bnsf 95 annrpt
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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.
(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.
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Yearended December 31, 1995 1994 1993 1992 1991
FOR THE YEAR
Revenues $ 6,183 $ 4,995 $ 4,699 $ 4,630 $ 4,559
Operating income (loss)(1)526 853 661 597 (239)
Income (loss) before extraordinary item andcumulative effect of change in accounting method 198 426 296 299 (306)
Accounting change/Extraordinary item (2)(3)(4)(5) (106) (10) - (21) (14)
Net income (loss) $ 92 $ 416 $ 296 $ 278 $ (320)
Earnings (loss) available for common stockholders $ 71 $ 394 $ 274 $ 275 $ (321)
Primary earnings (loss) per share:Before extraordinary item and change in
accounting method $ 1.66 $ 4.48 $ 3.06 $ 3.35 $ (3.96)
Accounting change/Extraordinary item (.99) (.11) - (.24) (.18)
Primary earnings (loss) per share $ .67 $ 4.37 $ 3.06 $ 3.11 $ (4.14)
Average shares (in thousands) 106,730 90,187 89,672 88,617 77,462
Fully diluted earnings (loss) per share:
Before extraordinary item and change in
accounting method $ 1.66 $ 4.38 $ 3.04 $ 3.34 $ (3.96)
Accounting change/Extraordinary item (.99) (.11) - (.24) (.18)
Fully diluted earnings (loss) per share $ .67 $ 4.27 $ 3.04 $ 3.10 $ (4.14)
Average shares (in thousands) 106,730 97,528 97,189 89,492 77,462
Dividends declared per common share $ 1.20 $ 1.20 $ 1.20 $ 1.20 $ 1.20
AT YEAR ENDTotalassets $ 18,269 $ 7,592 $ 7,045 $ 6,563 $ 6,324
Long-term debt, including current portionand commercial paper 4,233 1,819 1,737 1,567 1,982
Redeemable preferred stock - - - 9 11
Stockholders' equity 5,037 2,237 1,919 1,728 1,202
OTHER
Totalcapital expenditures $ 1,042 $ 753 $ 676 $ 487 $ 509
Depreciation and amortization 520 362 352 338 347
Operating ratio (6) 80% 83% 86% 87% 90%
Total debt to total capital, excluding
redeemable preferred stock 46% 45% 48% 48% 62%
BURLINGTON NORTHERN SANTA FE
To OUR SHAREHOLDERS,
CUSTOMERSAND COLLEAGUES
1995 was a historic year for us. It brought together two
successful companies - Burlington Northern Inc. and
Santa Fe Pacific Corporation - and created Burlington
Northern Santa Fe Corporation in September. The year
1995 was also one of our better years in terms of our on-
going pursuit of an injury-free workplace, on-time service,
customer satisfaction, and financial performance.
BNSF's well-balanced business portfolio derived
about 25 percent of its combined 1995 revenues from
transporting a record 204 million tons of coal, mostof it from the Powder River Basin
of Wyoming and Montana. Another
25 percent came from intermodal
shipments - more than 2.5 million
trailers and containers, another record,were moved on flatcars in 1995. About
15 percent of combined 1995 revenuesreflected the movement of a record
Significant unusual items include merger, severance
and asset charges of $453 million after-tax for 1995.
These charges, along with reserves established at the
time of the merger, cover the costs associated with the
elimination of some 3,000 positions in 1995 and over
the next few years, the disposition of about 4,000 miles
of low-density track in 14 states, the closing of offices,
facilities, and other operations that will not be needed
as a result of combining the two railroads. There also
was a $100 million after-tax charge associated with a
change in accounting for locomotive overhauls and
another $6 million for the early retirement of debt. With
these items, BNSF net income was
$92 million, or $0.67 per common
share, on an as reported basis for
1995, compared with $416 million,
or $4.27 per common share, fully
diluted, in 1994.
During the fourth quarter of 1995,
we learned that we can achieve high
levels of on-time, damage-free
service simultaneously for each of
the largest segments of our franchise
- agricultural commodities, coal and
intermodal. Improving both our
service performance and our safety
record are key to the future success of our company.
In this period, the first one in which we operated as a
merged railroad, one incredible achievement exempli-
fied the potential of the new company better than any
other: BNSF handled 27,040 trailers without one failure
for our largest Intermodal customeI; United Parcel Service,
from Thanksgiving to Christmas Eve.
This streak continued until January 18, 1996, when a
large portion of our railroad in the Midwest was snow-
bound. For 58 consecutive days, 43,709 trailers arrived
at every UPS hub for sorting on schedule to enable UPS
to meet its commitments to its customers - a magnifi-
cent example of thousands of BNSF people working as a
team to achieve a common goal. I believe this will
become the standard for the service we will provide
customers in all segments of our business, and this will
enable us to achieve one of our goals, consistent
revenue growth. For 1996, our overall on-time perfor-
mance target is 92 percent.
663,000 carloads of agricultural
commodities, like corn, wheat and
soybeans, while transportation of foods,
beverages, forest products, chemi-
cals, minerals and metals accounted
for the remaining 35 percent.We entered 1996 focused on our vision: To realize the
tremendous potential of the new Burlington Northern
and Santa Fe Railway by providing transportation
services that consistently meet our customers' expecta-
tions. Our new railway, the largest in North America,
will provide single-line service with broad geographic
scope, as shown on pages 8-9, making it easier for
shippers to use the improved services we are now
capable of providing.RECORD-SETTING PERFORMANCES
THROUGHOUT 1995
For 1995, BNSF generated $1.576 billion in combined
operating income, excluding unusual items. This repre-
sents a 32 percent improvement over 1994. Combined
revenues grew nearly $500 million year over year, while
adjusted operating expenses were only $110 million
higher. As a result, the operating ratio was lowered to
80.7 percent from 84.5. For 1996, we are targeting a 78
percent operating ratio.
P A G (
ROBERT D. KREBS
BNSF President and Chief Executive Officer
"we have a strong
franchise, resource-
ful employees,and the momentum
to fulfill our
merger promise. "
For several years, employees of both BN and Santa Fe
have aggressively worked to reduce personal injuries
and lost work days due to injuries. For 1995, personal
injuries were down over 30 percent, as more than 95
percent of our 45,000 employees worked injury-free.
BNSF enters 1996 as the third safest major railroad in
North America with the goal of another 25 percent
improvement in 1996.INVESTING FOR GROWTH
In 1996, we plan a capital program approaching $1.7
billion which will support our efforts to increase
revenues and reduce our operating ratio.
About $1.1 billion will be spent to
maintain our franchise, as we resur-
face more than 12,000 miles of track,
and replace 700 miles of rail and 3
million ties, while keeping our equip-
ment fleet at the level required to
respond to demand and customers'
expectations. BNSF will add 87 loco-
motives in 1996, both alternating
current and direct current units,
acquire three aluminum coal sets
and 90 taconite cars, and remanu-
facture 1,050 other freight cars.
More than $500 million is slated for capacity expan-
sion projects at key locations across our network, all of
which will enable us to grow our business. The BNSF
route from the Midwest to the Pacific Northwest (PNW)
is 11 percent shorter than that of our major competitor,
which means we can provide better service at lower
operating cost for our grain, intermodal and merchandise
customers. To expand PNW capacity, we need a third
route between eastern Washington and the coast. Several
alternatives are being pursued and we expect to be in a
position to start running trains over a new route in 1997.
Another expansion will be the completion of 55 miles
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.
We have scheduled several yard expansions in 1996
to accommodate intermodal growth and improve operat-
ing efficiencies. The Argentine yard in Kansas City,
BURLINGTON NORTHERN SANTA FE
Kansas, will be rebuilt from the ground up at a cost of
about $90 million over a two-year period. The Hobart
intermodal facility in Los Angeles is scheduled for a $25
million upgrade and the final phase of the three-year San
Bernardino expansion will be completed this summer.
Capacity will also be enhanced at our yard in Barstow,
California, and at our Chicago Corwith yard this year.
In addition, BNSF is better positioned to participate
in NAFTA-driven growth in 1996 as a result of gaining
access to the border crossing at Eagle Pass, Texas,
through our merger trackage agreement with the
Southern Pacific. This complements our El Paso, Texas,
gateway and Canadian access intoBritish Columbia and Manitoba.
Much of the progress made since
last September is a result of thework and commitment of 45,000
employees all over BNSF and their
willingness to pull together as we
build a new company. The supportfrom our Board of Directors also has
enabled us to make rapid progress
and to establish a 1996 plan thatwill demonstrate the wisdom of the
merger that created Burlington Northern Santa Fe.
A person who deserves much credit and my personal
appreciation for making BNSF happen is GeraldGrinstein, our former chairman, who decided to leave
the company at the end of 1995. All of us will miss his
wisdom and his wit, and we wish him well as he pursues
new challenges.
Another director who will be terribly missed is
Barbara Jordan, who passed away in mid-January.
Although her tenure on the Board was less than five
years, her contributions will forever be a part of BNSF.
I'm confident that BNSF will grow successfully in the
years ahead. We have a strong franchise, resourceful
employees, and the momentum to fulfill our merger promise.
Robert D. Krebs
President and Chief Executive Officer
February 20, 1996
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BLENDING THE
BEST OF TWO
GREATRAILROADS
In the long history of American railroading no merger
has been larger, approved so quickly or demonstrated
greater potential. Combining Burlington Northern Inc.
and Santa Fe Pacific Corp. created much more than the
largest rail network in North America. It created a new
competitor with the market reach needed to deliver new
single-line services to customers throughout two-thirdsof the United States as well as to Canada and Mexico.
BN didn't reach the Southwest. Santa Fe didn't reach
the Pacific Northwest or the Southeast. Now BNSF
delivers to all of those areas with 31,000 route miles in
27 states and two Canadian provinces stretching from
all major ports along the West Coast, to the Great Lakes
and the Gulf, and from Canada to Mexico.
BN was primarily a coal, grain and merchandise railroad.
Santa Fe was primarily an intermodal and automotive
carrier. Together, BNSF creates a stronger portfolio with
a more diversified and balanced product mix.
More importantly, customers have access to shorter
routes and faster transit times using
BNSF, and many of the interline traffic
exchanges that delay shipments will
be eliminated, giving customers more
single-line service options to more
BNSFTOOKDEliVERY markets than the predecessor railroads
OF 130 MOREACmc- could deliver independently. The great
challenge now facing BNSF is to realize1995 WHICHARENOW
. its tremendous potential by continu-PARTOF THE INOUSTRY S
ing to build on the momentum of the
FLEETOF4,400 UNITS. record-settingperformancesof 1995.
TlON LOCOMOTIVESIN
LARGESTLOCOMOTIVE
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LEVERAGING FRANCHISE STRENGTHS
INTER MODAL:THE GROWTH LEADER
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
major transportation lanes. That includes the shortest
route between Chicago and Seattle (2,218 miles) ... one
of the shortest routes between Chicago and Los Angeles
(2,214 miles) ... and the best single-
line route between California and the
Southeast. Service improvements maq.e
during the fourth quarter alone in this
largely untapped intermodallane
reduced transit times between Memphis, BNSF EMPLOYEESHAVE
Tennessee, and Southern California by BEENSO SUCCESSFUL. .. ATREDUCINGINJURIES24 hours III both dIrectIons. Overall,
THATTHECOMPANYNOW
Intermodal on-time performance reached HASTHETHIRD LOWEST
record highs in the third and fourth INJURY RATE AMONG
quarters on both BN and Santa Fe. MAJOR RAILROADS.
This combination of superior routes and on-time
service gives Intermodal the greatest growth opportuni-
ties for the new company. To take advantage of those
strengths, BNSF introduced Guaranteed and Premium
intermodal service in addition to regular service in the
fourth quarter of 1995 for customers shipping betweenthe Pacific Northwest and Midwest. BNSF also offers
better intermodal service through midwestern gateways
like Chicago, Kansas City and St. Louis to both thePNW and California.
To accommodate future growth, BNSF is expanding
capacity at key terminals, improving on-time
performance and equipment utilization, offering new
services, and modifying train schedules to meet cus-
tomers' needs. Multi-year capacity expansion projects
at intermodal facilities in Los Angeles (Hobart) and
Chicago (Corwith) will boost capacity at each to more
than one million units-per-year when completed in
1997. At San Bernardino, California, the intermodal
facility is being expanded to handle more than 400,000
units annually after completion in mid-year 1996. The
total investment to expand capacity at these facilitiesalone is $155 million.
BNSF moved more intermodal traffic on a combined
basis in 1995 than any other rail system in the world,
more than 2.5 million containers and trailers. Despite
sluggish economic conditions, BNSF
posted a 4 percent increase in com-
bined volume, mostly attributable to
growth of international and less-than
truck-load (LTL) traffic.BNSF HASACCESSTO AUTOMOTIVE: GROWTH
ALLMUORWESTCOAST TH R 0 UGH INN 0 VAT IONPORTS, WHICHEXPECT. .
Combmed BNSF automotIve carloadsCOITAINER VOLUMES TO
DOUBLEOVERTHENEXTdeclined less than one-half percent
20YEARS. despite depressed automobile sales
and reduced production. While BNSF only serves a
couple of auto-assembly plants directly, it is leveraging
innovation as a means of increasing market share.
BNSF is a technological leader in the development of
equipment designed to improve protection for automo-
biles in transit. The company has acquired intermodal
trailer and container equipment designed to ship
automobiles in a fully enclosed environment and has
helped develop a lightweight, fully enclosed, articulated
multilevel rail car to provide the same protection instandard rail service.
COAL: A BRIGHT FUTURE
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Since the first unit train left the Powder River Basin
(PRB) in 1969, BNSF has helped transform this remote
ranching area straddling northeastern Wyoming and
southeastern Montana into one of the nation's most impor-
tant fuel sources for generating electricity. Today,nearly
10 percent of the electricity produced in the United States
is generated from coal hauled by BNSF, most of it from
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P AGE
the PRB. PRB coal is cheaper to mine than most other
domestic sources. It also burns much cleaner, with an
average sulfur content one-sixth to one-half that of most
other coal. As a result, PRB coal is helping to bring many
utilities into compliance with the 1990 Clean Air Act
Amendments without having to install expensive scrubber
systems or purchase emissions credits. The PRB contains
73 percent of the nation's low-sulfur coal reserves. Those
factors, low-fuel cost, low-delivered cost, and low-sulfur
content, have driven unprecedented demand for PRB coal.
In 1995, Burlington Northern Santa Fe hauled acombined total of 204 million tons of coal which takes
into account the coal traffic interchanged between the
former BN and Santa Fe. Independently, BN moved183 million tons of coal, most of it from the PRB, a 7
percent increase from 1994. The Santa Fe Railway.
hauled 36 millions tons of coal, down 10 percent from
1994 as a result of abundant western hydroelectric
supply and lower-than-normal natural gas prices.EXPANDINGCOAL CAPACITY
The record 1995 tonnage represents the kind of growth
BNSF has prepared for with its multi-year investment
strategy designed to capture the anticipated increase indemand for Powder River Basin coal. In 1995, BNSF
invested $385 million in track and equipment to boost
transportation capacity by:
. Constructing 21 miles of double and triple track on
the joint BNSF/UP Orin Line (120 miles of the 127-mile
line are now double or triple tracked);.Constructing 25 miles of additional track between
Alliance, Neb., and Gillette, Wyo.;
. Expanding Alliance yard with four
new receiving and departure tracks and
eight storage tracks; and.Acquiring 130 AC locomotives, eight
new aluminum train sets, and the Trough
Train (an extended car with 13 articu- ABOUT25 PERCENTOF. . I BNSF's 1995 REVENUE
lated sectIOns that Increases coa
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WASDERIVEDFROMCOAL
carrying capacity by 30 to 40 percent). TRAFFIC,25 PERCENT
Phase n of the Clean Air Act, which FROMINTERMODAL, 15
requires even lower sulfur emissions in
the year 2000, and impending electric
utility deregulation, will stimulate addi-tional demand for PRB coal over the
next several years. To respond to these
PERCENTFROMAGRICUL-
TURALCOMMODITIESAND
35 PERCENTFROMCON,
SUMERPRODUCTS,
CHEMICALS,MINERALS
ANDMETALS.
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SAFETY
wearing proper safety equipment is an
important part of BNSF's success in
making the railroad a safer place to
work. BN reduced reportable injuries by
30% in 1995. Santa Fe reduced them
by 38%. Together, BNSF has set a
unified target for reducing reportable
injuries by another 25% in 1996.
FORESTPRODUCTS
Companies in the
Northwest, Northern
Midwest and Southeast
have access to new mar-
kets in the Southwest
and west Coast.
CHEMICal COMPANIES
in the PNW and
Canada gain access
to a new single-line
route to the west
Coast via BNSF.
_J
~.fr BNSF offers businesses new international shipping
opportunities because it links all major ports on the
west Coast and the Gulf with the Midwest, Pacific
Northwest, Southwest and the Southeast.
