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UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-K
[
X
]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
FOR
THE FISCAL YEAR ENDED DECEMBER 31, 2007
OR
[
]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d
) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR
THE TRANSITION PERIOD FROM ___________TO ___________
COMMISSION FILE
NUMBER: 1-11535
Exact name of registrant as specified
in its charter
Burlington Northern Santa Fe
Corporation
|
State
of Incorporation
Delaware
|
I.R.S.
Employer Identification No.
41-1804964
|
|
Address
of principal executive offices, including zip code
2650
Lou Menk Drive
Fort
Worth, Texas 76131-2830
Registrant's telephone number,
including area code
(800)
795-2673
|
|
Securities
registered pursuant to Section 12(b) of the Act:
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|
Title
of each class
Common
Stock, $0.01 par value
|
Name
of each exchange on which registered
New
York Stock Exchange
|
|
Securities
registered pursuant to Section 12(g) of the Act:
None
|
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities
Act.
Yes [
x
] No [ ]
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the
Act.
Yes [ ] No [
x
]
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirement for
the past 90
days.
Yes [
x
] No [ ]
Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of Regulation S-K
(§ 229.405)
is not contained herein, and will not be
contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.
[
]
Indicate
by check mark whether the registrant is a large accelerated filer, accelerated
filer, non-accelerated filer, or smaller reporting company (as defined
in Rule 12b-2 of the Act).
Large accelerated filer
[x] Accelerated filer [
] Non-accelerated filer [
] Smaller reporting company [
]
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the
Act).
Yes [
] No [
x
]
The
aggregate market value of the voting stock held by non-affiliates of the
registrant was approximately $
29.822
billion on June 30, 2007. For purposes of this calculation only,
the
registrant
has excluded stock beneficially owned by directors and officers. By doing so,
the registrant does not admit that such persons are affiliates within the
meaning of Rule 405
under
the Securities Act of 1933 or for any other purpose.
Indicate
the number of shares outstanding of each of the registrant’s classes of common
stock, as of the latest practicable date:
Common
Stock, $0.01 par
value,
348,201,513
shares
outstanding as of February 4, 2008.
DOCUMENTS INCORPORATED BY
REFERENCE
List hereunder the documents from which
parts thereof have been incorporated by reference and the Part of the Form 10-K
into which such information is incorporated:
Burlington
Northern Santa Fe Corporation’s definitive Proxy Statement, to be filed not
later than 120 days after the end of the fiscal year covered by this
report…..................Part III
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Part I
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1
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1
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4
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5
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10
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11
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11
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Part II
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12
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13
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14
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35
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37
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74
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74
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74
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Part III
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75
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75
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75
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76
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76
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Part IV
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77
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S-1
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E-1
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Burlington Northern Santa Fe Corporation
(BNSF, Registrant or Company) was incorporated in the State of Delaware on
December 16, 1994. On September 22, 1995, the shareholders of Burlington
Northern Inc. (BNI) and Santa Fe Pacific Corporation (SFP) became the
shareholders of BNSF pursuant to a business combination of the two
companies.
On December 30, 1996, BNI merged with
and into SFP. On December 31, 1996, The Atchison, Topeka and Santa Fe Railway
Company merged with and into Burlington Northern Railroad Company (BNRR), and
BNRR changed its name to The Burlington Northern and Santa Fe Railway Company.
On January 2, 1998, SFP merged with and into The Burlington Northern and Santa
Fe Railway Company. On January 20, 2005, The Burlington Northern and Santa Fe
Railway Company changed its name to BNSF Railway Company (BNSF
Railway).
Through its subsidiaries, BNSF is
engaged primarily in the freight rail transportation business. At December 31,
2007, BNSF and its subsidiaries had approximately
4
0
,000 employees
. The rail operations of BNSF Railway,
BNSF’s principal operating subsidiary, comprise one of the largest railroad
systems in North America.
BNSF’s internet address is www.bnsf.com.
Through this internet website (under the “Investors” link), BNSF makes
available, free of charge, its Annual Report on Form 10-K, Quarterly Reports on
Form 10-Q and Current Reports on Form 8-K, as well as all amendments to those
reports, as soon as reasonably practicable after these reports are
electronically filed with or furnished to the Securities and Exchange Commission
(SEC). Filings on Forms 3, 4 and 5 are also available on this website within one
day after filing with the SEC. BNSF’s annual CEO certification filed pursuant to
the New York Stock Exchange’s Corporate Governance Listing Standards is filed as
an exhibit to this Form 10-K. BNSF makes available on its website other
previously filed SEC reports, registration statements and exhibits via a link to
the SEC’s website at www.sec.gov. The following documents are also made
available on the Company’s website:
|
|
•
Code of Business Conduct and
Ethics for Scheduled
Employees
|
|
|
•
Corporate Governance
Guidelines
;
and
|
|
|
•
Charters of the Audit,
Compensation and Development and Directors and Corporate Governance
Committees
|
Further discussion of the Company’s
business, including equipment and business sectors, is incorporated by reference
from Item 2, “Properties.”
The Company faces intense competition
from rail carriers and other transportation providers, and its failure to
compete effectively could adversely affect its results of operations, financial
condition or liquidity.
The Company operates in a highly
competitive business environment. Depending on the specific market, the Company
faces intermodal, intramodal, product and geographic competition. For example,
the Company believes that high service truck lines, due to their ability to
deliver non-bulk products on an expedited basis, have had and will continue to
have an adverse effect on the Company’s ability to compete for deliveries of
non-bulk, time-sensitive freight. While the Company must build or acquire and
maintain its rail system, trucks and barges are able to use public rights-of-way
maintained by public entities. Any material increase in the capacity and quality
of these alternative methods or the passage of legislation granting greater
latitude to motor carriers with respect to size and weight restrictions could
have an adverse effect on the Company’s results of operations, financial
condition or liquidity.
In addition, a failure to provide the
level of service required by the Company’s customers could result in loss of
business to competitors.
A downturn in the
economy or change in government policy could negatively impact demand for the
Company’s services.
Significant,
extended negative changes in economic conditions that impact the producers and
consumers of the commodities transported by the Company may have an adverse
effect on the Company’s operating results, financial condition or liquidity. In
addition, changes in United States and foreign government policies could change
the economic environment and affect demand for the Company’s services. For
example, changes in clean air laws or regulation of
carbon
dioxide emissions
could
reduce the demand for coal. Also, United States and foreign government
agriculture tariffs or subsidies could affect the demand for
grain.
As part of its
railroad operations, the Company frequently transports chemicals and other
hazardous materials.
The
Company is required to transport these commodities to the extent of its common
carrier obligation. An accidental release of these commodities could result in a
significant loss of life and extensive property damage as well as environmental
remediation obligations. The associated costs could have an adverse effect on
the Company’s operating results, financial condition or
liquidity.
Future acts of
terrorism or war, as well as the threat of war, may cause significant
disruptions in the Company’s business operations.
Terrorist
attacks, such as those that occurred on September 11, 2001, as well as the more
recent attacks on the transportation systems in Madrid, London and in India, and
any government response to those types of attacks and war or risk of war may
adversely affect the Company’s results of operations, financial condition or
liquidity. The Company’s rail lines and facilities could be direct targets or
indirect casualties of an act or acts of terror, which could cause significant
business interruption and result in increased costs and liabilities and
decreased revenues, which could have an adverse effect on its operating results
and financial condition. Such effects could be magnified if releases of
hazardous materials are involved. Any act of terror, retaliatory strike,
sustained military campaign or war or risk of war may have an adverse impact on
the Company’s operating results and financial condition by causing or resulting
in unpredictable operating or financial conditions, including disruptions of
rail lines, volatility or sustained increase of fuel prices, fuel shortages,
general economic decline and instability or weakness of financial markets. In
addition, insurance premiums charged for some or all of the coverage currently
maintained by the Company could increase dramatically or certain coverage may
not be available to the Company in the future.
The Company is
subject to stringent environmental laws and regulations, which may impose
significant costs on its business operations.
The
Company’s operations are subject to extensive federal, state and local
environmental laws and regulations concerning, among other things, emissions to
the air; discharges to waters; the generation, handling, storage, transportation
and disposal of waste and hazardous materials; and the cleanup of hazardous
material or petroleum releases.
Changes
to or limits on carbon dioxide emissions
could
result in significant capital expenditures to comply with these regulations.
Further, local concerns on emission
s
and
other forms of pollution
could
inhibit the Company’s ability to build facilities in strategic locations to
facilitate growth and efficient operations.
In
addition, many of the Company’s land holdings are and have been used for
industrial or transportation-related purposes or leased to commercial or
industrial companies whose activities may have resulted in discharges onto the
property. Environmental liability can extend to previously owned or operated
properties, leased properties and properties owned by third parties, as well as
to properties currently owned and used by the Company. Environmental liabilities
have arisen and may continue to arise from claims asserted by adjacent
landowners or other third parties in toxic tort litigation. The Company has been
and may continue to be subject to allegations or findings to the effect that it
has violated, or is strictly liable under, these laws or regulations. The
Company’s operating results, financial condition or liquidity could be adversely
affected as a result of any of the foregoing, and it may be required to incur
significant expenses to investigate and remediate environmental contamination.
The Company records liabilities for environmental cleanup when the amount of its
liability is both probable and reasonably
estimable.
The Company’s future
success depends on its ability to continue to comply with the significant
federal, state and local governmental regulations to which it is
subject.
The
Company is subject to a significant amount of governmental regulation with
respect to its rates and practices, railroad operations and a variety of health,
safety, labor, environmental and other matters. Failure to comply with
applicable laws and regulations could have a material adverse effect on the
Company. Governments may change the legislative framework within which the
Company operates without providing the Company with any recourse for any adverse
effects that the change may have on its business. Also, some of the regulations
require the Company to obtain and maintain various licenses, permits and other
authorizations, and it cannot assure that it will continue to be able to do so.
Increased economic regulation of the rail industry could negatively impact the
Company’s ability to determine prices for rail services and to make capital
improvements to its rail network, resulting in an adverse effect on the
Company’s results of operations, financial condition or
liquidity.
The availability of
qualified personnel could adversely affect the Company’s
operations.
Changes
in demo
graphics,
training requirements
and
the availability of qualified personnel, particularly engineers and trainmen,
could negatively impact
the
Company’s
ability
to meet demand for rail service.
Recruiting
and retaining qualified personnel, particularly those with expertise in the
railroad indus
try,
are vital to operations
.
Unpredictable
increases in demand for rail services may exacerbate such risks, which could
have a negative impact on operational efficiency and otherwise have a material
adverse effect on
the
Company’s operating results, financial condition or
liquidity.
Most of the
Company’s employees are represented by unions, and failure to successfully
negotiate collective bargaining agreements may result in strikes, work
stoppages, or substantially higher ongoing labor
costs.
A
significant majority of BNSF Railway’s employees are union-represented. BNSF
Railway’s union employees work under collective bargaining agreements with
various labor organizations. Wages, health and welfare benefits, work rules and
other issues have traditionally been addressed through industry-wide
negotiations. These negotiations have generally taken place over an extended
period of time and have previously not resulted in any extended work stoppages.
The existing agreements have remained in effect and will continue to remain in
effect until new agreements are reached or the Railway Labor Act’s procedures
(which include mediation, cooling-off periods and the possibility of
Presidential intervention) are exhausted. While the negotiations have not yet
resulted in any extended work stoppages, if the Company is unable to negotiate
acceptable new agreements, it could result in strikes by the affected workers,
loss of business and increased operating costs as a result of higher wages or
benefits paid to union members, any of which could have an adverse effect on the
Company’s operating results, financial condition or
liquidity.
Severe weather and
natural disasters could disrupt normal business operations, which would result
in increased costs and liabilities and decreases in
revenues.
The
Company’s success is dependent on its ability to operate its railroad system
efficiently. Severe weather and natural disasters, such as tornados, flooding
and earthquakes, could cause significant business interruptions and result in
increased costs and liabilities and decreased revenues. In addition, damages to
or loss of use of significant aspects of the Company’s infrastructure due to
natural or man-made disruptions could have an adverse affect on the Company’s
operating results, financial condition or liquidity for an extended period of
time until repairs or replacements could be made. Additionally, during natural
disasters, the Company’s workforce may be unavailable, which could result in
further delays. Extreme swings in weather could also negatively affect the
performance of locomotives and rolling stock.
