EXHIBIT 13
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 the
year ended December 31, 1996, BNI results for each of the four years
ended December 31, 1995 and SFP results from September 22, 1995 to
December 31, 1995.
- -------------------------------------------------------------------------------
December 31, 1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------
FOR THE YEAR ENDED:
Revenues $ 8,187 $ 6,163 $4,976 $4,672 $4,604
Operating income(1) 1,748 526 853 661 597
Income before extraordinary
item and cumulative effect
of change in accounting method 889 198 426 296 299
Accounting change/Extraordinary
item(2)(3)(4) - (106) (10) - (21)
Net income $ 889 $ 92 $ 416 $ 296 $ 278
Earnings available for common
stockholders $ 889 $ 71 $ 394 $ 274 $ 275
Primary earnings per share:
Before extraordinary item and
change in accounting method $ 5.70 $ 1.66 $ 4.48 $ 3.06 $ 3.35
Accounting change/Extraordinary
item - (.99) (.11) - (.24)
Primary earnings per share $ 5.70 $ .67 $ 4.37 $ 3.06 $ 3.11
Average shares (in millions) 156.0 106.7 90.2 89.7 88.6
Fully diluted earnings per share:
Before extraordinary item and
change in accounting method $ 5.70 $ 1.66 $ 4.38 $ 3.04 $ 3.34
Accounting change/Extraordinary
item - (.99) (.11) - (.24)
Fully diluted earnings per share $ 5.70 $ .67 $ 4.27 $ 3.04 $ 3.10
Average shares (in millions) 156.0 106.7 97.5 97.2 89.5
Dividends declared per common share $ 1.20 $ 1.20 $ 1.20 $ 1.20 $ 1.20
- -------------------------------------------------------------------------------
AT YEAR END:
Total assets $ 19,846 $ 18,269 $7,592 $7,045 $6,563
Long-term debt and commercial paper,
including current portion 4,711 4,233 1,819 1,737 1,567
Stockholders' equity 5,981 5,037 2,237 1,919 1,728
Total debt to capital 44% 46% 45% 48% 48%
- -------------------------------------------------------------------------------
FOR THE YEAR ENDED:
Capital expenditures $ 2,234 $ 890 $ 698 $ 676 $ 487
Depreciation and amortization 760 520 362 352 338
Operating ratio(5) 78.6% 79.5% 82.9% 85.9% 87.0%
- -------------------------------------------------------------------------------
(1) 1995 includes $735 million before taxes related to merger,
severance and asset charges as discussed in Note 3 of the financial
statements.
(2) 1995 includes the cumulative effect of the change in accounting
method for locomotive overhauls which decreased net income by
$100 million, or $.94 per common share. Additionally, 1995 includes an
extraordinary loss on retirement of debt of $6 million (after tax), or
$.05 per common share.
(3) 1994 includes the cumulative effect of the implementation of the
accounting standard for postemployment benefits.
(4) 1992 includes the cumulative effect of the change in accounting
method for revenue recognition and the cumulative effect of the
implementation of the accounting standard for postretirement benefits.
(5) 1995 operating ratio excludes the pre-tax charges discussed in note
(1) above.
BURLINGTON NORTHERN SANTA FE CORPORATION 1
FINANCIAL CONTENTS
11 Management's Discussion and Analysis
19 Report of Management
19 Report of Independent Accountants
20 Consolidated Statement of Income
21 Consolidated Balance Sheet
22 Consolidated Statement of Cash Flows
23 Consolidated Statement of Changes in
Stockholders' Equity
24 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
subsidiaries were Burlington Northern Inc. (BNI), Burlington Northern Railroad
Company (BNRR), Santa Fe Pacific Corporation (SFP) and The Atchison, Topeka
and Santa Fe Railway Company (ATSF). SFP and ATSF became subsidiaries of BNSF
on September 22, 1995 as a result of a business combination accounted for as a
purchase. Effective December 1996, BNI was merged with and into SFP, and ATSF
merged with and into BNRR and the name was changed to The Burlington Northern
and Santa Fe Railway Company (BNSF Railway).
RESULTS OF OPERATIONS
The results of operations discussed below include BNSF results for the year
ended December 31, 1996, BNI results for each of the two years ended December
31, 1995 and 1994 and SFP results from the merger date, September 22, 1995,
through December 31, 1995.
Year ended December 31, 1996 compared with year ended December 31, 1995.
BNSF recorded net income for 1996 of $889 million ($5.70 per common share),
compared with net income of $92 million ($.67 per common share) for 1995.
Results for 1995 include $735 million of merger, severance and asset charges
which reduced net income by approximately $453 million, or $4.24 per common
share. Results for 1995 were further reduced by $100 million (after tax), or
$.94 per common share, for the cumulative effect of an accounting change for
locomotive overhauls and $6 million (after tax), or $.05 per common share, for
an extraordinary loss on early retirement of debt. Excluding the above items,
net income for 1995 would have been $651 million.
REVENUE TABLE
The following table presents BNSF's revenue information by commodity for the
years ended December 31, 1996, 1995 and 1994 and includes certain
reclassifications of prior year information to conform to current year
presentation.
Revenues Revenue Ton Miles (RTM) Revenue Per Thousand RTM
- ----------------------------------------------------------------------------------------------------------
1996 1995 1994 1996 1995 1994 1996 1995 1994
(IN MILLIONS) (IN MILLIONS)
- ----------------------------------------------------------------------------------------------------------
Intermodal $2,088 $1,120 $ 758 71,262 38,516 24,671 $29.30 $29.08 $30.72
Coal 1,973 1,821 1,674 169,380 153,169 136,164 11.65 11.89 12.29
Agricultural Commodities 1,170 1,143 776 59,601 55,356 33,922 19.63 20.65 22.88
Chemicals 765 443 356 28,896 17,155 13,859 26.47 25.82 25.69
Forest Products 555 471 452 25,140 19,828 19,495 22.08 23.75 23.19
Consumer and Food Products 469 365 318 18,201 12,332 10,341 25.77 29.60 30.75
Metals 413 320 256 20,199 13,804 11,503 20.45 23.18 22.66
Automotive 397 213 156 6,062 3,158 2,031 65.49 67.45 76.81
Minerals and Ores 319 260 222 12,318 10,119 8,588 25.90 25.69 25.85
Other 38 7 8 - - - - - -
- ----------------------------------------------------------------------------------------------------------
Total $8,187 $6,163 $4,976 411,059 323,437 260,574 $19.82 $19.03 $19.07
- ----------------------------------------------------------------------------------------------------------
BURLINGTON NORTHERN SANTA FE CORPORATION 11
REVENUES
Total revenues for 1996 were $8,187 million compared with revenues of $6,163
million for 1995. The $2,024 million increase primarily reflects inclusion of
a full year of SFP results in 1996. Prior to the business combination, coal
and agricultural made up approximately 50 percent of BNI's revenues while
intermodal shipments comprised approximately 45 percent of total SFP revenues.
Intermodal revenues increased $968 million compared with 1995, due to
inclusion of a full year of SFP operations. Prospectively, it is expected that
intermodal traffic will continue to represent a significant portion of BNSF's
revenues.
Coal revenues improved $152 million during 1996. Approximately 85 percent of
the increase was due to the inclusion of a full year of SFP operations.
Additionally, tonnage of low-sulfur coal shipped from the Powder River Basin
increased from 1995. Revenue per thousand revenue ton miles declined
principally as a result of continuing competitive pricing pressures and a
change in traffic mix.
Agricultural commodities revenues during 1996 were $27 million greater than
1995 reflecting a full year of SFP operations largely offset by lower export
shipments of wheat and corn.
Chemicals revenues increased $322 million compared with 1995. Approximately
90 percent of the increase was due to inclusion of a full year of SFP
operations. The remaining increase was due to strong petroleum products and
agricultural chemicals demand.
Revenue increases and changes in revenue per thousand revenue ton miles in
all other commodity groups were principally due to the inclusion of SFP
results for the full year.
EXPENSES
Total operating expenses for 1996 were $6,439 million compared with expenses
of $5,637 million for 1995. The operating ratio for 1996 was 78.6 percent,
compared with an operating ratio of 79.5 percent for 1995, excluding $735
million for merger, severance and asset charges. The favorable decrease in the
operating ratio reflects synergies from combining operations which resulted in
reduced costs principally within administrative functions. These benefits were
partially offset by higher prices paid for labor, services and materials,
including a significant increase in the cost of diesel fuel during 1996.
Compensation and benefits expenses of $2,561 million were $494 million above
1995 principally due to the full year of combined operations. The Company
began to realize the benefit of the merger during 1996 as employment, which
approximated 43,000 at the end of 1996, decreased by 5 percent when compared
with the prior year. Salaried employee levels have decreased over 15 percent
in the same time period.
Purchased services expenses increased $273 million for 1996 compared with
1995, principally reflecting a full year of combined operations.
Depreciation and amortization expense for 1996 was $240 million higher than
1995 primarily due to the full year depreciation and amortization for combined
operations.
Equipment rents expenses were $196 million higher than 1995 due to the full
year combined operations as well as an increase in lease rental expense for
freight cars.
Fuel expenses for 1996 were $247 million or 51 percent higher than 1995
primarily due to an increase in consumption resulting from the full year of
combined operations and an 8 cent increase in the average price per gallon.
Materials and other expenses for 1996 increased $87 million compared with
1995. The increase reflects the full year of combined operations partially
offset by decreases in expenses from cost initiatives including reductions in
employee injuries due to increased focus on employee safety.
As discussed in Note 3: Merger, severance and asset charges, the Company
recorded $735 million for such costs in 1995. The principal components of the
charge were $287 million related to BNSF's plan to centralize the majority of
its clerical functions and $254 million for severance, pension and other
salaried employee benefits and for employee relocation cost incurred during
the period. Additionally, $105 million was recorded for planned branch line
dispositions. The remaining $89 million included obligations for vacating leased
facilities and the write-off of duplicate and excess assets. Additional accruals
of $138 million were recorded through purchase accounting related to former SFP
employees and assets. When its plans are completed, BNSF expects to have
eliminated over 3,000 positions and disposed of approximately 4,000 miles of low
density track. To date, BNSF has eliminated approximately 1,500 salaried
positions and 500 clerical positions and has disposed of approximately 2,000
miles of low-density track. Also as described in Note 3, costs
12 BURLINGTON NORTHERN SANTA FE CORPORATION
related to union employee relocation as well as certain costs for separation and
severances were not included in the charge; therefore, these costs, to the
extent incurred, will be recorded as future operating expenses. Presently, the
magnitude of any future expense is unknown.
Interest expense increased $81 million compared with 1995, due to the full
year effect of interest on SFP debt in 1996 as well as an increase in the
levels of outstanding debt.
Other income net was $35 million below 1995. The decrease is due to a full
year of combined operations in 1996 as well as $16 million of equity in
earnings of SFP from February 21, 1995, the date of BNI's initial investment
in SFP, to September 22, 1995, the date of merger consummation.