NAFTA
IJ
North American
shippers can
take better
advantage of
NAFTA with
BNSF's north-
south direct
routes between
Canada and
Mexico.
In 1996, BNSF will invest
nearly $1.7 billion to maintain
and improve its infrastructure
BURLINCTONNORTHERN
BN's strengths in coal,
grain and merchandise
combined with Santa Fe's the j
by adding more double
and triple track, expanding
yards and terminals, acquiring
more new locomotives and
COT
strengths in intermodal
and automotive give BNSF
a stronger and more diver-
exter
freight car equipment. mm
sified traffic base.
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OPERATINGSUERGIES
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-
burning, low-sulfur
1coal to be delivered
to more markets. 1;:::;,
.:i"
~-iW
~ QUIPMENT, BNSF will improve
.. equipment utilization of
.. its combined 90,000-car
,- fleet and of its combined
4,400-10comotive fleet.
it moves from Texas to
the Canadian border.
INTERMOOAlSNIPPERS
have access to new
direct routes on
p
combined with BN's routes in
the Pacific Northwest, Midwest
and Southeast give BNSF
extended market reach through
most of the Western two-thirds
of the United States.
large fleet will enable
BNSF to move grain cars
north with the harvest as
BNSF between
Southern California
and the Southeast, and
to new single-line
service options
throughout most of the
western United States.
P AGE
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t:::1:t/\{{ 11b!~(>'I' '~i~: 'V! ,l'.">-'".:,' [ '0' t.""\ ~ ~ "".,;~.,',i[,~,~.\~,.~:(.~~;:,~ ~i,,~)q~~1t"I:~';:Jt(~,f~'!i~J~Qr:\)~'.'~ ':.~\~growthopportunities, BNSF is continuing to focus on cus-
tomer service. Innovative pricing, faster cycle times for
coal trains (the time it takes to move a loaded coal train
from the mine to the utility and back) and reduced
costs through new technologies are helping BNSF lay
the groundwork for long-tenn growth in the coal business.METALS AND MINERALS: ACCESS TO STRONG
PRODUCTION CAPACITY
Improved demand for pipe, alumina and structural
steel helped increase metals traffic a combined total of
7 percent in 1995. BNSF has on-line access to more
than 40 percent of the nation's aluminum production
capacity, to the nation's largest deposit of taconite (iron
ore) in Minnesota's 'Iron Range', and to some of themost efficient steel mini-mills in the United States.
Expanded single-line service opportunities will enable
BNSF to extend the market reach of many of its metal
and mineral shippers.AGRICULTURALCOMMODITIES:
A RECORD YEAR
No BNSF business segment did a
better job in 1995 of seizing traffic
opportunities than AgriculturalACCESSTOSOMEOFTHE Commodities.A record combinedBNSF HASON,LINE
NATION'SMOSTEFFI.
CIENTSTEEl MINI-
MillS, ITS LARGEST
DEPOSITOF IRON ORE
(TACONITE)ANDA LARGE
PARTOF ITS AlUMINUM
PRODUCTIONCAPACITY.
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663,000 carloads of grain were
transported by BNSF.The record
grain performance was led by strong
domestic demand and by export
demand for com and soybean ship-
ments through the Pacific Northwest
ports. High barge rates on the Mississippi River and
ocean freight spreads that favored exporting grain from
ports in the Pacific Northwest over those on the Gulf
combined with a good crop supply on BNSF's system to
create an opportunity BNSF anticipated, planned for
and capitalized on very successfully.
BNSF is the largest rail transporter
of grain in North America, in part,because it connects most of the nation's
key grain-producing areas to most of its
major domestic consumption markets
and grain export ports. BNSF serves BNSFAlSO SERVES
key grain-producing regions stretching MOSTOF THE NATION'SLARGESTDOMESTIC
from the Northern to the Southern GreatGRAINMARKETSAND
Plains, and from the Pacific Northwest MOSTOFITS KEY GRAIN
to the Midwest.Comaccountsfor about EXPORTPORTS.
35 percent of BNSF's grain revenue, wheat 34 percent,
feeds and minor oilseeds 8 percent, soybeans 7 per-
cent, barley 5 percent, and flour, mill products, malt,
oil and specialty grains 11 percent. It is this diversity
of grain-producing regions, and of the grains and grain
products produced in those areas that hedges BNSF's
exposure to fluctuations in the market for specific
types of grains.NEW OPPORTUNITIES IN GRAIN
The USDA's long-term outlook indicates continued
strong growth in United States agricultural exports over
the next 10 years. The greatest demand is expected to
come from China, which could account for almost
one-third of the estimated increase in grain exports.
BNSF is well positioned to participate in that opportunity.
In addition, the merger has created single-line opportu-
nities to Southern California and Mexico, and for direct
routing of spring wheat to the Gulf of Mexico. Linkagesfrom Kansas and Oklahoma to the Pacific Northwest
and from the upper Midwest to Southern California
provide opportunities for opening new markets and cre-
ating more transportation options in existing markets.
The expanded grain market coverage and larger graincar fleet will enable BNSF to move cars in line with the
natural seasonal rotation of the harvest as it moves
north from Texas to the Canadian border.
To help improve the productivity of that 35,000 grain-
car fleet, BNSF invested in additional track sidings and
yard expansions along many of its key grain routes in
1995, significantly expanding the rail yards at Hauser,
Idaho, and at Pasco and Vancouver, Washington, which
handle most of BNSF's grain trains bound for the PNWCONSUMERAND INDUSTRIAL PRODUCTS:
EXTENDED MARKET REACH
Strong demand for petroleum helped increase BNSF's
combined Chemical carloads by 3 percent, helping to
offset reduced demand for lumber and canned goods inthe Forest Products and Consumer Goods units.
Access to new markets and new direct routes will
benefit most of BNSF's chemical, consumer and forest
products customers as much as it does, grain, coal,
intermodal or automobile shippers.
In Forest Products, for example, BNSF serves more
of North America's primary
timber producing areas than
any other railroad and is con-
sequently one of the largest
carriers of lumber, paper
products, plywood, pulpmill
feedstock and wood pulp in
the industry. BNSF's extend-
ed market coverage enables
forest products producers inthe Southeast, Minnesota and
the Pacific Northwest to reach
destinations in the Southwest
with single-line service.
Chemical shippers in the PNW and Canada have
access to a new single-line route to the West Coast and
to Mexico, and consumer products shippers now have
a new single-line alternative to virtually all of the
major consumer markets in the Western two-thirds ofthe United States.
EXPANDING CAPACITY
BNSF is continuing to make record
capital investments to provide theservice levels needed to win addition-
in capital projects, including about
$5.00 million for terminal and track
capacity expansion.
Yet investing in traditional rail
infrastructure is not enough. BNSF
cannot expect to reach its service,
growth, safety and operating cost
goals without the benefit of the verybest real-time information and control
tITHE NOC PLACES
OPEIATiORSTEAMMEM-
BERSWITHINFEETOF
UCI OTHERTO
INCREASETHE SPEED
systems. BNSF is developing and ANDCOORDINATIONOF
implementing the industry's best DECISIORS.
examples of those technologies at its new operationscenter in Fort Worth.
THE NOC: A 21sT CENTURY CONTROL CENTER
THE MAINTENANCEAND al business. In 1996, BNSF will add
87 new locomotives, bringing to
nearly a thousand the number of new
power units that have been added tothe combined BNSF fleet in the
1990's. In total, the new company will
invest approximately $1.7 billion
TRACK,TERMINALAND
EQUIP.En CAPACITY
EXPANSIONPROJECTS
CDNmlE AT BNSF
TO STAYIN STEP
WITH RElENUEGRDWTH
OPPORTUNITIES.
P AGE 1 2
The NetworkOperations
Center (NOC) is the largest
and most technologicallyadvanced control center
of its kind in any industry.
. ~~ It has the ability to not onlyview, track and help manage
day-to-day operations, but to
provide an electronic
overview of the entire system,
helping to identify potential
problems in advance and
prevent them from occurring.
The NOC is currently
providing these services for the Northern and
Burlington Lines on BNSF's system. The Systems
Operations Control Center in Schaumburg, performsthese functions for most of the Santa Fe Lines on
BNSF's network.
SUMMARY
The new company got off to a great start in the
fourth quarter of 1995, capping off what had
been a great year for the predecessor companies -a remarkable accomplishment of service improvement
achieved in spite of severe weather problems on many
parts of the system. The challenge for 1996 is to
build on that momentum, to make BNSF a safer place
to work by reducing injuries another 25 percent, to
reach an overall on-time performance level of 92
percent, and to reduce the ratio of expenses to
income to 78 percent.
I'liCES
, TEAM MEM-
N fEETOf
TO
HESPEEO
NIIIONOf
tions
ENTER
inS
argest
Llly
er
IStry.
,t only
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urnng.
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rms
ment
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)lace
to
FINANCIAL CONTENTS
13 Management's Discussion and Analysis
21 Report of Management
21 Report of Independent Accountants22 Consolidated Statements of Income
23 Consolidated Balance Sheets
24 Consolidated Statements of Cash Flows
25 Consolidated Statements of Changes in
Stockholders' Equity
Notes to Consolidated Financial Statements26
MANAGEMENT'S DISCUSSION AND ANALYSISOF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
M anagement's discussion and analysis relates to the
financial condition and results of operations of Burlington
Northern Santa Fe Corporation and its majority-owned
subsidiaries (collectively BNSF or Company). The principal
subsidiaries are Burlington Northern Inc. (BNI), Burlington
Northern Railroad Company (BNRR), Santa Fe Pacific
Corporation (SFP) and The Atchison, Topeka and Santa Fe
Railway Company (ATSF).ACQUISITION OF SFP
On June 29, 1994, BNI and SFP entered into an Agreement
and Plan of Merger (as amended on October 26,1994,December 18, 1994, January 24, 1995 and September 19,1995,
the Merger Agreement) pursuant to which SFP would mergewith BNI in the manner set forth below (the Merger).
Stockholders of BNI and SFP approved the Merger Agreement
at special stockholders' meetings held on February 7, 1995.On August 23,1995, the Interstate Commerce Commission
(ICC) issued a written decision approving the Merger and
on September 22,1995 the Merger was consummated. Asdiscussed in Note 2, the business combination with SFP was
accounted for by the purchase method.Pursuant to the Merger Agreement, on December 23,1994,
BNI and SFP commenced tender offers (together, the Tender
Offer) to acquire 25 million and 38 million shares of SFP
common stock, respectively, at $20 per share in cash. During
the first quarter of 1995, SFP borrowed $1.0 billion under acredit facility of which $760 million of the proceeds were
used to purchase the 38 million shares pursuant to the TenderOffer. In addition, BNI borrowed $500 million under a credit
facility of which the proceeds were used to finance BNI's
purchase of SFP common stock in the Tender Offer. The TenderOffer was completed on February 21,1995.
Also, pursuant to the Merger Agreement, BNI and SFP wereentitled to elect to consummate the Merger through the use
of one of two possible structures: (i) a merger of SFP with andinto BNI or (ii) the Holding Company Structure described below.
To ensure that the transaction contemplated by the Merger
BURLINGTON NORTHERN SANTA FE
Agreement qualified as a tax-free transaction for federal income
tax purposes, the parties utilized the Holding Company Structure.Under the Holding Company Structure, BNSF created two
subsidiaries. One subsidiary merged with and into BNI, and
the other subsidiary merged with and into SFP. Each holder ofone share of BNI common stock received one share of BNSFcommon stock and each holder of one share of SFP common
stock, excluding the SFP common stock acquired by BNI inthe Tender Offer and the SFP common stock held by SFP as
treasury stock, received 0.41143945 shares of BNSF commonstock, which reflects the effects of the repurchase program
discussed below. The rights of each stockholder of BNSF are
substantially identical to the rights of a stockholder of BNI,and the Holding Company Structure has the same economic
effect with respect to the stockholders of BNI and SFP as
would a direct merger of BNI and SFP.In the Merger Agreement, the exchange ratio of BNSF
common shares for each share of outstanding SFP common
stock upon consummation of the Merger was set at not lessthan 0.40 shares to not more than 0.4347 shares, with
repurchases of SFP common stock by SFP increasing the
exchange ratio pro rata. SFP repurchased approximately3.6 million shares which, along with the effect of SFP stock
options exercised, resulted in the final exchange ratio of0.41143945 shares.RESULTS OF OPERATIONS
The results of operations discussed below include BNI
results for the years ended December 31, 1995, 1994
and 1993 and SFP results from September 22,1995 throughDecember 31, 1995.YEAR ENDED DECEMBER 31, 1995 COMPAREDWITH
YEAR ENDED DECEMBER 31, 1994
BNSF recorded net income for 1995 of $92 million ($.67 per
common share, primary and fully diluted) compared with net
income of $416 million ($4.37 per common share, primary,
and $4.27 per common share, fully diluted) for 1994. Results
for 1995 were reduced by $735 million of merger, severance
and asset charges (see Note 3: Merger, severance and asset
charges). The corresponding reduction in net income was
approximately $453 million, or $4.24 per common share.Results for 1995 were further reduced by $100 million (after
tax), or $.94 per common share, for the cumulative effect of
an accounting change for locomotive overhauls and $6 million
(after tax), or $.05 per common share, for an extraordinaryloss on early retirement of debt. Results for 1994 were reduced
by $10 million (after tax), or $.11 per common share, for thecumulative effect of an accounting change for postemployment
benefits. Excluding the above items, net income for 1995 would
have been $651 million compared to $426 million in 1994.
P AGE I 3
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 1993and 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.
323,437 $18.69 $18.71 $19.33260,574 237,339
Revenues
Total revenues for 1995 were $6,183 million compared with
revenues of $4,995 million for 1994. The $1,188 million
increase reflects $802 million of SFP revenues for the period
of September 22,1995 to December 31, 1995. Excluding SFp,revenues increased by $386 million or 8 percent primarily
due to improved Coal and Agricultural Commodities revenues.
Coal revenues improved $146 million during 1995 due to
higher traffic levels caused primarily by new business,favorable weather conditions early in the year and increaseddemand for low-sulfur coal from the Powder River Basin as
well as the addition of $58 million of SFP revenues in 1995.
Revenue per thousand revenue ton miles declined as a result
of continuing competitive pricing pressures and a change intraffic mix.
Agricultural Commodities revenues during 1995 were
$342 million greater than 1994. The increase was principally
caused by improvements in com and soybean revenues of$259 million and $41 million, respectively. Com and soybean
revenues benefited from increased crop production as well as
higher traffic volumes to the Pacific Northwest due to stronger
export demand during 1995. Barley and wheat revenuesdeclined primarily due to weaker export demand when compared
with the strong demand in 1994. Additionally, AgriculturalCommodities revenues included $59 million of SFP revenues
during 1995. The shift in commodities to lower yielding comand soybeans from higher yielding wheat led to the aggregate
decrease in revenue per thousand revenue ton miles.Intennodal revenues increased $373 million when compared
with 1994, almost exclusively due to the inclusion of SFPrevenues in 1995. Metals revenues increased $55 million due
to increased taconite, aluminum and steel products revenuesas well as the addition of $28 million of SFP revenues in 1995.
P AGE I 4
Current year revenues for Forest Products increased $19million and Chemicals/Plastics revenues increased $92 million
when compared to 1994. The increase in Forest Product rev-enues was due to the addition of $32 million of SFP revenues
and was partially offset by lower traffic levels for lumber. Theaddition of $80 million of SFP revenues along with strong
petroleum products demand contributed to the increase inChemicals/Plastics revenues.
Revenue increases in all other commodity groups are
principally due to the inclusion of SFP revenues from
September 22, 1995.Expenses
As discussed in Note 3: Merger, severance and asset charges,
the Company recorded $735 million for merger, severance and
asset charges in 1995. The principal components of the chargewere $287 million related to BNSF's plan to centralize the
majority of its union clerical functions and $254 million
related to salaried employee costs for severance, pension and
other employee benefits and costs for employee relocations
during the period. Additionally, $105 million was recorded for
planned branch line dispositions, while the remaining $89million included obligations for vacating leased facilities and
the write-off of duplicate and excess assets. Additional accrualsof $138 million were recorded through purchase accounting
related to fonner SFP employees and assets.