Fuel supply
availability and fuel prices may adversely affect the Company’s results of
operations, financial condition or liquidity.
Fuel
supply availability could be impacted
as
a result of limitations in refining capacity, disruptions to the supply chain,
or rising global demand. A significant reduction in fuel availability could
impact the Company’s ability to provide transportation services at current
levels, increase fuel costs and impact the economy. Each of these factors could
have an adverse effect on the Company’s operating results, financial condition
or liquidity. Additionally, the Company is expected to be able to offset a
significant portion of the anticipated higher fuel costs through its fuel
surcharge program in 2008. However, to the extent that the Company is unable to
maintain and expand its existing fuel surcharge program, increases in fuel
prices could have an adverse effect on the Company’s operating results,
financial condition or liquidity.
The Company depends
on the stability and availability of its information technology
systems.
The
Company relies on information technology in all aspects of its business. A
significant disruption or failure of its information technology systems could
result in service interruptions, safety failures, security violations,
regulatory compliance failures and the inability to protect corporate
information assets against intruders or other operational difficulties. Although
the Company has taken steps to mitigate these risks, including Business
Continuity Planning, Disaster Recovery Planning and Business Impact Analysis, a
significant disruption could adversely affect the Company’s results of
operations, financial condition or liquidity. Additionally, if the Company is
unable to acquire or implement new technology, it may suffer a competitive
disadvantage, which could also have an adverse effect on the Company’s results
of operations, financial condition or
liquidity.
The Company’s
operational dependencies may adversely affect results of operations, financial
condition or liquidity.
Due
to the integrated nature of the United States’ freight transportation
infrastructure, the Company’s operations may be negatively affected by service
disruptions of other entities such as ports and other railroads which
interchange with the Company. A significant prolonged service disruption of one
or more of these entities could have an adverse effect on the Company’s results
of operations, financial condition or
liquidity.
Personal injury
claims constitute a significant expense, and increases in the amount or severity
of these claims could adversely affect the Company’s operating
results.
The
Company is subject to various personal injury claims by third parties and
employees, including claims by employees who worked around asbestos until 1985,
when its use at BNSF was substantially eliminated. Personal injury claims by
BNSF Railway employees are subject to the Federal Employees’ Liability Act
(FELA), rather than state workers’ compensation laws. The Company believes that
the FELA system, which includes unscheduled awards and a reliance on the jury
system, has contributed to increased expenses in the past. Future events, such
as increases in the number of claims that are filed, developments in legislative
and judicial standards and the costs of settling claims, could result in an
adverse effect on the Company’s operating
results.
Item
1B
. Unresolved Staff Comments
None.
Track
Configuration
BNSF Railway
operates over a railroad system consisting of
approximately
32,000 route miles of track
,
excluding multiple
main tracks, yard tracks and sidings, approximately 23,000 miles of which are
owned route miles, including easements, in 28 states and two Canadian provinces
as of December 31, 2007. Approximately 9,000 route miles of BNSF Railway’s
system consist of trackage rights that permit BNSF Railway to operate its trains
with its crews over other railroads’ tracks.
As of December 31,
2007, the total BNSF Railway system, including single and multiple main tracks,
yard tracks and sidings, consisted of approximately 50,000 operated miles of
track, all of which are owned by or held under easement by BNSF Railway except
for approximately 10,000 route miles operated under trackage rights. At December
31, 2007, approximately 26,000 miles of BNSF Railway’s track consisted of
112-pound per yard or heavier rail, including approximately 20,000 track miles
of 131-pound per yard or heavier rail.
Equipment
Configuration
BNSF Railway owned
or had under non-cancelable leases exceeding one year the following units of
railroad rolling stock and other equipment as of the dates shown
below.
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
Locomotives
|
|
|
6,400
|
|
|
6,330
|
|
|
5,790
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Freight
cars:
|
|
|
|
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|
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Covered
hopper
|
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36,439
|
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33,488
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|
|
34,631
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Gondola
|
|
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13,690
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13,998
|
|
|
12,579
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Open
hopper
|
|
|
11,428
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11,277
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10,973
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Flat
|
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10,470
|
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11,382
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8,537
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Box
|
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7,948
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8,937
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8,685
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Refrigerator
|
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4,196
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4,631
|
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4,983
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|
Tank
|
|
|
427
|
|
|
426
|
|
|
422
|
|
Autorack
|
|
|
416
|
|
|
641
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|
|
748
|
|
Other
|
|
|
324
|
|
|
341
|
|
|
323
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Total
freight cars
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|
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85,338
|
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85,121
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81,881
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|
|
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Domestic
chassis
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11,714
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12,849
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12,649
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Company
service cars
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4,070
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3,982
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4,091
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Domestic
containers
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3,253
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3,275
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10,412
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Trailers
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1,200
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1,209
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1,916
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Commuter
passenger cars
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163
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165
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179
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Average age from date of manufacture–locomotive fleet (years)
a
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15
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15
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15
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Average age from
date of manufacture–freight car fleet (years)
a
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14
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14
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15
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a
These
averages
are not weighted to reflect the
greater capacities of the newer equipment
.
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Capital
Expenditures and Maintenance
Capital
Expenditures
The
extent of the BNSF Railway’s maintenance and capacity program is outlined in the
following table:
|
Year ended December
31,
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2008
Estimate
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2007
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2006
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2005
|
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|
|
|
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Track
miles of rail laid
a
|
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|
908
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994
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|
854
|
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|
711
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|
Cross
ties inserted (thousands)
a
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3,237
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3,126
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2,957
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|
3,171
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Track
resurfaced (miles)
|
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|
13,075
|
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11,687
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12,588
|
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|
12,790
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a
Includes both maintenance of existing route system and expansion projects.
Expenditures for these maintenance programs are primarily
capitalized.
|
A
breakdown of the Company’s cash capital expenditures for the three years ended
December 31, 2007, is incorporated by reference from a table in Item 7,
Management’s Discussion and Analysis of Financial Condition and Results of
Operations under the heading “Liquidity and Capital Resources; Investing
Activities.”
BNSF’s planned 2008 capital commitments
are incorporated by reference from Item 7, Management’s Discussion and Analysis
of Financial Condition and Results of Operations under the heading “Executive
Summary; Business Outlook for 2008.”
Maintenance
As of December 31, 2007, General
Electric Company, Alstom Transportation, Inc. and Electro-Motive Diesel, Inc.
performed locomotive maintenance and overhauls for BNSF Railway at its
facilities under various maintenance agreements that covered approximately
4,240
locomotives.
Property and
Facilities
BNSF Railway operates various facilities
and equipment to support its transportation system, including its infrastructure
and locomotives and freight cars as previously described. It also owns or leases
other equipment to support rail operations, including containers, chassis and
vehicles. Support facilities for rail operations include yards and terminals
throughout its rail network, system locomotive shops to perform locomotive
servicing and maintenance, a centralized network operations center for train
dispatching and network operations monitoring and management in Fort Worth,
Texas, regional dispatching centers, computers, telecommunications equipment,
signal systems and other support systems. Transfer facilities are maintained for
rail-to-rail as well as intermodal transfer of containers, trailers and other
freight traffic. These facilities include
33
major intermodal hubs located across the
system. BNSF Railway’s largest intermodal facilities in terms of 2007 volume
were as follows:
|
Intermodal
Facilities
|
|
Lifts
|
|
|
|
|
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|
Hobart
Yard (Los Angeles, California)
|
|
|
1,243,000
|
|
Logistics
Park (Chicago, Illinois)
|
|
|
755,000
|
|
Corwith
Yard (Chicago, Illinois)
|
|
|
739,000
|
|
Willow
Springs (Illinois)
|
|
|
636,000
|
|
Alliance
(Fort Worth, Texas)
|
|
|
567,000
|
|
Cicero
(Illinois)
|
|
|
517,000
|
|
San
Bernardino (California)
|
|
|
500,000
|
|
Argentine
(Kansas City, Kansas)
|
|
|
369,000
|
|
Seattle
International Gateway (Seattle, Washington)
|
|
|
305,000
|
|
Memphis
(Tennessee)
|
|
|
284,000
|
BNSF Railway owns
23 automotive distribution facilities
and serves eight
port
facilities where automobiles are loaded on or unloaded from multi-level rail
cars in the United States and Canada.
BNSF Railway’s largest freight car
classification yards based on the average daily number of cars processed
(excluding cars that do not change trains at the terminal, intermodal and coal
cars) are shown below:
|
Classification
Yards
|
Daily Average
Cars
Processed
|
|
|
|
|
Argentine
(Kansas City, Kansas)
|
1,807
|
|
Galesburg
(Illinois)
|
1,642
|
|
Barstow
(California)
|
1,349
|
|
Pasco
(Washington)
|
1,274
|
|
Tulsa
(Oklahoma)
|
1,198
|
As of December 31, 2007, certain BNSF
Railway properties and other assets were subject to liens securing $
102
million of mortgage debt. Certain
locomotives, rolling stock and facilities of BNSF Railway were subject to
equipment leases and financing obligations, as referred to in Notes 9 and 10 to
the Consolidated Financial Statements.
Productivity
Productivity, as measured by thousand
gross ton miles per employee, is shown in the table below. Gross ton miles is
defined as the product of the number of loaded and empty miles traveled and the
combined weight of the car and contents.
Certain prior period amounts
have been adjusted to
conform to current year presentation.
|
Year ended December
31,
|
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
Thousand
gross ton miles divided by average number of employees
|
|
|
27,222
|
|
|
27,092
|
|
|
26,964
|
A discussion of Employees and Labor
Relations is incorporated by reference from Item 7, Management’s Discussion and
Analysis of Financial Condition and Results of Operations, under the heading
“Other Matters; Employee and Labor Relations.”
Business
Mix
In serving the Midwest, Pacific
Northwest and the Western, Southwestern and Southeastern regions and ports of
the country, BNSF transports, through one operating transportation services
segment, a range of products and commodities derived from manufacturing,
agricultural and natural resource industries. Approximately
6
5 percent of the freight revenues
originated by the Company is covered by contractual agreements of varying
duration, while the balance is subject to common carrier, published prices or
quotations offered by the Company. BNSF’s financial performance is influenced
by, among other things, general and industry economic conditions at the
international, national and regional levels. The following map illustrates the
Company’s primary routes, including trackage rights, which allow BNSF to access
major cities and ports in the western and southern United States as well as
Canadian and Mexican traffic. In addition to major cities and ports, BNSF
efficiently serves many smaller markets by working closely with approximately
200 shortline partners. BNSF has also entered into marketing agreements with CSX
Transportation, Canadian National Railway Company and Kansas City Southern
Railway Company, expanding the marketing reach for each railroad and their
customers.
Consumer
Products
:
The Consumer Products’ freight business
provided approximately
37
percent of freight revenues
in 2007 and consisted of the following business sectors:
|
•
|
International
Intermodal
—
International business consists primarily of container traffic from
steamship companies such as
Maersk, Hyundai and Yang
Ming.
International Intermodal accounted
for approximately
46
percent of total
Consumer Products revenues.
|
|
•
|
Domestic
Intermodal
— Domestic
Intermodal generated approximately
45
percent of total Consumer Products
revenue. The Domestic Intermodal sector is comprised of the following
business areas:
|
|
•
|
Truckload/Intermodal
Marketing Companies
—
The Truckload business area is comprised of full truckload carriers such
as J.B. Hunt Transportation, Schneider National and Swift Transportation.
The Intermodal Marketing Companies business area is comprised of shippers’
agents and consolidators such as the Hub
Group.
|
|
•
|
Expedited
Truckload/Less-than-Truckload
— This business area is comprised
of less-than-truckload carriers and parcel carriers such as United Parcel
Service and YRC Worldwide. It also includes expedited truckload carriers
such as Werner Enterprises, Stevens Transport and U.S. Xpress
Enterprises.
|
|
•
|
Automotive
— The transportation of both
assembled motor vehicles, primarily those manufactured outside of the
United States, and shipments of vehicle parts to numerous destinations
throughout the Midwest, Southwest, West and Pacific Northwest provided
about
9
percent of total Consumer Products
revenues.
|
Industrial Products:
The Industrial Products’ freight
business provided approximately
24
percent of BNSF’s freight revenues in
2007 and consisted of the following five business areas:
|
•
|
Construction
Products
— The
Construction Products sector represented approximately
33
percent of total Industrial
Products revenues in 2007. This sector serves virtually all of the
commodities included in or resulting from the production of steel along
with mineral commodities such as clays, sands, cements, aggregates, sodium
compounds and other industrial minerals. Industrial taconite, an iron ore
derivative produced in northern Minnesota, scrap steel and coal coke are
BNSF’s primary input products transported. Finished steel products range
from structural beams and steel coils to wire and nails. BNSF links the
integrated steel mills in the East with fabricators in the West and
Southwest. Service is also provided to various mini-mills in the Southwest
that produce rebar, beams and coiled rod for the construction industry.