YEAR ENDED DECEMBER 31, 1995 COMPARED WITH YEAR ENDED DECEMBER 31, 1994
BNSF recorded net income for 1995 of $92 million ($.67 per common share,
primary and fully diluted) compared with net income of $416 million ($4.37 per
common share, primary, and $4.27 per common share, fully diluted) for 1994. As
previously discussed, 1995 included the merger, severance and asset charges,
the accounting change for locomotive overhauls and the extraordinary loss on
early retirement of debt. Excluding these items, net income for 1995 would
have been $651 million. Results for 1994 were reduced by $10 million (after
tax), or $.11 per common share, for the cumulative effect of an accounting
change for postemployment benefits. Excluding the accounting change, net
income for 1994 would have been $426 million.
REVENUES
Total revenues for 1995 were $6,163 million compared with revenues of $4,976
million for 1994. The $1,187 million increase reflects $802 million of SFP
revenues for the period of September 22, 1995 through December 31, 1995.
Excluding SFP, revenues increased by $385 million or 8 percent primarily due
to higher coal and agricultural commodities revenues.
Intermodal revenues increased $362 million when compared with 1994, almost
exclusively due to the inclusion of SFP revenues in 1995.
Coal revenues improved $147 million during 1995 due to higher traffic levels
caused primarily by new business, favorable weather conditions early in the
year and increased demand for low-sulfur coal from the Powder River Basin as
well as the addition of $58 million of SFP revenues in 1995. Revenue per
thousand revenue ton miles declined as a result of continuing competitive
pricing pressures and a change in traffic mix.
Agricultural commodities revenues during 1995 were $367 million greater than
1994. The increase was principally caused by improvements in corn and soybean
revenues which benefited from increased crop production as well as higher
traffic volumes to the Pacific Northwest due to stronger export demand during
1995. Barley and wheat revenues declined primarily due to weaker export demand
compared with the strong demand in 1994. Additionally, agricultural
commodities revenues included $59 million of SFP revenues during 1995. The
shift in commodities to lower yielding corn and soybeans from higher yielding
wheat led to the aggregate decrease in revenue per thousand revenue ton miles.
Revenues for chemicals increased $87 million and forest products increased
$19 million compared with 1994. The addition of $80 million of SFP revenues
along with strong petroleum products demand contributed to the increase in
chemicals revenues. The increase in forest product revenues was due to the
addition of $32 million of SFP revenues and was partially offset by lower
traffic levels for lumber.
Metals revenues increased $64 million due to increased taconite, aluminum and
steel products revenues as well as the addition of $28 million of SFP revenues
in 1995.
Revenue increases in all other commodity groups are principally due to the
inclusion of SFP revenues from September 22, 1995 to December 31, 1995.
EXPENSES
Total operating expenses for 1995, including $664 million of SFP operating
expenses and $735 million of merger, severance and asset charges, were $5,637
million compared with expenses of $4,123 million for 1994. Excluding the
merger, severance and asset charges, the operating ratio for 1995 was 79.5
percent, an improvement over the operating ratio of 82.9 percent for 1994.
Compensation and benefits expenses of $2,067 million were $301 million above
1994 and included $233 million of SFP compensation and benefits expense. The
remaining $68 million of the increase was due to higher traffic levels, a wage
increase for union represented employees effective July 1994, an increase in
health and welfare costs for union employees due primarily to an increase in
insurance premium rates, and increased incentive compensation expense. These
increases were partially offset by operating efficiencies.
BURLINGTON NORTHERN SANTA FE CORPORATION 13
Purchased services expenses increased $64 million for 1995 compared with
1994, principally reflecting the addition of SFP expenses.
Depreciation and amortization expense for 1995 was $158 million higher than
1994 primarily due to the inclusion of $86 million of SFP depreciation and
amortization expense for 1995. Additionally, the increase reflects $30 million
attributable to the 1995 effect of a change in accounting for locomotive
overhauls. The remainder of the increase was due to capital additions which
increased the Company's asset base.
Equipment rents expenses were $111 million higher than 1994 due to the
inclusion of $70 million of SFP equipment rents expense in 1995 as well as a
$46 million increase in lease rental expense as a result of a larger fleet of
leased freight cars and an increase in the leasing of locomotives to meet
power requirements in 1995.
Fuel expenses for 1995 were $111 million higher compared with 1994 primarily
due to the addition of $74 million of SFP expenses along with a $29 million
increase in consumption resulting from higher traffic volumes in 1995. An
increase in the average price paid per gallon of 1.2 cents in 1995 contributed
to the remainder of the increase.
Materials and other expenses for 1995 increased $34 million compared with
1994, principally reflecting the addition of SFP expenses and expenses
attributable to the change in accounting for locomotive overhauls in 1995.
Interest expense increased $65 million compared with 1994, principally due to
the addition of $26 million of SFP expense in 1995 as well as interest on the
$500 million of unsecured debt incurred in 1995 to finance BNI's investment in
SFP.
Other income (expense), net was $31 million favorable in 1995 compared with
1994. This increase was due to BNI's equity in earnings of SFP of $16 million.
The remainder of the increase in other income was principally due to interest
income on the settlement of a tax refund and lower fees on the sale of
accounts receivable in 1995.
In December 1995, BNSF defeased BNI's 9% debentures due 2016, by placing $166
million of U.S. government securities into an irrevocable trust for the
purpose of repaying the debentures in 1996. The defeasance resulted in an
extraordinary charge of $6 million (after tax), principally reflecting the
call premium on the debt.
Effective January 1, 1995, BNSF changed its method of accounting for periodic
major locomotive overhauls. Under the new method, overhauls on owned units are
capitalized and depreciated ratably until the next anticipated overhaul. In
addition, estimated costs for overhauls on leased units are accrued on a
straight-line basis over the life of the leases. BNSF previously expensed
locomotive overhauls when the costs were incurred. The cumulative effect of
this change for years prior to 1995 was a reduction in net income of $100
million (after tax) while the effect of this change for the year ended
December 31, 1995 was to reduce net income by $25 million (after tax).
ACQUISITION OF SFP
On June 29, 1994, BNI and SFP entered into an Agreement and Plan of Merger (as
amended, the Merger Agreement) pursuant to which SFP would merge with BNI in
the manner set forth below (the Merger). Stockholders of BNI and SFP approved
the Merger Agreement at special stockholders' meetings held on February 7,
1995. On August 23, 1995, the Interstate Commerce Commission issued a written
decision approving the Merger and on September 22, 1995 the Merger was
consummated. As discussed in Note 2, the business combination with SFP was
accounted for by the purchase method.
Pursuant to the Merger Agreement, BNI and SFP commenced tender offers
(together, the Tender Offer) to acquire 25 million and 38 million shares of
SFP common stock, respectively, at $20 per share in cash. During 1995, SFP
borrowed $1.0 billion under a credit facility of which $760 million of the
proceeds were used to purchase the 38 million shares pursuant to the Tender
Offer. In addition, BNI borrowed $500 million under a credit facility of which
the proceeds were used to finance BNI's purchase of SFP common stock in the
Tender Offer. The Tender Offer was completed on February 21, 1995.
To ensure that the transaction contemplated by the Merger Agreement qualified
as a tax-free transaction for federal income tax purposes, the parties
utilized the holding company structure. Under the holding company structure,
BNSF created two subsidiaries. One subsidiary merged with and into BNI, and
the other subsidiary merged with and into SFP. The holding company structure
had the same economic effect with respect to the stockholders of BNI and SFP
as would have a direct merger of BNI and SFP.
14 BURLINGTON NORTHERN SANTA FE CORPORATION
CAPITAL RESOURCES AND LIQUIDITY
1996 CASHFLOWS
Cash generated from operations is BNSF's principal source of liquidity. BNSF
generally funds any additional requirements through debt issuance, including
commercial paper, or leasing of assets.
Operating activities provided cash of $1,871 million during 1996 compared
with $1,416 million during 1995. The increase in cash from operations was
primarily attributable to higher earnings before depreciation and
amortization, and deferred income taxes as compared to 1995. The above was
partially offset by an increase in payments for employee, merger and
separation costs and a net increase in working capital.
BNSF's cash outflows from investing activities for 1996 predominantly
consisted of capital expenditures of $2,234 million which are further
discussed below, while cash inflows from financing activities reflect net
proceeds from borrowings of $445 million partially offset by dividend payments
of $184 million.
OTHER CAPITAL RESOURCES
BNSF issues commercial paper from time to time. These borrowings are supported
by bank revolving credit agreements. Outstanding commercial paper balances are
considered as reducing available borrowings under these agreements. The bank
revolving credit agreements allow borrowings of up to $500 million on a
short-term basis and an additional $1.5 billion on a long-term basis. Annual
facility fees are currently .075 percent and .11 percent, respectively, and
are subject to change based upon changes in BNSF's senior unsecured debt
ratings. Borrowing rates are based upon, i) LIBOR plus a spread based upon
BNSF's senior unsecured debt ratings, ii) money market rates offered at the
option of the lenders, or iii) an alternate base rate. The commitments of the
lenders to make the loans are currently scheduled to expire on November 14,
1997 and November 15, 2001, respectively.
At December 31, 1996, there were no borrowings against the revolving credit
agreements and the maturity value of commercial paper outstanding was $916
million, leaving a total of $584 million of the long-term revolving credit
agreement available and $500 million of the short-term revolving credit
agreement available.
In February 1996, BNSF issued $175 million of 6.875% debentures due February
15, 2016. In June 1996, BNSF issued $200 million of 7.29% debentures due June
1, 2036. The net proceeds from the sale of these debentures were used for
general corporate purposes including the repayment of short-term debt. Both
debentures were issued under a BNSF shelf registration which has $475 million
remaining.
CAPITAL EXPENDITURES AND RESOURCES
A breakdown of cash capital expenditures is set forth in the following table
(in millions):
Year ended December 31, 1996 1995 1994
- ---------------------------------------------------
Track structure and other
roadway property $1,625 $706 $544
Equipment 609 184 154
- ---------------------------------------------------
Total capital expenditures $2,234 $890 $698
- ---------------------------------------------------
Track and other roadway capital expenditures for 1996 increased
significantly compared with 1995. This increase reflects a full year of
capital projects required to maintain the capacity of an expanded route
system. Additionally, BNSF significantly expanded capacity throughout its
system in 1996, primarily in the Powder River Basin and in the Pacific
Northwest. Also as a result of the merger of Union Pacific Railroad Company
(UP) and Southern Pacific Rail Corporation (SP) (discussed below) the Company
purchased certain prior UP or SP routes during 1996. Equipment capital
expenditures increased in 1996 compared with 1995 due principally to the
purchase of 225 locomotives in 1996. During 1995, the Company acquired nearly
all new locomotives through operating leases. Additionally, equipment capital
spending was higher in 1996 due to the ownership of a substantially larger
locomotive and car fleet.
Capital expenditures in 1997 are expected to approximate $1.85 billion.
Approximately $1.1 billion of these expenditures will be for maintaining
productive capacity of the existing route structures. The remainder will be
spent on the acquisition of new equipment, including 180 locomotives, and
capacity expansion projects throughout the system including the Powder River
Basin and the Pacific Northwest.