When its plans are completed, BNSF expects to have elim-
inated approximately 3,000 positions and disposed of approxi-
mately 4,000 miles of low density track. Total annual savingsrelated to these plans, when fully implemented, are expectedto exceed $250 million. Insignificant savings were recognized
in 1995 due to timing of severances. A significant portion of
the savings will be recognized in 1996 and the full benefit of
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
Revenues1995 1994 1993
(IN MILLIONS)
Coal $1,815 $1,669 $1,532Intermodal 1,1l8 745 701
Agricultural Commodities 1,101 759 710
Forest Products 459 440 419
Chemicals/Plastics 402 310 315
Food 347 304 291
Metals 308 253 248
Minerals and Ores 285 244 230
Automotive 210 152 141
Other 138 119 112
Total $6,183 $4,995 $4,699
Revenue Revenue PerTonMiles (RTM) Thousand RTM
1995 1994 1993 1995 1994 1993
(IN MILLIONS)
153,169 136,164 117,654 $1l.85 $12.26 $13.0238,516 24,671 22,718 29.03 30.20 30.8655,356 33,922 33,945 19.89 22.37 20.92
19,828 19,495 18,329 23.15 22.57 22.8615,127 11,695 11,862 26.57 26.51 26.56
12,332 10,341 9,711 28.14 29.40 29.97
13,804 11,503 11,233 22.31 21.99 22.08
12,147 10,752 10,136 23.46 22.69 22.69
3,158 2,031 1,751 66.50 74.84 80.53
BURLINGTON NORTHERN SANTA FE
certain costs for separation and severances were not included
in the charge; therefore, these costs will be recorded as future
operating expenses. Both the timing and magnitude of any
future expense is currently unknown.Total operating expenses for 1995, including $664 million
of SFP operating expenses and $735 million of merger, sever-ance and asset charges, were $5,657 million compared with
expenses of $4,142 million for 1994. Excluding the merger,severance and asset charges the operating ratio for 1995 was
80 percent, an improvement of three percentage points over
the operating ratio of 83 percent for 1994.
Effective January 1, 1995, BNSF changed its method of
accounting for periodic major locomotive overhauls. Under the
new method, overhauls on owned units are capitalized and
depreciated ratably until the next anticipated overhaul. Inaddition, estimated costs for overhauls on leased units are
accrued on a straight-line basis over the life of the leases.
BNSF previously expensed locomotive overhauls when thecosts were incurred. The cumulative effect of this change for
years prior to 1995 was a reduction in net income of $100
million (after tax) while the effect of this change for the yearended December 31, 1995 was to reduce net income by $25
million (after tax).
Compensation and benefits expenses of $2,065 millionwere $286 million above 1994 and included $233 million of
SFP compensation and benefits expense. The remaining $53
million of the increase was due to higher traffic levels, a wage
increase for union represented employees effective July 1994,an increase in health and welfare costs for union employees
due primarily to an increase in insurance premium rates, and
increased incentive compensation expense. These increases
were partially offset by operating efficiencies.Purchased services expenses increased $54 million for
1995 compared with 1994, principally reflecting the addition
of SFP expenses.
Equipment rents expenses were $111 million higher than1994 due to the inclusion of $70 million of SFP equipment
rents expense in 1995 as well as a $46 million increase in
lease rental expense as a result of a larger fleet of leased
freight cars and an increase in the leasing of locomotives to
meet power requirements in 1995.
Depreciation and amortization expense for 1995 was $158
million higher than 1994 primarily due to the inclusion of $86
million of SFP depreciation and amortization expense for 1995.
Additionally, the increase reflects $30 million attributable tothe 1995 effect of a change in accounting for locomotive
overhauls. The remainder of the increase was due to capital
additions which increased the Company's asset base.
Fuel expenses for 1995 were $111 million higher compared
with 1994 primarily due to the addition of $74 million of SFP
expenses along with a $29 million increase in consumption
resulting from higher traffic volumes in 1995. An increase in
the average price paid per gallon of 1.2 cents in 1995contributed to the remainder of the increase.
Materials expenses for 1995 decreased $5 million com-
pared with 1994. A $39 million reduction was attributable to
the change in accounting for locomotive overhauls in 1995
primarily offset by $35 million of SFP expenses.
Other operating expenses were $65 million higher in 1995
as compared with 1994. The increase reflects the inclusion
of SFP expenses of $60 million and $65 million of expensesassociated with the change in accounting for locomotive over-
hauls, partially offset by a decrease in personal injury expenses.
Interest expense increased $65 million compared with 1994,
principally due to the addition of $26 million of SFP expensein 1995 as well as interest on the $500 million unsecured debtincurred in 1995 to finance BNI's investment in SFP.
Other income (expense), net was $31 million favorable in
1995 as compared with 1994. This increase was due to BNI'sequity in earnings of SFP of $16 million from February 21,1995, the date of BNI's initial investment in SFp, to
September 22, 1995, the date of merger consummation.
Additionally, other income includes income from SFP's 44
percent equity investment in Santa Fe Pacific PipelinePartners, L.P. The remainder of the increase in other incomewas due to interest income on the settlement of a tax refund
and lower fees on the sale of accounts receivable in 1995.
In December 1995, BNSF defeased BNI's 9% debentures
due 2016, by placing $166 million of U.S. government secu-rities into an irrevocable trust for the purpose ofrepaying the
debentures in April 1996. The defeasance resulted in an
extraordinary charge of $6 million (after tax), principally
reflecting the call premium on the debt.YEAR ENDED DECEMBER 31, 1994 COMPAREDWITH
YEAR ENDED DECEMBER 31, 1993
BNSF had net income of $416 million ($4.37 per common
share, primary, and $4.27 per common share, fully diluted) for
the year ended December 31, 1994 compared with net income
of $296 million ($3.06 per common share, primary, and $3.04
per common share, fully diluted) for 1993. Results for 1994included the cumulative effect of the implementation of
Statement of Financial Accounting Standards (SFAS) No. 112
"Employers' Accounting for Postemployment Benefits" which
decreased 1994 net income by $10 million, or $.11 per commonshare. Results for 1993 included the effects of severe flooding
in the Midwest, most notably in the third quarter. Net incomefor 1993 also included the retroactive effects of the Omnibus
Budget Reconciliation Act of 1993 (the Act), which was passed
into law during August 1993. The Act increased the corporate
federal income tax rate by 1 percent, effective January 1, 1993,which reduced BNSF's net income by $28 million, or $.31
per common share, to adjust the January 1, 1993 deferred
tax liability.
P AGE 1 5
-~BURLINGTON NORTHERN SANTA FE
Revenues
Total revenues for 1994 were $4,995 million compared withrevenues of $4,699 million for 1993. The $296 million
increase was primarily attributable to improvements in Coal,
Agricultural Commodities and Intermo~al revenues.
Coal revenues improved $137 million during 1994 as a
result of increased traffic. This increase was primarily causedby a rise in the demand for electricity as well as the need for
utilities to replenish coal stockpiles during the first half of
1994, which were partially depleted during the 1993 summerflooding. Partially offsetting the increase in 1994 traffic was
a decline in revenue per thousand revenue ton miles. These
lower yields were largely due to the transportation in 1994 of
greater volumes above contractual minimum tonnage require-
ments on which customers received lower rates. Continuing
competitive pricing pressures in contract renegotiations alsocontributed to lower yields.
Intermodal revenues increased $44 million during 1994when compared with 1993. Intermodal-international revenues
accounted for the majority of the increase with a $37 million
improvement over 1993 caused by both new business and
growth in existing business. The traffic increases more than
offset BNSF's withdrawal from the Texas market in April 1994.
Revenues from the transportation of Agricultural Commodities
during 1994 were $49 million higher than 1993. This increase
was principally caused by a $31 million improvement inbarley revenues, as well as higher wheat, feeds and oilseeds
revenues. Barley revenues benefited from strong domestic and
export demand caused by favorable market conditions during1994. Higher wheat revenues resulted from an increase in
yield, which is a product of commodity mix, price and length of
haul. Feeds and oilseeds revenues grew because of increased
domestic feed demand. Partially offsetting these increases was a
decrease in corn revenues largely attributable to reduced cropproduction and lower export demand.
Forest Products revenues for 1994 increased $21 million
compared with 1993 primarily due to increased housingstarts during the year, while Food revenues for 1994 were $13
million higher than 1993 as a result of increased exportdemand. Minerals and Ores revenues rose $14 million over
1993 as a result of stronger clays and aggregates traffic caused
by increases in both domestic and export demands, and
Automotive revenues were $11 million higher than 1993 as aresult of increased volume in automotive-international traffic.
Expenses
Total operating expenses for 1994 were $4,142 million comparedwith $4,038 million for 1993. The operating ratio improved
three percentage points to 83 percent from 86 percent.
P AGE 1 6
Compensation and benefits expenses for 1994 were $70
million greater than for 1993. Higher traffic volumes during1994 as well as wage increases for union represented employ-
ees caused an increase in excess of $50 million to wages
and related payroll taxes. Also contributing to the increase incompensation and benefits expenses were increased salaries
and a higher pension expense, due to a reduction in the
discount rate (driven by lower market interest rates) used in
determining the net pension cost.
Purchased services expenses increased $15 million
compared with 1993. Higher intermodal-related costs, due
to increased volumes, and higher third party locomotive
maintenance and repair costs were the most significant
contributing factors to this increase.
Equipment rents expenses were $34 million higher in
1994. This increase was primarily attributable to higher leaseexpenses due to a larger fleet of leased rail cars as well as
leasing locomotives to meet power requirements. Also con-tributing to the increase were payments for failure to achieveservice commitments in the first half of 1994 under various
transportation agreements. These increases were partially offset
by decreased car hire expenses in i994 compared with 1993,
due to the adverse effects of the Midwest flooding in 1993.
Depreciation and amortization expense for 1994 was$10 million higher than 1993, due to an increase in the assetbase and higher traffic levels.
Fuel expenses were $7 million higher during 1994 ascompared with 1993. The average price paid for diesel fuel
decreased 3.1 cents per gallon in 1994 despite the 4.3 centsper gallon increase in the federal fuel tax, effective October 1,
1993. These price savings were more than offset by a $30
million increase in expense due to higher traffic volumes.
Materials expenses were $5 million higher during 1994 as
compared with 1993. Track and locomotive repair materials
costs increased due to higher maintenance levels and a larger
fleet size in 1994. Partially offsetting these increases weregreater scrap sales due to the higher maintenance levels and a
reduction in expenditures for safety and protective equipmentdeployed in 1993.
Other operating expenses were $37 million less when com-
pared with 1993. A $46 million decrease in personal injuryexpenses and the absence in 1994 of costs associated with the
1993 third quarter floods were partially offset by increases inderailment-related expenses and property taxes.
Interest expense for the year increased $10 million compared
with 1993, primarily due to a higher average outstanding debtbalance in 1994.
Other income (expense), net was $8 million lower in 1994
compared with 1993. This resulted primarily from lossesrelated to international ventures.
70
mg
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993,13.
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Dared
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1994
The effective tax rate was 38.7 percent for 1994 compared
with 43.2 percent for 1993. The higher effective tax rate for
1993 resulted from the increase in tax rates pursuant to the
Act and the related impact on the deferred tax liability atJanuary 1, 1993.CAPITAL RESOURCES AND LIQUIDITYCASH FROM OPERATIONS
C ash generated from operations is BNSF's principal source
of liquidity and is primarily used for dividends and
capital expenditures. To the extent cash outflows exceed cash
provided by operations, BNSF would generally fund the excess
through the issuance of debt or financing through capital or
operating leases. Operating activities provided cash of $1,416
million in 1995, compared with $808 million in 1994 and $578million in 1993. The increase in cash from operations in 1995
was attributable primarily to a $421 million increase in net
earnings excluding net noncash charges. An increase of $263million from working capital activities, including additionalcash from the collection of accounts receivable and favorable
activity in accounts payable and other current liabilities also
contributed to the increase. The above were partially offset
by cash used in 1995 to pay employee merger and separation
costs. The increase in cash from operations in 1994 over1993 was primarily attributable to increased net income and a
$68 million decrease in labor-related payments. BNSF's cash
outflows from investing and financing activities principally
relate to dividends and capital expenditures. Additionally, in
1995 the Company had expenditures of $500 million relatedto the Tender Offer.
OTHER CAPITALRESOURCES
BNSF maintains a program for the issuance, from time to time,
of commercial paper. These borrowings are supported by bank
revolving credit agreements. Outstanding commercial paper
balances are considered as reducing available borrowings under
these agreements. The bank revolving credit agreements allow
borrowings of up to $1.0 billion on a short-term basis and $1.5
billion on a long-term basis. Annual facility fees are currently
.08 percent and .125 percent, respectively, and are subject
to change based upon changes in BNSF's senior unsecured
debt ratings. Borrowings are based upon LIBOR plus a spread
based upon BNSF's senior unsecured debt ratings, money
market rates as offered by the lenders, or an alternate base rate.The commitment of the banks to make loans are currently
scheduled to expire on November 19, 1996 and November 21,
2000, respectively. At December 31, 1995, borrowings against
the long-term revolving credit agreement were $85 million
and the maturity value of commercial paper outstanding was
$996 million, leaving a total of $419 million of the long-termrevolving credit agreement available and $1.0 billion of the
short-term revolving credit agreement available. The maturity
value of commercial paper outstanding at December 31, 1994was $91 million.
BURLINGTON NORTHERN SANTA FE
In December 1995, BNSF issued $300 million of 63/8%
Notes due December 15, 2005 and $350 million of 7%
Debentures due December 15, 2025 under a registration
statement filed by BNSF on November 22, 1995 covering the
issuance, from time to time, of up to $1 billion aggregate
principal amount of debt securities. The net proceeds from
the sale of the notes and debentures were primarily used for
general corporate purposes, including but not limited to the
repayment of commercial paper and short-term bank loans
having an average interest rate of approximately 6 percent.
During the course of 1995, the Company entered into various
interest rate swap agreements with a principal amount of $500
million, for the purpose of establishing rates in anticipation of
debt issuances under a shelf registration statement (see Note10: Debt). In conjunction with the fourth quarter 1995
issuance of 10 year 6 3/8% notes and 30 year 7% debentures,the Company closed out the swap transactions which resultedin losses of $13 million and $15 million, respectively. The
losses were deferred and will be recognized over the term of
the borrowings.
Additionally, in December 1995, BNSF defeased BNI's 9%
debentures due 2016, by placing $166 million of U.S. gov-
ernment securities into an irrevocable trust for the purpose of
repaying the debentures in April 1996. The defeasance of
debt resulted in an extraordinary charge of $6 million, net of
applicable income tax benefits of $3 million, principally
reflecting the call premium on the debt.CAPITAL EXPENDITURES AND RESOURCES
A breakdown of cash capital expenditures is set forth in the
following table (in millions):
The above capital expenditures exclude $136 million and $50
million of equipment acquired under cross-border capital lease
arrangements in 1995 and 1994, respectively. Capital roadway
expenditures in 1995 increased when compared with 1994 as
a result of extensive capacity expansion projects, primarilylocated in the Powder River Basin as well as the inclusion of
$1l5 million of SFP capital expenditures from September 22,
1995 through December 31, 1995. Capital roadway expendi-
tures for 1994 increased compared with 1993 primarily due
to spending related to strategic initiatives for transportation
network management and extensive roadway improvements.Capital equipment expenditures for 1995 also increased when
compared with 1994 due to the inclusion of $34 million of
SFP capital expenditures. Capital equipment expenditures for
P AGE 1 7
I
Yearended December31, 1995 1994 1993
Road,roadway structuresand real estate $706 $544 $459
Equipment 184 154 217
Total capital expenditures $890 $698 $676
-- - JBURLINGTON NORTHERN SANTA FE
1994 declined when compared to 1993 primarily as a result of
acquiring more equipment through operating leases rather than
through purchases. Capital expenditures in 1996 are expectedto approximate $1. 7 billion, including noncash capital expen-ditures of approximately $200 million primarily for either
directly financed or leased equipment acquisitions, andreimbursed projects.
BNSF has a commitment to acquire 149 locomotives during1996 and 1997. Nineteen locomotives were financed in
February 1996 through a capital lease. The remaining commit-ment will be financed from one or a combination of sources
including cash from operations, capital or operating leases,debt issuances and other miscellaneous sources. The decision
on the method used to finance equipment depends uponcurrent market conditions and other factors and will be based
upon the most appropriate alternative available at such time.
In both 1995 and 1994, BNSF financed new equipment
through long-term capital and operating leases. During 1993,equipment was financed through debt issuance and long-termoperating leases.INFLATION
Because of the capital intensive nature of BNSF's businesses
and because depreciation is based on historical costs, the full
effect of inflation is not reflected in operating expenses. An
assumption that all operating assets were replaced at current
price levels would result in depreciation charges substantiallygreater than historically reported amounts.DIVIDENDS
Common stock dividends declared were $1.20 per common
share annually for 1995, 1994 and 1993. Dividends paid oncommon and preferred stock during 1995 and 1994 were $129
million and during 1993 were $125 million. On January 18,1996, the BNSF board of directors declared a dividend of 30
cents per share upon its outstanding shares of Common Stock,$.01 par value, payable April 1, 1996, to stockholders ofrecord on March 11, 1996.CAPITAL STRUCTURE
BNSF's ratio of total debt to total capital was 46 percent at
the end of 1995 compared with 45 and 48 percent at the end
of 1994 and 1993, respectively.OTHER MATTERS
CASUALTYAND ENVIRONMENTAL
Personal injury claims, including work-related injuries to
employees, are a significant expense for the railroad.
industry. Employees of BNSF are compensated for work-related
injuries according to the provisions of the Federal Employers'
Liability Act (FELA). FELA's system of requiring findingof fault, coupled with unscheduled awards and reliance on
P AGE I 8
the jury system, resulted in significant increases in expense
in past years. For several years prior to 1992, the trend of
significant increases in BNSF's personal injury expense
reflected the combined effects of increasing frequency ofclaims, rising medical expenses, legal judgments and settle-
ments. To improve worker safety and counter increasing costs,BNSF implemented a number of programs to reduce thenumber of personal injury claims and the dollar amount of
claim settlements. The total amount of personal injuryexpenses were $143 million, $170 million and $216 million
in 1995, 1994 and 1993, respectively, including SFP expensesfrom only September 22, 1995 through December 31, 1995.