Industrial minerals include various mined and processed commodities such
as cement and aggregates (construction sand, gravel and crushed stone)
that generally move to domestic markets for use in general construction
and public work projects, including highways. Borates and clays move to
domestic points as well as to export markets primarily through West Coast
ports. Sodium compounds, primarily soda ash, are moved to domestic markets
for use in the manufacturing of glass and other industrial products. Sand
is utilized in the manufacturing of glass and in foundry and oil drilling
applications.
|
|
•
|
Building
Products
— This sector
generated approximately 29 percent of total 2007 Industrial Products
revenues and includes primary forest product commodities such as lumber,
plywood, oriented strand board, particleboard, paper products, pulpmill
feedstocks, wood pulp and sawlogs. Also included in this sector are
government, machinery and waste traffic. Commodities from this diverse
group primarily originate from the Pacific Northwest, Western Canada,
upper Midwest and the Southeast for shipment mainly into domestic markets.
Industries served include construction, furniture, photography,
publishing, newspaper and industrial packaging. Shipments of waste,
ranging from municipal waste to contaminated soil, are transported to
landfills and reclamation centers across the country. The government and
machinery business includes aircraft parts, agricultural and construction
machinery, military equipment and large industrial
machinery.
|
|
•
|
Petroleum
Products
— Commodities
included in the Petroleum Products sector are liquefied petroleum gas
(LPG), diesel fuels, asphalt, alcohol, solvents, petroleum coke, lubes,
oils, waxes and carbon black. This group made up
16
percent of total Industrial
Products revenues for 2007. Product use varies based on commodity and
includes the use of LPG for heating purposes, diesel fuel and lubes to run
heavy machinery and asphalt for road projects and roofing. Products within
this group originate and terminate throughout the BNSF network, with the
largest areas of activities being the Texas Gulf, Pacific Northwest,
California, Montana and
Illinois.
|
|
•
|
Chemicals
and Plastic Products
—
The Chemicals and Plastic Products sector represented approximately
14
percent of total 2007 Industrial
Products revenues. This group is composed of industrial chemicals and
plastics commodities. These commodities include caustic soda, chlorine,
industrial gases, acids, polyethylene, polypropylene and polyvinyl
chloride. Industrial chemicals and plastics resins are used by the
automotive, housing and packaging industries, as well as for feedstocks,
to produce other chemicals and plastic products. These commodities
originate primarily in the Gulf Coast region for shipment mainly into
domestic markets.
|
|
•
|
Food
and Beverages
— Food
and Beverages represented approximately
8
percent of total 2007 Industrial
Products revenues. This group consists of beverages, canned goods and
perishable food items. Other consumer goods such as cotton, salt, rubber
and tires and miscellaneous boxcar shipments are also included in this
business area.
|
Coal:
In
2007, the transportation of coal contributed
about
21 percent of freight revenues. BNSF is one of the largest transporters of
low-sulfur coal in the United States. More than 90 percent of all BNSF’s coal
tons originate
d
from
the Powder River Basin of Wyoming and Montana. These coal shipments were
destined for coal-fired electric generating stations located primarily in the
North Central, South Central, Southeast, Mountain and Pacific Northwest regions
of
the United States. BNSF also transports coal from the Powder River Basin to
markets in Canada and the eastern United States. Demand for Powder River Basin
coal has increased substantially over the past 20 years due to its relatively
low sulfur content, abundant reserves, relatively inexpensive mine production
and competitive delivered cost to power plants.
Other BNSF coal
shipments originate principally in Colorado, Illinois, New Mexico and North
Dakota. These shipments move to electrical generating stations and industrial
plants in the Mountain and North Central regions of the United States and to
Mexico.
Agricultural
Products:
The transportation
of Agricultural Products provided
approximately 18
percent
of 2007 freight
revenues. These products include wheat, corn, bulk foods, soybeans, oil seeds
and meals, feeds, barley, oats and rye, flour and mill products, milo, oils,
specialty grains, malt, ethanol and fertilizer. The BNSF system is strategically
located to serve the grain-producing regions of the Midwest and Great Plains.
The Company continues to develop and operate a shuttle network for grain and
grain products, which allows more efficient use of equipment and improved cycle
times. In addition to serving most grain-producing areas, BNSF serves most major
terminal, storage, feeding and food-processing locations. Furthermore, BNSF has
access to major export markets in the Pacific Northwest, western Great Lakes,
Texas Gulf and Mexico.
Freight
Statistics
The following table
sets forth certain freight statistics relating to rail operations for the
periods indicated.
Certain prior
period amounts have been adjusted to conform to current year
presentation.
|
Year ended December
31,
|
|
|
|
2006
|
|
2005
|
|
Revenue ton miles
(millions)
a
|
|
|
|
|
647,857
|
|
|
604,656
|
|
Freight
revenue per thousand revenue ton miles
|
|
$
|
23.34
|
|
$
|
22.45
|
|
$
|
20.85
|
|
Average
length of haul (miles)
|
|
|
1,079
|
|
|
1,067
|
|
|
1,068
|
|
a
Revenue ton miles is
defined as the product of the number of loaded miles traveled and the
weight of the contents.
|
|
|
|
Revenue, cars/units and average revenue
per car/unit information for the three years ended December 31, 2007, is
incorporated by reference from a table in Item 7, Management’s Discussion and
Analysis of Financial Condition and Results of Operations, under the heading
“Results of Operations; Revenue Table.”
Government
Regulation and Legislation
The Company is subject to federal, state
and local laws and regulations generally applicable to all businesses. Rail
operations are subject to the regulatory jurisdiction of the Surface
Transportation Board (STB) of the United States Department of Transportation
(DOT), the Federal Railroad Administration of the DOT, the Occupational Safety
and Health Administration (OSHA), as well as other federal and state regulatory
agencies. The STB has jurisdiction over disputes and complaints involving
certain rates, routes and services, the sale or abandonment of rail lines,
applications for line extensions and construction and consolidation or merger
with, or acquisition of control of, rail common carriers. The outcome of STB
proceedings can affect the profitability of BNSF’s business.
DOT and OSHA have jurisdiction under
several federal statutes over a number of safety and health aspects of rail
operations, including the transportation of hazardous materials. State agencies
regulate some aspects of rail operations with respect to health and safety in
areas not otherwise preempted by federal law.
BNSF Railway’s rail operations, as well
as those of its competitors, are also subject to extensive federal, state and
local environmental regulation. These laws cover discharges to water, air
emissions, toxic substances and the generation, handling, storage,
transportation and disposal of waste and hazardous materials. This regulation
has the effect of increasing the cost and liabilities associated with rail
operations. Environmental risks are also inherent in rail operations, which
frequently involve transporting chemicals and other hazardous
materials.
Many of BNSF Railway’s land holdings are
and have been used for industrial or transportation-related purposes or leased
to commercial or industrial companies whose activities may have resulted in
discharges onto the property. As a result, BNSF Railway is now subject to, and
will from time to time continue to be subject to, environmental cleanup and
enforcement actions. In particular, the federal Comprehensive Environmental
Response, Compensation and Liability Act (CERCLA), also known as the Superfund
law, generally imposes joint and several liability for cleanup and enforcement
costs on current and former owners and operators of a site, without regard to
fault or the legality of the original conduct. Accordingly, BNSF Railway may be
responsible under CERCLA and other federal and state statutes for all or part of
the costs to clean up sites at which certain substances may have been released
by BNSF Railway, its current lessees, former owners or lessees of properties, or
other third parties. Further discussion is incorporated by reference from Note
10 to the Consolidated Financial Statements.
Railroad
Retirement
Railroad industry
personnel are covered by the Railroad Retirement System instead of Social
Security. BNSF Railway’s contributions under the Railroad Retirement System have
been almost triple those in industries covered by Social Security. The Railroad
Retirement System, funded primarily by payroll taxes on covered employers and
employees, includes a benefit roughly equivalent to Social Security (Tier I), an
additional benefit similar to that allowed in some private defined-benefit plans
(Tier II) and other benefits. For 2007, the Railroad Retirement System required
up to a
19.75 percent
contribution by railroad employers on eligible wages, while the Social Security
and Medicare Acts only required a 7.65 percent contribution
on similar wage
bases.
Competition
The business
environment in which BNSF Railway operates is highly competitive. Depending on
the specific market, deregulated motor carriers, other railroads and river
barges may exert pressure on price and service levels. The presence of advanced,
high service truck lines with expedited delivery, subsidized infrastructure and
minimal empty mileage continues to affect the market for non-bulk,
time-sensitive freight. The potential expansion of longer combination vehicles
could further encroach upon markets traditionally served by railroads. In order
to remain competitive, BNSF Railway and other railroads continue to develop and
implement operating efficiencies to improve
productivity.
As railroads
streamline, rationalize and otherwise enhance their franchises, competition
among rail carriers intensifies. BNSF Railway’s primary rail competitor in the
Western region of the United States is the Union Pacific Railroad Company. Other
Class I railroads and numerous regional railroads and motor carriers also
operate in parts of the same territories served by BNSF
Railway.
Based on weekly
reporting by the Association of American Railroads, BNSF’s share of the western
United States rail traffic in 2007 was approximately
49
percent.
Item 3. Legal
Proceedings
Beginning May 14,
2007, 27 similar class action complaints were filed in six federal district
courts around the country against BNSF and four other Class I railroads (and, in
some cases, the Association of American Railroads) alleging that they have
conspired to fix fuel surcharges with respect to unregulated freight
transportation services in violation of the antitrust laws and seeking
injunctive relief and unspecified treble damages. On November 6,
2007, the Judicial Panel on Multidistrict Litigation entered an order to
consolidate cases in the federal district court of the District of Columbia for
coordinated or consolidated pretrial proceedings. (In
re: Rail Freight Fuel Surcharge Antitrust Litigation, MDL No. 1869).
The Company believes that these claims are without merit and intends to defend
against the allegations vigorously. The Company is also responding to
a state grand jury subpoena requesting production of information related to fuel
surcharges. The Company does not believe that the outcome of any of
these proceedings will have a material effect on its financial condition,
results of operations or liquidity.
Information
concerning certain pending tax-related administrative or adjudicative state
proceedings or appeals is incorporated by reference from Note 5 to the
Consolidated Financial Statements, and information concerning other claims and
litigation is incorporated by reference from Note 10 to the Consolidated
Financial Statements.
Item 4. Submission of Matters to a Vote
of Security Holders
No matters were
submitted by BNSF to a vote of its securities holders during the fourth quarter
of 2007.
Executive
Officers of the Registrant
Listed below are
the names, ages and positions of all executive officers of BNSF and their
business experience during the past five years. Executive officers hold office
until their successors are elected or appointed, or until their earlier death,
retirement, resignation or removal.
Matthew K. Rose, 48
Chairman, President
and Chief Executive Officer of BNSF since March 2002.
Thomas N. Hund, 54
Executive Vice
President and Chief Financial Officer since January
2001.
Carl R. Ice, 51
Executive Vice
President and Chief Operations Officer since January
2001.
John P. Lanigan, Jr.,
52
Executive Vice President and Chief
Marketing Officer since January 2003.
Roger Nober, 43
Executive Vice President Law and
Secretary since January 2007. Prior to that, partner of Steptoe & Johnson
LLP, Washington, DC (law firm) from March 2006 and Chairman of the United States
Surface Transportation Board from November 2002 – January
2006.
Peter J. Rickershauser,
59
Vice President–Network Development since
May 1999.
Item
5.
Market for
Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
BNSF’s common stock is listed on the New
York Stock Exchange under the symbol “BNI.” Information as to the high and low
sales prices of such stock for the two years ended December 31, 2007, and the
frequency and amount of dividends declared on such stock during such periods, is
set forth in Note 16 to the Consolidated Financial Statements.
