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BNSF 95 annrpt BNSF 95 annrpt Document Transcript

  • CONSOLIDATED FINANCIAL HIGHLIGHTS Burlington Northern Santa Fe Corporation and Subsidiaries (Dollars in millions, except per share data) The selected financial data shown below include BNI results for each of the five years ended December 31, 1995 and SFP results from September 22, 1995 to December 31, 1995. 1991 1993 1992 1995 1994 Year ended December 31, FOR THE YEAR $ 4,559 $ 4,630 $ 4,995 $ 4,699 Revenues $ 6,183 661 597 853 526 (239) Operating income (loss)(1) Income (loss) before extraordinary item and 296 299 426 198 (306) cumulative effect of change in accounting method - (14) (10) (21) (106) Accounting change/Extraordinary item (2)(3)(4)(5) 278 416 296 92 $ $ (320) $ $ $ Net income (loss) 394 274 275 71 $ $ (321) $ $ $ Earnings (loss) available for common stockholders Primary earnings (loss) per share: Before extraordinary item and change in $ 3.35 $ 4.48 $ 3.06 1.66 $ $ (3.96) accounting method - (.24) (.99) (.11) Accounting change/Extraordinary item (.18) 3.11 4.37 $ 3.06 .67 $ $ $ $ (4.14) Primary earnings (loss) per share 77,462 90,187 89,672 88,617 106,730 Average shares (in thousands) Fully diluted earnings (loss) per share: Before extraordinary item and change in 3.34 4.38 3.04 1.66 $ $ $ $ $ (3.96) accounting method - (.18) (.24) (.99) (.11) Accounting change/Extraordinary item $ 3.10 $ 4.27 3.04 $ $ $ .67 (4.14) Fully diluted earnings (loss) per share 89,492 77,462 97,528 97,189 106,730 Average shares (in thousands) $ 1.20 $ 1.20 $ 1.20 $ 1.20 1.20 $ Dividends declared per common share AT YEAR END $ 6,324 $ 7,592 Totalassets $ 7,045 $ 6,563 $ 18,269 Long-term debt, including current portion 1,567 1,982 1,819 1,737 4,233 and commercial paper - - - 9 11 Redeemable preferred stock 1,202 2,237 1,919 1,728 5,037 Stockholders' equity OTHER 487 509 753 676 $ $ $ $ $ 1,042 Totalcapital expenditures 362 352 338 347 520 Depreciation and amortization 86% 90% 83% 87% 80% Operating ratio (6) Total debt to total capital, excluding 48% 62% 45% 48% 46% redeemable preferred stock (1) 1995 includes $735 million before taxes related to merger, severance and asset charges as discussed in Note 3 of the financial statements. 1991 includes pre-tax charge of $708 million related to: (i) costs for reducing surplus crew positions and a management separation pay program, (ii) increases in estimated personal injury costs and (iii) increases in estimated environmental clean-up costs. (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) 1991 includes extraordinary loss on retirement of debt. (6) 1995 and 1991 operating ratios exclude the pre-tax charges discussed in note (1) above. P AGE
  • FE BURLINGTON NORTHERN SANTA T Significant unusual items include merger, severance o OUR SHAREHOLDERS, CUSTOMERSAND COLLEAGUES and asset charges of $453 million after-tax for 1995. 1995 was a historic year for us. It brought together two These charges, along with reserves established at the - time of the merger, cover the costs associated with the successful companies Burlington Northern Inc. and - elimination of some 3,000 positions in 1995 and over Santa Fe Pacific Corporation and created Burlington the next few years, the disposition of about 4,000 miles Northern Santa Fe Corporation in September. The year of low-density track in 14 states, the closing of offices, 1995 was also one of our better years in terms of our on- facilities, and other operations that will not be needed going pursuit of an injury-free workplace, on-time service, customer satisfaction, and financial performance. as a result of combining the two railroads. There also BNSF's well-balanced business portfolio derived was a $100 million after-tax charge associated with a change in accounting for locomotive overhauls and about 25 percent of its combined 1995 revenues from another $6 million for the early retirement of debt. With transporting a record 204 million tons of coal, most of it from the Powder River Basin these items, BNSF net income was of Wyoming and Montana. Another $92 million, or $0.67 per common 25 percent came from intermodal share, on an as reported basis for shipments - more than 2.5 million 1995, compared with $416 million, trailers and containers, another record, or $4.27 per common share, fully were moved on flatcars in 1995. About diluted, in 1994. 15 percent of combined 1995 revenues During the fourth quarter of 1995, reflected the movement of a record we learned that we can achieve high 663,000 carloads of agricultural levels of on-time, damage-free commodities, like corn, wheat and service simultaneously for each of the largest segments of our franchise soybeans, while transportation of foods, - agricultural commodities, coal and beverages, forest products, chemi- ROBERT D. KREBS cals, minerals and metals accounted intermodal. Improving both our BNSF President and Chief Executive Officer for the remaining 35 percent. service performance and our safety We entered 1996 focused on our vision: To realize the record are key to the future success of our company. tremendous potential of the new Burlington Northern In this period, the first one in which we operated as a and Santa Fe Railway by providing transportation merged railroad, one incredible achievement exempli- fied the potential of the new company better than any services that consistently meet our customers' expecta- other: BNSF handled 27,040 trailers without one failure tions. Our new railway, the largest in North America, for our largest Intermodal customeI; United Parcel Service, will provide single-line service with broad geographic from Thanksgiving to Christmas Eve. scope, as shown on pages 8-9, making it easier for This streak continued until January 18, 1996, when a shippers to use the improved services we are now large portion of our railroad in the Midwest was snow- capable of providing. RECORD-SETTING PERFORMANCES bound. For 58 consecutive days, 43,709 trailers arrived THROUGHOUT 1995 at every UPS hub for sorting on schedule to enable UPS - For 1995, BNSF generated $1.576 billion in combined to meet its commitments to its customers a magnifi- operating income, excluding unusual items. This repre- cent example of thousands of BNSF people working as a sents a 32 percent improvement over 1994. Combined team to achieve a common goal. I believe this will revenues grew nearly $500 million year over year, while become the standard for the service we will provide adjusted operating expenses were only $110 million customers in all segments of our business, and this will enable us to achieve one of our goals, consistent higher. As a result, the operating ratio was lowered to revenue growth. For 1996, our overall on-time perfor- 80.7 percent from 84.5. For 1996, we are targeting a 78 mance target is 92 percent. percent operating ratio. P AG(
  • BURLINGTON NORTHERN SANTA FE Kansas, will be rebuilt from the ground up at a cost of For several years, employees of both BN and Santa Fe about $90 million over a two-year period. The Hobart have aggressively worked to reduce personal injuries intermodal facility in Los Angeles is scheduled for a $25 and lost work days due to injuries. For 1995, personal million upgrade and the final phase of the three-year San injuries were down over 30 percent, as more than 95 Bernardino expansion will be completed this summer. percent of our 45,000 employees worked injury-free. Capacity will also be enhanced at our yard in Barstow, BNSF enters 1996 as the third safest major railroad in California, and at our Chicago Corwith yard this year. North America with the goal of another 25 percent In addition, BNSF is better positioned to participate improvement in 1996. INVESTING FOR GROWTH in NAFTA-driven growth in 1996 as a result of gaining access to the border crossing at Eagle Pass, Texas, In 1996, we plan a capital program approaching $1.7 through our merger trackage agreement with the billion which will support our efforts to increase Southern Pacific. This complements our El Paso, Texas, revenues and reduce our operating ratio. gateway and Canadian access into About $1.1 billion will be spent to quot;we have a strong British Columbia and Manitoba. maintain our franchise, as we resur- Much of the progress made since face more than 12,000 miles of track, franchise, resource- last September is a result of the and replace 700 miles of rail and 3 work and commitment of 45,000 million ties, while keeping our equip- ful employees, employees all over BNSF and their ment fleet at the level required to willingness to pull together as we and the momentum respond to demand and customers' build a new company. The support expectations. BNSF will add 87 loco- from our Board of Directors also has motives in 1996, both alternating to fulfill our enabled us to make rapid progress current and direct current units, merger promise. quot; and to establish a 1996 plan that acquire three aluminum coal sets will demonstrate the wisdom of the and 90 taconite cars, and remanu- merger that created Burlington Northern Santa Fe. facture 1,050 other freight cars. A person who deserves much credit and my personal More than $500 million is slated for capacity expan- appreciation for making BNSF happen is Gerald sion projects at key locations across our network, all of Grinstein, our former chairman, who decided to leave which will enable us to grow our business. The BNSF the company at the end of 1995. All of us will miss his route from the Midwest to the Pacific Northwest (PNW) wisdom and his wit, and we wish him well as he pursues is 11 percent shorter than that of our major competitor, new challenges. which means we can provide better service at lower Another director who will be terribly missed is operating cost for our grain, intermodal and merchandise Barbara Jordan, who passed away in mid-January. customers. To expand PNW capacity, we need a third Although her tenure on the Board was less than five route between eastern Washington and the coast. Several years, her contributions will forever be a part of BNSF. alternatives are being pursued and we expect to be in a I'm confident that BNSF will grow successfully in the position to start running trains over a new route in 1997. years ahead. We have a strong franchise, resourceful Another expansion will be the completion of 55 miles employees, and the momentum to fulfill our merger promise. of double track on BNSF's premier route from Chicago to California. By year end, we will have eliminated more than one-third of the single track that remained on a 660-mile segment of this lane when we began the program two years ago. Robert D. Krebs We have scheduled several yard expansions in 1996 President and Chief Executive Officer to accommodate intermodal growth and improve operat- February 20, 1996 ing efficiencies. The Argentine yard in Kansas City, P AGE
  • LEVERAGING FRANCHISE STRENGTHS MODAL:THE GROWTH LEADER INTER There is tremendous growth potential for BNSF's Intermodal business. BNSF has some of the fastest and most direct intermodal routes in many of the nation's BLENDING THE major transportation lanes. That includes the shortest ... one route between Chicago and Seattle (2,218 miles) of the shortest routes between Chicago and Los Angeles (2,214 miles) ... and the best single- BEST OF TWO line route between California and the Southeast. Service improvements maq.e during the fourth quarter alone in this GREATRAILROADS largely untapped intermodallane reduced transit times between Memphis, BNSF EMPLOYEES AVE H Tennessee, and Southern California by BEENSO SUCCESSFUL . .. ATREDUCING INJURIES In the long history of American railroading no merger 24 hours III both dIrectIons. Overall, THAT THECOMPANY NOW has been larger, approved so quickly or demonstrated Intermodal on-time performance reached HAS THETHIRD LOWEST greater potential. Combining Burlington Northern Inc. record highs in the third and fourth INJURY RATE AMONG and Santa Fe Pacific Corp. created much more than the quarters on both BN and Santa Fe. MAJOR RAILROADS. largest rail network in North America. It created a new This combination of superior routes and on-time competitor with the market reach needed to deliver new service gives Intermodal the greatest growth opportuni- single-line services to customers throughout two-thirds ties for the new company. To take advantage of those of the United States as well as to Canada and Mexico. strengths, BNSF introduced Guaranteed and Premium BN didn't reach the Southwest. Santa Fe didn't reach intermodal service in addition to regular service in the the Pacific Northwest or the Southeast. Now BNSF fourth quarter of 1995 for customers shipping between the Pacific Northwest and Midwest. BNSF also offers delivers to all of those areas with 31,000 route miles in 27 states and two Canadian provinces stretching from better intermodal service through midwestern gateways all major ports along the West Coast, to the Great Lakes like Chicago, Kansas City and St. Louis to both the PNW and California. and the Gulf, and from Canada to Mexico. BN was primarily a coal, grain and merchandise railroad. To accommodate future growth, BNSF is expanding Santa Fe was primarily an intermodal and automotive capacity at key terminals, improving on-time carrier. Together, BNSF creates a stronger portfolio with performance and equipment utilization, offering new a more diversified and balanced product mix. services, and modifying train schedules to meet cus- More importantly, customers have access to shorter tomers' needs. Multi-year capacity expansion projects routes and faster transit times using at intermodal facilities in Los Angeles (Hobart) and BNSF, and many of the interline traffic Chicago (Corwith) will boost capacity at each to more exchanges that delay shipments will than one million units-per-year when completed in be eliminated, giving customers more 1997. At San Bernardino, California, the intermodal single-line service options to more facility is being expanded to handle more than 400,000 markets than the predecessor railroads units annually after completion in mid-year 1996. The BNSFTOOK DEliVERY total investment to expand capacity at these facilities mc- could deliver independently. The great OF 130 MOREAC TlON LOCOMOTIVES IN alone is $155 million. challenge now facing BNSF is to realize 1995 WHICH ARENOW . BNSF moved more intermodal traffic on a combined its tremendous potential by continu- PARTOF THE INOUSTRY S ing to build on the momentum of the basis in 1995 than any other rail system in the world, LARGEST LOCOMOTIVE record-settingperformancesof 1995. more than 2.5 million containers and trailers. Despite FLEET OF4,400 UNITS. P AGE
  • the PRB. PRB coal is cheaper to mine than most other sluggish economic conditions, BNSF domestic sources. It also burns much cleaner, with an posted a 4 percent increase in com- ~~~~~~~~; average sulfur content one-sixth to one-half that of most bined volume, mostly attributable to 7' r':quot;quot;-;'''':;,'~:''~'::'';;X ~.-, -~.: quot; '. -~~~~ other coal. As a result, PRB coal is helping to bring many growth of international and less-than -- nil, ~ truck-load (LTL) traffic. utilities into compliance with the 1990 Clean Air Act ,e 1',, TO AUTOMOTIVE: GROWTH Amendments without having to install expensive scrubber BNSF HASACCESS TH R 0 UGH INN 0 VAT ION ALLMUORWESTCOAST systems or purchase emissions credits. The PRB contains . PORTS, WHICHEXPECT. Combmed BNSF automotIve carloads 73 percent of the nation's low-sulfur coal reserves. Those COITAINER VOLUMES TO factors, low-fuel cost, low-delivered cost, and low-sulfur DOUBLE THE EXTdeclined OVER N less than one-half percent content, have driven unprecedented demand for PRB coal. 20 YEARS. despite depressed automobile sales In 1995, Burlington Northern Santa Fe hauled a and reduced production. While BNSF only serves a combined total of 204 million tons of coal which takes couple of auto-assembly plants directly, it is leveraging into account the coal traffic interchanged between the innovation as a means of increasing market share. former BN and Santa Fe. Independently, BN moved BNSF is a technological leader in the development of 183 million tons of coal, most of it from the PRB, a 7 equipment designed to improve protection for automo- percent increase from 1994. The Santa Fe Railway. biles in transit. The company has acquired intermodal hauled 36 millions tons of coal, down 10 percent from trailer and container equipment designed to ship 1994 as a result of abundant western hydroelectric automobiles in a fully enclosed environment and has supply and lower-than-normal natural gas prices. helped develop a lightweight, fully enclosed, articulated EXPANDING COAL CAPACITY multilevel rail car to provide the same protection in standard rail service. The record 1995 tonnage represents the kind of growth COAL: A BRIGHT FUTURE BNSF has prepared for with its multi-year investment Since the first unit train left the Powder River Basin strategy designed to capture the anticipated increase in demand for Powder River Basin coal. In 1995, BNSF (PRB) in 1969, BNSF has helped transform this remote invested $385 million in track and equipment to boost ranching area straddling northeastern Wyoming and southeastern Montana into one of the nation's most impor- transportation capacity by: . Constructing 21 miles of double and triple track on tant fuel sources for generating electricity. Today, nearly 10 percent of the electricity produced in the United States the joint BNSF/UP Orin Line (120 miles of the 127-mile is generated from coal hauled by BNSF, most of it from line are now double or triple tracked); .Const ructing 25 miles of additional track between :;:i~'quot; ~~~'- ~ ?--ci:~;~-., <~ i.I.IM Alliance, Neb., and Gillette, Wyo.; : ~ . I~~~~quot;~ Expanding Alliance yard with four '. new receiving and departure tracks and eight storage tracks; and .Acqui ring 130 AC locomotives, eight new aluminum train sets, and the Trough Train (an extended car with 13 articu- ABOUT PERCENT 25 OF . . BNSF's 1995 REVENUE coa I lated sectIOns that Increases FROMCOAL WASDERIVED carrying capacity by 30 to 40 percent). TRAFFIC,25 PERCENT Phase n of the Clean Air Act, which FROM INTERMODAL, 15 PERCENT FROMAGRICUL- requires even lower sulfur emissions in TURALCOMMODITIES AND the year 2000, and impending electric 35 PERCENT FROMCON, utility deregulation, will stimulate addi- SUMERPRODUCTS, tional demand for PRB coal over the CHEMICALS,MINERALS AND METALS. next several years. To respond to these P AGE I
  • -.- ~ quot; ' -quot;'''''''iIiJ.~-41 'quot; JUt! ~ . quot; '~ :-' . t:quot;'':'>~I''...!