BNSF is also working with others, through the Association of
American Railroads, to seek changes in legislation to providea more equitable program for injury compensation in therailroad industry.
BNSF's operations, as well as those of its competitors, aresubject to extensive federal, state and local environmental
regulation. BNSF's operating procedures include practices toprotect the environment from the environmental risks inherent
in railroad operations, which frequently involve transportingchemicals and other hazardous materials.
Additionally, many of BNSF's land holdings are and have
been used for industrial or transportation-related purposes orleased to commercial or industrial companies whose activities
may have resulted in discharges onto the property. As a result,
BNSF is subject to environmental clean-up and enforcement
actions. In particular, the Federal Comprehensive Environmental
Response Compensation and Liability Act of 1980 (CERCLA),also known as the "Superfund" law, as well as similar state
laws generally impose joint and several liability for clean-up
and enforcement costs without regard to fault or the legality of
the original conduct on current and former owners and opera-
tors of a site. BNSF has been notified that it is a potentiallyresponsible party (PRP) for study and clean-up costs at
approximately 30 Superfund sites for which investigation and
remediation payments are or will be made or are yet to bedetermined (the Superfund sites) and, in many instances, is
one of several PRPs. In addition, BNSF may be considered a
PRP under certain other laws. Accordingly, under CERCLA
and other federal and state statutes, BNSF may be held jointlyand severally liable for all environmental costs associated
with a particular site. If there are other PRPs, BNSF generally
participates in the clean-up of these sites through cost-sharingagreements with terms that vary from site to site. Costs aretypically allocated based on relative volumetric contribution
of material, the amount of time the site was owned or operated,and/or the portion of the total site owned or operated byeach PRP.
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Environmentalcostsinclude initial site surveysand environ-
mentalstudies of potentially contaminatedsites as well ascostsfor remediation and restoration of sites determined to be
contaminated.Liabilities for environmental clean-up costsare
initially recorded when BNSF's liability for environmentalclean-upis both probable and a reasonableestimate ofassociatedcostscan be made. Adjustments to initial estimatesarerecordedas necessarybasedupon additional information
developedin subsequentperiods. BNSFconducts an ongoingenvironmental contingency analysis, which considers a com-binationof factors including independent consultingrepQrts,site visits, legal reviews, analysis of the likelihood of partici-
pation in and the ability of other PRPs to pay for clean-up,and historical trend analyses.
BNSF is involved in a number of administrative and judicial
proceedings and other mandatory clean-up efforts at approxi-
mately 320 sites, including the Superfund sites, at which it is
being askedto participate in the study or clean-up, or both, ofalleged environmental contamination. BNSF paid approxi-
mately $31 million, $21 million and $27 million during 1995,
1994 and 1993, respectively relating to mandatory clean-upefforts, including amounts expended under federal and state
voluntary clean-up programs. BNSF has accruals of approxi-
mately $235 million for remediation and restoration of allknown sites, including $225 million pertaining to mandated
sites, of which approximately $60 million relates to the Superfund
sites. BNSF anticipates that the majority of the accrued costsat December 31,1995 will be paid over the next five years.No individualsite is considered to be material. Recoveries
received from third parties, net of legal costs incurred, were
approximately $31 million during the year ended December31, 1995 and were not significant in prior years.
Liabilities recorded for environmental costs representBNSF's best estimates for remediation and restoration of thesesites and include both asserted and unasserted claims.
Unasserted claims are not considered to be a material compo-
nent of the liability. Although recorded liabilities includeBNSF's best estimates of all costs, without reduction for antic-
ipated recoveries from third parties, BNSF's total clean-upcosts at these sites cannot be predicted with certainty due tovarious factors such as the extent of corrective actions that
maybe required, evolvingenvironmentallaws and regula-tions, advances in environmental technology, the extent of
other PRPs' participation in clean-up efforts,developmentsinongoingenvironmentalanalyses related to sites determined tobe contaminated,and developmentsin environmentalsurveysand studies of potentially contaminated sites. As a result,
future charges to income for environmental liabilities couldhave a significant effect on results of operations in a particular
quarter or fiscal year as individual site studies and remediation
and restoration efforts proceed or as new sites arise. However,
expenditures associated with such liabilities are typically paidout over a long period; therefore, management believes that it
is unlikely that any identified matters, either individually or
in the aggregate,will have a material adverse effect on BNSF'sconsolidated financial position or liquidity.
BNSF expects it will become subject to future requirements
regulating air emissions from diesel locomotives that mayincrease its operating costs. Regulations applicable to new
locomotive engines are expected to be issued by the Environ-
mental Protection Agency soon. It is anticipated that these
regulations will be effective for locomotive engines installedafter 1999. Under some interpretations offederallaw, older
locomotiveengines may be regulated by statesbasedon stan-dards and procedures which the State of California ultimately
adopts. At this time it is unknown whether California will
adopt locomotive emission standards that may differ fromfederal standards.
OTHER CLAIMSAND LITIGATION
BNSF and its subsidiaries are parties to a number of legal
actions and claims, various governmental proceedings and
private civil suits arising in the ordinary course of business,including those related to environmental matters and personal
injury claims. While the final outcome of these items cannot
be predicted with certainty, considering among other thingsthe meritorious legal defenses available, it is the opinion of
management that none of these items, when finally resolved,will have a material adverse effect on the annual results of
operations, financial position or liquidity of BNSF, althoughan adverse resolution of a number of these items could have
a material adverse effect on the results of operationsin aparticular quarter or fiscal year.LABOR
Rail union employees represent approximately 87 percent ofBNSF's workforce. In December 1994, BNRR reached an
agreement with the Railroad Yardmasters Division of theUnited TransportationUnion (UTU)which is effectivethrough1999 with respect to wages, work rules and all other mattersexcept health and welfare benefits. Health and welfare issues
are being addressed at the national level and will apply toBNRR's approximately 250 yardmasters. Effective July 1, 1995,the yardmasters received a 3 percent base wage increaseunder the agreement.
Labor agreements currently in effect for unions other than
the yardmasters include provisions which prohibited the par-ties from serving notices to change wages, benefits, rules and
working conditions prior to November 1, 1994. BNSF's rail-road operating subsidiaries joined with the other railroads to
negotiate with the unions on a multi-employer basis onNovember 1, 1994. At that time, all unions were served pro-
posals for productivity improvements as well as other changes.
P AGE 1 9
BURLINGTON NORTHERN SANTA FE
JR
Thereafter, unions also served notices on the railroads which
proposed increasing wages and benefits and restoring many
of the restrictive work rules and practices that were modified
or eliminated under the current agreements. A number of the
unions are also challenging the railroads' right to negotiate
on a multi-employer basis and the issue is currently pendingin federal district court in Washington, D.C.
In December 1995, BNSF's multi-employer bargaining
representative, the National Carriers' Conference Committee
(NCCC), reached a tentative agreement with the UTUresolving wage, benefit and work rule issues through 1999.
The agreement is subject to ratification, the results of whichshould be known in March 1996.
At this time, the railroads and most of the other unions
are proceeding in direct negotiations on the parties' proposalswith many in mediation. The National Mediation Board has
scheduled and held meetings with the parties. The ultimate
outcome of the negotiations cannot be predicted.
Under labor agreements currently in effect for most of theunionized work force, a cost of living allowance of 9 cents per
hour went into effect on July I, 1995. The cost of living
allowance was dependent upon changes in the Consumer PriceIndex not to exceed 3 percent.
Tentative agreements resolving merger-related issues were
reached with the Brotherhood of Locomotive Engineers and
UTU in December 1995. These agreements are subject toratification, the results of which should be known in March
1996. Merger implementing negotiations are ongoing withthe carman and yardmaster unions. Discussions with the
Transportation Communications Union resulted in an agree-
ment resolving all merger-related and other issues covering
railroads' clerical employees.
BNRR and ATSF are each parties to service interruption
insurance agreements under which on a combined basis they
would be required to pay premiums of up to a maximum of
approximately $106 million in the event of work stoppages on
other railroads related to ongoing national bargaining. BNRR
and ATSF are also entitled to receive payments under certain
conditions if a work stoppage occurs on either property.HEDGING ACTIVITIESFuel
BNSF has a program to hedge against fluctuations in the price
of its diesel fuel purchases. This program includes forward
purchases for delivery at fueling facilities. Additionally, thisprogram includes exchange-traded petroleum futures contracts
and various commodity swap and collar transactions which
are accounted for as hedges. Any gains or losses associated
with changes in market value of these hedges are deferredand 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 2 0
As of December 31, 1995, BNSF had entered into forward
purchases for approximately 69 million gallons at an average
price of approximately 49 cents per gallon. In addition, BNSF
held petroleum futures contracts representing approximately
60 million gallons at an average price of approximately 48
cents per gallon. These contracts have expiration dates rangingfrom January 1996 to October 1996.
The above prices do not include taxes, fuel handling costs,
certain transportation costs and, except for forward contracts,any differences which may occur from time to time between
the prices of commodities hedged and the purchase price ofBNSF's diesel fuel.
BNSF's current fuel hedging program covers approximately
12 percent of estimated 1996 fuel purchases. The current and
future fuel delivery prices are monitored continuously and
hedge positions are adjusted accordingly. Hedge positions are
also closely monitored to ensure that they will not exceedactual fuel requirements. Unrealized gains or losses from
BNSF's fuel hedging transactions were not material at
December 31, 1995 and 1994. BNSF monitors its hedgingpositions and credit ratings of its counterparties and does not
anticipate losses due to counterparty nonperformance.Interest rate
From time to time, the Company enters into interest rate trans-
actions for the purpose of establishing rates on anticipated
debt transactions or fixing interest rates on floating rate debt.
As of December 31,1995, no interest rate hedging transactions
were outstanding, although in February 1996, the Companyentered into interest rate transactions to fix interest rates on
floating rate debt with a total principal amount of $225 million.
The transactions call for the payment of fixed rates of 4.8
percent and receipt of a floating rate based on commercial
paper rates over a period of 12 to 18 months.RECENT ACCOUNTINGPRONOUNCEMENTS
In October 1995, the Financial Accounting Standards Board
(FASB) issued SFAS No. 123, ''Accounting for Stock-Based
Compensation." The Company believes that it will continue touse Accounting Principle Board Opinion No. 25 to measure
and recognize employee stock-based transactions and will
provide required additional disclosures commencing in 1996.In March 1995, the FASB issued SFAS No. 121,
''Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of," which establishes the
accounting and reporting requirements for recognizing and
measuring impairment of long-lived assets to be either held
and used or held for disposal. BNSF is currently evaluatingthe financial impact of adopting this standard, however, the
impact is not anticipated to be significant.
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REPORT OF MANAGEMENT
To THE STOCKHOLDERS OF
BURLINGTON NORTHERN
SANTA FE CORPORATION
The accompanying consolidated financial statements of
Burlington Northern Santa Fe Corporation and subsidiary
companies were prepared by management, who are responsible
for their integrity and objectivity. They were prepared in
accordance with generally accepted accounting principles and
properly include amounts that are based on management'sbest judgments and estimates. Other financial information
included in this annual report is consistent with that in theconsolidated financial statements.
The Company maintains a system of internal accounting
controls, supported by adequate documentation, to providereasonable assurance that assets are safeguarded and that thebooks and records reflect the authorized transactions of the
Company. Limitations exist in any system of internal account-
ing controls based upon the recognition that the cost of thesystem should not exceed the benefits derived. The Company
believes its system of internal accounting controls, augmented
by its internal auditing function, appropriately balances the
cost/benefit relationship.
Independent accountants provide an objective assessment
of the degree to which management meets its responsibility
for fairness of financial reporting. They regularly evaluate the
system of internal accounting controls and perform such tests
and other procedures as they deem necessary to express an
opinion on the fairness of the consolidated financial statements.The Board of Directors pursues its responsibility for the
Company's financial statements through its Audit Committee
which is composed solely of directors who are not officers
or employees of the Company. The Audit Committee meets
regularly with the independent accountants, managementand internal auditors. The independent accountants and the
Company's internal auditors have direct access to the AuditCommittee, with and without the presence of management
representatives, to discuss the scope and results of their workand their comments on the adequacy of internal accounting
controls and the quality of financial reporting.
If'Robert D. Krebs
President and Chief Executive Officer
/l&;tDenis E. SpringerSenior Vice President and Chief Financial Officer
G-L 7).-;LSJThomas N. Hund
Vice President and Controller
REPORT OF INDEPENDENT ACCOUNTANTS
To THE STOCKHOLDERS AND
BOARD OF DIRECTORS OF BURLINGTON NORTHERN
SANTA FE CORPORATION AND SUBSIDIARIES
We have audited the consolidated balance sheets of
Burlington Northern Santa Fe Corporation andSubsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of income, changes in stock-
holders' equity and cash flows for each of the three years
in the period ended December 31, 1995. These consolidatedfinancial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion onthese consolidated financial statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assuranceabout whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in thefinancial statements. An audit also includes assessing the
accounting principles used and significant estimates made
by management, as well as evaluating the overall financial
statement presentation. We believe that our audits providea reasonable basis for our opinion.
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects, the
consolidated financial position of Burlington Northern Santa
Fe Corporation and Subsidiaries as of December 31, 1995and 1994, and the consolidated results of their operations
and their cash flows for each of the three years in the period
ended December 31, 1995 in conformity with generally
accepted accounting principles.As discussed in Note 4 to the consolidated financial
statements, the Company changed its method of accounting
for periodic major locomotive overhauls in 1995 and for
postemployment benefits and investments in debt and equitysecurities in 1994.
Coopers & Lybrand L.L.P.
Fort Worth, Texas
February 15, 1996
P AGE 2 1
J
P AGE 2 2
CONSOLIDATED STATEMENTS OF INCOME
Burlington Northern Santa Fe Corporation and Subsidiaries(Dollars in millions, except per share data)
Year ended December 31, 1995 1994 1993
Revenues $ 6,183 $ 4,995 $ 4,699Operating expenses:
Compensation and benefits 2,065 1,779 1,709Purchased services 526 472 457Equipment rents 540 429 395Depreciation and amortization 520 362 352Fuel 480 369 362Materials 300 305 300Other 491 426 463
Merger, severance and asset charges 735
Total operating expenses 5,657 4,142 4,038
Operating income 526 853 661Interest expense 220 155 145Other income (expense), net 28 (3) 5
Income before income taxes 334 695 521Income tax expense 136 269 225
Income before extraordinary item and cumulative effectof change in accounting method 198 426 296
Extraordinary item, loss on early retirement of debt, net of tax (6)
Income before cumulative effect of change in accounting method 192 426 296Cumulative effect of change in accounting method, net of tax (100) (10)
Net income $ 92 $ 416 $ 296
Primary earnings per common share:Income before extraordinary item and change in accounting method $ 1.66 $ 4.48 $ 3.06Extraordinary item (.05) -
Change in accounting method (.94) (.11)
Primary earnings per common share $ .67 $ 4.37 $ 3.06
Average shares (in thousands) 106,730 90,187 89,672
Fully diluted earnings per common share:Income before extraordinary item and change in accounting method $ 1.66 $ 4.38 $ 3.04Extraordinary item (.05) -Change in accounting method (.94) (.11)
Fully diluted earnings per common share $ .67 $ 4.27 $ 3.04
Average shares (in thousands) 106,730 97,528 97,189
See accompanying notes to consolidated financial statements.
1993
$ 4,699
1,709457395352362300463
4,038
661145
5
521225
296
296
$ 296
$ 3.06
$ 3.06-89,672
$ 3.04
$ 3.04-97,189
CONSOLIDATED BALANCE SHEETS
Burlington Northern Santa Fe Corporation and Subsidiaries
(Dollars in millions)
December 31,
ASSETS
Current assets:
Cash and cash equivalentsAccounts receivable, net
Materials and supplies
Current portion of deferred income taxesOther current assets
1995 1994
Total current assets
Property and equipment, netOther assets
Total assets
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and other current liabilities
Long-term debt and commercial paper due within one year
Total current liabilities
Long-term debt and commercial paperDeferred income taxes
Casualty and environmental reserves
Employee merger and separation costsOther liabilities
Total liabilities
Commitments and contingencies (see Note 12 and 13)
Stockholders' equity:
Convertible preferred stock and additional paid-in capital, $.01 par value;25,000,000 shares authorized; 6,900,000 shares issued;
o shares and 6,900,000 shares outstanding, respectively
Common stock, $.01 par value, 300,000,000 shares authorized;149,649,930 shares and 89,329,259 shares issued, respectively
Additional paid-in capitalRetained earnings
Treasury stock, at cost, 44,713 shares and 105,438 shares, respectivelyOther
Total stockholders' equity
Total liabilities and stockholders' equity
See accompanying notes to consolidated financial statements.