The approximate number of holders of
record of the common stock at
February 4, 2008, was
32,000.
Common Stock
Repurchases
The
following table presents repurchases by the Company of its common stock for each
of the three months for the quarter ended December 31, 2007, (shares in
thousands):
|
Issuer Purchases of Equity
Securities
|
|
Period
|
|
|
Total Number of Shares
Purchased
a
|
|
|
Average Price Paid
Per
Share
|
|
|
Total Number of Shares
Purchased as Part of
Publicly Announced Plans
or Programs
b
|
|
|
Maximum Number of
Shares That May Yet be
Purchased Under the
Plans or Programs
b
|
|
October
1 – 31
|
|
|
272
|
|
$
|
85.22
|
|
|
270
|
|
|
32,643
|
|
November
1 – 30
|
|
|
1,987
|
|
|
85.51
|
|
|
1,967
|
|
|
30,676
|
|
December
1 – 31
|
|
|
1,262
|
|
|
85.23
|
|
|
1,175
|
|
|
29,501
|
|
Total
|
|
|
3,521
|
|
$
|
85.39
|
|
|
3,412
|
|
|
|
|
a
Total number of
shares purchased includes approximately 109 thousand shares where
employees delivered already owned shares or used an attestation procedure
to satisfy the exercise price of stock options or the withholding of
tax payments. Total number of shares purchased does not include
approximately 117
thousand
shares acquired from employees to satisfy tax withholding
obligations that arose on the vesting of restricted stock or the exercise
of stock options.
|
|
b
On July 17, 1997, the Board initially authorized and the Company announced
the repurchase of up to 30 million shares of the Company’s common stock
from time to
time in the open market. On December 9, 1999, April 20, 2000, September
21, 2000, January 16, 2003, December 8, 2005 and February 14, 2007, the
Board authorized
and the Company announced extensions of the BNSF share repurchase
program, adding 30 million shares at each date for a total of 210 million
shares authorized.
The share repurchase program does not have an expiration
date.
|
|
December
31,
|
|
2007
|
|
2006
|
a
|
2005
|
a
|
2004
|
a
|
2003
|
a
|
|
For the year
ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
R
evenues
|
|
$
|
15,802
|
|
$
|
14,985
|
|
$
|
12,987
|
|
$
|
10,946
|
|
$
|
9,413
|
|
|
Operating
income
|
|
$
|
3,486
|
|
$
|
3,521
|
|
$
|
2,927
|
b
|
$
|
1,709
|
c
|
$
|
1,675
|
|
|
Income
before
cumulative
effect of accounting change
|
|
$
|
1,829
|
|
$
|
1,889
|
|
$
|
1,534
|
b
|
$
|
805
|
c
|
$
|
783
|
d
|
|
Basic earnings per share (before
cumulative effect of accounting
change)
|
|
$
|
5.19
|
|
$
|
5.23
|
|
$
|
4.13
|
b
|
$
|
2.18
|
c
|
$
|
2.12
|
d
|
|
Average basic
shares
|
|
|
352.5
|
|
|
361.0
|
|
|
371.8
|
|
|
370.0
|
|
|
369.1
|
|
|
Diluted earnings per share (before
cumulative effect of accounting
change)
|
|
$
|
5.10
|
|
$
|
5.11
|
|
$
|
4.02
|
b
|
$
|
2.14
|
c
|
$
|
2.10
|
d
|
|
Average diluted
shares
|
|
|
358.9
|
|
|
369.8
|
|
|
381.8
|
|
|
376.6
|
|
|
372.3
|
|
|
Dividends declared per common
share
|
|
$
|
1.14
|
|
$
|
0.90
|
|
$
|
0.74
|
|
$
|
0.64
|
|
$
|
0.54
|
|
|
At year
end:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
33,58
3
|
|
$
|
31,797
|
|
$
|
30,436
|
|
$
|
29,023
|
|
$
|
27,050
|
|
|
Long-term debt and commercial
paper, including current portion
|
|
$
|
8,14
6
|
|
$
|
7,385
|
|
$
|
7,154
|
|
$
|
6,516
|
|
$
|
6,684
|
|
|
Stockholders’
equity
|
|
$
|
11,144
|
|
$
|
10,528
|
|
$
|
9,638
|
|
$
|
9,438
|
|
$
|
8,608
|
|
|
Net debt to total
capitalization
e
|
|
|
41.2
|
%
|
|
40.0
|
%
|
|
42.3
|
%
|
|
39.6
|
%
|
|
43.6
|
%
|
|
For the year
ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital
expenditures
|
|
$
|
2,248
|
|
$
|
2,014
|
|
$
|
1,750
|
|
$
|
1,527
|
|
$
|
1,726
|
|
|
Depreciation and
amortization
|
|
$
|
1,293
|
|
$
|
1,176
|
|
$
|
1,111
|
|
$
|
1,035
|
|
$
|
927
|
|
|
a
Prior
year numbers have been adjusted for the retrospective adoption of
Financial Accounting Standards Board (FASB) Staff Position
(FSP) AUG AIR-1,
Accounting
for Planned Major Maintenance Activities
.
See Note 2 to the Consolidated Financial Statements for additional
information.
b
2005
operating income, income before cumulative effect of accounting change and
earnings per share include an impairment charge related to an agreement to
sell certain line segments to the State of New Mexico in the future of
$71 million pre-tax, $44 million net of tax, or $0.12 per basic
and diluted share.
See
discussion under Item 7, Management's Discussion and Analysis of Financial
Condition and Results of Operations, under the heading "New Mexico
Department of Transportation."
c
2004
operating income, income before cumulative effect of accounting change and
earnings per share include a charge for a change in estimate of unasserted
asbestos and environmental liabilities of $465 million pre-tax,
$288 million net of tax, or $0.78 per basic share and $0.77 per
diluted share.
d
2003
income before cumulative effect of accounting change excludes the
favorable cumulative effect of an accounting change for asset retirement
obligations of $39 million, net of tax, or $0.11 per basic share and
$0.10 per diluted share.
e
Net
debt is calculated as total debt (long-term debt and commercial paper plus
long-term debt due within one year) less cash and cash equivalents, and
total capitalization is calculated as the sum of net debt and total
stockholders’ equity.
|
|
Item
7.
Management’s Discussion and Analysis of Financial Condition and Results of
Operations
Management’s discussion and analysis
relates to the financial condition and results of operations of Burlington
Northern Santa Fe Corporation and its majority-owned subsidiaries
(collectively BNSF, Registrant or Company). The principal operating subsidiary
of BNSF is the BNSF Railway Company (BNSF Railway) through which BNSF derives
substantially all of its revenues. All earnings per share information is stated
on a diluted basis.
Company
Overview
Through its subsidiaries, BNSF is
engaged primarily in the freight rail transportation business. BNSF’s primary
operating subsidiary, BNSF Railway, operates one of the largest North American
rail networks with
about
32,000 route miles in 28 states and two Canadian provinces
. Through its one operating
transportation segment, BNSF Railway transports a wide range of products and
commodities including Consumer Products, Industrial Products, Coal and
Agricultural Products.
Additional operational information,
including weekly intermodal and carload unit reports as submitted to the
Association of American Railroads (AAR) and annual reports submitted to the
Surface Transportation Board (STB), are available on the Company’s website at
www.bnsf.com/investors.
Executive
Summary
Fiscal Year 2007 — Financial
Overview
|
•
|
The Company achieved earnings of
$5.10 per share compared with 2006 earnings of $5.11 per
share.
|
|
•
|
Freight revenues increased 6
percent to $15.
3
billion,
which
included revenue increases in each of the
Company’s four business
groups
.
|
|
•
|
Of the 6-percent increase in
freight revenue, 6 percent, 1 percent and 1 percent was
attributable to price, unit growth and fuel surcharges, respectively.
These were partially offset by a decrease due to changes in business
mix.
|
|
•
|
Operating expenses for 2007
increased 7 percent compared with 2
006, largely driven by a
$
463
million increase in fuel expense
primarily reflecting increased
fuel
prices and a
reduced fuel-
hedge
benefit
.
|
|
•
|
Operating income of $3.5 billion
for 2007
decreased
$35 million from 2006 despite a $310 million reduction in fuel-hedge
benefit.
|
|
•
|
Each year capital expenditures are
a significant use of cash for BNSF. In 2007, BNSF increased its cash
capital expenditures to $2.25 billion from $2.01 billion in the prior
year primarily due to both maintenance of BNSF’s track structure and
additional expansion projects undertaken in 2007.
Despite the increase in capital
expenditures, BNSF’s capital commitments, which includes both cash spent
for capital and locomotive leases, decreased approximately $80 million to
$2.59 billion in 2007 due to fewer locomotive leases entered into in 2007
as compared to 2006.
|
Business Outlook for
2008
|
•
|
BNSF expects to see revenue growth
in the high single digits
on about flat unit
volumes
.
|
|
•
|
Combining projected revenue growth
with an
ongoing focus
on productivity,
low
dou
ble-
digit growth
in earnings per share is
achievable
.
|
|
•
|
The Company’s planned capital
commitment program for 2008 is approximately $2.45 billion as compared to
$2.59 billion in 2007. The decrease in the capital commitment program
versus prior year is principally related to lower expansion capital driven
by lower anticipated demand.
|
|
•
|
BNSF anticipates leasing 200
locomotives with a cost of about $400 million and investing over $200
million in track and facilities to expand capacity to continue to meet
demand for consistent freight rail service. The 2008 capacity expansion
program is expected to be approximately $350 million lower than
2007.
|
|
•
|
The Company expects to spend more
than $1.8 billion to keep its infrastructure strong by refreshing track,
signal systems, structures, freight cars and implementing new
technologies.
|
Revenue Table
The
following table presents BNSF’s revenue information by business group for the
years ended December 31, 2007, 2006 and 2005.
|
|
|
Revenues
(in
millions)
|
|
Cars / Units
(in
thousands)
|
|
Average Revenue Per Car /
Unit
|
|
|
Year ended December
31,
|
|
2007
|
|
2006
|
|
2005
|
|
2007
|
|
2006
|
|
2005
|
|
2007
|
|
2006
|
|
2005
|
|
Consumer
products
|
|
$
|
5,664
|
|
$
|
5,613
|
|
$
|
4,898
|
|
|
5,149
|
|
|
5,520
|
|
|
5,215
|
|
$
|
1,100
|
|
$
|
1,017
|
|
$
|
939
|
|
Industrial
products
|
|
|
3,684
|
|
|
3,589
|
|
|
3,128
|
|
|
1,664
|
|
|
1,686
|
|
|
1,655
|
|
|
2,214
|
|
|
2,129
|
|
|
1,890
|
|
Coal
|
|
|
3,279
|
|
|
2,916
|
|
|
2,448
|
|
|
2,472
|
|
|
2,458
|
|
|
2,238
|
|
|
1,326
|
|
|
1,186
|
|
|
1,094
|
|
Agricultural
products
|
|
|
2,722
|
|
|
2,427
|
|
|
2,132
|
|
|
1,033
|
|
|
973
|
|
|
916
|
|
|
2,635
|
|
|
2,494
|
|
|
2,328
|
|
Total
freight revenues
|
|
|
15,349
|
|
|
14,545
|
|
|
12,606
|
|
|
10,318
|
|
|
10,637
|
|
|
10,024
|
|
$
|
1,488
|
|
$
|
1,367
|
|
$
|
1,258
|
|
Other
revenues
|
|
|
453
|
|
|
440
|
|
|
381
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating
revenues
|
|
$
|
15,802
|
|
$
|
14,985
|
|
$
|
12,987
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expense Table
The
following table presents BNSF’s expense information for the years ended December
31, 2007, 2006 and 2005 (in millions):
|
Year ended December
31,
|
|
|
2007
|
|
|
2006
|
a
|
|
2005
|
a
|
|
Compensation
and benefits
|
|
|
$
|
3,773
|
|
|
$
|
3,816
|
|
|
$
|
3,515
|
|
|
Fuel
|
|
|
|
3,197
|
|
|
|
2,734
|
|
|
|
1,959
|
|
|
Purchased
services
|
|
|
|
2,023
|
|
|
|
1,906
|
|
|
|
1,713
|
|
|
Depreciation
and amortization
|
|
|
|
1,293
|
|
|
|
1,176
|
|
|
|
1,111
|
|
|
Equipment
rents
|
|
|
|
942
|
|
|
|
930
|
|
|
|
886
|
|
|
Materials
and other
|
|
|
|
1,088
|
|
|
|
902
|
|
|
|
876
|
|
|
Total operating
expenses
|
|
|
$
|
12,316
|
|
|
$
|
11,464
|
|
|
$
|
10,060
|
|
|
Interest
expense
|
|
|
$
|
511
|
|
|
$
|
485
|
|
|
$
|
437
|
|
|
Other
expense, net
|
|
|
$
|
18
|
|
|
$
|
40
|
|
|
$
|
37
|
|
|
Income
tax expense
|
|
|
$
|
1,128
|
|
|
$
|
1,107
|
|
|
$
|
919
|
|
|
a Prior year numbers have been adjusted for
the retrospective adoption of FSP AUG AIR-1,
Accounting for
Planned Major Maintenance Activities.