  • . ~ BNSF offers businesses new international shipping opportunities because it links all major ports on the west Coast and the Gulf with the Midwest, Pacific fr Northwest, Southwest and the Southeast. NAFTA North American I shippers can J take better SAFETY advantage of wearing proper safety equipment is an NAFTA with important part of BNSF's success in BNSF's north- making the railroad a safer place to south direct work. BN reduced reportable injuries by routes between 30% in 1995. Santa Fe reduced them Canada and by 38%. Together, BNSF has set a Mexico. unified target for reducing reportable injuries by another 25% in 1996. FORESTRODUCTS P Companies in the Northwest, Northern Midwest and Southeast have access to new mar- kets in the Southwest and west Coast. In 1996, BNSF will invest BURLINCTON NORTHERN nearly $1.7 billion to maintain CHEMICal COMPANIES and improve its infrastructure BN's strengths in coal, in the PNW and by adding more double grain and merchandise combined with Santa Fe's Canada gain access and triple track, expanding to a new single-line yards and terminals, acquiring strengths in intermodal route to the west more new locomotives and and automotive give BNSF Coast via BNSF. freight car equipment. a stronger and more diver- sified traffic base. I o rrrrrrCiT , 9712 ' P AGE
  • OPERATING SUERGIES BNSF will benefit from the consolidation of operations and administrative functions, disposition of about 4,000 miles of low-density track, and the disposal of excess office space and other facilities, and operations. between Chicago and the Pacific Northwest, (2,218 miles), and one of the shortest between Chicago and Southern California (2,214 miles). COAl/ELECTRICITY Nearly 10% of the electricity produced in the United States is generated from coal hauled by BNSF. The new railroad's extended routes will enable cleaner- ;:::;, 1 , :iquot; . 1 burning, low-sulfur ~ coal to be delivered -iW to more markets. ~ QUIPMENT BNSF will improve equipment utilization of .. .. its combined 90,000-car ,- fleet and of its combined 4,400-10comotive fleet. INTERMOOAl NIPPERS S have access to new direct routes on BNSF between Southern California and the Southeast, and combined with BN's routes in large fleet will enable to new single-line the Pacific Northwest, Midwest BNSF to move grain cars north with the harvest as service options and Southeast give BNSF throughout most of the extended market reach through it moves from Texas to western United States. the Canadian border. most of the Western two-thirds of the United States. P AGE
  • ports. High barge rates on the Mississippi River and BNSF's ROUTESTRUCTURENABlESIT TO ORICINATE E MORECRAINFROMMORE ocean freight spreads that favored exporting grain from CRAINPRODUCINC RECIONSTNANANY OTHERRAILROAD THE INDUSTRY. IN ports in the Pacific Northwest over those on the Gulf ~, ~._quot; quot;quot;7quot;quot;..quot;:... , .:l'( .,.. -quot;'~<;'., ~ . ;;rquot;rf{,~l ; f. quot;(:.,.. quot; ~ -:,. ~- ~.lS~~'- l~ i, combined with a good crop supply on BNSF's system to '#.; , '~ .,~l'r ~':'~i !7~''-it~1 .. ,. '. ~~ ~ ~t' <tl quot; ~'i~fli,~~.-, jJ!;. i. ~ create an opportunity BNSF anticipated, planned for t:~~ ...'J./ -quot;.~ ~ ~ ,, . . quot;~~I';quot; ~~-'~.. 'quot; quot;quot; ~ ' . ,~ :--~~,quot;,.,z.' , 'I' t.~, ~.Ji., f ' ~:.. ~-.~ ,., ,quot;,-' - and capitalized on very successfully. :.'1~ ~~~~~~C,,{/ I: 'quot; ~)''u'{':'t.;, ~ ,.' . ., AT' ~..~~~1f.'~'t(' ...,., .- ,...''' 1.'r<'1,'/.quot; .,,~/ quot;- .. ;;:;#1.. , It( ~':'. r.-quot;quot;quot;':.i~~ ')::'tquot;. - ~ (' ~quot; .. ,~,~ ~ BNSF is the largest rail transporter ~..,~,.: '~ quot;quot;)!~quot; 1.quot;J, . .f','~ t ~!ii.),,:.,>J~Iquot;':quot;:s. .quot; fquot;quot;:~~'~r ,. f ,f j:>.. ,,/,?J'('J..: S I,~'~.{::.I~, I. .., ~ 'lquot;,,,,, . ,t ~ CI lquot; .~ ;~;.: ~1t-.. ft;'. .,-~~.~ -t-~fi quot;(:(.'~~'quot; of grain in North America, in part, 'i'~.r ::'(tt:'t{'.:f< '1[: ~I. .'t ~~ fI '::'~ ~;;' ~ '~J';'t:' :';'I' '{:-~~ftquot;';('{~.~ . ~ .. ~ because it connects most of the nation's /r~~~ ,' {quot;quot;,::;' . ~quot;quot; ~ ~~~ .~I i'£'-dquot;.l//J,i...,~f':' .:.~f ; '<!ff* . 1:~~:~.- ~ ~~~ '.tt/ iO:<i~1~ ... . 1quot;;1i:1f{l,<~.~ . . '11', . . ., key grain-producing areas to most of its 1':,.(t~£,~,.. I'Z-~~I~,~l,<If 1 ~~b.l~-::'quot; ' I ~A: . .quot; . ~I . j' ,~ ~ ,~,J', to£..- ',,,, . . .f ~ ;''' ' ;,~~.~ ~~~~,~:~ (.~t ,;'t~;~,,: quot; ~'~:ii':quot; I'quot; major domestic consumption markets . 'f/. I~''.!,: ~. quot;~.,~ (~~~::'~~ ..~-'~~~-'<;r~ ~.'~~quot; . . . . ,,-,-11:,~~fL:1: ' '~~~ ~~ ' <'''.,'1/:.'' '~''''' . r!i-r<. .t. :. :~,'<,' ( :'1.,.-quot;(/ . !'It and grain export ports. BNSF serves BNSF SERVES . . quot;~s.}quot; AlSO .tf~~~ :;'('C,' ~ ; v. ~~ < ''f'''''. . ~.!t'quot; ,~,i'J l:tJ . &:,. , . . ~ ' key grain-producing regions stretching ~,!~'.~.,.~j'/~1'-quot; MOSTOF THE NATION'S quot;,quot; 'i.. ~';;'~I quot;, - ~'. j LARGEST DOMESTIC :',~:):!~;,:~. :~ t:-~~ .,J.1quot;~~i;~fl~~~;:'~«('~~{~'l~;~'{' , ,,': <'iJ from the Northern to the Southern Great ~ ~ quot;quot;.,;~.,' t:::1:t/{{ 11b!~(>'I' '~i~: 'V! ,l'.quot;>-' [ '0' t.quot;quot; quot;.:,' GRAINMARKETSAND ,i[,~,~.~,. ~:(.~~;:,~ ~i,,~)q~~1tquot;I:~';:Jt(~,f~'!i~J~Qr: ':.~~ )~'.'~ Plains, and from the Pacific Northwest MOSTOF ITS KEY GRAIN to the Midwest.Com accountsfor about growthopportunities, BNSF is continuing to focus on cus- EXPORT PORTS. tomer service. Innovative pricing, faster cycle times for 35 percent of BNSF's grain revenue, wheat 34 percent, coal trains (the time it takes to move a loaded coal train feeds and minor oilseeds 8 percent, soybeans 7 per- from the mine to the utility and back) and reduced cent, barley 5 percent, and flour, mill products, malt, costs through new technologies are helping BNSF lay oil and specialty grains 11 percent. It is this diversity the groundwork for long-tenn growth in the coal business. of grain-producing regions, and of the grains and grain METALS AND MINERALS: ACCESS TO STRONG products produced in those areas that hedges BNSF's PRODUCTION CAPACITY exposure to fluctuations in the market for specific Improved demand for pipe, alumina and structural types of grains. NEW OPPORTUNITIES IN GRAIN steel helped increase metals traffic a combined total of 7 percent in 1995. BNSF has on-line access to more The USDA's long-term outlook indicates continued than 40 percent of the nation's aluminum production strong growth in United States agricultural exports over capacity, to the nation's largest deposit of taconite (iron the next 10 years. The greatest demand is expected to ore) in Minnesota's 'Iron Range', and to some of the come from China, which could account for almost most efficient steel mini-mills in the United States. one-third of the estimated increase in grain exports. Expanded single-line service opportunities will enable BNSF is well positioned to participate in that opportunity. BNSF to extend the market reach of many of its metal In addition, the merger has created single-line opportu- and mineral shippers. nities to Southern California and Mexico, and for direct AGRICULTURALCOMMODITIES: routing of spring wheat to the Gulf of Mexico. Linkages A RECORD YEAR from Kansas and Oklahoma to the Pacific Northwest No BNSF business segment did a and from the upper Midwest to Southern California better job in 1995 of seizing traffic provide opportunities for opening new markets and cre- opportunities than Agricultural ating more transportation options in existing markets. BNSF HASON,LINE Commodities.A record combined ACCESS TOSOME OFTHE The expanded grain market coverage and larger grain NATION'SMOSTEFFI. car fleet will enable BNSF to move cars in line with the 663,000 carloads of grain were CIENTSTEEl MINI- natural seasonal rotation of the harvest as it moves transported by BNSF.The record MillS, ITS LARGEST north from Texas to the Canadian border. grain performance was led by strong DEPOSIT IRON ORE OF domestic demand and by export To help improve the productivity of that 35,000 grain- (TACONITE)ANDA LARGE demand for com and soybean ship- car fleet, BNSF invested in additional track sidings and PARTOF ITS AlUMINUM ments through the Pacific Northwest PRODUCTION APACITY. C yard expansions along many of its key grain routes in P AGE 10
  • tI 1995, significantly expanding the rail yards at Hauser, in capital projects, including about $5.00 million for terminal and track Idaho, and at Pasco and Vancouver, Washington, which handle most of BNSF's grain trains bound for the PNW capacity expansion. CONSUMER AND INDUSTRIAL PRODUCTS: Yet investing in traditional rail EXTENDED MARKET REACH infrastructure is not enough. BNSF THE NOC PLACES cannot expect to reach its service, Strong demand for petroleum helped increase BNSF's OPEIATiORSTEAM MEM- growth, safety and operating cost combined Chemical carloads by 3 percent, helping to BERSWITHIN FEETOF goals without the benefit of the very offset reduced demand for lumber and canned goods in UCI OTHERTO best real-time information and control the Forest Products and Consumer Goods units. INCREASE THE SPEED Access to new markets and new direct routes will systems. BNSF is developing and ANDOORDINATION F C O benefit most of BNSF's chemical, consumer and forest implementing the industry's best DECISIORS. examples of those technologies at its new operations products customers as much as it does, grain, coal, center in Fort Worth. intermodal or automobile shippers. THE NOC: A 21sT CENTURY CONTROL CENTER In Forest Products, for example, BNSF serves more NetworkOperations The of North America's primary Center (NOC) is the largest timber producing areas than and most technologically any other railroad and is con- advanced control center sequently one of the largest of its kind in any industry. carriers of lumber, paper It has the ability to not only products, plywood, pulpmill . ~~ view, track and help manage feedstock and wood pulp in the industry. BNSF's extend- day-to-day operations, but to ed market coverage enables provide an electronic overview of the entire system, forest products producers in the Southeast, Minnesota and helping to identify potential the Pacific Northwest to reach problems in advance and destinations in the Southwest prevent them from occurring. The NOC is currently with single-line service. Chemical shippers in the PNW and Canada have providing these services for the Northern and Burlington Lines on BNSF's system. The Systems access to a new single-line route to the West Coast and to Mexico, and consumer products shippers now have Operations Control Center in Schaumburg, performs these functions for most of the Santa Fe Lines on a new single-line alternative to virtually all of the BNSF's network. major consumer markets in the Western two-thirds of the United States. SUMMARY EXPANDING CAPACITY The new company got off to a great start in the BNSF is continuing to make record fourth quarter of 1995, capping off what had been a great year for the predecessor companies - capital investments to provide the service levels needed to win addition- a remarkable accomplishment of service improvement al business. In 1996, BNSF will add achieved in spite of severe weather problems on many THE MAINTENANCEND A TRACK,TERMINALAND parts of the system. The challenge for 1996 is to 87 new locomotives, bringing to EQUIP.En CAPACITY build on that momentum, to make BNSF a safer place nearly a thousand the number of new EXPANSION PROJECTS to work by reducing injuries another 25 percent, to power units that have been added to CDNmlE AT BNSF the combined BNSF fleet in the reach an overall on-time performance level of 92 TO STAYIN STEP percent, and to reduce the ratio of expenses to 1990's. In total, the new company will WITH RElENUEGRDWTH income to 78 percent. invest approximately $1.7 billion OPPORTUNITIES. P AGE 12
  • BURLINGTON NORTHERN SANTA FE FINANCIAL CONTENTS Agreement qualified as a tax-free transaction for federal income tax purposes, the parties utilized the Holding Company Structure. 13 Management's Discussion and Analysis Under the Holding Company Structure, BNSF created two 21 Report of Management subsidiaries. One subsidiary merged with and into BNI, and 21 Report of Independent Accountants the other subsidiary merged with and into SFP. Each holder of 22 Consolidated Statements of Income one share of BNI common stock received one share of BNSF 23 Consolidated Balance Sheets common stock and each holder of one share of SFP common 24 Consolidated Statements of Cash Flows stock, excluding the SFP common stock acquired by BNI in 25 Consolidated Statements of Changes in the Tender Offer and the SFP common stock held by SFP as Stockholders' Equity treasury stock, received 0.41143945 shares of BNSF common 26 Notes to Consolidated Financial Statements stock, which reflects the effects of the repurchase program discussed below. The rights of each stockholder of BNSF are MANAGEMENT'S DISCUSSION AND ANALYSIS substantially identical to the rights of a stockholder of BNI, OF FINANCIAL CONDITION and the Holding Company Structure has the same economic AND RESULTS OF OPERATIONS effect with respect to the stockholders of BNI and SFP as anagement's discussion and analysis relates to the M financial condition and results of operations of Burlington would a direct merger of BNI and SFP. In the Merger Agreement, the exchange ratio of BNSF Northern Santa Fe Corporation and its majority-owned common shares for each share of outstanding SFP common subsidiaries (collectively BNSF or Company). The principal stock upon consummation of the Merger was set at not less subsidiaries are Burlington Northern Inc. (BNI), Burlington than 0.40 shares to not more than 0.4347 shares, with Northern Railroad Company (BNRR), Santa Fe Pacific repurchases of SFP common stock by SFP increasing the Corporation (SFP) and The Atchison, Topeka and Santa Fe exchange ratio pro rata. SFP repurchased approximately Railway Company (ATSF). 3.6 million shares which, along with the effect of SFP stock ACQUISITION OF SFP options exercised, resulted in the final exchange ratio of O n June 29, 1994, BNI and SFP entered into an Agreement 0.41143945 shares. and Plan of Merger (as amended on October 26,1994, RESULTS OF OPERATIONS December 18, 1994, January 24, 1995 and September 19,1995, T he results of operations discussed below include BNI the Merger Agreement) pursuant to which SFP would merge results for the years ended December 31, 1995, 1994 with BNI in the manner set forth below (the Merger). and 1993 and SFP results from September 22,1995 through Stockholders of BNI and SFP approved the Merger Agreement December 31, 1995. at special stockholders' meetings held on February 7, 1995. YEAR ENDED DECEMBER 31, 1995 COMPAREDWITH On August 23,1995, the Interstate Commerce Commission YEAR ENDED DECEMBER 31, 1994 (ICC) issued a written decision approving the Merger and BNSF recorded net income for 1995 of $92 million ($.67 per on September 22,1995 the Merger was consummated. As common share, primary and fully diluted) compared with net discussed in Note 2, the business combination with SFP was income of $416 million ($4.37 per common share, primary, accounted for by the purchase method. and $4.27 per common share, fully diluted) for 1994. Results Pursuant to the Merger Agreement, on December 23,1994, for 1995 were reduced by $735 million of merger, severance BNI and SFP commenced tender offers (together, the Tender and asset charges (see Note 3: Merger, severance and asset Offer) to acquire 25 million and 38 million shares of SFP charges). The corresponding reduction in net income was common stock, respectively, at $20 per share in cash. During approximately $453 million, or $4.24 per common share. the first quarter of 1995, SFP borrowed $1.0 billion under a Results for 1995 were further reduced by $100 million (after credit facility of which $760 million of the proceeds were tax), or $.94 per common share, for the cumulative effect of used to purchase the 38 million shares pursuant to the Tender an accounting change for locomotive overhauls and $6 million Offer. In addition, BNI borrowed $500 million under a credit (after tax), or $.05 per common share, for an extraordinary facility of which the proceeds were used to finance BNI's loss on early retirement of debt. Results for 1994 were reduced purchase of SFP common stock in the Tender Offer. The Tender by $10 million (after tax), or $.11 per common share, for the Offer was completed on February 21,1995. cumulative effect of an accounting change for postemployment Also, pursuant to the Merger Agreement, BNI and SFP were benefits. Excluding the above items, net income for 1995 would entitled to elect to consummate the Merger through the use have been $651 million compared to $426 million in 1994. of one of two possible structures: (i) a merger of SFP with and into BNI or (ii) the Holding Company Structure described below. To ensure that the transaction contemplated by the Merger P AGE I3