P . G E 2 3
$ 50 $ 27620 697220 100320 156
54 32
1,264 1,012
16,001 6,3111,004 269
$18,269 $7,592
$ 2,289 $1,32580 122
2,369 1,447
4,153 1,6974,233 1,456
626 416530 -
1,321 339
13,232 5,355
337
1 14,606 1,443
459 485
(3) (5)(26) (24)
5,037 2,237
$18,269 $7,592
, AGE 2 4
jCONSOLIDATED STATEMENTS 0 F CASH FLOWS
Burlington Northern Santa Fe Corporation and Subsidiaries(Dollars in millions)
Year ended December 31, 1995 1994 1993
OPERATING ACTIVITIESNet income $ 92 $ 416 $ 296Adjustments to reconcile net income to net
cash provided by operating activities:
Cumulative effect of change in accounting method 100 10 -Depreciation and amortization 520 362 352Deferred income taxes (112) 126 156
Merger, severance and asset charges 735Employee merger and separation costs paid (118)Other, net 51 9 (117)
Changes in current assets and liabilities, excluding SFPassets/liabilities acquired:
Accounts receivable, net 63 (108) (116)Materials and supplies (42) (13) 6Other current assets (5) (5) (4)Accounts payable and other current liabilities 132 11 5
Net cash provided by operating activities 1,416 808 578
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
Net increase in commercial paper 895 64 26Proceeds from issuance of long-term debt 1,294 310 224Payments on long-term debt (2,071) (346) (88)Dividends paid (129) (129) (125)Other, net (16) 3 4
Net cash flow provided by (used for) financing activities (27) (98) 41
Increase (decrease) in cash and cash equivalents 23 10 (40)Cash and cash equivalents:
Beginning of year 27 17 57
End of year $ 50 $ 27 $ 17
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid, net of amounts capitalized $ 228 $ 149 $ 144Income taxes paid, net of refunds 250 128 70Assets financed through capital lease obligations 140 50Noncash consideration for purchase of SFP:
Net assets acquired $ 3,319Cash paid (532)Cash acquired 26
Noncash consideration $ 2,813
See accompanying notes to consolidated financial statements.
P AGE 2 5
I
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Burlington Northern Santa Fe Corporation and Subsidiaries
(Shares in thousands. Dollars in millions, except per share data.)-
1993 Convertible Other- Preferred CommonStock and Stock and Unearned
Additional Additional Compensation, Minimum$ 296 Outstanding Paid-in Paid-in Retained Treasury Restricted Pension
Common Shares Capital Capital Earnings Stock Stock Liability Total
Balance at December 31, 1992 88,024 $ 337 $ 1,386 $ 30 $ (2) $(19) $ (4) $ 1,728- Net income 296 296
352 Dividends:156 Commonstock, $1.20 per share (106) (106)
Convertiblepreferred stock, $3.125 per share (22) (22)Adjustments associated with unearned
(117) compensation, restricted stock 232 12 (2) (4) 6
Exerciseof stock options and related tax benefit 500 20 20
Equity adjustment from minimum pension(116) liability (6) (6)
6 Other 40 3 3
(4) Balance at December 31, 1993 88,796 337 1,421 198 (4) (23) (10) 1,9195 Net income 416 416-
578 Dividends:
Commonstock, $1.20 per share (107) (107)Convertiblepreferred stock, $3.125 per share (22) (22)
(676)Adjustments associated with unearned
17 compensation, restricted stock 178 12 (1) 11- Exerciseof stock options and related tax benefit 184 8 8(659) Equity adjustment from minimum pension-
liability 9 9
26 Other 66 3 3
224 Balance at December 31, 1994 89,224 337 1,444 485 (5) (23) (1) 2,237(88) Net income 92 92
(125) Purchase of SFP:4 Commonstock issued 52,004 2,652 2,652-
41 Value of outstanding SFP stock options 119 119-
Conversionand redemption of convertible(40)
preferred stock for common stock 7,313 (337) 335 (2)
57Dividends:
- Commonstock, $1.20 per share (123) (123)$ 17 Convertiblepreferred stock, $3.125 per share (21) (21)-
Adjustments associated with unearned
$144 compensation, restricted stock 243 13 2 16 31
70 Exerciseof stock options and related tax benefit 778 39 (3) 36
Equity adjustment from minimum pensionliability (18) (I8)
Cost to equity investment adjustment 26 26Other 43 5 3 8
Balance at December 31, 1995 149,605 $ - $4,607 $ 459 $(3) $ (7) $(19) $5,037
See accompanying notes to consolidated financial statements.
-
NOTES TO CONSOLIDATEDFINANCIALSTATEMENTSBURLINGTON NORTHERN SANTA FECORPORATION AND SUBSIDIARIES
1ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of
Burlington Northern Santa Fe Corporation and its majority-owned subsidiaries (collectively BNSF or Company). BNSF was
incorporated in Delaware on December 16,1994, for the purpose
of effecting a business combination between Burlington
Northern Inc. (BNI) and Santa Fe Pacific Corporation (SFP).
The accompanying BNSF consolidated statements of incomeand cash flows for the years ended December 31,1995,1994and 1993 reflect BNl's historical results and cash flows for
such periods and SFP's results and cash flows from September22, 1995 (the date of its acquisition by BNI) through
December 31,1995. The accompanying BNSF consolidatedbalance sheet at December 31,1994 reflects only BNIhistorical amounts while the BNSF consolidated balance sheet
at December 31,1995 also includes the fair value adjustments
of SFP's assets and liabilities resulting from applying purchase
accounting. The principal subsidiaries of BNSF are BNI,
Burlington Northern Railroad (BNRR), SFP and The Atchison,
Topeka and Santa Fe Railway Company (ATSF). All significant
intercompany accounts and transactions have been eliminated.
The preparation of financial statements in accordance withgenerally accepted accounting principles requires management
to make estimates and assumptions that affect the reportedamounts of assets and liabilities and disclosure of contingentassets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during
the periods presented.RECLASSIFICATIONS
Certain comparative prior year amounts in the consolidatedfinancial statements and notes have been reclassified to
conform with the current year presentation.CASH AND CASH EQUIVALENTS
All short-term investments with original maturities of less than
90 days are considered cash equivalents. Cash equivalents
are stated at cost, which approximates market value.MATERIALS AND SUPPLIES
Materials and supplies consist mainly of diesel fuel, repair
parts for equipment and other railroad property and are valued
at the lower of average cost or market.PROPERTY AND EQUIPMENT
Property and equipment are depreciated and amortized on a
straight-line basis over their estimated useful lives. Upon
PIC E 2 ,
normal sale or retirement of depreciable railroad property,
cost less net salvage is generally charged to accumulated
depreciation and no gain or loss is recognized. Significant
premature retirements are recorded as gains or losses at the
time of their occurrence. Expenditures which significantly
increase asset values or extend useful lives are capitalized.
Repair and maintenance expenditures are charged to oper-
ating expense when the work is performed. Property and
equipment are stated at cost including property values of
SFp, which were adjusted in applying purchase accounting.The weighted average annual depreciation rate in effect at
December 31,1995 was 3.7 percent for track structure, 4.8
percent for equipment and 2.5 percent for other road properties.REVENUE RECOGNITION
Transportation revenues are recognized based upon the pro-
portion of service provided.EARNINGS PER COMMONSHARE
Primary earnings per common share are computed by dividing
net income, after deduction of preferred stock dividends, by
the weighted average number of common shares and common
share equivalents outstanding. Fully diluted earnings per
common share are computed by dividing net income by the
weighted average number of common shares and common
share equivalents outstanding. Common share equivalents are
computed using the treasury stock method. An average market
price is used to determine the number of common share equiv-alents for primary earnings per common share. The higher of
the average or end-of-period market price is used to determine
common share equivalents for fully diluted earnings percommon share. In addition, the if-converted method is used
for convertible preferred stock when computing fully dilutedearnings per common share. For the year ended December 31,
1995, the computation of fully diluted earnings per share
was antidilutive; therefore, the amounts reported for primary
and fully diluted earnings per share are the same.
The average number of common shares used for earnings
per share calculations through December 31,1995 reflect theeffect of common shares issued in connection with the merger
with SFP as outstanding for the period from September 22,1995
through December 31,1995. Future calculations will therefore
reflect a significant increase in the number of outstandingcommon shares.
2 ACQUISITION OF SFP
On June 29, 1994, BNI and SFP entered into an Agree-
ment and Plan of Merger (as amended on October 26,1994,
December 18,1994, January 24, 1995 and September 19,
1995, the Merger Agreement) pursuant to which SFP would
merge with BNI in the manner set forth below (the Merger).
Stockholders of BNI and SFP approved the Merger Agreement
e
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BURLINGTON NORTHERN SANTA FE
at special stockholders' meetings held on February 7, 1995.
On August 23, 1995, the Interstate Commerce Commissionissued a written decision approving the Merger and on
September 22,1995 the Merger was consummated.
Pursuant to the Merger Agreement, on December 23,1994,BNI and SFP commenced tender offers (together, the Tender
Offer) to acquire 25 million and 38 million shares of SFPcommon stock, respectively, at $20 per share in cash. During
the first quarter of 1995, SFP borrowed $1.0 billion under acredit facility of which $760 million of the proceeds were
used to purchase the 38 million shares pursuant to the TenderOffer.In addition, BNI borrowed $500 million under a credit
facility of which the proceeds were used to finance BNI's
purchase of SFP common stock in the Tender Offer.The Tender Offer was completed on February 21, 1995.
Prior to consummation of the Merger, BNI accounted forthe $500 million investment in SFP under the cost method.
Upon consummation of the Merger, BNl's equity in earnings
of SFP prior to the Merger of $16 million was recorded asother income.
Also, pursuant to the Merger Agreement, BNI and SFP
were entitled to elect to consummate the Merger through the
. use of one of twopossible structures: (i) a merger of SFP withand into BNI or (ii) the Holding Company Structure described
below. To ensure that the transaction contemplated by theMerger Agreement qualified as a tax-free transaction for
federal income tax purposes, the parties utilized the Holding
Company Structure.
Under the Holding Company Structure, BNSF created two
subsidiaries. One subsidiary merged with and into BNI, and
the other subsidiary merged with and into SFP. Each holder ofone share of BNI common stock received one share of BNSF
common stock and each holder of one share of SFP common
stock, excluding the SFP common stock acquired by BNI in
the Tender Offer and the SFP common stock held by SFP astreasury stock, received 0.41143945 shares of BNSF common
stock, which reflects the effects of the repurchase programdiscussed below. The rights of each stockholder of BNSF are
substantially identical to the rights of a stockholder of BNI,
and the Holding Company Structure has the same economiceffect with respect to the stockholders of BNI and SFP as
would a direct merger of BNI and SFP.In the Merger Agreement, the exchange ratio of BNSF com-
mon shares for each share of outstanding SFP common stock
upon consummation of the Merger was set at not less than 0.40shares to not more than 0.4347 shares, with repurchases of
SFP common stock by SFP increasing the exchange ratio pro
rata. SFP repurchased approximately 3.6 million shares which,
along with the effect of SFP stock options exercised, resulted
in the final exchange ratio of 0.41143945 shares.The business combination with SFP was accounted for by
the purchase method. As such, the accompanying consolidatedfinancial statements include assets, liabilities and financial
results of SFP after Merger consummation. The following
summarizes the purchase price (dollars in millions, exceptper share data, and shares in thousands):
BNI investment in SFP
Shares of SFP common stock outstanding
at September 22, 1995Less SFP shares held by BNI
Remaining SFP shares outstandingExchange RatioShares of BNSF common stock issuedPer share value of BNSF common stock
Total value of BNSF common stock issued
Value of outstanding SFP stock optionsBNI direct acquisition costs
Purchase price
$ 516
$
151,396
(25,000)
126,396.4114
52,00051
2,65211932
$3,319
The purchase price was calculated based on an estimated
fair value of BNSF common stock of $51 per share. The fair
value was determined from the average of the daily closingprices of BNI common stock for the five trading days immedi-
ately preceding and the five trading days immediately follow-
ing approval of the Merger by BNI and SFP shareholders
which occurred on February 7, 1995. The effects of the
acquisition on the consolidated balance sheet, including thefair value adjustments, were as follows (dollars in millions):
Property and equipment, netOther assetsDeferred income taxes
Long-term debtOther liabilities
Net assets acquired
$ 9,409886
(2,936)
(2,034)(2,006)
$ 3,319
The purchase price allocation included $138 million for
anticipated nonrecurring costs and expenses for severance
and relocation of prior SFP employees and the planneddisposition of excess SFP office space and other SFP assets.
The consolidated pro forma results presented below were
prepared as if the Merger had occurred on January 1, 1994and include the historical results of BNI and SFp, excluding
the after tax effect of $309 million for merger-related charges
recorded by BNI in 1995. Additionally, the consolidated pro
forma results for both periods include the estimated effects of
purchase accounting adjustments and the Tender Offer. Pro
forma adjustments reflecting anticipated merger benefits are
not included. This unaudited consolidated pro forma information
is not necessarily indicative of the results of operations that
might have occurred had the Merger actually taken place on
P A ; E 2 7
BURLINGTON NORTHERN SANTA FE
the date indicated, or of future results of operations of the
combined entities (dollars in millions, except per share data):
Yearended December 31, 1995 1994
Revenues $8,170 $7,676Operating expenses 6,844 6,484Income before extraordinary items 605 536Net income!l) 499 549
Primary earnings per share:Income before extraordinary itemsNet income
Fully diluted earnings per share:Income before extraordinary items $ 3.94 $ 3.59Net income 3.25 3.67
(1) Pro forma results for 1995 include approximately$230million (pre-tax)related to the merger,severance and asset charge which are not considereddirectly attributable to the Merger.Additionally,1995 pro forma net incomeincludes the $100 million cumulativeeffect for the change in accountingforlocomotiveoverhauls for years prior to 1995 and a $25 millionreduction forthe effectof the change on 1995. Also, 1995 pro formanet income includesthe $6 million extraordinarycharge for retirement of debt. Proforma 1994net incomeincludes a $10 millionreduction for a change in accounting.
$ 4.003.27
$ 3.633.72
3 MERGER, SEVERANCE AND ASSET CHARGES
Included in the Statement of Income for 1995 are
operating expenses of $735 million related to merger,
severance and asset costs. Significant components includedin these costs are described below.
Employee-related costs of $287 million were recorded
related to BNSF's plan to centralize the majority of its union
clerical functions which was approved in 1995. This plan
includes the reduction of approximately 1,600 employeeswhich, among other things, requires installation of common
information systems. The Company and the union have
entered into an implementation agreement which allows the
Company to abolish the positions and provides separation
benefits to impacted employees. It will take several years to
fully implement this plan due to the geographical complexity
of the new combined rail system, and the time required to
develop and install common systems. Most of the positionreductions are expected to occur during 1996 and 1997, and
the entire plan is expected to be completed by the end of 1998.
No comparable costs were accrued in applying purchase
accounting, as ATSF's operations had previously been
centralized. Also, no provision for clerical relocations was
included in the 1995 expense as employees have yet to com-
mit to relocate. As such, these costs, as well as any separationand severance costs above those provided, will be recorded as
operating expenses of future periods. Both the timing andmagnitude of any such future expense is presently unknown.
Costs of $254 million were recorded for salaried employeesand reflect severance, pension and other employee benefits,
and costs for employee relocations incurred during the period.
P AGE 2 8
J
Severance, pension and other employee benefit costs of $231
million reflect the elimination of approximately 1,000 formerBNI employees. Most of these positions were eliminated in
the third and fourth quarters of 1995; remaining positions will
be eliminated in 1996. Additional components of salariedemployee costs include special termination benefits to be
received under the Company's retirement plan and expenses
related to restricted stock which vested upon approval ofthe Merger. Relocation expenses of $23 million reflect costs
incurred in 1995 for relocating approximately 300 former
BNI employees.
Costs of $105 million are included for branch line disposi-tions reflecting the write-off of the net book value of the lines
at the anticipated disposal date, less estimated net proceeds.
Approximately 75 line segments covering 3,300 miles of former
BNI lines are included. Remaining costs of $89 million
include obligations at leased facilities which are expected tobe vacated and the write-off of duplicate and excess assets
including computer hardware and software and certain facilities.