BURLINGTON NORTHERN SANTA FE CORPORATION 15
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.
DIVIDENDS
Common stock dividends declared were $1.20 per common share annually for 1996,
1995 and 1994. Dividends paid on common stock during 1996 were $184 million,
and $129 million on common and preferred stock during 1995 and 1994. The
increase in 1996 dividends reflects an increase in outstanding shares of
common stock principally due to the Merger. On January 16, 1997, the Board of
Directors declared a dividend of 30 cents per share upon its outstanding
shares of common stock, $.01 par value, payable April 1, 1997, to stockholders
of record on March 10, 1997.
CAPITAL STRUCTURE
BNSF's ratio of total debt to total capital was 44 percent at the end of 1996
compared with 46 and 45 percent at the end of 1995 and 1994, respectively.
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). For several years prior to 1992, the
trend of significant increases in BNSF's personal injury expense reflected the
combined effects of increasing frequency of claims, rising medical expenses,
legal judgments and settlements. FELA's system of requiring finding of fault,
coupled with unscheduled awards and reliance on the jury system, contributed
to these significant increases in expense in past years. BNSF implemented a
number of safety programs to reduce the number of personal injury claims and
personal injury expense. The total amount of personal injury expenses were
$162 million, $143 million, and $170 million in 1996, 1995 and 1994,
respectively. Expenses in 1996 reflect a full year of combined operations
while 1995 includes SFP expenses from September 22, 1995 through December 31,
1995. Expenses in 1994 reflect only BNI.
As discussed in more detail in Note 13: Environmental and other
contingencies, the Company's operations, as well as those of its competitors,
are subject to extensive federal, state and local environmental regulation.
BNSF's operating procedures include practices to protect the environment from
the environmental risks inherent in railroad operations, which frequently
involve transporting chemicals and other hazardous materials. Additionally,
many of BNSF's land holdings are and have been used for industrial or
transportation-related purposes or leased to commercial or industrial
companies whose activities may have resulted in discharges onto the property.
As a result, BNSF is subject to environmental clean-up and enforcement
actions. In particular, the Federal Comprehensive Environmental Response
Compensation and Liability Act of 1980, also known as the "Superfund" law, as
well as similar state laws generally impose joint and several liability for
clean-up and enforcement costs without regard to fault or the legality of the
original conduct on current and former owners and operators of a site.
BNSF is involved in a number of administrative and judicial proceedings and
other mandatory clean-up efforts at approximately 345 sites at which it is
being asked to participate in the study and/or clean-up of alleged
environmental contamination. BNSF paid approximately $47 million, $31 million,
and $21 million during 1996, 1995 and 1994, respectively for mandatory
clean-up efforts, including amounts expended under federal and state voluntary
clean-up programs. BNSF has accruals of approximately $225 million for
remediation and restoration of all known sites. BNSF anticipates that the
majority of the accrued costs at December 31, 1996 will be paid over the next
five years. No individual site is considered to be material.
Liabilities recorded for environmental costs represent BNSF's best estimates
for remediation and restoration of these sites and include both asserted and
unasserted claims. Unasserted claims are not considered to be a material
component of the liability. Although recorded liabilities include BNSF's best
estimates of all costs, without reduction for anticipated recoveries from
third parties, BNSF's total clean-up costs at these sites cannot be predicted
with certainty due
16 BURLINGTON NORTHERN SANTA FE CORPORATION
to various factors such as the extent of corrective actions that may be
required, evolving environmental laws and regulations, advances in
environmental technology, the extent of other parties' participation in
clean-up efforts, developments in ongoing environmental analyses related to
sites determined to be contaminated, and developments in environmental surveys
and studies of potentially contaminated sites. As a result, future charges to
income for environmental liabilities could have a significant effect on
results of operations in a particular quarter or fiscal year as individual
site studies and remediation and restoration efforts proceed or as new sites
arise. However, expenditures associated with such liabilities are typically
paid out over a long period; therefore, management believes that it is
unlikely that any identified matters, either individually or in the aggregate,
will have a material adverse effect on BNSF's consolidated financial position
or liquidity.
The railroad industry, including BNSF Railway, will become subject to future
requirements regulating air emissions from diesel locomotives that may
increase their operating costs. Regulations applicable to new locomotive
engines were issued by the Environmental Protection Agency in early 1997, with
final regulations to be promulgated by the end of the year. It is anticipated
that these regulations will be effective for locomotive engines installed
after 1999 and through 2010. Under some interpretations of federal law, older
locomotive engines may be regulated by states based on standards and
procedures which the State of California ultimately adopts. At this time, it
is unknown whether California will adopt locomotive emission standards that
may differ from 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.
LABOR
Labor unions represent approximately 88 percent of BNSF Railway employees
under collective bargaining agreements with 13 different labor organizations.
BNRR, ATSF and other major railroads were actively involved in industry-wide
labor contract negotiations beginning in late 1994. Through this process,
wages, health and welfare benefits, work rules and other issues have now been
negotiated for substantially all BNSF Railway union-represented employees.
BNSF Railway remains in negotiations with approximately 425 employees
represented by the American Train Dispatchers Department of the Brotherhood of
Locomotive Engineers.
The new collective bargaining agreements 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. The new collective bargaining agreements
include provisions for retroactive and prospective wage increases, signing
bonuses and lump-sum payments. Throughout the negotiation process, the Company
had been providing reserves related to potential union agreements; therefore,
payments related to the retroactive portion of these agreements did not have a
material effect on the Company's 1996 results of operations.
HEDGING ACTIVITIES
FUEL
BNSF has a program to hedge against fluctuations in the price of its diesel
fuel purchases. This program includes forward purchases for delivery at
fueling facilities. Additionally, this program includes various commodity swap
and collar transactions which are accounted for as hedges. Any gains or losses
associated with changes in market value of these hedges are deferred and
recognized as a component of fuel expense in the period in which the hedged
fuel is purchased and used. To the extent BNSF hedges portions of its fuel
purchases, it may not fully benefit from decreases in fuel prices. However,
throughout 1996 and the beginning of 1997, BNSF Railway has seen a continued
increase in the price of fuel, which has resulted in an increase in fuel
expense for unhedged purchases. Based on 1996 fuel consumption, each one cent
increase in the price of fuel would result in approximately $10 million in
additional fuel expense on an annual basis.
BURLINGTON NORTHERN SANTA FE CORPORATION 17
As of February 7, 1997, BNSF had entered into fuel swaps for approximately
635 million gallons at an average price of approximately 54 cents per gallon.
These contracts have expiration dates ranging from March 1997 to December
1998.
The above price does not include taxes, fuel handling costs, certain
transportation 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.
BNSF's fuel hedging program covers approximately 35 percent of estimated 1997
fuel purchases and 25 percent of estimated 1998 fuel purchases. Quarterly
hedges in 1997 range from 20 percent to 40 percent of anticipated fuel
purchases while 1998 hedges approximate 25 percent each quarter. Hedge
positions are closely monitored to ensure that they will not exceed actual
fuel requirements. Unrecognized gains from BNSF's fuel hedging transactions
were approximately $17 million at December 31, 1996 and were not material at
December 31, 1995. BNSF also monitors its hedging positions and credit ratings
of its counterparties and does not anticipate losses due to counterparty
nonperformance.
INTEREST RATE
As of February 7, 1997, BNSF has interest rate swap transactions with a total
principal amount of $875 million to fix interest rates on commercial paper
debt. The interest rate swap transactions require payment of a weighted
average fixed interest rate of approximately 5.8 percent, and the receipt of a
variable interest rate based on a commercial paper composite rate. Swap
transactions of $625 million, $250 million and $125 million will mature during
the years ended December 31, 1997, 1998 and 1999, respectively.
UP - SP MERGER
The Surface Transportation Board (STB) approved the proposed common control
and merger of rail carriers controlled by Union Pacific Corporation and SP in
its written decision dated August 12, 1996. The transaction was consummated on
September 12, 1996. As a condition of the merger, the STB imposed provisions
which grant BNRR and ATSF access to approximately 3,900 miles of UP-SP track.
The STB decision provides the Company's subsidiaries with greater access to
Gulf Coast and West Coast markets. The Company is currently evaluating the STB
decision and the impact of the UP-SP merger. Additionally, BNSF management is
evaluating market opportunities and alternatives. The ultimate net effect of
the UP- SP merger on BNSF is presently unknown.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" which
establishes the accounting and reporting requirements for recognizing and
measuring impairment of long-lived assets to be either held and used or held
for disposal. In the first quarter of 1996, BNSF adopted SFAS No. 121 which
had no impact on the Company's financial position or 1996 results of
operations.
FORWARD-LOOKING INFORMATION
To the extent that these 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.
18 BURLINGTON NORTHERN SANTA FE CORPORATION
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.
Robert D. Krebs
President and Chief Executive Officer
Denis E. Springer
Senior Vice President and Chief Financial Officer
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, 1996 and the results of their operations and their cash flows
for the year 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 audit. We conducted our audit of these financial 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 audit provides a reasonable basis
for the opinion expressed above. The consolidated financial statements of
Burlington Northern Santa Fe Corporation and subsidiary companies for the
years ended December 31, 1995 and 1994 were audited by other independent
accountants whose report dated February 15, 1996 expressed an unqualified
opinion on those statements and included an explanatory paragraph that
described the changes in the Company's method of accounting for periodic major
locomotive overhauls in 1995 and for postemployment benefits in 1994 discussed
in Note 4 to the financial statements.
Price Waterhouse LLP
Chicago, Illinois
February 7, 1997
BURLINGTON NORTHERN SANTA FE CORPORATION 19
CONSOLIDATED STATEMENT OF INCOME
Burlington Northern Santa Fe Corporation and Subsidiaries
(Dollars in millions, except per share data)
- --------------------------------------------------------------------------
Year ended December 31, 1996 1995 1994
- --------------------------------------------------------------------------
Revenues $8,187 $6,163 $4,976
Operating expenses:
Compensation and benefits 2,561 2,067 1,766
Purchased services 866 593 529
Depreciation and amortization 760 520 362
Equipment rents 736 540 429
Fuel 727 480 369
Materials and other 789 702 668
Merger, severance and asset charges - 735 -
- --------------------------------------------------------------------------
Total operating expenses 6,439 5,637 4,123
- --------------------------------------------------------------------------
Operating income 1,748 526 853
Interest expense 301 220 155
Other income (expense), net (7) 28 (3)
- --------------------------------------------------------------------------
Income before income taxes 1,440 334 695
Income tax expense 551 136 269
- --------------------------------------------------------------------------
Income before extraordinary item and cumulative
effect of change in accounting method 889 198 426
Extraordinary item, loss on early retirement of
debt, net of tax - (6) -
- --------------------------------------------------------------------------
Income before cumulative effect of change in
accounting method 889 192 426
Cumulative effect of change in accounting method,
net of tax - (100) (10)
- --------------------------------------------------------------------------
Net income $ 889 $ 92 $ 416
- --------------------------------------------------------------------------
Primary earnings per common share:
Income before extraordinary item and change in
accounting method $ 5.70 $ 1.66 $ 4.48
Extraordinary item - (.05) -
Change in accounting method - (.94) (.11)
- --------------------------------------------------------------------------
Primary earnings per common share $ 5.70 $ 0.67 $ 4.37
- --------------------------------------------------------------------------
Average shares (in millions) 156.0 106.7 90.2
Fully diluted earnings per common share:
Income before extraordinary item and change
in accounting method $ 5.70 $ 1.66 $ 4.38
Extraordinary item - (.05) -
Change in accounting method - (.94) (.11)
- --------------------------------------------------------------------------
Fully diluted earnings per common share $ 5.70 $ 0.67 $ 4.27
- --------------------------------------------------------------------------
Average shares (in millions) 156.0 106.7 97.5
See accompanying notes to consolidated financial statements.