  • BURLINGTON NORTHERN SANTA FE Revenue table The following table presents BNSF's revenue infonnation by commodity for the years ended December 31,1995,1994 and 1993 and includes certain reclassifications of prior year infonnation to confonn to current year presentation. SFP results are included only for the period of September 22,1995 to December 31,1995. Revenue Per Revenue Thousand RTM Revenues Ton Miles (RTM) 1994 1993 1994 1993 1994 1995 1995 1993 1995 (IN MILLIONS) (IN MILLIONS) $12.26 $1l.85 $13.02 136,164 117,654 153,169 Coal $1,669 $1,532 $1,815 29.03 30.20 30.86 24,671 22,718 745 701 38,516 Intermodal 1,1l8 20.92 19.89 22.37 33,945 710 55,356 33,922 759 1,101 Agricultural Commodities 22.57 22.86 23.15 19,495 18,329 440 419 19,828 459 Forest Products 26.56 26.57 26.51 315 11,862 402 310 15,127 11,695 Chemicals/Plastics 29.97 28.14 29.40 9,711 291 12,332 10,341 347 304 Food 22.31 21.99 22.08 11,503 308 253 248 11,233 13,804 Metals 22.69 22.69 23.46 10,752 10,136 244 230 12,147 285 Minerals and Ores 80.53 66.50 74.84 1,751 210 152 141 3,158 2,031 Automotive 112 138 119 Other $18.71 $18.69 $19.33 260,574 237,339 323,437 Total $4,699 $6,183 $4,995 Revenues Current year revenues for Forest Products increased $19 million and Chemicals/Plastics revenues increased $92 million Total revenues for 1995 were $6,183 million compared with revenues of $4,995 million for 1994. The $1,188 million when compared to 1994. The increase in Forest Product rev- enues was due to the addition of $32 million of SFP revenues increase reflects $802 million of SFP revenues for the period and was partially offset by lower traffic levels for lumber. The of September 22,1995 to December 31, 1995. Excluding SFp, addition of $80 million of SFP revenues along with strong revenues increased by $386 million or 8 percent primarily petroleum products demand contributed to the increase in due to improved Coal and Agricultural Commodities revenues. Chemicals/Plastics revenues. Coal revenues improved $146 million during 1995 due to Revenue increases in all other commodity groups are higher traffic levels caused primarily by new business, favorable weather conditions early in the year and increased principally due to the inclusion of SFP revenues from demand for low-sulfur coal from the Powder River Basin as September 22, 1995. well as the addition of $58 million of SFP revenues in 1995. Expenses As discussed in Note 3: Merger, severance and asset charges, Revenue per thousand revenue ton miles declined as a result the Company recorded $735 million for merger, severance and of continuing competitive pricing pressures and a change in traffic mix. asset charges in 1995. The principal components of the charge were $287 million related to BNSF's plan to centralize the Agricultural Commodities revenues during 1995 were majority of its union clerical functions and $254 million $342 million greater than 1994. The increase was principally related to salaried employee costs for severance, pension and caused by improvements in com and soybean revenues of other employee benefits and costs for employee relocations $259 million and $41 million, respectively. Com and soybean during the period. Additionally, $105 million was recorded for revenues benefited from increased crop production as well as planned branch line dispositions, while the remaining $89 higher traffic volumes to the Pacific Northwest due to stronger million included obligations for vacating leased facilities and export demand during 1995. Barley and wheat revenues the write-off of duplicate and excess assets. Additional accruals declined primarily due to weaker export demand when compared of $138 million were recorded through purchase accounting with the strong demand in 1994. Additionally, Agricultural Commodities revenues included $59 million of SFP revenues related to fonner SFP employees and assets. When its plans are completed, BNSF expects to have elim- during 1995. The shift in commodities to lower yielding com inated approximately 3,000 positions and disposed of approxi- and soybeans from higher yielding wheat led to the aggregate decrease in revenue per thousand revenue ton miles. mately 4,000 miles of low density track. Total annual savings Intennodal revenues increased $373 million when compared related to these plans, when fully implemented, are expected to exceed $250 million. Insignificant savings were recognized with 1994, almost exclusively due to the inclusion of SFP revenues in 1995. Metals revenues increased $55 million due in 1995 due to timing of severances. A significant portion of to increased taconite, aluminum and steel products revenues the savings will be recognized in 1996 and the full benefit of as well as the addition of $28 million of SFP revenues in 1995. savings are anticipated to be realized by the end of 1998, when the plan is fully implemented. Also, as described in Note 3, costs related to union employee relocation as well as I4 P AGE
  • BURLINGTON NORTHERN SANTA FE resulting from higher traffic volumes in 1995. An increase in certain costs for separation and severances were not included the average price paid per gallon of 1.2 cents in 1995 in the charge; therefore, these costs will be recorded as future contributed to the remainder of the increase. operating expenses. Both the timing and magnitude of any Materials expenses for 1995 decreased $5 million com- future expense is currently unknown. pared with 1994. A $39 million reduction was attributable to Total operating expenses for 1995, including $664 million the change in accounting for locomotive overhauls in 1995 of SFP operating expenses and $735 million of merger, sever- primarily offset by $35 million of SFP expenses. ance and asset charges, were $5,657 million compared with Other operating expenses were $65 million higher in 1995 expenses of $4,142 million for 1994. Excluding the merger, as compared with 1994. The increase reflects the inclusion severance and asset charges the operating ratio for 1995 was of SFP expenses of $60 million and $65 million of expenses 80 percent, an improvement of three percentage points over associated with the change in accounting for locomotive over- the operating ratio of 83 percent for 1994. hauls, partially offset by a decrease in personal injury expenses. Effective January 1, 1995, BNSF changed its method of Interest expense increased $65 million compared with 1994, accounting for periodic major locomotive overhauls. Under the principally due to the addition of $26 million of SFP expense new method, overhauls on owned units are capitalized and in 1995 as well as interest on the $500 million unsecured debt depreciated ratably until the next anticipated overhaul. In incurred in 1995 to finance BNI's investment in SFP. addition, estimated costs for overhauls on leased units are Other income (expense), net was $31 million favorable in accrued on a straight-line basis over the life of the leases. 1995 as compared with 1994. This increase was due to BNI's BNSF previously expensed locomotive overhauls when the equity in earnings of SFP of $16 million from February 21, costs were incurred. The cumulative effect of this change for 1995, the date of BNI's initial investment in SFp, to years prior to 1995 was a reduction in net income of $100 September 22, 1995, the date of merger consummation. million (after tax) while the effect of this change for the year Additionally, other income includes income from SFP's 44 ended December 31, 1995 was to reduce net income by $25 percent equity investment in Santa Fe Pacific Pipeline million (after tax). Partners, L.P. The remainder of the increase in other income Compensation and benefits expenses of $2,065 million was due to interest income on the settlement of a tax refund were $286 million above 1994 and included $233 million of and lower fees on the sale of accounts receivable in 1995. SFP compensation and benefits expense. The remaining $53 In December 1995, BNSF defeased BNI's 9% debentures million of the increase was due to higher traffic levels, a wage due 2016, by placing $166 million of U.S. government secu- increase for union represented employees effective July 1994, rities into an irrevocable trust for the purpose ofrepaying the an increase in health and welfare costs for union employees debentures in April 1996. The defeasance resulted in an due primarily to an increase in insurance premium rates, and extraordinary charge of $6 million (after tax), principally increased incentive compensation expense. These increases reflecting the call premium on the debt. were partially offset by operating efficiencies. YEAR ENDED DECEMBER 31, 1994 COMPAREDWITH Purchased services expenses increased $54 million for YEAR ENDED DECEMBER 31, 1993 1995 compared with 1994, principally reflecting the addition BNSF had net income of $416 million ($4.37 per common of SFP expenses. share, primary, and $4.27 per common share, fully diluted) for Equipment rents expenses were $111 million higher than 1994 due to the inclusion of $70 million of SFP equipment the year ended December 31, 1994 compared with net income of $296 million ($3.06 per common share, primary, and $3.04 rents expense in 1995 as well as a $46 million increase in lease rental expense as a result of a larger fleet of leased per common share, fully diluted) for 1993. Results for 1994 included the cumulative effect of the implementation of freight cars and an increase in the leasing of locomotives to Statement of Financial Accounting Standards (SFAS) No. 112 meet power requirements in 1995. quot;Employers' Accounting for Postemployment Benefitsquot; which Depreciation and amortization expense for 1995 was $158 decreased 1994 net income by $10 million, or $.11 per common million higher than 1994 primarily due to the inclusion of $86 share. Results for 1993 included the effects of severe flooding million of SFP depreciation and amortization expense for 1995. in the Midwest, most notably in the third quarter. Net income Additionally, the increase reflects $30 million attributable to for 1993 also included the retroactive effects of the Omnibus the 1995 effect of a change in accounting for locomotive Budget Reconciliation Act of 1993 (the Act), which was passed overhauls. The remainder of the increase was due to capital into law during August 1993. The Act increased the corporate additions which increased the Company's asset base. federal income tax rate by 1 percent, effective January 1, 1993, Fuel expenses for 1995 were $111 million higher compared which reduced BNSF's net income by $28 million, or $.31 with 1994 primarily due to the addition of $74 million of SFP per common share, to adjust the January 1, 1993 deferred expenses along with a $29 million increase in consumption tax liability. 15 P AGE
  • FE NORTHERN SANTA BURLINGTON Revenues Compensation and benefits expenses for 1994 were $70 Total revenues for 1994 were $4,995 million compared with million greater than for 1993. Higher traffic volumes during revenues of $4,699 million for 1993. The $296 million 1994 as well as wage increases for union represented employ- increase was primarily attributable to improvements in Coal, ees caused an increase in excess of $50 million to wages Agricultural Commodities and Intermo~al revenues. and related payroll taxes. Also contributing to the increase in Coal revenues improved $137 million during 1994 as a compensation and benefits expenses were increased salaries result of increased traffic. This increase was primarily caused and a higher pension expense, due to a reduction in the by a rise in the demand for electricity as well as the need for discount rate (driven by lower market interest rates) used in utilities to replenish coal stockpiles during the first half of determining the net pension cost. 1994, which were partially depleted during the 1993 summer Purchased services expenses increased $15 million flooding. Partially offsetting the increase in 1994 traffic was compared with 1993. Higher intermodal-related costs, due a decline in revenue per thousand revenue ton miles. These to increased volumes, and higher third party locomotive lower yields were largely due to the transportation in 1994 of maintenance and repair costs were the most significant greater volumes above contractual minimum tonnage require- contributing factors to this increase. ments on which customers received lower rates. Continuing Equipment rents expenses were $34 million higher in competitive pricing pressures in contract renegotiations also 1994. This increase was primarily attributable to higher lease contributed to lower yields. expenses due to a larger fleet of leased rail cars as well as Intermodal revenues increased $44 million during 1994 leasing locomotives to meet power requirements. Also con- when compared with 1993. Intermodal-international revenues tributing to the increase were payments for failure to achieve service commitments in the first half of 1994 under various accounted for the majority of the increase with a $37 million improvement over 1993 caused by both new business and transportation agreements. These increases were partially offset growth in existing business. The traffic increases more than by decreased car hire expenses in i994 compared with 1993, offset BNSF's withdrawal from the Texas market in April 1994. due to the adverse effects of the Midwest flooding in 1993. Revenues from the transportation of Agricultural Commodities Depreciation and amortization expense for 1994 was during 1994 were $49 million higher than 1993. This increase $10 million higher than 1993, due to an increase in the asset was principally caused by a $31 million improvement in base and higher traffic levels. barley revenues, as well as higher wheat, feeds and oilseeds Fuel expenses were $7 million higher during 1994 as revenues. Barley revenues benefited from strong domestic and compared with 1993. The average price paid for diesel fuel export demand caused by favorable market conditions during decreased 3.1 cents per gallon in 1994 despite the 4.3 cents 1994. Higher wheat revenues resulted from an increase in per gallon increase in the federal fuel tax, effective October 1, yield, which is a product of commodity mix, price and length of 1993. These price savings were more than offset by a $30 haul. Feeds and oilseeds revenues grew because of increased million increase in expense due to higher traffic volumes. domestic feed demand. Partially offsetting these increases was a Materials expenses were $5 million higher during 1994 as decrease in corn revenues largely attributable to reduced crop compared with 1993. Track and locomotive repair materials production and lower export demand. costs increased due to higher maintenance levels and a larger Forest Products revenues for 1994 increased $21 million fleet size in 1994. Partially offsetting these increases were compared with 1993 primarily due to increased housing greater scrap sales due to the higher maintenance levels and a starts during the year, while Food revenues for 1994 were $13 reduction in expenditures for safety and protective equipment million higher than 1993 as a result of increased export deployed in 1993. demand. Minerals and Ores revenues rose $14 million over Other operating expenses were $37 million less when com- 1993 as a result of stronger clays and aggregates traffic caused pared with 1993. A $46 million decrease in personal injury by increases in both domestic and export demands, and expenses and the absence in 1994 of costs associated with the Automotive revenues were $11 million higher than 1993 as a 1993 third quarter floods were partially offset by increases in result of increased volume in automotive-international traffic. derailment-related expenses and property taxes. Expenses Interest expense for the year increased $10 million compared Total operating expenses for 1994 were $4,142 million compared with 1993, primarily due to a higher average outstanding debt balance in 1994. with $4,038 million for 1993. The operating ratio improved three percentage points to 83 percent from 86 percent. Other income (expense), net was $8 million lower in 1994 compared with 1993. This resulted primarily from losses related to international ventures. P AGE 16
  • BURLINGTON NORTHERN SANTA FE In December 1995, BNSF issued $300 million of 63/8% The effective tax rate was 38.7 percent for 1994 compared Notes due December 15, 2005 and $350 million of 7% with 43.2 percent for 1993. The higher effective tax rate for Debentures due December 15, 2025 under a registration 1993 resulted from the increase in tax rates pursuant to the statement filed by BNSF on November 22, 1995 covering the Act and the related impact on the deferred tax liability at issuance, from time to time, of up to $1 billion aggregate January 1, 1993. CAPITAL RESOURCES AND LIQUIDITY principal amount of debt securities. The net proceeds from CASH FROM OPERATIONS the sale of the notes and debentures were primarily used for general corporate purposes, including but not limited to the ash generated from operations is BNSF's principal source C of liquidity and is primarily used for dividends and repayment of commercial paper and short-term bank loans having an average interest rate of approximately 6 percent. capital expenditures. To the extent cash outflows exceed cash During the course of 1995, the Company entered into various provided by operations, BNSF would generally fund the excess interest rate swap agreements with a principal amount of $500 through the issuance of debt or financing through capital or million, for the purpose of establishing rates in anticipation of operating leases. Operating activities provided cash of $1,416 debt issuances under a shelf registration statement (see Note million in 1995, compared with $808 million in 1994 and $578 10: Debt). In conjunction with the fourth quarter 1995 million in 1993. The increase in cash from operations in 1995 issuance of 10 year 6 3/8% notes and 30 year 7% debentures, was attributable primarily to a $421 million increase in net the Company closed out the swap transactions which resulted earnings excluding net noncash charges. An increase of $263 in losses of $13 million and $15 million, respectively. The million from working capital activities, including additional cash from the collection of accounts receivable and favorable losses were deferred and will be recognized over the term of the borrowings. activity in accounts payable and other current liabilities also Additionally, in December 1995, BNSF defeased BNI's 9% contributed to the increase. The above were partially offset debentures due 2016, by placing $166 million of U.S. gov- by cash used in 1995 to pay employee merger and separation ernment securities into an irrevocable trust for the purpose of costs. The increase in cash from operations in 1994 over repaying the debentures in April 1996. The defeasance of 1993 was primarily attributable to increased net income and a debt resulted in an extraordinary charge of $6 million, net of $68 million decrease in labor-related payments. BNSF's cash applicable income tax benefits of $3 million, principally outflows from investing and financing activities principally reflecting the call premium on the debt. relate to dividends and capital expenditures. Additionally, in CAPITAL EXPENDITURES AND RESOURCES 1995 the Company had expenditures of $500 million related to the Tender Offer. A breakdown of cash capital expenditures is set forth in the OTHER CAPITALRESOURCES following table (in millions): BNSF maintains a program for the issuance, from time to time, 1995 1994 1993 Yearended December31, of commercial paper. These borrowings are supported by bank Road,roadway structures $706 $544 $459 and real estate revolving credit agreements. Outstanding commercial paper 217 184 154 Equipment balances are considered as reducing available borrowings under $890 $698 $676 Total capital expenditures these agreements. The bank revolving credit agreements allow borrowings of up to $1.0 billion on a short-term basis and $1.5 The above capital expenditures exclude $136 million and $50 billion on a long-term basis. Annual facility fees are currently million of equipment acquired under cross-border capital lease .08 percent and .125 percent, respectively, and are subject arrangements in 1995 and 1994, respectively. Capital roadway to change based upon changes in BNSF's senior unsecured expenditures in 1995 increased when compared with 1994 as debt ratings. Borrowings are based upon LIBOR plus a spread a result of extensive capacity expansion projects, primarily based upon BNSF's senior unsecured debt ratings, money located in the Powder River Basin as well as the inclusion of market rates as offered by the lenders, or an alternate base rate. $1l5 million of SFP capital expenditures from September 22, The commitment of the banks to make loans are currently 1995 through December 31, 1995. Capital roadway expendi- scheduled to expire on November 19, 1996 and November 21, tures for 1994 increased compared with 1993 primarily due 2000, respectively. At December 31, 1995, borrowings against to spending related to strategic initiatives for transportation the long-term revolving credit agreement were $85 million network management and extensive roadway improvements. and the maturity value of commercial paper outstanding was Capital equipment expenditures for 1995 also increased when $996 million, leaving a total of $419 million of the long-term compared with 1994 due to the inclusion of $34 million of revolving credit agreement available and $1.0 billion of the SFP capital expenditures. Capital equipment expenditures for short-term revolving credit agreement available. The maturity value of commercial paper outstanding at December 31, 1994 was $91 million. P AGE 17