Additional accruals of $138 million were recorded throughpurchase accounting related to former SFP employees and
assets. Approximately $105 million of these costs related to
termination of approximately 500 salaried employees for
severance payments and special termination benefits to be
received under the Company's retirement and health and
welfare plans. Salaried employee costs also include amounts
to relocate approximately 500 former SFP employees. Theremaining $33 million of costs relate to the sale or abandon-ment of 500 miles of branch lines, rents on vacated leasedfacilities and the write-off of excess assets.
Current and long-term employee merger and separationliabilities totaling $745 million are included in the consolidated
balance sheet and represent employee-related components
of the above costs, as well as remaining liabilities for actions
taken by ATSF in prior periods. The majority of these priorATSF costs are associated with deferred benefits payableupon separation or retirement to certain active conductors and
trainmen, incurred in connection with an agreement which,
among other things, reduced crew sizes. Additionally, certain
locomotive engineers are eligible for a deferred benefit payable
upon separation or retirement, associated with an agreementreached in 1990 with ATSF which allowed for more flexiblework rules.
At December 31, 1995, approximately $215 million of the
above is included within current liabilities for anticipated coststo be paid in 1996. The remaining costs are anticipated to
be paid over the next five years, except for certain costs related
to conductors, trainmen and locomotive engineers of ATSFwill be paid upon the employees separation or retirement.
(II1~
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I
BURLINGTON NORTHERN SANTA FE
4 ACCOUNTING CHANGES
Effective January 1, 1995, BNSF changed its method
of accounting for periodic major locomotive overhauls.Under the new method, costs of owned locomotives relating
to components requiring major overhaul are depreciated,
on a straight-line basis, to the first major overhaul date.
The remaining cost of the owned locomotive is depreciated,
on a straight-line basis, over the estimated economic life ofthe locomotive. The cost of overhauls on owned units are then
capitalized when incurred and depreciated, on a straight-linebasis, until the next anticipated overhaul. In addition, estimated
costs for major overhauls on leased units are accrued on a
straight-line basis over the life of the leases. BNSF previously
expensed locomotive overhauls when the costs were incurred.
BNSF believes that this change is preferable because it
improves the matching of expenses incurred to revenuesearned. The cumulative effect of this change on years prior to1995 was a reduction in net income of $100 million (net of a
$63 million income tax benefit) or $.94 per share (primary
and fully diluted). The effect of this change for the year endedDecember 31,1995, was to reduce income before extraordinary
item and cumulative effect of change in accounting method by
$25 million or $.23 per share (primary and fully diluted).
The pro forma effect of this change on 1994 and 1993 wouldhave been to reduce net income to $390 million or $4.08
per share (primary) and $275 million or $2.82 per share(primary), respectively.
Effective January 1, 1994, BNSF adopted Statement of
Financial Accounting Standards (SFAS) No. 112, "Employers'
Accounting for Postemployment Benefits." The cumulativeeffect, net of $7 million income tax benefit, of this change in
accounting attributable to years prior to 1994, at the time of
adoption, was to decrease 1994 net income by $10 million, or
$.11 per common share.In 1994, BNSF adopted SFAS No. 115, ''Accounting for
Certain Investments in Debt and Equity Securities." The
adoption of this standard had no effect on net income andno material effect on stockholders' equity.
5 OTHER INCOME (EXPENSE), NET
Other income (expense), net includes the following
(in millions):
6 INCOME TAXES
Income tax expense, excluding the cumulative effect of
change in accounting method and extraordinary item, was asfollows (in millions):
Reconciliation of the federal statutory income tax rate to the
effective tax rate, excluding the cumulative effect of change in
accounting method and extraordinary item, was as follows:
In August 1993, the Omnibus Budget Reconciliation Act
of 1993 (the Act) was signed into law. The Act increased
the corporate federal income tax rate by 1 percent, effective
January 1, 1993. BNSF recorded $28 million to income tax
expense representing the impact of the 1 percent increase on
BNSF's beginning of the year deferred income tax liability.The components of deferred tax assets and liabilities were
as follows (in millions):
December 31,
Deferred tax liabilities:
Depreciation and amortizationOther
Total deferred tax liabilities
Deferred tax assets:
Casualty and environmental reservesEmployee merger and separation costsNon-expiring AMT credit carryforwardsPostretirement benefitsPensions
Other
Total deferred tax assets
Net deferred tax liability
Noncurrent deferred income tax liabilityCurrent deferred income tax asset
Net deferred tax liability
1995 1994
$(5,076)(249)
(5,325)
$(1,785)(106)
(1,891)
360359124
8869
412
1,412
$(3,913)
$(4,233)320
$(3,913)
255
49287591
$(1,300)-$(1,456)
156$(1,300)
P AGE 2 9
Yearended December31, 1995 1994 1993
BNI's equity in earnings of SFP prior toconsummation of the Merger $ 16 $- $-
Gain on property dispositions 12 15 17
Equity in earnings of pipeline partnership 9 - -Interest income 8 3 6
Accounts receivable sale fees (4) (9) (9)Miscellaneous, net (13) (12) (9)
Total $ 28 $ (3) $ 5
Yearended December31, 1995 1994 1993
Current:Federal $ 216 $124 $ 61State 32 19 8
248 143 69
Deferred:Federal (101) 109 136
State (II) 17 20
(II2) 126 156
Total $ 136 $269 $225
Yearended December31, 1995 1994 1993
Federal statutory income tax rate 35.0% 35.0% 35.0%
State income taxes,net of federal tax benefit 4.0 3.4 3.4
Effect of 1 percent federal tax rateincrease on deferred tax balances
at January 1, 1993 - - 5.0
Other, net 1.7 0.3 (.2)Effective tax rate 40.7% 38.7% 43.2%
--
BURLINGTON NORTHERN SANTA FE
In 1995 and 1993, tax benefits of $11 million and $4 million,
respectively, related to the adjustment to recognize the minimum
pension liability was allocated directly to stockholders' equity.
In 1994, tax expense of $6 million related to the adjustmentto reduce the minimum pension liability was allocated directly
to stockholders' equity.BNSF will file its first federal consolidated income tax
return for 1995. BNI's and SFP's federal income tax returns
have been examined through 1991 and 1990, respectively.All years prior to 1986 are closed for BNI and SFP. Issues
relating to the years 1986-1991 are being contested through
various stages of administrative appeal. In addition, BNSFand its subsidiaries have various state income tax returns in
the process of examination, administrative appeal or litigation.
Management believes that adequate provision has been made
for any adjustment that might be assessed for open years
through 1995.
7 ACCOUNTS RECEIVABLE, NET
A special purpose subsidiary of ATSF has sold, withlimited recourse, variable rate certificates which mature in
December 1999 evidencing undivided interests in an accountsreceivable master trust. The master trust's assets include an
ownership interest in a revolving portfolio of ATSF's accounts
receivable which are used to support the certificates. AtDecember 31, 1995, $240 million of certificates sold were
outstanding and were supported by receivables in the mastertrust of $308 million. A maximum of $300 million of certifi-
cates can be sold if the master trust balance is increased by
receivables which are eligible for sale. ATSF has retained the
collection responsibility with respect to the accounts receivable
held in trust. ATSF is exposed to credit loss related to collec-tion of accounts receivable to the extent that the amount of
receivables in the master trust exceeds the amount of certificates
sold. BNRR's agreement to sell accounts receivable with
limited recourse expired in December 1994. Costs related to
such agreements vary on a monthly basis and are generallyrelated to certain interest rates. Costs related to accounts
receivable sales, which are included in Other income
(expense), net were $4 million in 1995 and $9 million inboth 1994 and 1993.
P AGE 3 0
J
BNSF maintains an allowance for doubtful accounts based
upon the expected collectibility of all accounts receivable,
including accounts receivable sold. Allowances for doubtfulaccounts of $50 million and $20 million have been recorded
at December 31, 1995 and 1994, respectively.
8 PROPERTY AND EQUIPMENT, NET
Property and equipment, net was as follows (in millions):
D,
B
December 31,
Road, roadway structures and real estateEquipment
Total cost
Less accumulated depreciationand amortization
Property and equipment, net
1994
$ 7,8752,304
10,179
1995
$15,9514,383
20,334
B
(4,333)$16,001
(3,868)$ 6,311
The consolidated balance sheets at December 31, 1995
and 1994 included $200 million and $77 million, respectively,
for property and equipment under capital leases. The related
depreciation was included in depreciation expense.Accumulated depreciation for property and equipment under
capital leases was $46 million and $34 million at December
31, 1995 and 1994, respectively.
Capitalized software development costs are generallyamortized over a five- to seven-year estimated useful life
using the straight-line method. Amortization expense was $9
million for the year ended December 31, 1995, $2 million for
the year ended December 31, 1994 and no amortization was
recorded for the year ended December 31, 1993. Unamortized
capitalized software costs were $69 million and $20 millionas of December 31, 1995 and 1994, respectively.
9 ACCOUNTS PAYABLE AND OTHER
CURRENT LIABILITIES
Accounts payable and other current liabilities consisted of the
following (in millions):
BI
51
December31,
Accounts and wages payableCasualty and environmental reservesEmployee merger and separation costsTaxes other than income taxesAccrued vacationsOther
Total
1994
$ 264221
1995-$ 519
290215143141981-
$2,289
11889
633
$1,325
OJ
Lt
mtsbased
ivable,doubtful
recorded
millions):
1994
$ 7,8752,304
10,179
(3,868)
$ 6,311
l,1995
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Itionwas
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I million
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1994
$ 264221
11889
633
$1,325
I
BURLINGTON NORTHERN SANTA FE
BNSF maintains a program for the issuance, from time to
time, of commercial paper. These borrowings are supported
by bank revolving credit agreements. Outstanding commercial
paper balances are considered as reducing available borrowings
under these agreements. The bank revolving credit agreementsallow borrowings of up to $1.0 billion on a short-term basis
and $1.5 billion on a long-term basis. Annual facility fees are
currently .08 percent and .125 percent, respectively, and
are subject to change based upon changes in BNSF's senior
unsecured debt ratings. Borrowings are based upon LlBOR
plus a spread based upon BNSF's senior unsecured debt
ratings, money market rates offered at the option of the lenders,or an alternate base rate. Thecommitmentsof the lenders to
make loans are currently scheduled to expire on November
19,1996 and November 21, 2000, respectively. At December
31,1995, borrowings against the long-term revolving credit
agreement were $85 million and the maturity value of com-
mercial paper outstanding was $996 million, leaving a total
of $419 million of the long-termrevolvingcredit agreementavailable and $1.0 billion of the short-term revolving credit
agreement available. The maturity value of commercial paper
outstanding at December 31,1994 was $91 million.Thefinancial covenants of the bank revolvingcredit agree-
ments require that BNSF's consolidated tangible net worth, as
defined in the agreements, be at least $4.5 billion, and that
its debt, as defined in the agreements, cannot exceed 55 per-cent of its consolidated total capital.
In December 1995, BNSF issued $300 million of 6 3/8%
Notes due December 15, 2005 and $350 million of 7%
Debentures due December 15, 2025 under a registration
statement filed by BNSF on November 22, 1995 covering the
issuance, from time to time, of up to $1 billion aggregate
principal amount of debt securities. The net proceeds from
the sale of the notes and debentures were primarily used for
general corporate purposes, including but not limited to therepayment of commercial paper and short-term bank loans
having an average interest rate of approximately 6 percent.
During the course of 1995, the Companyentered into variousinterest rate swap agreements with a principal amount of
$500 million, for the purpose of establishing rates in anticipa-tion of debt issuances under a shelf registration statement.
The swaps were anticipated to hedge $250 million of 10 year
debt and $250 million of 30 year debt. The swaps relating to
the 10 year issuance called for the payment of a fixed interestrate of 6.6 percent which was based upon 10 year treasury
notes, and the receipt of a variable interest rate. The swapsrelating 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 3 1
10 DEBTDebt outstanding was as follows (in millions):
December 31, 1995 1994
BNSF:
6 3/8% notes, due 2005 $ 300 $
7% debentures, due 2025 350
Credit facility borrowings, 6.0% (variable) 85
Commercial paper, 6.0% (variable) 761BN!:
8 3/4% debentures, due 2022 200 200
7 1/2% debentures, due 2023 150 150
7% notes, due 2002 150 150
7.40% notes, due 1999 150 150
9% debentures - 156
Equipment obligations, weighted averagerate of 7.20% and 7.08%, respectively,due serially to 2013 200 194
BNRR:
Consolidated mortgage bonds,3 1/5% to 9 1/4%, due 2006 to 2045 321 321
Capitalized lease obligations, weightedaverage rate of 6.59% and 8.01 %,respectively, expiring 1996 to 2008 150 46
Equipment and other obligations, weightedaverage rate of 8.44% and 9.30%,respectively, due serially to 2009 74 91
General mortgage bonds, 3 1/8% and2 5/8%, due 2000 and 2010, respectively 62 62
Prior lien railway and land grant bonds,4%, due 1997 57 57
General lien railway and land grant bonds,3%, due 2047 35 35
First mortgage bonds, series A, 4%, due 1997 20 22
Other 9 158
Commercial paper, 6.1 % (variable) 224 90
SFP/ATSF:
Equipment obligations, weighted averagerate of 8.43%, due serially to 2009 427
Pipeline exchangeable debentures,10.4% (variable), due 2010 219
Senior notes, 8 3/8% and 8 5/8%,due 2001 and 2004, respectively 200
Mortgage notes, 10.325%, due 1996 to 2014 32
Capitalized lease obligations 4
Unamortized purchase accounting adjustment 114Unamortized discount (61) (63)
Total 4,233 1,819
Less:
Current portion of long-term debtand commercial paper (80) (122)
Long-term debt $4,153 $1,697
-
BURLINGTON NORTHERN SANTA FE
year 6 3/8% notes and 30 year 7% debentures, the Company
closed out the swap transactions which resulted in losses of
$13 million and $15 million, respectively. The losses were
deferred and will be recognized over the term of the borrowings.
Additionally, in December 1995, BNSF defeased its 9%
debentures by placing $166 million of U.S. government
securities into an irrevocable trust for the purpose of repaying
the debentures in April 1996. The defeasance of debt resulted
in an extraordinary charge of $6 million, net of applicable
income tax benefits of $3 million, principally reflecting the
call premium on the debt.
In 1995, BNRR completed cross-border leveraged leases
of equipment for a total amount of $136 million which were
recorded as capital lease obligations. These transactions
included the issuance of $108 million of equipment secured
debt at a weighted average yield of 6.39 percent and the
receipt of an up front cash benefit. The up front benefit
reduces the effective interest rate on the debt to 5.76 percent.
In November 1994, BNRRentered into a $150 million
three year term loan facility agreement with a group of
commercial banks and used the proceeds to redeem $150
million aggregate principal amount of Railroad Consolidated
Mortgage Bonds, 10%, Series J, due November 1, 1997. In
November 1995, this debt was repaid through the issuance of
commercial paper by BNRR.
In May 1994, BNI issued $150 million of 7.4% notes due
May 15, 1999 and used the proceeds to retire $150 million
aggregate principal amount of Railroad Consolidated Mortgage
Bonds, 8 7/8%, Series I, due May 30, 1994.
Aggregate long-term debt scheduled maturities are $80
million, $149 million, $75 million, $215 million and $1,168
million for 1996 through 2000, respectively.
Substantially all BNRR properties and certain other assets
are pledged as collateral to or are otherwise restricted under
the various BNRR long-term debt agreements. Equipment
obligations are secured by the underlying equipment.In addition, a subsidiary of SFP is contingently liable as
general partner for $355 million of long-term debt held by
Santa Fe Pacific Pipeline Partners, L.P. (Pipeline Partnership).
The SFP subsidiary holds a 44 percent interest in the Pipeline
Partnership which it accounts for under the equity method. Thepipeline exchangeable debentures are exchangeable for BNSF's
limited partnership interest in the Pipeline Partnership.
P AGE 3 2
~11 DISCLOSURES ABOUT FAIR VALUE
OF FINANCIAL INSTRUMENTS
The estimated fair values of BNSF's financial instruments at
December 31, 1995 and 1994 and the methods and assump-tions used to estimate the fair value of each class of financial
instruments held by BNSF, were as follows:
CASH AND CASH EQUIVALENTS
The carrying amount approximated fair value because of the
short maturity of these instruments.MARKETABLE SECURITIES
Marketable securities, which are used to fund liabilities of
certain employee benefit plans, consist of corporate bonds
(47 percent of carrying amount) and United States government
or agency issues (53 percent of carrying amount) and are
classified as available for sale. The carrying value of available
for sale securities is adjusted for changes in fair value and
any unrealized gains or losses are recorded as a component of
stockholders' equity. At December 31, 1995, the unrealized
gains and losses were immaterial. Realized gains or losses fromthe sales of marketable securities were also immaterial for
1995. The fair value for these securities was based on market.
ACCRUED INTEREST PAYABLE
The carrying amount approximated fair value as the majority
of interest payments are made semiannually.LONG-TERM DEBT AND COMMERCIAL PAPER
The fair value of BNSF's long-term debt was primarily based
on quoted market prices for the same or similar issues, oron the current rates that would be offered to BNSF for debt
of the same remaining maturities. The carrying amount of
commercial paper approximated fair value because of the
short maturity of these instruments.