See Note 2 to the Consolidated Financial Statements for additional
information.
|
|
Year Ended December 31, 2007, Compared
with Year Ended December 31, 2006
BNSF recorded net income for 2007 of
$
1,829
million, or $5.10 per share. In
comparison, net income for 2006 was $1,889 million, or $5.11 per
share.
Revenues
Freight
Freight revenues of $
15,349 million for 2007 were $804
million, or 6
percent
higher than 2006. Freight revenues reflected
a 3-percent decrease in
unit
volumes. Freight revenues included an
increase of approximately
$150 million in fuel surcharges
compared with the
same 2006 period. Growth in
prices and fuel surcharges drove average revenue per car/unit up 9 percent in
2007 to $1,488 from $1,367 in 2006.
|
Consumer
Products
The
Consumer Products' freight business includes a significant intermodal
component and consists of the following three business areas:
international intermodal, domestic intermodal, and
automotive.
Consumer Products revenues of $5,664 million for 2007
were $51 million, or 1 percent, higher than 2006. Higher revenue per
unit due to improved yields and fuel surcharges was partially offset by
lower volumes related to economic softness as well as reduced
trans-pacific service of a large international customer.
|
|
|
Industrial
Products
Industrial Products’ freight
business consists of five business areas:
construction products, building
products, petroleum products, chemicals and
plastic products and food and
beverages.
Industrial Products revenues increased $95
million, or 3 percent, to $3,684 million for 2007, while unit volumes
decline 1 percent. The 4-percent increase in average revenue per car
was mainly the result of price increases. Strong demand for
petroleum products, chemicals and plastics was offset by a decline in
building products as a result of weakness in the housing
market.
|
|
Coal
BNSF
is one of the largest transporters of low-sulfur coal in the United States. More
than
90
percent
of all BNSF’s coal tons originate from the Powder River Basin of Wyoming and
Montana.
Coal
revenues of $3,279 million for 2007 increased $363 million, or 12 percent,
versus a year ago
due
to improved yields, contractual inflation escalators
,
increased
tons per unit
and
fuel surcharges. Coal unit volumes increased 1 percent
despite
mine production and weather-related
issues.
|
Agricultural
Products
The
Agricultural Products' freight business transports agricultural products
including corn, wheat, soybeans, bulk foods, ethanol, fertilizer and other
products.
Agricultural Products revenues of $2,722 million for
2007 were $295 million, or 12 percent higher than revenues for 2006.
This increase was primarily due to strong volume growth, favorable mix of
business and price increases with the strongest revenue growth in wheat,
soybeans, bulk foods, ethanol and fertilizer.
|
|
Other Revenues
Other
revenues increased $13 million, or 3 percent, to $453 million for 2007 compared
to 2006.
This
increase was primarily due to volume growth of BNSF Logistics, an indirect,
wholly-owned non-rail subsidiary that specializes in providing third-party
logist
ics
and transportation services.
Expenses
Total
operating expenses for 2007 were $12,316 million, an increase of $852 million,
or 7 percent over 2006.
Compensation and
Benefits
Compensation
and benefits includes expenses for BNSF employee wages, health and welfare,
payroll taxes and other related items. The primary factors influencing the
expenses recorded are volume, headcount, utilization, wage rates, incentives
earned during the period, benefit plan participation and pension
expenses.
Compensation
and benefits expenses of $3,773 million were $43 million, or 1 percent
lower
than
2006, on flat employee headcount. Wages and benefit increases were offset by
lower variable compensation costs and other cost
controls.
Fuel
Fuel
expense is driven by market price, the level of locomotive consumption of diesel
fuel and the effects of hedging activities.
Fuel
expenses of $3,197 million for 2007 were $463 million, or 17 percent, higher
than 2006. The increase in fuel expense was due to an increase in the average
all-in cost per gallon of diesel fuel, partially offset by a decline in
consumption related to improved fuel efficiency. The average all-in cost per
gallon of diesel fuel increased by
37
cents to $2.22, or $538 million, which is comprised of an increase in the
average purchase price of 16 cents, or $228 million, and a decrease in the
hedge benefit of 21 cents, or $310 million (2007 benefit of
$31 million less 2006 benefit of $341 million). Consumption in 2007
decreased 36 million gallons to 1,442
million
gallons when compared with consumption in the same 2006 period, resulting in a
$75 million decrease in fuel
expense.
Purchased Services
Purchased
services expense includes ramping (lifting of containers onto and off of cars);
drayage (highway movements to and from railway facilities); maintenance of
locomotives, freight cars and equipment; transportation costs over other
railroads; technology services outsourcing; professional services; and other
contract services provided to BNSF. Purchased services expense also includes
purchased transportation costs for BNSF Logistics,
an
indirect, non-rail subsidiary of BNSF that specializes in providing third-party
logistics and transportation services
.
The expenses are driven by the rates established in the related contracts and
the volume of services required.
Purchased
services expenses of $2,023 million for 2007 were $117 million, or 6 percent
higher than 2006. Beyond general inflation, the largest drivers of this increase
were (i) $25 million in haulage payments for transportation over other
railroads, principally due to a new southeast intermodal agreement; (ii) $20
million in purchased transportation costs for BNSF Logistics; (iii) $10 million
in locomotive maintenance costs; and (iv) $10 million in ramping costs (lifting
of containers onto and off of cars).
Depreciation and
Amortization
Depreciation
and amortization expenses for the period are determined by using the group
method of depreciation, applying a single rate to the gross investment in a
particular class of property. Due to the capital-intensive nature of BNSF’s
operations, depreciation expense is a significant component of the Company’s
operating expense. The full effect of inflation is not reflected in operating
expenses since depreciation is based on historical
cost.
Depreciation
and amortization expenses of $1,293 million for 2007 were $117 million, or 10
percent higher than 2006. This increase was primarily due to continuing capital
expenditures as well as updated depreciation rates for locomotives (see
discussion under the heading “Critical Accounting Estimates;
Depreciation”).
Equipment
Rents
Equipment
rents expense includes long-term and short-term payments primarily for
locomotives, freight cars, containers and trailers. The expense is driven
primarily by volume, lease and rental rates, utilization of equipment and
changes in business mix resulting in equipment usage
variances.
Equipment
rents expenses for 2007 of $942 million were $12 million, or 1 percent, higher
than 2006, on a 3-percent
decline
in unit volumes. The variance represents an increase in locomotive lease
expense, partially offset by a decrease in freight car equipment expense due to
the impact of the Company’s privatization efforts
,
lower volumes
and
velocity improvements for freight car
equipment.
Materials and Other
Material
expenses consist mainly of the costs involved to purchase mechanical and
engineering materials, in addition to other items for construction and
maintenance of property and equipment. Other expenses include personal injury
claims, environmental remediation and derailments as well as utilities,
impairments of long-lived assets, locomotive overhauls, property and
miscellaneous taxes and employee separation costs. The total is offset by gains
on land sales and insurance
recoveries.
Materials
and other expenses of $1,088 million for 2007, which consisted of approximately
$
4
50
million of materials expense with the remainder consisting of numerous other
items, were $186 million, or 21 percent higher than 2006. The increase was
primarily due to increases of approximately
(i)
$65 million and $16 million first quarter environmental and technology
charge, respectively (see discussion under the heading “Other Matters; Charge
for Environmental Costs and Technology System Write-Off”); (ii) $40 million in
environmental remediation developments; (iii)
$
25
million
due largely to rising costs for materials for locomotives, freight cars and
track structure; and (iv) $20
million
in
crew transportation costs principall
y
due to increased fuel and insurance-related costs as
well
as increased usage due to adverse weather. In addition, a
$22 million
gain from a line sale to the State of New Mexico
was
recorded
in 2006
(see
discussion under the
heading
“Other Matters; New Mexico
Department
of Transportation”).
Interest Expense
Interest
expense of $511 million for 2007 was $26 million, or 5 percent higher than 2006.
This increase was primarily the result of a higher average debt balance,
partially offset by lower average rates.
Income Taxes
The
effective rate in 2007 was 38.2 percent compared with 36.9 percent for the prior
year.
The
increase in
the
effective tax rate primarily reflects income tax adjustments that favorably
impacted income tax expense in 2006 as compared with
2007.
Year Ended December 31, 2006, Compared
with Year Ended December 31, 2005
BNSF
recorded net income for 2006 of $1,889 million, or $5.11 per share. In
comparison, net income for 2005 was $1,534 million, or $4.02 per share,
which included a $0.12 per share impairment charge related to an agreement to
sell certain line segments to the State of New Mexico (see discussion under
heading “Other Matters; New Mexico Department of
Transportation”).
Revenues
Freight
Freight
revenues of $14,545 million for 2006 were $1,939 million, or 15
percent higher than 2005. Freight revenues reflected a 6-percent increase in
volumes. Freight revenues include an increase of approximately $600 million in
fuel surcharges compared with the same 2005 period. Growth in prices and fuel
surcharges drove average revenue per car/unit up 9 percent in 2006 to $1,367
from $1,258 in 2005.
|
Consumer
Products
Consumer Products
revenues of $5,613 million for 2006 were $715 million, or 15 percent
greater than 2005. The increase in average revenue per unit of 8
percent was primarily related to price increases and increased fuel
surcharges. Additionally, cars/units increased by 6 percent due
primarily to growth in international
intermodal.
|
|
|
Industrial
Products
Industrial Products
revenues increased $461 million, or 15 percent, to $3,589 million for
2006. The revenue increase was driven by double-digit growth in four
of the five business areas. The 13-percent increase in average
revenue per car was the result of price increases and increased fuel
surcharges. Units increased 2 percent driven by demand for plastics,
petroleum products and steel, partially offset by softness in demand for
building products.
|
|
Coal
Coal
revenues of $2,916 million for 2006 increased $468 million, or 19
percent, versus 2005. The revenue increase was primarily driven by a 10-percent
increase in volumes resulting from significant customer demand and greater line
throughput due to increased network fluidity. Average revenue per car increased
8 percent driven by contractual price escalations, increased length of haul and
fuel surcharges.
|
Agricultural
Products
Agricultural
Products revenues of $2,427 million for 2006 were $295 million, or 14
percent higher than revenues for 2005. This increase was primarily
due to a 7-percent increase in average revenue per car, which was driven
by both price increases and increased fuel surcharges associated with
higher fuel prices, and a 6-percent increase in volume driven primarily by
an increase in demand for corn.
|
|
Other Revenues
Other
revenues increased $59 million, or 15 percent, to $440 million for
2006 compared to 2005. This increase was primarily due to increases in demurrage
charges and volume growth of BNSF Logistics, an indirect, wholly-owned non-rail
subsidiary that specializes in providing third-party logistics and
transportation services.
Expenses
Total
operating expenses for 2006 were $11,464 million, an increase of
$1,404 million, or 14 percent over 2005. The increase in operating expenses
was primarily the result of significant fuel price increases and a 6-percent
increase in gross-ton miles handled. Operating expenses for 2005 were impacted
by a $71 million pre-tax impairment charge related to an agreement to sell
certain line segments to the State of New Mexico.
Compensation and
Benefits
Compensation
and benefits expenses of $3,816 million were $301 million, or 9
percent higher than 2005. The increase was primarily related to 6 percent higher
unit volumes, which resulted in a 5-percent increase in the average headcount.