  • BURLINGTON NORTHERN SANTA FE 1994 declined when compared to 1993 primarily as a result of the jury system, resulted in significant increases in expense acquiring more equipment through operating leases rather than in past years. For several years prior to 1992, the trend of through purchases. Capital expenditures in 1996 are expected significant increases in BNSF's personal injury expense to approximate $1. 7 billion, including noncash capital expen- reflected the combined effects of increasing frequency of ditures of approximately $200 million primarily for either claims, rising medical expenses, legal judgments and settle- directly financed or leased equipment acquisitions, and ments. To improve worker safety and counter increasing costs, reimbursed projects. BNSF implemented a number of programs to reduce the BNSF has a commitment to acquire 149 locomotives during number of personal injury claims and the dollar amount of 1996 and 1997. Nineteen locomotives were financed in claim settlements. The total amount of personal injury February 1996 through a capital lease. The remaining commit- expenses were $143 million, $170 million and $216 million ment will be financed from one or a combination of sources in 1995, 1994 and 1993, respectively, including SFP expenses including cash from operations, capital or operating leases, from only September 22, 1995 through December 31, 1995. debt issuances and other miscellaneous sources. The decision BNSF is also working with others, through the Association of on the method used to finance equipment depends upon American Railroads, to seek changes in legislation to provide current market conditions and other factors and will be based a more equitable program for injury compensation in the upon the most appropriate alternative available at such time. railroad industry. In both 1995 and 1994, BNSF financed new equipment BNSF's operations, as well as those of its competitors, are subject to extensive federal, state and local environmental through long-term capital and operating leases. During 1993, equipment was financed through debt issuance and long-term regulation. BNSF's operating procedures include practices to operating leases. protect the environment from the environmental risks inherent INFLATION in railroad operations, which frequently involve transporting Because of the capital intensive nature of BNSF's businesses chemicals and other hazardous materials. and because depreciation is based on historical costs, the full Additionally, many of BNSF's land holdings are and have effect of inflation is not reflected in operating expenses. An been used for industrial or transportation-related purposes or assumption that all operating assets were replaced at current leased to commercial or industrial companies whose activities price levels would result in depreciation charges substantially may have resulted in discharges onto the property. As a result, greater than historically reported amounts. BNSF is subject to environmental clean-up and enforcement DIVIDENDS actions. In particular, the Federal Comprehensive Environmental Common stock dividends declared were $1.20 per common Response Compensation and Liability Act of 1980 (CERCLA), share annually for 1995, 1994 and 1993. Dividends paid on also known as the quot;Superfundquot; law, as well as similar state common and preferred stock during 1995 and 1994 were $129 laws generally impose joint and several liability for clean-up million and during 1993 were $125 million. On January 18, and enforcement costs without regard to fault or the legality of 1996, the BNSF board of directors declared a dividend of 30 the original conduct on current and former owners and opera- cents per share upon its outstanding shares of Common Stock, tors of a site. BNSF has been notified that it is a potentially $.01 par value, payable April 1, 1996, to stockholders of responsible party (PRP) for study and clean-up costs at record on March 11, 1996. approximately 30 Superfund sites for which investigation and CAPITAL STRUCTURE remediation payments are or will be made or are yet to be BNSF's ratio of total debt to total capital was 46 percent at determined (the Superfund sites) and, in many instances, is the end of 1995 compared with 45 and 48 percent at the end one of several PRPs. In addition, BNSF may be considered a of 1994 and 1993, respectively. PRP under certain other laws. Accordingly, under CERCLA OTHER MATTERS and other federal and state statutes, BNSF may be held jointly CASUALTYAND ENVIRONMENTAL and severally liable for all environmental costs associated P ersonal injury claims, including work-related injuries to with a particular site. If there are other PRPs, BNSF generally employees, are a significant expense for the railroad. participates in the clean-up of these sites through cost-sharing industry. Employees of BNSF are compensated for work-related agreements with terms that vary from site to site. Costs are injuries according to the provisions of the Federal Employers' typically allocated based on relative volumetric contribution Liability Act (FELA). FELA's system of requiring finding of material, the amount of time the site was owned or operated, of fault, coupled with unscheduled awards and reliance on and/or the portion of the total site owned or operated by each PRP. P AGE I8
  • BURLINGTON NORTHERN SANTA FE and restoration efforts proceed or as new sites arise. However, Environmentalcostsinclude initial site surveysand environ- expenditures associated with such liabilities are typically paid mentalstudies of potentially contaminated sites as well as costsfor remediation and restoration of sites determined to be out over a long period; therefore, management believes that it is unlikely that any identified matters, either individually or contaminated.Liabilities for environmental clean-up costs are in the aggregate,will have a material adverse effect on BNSF's initially recorded when BNSF's liability for environmental consolidated financial position or liquidity. clean-up is both probable and a reasonableestimate of BNSF expects it will become subject to future requirements associatedcosts can be made. Adjustments to initial estimates regulating air emissions from diesel locomotives that may are recorded as necessarybased upon additional information increase its operating costs. Regulations applicable to new developedin subsequentperiods. BNSFconducts an ongoing locomotive engines are expected to be issued by the Environ- environmental contingency analysis, which considers a com- mental Protection Agency soon. It is anticipated that these binationof factors including independent consulting repQrts, regulations will be effective for locomotive engines installed site visits, legal reviews, analysis of the likelihood of partici- after 1999. Under some interpretations offederallaw, older pation in and the ability of other PRPs to pay for clean-up, locomotiveengines may be regulated by states basedon stan- and historical trend analyses. dards and procedures which the State of California ultimately BNSF is involved in a number of administrative and judicial adopts. At this time it is unknown whether California will proceedings and other mandatory clean-up efforts at approxi- adopt locomotive emission standards that may differ from mately 320 sites, including the Superfund sites, at which it is federal standards. being asked to participate in the study or clean-up, or both, of OTHER CLAIMSAND LITIGATION alleged environmental contamination. BNSF paid approxi- BNSF and its subsidiaries are parties to a number of legal mately $31 million, $21 million and $27 million during 1995, actions and claims, various governmental proceedings and 1994 and 1993, respectively relating to mandatory clean-up private civil suits arising in the ordinary course of business, efforts, including amounts expended under federal and state including those related to environmental matters and personal voluntary clean-up programs. BNSF has accruals of approxi- injury claims. While the final outcome of these items cannot mately $235 million for remediation and restoration of all be predicted with certainty, considering among other things known sites, including $225 million pertaining to mandated the meritorious legal defenses available, it is the opinion of sites, of which approximately $60 million relates to the Superfund management that none of these items, when finally resolved, sites. BNSF anticipates that the majority of the accrued costs will have a material adverse effect on the annual results of at December 31,1995 will be paid over the next five years. No individualsite is considered to be material. Recoveries operations, financial position or liquidity of BNSF, although an adverse resolution of a number of these items could have received from third parties, net of legal costs incurred, were a material adverse effect on the results of operationsin a approximately $31 million during the year ended December particular quarter or fiscal year. 31, 1995 and were not significant in prior years. LABOR Liabilities recorded for environmental costs represent BNSF's best estimates for remediation and restoration of these Rail union employees represent approximately 87 percent of BNSF's workforce. In December 1994, BNRR reached an sites and include both asserted and unasserted claims. Unasserted claims are not considered to be a material compo- agreement with the Railroad Yardmasters Division of the United TransportationUnion (UTU)which is effective through nent of the liability. Although recorded liabilities include BNSF's best estimates of all costs, without reduction for antic- 1999 with respect to wages, work rules and all other matters except health and welfare benefits. Health and welfare issues ipated recoveries from third parties, BNSF's total clean-up are being addressed at the national level and will apply to costs at these sites cannot be predicted with certainty due to BNRR's approximately 250 yardmasters. Effective July 1, 1995, various factors such as the extent of corrective actions that the yardmasters received a 3 percent base wage increase may be required, evolvingenvironmentallaws and regula- under the agreement. tions, advances in environmental technology, the extent of Labor agreements currently in effect for unions other than other PRPs' participation in clean-up efforts,developmentsin the yardmasters include provisions which prohibited the par- ongoingenvironmentalanalyses related to sites determined to ties from serving notices to change wages, benefits, rules and be contaminated,and developmentsin environmentalsurveys working conditions prior to November 1, 1994. BNSF's rail- and studies of potentially contaminated sites. As a result, road operating subsidiaries joined with the other railroads to future charges to income for environmental liabilities could negotiate with the unions on a multi-employer basis on have a significant effect on results of operations in a particular November 1, 1994. At that time, all unions were served pro- quarter or fiscal year as individual site studies and remediation posals for productivity improvements as well as other changes. P AGE 19
  • NORTHERN SANTA BURLINGTON FE Thereafter, unions also served notices on the railroads which As of December 31, 1995, BNSF had entered into forward proposed increasing wages and benefits and restoring many purchases for approximately 69 million gallons at an average of the restrictive work rules and practices that were modified price of approximately 49 cents per gallon. In addition, BNSF or eliminated under the current agreements. A number of the held petroleum futures contracts representing approximately unions are also challenging the railroads' right to negotiate 60 million gallons at an average price of approximately 48 on a multi-employer basis and the issue is currently pending cents per gallon. These contracts have expiration dates ranging in federal district court in Washington, D.C. from January 1996 to October 1996. In December 1995, BNSF's multi-employer bargaining The above prices do not include taxes, fuel handling costs, representative, the National Carriers' Conference Committee certain transportation costs and, except for forward contracts, (NCCC), reached a tentative agreement with the UTU any differences which may occur from time to time between resolving wage, benefit and work rule issues through 1999. the prices of commodities hedged and the purchase price of BNSF's diesel fuel. The agreement is subject to ratification, the results of which should be known in March 1996. BNSF's current fuel hedging program covers approximately At this time, the railroads and most of the other unions 12 percent of estimated 1996 fuel purchases. The current and are proceeding in direct negotiations on the parties' proposals future fuel delivery prices are monitored continuously and with many in mediation. The National Mediation Board has hedge positions are adjusted accordingly. Hedge positions are scheduled and held meetings with the parties. The ultimate also closely monitored to ensure that they will not exceed outcome of the negotiations cannot be predicted. actual fuel requirements. Unrealized gains or losses from Under labor agreements currently in effect for most of the BNSF's fuel hedging transactions were not material at unionized work force, a cost of living allowance of 9 cents per December 31, 1995 and 1994. BNSF monitors its hedging hour went into effect on July I, 1995. The cost of living positions and credit ratings of its counterparties and does not allowance was dependent upon changes in the Consumer Price anticipate losses due to counterparty nonperformance. Interest rate Index not to exceed 3 percent. Tentative agreements resolving merger-related issues were From time to time, the Company enters into interest rate trans- reached with the Brotherhood of Locomotive Engineers and actions for the purpose of establishing rates on anticipated UTU in December 1995. These agreements are subject to debt transactions or fixing interest rates on floating rate debt. ratification, the results of which should be known in March As of December 31,1995, no interest rate hedging transactions were outstanding, although in February 1996, the Company 1996. Merger implementing negotiations are ongoing with entered into interest rate transactions to fix interest rates on the carman and yardmaster unions. Discussions with the floating rate debt with a total principal amount of $225 million. Transportation Communications Union resulted in an agree- The transactions call for the payment of fixed rates of 4.8 ment resolving all merger-related and other issues covering percent and receipt of a floating rate based on commercial railroads' clerical employees. paper rates over a period of 12 to 18 months. BNRR and ATSF are each parties to service interruption RECENT ACCOUNTINGPRONOUNCEMENTS insurance agreements under which on a combined basis they would be required to pay premiums of up to a maximum of In October 1995, the Financial Accounting Standards Board approximately $106 million in the event of work stoppages on (FASB) issued SFAS No. 123, ''Accounting for Stock-Based other railroads related to ongoing national bargaining. BNRR Compensation.quot; The Company believes that it will continue to and ATSF are also entitled to receive payments under certain use Accounting Principle Board Opinion No. 25 to measure conditions if a work stoppage occurs on either property. and recognize employee stock-based transactions and will HEDGING ACTIVITIES provide required additional disclosures commencing in 1996. Fuel In March 1995, the FASB issued SFAS No. 121, BNSF has a program to hedge against fluctuations in the price ''Accounting for the Impairment of Long-Lived Assets and for of its diesel fuel purchases. This program includes forward Long-Lived Assets to Be Disposed Of,quot; which establishes the purchases for delivery at fueling facilities. Additionally, this accounting and reporting requirements for recognizing and program includes exchange-traded petroleum futures contracts measuring impairment of long-lived assets to be either held and various commodity swap and collar transactions which and used or held for disposal. BNSF is currently evaluating are accounted for as hedges. Any gains or losses associated the financial impact of adopting this standard, however, the impact is not anticipated to be significant. 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. PAC E 20
  • REPORT OF INDEPENDENT ACCOUNTANTS OF MANAGEMENT REPORT To THE STOCKHOLDERS AND To THE STOCKHOLDERS OF BOARD OF DIRECTORS OF BURLINGTON NORTHERN BURLINGTON NORTHERN SANTA FE CORPORATION AND SUBSIDIARIES SANTA FE CORPORATION W T e have audited the consolidated balance sheets of he accompanying consolidated financial statements of Burlington Northern Santa Fe Corporation and Burlington Northern Santa Fe Corporation and subsidiary Subsidiaries as of December 31, 1995 and 1994, and the companies were prepared by management, who are responsible related consolidated statements of income, changes in stock- for their integrity and objectivity. They were prepared in holders' equity and cash flows for each of the three years accordance with generally accepted accounting principles and in the period ended December 31, 1995. These consolidated properly include amounts that are based on management's financial statements are the responsibility of the Company's best judgments and estimates. Other financial information management. Our responsibility is to express an opinion on included in this annual report is consistent with that in the these consolidated financial statements based on our audits. consolidated financial statements. We conducted our audits in accordance with generally The Company maintains a system of internal accounting accepted auditing standards. Those standards require that we controls, supported by adequate documentation, to provide plan and perform the audit to obtain reasonable assurance reasonable assurance that assets are safeguarded and that the about whether the financial statements are free of material books and records reflect the authorized transactions of the misstatement. An audit includes examining, on a test basis, Company. Limitations exist in any system of internal account- evidence supporting the amounts and disclosures in the ing controls based upon the recognition that the cost of the financial statements. An audit also includes assessing the system should not exceed the benefits derived. The Company accounting principles used and significant estimates made believes its system of internal accounting controls, augmented by management, as well as evaluating the overall financial by its internal auditing function, appropriately balances the statement presentation. We believe that our audits provide cost/benefit relationship. a reasonable basis for our opinion. Independent accountants provide an objective assessment In our opinion, the consolidated financial statements of the degree to which management meets its responsibility referred to above present fairly, in all material respects, the for fairness of financial reporting. They regularly evaluate the consolidated financial position of Burlington Northern Santa system of internal accounting controls and perform such tests Fe Corporation and Subsidiaries as of December 31, 1995 and other procedures as they deem necessary to express an and 1994, and the consolidated results of their operations opinion on the fairness of the consolidated financial statements. and their cash flows for each of the three years in the period The Board of Directors pursues its responsibility for the ended December 31, 1995 in conformity with generally Company's financial statements through its Audit Committee accepted accounting principles. which is composed solely of directors who are not officers As discussed in Note 4 to the consolidated financial or employees of the Company. The Audit Committee meets statements, the Company changed its method of accounting regularly with the independent accountants, management for periodic major locomotive overhauls in 1995 and for and internal auditors. The independent accountants and the postemployment benefits and investments in debt and equity Company's internal auditors have direct access to the Audit securities in 1994. 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. If' Coopers & Lybrand L.L.P. Fort Worth, Texas Robert D. Krebs February 15, 1996 President and Chief Executive Officer /l&;t Denis E. Springer Senior Vice President and Chief Financial Officer G-L 7).-;LSJ Thomas N. Hund P AGE 21 Vice President and Controller
