally forfeited and returned to the plan if the employee's
or director's relationship is terminated. A total of approximately 934,000
restricted shares related to this award were outstanding as of December 31,
1998. Additionally, in December 1997, BNSF issued 90,000 restricted shares of
stock. The shares are time-vesting and vest ratably over the five year period
ending December 31, 2002. At December 31, 1998, 72,000 restricted shares related
to this award were outstanding.
Under the BNSF 1996 Stock Incentive Plan certain eligible employees may
defer the cash payment of their bonus paid under the Incentive Compensation Plan
(ICP) and will receive restricted stock which restrictions lapse in three years
or in two years if certain performance goals are met. The number of restricted
shares awarded are based on the amount of bonus deferred, plus incremental
shares, using the market price of BNSF common stock on the date of grant.
Restricted awards granted under this program totaled approximately 380,000
shares in 1998. A total of approximately 936,000 awards were outstanding under
this and prior programs on December 31, 1998.
In addition, all regularly-assigned salaried employees not eligible to
participate in deferrals of ICP are eligible to participate in the BNSF
Discounted Stock Purchase Program. This program allows employees to use their
bonus earned under the ICP to purchase BNSF common stock at a discount from the
market price and requires that the stock be restricted for a three year period.
During the years ended December 31, 1998, 1997 and 1996, approximately 54,000,
84,000 and 87,000 shares, respectively, were purchased under this plan.
Compensation expense is recorded under the BNSF Stock Incentive Plan in
accordance with APB Opinion 25 and was not material in 1998, 1997 or 1996.
15 COMMON STOCK AND PREFERRED CAPITAL STOCK
COMMON STOCK
BNSF is authorized to issue 600 million shares of common stock, $.01 Par Value.
At December 31, 1998, there were 470.5 million shares of common stock
outstanding. Each holder of common stock is entitled to one vote per share in
the election of directors and on all matters submitted to a vote of
stockholders. Subject to the rights and preferences of any future issuances of
preferred stock, each share of common stock is entitled to receive dividends as
may be declared by the Board of Directors out of funds legally available and to
share ratably in all assets available for distribution to stockholders upon
dissolution or liquidation. No holder of common stock has any preemptive right
to subscribe for any securities of BNSF.
PREFERRED CAPITAL STOCK
At December 31, 1998, BNSF had 50 million shares of Class A Preferred Stock,
$.01 Par Value and 25 million shares of Preferred Stock, $.01 Par Value
available for issuance. The Board of Directors has the authority to issue such
stock in one or more series, to fix the number of shares and to fix the
designations and the powers, rights, and qualifications and restrictions of each
series.
SHARE REPURCHASE PROGRAM
In July 1997, the Board of Directors of BNSF authorized the repurchase of up to
30 million shares of the Company's common stock from time to time in the open
market. Repurchased shares will be available to satisfy future requirements of
various stock-based employee compensation programs. During 1998, the Company
repurchased approximately 5 million shares of its common stock at an average
price of $30.75 per share. Total Repurchases through February 8, 1999, were 6.1
million shares at a total average cost of $31.29 per share.
In November 1997, BNSF sold equity put options for 1.5 million shares of
the Company's common stock to an independent third party and received cash
proceeds of $1 million. The option contracts had an exercise price of $29.33 and
an expiration date of May 5, 1998. The option contracts permitted a net-share or
net-cash settlement method at BNSF's election. These options expired
unexercised.
During the second and third quarters of 1998, BNSF sold equity put options
for 3 million shares of the Company's common stock to an independent third party
and received cash proceeds of $2 million. The option contracts had exercise
prices ranging from $29.00 to $30.00 per share with expiration dates ranging
from November 1998 to February 1999. The option contracts permitted a net-share
or net-cash settlement method at BNSF's election. These options expired
unexercised.
The Company accounted for the effects of these equity put option
transactions within stockholders' equity.