20 BURLINGTON NORTHERN SANTA FE CORPORATION
CONSOLIDATED BALANCE SHEET
Burlington Northern Santa Fe Corporation and Subsidiaries
(Dollars in millions)
- ---------------------------------------------------------------------------
December 31, 1996 1995
- ---------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 47 $ 50
Accounts receivable, net 711 620
Materials and supplies 222 220
Current portion of deferred income taxes 307 320
Other current assets 44 54
- ---------------------------------------------------------------------------
Total current assets 1,331 1,264
Property and equipment, net 17,633 16,001
Other assets 882 1,004
- ---------------------------------------------------------------------------
Total assets $19,846 $18,269
- ---------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and other current liabilities $ 2,146 $ 2,289
Long-term debt due within one year 165 80
- ---------------------------------------------------------------------------
Total current liabilities 2,311 2,369
Long-term debt and commercial paper 4,546 4,153
Deferred income taxes 4,729 4,233
Casualty and environmental liabilities 543 626
Employee merger and separation costs 466 530
Other liabilities 1,270 1,321
- ---------------------------------------------------------------------------
Total liabilities 13,865 13,232
- ---------------------------------------------------------------------------
Commitments and contingencies (see Notes 3, 12 and 13)
Stockholders' equity:
Common stock, $.01 par value, 300,000,000
shares authorized; 154,198,088 shares and
149,649,930 shares issued, respectively 2 1
Additional paid-in capital 4,838 4,606
Retained earnings 1,165 459
Treasury stock, at cost, 196,122 shares and
44,713 shares, respectively (16) (3)
Other (8) (26)
- ---------------------------------------------------------------------------
Total stockholders' equity 5,981 5,037
- ---------------------------------------------------------------------------
Total liabilities and stockholders' equity $19,846 $18,269
- ---------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
BURLINGTON NORTHERN SANTA FE CORPORATION 21
CONSOLIDATED STATEMENT OF CASH FLOWS
Burlington Northern Santa Fe Corporation and Subsidiaries
(Dollars in millions)
- --------------------------------------------------------------------------
Year ended December 31, 1996 1995 1994
- --------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 889 $ 92 $ 416
Adjustments to reconcile net income to net
cash provided by operating activities:
Cumulative effect of change in accounting method - 100 10
Depreciation and amortization 760 520 362
Deferred income taxes 453 (112) 126
Merger,severance and asset charges - 735 -
Employee merger and separation costs paid (183) (118) -
Other, net (62) 51 9
Changes in current assets and liabilities,
excluding SFP assets/liabilities acquired:
Accounts receivable, net (100) 63 (108)
Materials and supplies (2) (42) (13)
Other current assets (6) (5) (5)
Accounts payable and other current liabilities 122 132 11
- --------------------------------------------------------------------------
Net cash provided by operating activities 1,871 1,416 808
- --------------------------------------------------------------------------
INVESTING ACTIVITIES
Cash used for capital expenditures (2,234) (890) (698)
Purchase of SFP, net of cash acquired - (488) (18)
Other, net (10) 12 16
- --------------------------------------------------------------------------
Net cash used for investing activities (2,244) (1,366) (700)
- --------------------------------------------------------------------------
FINANCING ACTIVITIES
Net (decrease) increase in commercial paper (78) 895 64
Proceeds from issuance of long-term debt 626 1,294 310
Payments on long-term debt (103) (2,071) (346)
Dividends paid (184) (129) (129)
Proceeds from stock options exercised 118 25 6
Other, net (9) (41) (3)
- --------------------------------------------------------------------------
Net cash provided by (used for) financing
activities 370 (27) (98)
- --------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (3) 23 10
Cash and cash equivalents:
Beginning of year 50 27 17
- --------------------------------------------------------------------------
End of year $ 47 $ 50 $ 27
- --------------------------------------------------------------------------
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid, net of amounts capitalized $ 306 $ 228 $ 149
Income taxes paid, net of refunds 69 250 128
Assets financed through capital
lease obligations 43 140 50
Noncash consideration for purchase of SFP:
Net assets acquired $ 3,319
Cash paid (532)
Cash acquired 26
- --------------------------------------------------------------------------
Noncash consideration $ 2,813
- --------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
22 BURLINGTON NORTHERN SANTA FE CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Burlington Northern Santa Fe Corporation and Subsidiaries
(Shares in thousands. Dollars in millions, except per share data.)
Convertible
Preferred Common
Stock and Stock and
Outstanding Additional Additional
Common Paid-in Paid-in Retained Treasury
Shares Capital Capital Earnings Stock Other Total
- --------------------------------------------------------------------------------------------------------
Balance at December 31, 1993 88,796 $337 $ 1,421 $ 198 $ (4) $(33) $1,919
Net income 416 416
Dividends:
Common stock, $1.20 per share (107) (107)
Convertible preferred stock,
$3.125 per share (22) (22)
Adjustments associated with unearned
compensation, restricted stock 178 12 (1) 11
Exercise of stock options and related
tax benefit 184 8 8
Equity adjustment from minimum pension
liability 9 9
Other 66 3 3
- --------------------------------------------------------------------------------------------------------
Balance at December 31, 1994 89,224 337 1,444 485 (5) (24) 2,237
Net income 92 92
Purchase of SFP:
Common stock issued 52,004 2,652 2,652
Value of outstanding SFP stock
options 119 119
Conversion and redemption of
convertible preferred stock
for common stock 7,313 (337) 335 (2)
Dividends:
Common stock, $1.20 per share (123) (123)
Convertible preferred stock,
$3.125 per share (21) (21)
Adjustments associated with unearned
compensation, restricted stock 243 13 2 16 31
Exercise of stock options and related
tax benefit 778 39 (3) 36
Equity adjustment from minimum pension
liability (18) (18)
Cost to equity investment adjustment 26 26
Other 43 5 3 8
- --------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 149,605 - 4,607 459 (3) (26) 5,037
Net income 889 889
Common stock dividends, $1.20
per share (183) (183)
Adjustments associated with unearned
compensation, restricted stock 539 8 (2) 3 9
Exercise of stock options and related
tax benefit 3,454 191 (11) 180
Equity adjustment from minimum pension
liability 15 15
Acquisition of a subsidiary 363 31 31
Other 41 3 3
- --------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 154,002 $ - $4,840 $1,165 $(16) $ (8) $5,981
- --------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
BURLINGTON NORTHERN SANTA FE CORPORATION 23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BURLINGTON NORTHERN SANTA FE CORPORATION AND SUBSIDIARIES
1 ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Burlington
Northern Santa Fe Corporation and its majority-owned subsidiaries
(collectively BNSF or Company). BNSF was incorporated in Delaware on December
16, 1994, for the purpose of effecting a business combination between
Burlington Northern Inc. (BNI) and Santa Fe Pacific Corporation (SFP) which
was consummated on September 22, 1995. The principal subsidiaries of BNI and
SFP were Burlington Northern Railroad Company (BNRR) and The Atchison, Topeka
and Santa Fe Railway Company (ATSF), respectively. Effective December 1996,
BNI was merged with and into SFP, and ATSF merged with and into BNRR and the
name was changed to The Burlington Northern and Santa Fe Railway Company (BNSF
Railway). The accompanying BNSF consolidated statements of income and cash
flows for the years ended December 31, 1996, 1995 and 1994 include BNSF's
results and cash flows for the year ended December 31, 1996, BNI's results and
cash flows for the years ended December 31, 1995 and 1994, and SFP's results
and cash flows from September 22, 1995 through December 31, 1995. All
significant intercompany accounts and transactions have been eliminated. 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 consist mainly of diesel fuel and repair parts for
equipment and other railroad property and 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
including property values of SFP, which were adjusted in applying purchase
accounting. Additionally, the Company incurs certain direct labor, contract
service, purchased software 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.
EARNINGS PER COMMON SHARE
Primary earnings per common share are computed by dividing net income, after
deduction of preferred stock dividends, by the weighted average number of
common shares and common share equivalents outstanding. Common share
equivalents are computed using the treasury stock method. Fully diluted
earnings per common share are computed by dividing net income by the weighted
average number of common shares and common share equivalents outstanding.
During 1995 and 1994, the if-converted method was used for convertible
preferred stock when computing fully diluted earnings per common share. For
the year ended December 31, 1995, the computation of fully diluted earnings
per share was antidilutive; therefore, the amounts reported for primary and
fully diluted earnings per share were the same.
24 BURLINGTON NORTHERN SANTA FE CORPORATION
2 ACQUISITION OF SFP
On June 29, 1994, BNI and SFP entered into an Agreement and Plan of Merger (as
amended, the Merger Agreement) pursuant to which SFP would merge with BNI in
the manner set forth below (the Merger). Stockholders of BNI and SFP approved
the Merger Agreement at special stockholders' meetings held on February 7,
1995. On August 23, 1995, the Interstate Commerce Commission issued a written
decision approving the Merger and on September 22, 1995 the Merger was
consummated.
Pursuant to the Merger Agreement, BNI and SFP commenced tender offers
(together, the Tender Offer) to acquire 25 million and 38 million shares of
SFP common stock, respectively, at $20 per share in cash. During 1995, SFP
borrowed $1.0 billion under a credit facility of which $760 million of the
proceeds were used to purchase the 38 million shares pursuant to the Tender
Offer. In addition, BNI borrowed $500 million under a credit facility to
finance BNI's purchase of SFP common stock in the Tender Offer. The Tender
Offer was completed on February 21, 1995.
To ensure that the transaction contemplated by the Merger Agreement qualified
as a tax-free transaction for federal income tax purposes, the parties
utilized the holding company structure. Under the holding company structure,
BNSF created two subsidiaries. One subsidiary merged with and into BNI, and
the other subsidiary merged with and into SFP. The holding company structure
had the same economic effect with respect to the stockholders of BNI and SFP
as would have a direct merger of BNI and SFP.
The 1995 business combination with SFP was accounted for by the purchase
method. As such, the accompanying consolidated financial statements include
assets, liabilities and financial results of SFP after Merger consummation.