  • CONSOLIDATED STATEMENTS OF INCOME Burlington Northern Santa Fe Corporation and Subsidiaries (Dollars in millions, except per share data) 1994 1993 1995 Year ended December 31, Revenues $ 6,183 $ 4,995 $ 4,699 Operating expenses: Compensation and benefits 2,065 1,779 1,709 Purchased services 526 472 457 540 429 395 Equipment rents 520 362 352 Depreciation and amortization Fuel 480 369 362 Materials 300 305 300 Other 491 426 463 735 Merger, severance and asset charges Total operating expenses 5,657 4,142 4,038 526 853 661 Operating income 220 155 145 Interest expense 28 5 Other income (expense), net (3) Income before income taxes 334 695 521 136 269 225 Income tax expense Income before extraordinary item and cumulative effect 198 426 296 of change in accounting method Extraordinary item, loss on early retirement of debt, net of tax (6) 192 426 296 Income before cumulative effect of change in accounting method Cumulative effect of change in accounting method, net of tax (100) (10) Net income 92 $ 416 296 $ $ Primary earnings per common share: 1.66 4.48 3.06 $ $ $ Income before extraordinary item and change in accounting method - Extraordinary item (.05) Change in accounting method (.94) (.11) .67 4.37 $ 3.06 $ $ Primary earnings per common share Average shares (in thousands) 106,730 90,187 89,672 Fully diluted earnings per common share: 1.66 4.38 $ 3.04 $ $ Income before extraordinary item and change in accounting method - Extraordinary item (.05) Change in accounting method (.94) (.11) .67 4.27 $ 3.04 $ $ Fully diluted earnings per common share Average shares (in thousands) 106,730 97,528 97,189 See accompanying notes to consolidated financial statements. P AGE 22
  • CONSOLIDATED BALANCE SHEETS Burlington Northern Santa Fe Corporation and Subsidiaries (Dollars in millions) 1995 1994 December 31, ASSETS Current assets: 50 27 $ $ Cash and cash equivalents 620 697 Accounts receivable, net 220 100 Materials and supplies 320 156 Current portion of deferred income taxes 54 32 Other current assets 1,012 Total current assets 1,264 16,001 6,311 Property and equipment, net 269 Other assets 1,004 $7,592 Total assets $18,269 AND LIABILITIES EQUITY STOCKHOLDERS' Current liabilities: $ 2,289 $1,325 Accounts payable and other current liabilities 80 122 Long-term debt and commercial paper due within one year Total current liabilities 2,369 1,447 4,153 1,697 Long-term debt and commercial paper 4,233 1,456 Deferred income taxes 626 416 Casualty and environmental reserves - 530 Employee merger and separation costs 339 1,321 Other liabilities 13,232 5,355 Total liabilities Note 12 and 13) Commitments and contingencies (see Stockholders' equity: Convertible preferred stock and additional paid-in capital, $.01 par value; 25,000,000 shares authorized; 6,900,000 shares issued; 337 o shares and 6,900,000 shares outstanding, respectively Common stock, $.01 par value, 300,000,000 shares authorized; 1 1 149,649,930 shares and 89,329,259 shares issued, respectively 4,606 1,443 Additional paid-in capital 459 485 Retained earnings (3) (5) Treasury stock, at cost, 44,713 shares and 105,438 shares, respectively (26) (24) Other 5,037 2,237 Total stockholders' equity $18,269 $7,592 Total liabilities and stockholders' equity See accompanying notes to consolidated financial statements. 23 P. GE
  • CONSOLIDATED STATEMENTS 0 F CASH FLOWS Burlington Northern Santa Fe Corporation and Subsidiaries (Dollars in millions) Year ended December 31, 1995 1994 1993 OPERATING ACTIVITIES Net income 92 $ $ 416 $ 296 Adjustments to reconcile net income to net cash provided by operating activities: - 100 10 Cumulative effect of change in accounting method Depreciation and amortization 520 362 352 Deferred income taxes 126 156 (112) 735 Merger, severance and asset charges Employee merger and separation costs paid (118) Other, net 51 9 (117) Changes in current assets and liabilities, excluding SFP assets/liabilities acquired: Accounts receivable, net 63 (108) (116) Materials and supplies 6 (42) (13) Other current assets (5) (5) (4) 132 11 Accounts payable and other current liabilities 5 808 578 Net cash provided by operating activities 1,416 INVESTINGACTIVITIES Purchase of SFp, net of cash acquired (488) (18) Cash used for capital expenditures (890) (698) (676) Other, net 12 16 17 Net cash used for investing activities (1,366) (700) (659) FINANCINGACTIVITIES 895 64 26 Net increase in commercial paper Proceeds from issuance of long-term debt 310 224 1,294 Payments on long-term debt (2,071) (346) (88) Dividends paid (129) (129) (125) Other, net 3 4 (16) 41 Net cash flow provided by (used for) financing activities (27) (98) 23 10 Increase (decrease) in cash and cash equivalents (40) Cash and cash equivalents: Beginning of year 27 17 57 End of year 50 $ 27 $ $ 17 SUPPLEMENTAL CASH FLOW INFORMATION 228 Interest paid, net of amounts capitalized $ $ 149 $ 144 250 128 Income taxes paid, net of refunds 70 140 50 Assets financed through capital lease obligations Noncash consideration for purchase of SFP: Net assets acquired $ 3,319 Cash paid (532) 26 Cash acquired Noncash consideration $ 2,813 See accompanying notes to consolidated financial statements. , AGE 24
  • STOCKHOLDERS' CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY Burlington Northern Santa Fe Corporation and Subsidiaries (Shares in thousands. Dollars in millions, except per share data.) Convertible Other Preferred Common Stock and Stock and Unearned Additional Additional Compensation, Minimum Paid-in Paid-in Retained Restricted Pension Outstanding Treasury Stock Stock Total Common Shares Liability Capital Capital Earnings 30 $ 337 $ 1,386 $ $ (4) $ 1,728 Balance at December 31, 1992 88,024 $(19) $ (2) 296 296 Net income Dividends: (106) Commonstock, $1.20 per share (106) (22) (22) Convertiblepreferred stock, $3.125 per share Adjustments associated with unearned 12 6 232 (2) (4) compensation, restricted stock 500 20 20 Exercise of stock options and related tax benefit Equity adjustment from minimum pension (6) (6) liability 3 40 3 Other 337 198 88,796 1,421 1,919 Balance at December 31, 1993 (10) (4) (23) 416 416 Net income Dividends: (107) Commonstock, $1.20 per share (107) (22) (22) Convertiblepreferred stock, $3.125 per share Adjustments associated with unearned 12 11 178 compensation, restricted stock (1) 8 8 184 Exercise of stock options and related tax benefit Equity adjustment from minimum pension 9 9 liability 3 66 3 Other 337 485 Balance at December 31, 1994 1,444 2,237 89,224 (5) (23) (1) 92 Net income 92 Purchase of SFP: Common stock issued 2,652 52,004 2,652 119 119 Value of outstanding SFP stock options Conversionand redemption of convertible 335 7,313 preferred stock for common stock (337) (2) Dividends: (123) (123) Commonstock, $1.20 per share (21) (21) Convertiblepreferred stock, $3.125 per share Adjustments associated with unearned 2 16 31 243 13 compensation, restricted stock 39 36 778 Exercise of stock options and related tax benefit (3) Equity adjustment from minimum pension (18) (I8) liability 26 26 Cost to equity investment adjustment Other 43 5 3 8 - $ $ 459 Balance at December 31, 1995 149,605 $4,607 $(3) $ (7) $(19) $5,037 See accompanying notes to consolidated financial statements. P AGE 25
  • TO CONSOLIDATED FINANCIAL NOTES normal sale or retirement of depreciable railroad property, STATEMENTS cost less net salvage is generally charged to accumulated BURLINGTON NORTHERN SANTA FE depreciation and no gain or loss is recognized. Significant CORPORATION AND SUBSIDIARIES premature retirements are recorded as gains or losses at the 1 ACCOUNTING POLICIES time of their occurrence. Expenditures which significantly PRINCIPLES OF CONSOLIDATION increase asset values or extend useful lives are capitalized. The consolidated financial statements include the accounts of Repair and maintenance expenditures are charged to oper- Burlington Northern Santa Fe Corporation and its majority- ating expense when the work is performed. Property and owned subsidiaries (collectively BNSF or Company). BNSF was equipment are stated at cost including property values of incorporated in Delaware on December 16,1994, for the purpose SFp, which were adjusted in applying purchase accounting. of effecting a business combination between Burlington The weighted average annual depreciation rate in effect at Northern Inc. (BNI) and Santa Fe Pacific Corporation (SFP). December 31,1995 was 3.7 percent for track structure, 4.8 The accompanying BNSF consolidated statements of income percent for equipment and 2.5 percent for other road properties. REVENUE RECOGNITION and cash flows for the years ended December 31,1995,1994 and 1993 reflect BNl's historical results and cash flows for Transportation revenues are recognized based upon the pro- such periods and SFP's results and cash flows from September portion of service provided. EARNINGS PER COMMONSHARE 22, 1995 (the date of its acquisition by BNI) through December 31,1995. The accompanying BNSF consolidated Primary earnings per common share are computed by dividing balance sheet at December 31,1994 reflects only BNI net income, after deduction of preferred stock dividends, by historical amounts while the BNSF consolidated balance sheet the weighted average number of common shares and common at December 31,1995 also includes the fair value adjustments share equivalents outstanding. Fully diluted earnings per of SFP's assets and liabilities resulting from applying purchase common share are computed by dividing net income by the accounting. The principal subsidiaries of BNSF are BNI, weighted average number of common shares and common Burlington Northern Railroad (BNRR), SFP and The Atchison, share equivalents outstanding. Common share equivalents are Topeka and Santa Fe Railway Company (ATSF). All significant computed using the treasury stock method. An average market intercompany accounts and transactions have been eliminated. price is used to determine the number of common share equiv- The preparation of financial statements in accordance with alents for primary earnings per common share. The higher of generally accepted accounting principles requires management the average or end-of-period market price is used to determine to make estimates and assumptions that affect the reported common share equivalents for fully diluted earnings per amounts of assets and liabilities and disclosure of contingent common share. In addition, the if-converted method is used assets and liabilities at the date of the financial statements for convertible preferred stock when computing fully diluted and the reported amounts of revenues and expenses during earnings per common share. For the year ended December 31, the periods presented. 1995, the computation of fully diluted earnings per share RECLASSIFICATIONS was antidilutive; therefore, the amounts reported for primary Certain comparative prior year amounts in the consolidated and fully diluted earnings per share are the same. financial statements and notes have been reclassified to The average number of common shares used for earnings conform with the current year presentation. per share calculations through December 31,1995 reflect the CASH AND CASH EQUIVALENTS effect of common shares issued in connection with the merger All short-term investments with original maturities of less than with SFP as outstanding for the period from September 22,1995 90 days are considered cash equivalents. Cash equivalents through December 31,1995. Future calculations will therefore are stated at cost, which approximates market value. reflect a significant increase in the number of outstanding MATERIALS AND SUPPLIES common shares. 2 Materials and supplies consist mainly of diesel fuel, repair ACQUISITION OF SFP On June 29, 1994, BNI and SFP entered into an Agree- parts for equipment and other railroad property and are valued at the lower of average cost or market. ment and Plan of Merger (as amended on October 26,1994, PROPERTY AND EQUIPMENT December 18,1994, January 24, 1995 and September 19, Property and equipment are depreciated and amortized on a 1995, the Merger Agreement) pursuant to which SFP would straight-line basis over their estimated useful lives. Upon merge with BNI in the manner set forth below (the Merger). Stockholders of BNI and SFP approved the Merger Agreement 2, PIC E
  • BURLINGTON NORTHERN SANTA FE at special stockholders' meetings held on February 7, 1995. along with the effect of SFP stock options exercised, resulted On August 23, 1995, the Interstate Commerce Commission in the final exchange ratio of 0.41143945 shares. issued a written decision approving the Merger and on The business combination with SFP was accounted for by September 22,1995 the Merger was consummated. the purchase method. As such, the accompanying consolidated financial statements include assets, liabilities and financial Pursuant to the Merger Agreement, on December 23,1994, BNI and SFP commenced tender offers (together, the Tender results of SFP after Merger consummation. The following Offer) to acquire 25 million and 38 million shares of SFP summarizes the purchase price (dollars in millions, except common stock, respectively, at $20 per share in cash. During per share data, and shares in thousands): the first quarter of 1995, SFP borrowed $1.0 billion under a BNI investment in SFP $ 516 credit facility of which $760 million of the proceeds were Shares of SFP common stock outstanding used to purchase the 38 million shares pursuant to the Tender 151,396 at September 22, 1995 Offer.In addition, BNI borrowed $500 million under a credit (25,000) Less SFP shares held by BNI 126,396 Remaining SFP shares outstanding facility of which the proceeds were used to finance BNI's .4114 Exchange Ratio purchase of SFP common stock in the Tender Offer. Shares of BNSF common stock issued 52,000 The Tender Offer was completed on February 21, 1995. Per share value of BNSF common stock 51 $ Prior to consummation of the Merger, BNI accounted for Total value of BNSF common stock issued 2,652 the $500 million investment in SFP under the cost method. 119 Value of outstanding SFP stock options Upon consummation of the Merger, BNl's equity in earnings 32 BNI direct acquisition costs of SFP prior to the Merger of $16 million was recorded as $3,319 Purchase price other income. Also, pursuant to the Merger Agreement, BNI and SFP The purchase price was calculated based on an estimated fair value of BNSF common stock of $51 per share. The fair were entitled to elect to consummate the Merger through the use of one of twopossible structures: (i) a merger of SFP with value was determined from the average of the daily closing . prices of BNI common stock for the five trading days immedi- and into BNI or (ii) the Holding Company Structure described ately preceding and the five trading days immediately follow- below. To ensure that the transaction contemplated by the Merger Agreement qualified as a tax-free transaction for ing approval of the Merger by BNI and SFP shareholders federal income tax purposes, the parties utilized the Holding which occurred on February 7, 1995. The effects of the Company Structure. acquisition on the consolidated balance sheet, including the fair value adjustments, were as follows (dollars in millions): Under the Holding Company Structure, BNSF created two subsidiaries. One subsidiary merged with and into BNI, and $ 9,409 Property and equipment, net the other subsidiary merged with and into SFP. Each holder of Other assets 886 one share of BNI common stock received one share of BNSF Deferred income taxes (2,936) Long-term debt common stock and each holder of one share of SFP common (2,034) Other liabilities (2,006) stock, excluding the SFP common stock acquired by BNI in $ 3,319 Net assets acquired the Tender Offer and the SFP common stock held by SFP as treasury stock, received 0.41143945 shares of BNSF common The purchase price allocation included $138 million for stock, which reflects the effects of the repurchase program anticipated nonrecurring costs and expenses for severance discussed below. The rights of each stockholder of BNSF are and relocation of prior SFP employees and the planned substantially identical to the rights of a stockholder of BNI, disposition of excess SFP office space and other SFP assets. and the Holding Company Structure has the same economic The consolidated pro forma results presented below were effect with respect to the stockholders of BNI and SFP as prepared as if the Merger had occurred on January 1, 1994 would a direct merger of BNI and SFP. and include the historical results of BNI and SFp, excluding In the Merger Agreement, the exchange ratio of BNSF com- the after tax effect of $309 million for merger-related charges mon shares for each share of outstanding SFP common stock recorded by BNI in 1995. Additionally, the consolidated pro upon consummation of the Merger was set at not less than 0.40 forma results for both periods include the estimated effects of shares to not more than 0.4347 shares, with repurchases of purchase accounting adjustments and the Tender Offer. Pro SFP common stock by SFP increasing the exchange ratio pro forma adjustments reflecting anticipated merger benefits are rata. SFP repurchased approximately 3.6 million shares which, 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 PA; E 27