BURLINGTON NORTHERN SANTA FE CORPORATION 39
<PAGE>
16 QUARTERLY FINANCIAL DATA -- UNAUDITED
<TABLE>
<CAPTION>
(Dollars in millions, except per share data) Fourth Third Second First
- -------------------------------------------- ------ ------ ------ ------
<S> <C> <C> <C> <C>
1998
Revenues/(1)/ $2,294 $2,294 $2,205 $2,148
- -------------------------------------------- ------ ------ ------ ------
Operating income 568 614 529 447
- -------------------------------------------- ------ ------ ------ ------
Net income/(2)/ $ 296 $ 317 $ 277 $ 265
- -------------------------------------------- ------ ------ ------ ------
Basic earnings per share/(3)/ $ .63 $ .67 $ .59 $ .56
Diluted earnings per share/(3)/ $ .63 $ .66 $ .58 $ .56
Dividends declared per share/(3)/ $ .12 $ .12 $ .10 $ .10
Common stock price:
High/(3)/ $34.81 $35.58 $35.71 $35.65
Low/(3)/ 28.63 26.87 31.25 28.08
1997
Revenues/(1)/ $2,174 $2,125 $2,055 $2,016
- -------------------------------------------- ------ ------ ------ ------
Operating income/(4)/ 438 541 459 329
- -------------------------------------------- ------ ------ ------ ------
Net income/(4)/ $ 217 $ 283 $ 235 $ 150
- -------------------------------------------- ------ ------ ------ ------
Basic earnings per share/(3)/ $ .47 $ .61 $ .51 $ .32
Diluted earnings per share/(3)/ $ .46 $ .60 $ .50 $ .32
Dividends declared per share/(3)/ $ .10 $ .10 $ .10 $ .10
Common stock price:
High/(3)/ $33.46 $32.67 $30.50 $29.83
Low/(3)/ 30.44 30.19 23.63 24.67
- -------------------------------------------- ------ ------ ------ ------
</TABLE>
(1) Amounts do not agree to previously reported amounts due to certain
reclassifications between revenues and expenses which are not significant.
(2) First quarter 1998 results include a $67 million pre-tax gain ($32 million
after-tax) on the sale of substantially all of the Company's interest in
Santa Fe Pacific Pipeline Partners, L.P. as discussed in Note 2 -- Sale of
Investment in Pipeline Partnership.
(3) Information for prior periods presented has been restated to reflect the
1998 three-for-one common stock split as discussed in Note 1 -- Accounting
Policies.
(4) Fourth quarter 1997 results include a $90 million pre-tax charge ($57
million after-tax) as discussed in Note 9--Employee Merger and Separation
Costs.
40 BURLINGTON NORTHERN SANTA FE CORPORATION
<PAGE>
Exhibit 21. Subsidiaries of the Registrant
BURLINGTON NORTHERN SANTA FE CORPORATION
BNSF Acquisition, Inc. (DE) 100%
Burlington Northern Santa Fe British Columbia, Ltd. (DE) 100%
The Burlington Northern and Santa Fe Railway Company (DE) 100%
Alameda Belt Line (CA) 50%
The Belt Railway Company of Chicago (IL) 16.6%
BN Leasing Corporation (DE) 100%
The Burlington Northern and Santa Fe Railway
Company de Mexico, S.A. de C.V. (Mexico) 50%
Burlington Northern Dock Corporation (DE) 100%
Burlington Northern International Services, Inc. (DE) 100%
The Burlington Northern and Santa Fe Railway
Company de Mexico, S.A. de C.V. (Mexico) 50%
Burlington Northern - Mexico Inc. (DE) 100%
Burlington Northern (Manitoba) Limited (Manitoba) 100%
Burlington Northern Railroad Holdings, Inc. (DE) 100%