Additionally, increased stock-based compensation expense of approximately
$30 million, due largely to the adoption of Statement of Financial
Accounting Standards (SFAS) No. 123R,
Share-Based Payment
,
and
increased pension expense of approximately $30 million contributed to the
overall increase in compensation and benefits expense as compared with the prior
year.
Fuel
Fuel
expenses of $2,734 million for 2006 were $775 million, or 40 percent,
higher than 2005. The increase in fuel expense is due to an increase in the
average all-in cost per gallon of diesel fuel, as well as an increase in
consumption driven by higher volumes. The average all-in cost per gallon of
diesel fuel increased by 45 cents to $1.85, or $661 million, which is
comprised of an increase in the average purchase price of 32 cents, or
$471 million, and a decrease in the hedge benefit of 13 cents, or
$190 million (2006 benefit of $341 million less 2005 benefit of
$531 million). Consumption in 2006 was 1,478 million gallons compared
with 1,402 million gallons in 2005, resulting in a $114 million
increase in fuel expense.
Purchased Services
Purchased
services expenses of $1,906 million for 2006 were $193 million, or 11
percent higher than 2005. This increase was primarily due to increases in the
following volume-related costs of approximately (i) $50 million in
intermodal ramp costs; (ii) $40 million in haulage payments for
transportation over other railroads; (iii) $35 million in locomotive,
freight car and equipment maintenance expense; and (iv) $25 million in
purchased transportation costs for BNSF Logistics.
Depreciation and
Amortization
Depreciation
and amortization expenses of $1,176 million for 2006 were $65 million,
or 6 percent higher than 2005. This increase was primarily due to ongoing
capital expenditures.
Equipment Rents
Equipment
rents expenses for 2006 of $930 million were $44 million, or 5 percent
higher than 2005 driven by an increase of approximately $45 million in
locomotive rents, which was largely the result of an increase in the number of
locomotives under operating leases. Freight car equipment was essentially flat
year-over-year due to the impact of increasing volumes being offset by the
impact of the Company’s privatization efforts, velocity improvements and an
increase in off-line receipts.
Materials and Other
Materials
and other expenses of $902 million for 2006, which consisted of
approximately $425 million of materials expense with the remainder
consisting of numerous other items, were $26 million, or 3 percent higher
than 2005. The increase was primarily due to increases of approximately (i)
$65 million in materials costs for locomotives, freight cars and track
structure; (ii) $35 million in crew transportation and lodging expense;
(iii) $20 million in property taxes; and (iv) $20 million in expense
related to derailments. These increases were offset by a $22 million gain
from a line sale to the State of New Mexico recorded in 2006. Expenses for 2005
were impacted by a $71 million pre-tax impairment charge related to an
agreement to sell certain line segments to the State of New Mexico
(see
discussion under the heading “Other Matters; New Mexico Department of
Transportation”).
Interest Expense
Interest
expense of $485 million for 2006 was $48 million, or 11 percent higher
than 2005. This increase was primarily the result of a higher average debt
balance.
Income Taxes
The
effective rate in 2006 was 36.9 percent compared with 37.5 percent for the prior
year. The decrease in the effective tax rate primarily reflects income tax
adjustments that favorably impacted income tax expense in 2006 as compared with
2005.
Liquidity
and Capital Resources
Liquidity
is a company’s ability to generate cash flows to satisfy current and future
obligations. Cash generated from operations is BNSF’s principal source of
liquidity. BNSF generally funds any additional liquidity requirements through
debt issuance, including commercial paper, through leasing of assets and through
the sale of a portion of its accounts receivable.
Operating Activities
2007
Net
cash provided by operating activities was $
3,492
million
during 2007 compared with $3,189 million during 2006.
The
increase was primarily the result of an increase in earnings before depreciation
and amortization expense
,
higher environmental accruals in 2007, and higher contributions to the pension
plan in 2006.
2006
Net
cash provided by operating activities was $3,189 million during 2006
compared with $2,706 million during 2005. The increase was primarily the
result of an increase in earnings before depreciation and amortization
expense.
Investing Activities
2007
Net
cash used for investing activities was $
2,415
million
during 2007 compared with $2,167 million during 2006. Investing activities
for the year included $
2,248
million
of capital expenditures, which were $
234
million
higher than 2006 primarily due to an increase in capital expenditures for
maintenance of BNSF’s track structure and for terminal and line expansions as
illustrated in the table below.
2006
Net
cash used for investing activities was $2,167 million during 2006 compared
with $2,120 million during 2005. Investing activities for the year included
$2,014 million of capital expenditures, which were $264 million higher
than 2005 primarily due to an increase in capital expenditures for maintenance
of BNSF’s track structure and for terminal and line expansions as illustrated in
the table below. The decrease in cash used for other investing activities
primarily reflects timing of equipment financing activities, $50 million in
consideration received for the third easement sale to Seattle Sound Transit and
$45 million in consideration received for the New Mexico line sale as
discussed in the “Other Matters” section. Additionally, 2005 included
consideration paid to another carrier for trackage rights and alternative access
rights and an investment in Pace
Synfuels.
A
breakdown of cash capital expenditures during 2007, 2006 and 2005 is set forth
in the following table (in millions):
|
Year ended December
31,
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Maintenance
of way:
|
|
|
|
|
|
|
|
|
|
Rail
|
|
$
|
376
|
|
|
$
|
304
|
|
|
$
|
232
|
|
Ties
|
|
|
316
|
|
|
|
311
|
|
|
|
284
|
|
Surfacing
|
|
|
235
|
|
|
|
214
|
|
|
|
183
|
|
Other
|
|
|
432
|
|
|
|
397
|
|
|
|
354
|
|
Total
maintenance of way
|
|
|
1,359
|
|
|
|
1,226
|
|
|
|
1,053
|
|
Mechanical
|
|
|
141
|
|
|
|
152
|
|
|
|
136
|
|
Information
services
|
|
|
75
|
|
|
|
65
|
|
|
|
64
|
|
Other
|
|
|
105
|
|
|
|
121
|
|
|
|
108
|
|
Total
maintenance of business
|
|
|
1,680
|
|
|
|
1,564
|
|
|
|
1,361
|
|
Terminal
and line expansion
|
|
|
568
|
|
|
|
450
|
|
|
|
389
|
|
Total
|
|
$
|
2,248
|
|
|
$
|
2,014
|
|
|
$
|
1,750
|
The table
above does not include expenditures for equipment financed through operating
leases (principally related to locomotives).
Financing Activities
2007
Net cash used for
financing activities during 2007 was $
1,122
million,
primarily related to common stock repurchases of $
1,
265 million,
including $4
3
million to
satisfy tax withholding obligations for stock option exercises, and dividend
payments of
$380 million,
which were partially offset by net debt borrowings of $234 million,
proceeds from stock options exercised of $142 million, excess tax benefits
from equity compensation plans of $121 million and proceeds from a facility
financing obligation of $41 million.
Aggregate debt to
mature in 2008 is $
41
1 million.
BNSF’s ratio of net debt to total capitalization
was 41.2 percent at
December 31, 2007, compared with 40.0 percent at December 31, 2006. The
Company’s adjusted net debt to total capitalization was 51.8
percent at December
31, 2007, compared with 51.7 percent at December 31, 2006. BNSF’s adjusted net
debt to total capitalization is a non-GAAP measure and should be considered in
addition to, but not as a substitute or preferable to, the information prepared
in accordance with GAAP. However, management believes that adjusted net debt to
total capitalization provides meaningful additional information about the
ability of BNSF to service long-term debt and other fixed obligations and to
fund future growth.
The
following table presents a reconciliation of the calculation of adjusted net
debt to total capitalization percentage:
|
December
31,
|
|
2007
|
|
2006
|
a
|
|
Net debt to total
capitalization
b
|
|
|
41.2
|
%
|
|
40.0
|
%
|
|
Adjustment for long-term operating
leases
c
|
|
|
10.5
|
|
|
11.2
|
|
|
Adjustment for other debt
equivalents
d
|
|
|
0.5
|
|
|
0.5
|
|
|
Adjustment for unfunded pension
and retiree health and welfare liability
a
|
|
|
0.7
|
|
|
1.1
|
|
|
Adjustment for junior subordinated
notes
e
|
|
|
(1.1
|
)
|
|
(1.1
|
)
|
|
Adjusted net debt to total
capitalization
|
|
|
51.8
|
%
|
|
51.7
|
%
|
|
a
Prior
year numbers have been adjusted for the retrospective adoption of FSP AUG
AIR-1,
Accounting
for Planned Major Maintenance Activities.
See
Note 2
to
the
Consolidated Financial Statements for additional
information.
b Net
debt to total capitalization is calculated as total debt (long-term debt
and commercial paper plus long-term debt due within one year) less cash
and cash equivalents divided by the sum of net debt and total
stockholders’ equity.
c
Represents
the net present value of future operating lease
commitments.
d
Adjustment
for other debt equivalents principally includes accounts receivable
financing (see Note 6 to the Consolidated Financial Statements for
additional information).
e
Junior subordinated notes are included in total
debt on the respective
Consolidated Balance Sheets; however, as
they include certain equity characteristics, they have been assigned 50
percent equity credit for purposes of this
calculation.
|
|
In February 2007, the Board of Directors
(the Board) authorized an additional $1.4 billion of debt securities that
may be issued through the Securities and Exchange Commission (SEC) debt shelf
registration process, for a total of $2.1 billion authorized to be
issued.
In April 2007, BNSF issued
$650 million of 5.65 percent debentures and $650 million of 6.15
percent debentures due May 1, 2017 and May 1, 2037, respectively. The net
proceeds from the sale of the debentures are being used for general corporate
purposes including, but not limited to, working capital, capital expenditures,
funding the maturity of debt which matured in 2007, the repayment of commercial
paper and the repurchase of common stock. The issuance of these debentures
reduced the amount of debt authorized to be issued by the Board through the SEC
debt shelf registration process to $800 million.
In 2007, BNSF entered into several
capital leases totaling approximately $325 million to finance locomotives and
freight cars. The terms of the leases are between 15 and 20
years.
In 2005, the Company commenced the
construction of an intermodal facility that it intends to sell to a third party
and subsequently lease back. Once construction of the facility is complete and
all improvements have been sold to the third party, BNSF will lease the facility
from the third party for 20 years. Construction is expected to be completed by
early 2009 with an approximate cost of
$160
million. As of December 31, 2007, BNSF
has sold $41 million of completed improvements. This sale leaseback transaction
is being accounted for as a financing obligation due to continuing
involvement. The outflows from the construction of the facility are
classified as investing activities, and the inflows from the associated
financing proceeds are classified as financing activities in the Company's
Consolidated Statements of Cash Flows.
2006
Net cash used for financing activities
during 2006 was $722 million, primarily related to common stock repurchases
of $730 million and dividend payments of $310 million, which were
partially offset by net debt borrowings of $116 million, proceeds from
stock options exercised of $116 million and excess tax benefits from equity
compensation plans of $95 million. Upon adoption of SFAS No. 123R, the
excess tax benefits from equity compensation plans were classified in financing
activities. However, as the Company adopted SFAS No. 123R prospectively,
financial statements prior to January 1, 2006, include excess tax benefits as an
operating activity.
In August 2006, BNSF issued
$300 million of 6.20 percent debentures due August 15, 2036. The net
proceeds from the sale of the debentures are being used for general corporate
purposes including but not limited to working capital, capital expenditures and
the repayment of outstanding commercial paper. See Note 3 to the Consolidated
Financial Statements for information related to the hedges unwound as part of
this debt issuance.
2005
Net cash used for financing activities
during 2005 was $833 million primarily related to common stock repurchases
of $799 million, prepaid forward share repurchases of $600 million and
dividend payments of $267 million, which where partially offset by net debt
borrowings of $599 million and proceeds from stock options exercised of
$244 million.
In December 2005, BNSF issued
$500 million of 6.613 percent junior subordinated notes due December 31,
2055. The junior subordinated notes are callable on or after January 15, 2026,
at par plus accrued and unpaid interest. On January 15, 2026, if the junior
subordinated notes are not called, the interest rate will change to an annual
rate equal to the 3-month London Interbank Offered Rate (LIBOR) plus 2.35
percent, reset quarterly. Interest payments may be deferred, at the option of
the Company, on a cumulative basis for a period of up to five consecutive years;
however, during this time the Company would not be permitted to declare or pay
dividends on its common stock. In the event that certain financial covenants are
not maintained, the Company would be required to sell common stock, the proceeds
of which would be used to pay any accrued and unpaid interest. At December 31,
2007, the Company was in compliance with these covenants. Because of this
structure, certain rating agencies provide a considerable degree of equity
treatment for purposes of calculating various ratios and metrics. The majority
of the net proceeds of the debt issuance were used to repurchase common stock,
with the remainder used for general corporate purposes.