The following summarizes the purchase price (dollars in millions, except per
share data, and shares in thousands):
- -------------------------------------------------------------
BNI investment in SFP at September 22, 1995 $ 516
Shares of SFP common stock outstanding
at September 22, 1995 151,396
Less SFP shares held by BNI (25,000)
- -------------------------------------------------------------
Remaining SFP shares outstanding 126,396
Exchange ratio .4114
- -------------------------------------------------------------
Shares of BNSF common stock issued 52,000
Per share value of BNSF common stock $ 51
- -------------------------------------------------------------
Total value of BNSF common stock issued 2,652
Value of outstanding SFP stock options 119
BNI direct acquisition costs 32
- -------------------------------------------------------------
Purchase price $3,319
- -------------------------------------------------------------
The purchase price was calculated based on an estimated fair value of BNSF
common stock of $51 per share. The fair value was determined from the average
of the daily closing prices of BNI common stock for the five trading days
immediately preceding and the five trading days immediately following approval
of the Merger by BNI and SFP shareholders which occurred on February 7, 1995.
The effects of the acquisition on the consolidated balance sheet, including
the fair value adjustments, were as follows (in millions):
Property and equipment, net $ 9,409
Other assets 886
Deferred income taxes (2,936)
Long-term debt (2,034)
Other liabilities (2,006)
- -------------------------------------------------------------
Net assets acquired $ 3,319
- -------------------------------------------------------------
The purchase price allocation included $138 million for anticipated
nonrecurring costs and expenses for severance and relocation of prior SFP
employees and the planned disposition of excess SFP office space and other SFP
assets.
The consolidated pro forma results presented below were prepared as if the
Merger had occurred on January 1, 1994 and include the historical results of
BNI and SFP, excluding the after-tax effect of $309 million for merger-related
charges recorded by BNI in 1995. Additionally, the consolidated pro forma
results include the effects of purchase accounting adjustments and the Tender
Offer. Pro forma adjustments reflecting merger benefits are not included. This
unaudited consolidated pro forma information is not necessarily indicative of
the results of operations that might have occurred had the Merger actually
taken place on the date indicated, or of future results of operations of the
combined entities (dollars in millions, except per share data):
Year ended December 31, 1995 1994
- -------------------------------------------------------------
Revenues $8,150 $7,657
Operating expenses 6,824 6,465
Income before extraordinary items 605 536
Net income(1) 499 549
Primary earnings per share:
Income before extraordinary items $ 4.00 $ 3.63
Net income 3.27 3.72
Fully diluted earnings per share:
Income before extraordinary items $ 3.94 $ 3.59
Net income 3.25 3.67
(1) Pro forma 1995 results include approximately $230 million (pre-tax)
related to the merger severance and asset charge which are not considered
directly attributable to the Merger. Additionally, pro forma net income
includes the $100 million cumulative effect for the change in accounting for
locomotive overhauls for years prior to 1995 and a $25 million reduction for
the effect of the change on 1995. Also, 1995 pro forma net income includes the
$6 million extraordinary charge for retirement of debt. Pro forma 1994 net
income includes a $10 million reduction for a change in accounting.
BURLINGTON NORTHERN SANTA FE CORPORATION 25
3 MERGER, SEVERANCE AND ASSET CHARGES
Included in the Consolidated Statement of Income for 1995 were operating
expenses of $735 million related to merger, severance and asset costs.
Significant components included in these costs are described below.
Employee-related costs of $287 million were recorded related to BNSF's plan
to centralize the majority of its union clerical functions which was approved
in 1995. This plan includes the reduction of approximately 1,600 employees
which, among other things, requires installation of common information
systems. The Company and the union entered into an implementation agreement
which allows the Company to abolish the positions and provide separation
benefits to affected employees. Benefits paid to affected employees may be in
the form of lump-sum payments or payments made over several years depending on
the seniority level and election of the employee. Implementation of the plan
began in 1996; however, the plan is not expected to be fully implemented until
1998 due to the geographical complexity of the combined rail system, and the
time required to finish development and installation of common systems.
Approximately 500 positions were abolished in 1996 and the remaining position
reductions are expected to occur during 1997 and 1998. No comparable costs
were accrued in applying purchase accounting, as ATSF's operations had
previously been centralized. Also, no provision for voluntary separation or
severance costs above those provided was included in the 1995 charge.
Presently, the magnitude of any future expense is unknown. Additionally,
relocation costs for clerical employees are charged to expense in the period
incurred.
Costs of $254 million were recorded for salaried employees and reflect
severance, pension and other employee benefits, and costs for employee
relocations incurred during the period. Severance, pension and other employee
benefit costs of $231 million reflect the elimination of approximately 1,000
former BNI employees. Most of these positions were eliminated in 1995 and
1996. Additional components of salaried employee costs include special
termination benefits to be received under the Company's retirement plan and
expenses related to restricted stock which vested upon approval of the Merger.
Relocation expenses of $23 million reflect costs incurred in 1995 for
relocating approximately 300 former BNI employees.
Costs of $105 million were included for branch line dispositions reflecting
the write-off of the net book value of the lines at the anticipated disposal
date, less estimated net proceeds. Approximately 75 line segments, covering
3,300 miles of former BNI lines were included, of which approximately 2,000
miles were disposed of during 1996. Remaining costs of $89 million included in
the $735 million charge related to obligations at leased facilities, a
majority of which have been vacated, and the write-off of duplicate and excess
assets including computer hardware and software and certain facilities.
Additional accruals of $138 million were recorded through purchase accounting
related to former SFP employees and assets. Approximately $105 million of
these costs related to termination of approximately 500 salaried employees for
severance payments and special termination benefits to be received under the
Company's retirement and health and welfare plans. Salaried employee costs
also include amounts to relocate approximately 500 former SFP employees. The
remaining $33 million of costs relate to the sale or abandonment of 500 miles
of branch lines, rents on vacated leased facilities and the write-off of
excess assets.
Current and long-term employee merger and separation liabilities totaling
$580 million are included in the consolidated balance sheet at December 31,
1996 and principally represent employee-related costs for the centralization
of clerical functions, as well as remaining liabilities for actions taken by
ATSF in prior periods. The majority of these prior ATSF costs are associated
with deferred benefits payable upon separation or retirement to certain active
conductors and trainmen incurred in connection with an agreement which, among
other things, reduced crew sizes. Additionally, certain locomotive engineers
are eligible for a deferred benefit payable upon separation or retirement,
associated with an agreement with ATSF which allowed for more flexible work
rules.
During 1996, BNSF paid $183 million for i) employee merger and separation
payments, principally related to the reduction of approximately 1,000 salaried
employees and 500 clerical employees, ii) salaried employee relocations
committed to in 1995, and iii) deferred benefits for ATSF conductors, trainmen
and locomotive engineers. At December 31, 1996, $114 million of the remaining
accrual is included within current liabilities for anticipated costs to be
paid in 1997. The remaining costs are expected to be paid over the next
several years, except for certain costs related to conductors, trainmen and
locomotive engineers of ATSF which will be paid upon the employees' separation
or retirement, as well as certain benefits for clerical employees which may be
paid on an installment basis, generally over five to ten years.
4 ACCOUNTING CHANGES
Effective January 1, 1995, BNSF changed its method of accounting for periodic
major locomotive overhauls. Under the new method, costs of owned locomotives
relating to components requiring major overhaul are depreciated, on a
straight-line basis, to the first major overhaul date. The remaining cost of
the owned locomotive is depreciated, on a straight-line basis, over the
estimated economic life of the locomotive.
26 BURLINGTON NORTHERN SANTA FE CORPORATION
The cost of overhauls on owned units are then capitalized when incurred and
depreciated, on a straight-line basis, until the next anticipated overhaul. In
addition, estimated costs for major overhauls on leased units are accrued on a
straight-line basis over the life of the leases. BNSF previously expensed
locomotive overhauls when the costs were incurred. BNSF believes that this
change is preferable because it improves the matching of expenses incurred to
revenues earned. The cumulative effect of this change on years prior to 1995
was a reduction in net income of $100 million (net of a $63 million income tax
benefit), or $.94 per share (primary and fully diluted). The effect of this
change for the year ended December 31, 1995, was to reduce income before
extraordinary item and cumulative effect of change in accounting method by $25
million or $.23 per share (primary and fully diluted). The pro forma effect of
this change on 1994 would have been to reduce net income by $26 million or
$.29 per share primary, and $.27 per share fully diluted.
Effective January 1, 1994, BNSF adopted Statement of Financial Accounting
Standards (SFAS) No. 112, "Employers' Accounting for Postemployment Benefits."
The cumulative effect, net of $7 million income tax benefit, of this change in
accounting attributable to years prior to 1994, was to decrease 1994 net
income by $10 million, or $.11 per common share.
5 OTHER INCOME (EXPENSE), NET
Other income (expense), net includes the following (in millions):
Year ended December 31, 1996 1995 1994
- ---------------------------------------------------------------
Equity in earnings of pipeline partnership $ 24 $ 9 $ -
Gain on property dispositions 23 12 15
Interest income 2 8 3
Accounts receivable sale fees (14) (4) (9)
BNI's equity in earnings of SFP prior
to consummation of the Merger - 16 -
Miscellaneous, net (42) (13) (12)
- ---------------------------------------------------------------
Total $ (7) $ 28 $ (3)
- ---------------------------------------------------------------
6 INCOME TAXES
Income tax expense, excluding the cumulative effect of change in
accounting method and extraordinary item, was as follows (in millions):
Year ended December 31, 1996 1995 1994
- ---------------------------------------------------------------
Current:
Federal $ 81 $ 216 $ 124
State 17 32 19
- ---------------------------------------------------------------
98 248 143
- ---------------------------------------------------------------
Deferred:
Federal 396 (101) 109
State 57 (11) 17
- ---------------------------------------------------------------
453 (112) 126
- ---------------------------------------------------------------
Total $551 $ 136 $ 269
- ---------------------------------------------------------------
Reconciliation of the federal statutory income tax rate to the effective tax
rate, excluding the cumulative effect of change in accounting method and
extraordinary item, was as follows:
Year ended December 31, 1996 1995 1994
- ---------------------------------------------------------------
Federal statutory income tax rate 35.0% 35.0% 35.0%
State income taxes,
net of federal tax benefit 3.4 4.0 3.4
Other, net (0.1) 1.7 0.3
- ---------------------------------------------------------------
Effective tax rate 38.3% 40.7% 38.7%
- ---------------------------------------------------------------
The components of deferred tax assets and liabilities were as follows
(in millions):
December 31, 1996 1995
- ---------------------------------------------------------------
Deferred tax liabilities:
Depreciation and amortization $(5,110) $(5,076)
Other (397) (249)
- ---------------------------------------------------------------
Total deferred tax liabilities (5,507) (5,325)
- ---------------------------------------------------------------
Deferred tax assets:
Casualty and environmental liabilities 300 360
Employee merger and separation costs 214 359
Postretirement benefits 96 88
Non-expiring AMT credit carryforwards 44 124
Pensions 16 69
Other 415 412
- ---------------------------------------------------------------
Total deferred tax assets 1,085 1,412
- ---------------------------------------------------------------
Net deferred tax liability $(4,422) $(3,913)
- ---------------------------------------------------------------
Noncurrent deferred income tax
liability $(4,729) $(4,233)
Current deferred income tax asset 307 320
- ---------------------------------------------------------------
Net deferred tax liability $(4,422) $(3,913)
- ---------------------------------------------------------------
In 1996 and 1994, tax expense of $9 million and $6 million, respectively,
related to the adjustment to reduce the minimum pension liability was
allocated directly to stockholders' equity. In 1995, tax benefits of $11
million related to the adjustment to recognize the minimum pension liability
was allocated directly to stockholders' equity.