  • NORTHERN SANTA BURLINGTON FE the date indicated, or of future results of operations of the Severance, pension and other employee benefit costs of $231 combined entities (dollars in millions, except per share data): million reflect the elimination of approximately 1,000 former BNI employees. Most of these positions were eliminated in Yearended December 31, 1995 1994 the third and fourth quarters of 1995; remaining positions will Revenues $8,170 $7,676 Operating expenses 6,844 6,484 be eliminated in 1996. Additional components of salaried Income before extraordinary items 605 536 employee costs include special termination benefits to be Net income!l) 499 549 received under the Company's retirement plan and expenses Primary earnings per share: related to restricted stock which vested upon approval of $ 4.00 $ 3.63 Income before extraordinary items the Merger. Relocation expenses of $23 million reflect costs Net income 3.27 3.72 incurred in 1995 for relocating approximately 300 former Fully diluted earnings per share: Income before extraordinary items $ 3.94 $ 3.59 BNI employees. Net income 3.25 3.67 Costs of $105 million are included for branch line disposi- (1) Pro forma results for 1995 include approximately$230million (pre-tax) tions reflecting the write-off of the net book value of the lines related to the merger,severance and asset charge which are not considered at the anticipated disposal date, less estimated net proceeds. directly attributable to the Merger.Additionally,1995 pro forma net income Approximately 75 line segments covering 3,300 miles of former includes the $100 million cumulative effect for the change in accounting for locomotiveoverhauls for years prior to 1995 and a $25 million reduction for BNI lines are included. Remaining costs of $89 million the effect of the change on 1995. Also, 1995 pro formanet income includes include obligations at leased facilities which are expected to the $6 million extraordinarycharge for retirement of debt. Pro forma 1994 be vacated and the write-off of duplicate and excess assets net income includes a $10 million reduction for a change in accounting. including computer hardware and software and certain facilities. 3 MERGER, SEVERANCE AND ASSET CHARGES Additional accruals of $138 million were recorded through Included in the Statement of Income for 1995 are purchase accounting related to former SFP employees and operating expenses of $735 million related to merger, assets. Approximately $105 million of these costs related to severance and asset costs. Significant components included termination of approximately 500 salaried employees for in these costs are described below. severance payments and special termination benefits to be Employee-related costs of $287 million were recorded received under the Company's retirement and health and related to BNSF's plan to centralize the majority of its union welfare plans. Salaried employee costs also include amounts clerical functions which was approved in 1995. This plan to relocate approximately 500 former SFP employees. The includes the reduction of approximately 1,600 employees remaining $33 million of costs relate to the sale or abandon- which, among other things, requires installation of common ment of 500 miles of branch lines, rents on vacated leased information systems. The Company and the union have facilities and the write-off of excess assets. entered into an implementation agreement which allows the Current and long-term employee merger and separation Company to abolish the positions and provides separation liabilities totaling $745 million are included in the consolidated benefits to impacted employees. It will take several years to balance sheet and represent employee-related components fully implement this plan due to the geographical complexity of the above costs, as well as remaining liabilities for actions of the new combined rail system, and the time required to taken by ATSF in prior periods. The majority of these prior develop and install common systems. Most of the position ATSF costs are associated with deferred benefits payable reductions are expected to occur during 1996 and 1997, and upon separation or retirement to certain active conductors and the entire plan is expected to be completed by the end of 1998. trainmen, incurred in connection with an agreement which, No comparable costs were accrued in applying purchase among other things, reduced crew sizes. Additionally, certain accounting, as ATSF's operations had previously been locomotive engineers are eligible for a deferred benefit payable centralized. Also, no provision for clerical relocations was upon separation or retirement, associated with an agreement included in the 1995 expense as employees have yet to com- reached in 1990 with ATSF which allowed for more flexible mit to relocate. As such, these costs, as well as any separation work rules. and severance costs above those provided, will be recorded as At December 31, 1995, approximately $215 million of the operating expenses of future periods. Both the timing and above is included within current liabilities for anticipated costs magnitude of any such future expense is presently unknown. to be paid in 1996. The remaining costs are anticipated to Costs of $254 million were recorded for salaried employees be paid over the next five years, except for certain costs related and reflect severance, pension and other employee benefits, to conductors, trainmen and locomotive engineers of ATSF and costs for employee relocations incurred during the period. will be paid upon the employees separation or retirement. P AGE 28
  • NORTHERN SANTA BURLINGTON FE 6 4 INCOME TAXES ACCOUNTING CHANGES Income tax expense, excluding the cumulative effect of Effective January 1, 1995, BNSF changed its method change in accounting method and extraordinary item, was as of accounting for periodic major locomotive overhauls. follows (in millions): Under the new method, costs of owned locomotives relating to components requiring major overhaul are depreciated, 1993 1995 1994 Yearended December31, on a straight-line basis, to the first major overhaul date. Current: Federal $124 $ 61 $ 216 The remaining cost of the owned locomotive is depreciated, 32 19 8 State on a straight-line basis, over the estimated economic life of 143 69 248 the locomotive. The cost of overhauls on owned units are then Deferred: capitalized when incurred and depreciated, on a straight-line 109 136 Federal (101) basis, until the next anticipated overhaul. In addition, estimated 17 20 State (II) costs for major overhauls on leased units are accrued on a 156 126 (II2) straight-line basis over the life of the leases. BNSF previously Total $269 $225 $ 136 expensed locomotive overhauls when the costs were incurred. BNSF believes that this change is preferable because it Reconciliation of the federal statutory income tax rate to the improves the matching of expenses incurred to revenues effective tax rate, excluding the cumulative effect of change in earned. The cumulative effect of this change on years prior to accounting method and extraordinary item, was as follows: 1995 was a reduction in net income of $100 million (net of a 1995 1994 1993 Yearended December31, $63 million income tax benefit) or $.94 per share (primary 35.0% 35.0% 35.0% Federal statutory income tax rate and fully diluted). The effect of this change for the year ended State income taxes, 4.0 3.4 3.4 December 31,1995, was to reduce income before extraordinary net of federal tax benefit Effect of 1 percent federal tax rate item and cumulative effect of change in accounting method by increase on deferred tax balances - $25 million or $.23 per share (primary and fully diluted). - 5.0 at January 1, 1993 The pro forma effect of this change on 1994 and 1993 would 0.3 1.7 Other, net (.2) have been to reduce net income to $390 million or $4.08 38.7% Effective tax rate 40.7% 43.2% per share (primary) and $275 million or $2.82 per share (primary), respectively. In August 1993, the Omnibus Budget Reconciliation Act Effective January 1, 1994, BNSF adopted Statement of of 1993 (the Act) was signed into law. The Act increased Financial Accounting Standards (SFAS) No. 112, quot;Employers' the corporate federal income tax rate by 1 percent, effective Accounting for Postemployment Benefits.quot; The cumulative January 1, 1993. BNSF recorded $28 million to income tax effect, net of $7 million income tax benefit, of this change in expense representing the impact of the 1 percent increase on accounting attributable to years prior to 1994, at the time of BNSF's beginning of the year deferred income tax liability. adoption, was to decrease 1994 net income by $10 million, or The components of deferred tax assets and liabilities were $.11 per common share. as follows (in millions): In 1994, BNSF adopted SFAS No. 115, ''Accounting for 1995 1994 December 31, Certain Investments in Debt and Equity Securities.quot; The Deferred tax liabilities: adoption of this standard had no effect on net income and $(1,785) Depreciation and amortization $(5,076) no material effect on stockholders' equity. Other (106) (249) 5 OTHER INCOME (EXPENSE), NET Total deferred tax liabilities (1,891) (5,325) Other income (expense), net includes the following Deferred tax assets: 255 360 Casualty and environmental reserves (in millions): 359 Employee merger and separation costs 1995 1994 1993 Yearended December31, 124 Non-expiring AMT credit carryforwards BNI's equity in earnings of SFP prior to 88 Postretirement benefits $- $- $ 16 consummation of the Merger 49 69 Pensions 12 15 17 Gain on property dispositions 287 412 Other - - 9 Equity in earnings of pipeline partnership 591 Total deferred tax assets 1,412 3 6 Interest income 8 - $(1,300) $(3,913) Net deferred tax liability Accounts receivable sale fees (4) (9) (9) $(1,456) Miscellaneous, net (12) (9) $(4,233) (13) Noncurrent deferred income tax liability 156 320 Current deferred income tax asset Total $5 $ 28 $ (3) $(1,300) $(3,913) Net deferred tax liability P AGE 29
  • BURLINGTON NORTHERN SANTA FE BNSF maintains an allowance for doubtful accounts based In 1995 and 1993, tax benefits of $11 million and $4 million, respectively, related to the adjustment to recognize the minimum upon the expected collectibility of all accounts receivable, including accounts receivable sold. Allowances for doubtful pension liability was allocated directly to stockholders' equity. accounts of $50 million and $20 million have been recorded In 1994, tax expense of $6 million related to the adjustment to reduce the minimum pension liability was allocated directly at December 31, 1995 and 1994, respectively. 8 to stockholders' equity. PROPERTY AND EQUIPMENT, NET BNSF will file its first federal consolidated income tax Property and equipment, net was as follows (in millions): return for 1995. BNI's and SFP's federal income tax returns 1994 1995 December 31, have been examined through 1991 and 1990, respectively. $ 7,875 Road, roadway structures and real estate $15,951 All years prior to 1986 are closed for BNI and SFP. Issues 2,304 Equipment 4,383 Total cost 10,179 relating to the years 1986-1991 are being contested through 20,334 Less accumulated depreciation various stages of administrative appeal. In addition, BNSF and amortization (3,868) (4,333) and its subsidiaries have various state income tax returns in $ 6,311 $16,001 Property and equipment, net the process of examination, administrative appeal or litigation. Management believes that adequate provision has been made The consolidated balance sheets at December 31, 1995 for any adjustment that might be assessed for open years and 1994 included $200 million and $77 million, respectively, through 1995. for property and equipment under capital leases. The related 7 ACCOUNTS RECEIVABLE, NET depreciation was included in depreciation expense. A special purpose subsidiary of ATSF has sold, with Accumulated depreciation for property and equipment under limited recourse, variable rate certificates which mature in capital leases was $46 million and $34 million at December December 1999 evidencing undivided interests in an accounts 31, 1995 and 1994, respectively. receivable master trust. The master trust's assets include an Capitalized software development costs are generally ownership interest in a revolving portfolio of ATSF's accounts amortized over a five- to seven-year estimated useful life receivable which are used to support the certificates. At using the straight-line method. Amortization expense was $9 December 31, 1995, $240 million of certificates sold were million for the year ended December 31, 1995, $2 million for outstanding and were supported by receivables in the master the year ended December 31, 1994 and no amortization was trust of $308 million. A maximum of $300 million of certifi- recorded for the year ended December 31, 1993. Unamortized cates can be sold if the master trust balance is increased by capitalized software costs were $69 million and $20 million receivables which are eligible for sale. ATSF has retained the as of December 31, 1995 and 1994, respectively. collection responsibility with respect to the accounts receivable ACCOUNTS PAYABLE AND OTHER 9 held in trust. ATSF is exposed to credit loss related to collec- CURRENT LIABILITIES tion of accounts receivable to the extent that the amount of Accounts payable and other current liabilities consisted of the receivables in the master trust exceeds the amount of certificates following (in millions): sold. BNRR's agreement to sell accounts receivable with 1994 - 1995 December31, limited recourse expired in December 1994. Costs related to $ 264 $ 519 Accounts and wages payable such agreements vary on a monthly basis and are generally 221 290 Casualty and environmental reserves related to certain interest rates. Costs related to accounts 215 Employee merger and separation costs receivable sales, which are included in Other income 118 143 Taxes other than income taxes 89 141 Accrued vacations (expense), net were $4 million in 1995 and $9 million in 633 981 - Other both 1994 and 1993. $1,325 Total $2,289 P AGE 30
  • NORTHERN SANTA BURLINGTON FE BNSF maintains a program for the issuance, from time to 10 time, of commercial paper. These borrowings are supported DEBT outstanding was as follows (in millions): Debt by bank revolving credit agreements. Outstanding commercial 1994 1995 December 31, paper balances are considered as reducing available borrowings BNSF: under these agreements. The bank revolving credit agreements 300 $ 6 3/8% notes, due 2005 $ 350 allow borrowings of up to $1.0 billion on a short-term basis 7% debentures, due 2025 85 Credit facility borrowings, 6.0% (variable) and $1.5 billion on a long-term basis. Annual facility fees are 761 Commercial paper, 6.0% (variable) currently .08 percent and .125 percent, respectively, and BN!: are subject to change based upon changes in BNSF's senior 200 200 8 3/4% debentures, due 2022 unsecured debt ratings. Borrowings are based upon LlBOR 150 150 7 1/2% debentures, due 2023 150 plus a spread based upon BNSF's senior unsecured debt 150 7% notes, due 2002 150 150 7.40% notes, due 1999 ratings, money market rates offered at the option of the lenders, - 156 or an alternate base rate. Thecommitmentsof the lenders to 9% debentures Equipment obligations, weighted average make loans are currently scheduled to expire on November rate of 7.20% and 7.08%, respectively, 19,1996 and November 21, 2000, respectively. At December 194 200 due serially to 2013 31,1995, borrowings against the long-term revolving credit BNRR: agreement were $85 million and the maturity value of com- Consolidated mortgage bonds, 321 3 1/5% to 9 1/4%, due 2006 to 2045 321 mercial paper outstanding was $996 million, leaving a total Capitalized lease obligations, weighted of $419 million of the long-termrevolvingcredit agreement average rate of 6.59% and 8.01 %, available and $1.0 billion of the short-term revolving credit 46 150 respectively, expiring 1996 to 2008 agreement available. The maturity value of commercial paper Equipment and other obligations, weighted outstanding at December 31,1994 was $91 million. average rate of 8.44% and 9.30%, 91 Thefinancial covenants of the bank revolvingcredit agree- 74 respectively, due serially to 2009 General mortgage bonds, 3 1/8% and ments require that BNSF's consolidated tangible net worth, as 62 62 2 5/8%, due 2000 and 2010, respectively defined in the agreements, be at least $4.5 billion, and that Prior lien railway and land grant bonds, its debt, as defined in the agreements, cannot exceed 55 per- 57 57 4%, due 1997 cent of its consolidated total capital. General lien railway and land grant bonds, 35 In December 1995, BNSF issued $300 million of 6 3/8% 35 3%, due 2047 22 20 Notes due December 15, 2005 and $350 million of 7% First mortgage bonds, series A, 4%, due 1997 158 Other 9 Debentures due December 15, 2025 under a registration 90 224 Commercial paper, 6.1 % (variable) statement filed by BNSF on November 22, 1995 covering the SFP/ATSF: issuance, from time to time, of up to $1 billion aggregate Equipment obligations, weighted average principal amount of debt securities. The net proceeds from 427 rate of 8.43%, due serially to 2009 the sale of the notes and debentures were primarily used for Pipeline exchangeable debentures, 219 10.4% (variable), due 2010 general corporate purposes, including but not limited to the Senior notes, 8 3/8% and 8 5/8%, repayment of commercial paper and short-term bank loans 200 due 2001 and 2004, respectively having an average interest rate of approximately 6 percent. 32 Mortgage notes, 10.325%, due 1996 to 2014 During the course of 1995, the Companyentered into various 4 Capitalized lease obligations 114 interest rate swap agreements with a principal amount of Unamortized purchase accounting adjustment Unamortized discount (63) (61) $500 million, for the purpose of establishing rates in anticipa- Total 1,819 4,233 tion of debt issuances under a shelf registration statement. Less: The swaps were anticipated to hedge $250 million of 10 year Current portion of long-term debt debt and $250 million of 30 year debt. The swaps relating to and commercial paper (122) (80) the 10 year issuance called for the payment of a fixed interest $1,697 Long-term debt $4,153 rate of 6.6 percent which was based upon 10 year treasury notes, and the receipt of a variable interest rate. The swaps relating to the 30 year issuance called for the payment of a fixed interest rate of 6.8 percent which was based upon 30 year treasury bonds, and the receipt of a variable interest rate. In conjunction with the fourth quarter 1995 issuance of 10 P AGE 31