Dividends
Common stock dividends declared were
$1.14, $0.90 and $0.74 per share annually for 2007, 2006 and 2005, respectively.
Dividends paid on common stock were $380 million, $310 million and
$267 million during 2007, 2006 and 2005, respectively. On October 18, 2007,
the Board declared a quarterly dividend of $0.32 per share on outstanding shares
of common stock, payable January 2, 2008 to shareholders of record on December
12, 2007. On February 13, 2008, the Board declared a quarterly dividend of $0.32
per share on outstanding shares of common stock, payable April 1, 2008, to
shareholders of record on March 11, 2008.
Common Stock Repurchase
Program
During 2007, 2006 and 2005, the Company
repurchased approximately
1
5 million, 18 million and
14 million shares, respectively, of its common stock at average prices of
$83.
96 per share, $73.43 per share and
$54.95 per share, respectively. Further information on this repurchase program
is incorporated by reference from Note 15 to the Consolidated Financial
Statements.
In February 2007, the Board authorized
the extension of the current BNSF share repurchase program, adding
30 million shares to the total of 180 million shares previously
authorized in equal amounts in July 1997, December 1999, April 2000, September
2000, January 2003 and December 2005.
Since 2001, BNSF has primarily utilized
free cash flow to repurchase its shares. In February 2007,
BNSF announced it would modify its share
repurchase approach based on improved credit statistics over the past few years,
including interest coverage, debt-to-cash flow and debt-to-capital ratios. These
credit statistics have improved sufficiently that BNSF is
now
devoting additional
financial capacity to share repurchases.
This difference in approach is expected to result in a moderately higher level
of debt.
Long-Term Debt and Other
Obligations
The Company’s business is capital
intensive. BNSF has historically generated a significant amount of cash from
operating activities, which it uses to fund capital additions, service debt,
repurchase shares and pay dividends. Additionally, the Company relies on access
to the debt and leasing markets to finance a portion of capital additions on a
long-term basis.
During 2007, BNSF agreed to acquire an
additional 1,025 locomotives, bringing its total commitment to acquire 1,505 new
locomotives by 2013. As of December 31, 2007, BNSF had taken delivery of 480 of
the 1,505 locomotives, including 200 during 2007.
During 2006, BNSF agreed to acquire
4,000 covered hoppers and 1,400 double-stack cars by 2010. As of December 31,
2007, BNSF had taken delivery of 1,998 of the covered hoppers and 350 of the
double-stack cars.
The locomotives and freight cars under
these agreements have been or are expected to be financed from
one or a combination of sources
including, but not limited to, cash from operations, capital or operating leases
and debt issuances. The decision on the method used for a particular acquisition
financing will depend on market conditions and other factors at that
time.
The Company also utilizes a commercial
paper program backed by a bank revolving credit agreement to manage liquidity
needs. For 2008 and the foreseeable future, the Company expects that cash from
operating activities, access to capital markets, the accounts receivable sales
program and the bank revolving credit agreement will be sufficient to enable the
Company to meet its obligations when due. The Company believes these sources of
funds will also be sufficient to fund capital additions that are necessary to
maintain its competitiveness and position the Company for future revenue
growth.
The Company’s ratio of earnings to fixed
charges was
4.62 and
4.90 times for the years
ended December 31, 2007 and 2006, respectively. Additionally, the Company’s
ratio of net cash provided by operating activities divided by total average debt
was 44 percent for the years ended December 31, 2007 and 2006, respectively.
The following table summarizes the
Company’s obligations under long-term debt and other contractual commitments at
December 31, 2007 (in millions):
|
|
|
Payments Due by
Period
|
|
|
Contractual
Obligations
|
|
Total
|
|
|
Less than
1 year
|
|
|
1–3 years
|
|
|
3–5 years
|
|
|
More than
5 years
|
|
|
Long-term
debt
a
|
|
$
|
7,208
|
|
|
$
|
258
|
|
|
$
|
605
|
|
|
$
|
1,037
|
|
|
$
|
5,308
|
|
|
Capital lease
obligations
|
|
|
938
|
|
|
|
153
|
|
|
|
245
|
|
|
|
132
|
|
|
|
408
|
|
|
Interest
payments
b
|
|
|
7
,
751
|
|
|
|
280
|
|
|
|
913
|
|
|
|
800
|
|
|
|
5
,
758
|
|
|
Operating lease
obligations
c
|
|
|
7,498
|
|
|
|
699
|
|
|
|
1,310
|
|
|
|
1,107
|
|
|
|
4,382
|
|
|
Purchase
obligations
d
|
|
|
14,304
|
|
|
|
5,126
|
|
|
|
2,463
|
|
|
|
1,831
|
|
|
|
4,884
|
|
|
Other long-term liabilities
reflected
on the balance sheet under
GAAP
e
|
|
|
575
|
|
|
|
98
|
|
|
|
196
|
|
|
|
157
|
|
|
|
124
|
|
|
Total contractual
obligations
|
|
$
|
38,274
|
|
|
$
|
6,614
|
|
|
$
|
5,732
|
|
|
$
|
5,064
|
|
|
$
|
20,864
|
|
|
a
Excludes
capital lease obligations.
b
Interest
payments relate to fixed-rate long-term debt and capital lease obligations
and exclude the impact of any interest-rate hedging activities (see Note 3
to the Consolidated Financial Statements for additional information).
Additionally, the Company’s only variable-rate debt is commercial paper,
which expires within 90 days; therefore, the related interest has been
excluded from the table above.
c
Gross
payments due, which include an interest
component.
d
Includes
short-line minimum usage commitments, asset maintenance and other purchase
commitments.
e
Consists
of employee separation payments as discussed in Note 11 to the
Consolidated Financial Statements, actuarially estimated payments from
BNSF expected to be made over the next five years for the pension plans
and the retiree health and welfare plan as discussed in Note 13 to the
Consolidated Financial Statements
and
estimated
future
cash flows for income tax liabilities and interest accrued related to
unrecognized tax benefits as discussed in Note 5 to the Consolidated
Financial Statements.
|
|
In the normal course of business, the
Company enters into long-term contracts for future goods and services needed for
the operations of the business. Such commitments are not in excess of expected
requirements and are not reasonably likely to result in performance penalties or
payments that would have a material adverse effect on the Company’s
liquidity.
Credit Agreement
Commercial paper and the revolving
credit agreement are discussed in Note 9 to the Consolidated Financial
Statements. The $1.2 billion revolving credit agreement includes covenants and
events of default typical for this type of facility, including a maximum
debt-to-capital test and a
$75 million cross-default
provision. At December 31, 2007,
there were no bank borrowings against
the revolving credit agreements, and
the Company was in compliance with its
debt covenants. BNSF’s maximum
debt-to-capital test provides
approximately $8 billion of debt capacity above BNSF’s outstanding debt as of
December 31, 2007, before an event of default would occur under these covenants.
With the exception of a voluntary bankruptcy or insolvency, any event of default
has either or both a cure period or notice requirement before termination of the
agreement. A voluntary bankruptcy or insolvency would be considered an immediate
termination event.
Market Conditions
In spite of recent credit market
conditions resulting from issues within the sub-prime mortgage market, BNSF has
not experienced significant impacts to liquidity or cost of debt. The market
conditions have not affected BNSF’s ability to issue commercial paper, secure
necessary debt financings or obtain funding through its accounts receivable
sales program.
Off-Balance
Sheet Arrangements
Sale of Accounts
Receivable
The accounts receivable sales program of
Santa Fe Receivables Corporation, as described in Note 6 to the Consolidated
Financial Statements, includes various provisions that, if triggered, would
allow the investors participating in this program, at their option, to cancel
the program. These provisions include a maximum debt-to-capital test, which is
the same as in the BNSF revolving credit agreements described above. BNSF’s
maximum debt-to-capital test provides approximately $8 billion of debt capacity
above BNSF’s outstanding debt as of December 31, 2007. At December
31, 2007, the Company’s capacity to sell
undivided interests to investors
under the accounts receivable sales
program was $700 million, which was comprised of two $175 million,
364-day accounts receivable
sales
facilities and two $175 million, 3-year
accounts receivable
sales
facilities. The Company
amended the two 364-day facilities in November 2007,
reducing the committed amounts to $175
million each and
modifying
their maturities to November 2008. The two 3-year facilities were entered into
in November 2007 concurrently with the
amendment and extension
of the 364-day facilities and will
mature in November 2010.
Outstanding undivided interests held by
investors under the A/R sales program were $300 million at December 31, 2007 and
December 31, 2006, respectively. Management expects to be able to either extend
the commitment of the current investors under the 364-day facilities
past November 2008 or to
find additional investors in the accounts receivable sales program who will
commit to purchase undivided interests after November 2008.
The accounts receivable sales program
provides efficient financing at a competitive interest rate as compared with
traditional borrowing arrangements and provides diversification of funding
sources. Since the funding is collateralized by BNSF receivables, the risk of
exposure is only as great as the risk of default on these receivables (see Note
6 to the Consolidated Financial Statements for additional
information).
Guarantees
The Company acts as guarantor for
certain debt and lease obligations of others. During the past few years, the
Company has primarily utilized guarantees to allow third-party entities to
obtain favorable terms to finance the construction of assets that will benefit
the Company. Additionally, in the ordinary course of business, BNSF enters into
agreements with third parties that include indemnification clauses. The Company
does not expect performance under these guarantees or indemnities to have a
material adverse effect on the Company’s liquidity in the foreseeable future
(see Note 9 to the Consolidated Financial Statements for additional
information).
Inflation
Due to the capital-intensive nature of
BNSF’s business, the full effect of inflation is not reflected in operating
expenses because depreciation is based on historical cost. An assumption that
all operating assets were depreciated at current price levels would result in
substantially greater expense than historically reported
amounts.
Other
Matters
Charge for Environmental Costs and
Technology System Write-Off
In the first quarter of 2007, the
Company recorded a pre-tax charge of $81 million, or $0.14 after-tax per
share. This charge reflected an approximate $65 million increase in
environmental costs primarily related to a final resolution with the State of
Washington and its Department of Ecology on clean-up of an existing
environmental site at Skykomish and an adverse reversal of a trial court
decision on appeal regarding a site at Arvin, California. In addition, the
Company recorded a non-cash charge of $16 million to write-off a technology
system that has been replaced.
Planned Major Maintenance
Activities
Effective January 1, 2007, the Company
transitioned to the deferral method of accounting for leased locomotive
overhauls under the Financial Accounting Standards Board (FASB) Staff Position
(FSP) AUG AIR-1,
Accounting for
Planned Major Maintenance Activities,
issued in September 2006. Additional
information concerning the adoption of this accounting principle is incorporated
by reference from Note 2 to the Consolidated Financial
Statements.
Uncertain Tax
Positions
Effective January 1, 2007, the Company
adopted the provisions of FASB Interpretation No. (FIN) 48,
Accounting for
Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109,
Accounting for Income Taxes.
Additional information concerning the
Company’s uncertain tax positions is incorporated by reference from Notes 2 and
5 to the Consolidated Financial Statements.
Commercial
In February 2005, the Company received a
Civil Investigative Demand from the Antitrust Division of the Department of
Justice requesting information concerning the Company’s pricing activities
relating to the shipment of coal from the southern Powder River Basin. The
Company has responded to all requests for information, and the matter remains
pending.