The carrying amount and estimated fair values of BNSF's
financial instruments were as follows (in millions):
BNSFalso holds investments in, and has advances to,
several unconsolidated transportation affiliates. It was not
practicable to estimate the fair value of these financial
instruments, which were carried at their original cost of
$45 million and $16 million in the December 31, 1995and 1994 consolidated balance sheets.
December31, 1995 1994
Carrying Fair Carrying FairAmount Value Amount Value
Assets:Cash and cash
equivalents $ 50 $ 50 $ 27 $ 27Marketable securities 20 20 20 20
Liabilities:
Accrued interest payable 71 71 45 45
Long-term debt andcommercial paper 4,233 4,412 1,819 1,742
ntsat
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$ 2720
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1,742
D,
lot
BURLINGTON NORTHERN SANTA FE
12 HEDGING ACTIVITIES, LEASESAND OTHER COMMITMENTS
HEDGING ACTIVITIES
Fuel
BNSF has a program to hedge against fluctuations in the price
. ofits diesel fuel purchases. This programincludes forwardpurchases for delivery at fueling facilities. Additionally, this
program includes exchange-traded petroleum futures contracts
and various commodity swap and collar transactions whichare accounted for as hedges. Any gains or losses associated
with changes in market value of these hedges are deferred
and recognized as a component of fuel expense in the periodin which the hedged fuel is purchased and used. To the extent
BNSF hedges portions of its fuel purchases, it may not fully
benefit from decreases in fuel prices.As of December 31, 1995, BNSF had entered into forward
purchases for approximately 69 million gallons at an averageprice of approximately 49 cents per gallon. In addition, BNSF
held petroleum futures contracts representing approximately
60 million gallons at an average price of approximately 48cents per gallon. These contracts have expiration dates ranging
from January, 1996 to October, 1996.
The above prices do not include taxes, fuel handling costs,
certain transportation costs and, except for forward contracts,
any differences which may occur from time to time between
the prices of commodities hedged and the purchase price ofBNSF's diesel fuel.
BNSF's current fuel hedging program covers approximately12 percent of estimated 1996 fuel purchases. The current
and future fuel delivery prices are monitored continuously
and hedge positions are adjusted accordingly. Hedge positions
are also closely monitored to ensure that they will not exceed
actual fuel requirements in any period. Unrealized gains or
losses from BNSF's fuel hedging transactions were not material
at December 31,1995 and 1994. BNSF monitors its hedgingpositions and credit ratings of its counterparties and does not
anticipate losses due to counterparty nonperformance.Interest rate
From time to time, the Company enters into various interest
rate hedging transactions for the purpose of managing
exposure to fluctuations in interest rates and establishing
rates in anticipation of future debt issuances. During 1995,
the Company closed out interest rate swap transactions in
conjunction with the issuance of debt (see Note 10: Debt).No contracts were outstanding at December 31,1995.
LEASES
BNSF has substantial lease commitments for locomotives,
freight cars, trailers, office buildings and other property. Most
of these leases provide the option to purchase the equipmentat fair market value at the end of the lease. However, some
provide fixed price purchase options. Future minimum lease
payments (which reflect leases having non-cancelable lease
terms in excess of one year) as of December 31,1995 aresummarized as follows (in millions):
Year ended December 31CapitalLeases
OperatingLeases
1996
1997
1998
1999
2000Thereafter
Total
Less amount representing interest
Present value of minimum lease payments
$ 2222222019112
217
63
$154
$ 274
263
220
185
159
1,425
$2,526
Lease rental expense for all operating leases was $303
million, $229 million and $194 million for the years ended
December 31,1995,1994 and 1993, respectively. Contingent
rentals and sublease rentals were not significant.OTHER COMMITMENTS
BNSF has entered into commitments to acquire 149 locomotives
during 1996 and 1997. In addition, BNSF has two power pur-
chase agreements, expiring in 1998 and 2001, that currentlyinvolve 197 locomotives. Payments required by the agreements
are based upon usage, subject to specified take-or-pay
minimums. The rates specified in the two agreements are
renegotiable every two years. BNSF's 1996 minimum commit-
ment obligation is $51 million. Based on projected locomotive
power requirements, BNSF's payments in 1996 are expectedto be in excess of the minimum. Payments under the agree-ments totaled $49 million, $47 million and $53 million in
1995,1994 and 1993, respectively. In 1990, BNI entered intoa letter of credit for the benefit of a vendor. This letter of
credit is a performance guarantee for up to $15 million forlocomotive overhauls.
In connection with the closing of the sale of rail lines insouthern California in 1992 and 1993, BNSF has entered into
various shared use agreements with the agencies, which
require BNSF to pay the agencies approximately $6 millionannually to maintain track structure and facilities. Additionally,
BNSF recorded a $50 million liability in 1993 for an obligationretained by BNSF, which under certain conditions requires a
repurchase of a portion of the properties sold.
P AGE 3 3
I
--- -
BURLINGTON NORTHERN SANTA FE
-~BNRR andATSF are each parties to service interruption
insurance agreements under which on a combined basis they
would be required to pay premiums of up to a maximum of
approximately $106 million in the event of work stoppages on
other railroads related to ongoing national bargaining. BNRR
andATSFare also entitledtoreceive payments under certain
conditions if a work stoppage occurs on either property.
13 ENVIRONMENTAL AND OTHER CONTINGENCIES
ENVIRONMENTAL
BNSF's operations, as well as those of its competitors, are
subject to extensive federal, state and local environmental
regulation. BNSF's operating procedures include practices toprotect the environment from the environmental risks inherent
in railroad operations, which frequently involve transportingchemicals and other hazardous materials.
Additionally, many of BNSF's land holdings are and have
beenused for industrial or transportation related purposes orleased to commercial or industrial companies whose activities
may have resulted in discharges onto the property. As a result,
BNSF is subject to environmental cleanup and enforcement
actions. In particular, the Federal Comprehensive Environ-
mental Response Compensation and Liability Act of 1980
(CERCLA),also knownas the "Superfund"law, as well assimilar state laws generally impose joint and several liabilityfor clean-up and enforcement costs without regard to fault
or the legality of the original conduct on current and former
owners and operators of a site. BNSF has been notified that it
is a potentially responsible party (PRP) for study and clean-upcosts at approximately 30 Superfund sites for which investi-
gation and remediation payments are or will be made or are
yet to be determined (the Superfund sites) and, in many
instances, is one of several PRPs. In addition, BNSF may beconsidered a PRP undercertain other laws. Accordingly,under CERCLA and other federal and state statutes, BNSF
may be held jointly and severally liable for all environmental
costs associated with a particular site. If there are other PRPs,
BNSF generally participates in the clean-up of these sites
through cost-sharing agreements with terms that vary from
site to site. Costs are typically allocated based on relativevolumetric contribution of material, the amount of time the
site wasowned or operated, and/or the portion of the total siteowned or operated by each PRP.
Environmental costs include initial site surveys and
environmental studies of potentially contaminated sites aswellas costs for remediation and restorationof sites deter-mined to be contaminated. Liabilities for environmental
clean-up costs are initially recorded when BNSF's liability forenvironmental clean-up is both probable and a reasonable
P AGE 3 4
estimate of associated costs can be made. Adjustments to
initial estimates are recorded as necessary based upon addi-
tional information developed in subsequent periods. BNSF
conducts an ongoing environmental contingency analysis,
which considers a combination of factors including indepen-
dent consulting reports, site visits, legal reviews, analysis
of the likelihood of participation in and the ability of other
PRPs to pay for clean-up, and historical trend analyses.BNSF is involved in a number of administrative and
judicial proceedings and other mandatory clean-up efforts at
approximately 320 sites, including the Superfund sites, at
which it is being asked to participate in the study and/or
clean-up of the environmental contamination. BNSF paidapproximately $31 million, $21 million and $27 million during
1995, 1994 and 1993, respectively relating to mandatory
clean-up efforts, including amounts expended under federal
and state voluntary clean-up programs. BNSF hasaccruals
of approximately $235 million for remediation and restoration
of all known sites, including $225 million pertaining tomandated sites, of which approximately $60 million relates to
the Superfund sites. BNSF anticipates that the majority of the
accrued costs at December 31,1995 will bepaid over thenext five years. No individual site is considered to be material.
Recoveries received from third parties, net of legal costs
incurred, were approximately $31 million during the year ended
December 31,1995 and were not significant in prior years.Liabilities recorded for environmental costs represent
BNSF's best estimates for remediation and restoration of these
sites and include both asserted and unasserted claims.
Unasserted claims are not considered to be a material compo-nent of the liability. Although recorded liabilities includeBNSF's best estimates of all costs, without reduction for
anticipated recoveries from third parties, BNSF's total clean-
up costs at these sites cannot bepredicted with certainty dueto various factors such as the extent of corrective actions that
may be required, evolving environmental laws and regulations,advances in environmental technology, the extent of other
PRPs' participation in clean-up efforts, developments in
ongoing environmental analyses related to sites determined to
be contaminated, and developments in environmental surveysand studies of potentially contaminated sites. As a result,
future charges to income for environmental liabilities could
have a significant effect on results of operations in a particularquarter or fiscal year as individual site studies and remediation
and restoration efforts proceed or as new sites arise. However,
expenditures associated with such liabilities are typically paidout over a long period; therefore, management believes that
it is unlikely that any identified matters, either individually orin the aggregate, will have a material adverse effect on BNSF's
consolidated financial position or liquidity.
lts to
on addi-
BNSF
Jysis,
indepen-
alysisf other
ses.
mdeffortsat
tes, atld/or
, paidion during
[atory. federaJ
ccruals:estoration
g torelates to
lrityo~therer the
Iematerial.
costs
yearended
,r years.esenton of these
ms.
ial compo-lclude
n for,taJclean-
taintydue:tions that
regulations,f other
Its in
ermined to
tal surveysresult,es could
a particularremediation
~.However,
picallypaidevesthat
ividuallyorton BNSFs
BURLINGTON NORTHERN SANTA FE
BNSF expects it will become subject to future requirements
regulating air emissions from diesel locomotives that mayincrease its operating costs. Regulations applicable to new
locomotive engines are expected to be issued by the
Environmental Protection Agency soon. It is anticipated that
these regulations will be effective for locomotive engines
installed after 1999. Under some interpretations of federal law,
older locomotive engines may be regulated by states based
on standards and procedures which the State of California
ultimately adopts. At this time it is unknown whetherCalifornia will adopt locomotive emission standards that maydiffer from federal standards.
OTHER CLAIMSAND LITIGATION
BNSF and its subsidiaries are parties to a number of legal
actions and claims, various governmental proceedings and
private civil suits arising in the ordinary course of business,
including those related to environmental matters and personal
injury claims. While the final outcome of these items cannot
be predicted with certainty, considering among other thingsthe meritorious legal defenses available, it is the opinion of
management that none of these items, when finally resolved,will have a material adverse effect on the annual results of
operations, financial position or liquidity of BNSF, althoughan adverse resolution of a number of these items could have
a material adverse effect on the results of operations in a
particular quarter or fiscal year.
14 RETIREMENT PLANS
BNSF has noncontributory defined benefit pension
plans through its subsidiaries, BNI and SFp, covering sub-
stantially all non-union employees. BNI and SFP also have
nonqualified defined benefit plans for certain officers and
other employees. The benefits under BNSF's plans are basedon years of credited service and the highest five-year average
compensation levels. BNSF's funding policy is to contributeannually not less than the regulatory minimum, and not morethan the maximum amount deductible for income tax purposes.
Components of the net pension cost for BNI's plans wereas follows (in millions):
The following table shows the reconciliation of BNI's
funded status of the plans with amounts recorded in the
consolidated balance sheets (in millions):
BNI uses a December 31 measurement date. The assumptions
used in accounting for BNI's plans were as follows:
Components of net pension income for SFP's plans from
September 22, 1995 through December 31, 1995 were asfollows (in millions):
Service cost, benefits earned during the period
Interest cost on projected benefit obligationActual return on plan assetsNet amortization and deferred amounts
Net pension income
$ 2II
(21)4
$ (4)
The following table shows the reconciliation of SFP's fundedstatus of the plans with amounts recorded in the consolidatedbalance sheet at December 31, 1995 (in millions):
Assets ExceedAccumulated
Benefits
AccumulatedBenefits
Exceed Assets
Actuarial present value of benefit obligations:Vested benefit obligation
Accumulated benefit obligation
$(547)-$(575)-$(614)
$ (7)-$ (8)-$(11)Projected benefit obligation
Plan assets at fair value, primarily common
stock, and U.S. and corporate bonds
Plan assets in excess of (less than)
projected benefit obligationUnrecognized net loss
Prepaid (accrued) pension asset(liability)
718
104 (II)3
$ 104 $ (8)
P AGE 3 5
I
Yearended December31, 1995 1994 1993
Service cost, benefits earned
during the period $ 9 $ 12 $ 9
Interest cost on projected benefit obligation 54 50 50
Actual return on plan assets (93) (25) (57)Net amortization and deferred amounts 57 (1) 24
Curtailment costs 10
Cost of special termination benefits 32
Net pension cost $ 69 $ 36 $ 26
December31, 1995 1994
Actuarial present value of benefit obligations:Vested benefit obligation $(641) $(481)
Accumulated benefit obligation $(696) $(553)
Projected benefit obligation $(758) $(628)
Plan assets at fair value, primarily marketableequity and debt securities 534 467
Projected benefit obligation in excessof plan assets (224) (161)
Unrecognized net loss 93 41
Unrecognized prior service cost 2 5
Unamortized net transition obligation 20 29
Adjustment required to recognizeminimum liability (53) (12)
Accrued pension liability $(162) $ (98)
December31, 1995 1994 1993
Discount rate 7.0% 9.0% 7.0%
Rate of increase in compensation levels 4.0% 5.5% 5.5%
Expected long-term rate of return
on plan assets 9.5% 9.5% 9.5%
BURLINGTON NORTHERN SANTA FE
~SFP uses a September 30 measurement date. The
assumptions used in accounting for SFP's plans for 1995
were as follows:
Discount rate
Rate of increase in compensation levelsExpected long-term rate of return on plan assets
7.5 %4.0 %
9.75%
BNSF sponsors 40l(k) thrift and profit sharing plans through
its subsidiaries, BNI and SFp, which cover substantially
all non-union employees and certain union employees. BNI
matches 35percent of the first 6 percent of non-union
employees' contributions, which is subject to certain percentage
limits of the employees' earnings, at the end of each quarter.
Depending on BNI's performance, an additional matching
contribution of 20 to 40 percent can be made following the
end of the year. SFP matches 100 percent of the first 4 percent
of non-union employees' contributions and25percent of the
first 4 percent of union employees' contributions. BNSF'sexpense was$13million, $8million and$6million in 1995,
1994 and 1993, respectively.
15 OTHER POSTEMPLOYMENTBENEFIT PLANS
BNI provides life insurance benefits to eligible non-
union employees.The life insurance plan is noncontributoryand covers retirees only. Components of BNI's postretirement
benefit cost were $1 million in each of three years ended
December 31, 1995, 1994 and 1993, respectively.
BNI's policy is to fund benefits payable under the life
insurance plan as they come due. The following table presentsthe status of BNI'slife insurance plan and the accrued post-retirement benefit cost reflected in the consolidated balance
sheets(inmillions).BNIuses a December31 measurementdate.
December31,
Accumulated postretirement benefit obligation:Retirees
Fully eligible active participantsOther active participants
1995 1994
$14I2
17I
$18Unrecognized net gain
Accrued postretirement benefit cost
The discount rate used in determining the benefit obligation
was 7 percent at December 31, 1995 and 9 percent at
December 31,1994.
Salaried employees of SFP who have rendered 10 years
of service after attaining age 45 are eligible for both medical
benefitsand lifeinsurance coverage during retirement.The
retireemedical plan iscontributoryand provides benefitsto
retirees,theircovered dependents and beneficiaries.Retiree
contributionsare adjusted annually.The plan also contains
fixeddeductibles,coinsurance and out-of-pocketlimitations.
PAC E 3 6
The lifeinsurance plan isnoncontributory and covers retirees
only. Components of the SFP's postretirement benefit cost
from September 22, 1995 to December 31, 1995 relating to its
medical and lifeinsurance plans were as follows(inmillions):
Service cost
Interest costNet amortization and deferred amounts
Net postretirement benefit cost
Life InsurancePlan
$-I
MedicalPlan
$ I3
~)$2$ I
SFP's policyistofund benefitspayable under the medical
and life insurance plans as they come due. The following
table shows the reconciliation of the plans' obligations to
amounts accrued at December 31, 1995 (in millions). SFP
uses a September30 measurement date.