Burlington Northern Santa Fe Manitoba, Inc. (DE) 100%
Burlington Northern Santa Fe Properties, LLC (DE) 100%
BNSF Dothan, Inc. (TX) 100%
BNSF98 Dothan LLC (TX) 100%
WEC 98D-27 LLC (TX) 100%
WEC 98D-29 LLC (TX) 100%
WEC 98D-33 LLC (TX) 100%
WEC 98F-5 LLC (DE) 100%
Wolverine 98D-27, Inc. (TX) 100%
Wolverine 98D-29, Inc. (TX) 100%
Wolverine 98D-33, Inc. (TX) 100%
Burlington Northern Worldwide, Inc. (DE) 100%
Central California Traction Company (CA) 33.3%
Constellation 130, Inc. (CA) 100%
The Dodge City and Cimarron Valley Railway Company (KS) 100%
Electro Northern, Inc. (DE) 100%
Houston Belt & Terminal Railway Company (TX) 50%
INB Corp. (NV) 100%
Iowa Transfer Railway Company (IA) 25%
Kansas City Terminal Railway Company (MO) 25%
Limited Partnership Management, Inc. (DE) 100%
Longview Switching Company (WA) 25%
Los Angeles Junction Railway Company (CA) 100%
Metrovias S.A. (Argentina) 16.6%
Midwest/Northwest Properties Inc. (DE) 100%
M-R Holdings Acquisition Company (DE) 100%
M T Properties, Inc. (MN) 37.8%
Northern Radio Limited (British Columbia) 100%
The Oakland Terminal Railway (CA) 50%
Oklahoma City Junction Railway Company (OK) 100%
Paducah & Illinois Railroad Company (KY) 33.3%
Pine Canyon Land Company (DE) 100%
Portland Terminal Railroad Company (OR) 40%
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in (i) the Prospectus
constituting part of the Registration Statements on Form S-3 (Nos. 333-25627;
333-48227; 333-72013) and (ii) the Registration Statements on Form S-8 (Nos.
33-62823; 33-62825; 33-62827; 33-62829; 33-62831; 33-62833; 33-62835; 33-62837;
33-62839; 33-62841; 33-62943; 33-63247; 33-63249; 33-63253; 33-63255; 333-03275;
333-03277; 333-19241) of Burlington Northern Santa Fe Corporation of our report
dated February 8, 1999 appearing on page 25 of the Annual Report to Shareholders
which is incorporated in this Annual Report on Form 10-K. We also consent to the
incorporation by reference of our report on the Financial Statement Schedule,
which appears on page F-1 of this Form 10-K.
PRICEWATERHOUSECOOPERS LLP
Fort Worth, Texas
March 30, 1999
<PAGE>
EXHIBIT 24
----------
POWER OF ATTORNEY
Whereas, Burlington Northern Santa Fe Corporation, a Delaware corporation
(the "Company"), will file with the Securities and Exchange Commission, under
the provisions of the Securities Exchange Act of 1934, as amended, its Annual
Report on Form 10-K for the fiscal year ended December 31, 1998; and
Whereas, the undersigned serve the Company in the capacity indicated;
Now, Therefore, the undersigned hereby constitutes and appoints Denis E.
Springer and Jeffrey R. Moreland, his or her attorney with full power to act
for him or her in his or her name, place and stead, to sign his or her name in
the capacity set forth below, to the Annual Report on Form 10-K of the Company
for the fiscal year ended December 31, 1998, and to any and all amendments to
such Annual Report on Form 10-K, and hereby ratifies and confirms all that
said attorney may or shall lawfully do or cause to be done by virtue hereof.
In Witness Whereof, this Power of Attorney has been executed by the
undersigned this 18th day of March, 1999.