BNSF filed its first federal consolidated income tax return for 1995. BNI's
and SFP's federal income tax returns have been examined through 1991 and 1992,
respectively. All years prior to 1986 are closed for BNI and SFP. Issues
relating to the years 1986 - 1992 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 1996.
BURLINGTON NORTHERN SANTA FE CORPORATION 27
7 ACCOUNTS RECEIVABLE, NET
A special purpose subsidiary of BNSF Railway has sold, with limited recourse,
variable rate certificates which mature in December 1999 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, 1996, $280 million of certificates sold were outstanding and were
supported by receivables in the master trust of $347 million. A maximum of
$300 million of certificates can be sold if the master trust balance is
increased by receivables which are eligible for sale. 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. Upon the merger of ATSF and
BNRR, BNRR's receivables were added to the accounts receivable master trust,
effective January 1, 1997, but the $300 million maximum amount of certificates
which can be sold was not increased. Costs related to such agreements vary on
a monthly basis and are generally related to certain interest rates. These
costs are included in Other income (expense), net.
BNSF maintains an allowance for doubtful accounts based upon the expected
collectibility of all accounts receivable, including accounts receivable sold.
Allowances for doubtful accounts of $57 million and $50 million have been
recorded at December 31, 1996 and 1995, respectively.
8 PROPERTY AND EQUIPMENT, NET
Property and equipment, net (in millions), and the weighted average annual
depreciation rate (%) was as follows:
Depreciation
December 31, 1996 1995 Rate - 1996
- -------------------------------------------------------------------
Land $ 1,418 $ 1,379 -
Track structure 9,668 8,951 3.5%
Other roadway 7,231 6,598 2.8
Locomotives 1,525 1,231 6.9
Freight cars and other equipment 1,879 1,856 4.5
Computer hardware and software 402 319 18.1
- -------------------------------------------------------------------
Total cost 22,123 20,334
Less accumulated depreciation
and amortization (4,490) (4,333)
- -------------------------------------------------------------------
Property and equipment, net $17,633 $16,001
- -------------------------------------------------------------------
The consolidated balance sheet at December 31, 1996 and 1995 included $471
million and $200 million, respectively, for property and equipment under
capital leases.
In the first quarter of 1996, BNSF adopted SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
The adoption of SFAS No. 121 had no impact on the Company's financial position
or 1996 results of operations.
9 ACCOUNTS PAYABLE AND OTHER
CURRENT LIABILITIES
Accounts payable and other current liabilities consisted of the
following (in millions):
December 31, 1996 1995
- -------------------------------------------------------------------
Accounts and wages payable $ 581 $ 519
Casualty and environmental
liabilities 267 290
Accrued vacations 148 141
Taxes other than income taxes 125 143
Equipment leases 118 83
Employee merger and separation
costs 114 215
Other 793 898
- -------------------------------------------------------------------
Total $2,146 $2,289
- -------------------------------------------------------------------
10 DEBT
Debt outstanding was as follows (in millions):
December 31, 1996 1995
- -------------------------------------------------------------------
Notes and Debentures
7% debentures, due 2025 $350 $350
6 3/8% notes, due 2005 300 300
Pipeline exchangeable debentures,
11.2% (variable), due 2010 219 219
8 3/4% debentures, due 2022 200 200
7.29% debentures, due 2036 200 -
6 7/8% debentures, due 2016 175 -
7.40% notes, due 1999 150 150
7% notes, due 2002 150 150
7 1/2% debentures, due 2023 150 150
8 3/8% notes, due 2001 100 100
8 5/8% notes, due 2004 100 100
Other 28 29
Mortgage Bonds
Consolidated mortgage bonds,
3 1/5% to 9 1/4%, due 2006 to 2045 321 321
General mortgage bonds, 3 1/8% and
2 5/8%, due 2000 and 2010, respectively 62 62
Prior lien railway and land grant bonds,
4%, due 1997 57 57
General lien railway and land grant bonds,
3%, due 2047 35 35
Mortgage notes, 10.325%, due 1997 to 2014 31 32
First mortgage bonds, series A, 4%, due 1997 20 20
Mortgage notes, 8 5/8%, due 2008 18 20
Commercial Paper and Bank Borrowings
Commercial paper, 5.6% (variable) 907 985
Bank borrowings, 5.6% (variable) 65 85
Equipment Obligations
Equipment obligations, weighted average
rate of 8.02%, due 1997 to 2013 629 661
Capitalized lease obligations, weighted
average rate of 6.87%, expiring
1997 to 2009 400 154
Unamortized purchase accounting adjustment 101 114
Unamortized discount (57) (61)
- -------------------------------------------------------------------
Total 4,711 4,233
Less: Current portion of long-term debt (165) (80)
- -------------------------------------------------------------------
Long-term debt $4,546 $4,153
- -------------------------------------------------------------------
28 BURLINGTON NORTHERN SANTA FE CORPORATION
BNSF maintains a program for the issuance, from time to time, of commercial
paper. These borrowings are supported by bank revolving credit agreements.
Outstanding commercial paper balances are considered as reducing available
borrowings under these agreements. The bank revolving credit agreements allow
borrowings of up to $500 million on a short-term basis and $1.5 billion on a
long-term basis. Annual facility fees are currently .075 percent and .11
percent, respectively, and are subject to change based upon changes in BNSF's
senior unsecured debt ratings. Borrowing rates are based upon i) LIBOR plus a
spread based upon BNSF's senior unsecured debt ratings, ii) money market rates
offered at the option of the lenders, or iii) an alternate base rate. The
commitments of the lenders to make loans are currently scheduled to expire on
November 14, 1997 and November 15, 2001, respectively. At December 31, 1996,
there were no borrowings against the long-term revolving credit agreement, and
the maturity value of commercial paper outstanding was $916 million, leaving a
total of $584 million of the long-term revolving credit agreement available
and $500 million of the short-term revolving credit agreement available. A
significant portion of commercial paper has been hedged to fixed interest
rates through interest rate swap transactions (see Note 12: 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, 1996.
In February 1996, BNSF issued $175 million of 6.875% debentures due February
15, 2016. In June 1996, BNSF issued $200 million of 7.29% debentures due June
1, 2036. The net proceeds from the sale of these debentures were used for
general corporate purposes including the repayment of short-term debt. Both
debentures were issued under a BNSF shelf registration which, after being
increased by $500 million during the year, has $475 million remaining. In
October 1996, BNSF filed a prospectus supplement under this shelf registration
to provide for the issuance from time to time of up to $475 million principal
amount of the Company's Series A medium-term notes.
In December 1995, BNSF issued $300 million of 6 3/8% notes due December 15,
2005 and $350 million of 7% debentures due December 15, 2025 under the shelf
registration statement. The net proceeds from the sale of the notes and
debentures were used for general corporate purposes, including but not limited
to the repayment of commercial paper and short-term bank loans. During the
course of 1995, the Company entered into various interest rate swap agreements
with a principal amount of $500 million, for the purpose of establishing rates
in anticipation of debt issuances under the shelf registration statement. The
swaps were anticipated to hedge $250 million of 10-year debt and $250 million
of 30-year debt. In conjunction with the fourth quarter 1995 issuance of
10-year 6 3/8% notes and 30-year 7% debentures, the Company closed out the
swap transactions which resulted in losses of $13 million and $15 million,
respectively. The losses were deferred and are being recognized over the term
of the borrowings.
Additionally, in December 1995, BNSF defeased its 9% debentures by placing
$166 million of U.S. government securities into an irrevocable trust for the
purpose of repaying the debentures in April 1996. The defeasance of debt
resulted in an extraordinary charge of $6 million, net of applicable income
tax benefits of $3 million, principally reflecting the call premium on the
debt.
In 1996, BNRR and ATSF completed cross-border leveraged leases of equipment
for a total amount of $311 million which were recorded as capital lease
obligations. These transactions included the issuance of $242 million of
equipment secured debt. In 1995, BNRR completed cross- border leveraged leases
of equipment for a total amount of $136 million which were recorded as capital
lease obligations. These transactions included the issuance of $108 million of
equipment secured debt.
In November 1994, BNRR entered into a $150 million three-year term loan
facility agreement. In November 1995, this debt was repaid through the
issuance of commercial paper by BNRR. In May 1994, BNI issued $150 million of
7.4% notes due May 15, 1999.
Aggregate long-term debt scheduled maturities are $165 million, $98 million,
$237 million, $116 million and $1,154 million for 1997 through 2001,
respectively. Commercial paper borrowings of $907 million are included in
maturities for 2001.
BURLINGTON NORTHERN SANTA FE CORPORATION 29
Substantially all 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.
In addition, an indirect wholly-owned subsidiary of BNSF is contingently
liable as general partner for $355 million of long-term debt issued by Santa
Fe Pacific Pipeline Partners, L.P. (Pipeline Partnership). The subsidiary
holds a 42 percent limited partner interest and a 2 percent general partner
interest in the Pipeline Partnership which it accounts for under the equity
method. The pipeline exchangeable debentures are exchangeable for BNSF's
limited partnership interest in the Pipeline Partnership. BNSF's investment in
the Pipeline Partnership was $283 million and $291 million at December 31,
1996 and 1995, respectively.
11 DISCLOSURES ABOUT FAIR VALUE
OF FINANCIAL INSTRUMENTS
The estimated fair values of BNSF's financial instruments at December 31,
1996 and 1995 and the methods and assumptions used to estimate the fair value
of each class of financial instruments held by BNSF, were as follows:
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 BNSF's 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 to BNSF 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 BNSF's long-term debt and
commercial paper at December 31, 1996 and 1995 were $4,711 million and $4,233
million, respectively, while the estimated fair values at December 31, 1996
and 1995 were $4,721 million and $4,412 million, respectively.
12 HEDGING ACTIVITIES, LEASES
AND OTHER COMMITMENTS
HEDGING ACTIVITIES
FUEL
BNSF has a program to hedge against fluctuations in the price of its diesel
fuel purchases. This program includes various commodity swap transactions
which are accounted for as hedges. Any gains or losses associated with changes
in market value of these hedges are deferred and recognized as a component of
fuel expense in the period in which the hedged fuel is purchased and used. to
the extent BNSF hedges portions of its fuel purchases, it may not fully
benefit from decreases in fuel prices.
As of February 7, 1997, BNSF had entered into fuel swaps for approximately
635 million gallons at an average price of approximately 54 cents per gallon.
These contracts have expiration dates ranging from March 1997 to December
1998.
The above price does not include taxes, fuel handling costs, certain
transportation 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.