  • BURLINGTON NORTHERN SANTA FE 11 year 6 3/8% notes and 30 year 7% debentures, the Company DISCLOSURES ABOUT FAIR VALUE closed out the swap transactions which resulted in losses of OF FINANCIAL INSTRUMENTS The estimated fair values of BNSF's financial instruments at $13 million and $15 million, respectively. The losses were deferred and will be recognized over the term of the borrowings. December 31, 1995 and 1994 and the methods and assump- tions used to estimate the fair value of each class of financial in December 1995, BNSF defeased its 9% Additionally, debentures by placing $166 million of U.S. government instruments held by BNSF, were as follows: securities into an irrevocable trust for the purpose of repaying CASH AND CASH EQUIVALENTS the debentures in April 1996. The defeasance of debt resulted The carrying amount approximated fair value because of the in an extraordinary charge of $6 million, net of applicable short maturity of these instruments. MARKETABLE SECURITIES income tax benefits of $3 million, principally reflecting the call premium on the debt. Marketable securities, which are used to fund liabilities of In 1995, BNRR completed cross-border leveraged leases certain employee benefit plans, consist of corporate bonds of equipment for a total amount of $136 million which were (47 percent of carrying amount) and United States government recorded as capital lease obligations. These transactions or agency issues (53 percent of carrying amount) and are included the issuance of $108 million of equipment secured classified as available for sale. The carrying value of available debt at a weighted average yield of 6.39 percent and the for sale securities is adjusted for changes in fair value and receipt of an up front cash benefit. The up front benefit any unrealized gains or losses are recorded as a component of reduces the effective interest rate on the debt to 5.76 percent. stockholders' equity. At December 31, 1995, the unrealized In November 1994, BNRR entered into a $150 million gains and losses were immaterial. Realized gains or losses from the sales of marketable securities were also immaterial for three year term loan facility agreement with a group of 1995. The fair value for these securities was based on market. commercial banks and used the proceeds to redeem $150 ACCRUED INTEREST PAYABLE amount of Railroad million aggregate principal Consolidated Mortgage Bonds, 10%, Series J, due November 1, 1997. In The carrying amount approximated fair value as the majority November 1995, this debt was repaid through the issuance of of interest payments are made semiannually. LONG-TERM DEBT AND COMMERCIAL PAPER paper by BNRR. commercial In May 1994, BNI issued $150 million of 7.4% notes due The fair value of BNSF's long-term debt was primarily based May 15, 1999 and used the proceeds to retire $150 million on quoted market prices for the same or similar issues, or on the current rates that would be offered to BNSF for debt aggregate principal amount of Railroad Consolidated Mortgage Bonds, 8 7/8%, Series I, due May 30, 1994. of the same remaining maturities. The carrying amount of Aggregate long-term debt scheduled maturities are $80 commercial paper approximated fair value because of the $75 million, $215 million and $1,168 million, $149 million, short maturity of these instruments. million for 1996 through 2000, respectively. The carrying amount and estimated fair values of BNSF's Substantially all BNRR properties and certain other assets financial instruments were as follows (in millions): are pledged as collateral to or are otherwise restricted under 1995 1994 December31, the various BNRR long-term debt agreements. Equipment Fair Fair Carrying Carrying Amount Value Amount Value obligations are secured by the underlying equipment. Assets: In addition, a subsidiary of SFP is contingently liable as Cash and cash general partner for $355 million of long-term debt held by 50 50 27 27 $ $ $ $ equivalents Santa Fe Pacific Pipeline Partners, L.P. (Pipeline Partnership). Marketable securities 20 20 20 20 The SFP subsidiary holds a 44 percent interest in the Pipeline Liabilities: Partnership which it accounts for under the equity method. The 71 71 45 45 Accrued interest payable pipeline exchangeable debentures are exchangeable for BNSF's Long-term debt and 1,819 commercial paper 4,233 4,412 1,742 limited partnership interest in the Pipeline Partnership. BNSFalso holds investments in, and has advances to, several unconsolidated transportation affiliates. It was not practicable to estimate the fair value of these financial at their original cost of instruments, which were carried $45 million and $16 million in the December 31, 1995 and 1994 consolidated balance sheets. P AGE 32
  • NORTHERN SANTA BURLINGTON FE LEASES 12 HEDGING ACTIVITIES, LEASES BNSF has substantial lease commitments for locomotives, AND OTHER COMMITMENTS HEDGING ACTIVITIES freight cars, trailers, office buildings and other property. Most Fuel of these leases provide the option to purchase the equipment at fair market value at the end of the lease. However, some BNSF has a program to hedge against fluctuations in the price provide fixed price purchase options. Future minimum lease ofits diesel fuel purchases. This program includes forward . payments (which reflect leases having non-cancelable lease purchases for delivery at fueling facilities. Additionally, this terms in excess of one year) as of December 31,1995 are program includes exchange-traded petroleum futures contracts summarized as follows (in millions): and various commodity swap and collar transactions which are accounted for as hedges. Any gains or losses associated Capital Operating Leases Leases Year ended December 31 with changes in market value of these hedges are deferred $ 22 1996 $ 274 and recognized as a component of fuel expense in the period 22 1997 263 in which the hedged fuel is purchased and used. To the extent 22 1998 220 BNSF hedges portions of its fuel purchases, it may not fully 20 1999 185 benefit from decreases in fuel prices. 19 2000 159 Thereafter As of December 31, 1995, BNSF had entered into forward 112 1,425 217 Total purchases for approximately 69 million gallons at an average $2,526 price of approximately 49 cents per gallon. In addition, BNSF 63 Less amount representing interest held petroleum futures contracts representing approximately $154 Present value of minimum lease payments 60 million gallons at an average price of approximately 48 Lease rental expense for all operating leases was $303 cents per gallon. These contracts have expiration dates ranging million, $229 million and $194 million for the years ended from January, 1996 to October, 1996. December 31,1995,1994 and 1993, respectively. Contingent The above prices do not include taxes, fuel handling costs, rentals and sublease rentals were not significant. certain transportation costs and, except for forward contracts, OTHER COMMITMENTS any differences which may occur from time to time between BNSF has entered into commitments to acquire 149 locomotives the prices of commodities hedged and the purchase price of BNSF's diesel fuel. during 1996 and 1997. In addition, BNSF has two power pur- chase agreements, expiring in 1998 and 2001, that currently BNSF's current fuel hedging program covers approximately involve 197 locomotives. Payments required by the agreements 12 percent of estimated 1996 fuel purchases. The current are based upon usage, subject to specified take-or-pay and future fuel delivery prices are monitored continuously minimums. The rates specified in the two agreements are and hedge positions are adjusted accordingly. Hedge positions renegotiable every two years. BNSF's 1996 minimum commit- are also closely monitored to ensure that they will not exceed ment obligation is $51 million. Based on projected locomotive actual fuel requirements in any period. Unrealized gains or power requirements, BNSF's payments in 1996 are expected losses from BNSF's fuel hedging transactions were not material to be in excess of the minimum. Payments under the agree- at December 31,1995 and 1994. BNSF monitors its hedging ments totaled $49 million, $47 million and $53 million in positions and credit ratings of its counterparties and does not 1995,1994 and 1993, respectively. In 1990, BNI entered into anticipate losses due to counterparty nonperformance. a letter of credit for the benefit of a vendor. This letter of Interest rate credit is a performance guarantee for up to $15 million for From time to time, the Company enters into various interest locomotive overhauls. rate hedging transactions for the purpose of managing In connection with the closing of the sale of rail lines in exposure to fluctuations in interest rates and establishing southern California in 1992 and 1993, BNSF has entered into rates in anticipation of future debt issuances. During 1995, various shared use agreements with the agencies, which the Company closed out interest rate swap transactions in require BNSF to pay the agencies approximately $6 million conjunction with the issuance of debt (see Note 10: Debt). annually to maintain track structure and facilities. Additionally, No contracts were outstanding at December 31,1995. 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. P AGE 33
  • BURLINGTON NORTHERN SANTA FE BNRR andATSF are estimate of associated costs can be made. Adjustments to each parties to service interruption initial estimates are recorded as necessary based upon addi- insurance agreements under which on a combined basis they tional information developed in subsequent periods. BNSF would be required to pay premiums of up to a maximum of conducts an ongoing environmental contingency analysis, approximately $106 million in the event of work stoppages on which considers a combination of factors including indepen- other railroads related to ongoing national bargaining. BNRR andATSFare also entitledto receive payments dent consulting reports, site visits, legal reviews, analysis under certain of the likelihood of participation in and the ability of other conditions if a work stoppage occurs on either property. 13 ENVIRONMENTAL AND OTHER CONTINGENCIES PRPs to pay for clean-up, and historical trend analyses. ENVIRONMENTAL BNSF is involved in a number of administrative and judicial proceedings and other mandatory clean-up efforts at BNSF's operations, as well as those of its competitors, are subject to extensive federal, state and local environmental approximately 320 sites, including the Superfund sites, at regulation. BNSF's operating procedures include practices to which it is being asked to participate in the study and/or protect the environment from the environmental risks inherent clean-up of the environmental contamination. BNSF paid in railroad operations, which frequently involve transporting approximately $31 million, $21 million and $27 million during chemicals and other hazardous materials. 1995, 1994 and 1993, respectively relating to mandatory Additionally, many of BNSF's land holdings are and have clean-up efforts, including amounts expended under federal been used for industrial or transportation related purposes or and state voluntary clean-up programs. BNSF hasaccruals leased to commercial or industrial companies whose activities of approximately $235 million for remediation and restoration may have resulted in discharges onto the property. As a result, of all known sites, including $225 million pertaining to BNSF is subject to environmental cleanup and enforcement mandated sites, of which approximately $60 million relates to actions. In particular, the Federal Comprehensive Environ- the Superfund sites. BNSF anticipates that the majority of the mental Response Compensation and Liability Act of 1980 accrued costs at December 31,1995 will bepaid over the (CERCLA),also knownas the quot;Superfundquot; as well aslaw, next five years. No individual site is considered to be material. similar state laws generally impose joint and several liability Recoveries received from third parties, net of legal costs for clean-up and enforcement costs without regard to fault incurred, were approximately $31 million during the year ended or the legality of the original conduct on current and former December 31,1995 and were not significant in prior years. owners and operators of a site. BNSF has been notified that it Liabilities recorded for environmental costs represent BNSF's best estimates for remediation and restoration of these is a potentially responsible party (PRP) for study and clean-up sites and include both asserted and unasserted claims. costs at approximately 30 Superfund sites for which investi- gation and remediation payments are or will be made or are Unasserted claims are not considered to be a material compo- yet to be determined (the Superfund sites) and, in many nent of the liability. Although recorded liabilities include BNSF's best estimates of all costs, without reduction for instances, is one of several PRPs. In addition, BNSF may be considered a PRP undercertain other laws. Accordingly, anticipated recoveries from third parties, BNSF's total clean- under CERCLA and other federal and state statutes, BNSF up costs at these sites cannot bepredicted with certainty due to various factors such as the extent of corrective actions that may be held jointly and severally liable for all environmental costs associated with a particular site. If there are other PRPs, may be required, evolving environmental laws and regulations, BNSF generally participates in the clean-up of these sites advances in environmental technology, the extent of other through cost-sharing agreements with terms that vary from PRPs' participation in clean-up efforts, developments in site to site. Costs are typically allocated based on relative ongoing environmental analyses related to sites determined to volumetric contribution of material, the amount of time the be contaminated, and developments in environmental surveys site wasowned or operated, and/or the portion of the total site and studies of potentially contaminated sites. As a result, owned or operated by each PRP. future charges to income for environmental liabilities could Environmental costs include initial site surveys and have a significant effect on results of operations in a particular environmental studies of potentially contaminated sites as quarter or fiscal year as individual site studies and remediation costs for remediation and restorationof sites deter- wellas and restoration efforts proceed or as new sites arise. However, mined to be contaminated. Liabilities for environmental expenditures associated with such liabilities are typically paid clean-up costs are initially recorded when BNSF's liability for out over a long period; therefore, management believes that environmental clean-up is both probable and a reasonable 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. P AGE 34
  • BURLINGTON NORTHERN SANTA FE The following table shows the reconciliation of BNI's BNSF expects it will become subject to future requirements funded status of the plans with amounts recorded in the regulating air emissions from diesel locomotives that may consolidated balance sheets (in millions): increase its operating costs. Regulations applicable to new locomotive engines are expected to be issued by the 1995 1994 December31, Environmental Protection Agency soon. It is anticipated that Actuarial present value of benefit obligations: $(641) $(481) these regulations will be effective for locomotive engines Vested benefit obligation installed after 1999. Under some interpretations of federal law, $(696) $(553) Accumulated benefit obligation older locomotive engines may be regulated by states based $(758) $(628) Projected benefit obligation on standards and procedures which the State of California Plan assets at fair value, primarily marketable 534 467 ultimately adopts. At this time it is unknown whether equity and debt securities California will adopt locomotive emission standards that may Projected benefit obligation in excess differ from federal standards. (224) (161) of plan assets 93 41 OTHER CLAIMSAND LITIGATION Unrecognized net loss 2 5 Unrecognized prior service cost BNSF and its subsidiaries are parties to a number of legal 20 29 Unamortized net transition obligation actions and claims, various governmental proceedings and Adjustment required to recognize private civil suits arising in the ordinary course of business, (53) (12) minimum liability including those related to environmental matters and personal $(162) $ (98) Accrued pension liability injury claims. While the final outcome of these items cannot BNI uses a December 31 measurement date. The assumptions be predicted with certainty, considering among other things used in accounting for BNI's plans were as follows: the meritorious legal defenses available, it is the opinion of management that none of these items, when finally resolved, 1995 1993 1994 December31, will have a material adverse effect on the annual results of 7.0% 9.0% 7.0% Discount rate 4.0% 5.5% 5.5% Rate of increase in compensation levels operations, financial position or liquidity of BNSF, although Expected long-term rate of return an adverse resolution of a number of these items could have 9.5% 9.5% 9.5% on plan assets a material adverse effect on the results of operations in a particular quarter or fiscal year. Components of net pension income for SFP's plans from 14 RETIREMENT PLANS September 22, 1995 through December 31, 1995 were as BNSF has noncontributory defined benefit pension follows (in millions): plans through its subsidiaries, BNI and SFp, covering sub- $ 2 Service cost, benefits earned during the period stantially all non-union employees. BNI and SFP also have II Interest cost on projected benefit obligation nonqualified defined benefit plans for certain officers and (21) Actual return on plan assets 4 Net amortization and deferred amounts other employees. The benefits under BNSF's plans are based $ (4) on years of credited service and the highest five-year average Net pension income compensation levels. BNSF's funding policy is to contribute The following table shows the reconciliation of SFP's funded annually not less than the regulatory minimum, and not more status of the plans with amounts recorded in the consolidated than the maximum amount deductible for income tax purposes. balance sheet at December 31, 1995 (in millions): Components of the net pension cost for BNI's plans were Accumulated Assets Exceed as follows (in millions): Benefits Accumulated 1995 Exceed Assets 1994 1993 Benefits Yearended December31, - - Actuarial present value of benefit obligations: Service cost, benefits earned $ (7) $9 9 $(547) $ $ 12 Vested benefit obligation - during the period - 50 54 50 Interest cost on projected benefit obligation $(575) $ (8) Accumulated benefit obligation (93) (25) (57) Actual return on plan assets $(614) $(11) 57 24 Net amortization and deferred amounts Projected benefit obligation (1) 10 Plan assets at fair value, primarily common Curtailment costs 718 32 stock, and U.S. and corporate bonds Cost of special termination benefits $ 69 $ 36 Plan assets in excess of (less than) $ 26 Net pension cost 104 (II) projected benefit obligation 3 Unrecognized net loss Prepaid (accrued) pension asset $ 104 $ (8) (liability) P AGE 35