/s/ Joseph F. Alibrandi /s/ Jack S. Blanton
_____________________________________ _____________________________________
Joseph F. Alibrandi, Director Jack S. Blanton, Director
/s/ John J. Burns /s/ George Deukmejian
_____________________________________ _____________________________________
John J. Burns, Jr., Director George Deukmejian, Director
/s/ Robert D. Krebs /s/ Bill M. Lindig
_____________________________________ _____________________________________
Robert D. Krebs, Chairman, President Bill M. Lindig, Director
and Chief Executive Officer, and
Director /s/ Roy S. Roberts
_____________________________________
/s/ Vilma S. Martinez Roy S. Roberts, Director
_____________________________________
Vilma S. Martinez, Director /s/ Arnold R. Weber
_____________________________________
/s/ Marc J. Shapiro Arnold R. Weber, Director
_____________________________________
Marc J. Shapiro, Director /s/ J. Steven Whisler
_____________________________________
/s/ Robert H. West J. Steven Whisler, Director
_____________________________________
Robert H. West, Director /s/ Ronald B. Woodard
_____________________________________
/s/ Edward E. Whitacre, Jr. Ronald B. Woodard, Director
_____________________________________
Edward E. Whitacre, Jr., Director
/s/ Michael B. Yanney
_____________________________________
Michael B. Yanney, Director
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from
Burlington Northern Santa Fe Corporation's Consolidated Financial Statements and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000934612
<NAME> Burlington Northern Santa Fe Corporation
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 25
<SECURITIES> 0
<RECEIVABLES> 678
<ALLOWANCES> 84
<INVENTORY> 244
<CURRENT-ASSETS> 1,206
<PP&E> 25,701
<DEPRECIATION> 5,039
<TOTAL-ASSETS> 22,690
<CURRENT-LIABILITIES> 2,197
<BONDS> 5,188
0
0
<COMMON> 5
<OTHER-SE> 7,765
<TOTAL-LIABILITY-AND-EQUITY> 22,690
<SALES> 0
<TOTAL-REVENUES> 8,941
<CGS> 0
<TOTAL-COSTS> 6,783
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 354
<INCOME-PRETAX> 1,849
<INCOME-TAX> 694
<INCOME-CONTINUING> 1,155
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,155
<EPS-PRIMARY> 2.45
<EPS-DILUTED> 2.43
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This restated financial data 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>
<RESTATED>
<CIK> 0000934612
<NAME> Burlington Northern Santa Fe Corporation
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 33
<SECURITIES> 0
<RECEIVABLES> 634
<ALLOWANCES> 65
<INVENTORY> 213
<CURRENT-ASSETS> 1,185
<PP&E> 24,135
<DEPRECIATION> 4,714
<TOTAL-ASSETS> 21,668
<CURRENT-LIABILITIES> 2,013
<BONDS> 5,158
0
0
<COMMON> 5<F1>
<OTHER-SE> 7,102<F1>
<TOTAL-LIABILITY-AND-EQUITY> 21,668
<SALES> 0
<TOTAL-REVENUES> 2,148<F2>
<CGS> 0
<TOTAL-COSTS> 1,701<F2>
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 88
<INCOME-PRETAX> 436
<INCOME-TAX> 171
<INCOME-CONTINUING> 265
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 265
<EPS-PRIMARY> 0.56<F1>
<EPS-DILUTED> 0.56<F1>
<FN>
<F1> On July 16, 1998, the Board of Directors approved a three-for-one common
stock split which was 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 stockholders of record on August 17, 1998.
All share and per share data have been restated to reflect the stock split.
<F2> Restatement reflected herein is the result of reclassifications to prior
periods' financial statements to conform to the current period presentation.
<FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This restated financial data 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>
<RESTATED>
<CIK> 0000934612
<NAME> Burlington Northern Santa Fe Corporation
<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> 1,179
<PP&E> 24,624
<DEPRECIATION> 4,785
<TOTAL-ASSETS> 21,813
<CURRENT-LIABILITIES> 2,169
<BONDS> 4,969
0
0
<COMMON> 5<F1>
<OTHER-SE> 7,362<F1>
<TOTAL-LIABILITY-AND-EQUITY> 21,813
<SALES> 0
<TOTAL-REVENUES> 4,353<F2>
<CGS> 0
<TOTAL-COSTS> 3,377<F2>
<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> 1.15<F1>
<EPS-DILUTED> 1.14<F1>
<FN>
<F1>On July 16, 1998, the Board of Directors approved a three-for-one common
stock split which was 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 stockholders of record on August 17, 1998. All
share and per share data have been restated to reflect the stock split.