BNSF's fuel hedging program covers approximately 35 percent of estimated 1997
fuel purchases and 25 percent of estimated 1998 fuel purchases. Quarterly
hedges in 1997 range from 20 percent to 40 percent of anticipated fuel
purchases while 1998 hedges approximate 25 percent each quarter. Hedge
positions are closely monitored to ensure that they will not exceed actual
fuel requirements in any period. Unrecognized gains from BNSF's fuel hedging
transactions were approximately $17 million at December 31, 1996 and were not
material at December 31, 1995. 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 7, 1997, BNSF has interest rate swap
transactions with a total principal amount of $875 million to fix
interest rates on commercial paper debt. The interest rate swap
transactions require payment of a weighted average fixed interest rate
of approximately 5.8
30 BURLINGTON NORTHERN SANTA FE CORPORATION
percent, and the receipt of a variable interest rate based on a commercial
paper composite rate. Swap transactions of $625 million, $250 million and $125
million will mature during the years ended december 31, 1997, 1998 AND 1999,
respectively. Unrecognized losses from BNSF's swap transactions were
immaterial at December 31, 1996. During 1995, the company closed out interest
rate swap transactions in conjunction with the issuance of debt (see Note 10:
Debt).
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, 1996 are summarized as follows (in
millions):
Capital Operating
Year ended December 31 Leases Leases
- --------------------------------------------------------------
1997 $ 55 $ 322
1998 59 272
1999 55 216
2000 50 169
2001 50 142
Thereafter 311 1,284
- --------------------------------------------------------------
Total 580 $2,405
- --------------------------------------------------------------
Less amount representing interest 180
- --------------------------------------------------------------
Present value of minimum lease payments $400
- --------------------------------------------------------------
Lease rental expense for all operating leases was $446 million, $352 million
and $276 million for the years ended December 31, 1996, 1995 and 1994,
respectively. Contingent rentals and sublease rentals were not significant.
OTHER COMMITMENTS
BNSF has entered into commitments to acquire 180 locomotives in 1997. The
locomotives will be financed from one or a combination of sources including,
but not limited to, cash from operations, leases and debt issuances. The
decision on the method used will depend upon the current market conditions and
other factors.
In connection with the closing of the sale of rail lines in southern
California in 1992 and 1993, BNSF has entered into various shared use
agreements with the agencies, which require BNSF to pay the agencies
approximately $6 million annually to maintain track structure and facilities.
Additionally, BNSF recorded a $50 million liability in 1993 for an obligation
retained by BNSF, which under certain conditions requires a repurchase of a
portion of the properties sold.
13 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.
BURLINGTON NORTHERN SANTA FE CORPORATION 31
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 mandatory clean-up efforts at approximately 345 sites, including the
Superfund sites, at which it is being asked to participate in the study and/or
clean-up of the environmental contamination. BNSF paid approximately $47
million, $31 million and $21 million during 1996, 1995 and 1994, respectively,
relating to mandatory clean-up efforts, including amounts expended under
federal and state voluntary clean-up programs. BNSF has accruals of
approximately $225 million for remediation and restoration of all known sites,
including $215 million pertaining to mandated sites, of which approximately
$55 million relates to the Superfund sites. BNSF anticipates that the majority
of the accrued costs at December 31, 1996 will be paid over the next five
years. No individual site is considered to be material. Recoveries received
from third parties, net of legal costs incurred, were approximately $31
million during 1995 and were not significant in the years ended December 31,
1996 and 1994.
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 PRPs' participation in clean-up
efforts, developments in ongoing environmental analyses related to sites
determined to be contaminated, and developments in environmental surveys and
studies of potentially contaminated sites. As a result, future charges to
income for environmental liabilities could have a significant effect on
results of operations in a particular quarter or fiscal year as individual
site studies and remediation and restoration efforts proceed or as new sites
arise. However, expenditures associated with such liabilities are typically
paid out over a long period; therefore, management believes that it is
unlikely that any identified matters, either individually or in the aggregate,
will have a material adverse effect on BNSF's consolidated financial position
or liquidity.
The railroad industry, including BNSF Railway, will become subject to future
requirements regulating air emissions from diesel locomotives that may
increase their operating costs. Regulations applicable to new locomotive
engines were issued by the Environmental Protection Agency in early 1997, with
final regulations to be promulgated by the end of the year. It is anticipated
that these regulations will be effective for locomotive engines installed
after 1999 and through 2010. Under some interpretations of federal law, older
locomotive engines may be regulated by states based on standards and
procedures which the State of California ultimately adopts. At this time, it
is unknown whether California will adopt locomotive emission standards that
may differ from 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.
14 RETIREMENT PLANS
Prior to October 1, 1996, BNSF sponsored noncontributory, defined benefit
pension plans through its subsidiaries, BNI and SFP, covering substantially
all non-union employees. Additionally, BNI and SFP sponsored nonqualified
defined benefit plans for certain officers and other employees. On October 1,
1996, the respective BNI and SFP qualified defined benefit pension plans were
merged, creating the qualified BNSFRetirement Plan. The corresponding
nonqualified defined benefit plans were merged on October 1, 1996, creating
the nonqualified BNSF Supplemental Retirement Plan. 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.
32 BURLINGTON NORTHERN SANTA FE CORPORATION
Components of the net pension cost for BNSF's plans, including the prior BNI
and SFP plans, were as follows (in millions):
BNSF BNSF(1) BNI(2)
Year ended December 31, 1996 1995 1994
- ----------------------------------------------------------------------------
Service cost, benefits earned
during the period $ 17 $ 11 $ 12
Interest cost on projected benefit obligation 97 65 50
Actual return on plan assets (148) (114) (25)
Net amortization and deferred amounts 43 61 (1)
Curtailment costs - 10 -
Cost of special termination benefits - 32 -
- ----------------------------------------------------------------------------
Net pension cost $ 9 $ 65 $ 36
- ----------------------------------------------------------------------------
(1) Represents full year BNI combined with SFP for the period from
September 22, 1995 through December 31, 1995.
(2) Represents historical BNI only.
The following table shows the reconciliation of BNSF's and SFP's funded
status of the qualified plans and BNI's qualified and nonqualified plans with
amounts recorded in the consolidated balance sheet (in millions):
BNSF BNI SFP
December 31, 1996 1995 1995
- ----------------------------------------------------------------------------
Actuarial present value of
benefit obligations:
Vested benefit obligation $(1,081) $(641) $(547)
Accumulated benefit obligation $(1,161) $(696) $(575)
Projected benefit obligation $(1,247) $(758) $(614)
Plan assets at fair value,
primarily marketable equity
and debt securities 1,320 534 718
- ----------------------------------------------------------------------------
Plan assets in excess of (less than)
projected benefit obligation 73 (224) 104
Unrecognized net (gain) loss (63) 93 -
Unrecognized prior service cost (10) 2 -
Unamortized net transition obligation 15 20 -
Adjustment required to recognize
minimum liability - (53) -
- ----------------------------------------------------------------------------
Prepaid (accrued) pension
asset (liability) $ 15 $(162) $ 104
- ----------------------------------------------------------------------------
BNSF uses a September 30 measurement date. The prior BNI and SFP plans used
measurement dates of December 31 and September 30, respectively. The
assumptions used in accounting for the BNSF, BNI and SFP qualified and
nonqualified plans were as follows:
BNSF BNI SFP BNI
1996 1995 1995 1994
- ----------------------------------------------------------------------------
Discount rate 7.75% 7.0% 7.5% 9.0%
Rate of increase in
compensation levels 4.0% 4.0% 4.0% 5.5%
Expected long-term rate
of return on plan assets 9.5% 9.5% 9.75% 9.5%
- ----------------------------------------------------------------------------
The following table shows the reconciliation of the BNSF and SFP funded
status of the nonqualified supplemental plan with amounts recorded in the
consolidated balance sheet (in millions):
BNSF SFP
December 31, 1996 1995
- ----------------------------------------------------------------------------
Actuarial present value of benefit obligations:
Vested benefit obligation $(31) $ (7)
- ----------------------------------------------------------------------------
Accumulated benefit obligation $(32) $ (8)
- ----------------------------------------------------------------------------
Projected benefit obligation $(39) $(11)
- ----------------------------------------------------------------------------
Unrecognized net loss 14 3
Unrecognized prior service cost 1 -
Unamortized net transition obligation 1 -
Adjustment required to recognize mininum liability (9) -
- ----------------------------------------------------------------------------
Accrued pension liability $(32) $ (8)
- ----------------------------------------------------------------------------
Prior to December 31, 1996, BNSF sponsored 401(k) thrift and profit sharing
plans through its subsidiaries, BNI and SFP, which covered substantially all
non-union employees and certain union employees. The plans covering non-union
employees were merged on December 31, 1996. Under the merged plan, 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. The prior BNI plan matched 35 percent of
the first 6 percent of non-union employees' contributions, at the end of each
quarter and depending on BNI's performance, matched an additional 20 to 40
percent at the end of the year. The prior SFP plan matched 100 percent of the
first 4 percent of non-union employees' contributions and 25 percent of the
first 4 percent of union employees' contributions. Under the prior plans, BNI
employees were immediately fully vested in the employer match, while SFP
employees became vested on a five year schedule based on length of service. As
part of the transition to the BNSF plan, former SFP employees became fully
vested in the employee match made through December 31, 1996. Employer
contributions made subsequent to December 31, 1996, for all non-union
employees, are subject to the five year length of service vesting schedule.
BNSF's 401(k) matching expense was $13 million in 1996 and 1995, and $8
million in 1994.
BURLINGTON NORTHERN SANTA FE CORPORATION 33
15 OTHER POSTEMPLOYMENT BENEFIT PLANS
BNSF provides life insurance benefits to eligible former BNI non-union
employees. The life insurance plan is noncontributory and covers retirees
only. The postretirement benefit cost related to former BNI employees were $1
million in each of the three years ended December 31, 1996, 1995 and 1994,
respectively.
BNSF's policy is to fund benefits payable under the life insurance plan as
they come due. The accumulated postretirement benefit obligation related to
the former BNI plan was approximately $17 million at December 31, 1996 and
1995.
Salaried employees of the former SFP who have rendered 10 years of service
after attaining age 45 are eligible for both 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. Components of SFP's
postretirement benefit cost related to former SFP employees relating to its
medical and life insurance plans were as follows (in millions):
Life Insurance Medical
Plan Plan
- ----------------------------------------------------------------------------
1996 1995(1) 1996 1995(1)
- ----------------------------------------------------------------------------
Service cost $- $- $ 5 $ 1
Interest cost 4 1 12 3
Net amortization and deferred amounts - - - (2)
- ----------------------------------------------------------------------------
Net postretirement benefit cost $4 $1 $17 $ 2
- ----------------------------------------------------------------------------
(1) Includes only the components of postretirement benefit cost from September
22, 1995 to December 31, 1995.
BNSF's policy is to fund benefits payable under the medical and life
insurance plans as they come due. The following table shows the reconciliation
of the plans' obligations to amounts accrued at December 31, 1996 and 1995 (in
millions). The former SFP plan uses a September 30 measurement date.