  • BURLINGTON NORTHERN SANTA FE 30 measurement The lifeinsurance plan is noncontributory and covers retirees SFP uses a September date. The assumptions used in accounting for SFP's plans for 1995 only. Components of the SFP's postretirement benefit cost were as follows: from September 22, 1995 to December 31, 1995 relating to its were 7.5 % medical and lifeinsurance plans as follows (inmillions): Discount rate 4.0 % Rate of increase in compensation levels Medical Life Insurance 9.75% Plan Plan Expected long-term rate of return on plan assets $- Service cost $I BNSF sponsors 40l(k) thrift and profit sharing plans through I Interest cost 3 its subsidiaries, BNI and SFp, which cover substantially Net amortization and deferred amounts ~) all non-union employees and certain union employees. BNI $I $2 Net postretirement benefit cost matches 35percent of the first 6 percent of non-union employees' contributions, which is subject to certain percentage SFP's policy is to fund benefitspayable under the medical limits of the employees' earnings, at the end of each quarter. and life insurance plans as they come due. The following Depending on BNI's performance, an additional matching table shows the reconciliation of the plans' obligations to 31, 1995 (in millions). SFP contribution of 20 to 40 percent can be made following the amounts accrued at December uses a September30 measurement date. end of the year. SFP matches 100 percent of the first 4 percent of non-union employees' contributions and25percent of the Life Insurance Medical Plan Plan first 4 percent of union employees' contributions. BNSF's Accumulated postretirement benefit expense was$13million, $8million and$6million in 1995, obligation: 1994 and 1993, respectively. Retirees $45 $130 15 OTHER POSTEMPLOYMENTBENEFIT PLANS 15 Fully eligible active participants BNI provides life insurance benefits to eligible non- 4 40 Other active participants union employees.The life insurance plan is noncontributory 185 49 ~ and covers retirees only. Components of BNI's postretirement ~) Unrecognized net loss $177 $47 benefit cost were $1 million in each of three years ended Accrued postretirement benefit cost December 31, 1995, 1994 and 1993, respectively. For 1995, the assumed health care cost trend rate for BNI's policy is to fund benefits payable under the life managed care medical costsis II percent and is assumed to insurance plan as they come due. The following table presents to 5 percent by 2006 and remain constant the status of BNI's insurance plan and the accrued post- life decrease gradually retirement benefit cost reflected in the consolidated balance thereafter. medical costsnot in managed For care,the assumed sheets (inmillions).BNI uses a December31 measurementdate. health care cost trend rate is 13 percent and is assumed to by 2006 and remain constant decrease gradually to 5 percent 1995 1994 December31, thereafter.ncreasing the assumed health care cost trend rates I Accumulated postretirement benefit obligation: $14 Retirees $11 by one percentage point would increase the accumulated I 1 by $16 Fully eligible active participants postretirementbenefitobligationfor the medical plan 2 2 Other active participants million and the combined service and interest components 17 14 in 1995 of net periodic postretirementbenefitcost recognized I 4 Unrecognized net gain by $2 million. $18 $18 Accrued postretirement benefit cost For 1995, the weighted-average discount rate assumed in determining the accumulated postretirement benefit obligation The discount rate used in determining the benefit obligation was 7.5 percent and the assumed weighted-average salary was 7 percent at December 31, 1995 and 9 percent at increase was 4.0 percent. December 31,1994. OTHER PLANS Salaried employees of SFP who have rendered 10 years Under collective bargaining agreements, BNSF participates in of service after attaining age 45 are eligible for both medical multi employer benefit plans which provide certain postretire- benefitsand lifeinsurance coverage during retirement.The ment health care and life insurance benefits for eligible union retireemedical plan is contributoryand provides benefitsto employees. Insurance premiums paid attributable to retirees, retirees, theircovered dependents and beneficiaries. etiree R which are generally expensed as incurred, were $ll million contributionsare adjusted annually.The plan also contains in 1995 and $10 million in both 1994 and 1993. fixed deductibles,coinsurance and out-of-pocketlimitations. PAC E 36
  • BURLINGTON NORTHERN SANTA FE 16 PREFERRED CAPITALSTOCK were exchanged for the outstanding shares of BNI common stock and 52,004,100 were exchanged for the outstanding 6 1/4% CUMULATIVECONVERTIBLE PREFERRED shares of SFP common stock, excluding the SFP common STOCK, SERIES A, $.01 PAR VALUE, AUTHORIZED stock acquired by BNI in the Tender Offer. 25,000,000 SHARES-6,900,000 SHARES ISSUED 18 STOCK OPTIONS, OTHER INCENTIVE PLANS In November 1992, BNI issued 6,900,000 shares of 61/4% AND OTHER STOCKHOLDERS' EQUITY Cumulative Convertible Preferred Stock, Series A, No Par STOCK OPTIONS Value. The convertible preferred stock was not redeemable Under BNSF's stock option plans, options may be granted to prior to December 26,1995. On September 22, 1995, the officers and salaried employees at fair market value on the outstanding BNI shares were converted to 6,878,607 shares date of grant. Approximately 4.3 million shares were available of BNSF 6 1/4% Cumulative Convertible Preferred Stock, for future grant at December 31,1995. All options expire $.01 par value. within 10 years after the date of grant. On October 19, 1995, the BNSF board of directors voted to Activity in stock option plans was as follows: redeem BNSF's 6 1/4% Cumulative Convertible Preferred Exercise Price Stock, Series A, $.01 par value, effective December 26,1995, per Share Options at the redemption price of $52.1875 per share and declared a Balance at dividend which, when paid, was 74.65 cents per share (repre- $10.32 to $44.24 December 31,1992 3,251,324 senting the normal quarterly dividend of 78.125 cents per 55.56 to 55.94 Granted 947,125 share pro rated up to the effective redemption date) to holders 10.32 to 44.24 Exercised (508,476) ofrecord on December 7,1995. The dividend was paid on Cancelled 22.50 to 55.94 (54,882) January 2,1996. The majority of the holders of this preferred Balance at stock elected to convert their shares into BNSF common stock 12.49 to 55.94 December 31,1993 3,635,091 Granted 53.69 to 55.94 as BNSF's common stock price was significantly higher than 752,690 Exercised 12.49 to 55.94 (184,088) the redemption price. As such, the cash payment for shares Cancelled 20.48 to 55.94 (83,962) redeemed was not significant. CLASS A PREFERRED STOCK, $.01 PAR VALUE, Balance at 15.26 to 55.94 December 31,1994 AUTHORIZED50,000,000 SHARES-UNISSUED 4,1l9,731 52.00 to 82.25 Granted 1,026,414 At December 31, 1995, BNSF had available for issuance Conversion of 50,000,000 shares of Class A Preferred Stock, $.01 Par Value. 73.88 7.36 to 5,342,024 SFP stock options The Board of Directors has the authority to issue such stock 59.38 Exercised 7.36 to (821,769) in one or more series, to fix the number of shares and to fix 12.69 to 59.38 Cancelled (67,747) the designations and the powers. Balance at 17 COMMONSTOCK AND ADDITIONAL 7.36 to 82.25 December 31,1995 9,598,653 PAID-IN CAPITAL Exercisable at December 31: BNSF is authorized to issue 300,000,000 shares of Common 1995 $ 7.36 to $59.38 7,465,135 Stock, $.01 Par Value. At December 31, 1995, there were 1994 15.26 to 55.94 2,950,427 149,605,217 shares of common stock outstanding. Each 12.49 to 44.24 1993 2,153,170 holder of common stock is entitled to one vote per share in Shares issued upon exercise of options may be issued from the election of directors and on all matters submitted to a treasury shares or from authorized but unissued shares. vote of stockholders. Subject to the rights and preferences of All stock options outstanding at February 7, 1995 became any future issuance of preferred stock, each share of common exercisable upon approval of the Merger by BNI and SFP stock is entitled to receive dividends as may be declared by stockholders. the Board of Directors out of funds legally available and to share ratably in all assets available for distribution to stock- holders upon dissolution or liquidation. No holder of common stock has any preemptive right to subscribe for any securities of BNSF. Pursuant to the terms of the Merger Agreement, on September 22, 1995, BNSF issued 141,866,851 shares of common stock, $.01 par value, of which 89,862,751 shares PIG E 31
  • BURLINGTON NORTHERN SANTA FE OTHER INCENTIVE PLANS plan which provides for grants of shares of BNSF's common BNI and SFP have various other incentive plans, in addition stock to full-time employees, excluding officers, based upon performance. A total of 100,000 shares of common stock has to stock options, which are administered separately on behalf of employees from each of the combined companies. been authorized for these awards. During the years ended December 31,1995,1994 and 1993, 2,965, 3,900 and 5,540 BNI has restricted stock award plans under which up to 1,700,000 common shares may be awarded to eligible shares were awarded under this plan. The related compensa- employees and directors. No cash payment is required by the tion expense was not signifIcant. individual. Shares awarded under the plan may not be sold, Under the SFP Long Term Incentive Stock Plan (Long Term Plan), 67,632 restricted shares of BNSF common stock transferred or used as collateral by the holder until the shares awarded become free of the restrictions, generally by one- resulted from the conversion of existing SFP restricted shares third on the third, fourth and fIfth anniversaries of the date of upon consummation of the Merger. No new grants were grant. All shares still subject to restrictions are generally awarded and forfeitures of 1,254 shares occurred during the forfeited and returned to the plan if the employee or director's period from September 22,1995 to December 31,1995. The relationship is terminated. ITthe employee or director retires, restrictions on these shares generally lapse upon attaining becomes disabled or dies, the restrictions will lapse at that certain corporate performance objectives, completing a time. Restricted stock awards under these plans, net of required vesting period. A total of 64,477 restricted common forfeitures, were 243,631, 177,670 and 232,354 shares in 1995, shares were outstanding at December 31,1995. OTHER STOCKHOLDERS' EQUITY 1994 and 1993, respectively. A total of 141,621, 780,694 and 870,525 restricted common shares were outstanding at As a result of the Merger, certain investments in third parties held by both BNI and SFP, which were previously recorded December 31, 1995, 1994 and 1993, respectively. As a result of the Merger, outstanding restricted shares became fully on the cost method, were converted to the equity method due vested in February 1995 resulting in $24 million operating to BNSF's combined ownership position and ability to exercise signifIcant influence. As such, $26 million, which is net of expense reflected in merger, severance and asset charges. deferred taxes of $17 million, was recorded as an increase to Compensation expense for 1994 and 1993 was not signifIcant. retained earnings to reflect BNI's undistributed equity in earn- Additionally, BNI adopted an employee stock purchase plan in 1992, effective in 1993, as a means to encourage employee ings since initial investment. SFP's investments were adjusted ownership of BNSF common stock. A total of 500,000 shares to fair value upon the application of purchase accounting. of common stock were authorized for distribution under this plan. The plan allows eligible BNSF employees to use the proceeds of incentive compensation awards to purchase shares of BNSF common stock at a discount from the market price and may require that the shares purchased be held for a specifIc time period. The difference between the market price and the employees' purchase price is recorded as additional compensation expense. During the years ended December 31, 1995, 1994 and 1993,39,421,31,832 and 34,629 shares were purchased under this plan. The related compensation expense was not signifIcant. BNI also has a stock award PAC E 3I
  • BURLINGTON NORTHERN SANTA FE - QUARTERLY FINANCIAL DATA 19 UNAUDITED Third Second First Fourth (Dollars in millions, except per sh~re data) 1995 $ 1,460 $ 1,284 $ 1,347 Revenues $ 2,092 205 254 242 (175) Operating income (10ss)(1)(3) Income (loss) before extraordinary item and cumulative effect 124 101 133 (160) of change in accounting method (6) Extraordinary item, loss on early retirement of debt, net of tax (2) (100) Cumulative effect of change in accounting method, net of tax(3) 124 1 133 $ $ $ $ (166) Net income (loss) Primary earnings (loss) per common share: (0) 1.31 1.05 $ $ $ 1.32 $ (1.15) Income (loss) before extraordinary item and change in accounting method - (0.04) Extraordinary item - - (1.11) Change in accounting method 1.31 $ $ 1.32 $ (0.06) $ (1.19) Primary earnings (loss) per common share Fully diluted earnings (loss) per common share: (0) Income (loss) before extraordinary item and change 1.26 1.05 $ $ $ 1.28 $ (1.15) in accounting method - - - (0.04) Extraordinary item (1.11) Change in accounting method 1.26 $ $ 1.28 $ (0.06) $ (1.19) Fully diluted earnings (loss) per common share .30 .30 .30 .30 $ $ $ $ Dividends declared per common share Common stock price: $60 1/8 $76 114 $63 5/8 $83 7/8 High 62 5/8 56 118 47 1/2 71 1/4 Low 1994 $ 1,210 $ 1,249 $ 1,192 $ 1,344 Revenues 182 229 178 264 Operating income 87 115 82 142 Income before cumulative effect of change in accounting method (10) Cumulative effect of change in accounting method, net of taxIS) 77 82 $ 142 115 $ $ $ Net income Primary earnings (loss) per common share: .85 .90 1.22 $ $ 1.51 $ $ Income before change in accounting method (.11) Change in accounting method .79 1.22 .85 $ 1.51 $ $ $ Primary earnings per common share Fully diluted earnings (loss) per common share: .84 .90 1.18 $ 1.46 $ $ $ Income before change in accounting method (.11) Change in accounting method .84 .79 1.18 1.46 $ $ $ $ Fully diluted earnings per common share .30 .30 .30 .30 $ $ $ $ Dividends declared per common share Common stock price: $ 66 $ 60 1/8 $ 51 5/8 $ 53 5/8 High 48 1/4 52 1/2 56 3/4 46 5/8 Low (I) 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. 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, (2) treated as an extraordinary item. Effective January I, 1995, BNSF changed its accounting for locomotive overhauls. The cumulative effect of this change attributable to years prior to 1995 (3) was to decrease net income by $100 million, or $1.1I per share. Additionally, first, second and third quarter results were restated for the impact of the change on 1995 by reducing operating income, net income and both primary and fully diluted per share amounts as follows: first quarter-$I2 million, $7 million and $.09; second quarter-$9 million, $6 million and $.06; and third quarter-$1I million, $6 million and $.06, respectively. Fully diluted earnings per share are antidilutive for the first and fourth quarters of 1995; therefore, the amounts reported for primary and fully diluted (4) earnings per share are the same. Amounts may 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. (5) Effective January I, 1994, BNSF adopted Statement of Financial Accounting Standards No. 1I2, quot;Employers' Accounting for Postemployment Benefits.quot; The cumulative effect of this change attributable to years prior to 1994, was to decrease net income by $10 million, or $.1I per common share. P AGE 39
  • BURLINGTON NORTHERN SANTA FE OFFICERS ROBERT D. CHARLES 1. THOMAS N. RICHARD A. JAMES B. KREBS. DAGNON. SCHULTZ. HUND. RUSSACK Presidentand Senior VicePresident- Senior VicePresident- VicePresidentand Controller Vice President-Corporate Intermodaland Automotive Relations EmployeeRelations Chief ExecutiveOjJicer BusinessUnit MARSHA K. DONALD G. MORGAN RICHARD E. JOHN Q. McINNES. DENIS E. ANDERSON. Vice President-Investor WElCHER Senior Vice President and SPRINGER. Vice President and General Senior Vice President-Coal, Relations and Corporate Metals and Minerals Senior Vice President and Counsel Secretary Chief Operations Officer Business Unit Chief Financial Officer JEFFREY R. PATRICK J. DANIEL J. MORELAND. GREGORY T. DOUGLAS J. OTTENS MEYER WESTERBECK BABB. Senior Vice President-Law SWIENTON. Vice President-Finance and Vice President and General Senior Vice President and and General Counsel Senior Vice President- Treasurer Tax Counsel Consumer and Industrial Chief of Staff Business Unit . Executive OjJicer of Burlington Northern Santa Fe Corporation BURLINGTON NORTHERN SANTA FE DIRECTORS. R. B. F. DANIEL P. BILL M. LINDIG ARNOLD RONALD JOSEPH WEBER (1)(3) ALIBRANDI (1)(2) WOODARD (3) DAVISON (1)(2) (1)(4) Chairman, Chancellor, Northwestern Chairman of the Board, President, Boeing President and Chief Executive University, Evanston, Illinois. Whittaker Corporation Burlington Northern Santa Commercial Airplane Group Officer, SYSCO Corporation Board member since 1986. (telecommunications) and Fe Corporation. Retired (aerospace), Seattle, (marketer and distributor of Chairman, BioWhittaker, Chairman and Chief Washington. Board member foodservice products), since 1995. Executive OJJicer, U.S. Trust Houston, Texas. Board Inc. (biotechnology), ROBERT H. WEST membersince 1993. Corporation, New York, New Los Angeles, California. (2)(3) York. Board member since Board member since 1982. MICHAEL B. Chairman, Butler 1976. BEN F. LOVE YANNEY (1)(2) Manufacturing Company JACK S. BLANTON Chairman and Chief (manufacturer of pre-engi- (1)(4) GEORGE Executive Officer, America (2)( 4) Investor, Retired Chairman neered building systems and First Companies (invest- DEUKMEJIAN Chairman and Chief and Chief Executive OjJicer specially components), ments), Omaha, Nebraska. Executive OjJicer, Houston (1972-1989), Texas Kansas City, Missouri. (3)(4) Board member since 1989. Endowment, Inc. (charitable Board member since 1980. Commerce Bancshares, Inc. Partner, Sidley & Austin foundation), Houston, Texas. (banking), Houston, Texas. (law firm) and former Board member since 1989. . Years of Board service Board member since 1990.quot; STEVEN Governor of the State of J. includes service on Boards of California, Los Angeles, (3) WHISLER Burlington Northern Inc. and Roy S. ROBERTS JOHN J. BURNS, California. Board member President, Phelps Dodge Santa Fe Pacific Corporation since 1991. JR.(1)(2) (3)(4) Mining Company, and and predecessor companies. President and Chief Executive Vice President, General Senior Vice President, DANIEL J. EVANS Officer, Alleghany Motors Corporation and Phelps Dodge Corporation Committee Assignments: Corporation (holding company General Manager, (mining and manufacturing), (1)(2) (1) Executive Committee with title insurance, investment Pontiac-GMC Division, Phoenix, Arizona. Board Chairman, Daniel J. Evans (2) Compensation Committee management, reinsurance, member since 1995. Pontiac, Michigan (motor Associates (consulting), (3) Audit Committee industrial minerals, and steel vehicle manufacturer). Seattle, Washington. Board (4) Directors and Corporate Board member since 1993. fastener operations), EDWARD E. membersince 1991. Governance Committee New York, New York. WHITACRE, JR. **Also served as director of Board member since 1995. MARC SHAPIRO ROBERT D. KREBS Burlington Northern Inc. J. (1)(4) from 1986-1988 (3) President and Chief Executive Chairman and Chief OjJicer, Burlington Northern Chairman and Chief Executive Officer, SBC Communications Inc. Santa Fe Corporation, Fort Executive OjJicer, Texas Worth, Texas. Board member Commerce Bank N.A. (bank- (communications), San since 1983. Antonio, Texas. Board ing), Houston, Texas. Board membersince 1995. member since 1993. PAC E 40