<F2>Restatement reflected herein is the result of reclassifications to prior
periods' financial statements to conform to the current period presentation.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This restated financial data 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>
<RESTATED>
<CIK> 0000934612
<NAME> Burlington Northern Santa Fe Corporation
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 17
<SECURITIES> 0
<RECEIVABLES> 699
<ALLOWANCES> 84
<INVENTORY> 212
<CURRENT-ASSETS> 1,216
<PP&E> 25,165
<DEPRECIATION> 4,898
<TOTAL-ASSETS> 22,260
<CURRENT-LIABILITIES> 2,116
<BONDS> 5,154
0
0
<COMMON> 5
<OTHER-SE> 7,536
<TOTAL-LIABILITY-AND-EQUITY> 22,260
<SALES> 0
<TOTAL-REVENUES> 6,647<F1>
<CGS> 0
<TOTAL-COSTS> 5,057<F1>
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 264
<INCOME-PRETAX> 1,380
<INCOME-TAX> 521
<INCOME-CONTINUING> 859
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 859
<EPS-PRIMARY> 1.82
<EPS-DILUTED> 1.80
<FN>
<F1> Restatement reflected herein is the result of reclassifications to prior
periods' financial statements to conform to the current period presentation.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This restated financial data 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>
<RESTATED>
<CIK> 0000934612
<NAME> Burlington Northern Santa Fe Corporation
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 31
<SECURITIES> 0
<RECEIVABLES> 705
<ALLOWANCES> 70
<INVENTORY> 205
<CURRENT-ASSETS> 1,234
<PP&E> 23,955
<DEPRECIATION> 4,744
<TOTAL-ASSETS> 21,336
<CURRENT-LIABILITIES> 2,060
<BONDS> 5,181
0
0
<COMMON> 5<F1>
<OTHER-SE> 6,807<F1>
<TOTAL-LIABILITY-AND-EQUITY> 21,336
<SALES> 0
<TOTAL-REVENUES> 8,370<F2>
<CGS> 0
<TOTAL-COSTS> 6,603<F2>
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 344
<INCOME-PRETAX> 1,404
<INCOME-TAX> 519
<INCOME-CONTINUING> 885
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 885
<EPS-PRIMARY> 1.91<F1>
<EPS-DILUTED> 1.88<F1>
<FN>
<F1> On July 16, 1998, the Board of Directors approved a three-for-one common
stock split which was 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 stockholders of record on August 17, 1998. All
share and per share data have been restated to reflect the stock split.
<F2> Restatment reflected herein is the result of reclassifications to prior
periods' financial statements to conform to the current period presentation.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This restated financial data 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>
<RESTATED>
<CIK> 0000934612
<NAME> Burlington Northern Santa Fe Corporation
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 47
<SECURITIES> 0
<RECEIVABLES> 844
<ALLOWANCES> 51
<INVENTORY> 230
<CURRENT-ASSETS> 1,420
<PP&E> 22,346
<DEPRECIATION> 4,580
<TOTAL-ASSETS> 20,068
<CURRENT-LIABILITIES> 2,055
<BONDS> 4,898
0
0
<COMMON> 5<F1>
<OTHER-SE> 6,107<F1>
<TOTAL-LIABILITY-AND-EQUITY> 20,068
<SALES> 0
<TOTAL-REVENUES> 2,016<F2>
<CGS> 0
<TOTAL-COSTS> 1,687<F2>
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 84
<INCOME-PRETAX> 242
<INCOME-TAX> 92
<INCOME-CONTINUING> 150
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 150
<EPS-PRIMARY> 0.32<F1>
<EPS-DILUTED> 0.32<F1>
<FN>
<F1> On July 16, 1998, the Board of Directors approved a three-for-one common
stock split which was 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 stockholders of record on August 17, 1998. All
share and per share data have been restated to reflect the stock split.