Life Insurance Medical
Plan Plan
- ----------------------------------------------------------------------------
1996 1995 1996 1995
- ----------------------------------------------------------------------------
Accumulated postretirement
benefit obligation:
Retirees $43 $45 $119 $130
Fully eligible active
participants - - 11 15
Other active participants 4 4 33 40
- ----------------------------------------------------------------------------
47 49 163 185
Unrecognized net loss (1) (2) (3) (8)
- ----------------------------------------------------------------------------
Accrued postretirement
benefit cost $46 $47 $160 $177
- ----------------------------------------------------------------------------
For 1996, the assumed health care cost trend rate for managed care medical
costs is 10.5 percent and is assumed to decrease gradually to 5 percent by
2006 and remain constant thereafter. For medical costs not in managed care,
the assumed health care cost trend rate is 12 percent and is assumed to
decrease gradually to 5 percent by 2006 and remain constant thereafter.
Increasing the assumed health care cost trend rates by one percentage point
would increase the accumulated postretirement benefit obligation for the
medical plan by $20 million and the combined service and interest components
of net periodic postretirement benefit cost recognized in 1996 by $2 million.
For 1996, the weighted-average discount rate assumed in determining the
accumulated postretirement benefit obligation was 7.75 percent and the assumed
weighted-average salary increase was 4.0 percent.
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 $14
million in 1996, $11 million in 1995 and $10 million in 1994.
16 STOCK OPTIONS, OTHER INCENTIVE PLANS AND OTHER STOCKHOLDERS' EQUITY
STOCK OPTIONS
Under BNSF's stock option plan, options may be granted to officers and
salaried employees at fair market value of the Company's common stock on the
date of grant. Approximately 7.4 million common shares were available for
future grant at December 31, 1996. All options expire within 10 years after
the date of grant. Shares issued upon exercise of options may be issued from
treasury shares or from authorized but unissued shares.
34 BURLINGTON NORTHERN SANTA FE CORPORATION
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 1996 and
1995 based on the fair value at grant dates consistent with SFAS No. 123
"Accounting for Stock Based Compensation," the Company's pro forma 1996 net
income and earnings per share would have been $871 million and $5.58,
respectively, and 1995 net income and earnings per share would have been $84
million and $.59, respectively.
The pro forma amounts were estimated using the Black-Scholes option pricing
model with the following assumptions for 1996 and 1995:
1996 1995
- ----------------------------------------------------------------------------
Weighted average expected life (years) 3.0 3.0
Expected volatility 20% 20%
Annual dividend per share $1.20 $1.20
Risk free interest rate 6.11% 6.11%
Weighted average fair value
of options granted $13.34 $9.41
- ----------------------------------------------------------------------------
A summary of the status of the stock option plans as of December 31,
1996, 1995 and 1994, and changes during the years then ended, is
presented below:
1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------
Weighted Average Weighted Average Weighted Average
Options Exercise Prices Options Exercise Prices Options Exercise Prices
- ---------------------------------------------------------------------------------------------------------------------
Balance at beginning of year 9,598,653 $37.44 4,119,731 $41.16 3,635,091 $38.24
Granted 2,439,380 75.77 1,026,414 58.20 752,690 54.15
Conversion of SFP 0ptions - - 5,342,024 29.86 - -
Exercised (3,582,964) 34.37 (821,769) 31.27 (184,088) 33.42
Cancelled (199,784) 64.01 (67,747) 55.29 (83,962) 47.82
- ---------------------------------------------------------------------------------------------------------------------
Balance at end of year 8,255,285 $49.46 9,598,653 $37.44 4,119,731 $41.16
- ---------------------------------------------------------------------------------------------------------------------
Options exercisable at year end 5,934,124 7,465,135 2,950,427
- ---------------------------------------------------------------------------------------------------------------------
The following table summarizes information regarding stock options
outstanding at December 31, 1996:
Range of Options Option Weighted Average Weighted Average
Exercise prices Outstanding Exercisable Remaining Life Exercise Prices
- ---------------------------------------------------------------------------------
$09.04 to $24.27 2,216,025 2,216,025 5.2 years $19.76
$25.85 to $49.66 1,041,198 1,041,198 4.5 years $36.64
$50.58 to $73.88 2,655,216 2,655,216 7.3 years $56.04
$74.50 to $74.50 1,907,297 - 9.1 years $74.50
$80.19 to $86.63 435,549 21,685 8.8 years $82.07(1)
- ---------------------------------------------------------------------------------
$09.04 to $86.63 8,255,285 5,934,124 6.9 years $39.18
- ---------------------------------------------------------------------------------
(1) The weighted average exercise price of options outstanding approximates
the weighted average exercise price of options exercisable.
OTHER INCENTIVE PLANS
BNSF has other long-term incentive programs in addition to stock options which
are administered separately on behalf of employees.
BNSF shareholders adopted the BNSF 1996 Stock Incentive Plan and the
Non-Employee Directors' Stock Plan (NEDS), two omnibus stock plans, at the
Annual Meeting of Shareholders on April 18, 1996. Under the BNSF Stock
Incentive Plan and NEDS, up to 10,000,000 and 300,000 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 400,000 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 369,000 restricted shares related to
this award were outstanding as of December 31, 1996.
BURLINGTON NORTHERN SANTA FE CORPORATION 35
Additionally, 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 81,000
shares in 1996. A total of 220,000 awards were outstanding under this and
prior programs on December 31, 1996.
In addition, all regularly-assigned salaried employees not eligible to
participate in deferrals under the 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, 1996, 1995 and 1994, 29,000,
39,000 and 32,000 shares were purchased under this plan.
Compensation expense is recorded for these BNSF plans in accordance with APB
Opinion 25 and was not material in 1996, 1995 or 1994.
OTHER STOCKHOLDERS' EQUITY
As a result of the Merger, certain investments in third parties held by both
BNI and SFP, which were previously recorded on the cost method, were converted
to the equity method due to BNSF's combined ownership position and ability to
exercise significant influence. As such, $26 million, which is net of deferred
taxes of $17 million, was recorded in 1995 as an increase to retained earnings
to reflect BNI's undistributed equity in earnings since initial investment.
SFP's investments were adjusted to fair value upon the application of purchase
accounting.
17 COMMON STOCK AND
PREFERRED CAPITAL STOCK
COMMON STOCK
BNSF is authorized to issue 300,000,000 shares of common stock, $.01 Par
Value. At December 31, 1996, there were 154,001,966 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 issuance 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 STOCK, SERIES A, $.01 PAR VALUE, AUTHORIZED 25,000,000 SHARES
In 1992, BNI issued 6,900,000 shares of 6 1/4% Cumulative Convertible
Preferred Stock, Series A, No Par Value. The convertible preferred stock was
not redeemable prior to December 1995. In September 1995, the outstanding BNI
shares were converted to 6,878,607 shares of BNSF 6 1/4 Cumulative Convertible
Preferred Stock, $.01 par value. In October 1995, the Board of Directors voted
to redeem BNSF's 6 1/4% Cumulative Convertible Preferred Stock, Series A, $.01
par value, effective December 26, 1995, at the redemption price of $52.1875
per share. The majority of the holders of this preferred stock elected to
convert their shares into BNSF common stock as BNSF's common stock price was
significantly higher than the redemption price. As such, the cash payment for
shares redeemed was not significant.
CLASS A PREFERRED STOCK, $.01 PAR VALUE, AUTHORIZED 50,000,000 SHARES -
ZERO SHARES ISSUED
At December 31, 1996, BNSF had available for issuance 50,000,000 shares of
Class A Preferred Stock, $.01 Par Value. 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.
36 BURLINGTON NORTHERN SANTA FE CORPORATION
18 QUARTERLY FINANCIAL DATA -
UNAUDITED
<CAPION>
(Dollars in millions, except per share data) Fourth Third Second First
- --------------------------------------------------------------------------------
1996
Revenues(1) $ 2,092 $ 2,044 $ 2,024 $ 2,027
Operating income 469 476 418 385
- --------------------------------------------------------------------------------
Net income $ 244 $ 247 $ 211 $ 187
- --------------------------------------------------------------------------------
Primary and fully diluted earnings
per common share $ 1.56 $ 1.58 $ 1.35 $ 1.21
- --------------------------------------------------------------------------------
Dividends declared per common share $ .30 $ .30 $ .30 $ .30
Common stock price:
High $90 1/8 $86 3/4 $88 3/4 $87 1/8
Low 77 7/8 76 1/4 77 7/8 73 1/2
1995
Revenues(1) $ 2,087 $ 1,455 $ 1,279 $ 1,342
Operating income (loss)(2) (175) 254 242 205
Income (loss) before extraordinary item
and cumulative effect of change in
accounting method (160) 133 124 101
Extraordinary item, loss on early
retirement of debt, net of tax(3) (6) - - -
Cumulative effect of change in accounting
method, net of tax(4) - - - (100)
- --------------------------------------------------------------------------------
Net income (loss) $ (166) $ 133 $ 124 $ 1
- --------------------------------------------------------------------------------
Primary earnings (loss) per common share:(4)
Income (loss) before extraordinary item
and change in accounting method $(1.15) $ 1.32 $ 1.31 $ 1.05
Extraordinary item (0.04) - - -
Change in accounting method - - - (1.11)
- --------------------------------------------------------------------------------
Primary earnings (loss) per common share $(1.19) $ 1.32 $ 1.31 $ (0.06)
- --------------------------------------------------------------------------------
Fully diluted earnings (loss) per
common share:(5)
Income (loss) before extraordinary item
and change in accounting method $(1.15) $ 1.28 $ 1.26 $ 1.05
Extraordinary item (0.04) - - -
Change in accounting method - - - (1.11)
- --------------------------------------------------------------------------------
Fully diluted earnings (loss) per common share $ (1.19) $ 1.28 $ 1.26 $ (0.06)
- --------------------------------------------------------------------------------
Dividends declared per common share $ .30 $ .30 $ .30 $ .30
Common stock price:
High $83 7/8 $76 1/4 $63 5/8 $60 1/8
Low 71 1/4 62 5/8 56 1/8 47 1/2
- --------------------------------------------------------------------------------
(1) Amounts do not agree to previously reported amounts due to certain
reclassifications between revenues and expenses which were not
significant.
(2) Results include pre-tax charges of $587 million, $106 million, $10
million and $32 million for the fourth, third, second and first
quarters of 1995, respectively related to merger, severance and asset
charges as discussed in Note 3.
(3) Results for the fourth quarter include the loss on defeasance of
BNI 9% debentures of $6 million, net of $3 million income tax benefit,
or $.04 per share, treated as an extraordinary item.
(4) Effective January 1, 1995, BNSF changed its accounting for
locomotive overhauls. The cumulative effect of this change attributable
to years prior to 1995 was to decrease net income by $100 million, or
$1.11 per share.
(5) Fully diluted earnings per share are antidilutive for the first and
fourth quarters of 1995; therefore, the amounts reported for primary
and fully diluted earnings per share are the same. Amounts do not total
to the annual earnings per share because each quarter and the year are
calculated separately based on average outstanding shares and common
share equivalents during that period.
BURLINGTON NORTHERN SANTA FE CORPORATION 37