Life InsurancePlan
MedicalPlan
Accumulated postretirement benefit
obligation:Retirees
Fully eligible active participantsOther active participants
$45 $1301540185
~)$177
4
49
~$47
Unrecognized net loss
Accrued postretirement benefit cost
$1112
144
$18
For 1995, the assumed health care cost trend rate for
managed care medical costsisII percent and isassumed to
decrease gradually to 5 percent by 2006 and remain constant
thereafter.For medical costsnot in managed care,the assumed
health care costtrend rateis 13 percent and isassumed to
decrease gradually to 5 percent by 2006 and remainconstant
thereafter.Increasing the assumed health care cost trend rates
by one percentage point would increase the accumulated
postretirementbenefitobligationforthe medical plan by $16million and the combined service and interest components
of net periodicpostretirementbenefitcost recognized in 1995by $2 million.
For 1995, the weighted-average discount rate assumed in
determining the accumulated postretirement benefit obligation
was 7.5 percent and the assumed weighted-average salary
increase was 4.0 percent.OTHER PLANS
Under collective bargaining agreements, BNSF participates in
multi employer benefit plans which provide certain postretire-
ment health care and life insurance benefits for eligible unionemployees. Insurance premiums paid attributable to retirees,
which are generally expensed as incurred, were $ll millionin 1995 and $10 million in both 1994 and 1993.
'ees
ritsns):
icalPlan
$ 13
~)$2
dicalPlan
1301540
185
~)177
to
;tant
rates
$16
1995
:dinI .igatlOn
IOn
16 PREFERRED CAPITALSTOCK
6 1/4% CUMULATIVECONVERTIBLE PREFERRED
STOCK, SERIES A, $.01 PAR VALUE, AUTHORIZED
25,000,000 SHARES-6,900,000 SHARES ISSUED
In November 1992, BNI issued 6,900,000 shares of 61/4%
Cumulative Convertible Preferred Stock, Series A, No Par
Value. The convertible preferred stock was not redeemable
prior to December 26,1995. On September 22, 1995, the
outstanding BNI shares were converted to 6,878,607 sharesof BNSF 6 1/4% Cumulative Convertible Preferred Stock,
$.01 par value.On October 19, 1995, the BNSF board of directors voted to
redeem BNSF's 6 1/4% Cumulative Convertible Preferred
Stock, Series A, $.01 par value, effective December 26,1995,
at the redemption price of $52.1875 per share and declared adividend which, when paid, was 74.65 cents per share (repre-
senting the normal quarterly dividend of 78.125 cents per
share pro rated up to the effective redemption date) to holdersofrecord on December 7,1995. The dividend was paid on
January 2,1996. The majority of the holders of this preferredstock elected to convert their shares into BNSF common stock
as BNSF's common stock price was significantly higher than
the redemption price. As such, the cash payment for shares
redeemed was not significant.CLASS A PREFERRED STOCK, $.01 PAR VALUE,
AUTHORIZED50,000,000 SHARES-UNISSUEDAt December 31, 1995, BNSF had available for issuance
50,000,000 shares of Class A Preferred Stock, $.01 Par Value.
The Board of Directors has the authority to issue such stockin one or more series, to fix the number of shares and to fix
the designations and the powers.
17 COMMONSTOCK AND ADDITIONAL
PAID-IN CAPITAL
BNSF is authorized to issue 300,000,000 shares of Common
Stock, $.01 Par Value. At December 31, 1995, there were
149,605,217 shares of common stock outstanding. Each
holder of common stock is entitled to one vote per share inthe election of directors and on all matters submitted to a
vote of stockholders. Subject to the rights and preferences of
any future issuance of preferred stock, each share of commonstock is entitled to receive dividends as may be declared by
the Board of Directors out of funds legally available and to
share ratably in all assets available for distribution to stock-holders upon dissolution or liquidation. No holder of common
stock has any preemptive right to subscribe for any securitiesof 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
BURLINGTON NORTHERN SANTA FE
were exchanged for the outstanding shares of BNI commonstock and 52,004,100 were exchanged for the outstanding
shares of SFP common stock, excluding the SFP common
stock acquired by BNI in the Tender Offer.
18 STOCK OPTIONS, OTHER INCENTIVE PLANS
AND OTHER STOCKHOLDERS' EQUITYSTOCK OPTIONS
Under BNSF's stock option plans, options may be granted to
officers and salaried employees at fair market value on the
date of grant. Approximately 4.3 million shares were availablefor future grant at December 31,1995. All options expire
within 10 years after the date of grant.Activity in stock option plans was as follows:
Shares issued upon exercise of options may be issued from
treasury shares or from authorized but unissued shares.
All stock options outstanding at February 7, 1995 became
exercisable upon approval of the Merger by BNI and SFPstockholders.
PIG E 3 1
Exercise PriceOptions per Share
Balance at
December 31,1992 3,251,324 $10.32 to $44.24Granted 947,125 55.56 to 55.94
Exercised (508,476) 10.32 to 44.24Cancelled (54,882) 22.50 to 55.94
Balance at
December 31,1993 3,635,091 12.49 to 55.94Granted 752,690 53.69 to 55.94Exercised (184,088) 12.49 to 55.94Cancelled (83,962) 20.48 to 55.94
Balance at
December 31,1994 4,1l9,731 15.26 to 55.94Granted 1,026,414 52.00 to 82.25
Conversion of
SFP stock options 5,342,024 7.36 to 73.88
Exercised (821,769) 7.36 to 59.38
Cancelled (67,747) 12.69 to 59.38
Balance at
December 31,1995 9,598,653 7.36 to 82.25
Exercisable at December 31:1995 7,465,135 $ 7.36 to $59.381994 2,950,427 15.26 to 55.941993 2,153,170 12.49 to 44.24
BURLINGTON NORTHERN SANTA FE
OTHER INCENTIVE PLANS
BNI and SFP have various other incentive plans, in addition
to stock options, which are administered separately on behalf
of employees from each of the combined companies.BNI has restricted stock award plans under which up to
1,700,000 common shares may be awarded to eligible
employees and directors. No cash payment is required by theindividual. Shares awarded under the plan may not be sold,
transferred or used as collateral by the holder until the sharesawarded become free of the restrictions, generally by one-third on the third, fourth and fIfth anniversaries of the date of
grant. All shares still subject to restrictions are generally
forfeited and returned to the plan if the employee or director's
relationship is terminated. ITthe employee or director retires,
becomes disabled or dies, the restrictions will lapse at thattime. Restricted stock awards under these plans, net offorfeitures, were 243,631, 177,670 and 232,354 shares in 1995,
1994 and 1993, respectively. A total of 141,621, 780,694and 870,525 restricted common shares were outstanding at
December 31, 1995, 1994 and 1993, respectively. As a result
of the Merger, outstanding restricted shares became fully
vested in February 1995 resulting in $24 million operating
expense reflected in merger, severance and asset charges.
Compensation expense for 1994 and 1993 was not signifIcant.
Additionally, BNI adopted an employee stock purchase plan
in 1992, effective in 1993, as a means to encourage employee
ownership of BNSF common stock. A total of 500,000 sharesof common stock were authorized for distribution under this
plan. The plan allows eligible BNSF employees to use theproceeds 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 priceand 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 compensationexpense was not signifIcant. BNI also has a stock award
PAC E 3 I
--
plan which provides for grants of shares of BNSF's common
stock to full-time employees, excluding officers, based uponperformance. A total of 100,000 shares of common stock has
been authorized for these awards. During the years endedDecember 31,1995,1994 and 1993, 2,965, 3,900 and 5,540
shares were awarded under this plan. The related compensa-
tion expense was not signifIcant.
Under the SFP Long Term Incentive Stock Plan (Long TermPlan), 67,632 restricted shares of BNSF common stock
resulted from the conversion of existing SFP restricted shares
upon consummation of the Merger. No new grants were
awarded and forfeitures of 1,254 shares occurred during the
period from September 22,1995 to December 31,1995. The
restrictions on these shares generally lapse upon attaining
certain corporate performance objectives, completing arequired vesting period. A total of 64,477 restricted common
shares were outstanding at December 31,1995.OTHER STOCKHOLDERS' EQUITY
As a result of the Merger, certain investments in third partiesheld by both BNI and SFP, which were previously recorded
on the cost method, were converted to the equity method due
to BNSF's combined ownership position and ability to exercisesignifIcant influence. As such, $26 million, which is net ofdeferred taxes of $17 million, was recorded as an increase to
retained earnings to reflect BNI's undistributed equity in earn-
ings since initial investment. SFP's investments were adjusted
to fair value upon the application of purchase accounting.1,
(1)
(2)
(3)
(4)
(5)
non
rties
ed
due
erCise
of
se to
I earn-
ljusted
g.
BURLINGTON NORTHERN SANTA FE
19 QUARTERLY FINANCIAL DATA -UNAUDITED
First(Dollars in millions, except per sh~re data)
1995
124
$ 1,347205
101
$
(100)
1
Revenues
Operating income (10ss)(1)(3)
Income (loss) before extraordinary item and cumulative effectof change in accounting method
Extraordinary item, loss on early retirement of debt, net of tax (2)Cumulative effect of change in accounting method, net of tax(3)
Net income (loss) $
1.31
Primary earnings (loss) per common share: (0)
Income (loss) before extraordinary item and change in accounting method
Extraordinary item
Change in accounting method
Primary earnings (loss) per common share
$ 1.31 $ 1.05
$
Fully diluted earnings (loss) per common share: (0)
Income (loss) before extraordinary item and change
in accounting methodExtraordinary item
Change in accounting method
Fully diluted earnings (loss) per common share
Dividends declared per common share
Common stock price:HighLow
1994Revenues
Operating incomeIncome before cumulative effect of change in accounting method
Cumulative effect of change in accounting method, net of taxIS)
Net income
Primary earnings (loss) per common share:Income before change in accounting method
Change in accounting method
Primary earnings per common share
(1.11)
$ (0.06)
$ 1.18 $ .84 $ .90
(.11)
.79
.30
Fully diluted earnings (loss) per common share:Income before change in accounting method
Change in accounting method
Fully diluted earnings per common share
Dividends declared per common share
Common stock price:
HighLow
$ 1.46
$
$
$ 6656 3/4
(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.
(2)Results for the fourth quarter include the loss on defeasance of BNI 9% debentures of $6 million, net of $3 million income tax benefit, or $.04 per share,treated as an extraordinary item.
(3) EffectiveJanuary I, 1995, BNSF changed its accounting for locomotiveoverhauls. The cumulative effect of this change attributable to years prior to 1995was to decrease net income by $100 million, or $1.1I per share. Additionally, first, second and third quarter results were restated for the impact of thechange on 1995 by reducing operating income, net income and both primary and fully diluted per share amounts as follows: first quarter-$I2 million,$7 million and $.09; second quarter-$9 million, $6 million and $.06; and third quarter-$1I million, $6 million and $.06, respectively.
(4) Fullydiluted earnings per share are antidilutive for the first and fourth quarters of 1995; therefore, the amounts reported for primary and fully dilutedearnings per share are the same. Amounts may not total to the annual earnings per share because each quarter and the year are calculated separatelybased 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, "Employers' Accounting for Postemployment Benefits."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 3 9
r
!
In
I
n
s
I)40 Isa-
renn
ares
:herhe
Fourth Third Second
$ 2,092 $ 1,460 $ 1,284(175) 254 242
(160) 133 124
(6)
$ (166) $ 133
$ (1.15) $ 1.32(0.04) -
- -$ (1.19) $ 1.32
$ (1.15) $ 1.28 $ 1.26 $ 1.05
(0.04) - - -(1.11)
$ (1.19) $ 1.28 $ 1.26 $ (0.06)
$ .30 $ .30 $ .30 $ .30
$83 7/8 $76 114 $63 5/8 $60 1/871 1/4 62 5/8 56 118 47 1/2
$ 1,344 $ 1,249 $ 1,192 $ 1,210264 229 178 182142 115 82 87
(10)
$ 142 $ 115 $ 82 $ 77
$ 1.51 $ 1.22 $ .85 $ .90(.11)
$ 1.51 $ 1.22 $ .85 $ .79
$ 1.46 $ 1.18 $ .84
$ .30 $ .30 $ .30
$ 51 5/8 $ 53 5/8 $ 60 1/846 5/8 48 1/4 52 1/2
---.I I
BURLINGTON NORTHERN SANTA FE OFFICERS
-- - - -- - - - - - --
BURLINGTON NORTHERN SANTA FE DIRECTORS.
JOSEPH F.ALIBRANDI (1)(2)Chairman,Whittaker Corporation
(telecommunications) and
Chairman, BioWhittaker,
Inc. (biotechnology),
Los Angeles, California.Board member since 1982.
JACK S. BLANTON
(2)( 4)Chairman and Chief
Executive OjJicer, Houston
Endowment, Inc. (charitable
foundation), Houston, Texas.
Board member since 1989.
JOHN J. BURNS,
JR.(1)(2)President and Chief Executive
Officer, Alleghany
Corporation (holding company
with title insurance, investment
management, reinsurance,
industrial minerals, and steel
fastener operations),
New York, New York.
Board member since 1995.
PAC E 4 0
DANIEL P.
DAVISON (1)(2)Chairman of the Board,
Burlington Northern Santa
Fe Corporation. Retired
Chairman and Chief
Executive OJJicer, U.S. Trust
Corporation, New York, NewYork. Board member since
1976.
GEORGE
DEUKMEJIAN
(3)(4)Partner, Sidley & Austin
(law firm) and former
Governor of the State of
California, Los Angeles,
California. Board member
since 1991.
DANIEL J. EVANS
(1)(2)Chairman, Daniel J. Evans
Associates (consulting),
Seattle, Washington. Boardmembersince 1991.
ROBERT D. KREBS
President and Chief Executive
OjJicer, Burlington Northern
Santa Fe Corporation, Fort
Worth, Texas. Board member
since 1983.
BILL M. LINDIG
(1)(4)President and Chief Executive
Officer, SYSCO Corporation
(marketer and distributor of
foodservice products),
Houston, Texas. Board
membersince 1993.
BEN F. LOVE
(1)(4)Investor, Retired Chairman
and Chief Executive OjJicer
(1972-1989), Texas
Commerce Bancshares, Inc.
(banking), Houston, Texas.Board member since 1990."
Roy S. ROBERTS
(3)(4)Vice President, General
Motors Corporation and
General Manager,
Pontiac-GMC Division,
Pontiac, Michigan (motor
vehicle manufacturer).Board member since 1993.
MARC J. SHAPIRO
(3)Chairman and Chief
Executive OjJicer, Texas
Commerce Bank N.A. (bank-
ing), Houston, Texas. Boardmembersince 1995.
ARNOLD R.
WEBER (1)(3)Chancellor, Northwestern
University, Evanston, Illinois.
Board member since 1986.
ROBERT H. WEST
(2)(3)Chairman, Butler
Manufacturing Company
(manufacturer of pre-engi-
neered building systems and
specially components),
Kansas City, Missouri.Board member since 1980.
J. STEVEN
WHISLER (3)President, Phelps Dodge
Mining Company, and
Senior Vice President,
Phelps Dodge Corporation
(mining and manufacturing),
Phoenix, Arizona. Board
member since 1995.
EDWARD E.
WHITACRE, JR.
(1)(4)Chairman and Chief
Executive Officer, SBCCommunications Inc.
(communications), San
Antonio, Texas. Board
member since 1993.
RONALD B.
WOODARD (3)President, Boeing
Commercial Airplane Group
(aerospace), Seattle,
Washington. Board membersince 1995.
MICHAEL B.
YANNEY (1)(2)Chairman and Chief
Executive Officer, America
First Companies (invest-
ments), Omaha, Nebraska.Board member since 1989.
. Years of Board service
includes service on Boards of
Burlington Northern Inc. and
Santa Fe Pacific Corporation
and predecessor companies.
Committee Assignments:
(1) Executive Committee
(2) Compensation Committee
(3) Audit Committee
(4) Directors and CorporateGovernance Committee
**Also served as director of
Burlington Northern Inc.
from 1986-1988
ROBERT D. JAMES B. CHARLES 1. THOMAS N. RICHARD A.KREBS. DAGNON. SCHULTZ. HUND. RUSSACKPresidentand Senior VicePresident- Senior VicePresident- VicePresidentand Controller Vice President-Corporate
ChiefExecutiveOjJicer EmployeeRelations Intermodaland Automotive Relations
BusinessUnit MARSHA K.
JOHN Q. DONALD G. MORGAN RICHARD E.ANDERSON. McINNES. DENIS E. Vice President-Investor WElCHER
Senior Vice President-Coal, Senior Vice President and SPRINGER. Relations and Corporate Vice President and General
Metals and Minerals Chief Operations Officer Senior Vice President and Secretary Counsel
Business Unit Chief Financial OfficerJEFFREY R. PATRICK J. DANIEL J.
DOUGLAS J. MORELAND. GREGORY T. 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
Chief of Staff Consumer and Industrial
Business Unit . Executive OjJicer of
Burlington Northern
Santa Fe Corporation
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