<F2> Restated reflected herein is the result of reclassifications to prior
periods' financial statements to conform to the current period presentation.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This restated financial data 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>
<CIK> 0000934612
<NAME> Burlington Northern Santa Fe Corporation
<RESTATED>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 42
<SECURITIES> 0
<RECEIVABLES> 704
<ALLOWANCES> 49
<INVENTORY> 205
<CURRENT-ASSETS> 1,286
<PP&E> 22,825
<DEPRECIATION> 4,645
<TOTAL-ASSETS> 20,355
<CURRENT-LIABILITIES> 1,959
<BONDS> 4,935
0
0
<COMMON> 5<F1>
<OTHER-SE> 6,337<F1>
<TOTAL-LIABILITY-AND-EQUITY> 20,355
<SALES> 0
<TOTAL-REVENUES> 4,071<F2>
<CGS> 0
<TOTAL-COSTS> 3,283<F2>
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 169
<INCOME-PRETAX> 616
<INCOME-TAX> 231
<INCOME-CONTINUING> 385
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 385
<EPS-PRIMARY> 0.83<F1>
<EPS-DILUTED> 0.82<F1>
<FN>
<F1> On July 16, 1998, the Board of Directors approved a three-for-one common
stock split which was 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 stockholders of record on August 17, 1998. All
share and per share data have been restated to reflect the stock split.
<F2> Restatement reflected herein is the result of reclassification to prior
periods' financial statements to conform to the current period presentation.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This restated financial data 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>
<RESTATED>
<CIK> 0000934612
<NAME> Burlington Northern Santa Fe Corporation
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 45
<SECURITIES> 0
<RECEIVABLES> 845
<ALLOWANCES> 70
<INVENTORY> 219
<CURRENT-ASSETS> 1,427
<PP&E> 23,334
<DEPRECIATION> 4,681
<TOTAL-ASSETS> 20,981
<CURRENT-LIABILITIES> 2,039
<BONDS> 5,146
0
0
<COMMON> 5<F1>
<OTHER-SE> 6,620<F1>
<TOTAL-LIABILITY-AND-EQUITY> 20,981
<SALES> 0
<TOTAL-REVENUES> 6,196<F2>
<CGS> 0
<TOTAL-COSTS> 4,867<F2>
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 255
<INCOME-PRETAX> 1,061
<INCOME-TAX> 393
<INCOME-CONTINUING> 668
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 668
<EPS-PRIMARY> 1.44<F1>
<EPS-DILUTED> 1.42<F1>
<FN>
<F1>On July 16, 1998, the Board of Directors approved a three-for-one common
stock split which was 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 stockholders of record on August 17, 1998. All
share and per share data have been restated to reflect the stock split.
<F2>Restatement reflected herein is the result of reclassifications to prior
periods' financial statements to conform to the current period presentation.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This restated financial data 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>
<RESTATED>
<CIK> 0000934612
<NAME> Burlington Northern Santa Fe Corporation
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 47
<SECURITIES> 0
<RECEIVABLES> 685
<ALLOWANCES> 57
<INVENTORY> 222
<CURRENT-ASSETS> 1,248
<PP&E> 22,123
<DEPRECIATION> 4,490
<TOTAL-ASSETS> 19,763
<CURRENT-LIABILITIES> 2,228
<BONDS> 4,546
0
0
<COMMON> 5<F1>
<OTHER-SE> 5,976<F1>
<TOTAL-LIABILITY-AND-EQUITY> 19,763
<SALES> 0
<TOTAL-REVENUES> 8,109<F2>
<CGS> 0
<TOTAL-COSTS> 6,361<F2>
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 301
<INCOME-PRETAX> 1,440
<INCOME-TAX> 551
<INCOME-CONTINUING> 889
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 889
<EPS-PRIMARY> 1.95<F1>
<EPS-DILUTED> 1.91<F1>
<FN>
<F1> On July 16, 1998, the Board of Directors approved a three-for-one common
stock split which was 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 stockholders of record on August 17, 1998. All
share and per share data have been restated to reflect the stock split.
<F2> Restatement reflected herein is the result of reclassifications to prior
periods' financial statements to conform to the current period presentation.
</FN>
</TABLE>