Hedging Activities
The Company uses
derivatives to hedge against increases in diesel fuel prices and interest rates
as well as to convert a portion of its fixed-rate long-term debt to
floating-rate debt. The Company does not hold or issue derivative financial
instruments for trading or speculative purposes. The Company formally documents
the relationship between the hedging instrument and the hedged item, as well as
the risk management objective and strategy for the use of the hedging
instrument. This documentation includes linking the derivatives that are
designated as fair value or cash flow hedges to specific assets or liabilities
on the balance sheet, commitments or forecasted transactions. The Company
assesses at the time a derivative contract is entered into, and at least
quarterly thereafter, whether the derivative item is effective in offsetting the
changes in fair value or cash flows. Any change in fair value resulting from
ineffectiveness, as defined by SFAS No. 133,
Accounting
for Derivative Instruments and Hedging Activities, as amended,
is recognized in
current period earnings. For derivative instruments that are designated and
qualify as cash flow hedges, the effective portion of the gain or loss on the
derivative instrument is recorded in accumulated other comprehensive loss (AOCL)
as a separate component of stockholders’ equity and reclassified into earnings
in the period during which the hedge transaction affects earnings. Cash flows
related to fuel and interest rate hedges are classified as operating activities
in the Consolidated Statements of Cash Flows.
BNSF monitors its
hedging positions and credit ratings of its counterparties and does not
anticipate losses due to counterparty nonperformance
.
As of
December 31, 2007, BNSF’s counterparties have an investment grade credit
rating.
Fuel
BNSF measures the
fair value of fuel hedges from data provided by various external counterparties.
To value a swap, the Company uses the forward commodity price for the period
hedged (see Note 3 to the Consolidated Financial Statements for additional
information).
Subsequent to
December 31, 2007, the Company entered into fuel swap agreements utilizing New
York Mercantile Exchange #2 Heating Oil. The following table provides additional
fuel-hedge data through February 4, 2008 based on the quarter being
hedged.
|
|
|
Quarter
Ending
|
|
|
|
2008
|
|
March 31,
|
|
June 30,
|
|
September
30,
|
|
December
31,
|
|
Annual
|
|
HO Swaps
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gallons hedged (in
millions)
|
|
|
–
|
|
|
6.80
|
|
|
6.80
|
|
|
6.06
|
|
|
19.66
|
|
Average swap price (per
gallon)
|
|
$
|
–
|
|
$
|
2.42
|
|
$
|
2.43
|
|
$
|
2.48
|
|
$
|
2.44
|
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 by establishing
rates in anticipation of both future debt issuances and the refinancing of
leveraged leases, as well as converting a portion of its fixed-rate long-term
debt to floating-rate debt. The Company uses interest rate swaps and treasury
locks as part of its interest rate risk management strategy. BNSF’s measurement
of the fair value of interest rate derivatives is based on estimates of the
mid-market values for the transactions provided by the counterparties to these
agreements (see Note 3 to the Consolidated Financial Statements for additional
information).
In anticipation of
a future debt issuance, the Company entered into treasury lock
s in January 2008,
having an aggregate
notional amount of
$
75
million to fix a
portion of the rate for a future 10-year unsecured debt
issuance. Including the
seven
treasury locks that
were executed in 2007 for the same
expected debt
issuance
, the total
amount
hedged is
$2
50
million
with
an
average locked-in rate of 4.
24
percent. The
treasury locks are expected to be unwound during 2008, and any gain or loss on
the hedges will be amortized to interest expense over the life of the issued
debt. These transactions are accounted for as cash flow
hedges.
Employee and Labor
Relations
A significant
majority of BNSF Railway’s employees are union-represented. BNSF Railway’s union
employees work under collective bargaining agreements with various labor
organizations. A negotiating process for new, major collective bargaining
agreements covering all of BNSF Railway’s union employees has been underway
since the bargaining round was initiated November 1, 2004. Wages, health and
welfare benefits, work rules and other issues have traditionally been addressed
through industry-wide negotiations. These negotiations have generally taken
place over an extended period of time and have previously not resulted in any
extended work stoppages. The existing agreements have remained in effect and
will continue to remain in effect until new agreements are reached or the
Railway Labor Act’s procedures (which include mediation, cooling-off periods and
the possibility of U.S. Presidential intervention) are exhausted. Agreements
undergoing renegotiation in the current bargaining round provide for periodic
wage increases until new agreements are
reached.
The current
bargaining round for all unions with contracts that came into effect after
January 1, 2005, began on and after November 1, 2004, with the serving of
Section 6 notices, which are each side’s initial proposals. BNSF is
participating in a coordinated national handling of these proposals. The current
agreements remain in effect until new agreements are reached or until changes to
the existing agreements are made.
Final agreements
have been reached under the current bargaining round, covering about
65
percent of BNSF’s
unionized workforce. These agreements resolve all wage, work rule, and benefit
issues through December 31, 2009. A tentative agreement (subject to membership
ratification—a process which will take from 45 to 90 days) was reached with the
United Transportation Union (“UTU”) on January 28, 2008. The UTU represents just
under 30 percent of BNSF’s scheduled employees.
BNSF remains in
national bargaining with the International Association of Machinists and
Aerospace Workers.
Seattle Sound
Transit
In December 2003,
BNSF Railway Company entered into several agreements with Central Puget Sound
Regional Transit Authority (Sound Transit), a government authority established
by King, Pierce and Snohomish counties within the State of Washington. BNSF has
agreed to sell to Sound Transit under the threat of condemnation a combination
of (i) four easements enabling Sound Transit to offer commuter rail service over
existing BNSF track from Seattle to Everett and (ii) 18 miles of railroad line
from south of Tacoma to Nisqually, Washington.
Sound Transit
agreed to pay BNSF approximately $260 million for four commuter easements
to operate trains on the segment between Seattle and Everett and entered into
agreements both for service on the commuter easements and joint use of track for
commuter and freight purposes. The Company received approximately
$80 million of cash in 2003 upon the closing of the first easement,
$80 million of cash in 2004 upon closing of the second easement,
$50 million of cash in 2006 upon closing of the third
easement and
$50 million
in cash in 2007
upon closing of the fourth and final easement. The sale proceeds will be
recognized in income over the average life of the associated track structure
(approximately 37 years).
Additionally, the
Company sold 18 miles of railroad line and associated real estate from south of
Tacoma to Nisqually in several separate transactions. The Company recognized
gains associated with the sale of $9 million and $7 million, net of
tax, in 2005 and 2004, respectively.
New Mexico Department of
Transportation
In the fourth
quarter of 2005, BNSF Railway Company entered into agreements with the New
Mexico Department of Transportation to sell the Company’s rail line and certain
adjacent property between Belen, New Mexico and Trinidad, Colorado, through a
series of sales agreements, while retaining freight easement rights on the line.
The Company recognized an impairment charge in 2005 related to this agreement of
$71 million. During the first quarter of 2006, upon closing the sale of the
first line segment, the Company recognized a gain of $22 million and
received a cash payment of $45 million. During the first quarter of 2007,
upon closing the sale of the second line segment, the Company recognized a gain
of $2 million and received cash of $18 million. Upon satisfaction of
closing conditions, the remaining line sales are expected to close in 2008. BNSF
expects to receive a cash payment of $4 million in 2008 related to this
transaction
and any related
gain is immaterial
. The impairment
charge and the gains were recorded as a component of materials and other
expense.
American Jobs Creation Act of
2004
In October 2004,
the American Jobs Creation Act of 2004 was signed into law. Part of the
legislation includes the repeal of a 4.3–cent tax per gallon of diesel fuel. The
tax was gradually phased out in 2005 and 2006 and was completely phased out
January 1, 2007. Based on actual fuel consumption, the repeal of the tax
resulted in $
32
million,
$8 million and $21 million in incremental savings for the years ended
December 31, 2007, 2006 and 2005, respectively.
Critical
Accounting Estimates
In the ordinary
course of business, the Company makes a number of estimates and assumptions
related to the reporting of results of operations and financial position in the
preparation of its financial statements in conformity with accounting principles
generally accepted in the United States of America. Actual results could differ
significantly from those estimates under different assumptions and conditions.
The following discussion addresses the Company’s most critical accounting
estimates.
Management has
discussed the development and selection of the critical accounting estimates
described below with the Audit Committee of the Board of Directors, and the
Audit Committee has reviewed the Company’s disclosure relating to them in this
Management’s Discussion and Analysis of Financial Condition and Results of
Operations.
Legal
BNSF’s most
significant legal claims relate to personal injury claims and environmental
matters. These claims are discussed in more detail
below.
Personal
Injury
Personal injury
claims, including asbestos claims and employee work-related injuries and
third-party injuries (collectively, other personal injury), are a significant
expense for the railroad industry. Personal injury claims by BNSF Railway
employees are subject to the provisions of the Federal Employers’ Liability Act
(FELA) rather than state workers’ compensation laws. FELA’s system of requiring
the finding of fault, coupled with unscheduled awards and reliance on the jury
system, contributed to increased expenses in past years. Other proceedings
include claims by non-employees for punitive as well as compensatory damages. A
few proceedings purport to be class actions. The variability present in settling
these claims, including non-employee personal injury and matters in which
punitive damages are alleged, could result in increased expenses in future
years. BNSF has implemented a number of safety programs designed to reduce the
number of personal injuries as well as the associated claims and personal injury
expense.
BNSF records a
liability for personal injury claims when the expected loss is both probable and
reasonably estimable. The liability and ultimate expense projections are
estimated using standard actuarial methodologies. Liabilities recorded for
unasserted personal injury claims are based on information currently available.
Due to the inherent uncertainty involved in projecting future events such as the
number of claims filed each year, developments in judicial and legislative
standards and the average costs to settle projected claims, actual costs may
differ from amounts recorded. Expense accruals and any required adjustments are
classified as materials and other in the Consolidated Statements of
Income.
Asbestos
The Company is
party to a number of personal injury claims by employees and non-employees who
may have been exposed to asbestos. The heaviest exposure for BNSF employees was
due to work conducted in and around the use of steam locomotive engines that
were phased out between the years of 1950 and 1967. However, other types of
exposures, including exposure from locomotive component parts and building
materials, continued after 1967 until they were substantially eliminated at BNSF
by 1985.
BNSF assesses its
unasserted liability exposure on an annual basis during the third quarter. BNSF
determines its asbestos liability by estimating its exposed population, the
number of claims likely to be filed, the number of claims that will likely
require payment, and the estimated cost per claim. Estimated filing and
dismissal rates and average cost per claim are determined utilizing recent claim
data and trends.
Key elements of the assessment
include:
|
•
|
Because BNSF did not have detailed
employment records in order to compute the population of potentially
exposed employees, it computed an estimate using Company employee data
from 1970 forward and estimated the BNSF employee base from 1938-1969
using railroad industry historical census data and estimating BNSF’s
representation in the total railroad
population.
|
|
•
|
The projected incidence of disease
was estimated based on epidemiological studies using employees’ age,
duration and intensity of exposure while
employed.
|
|
•
|
An estimate of the future
anticipated claims filing rate by type of disease (non-malignant, cancer
and mesothelioma) was computed using the Company’s average historical
claim filing rates for the period
2004-2006.
|
|
•
|
An estimate of the future
anticipated dismissal rate by type of claim was computed using the
Company’s historical average dismissal rates observed in
2005-2007.
|
|
•
|
An estimate of the future
anticipated settlement by type of disease was computed using the Company’s
historical average of dollars paid per claim for pending and future claims
using the average settlement by type of incidence observed during
2005-2007.
|
From these
assumptions, BNSF projected the incidence of each type of disease to the
estimated population to arrive at an estimate of the total number of employees
that could potentially assert a claim. Historical claim filing rates were
applied for each type of disease to the total number of employees that could
potentially assert a claim to determine the total number of anticipated claim
filings by disease type. Historical dismissal rates, which represent claims that
are closed without payment, were then applied to calculate the number of future
claims by disease type that would likely require payment by the Company.
Finally, the number of such claims was multiplied by the average settlement
value to estimate BNSF’s future liability for unasserted asbestos
claims.
The most sensitive assumptions for this
accrual are the estimated future filing rates and estimated average claim
values. Asbestos claim filings are typically sporadic and may include large
batches of claims solicited by law firms. To reflect these factors, BNSF used a
multi-year calibration period (i.e., the average historical filing rate for the
period 200
4
-200
6
) because it believed it would be most
representative of its future claim experience. In addition, for non-malignant
claims, the number of future claims to be filed against BNSF declines at a rate
consistent with both mortality and age as there is a decreasing propensity to
file a claim as the population ages. BNSF believes the average claim values by
type of disease from the historical period 200
5
-2007
are most representative of future claim
values. Non-malignant claims, which represent
approximately 90 percent of the total
number and 75 percent of the cost of estimated future asbestos claims, were
priced by age of the projected claimants. Historically, the ultimate settlement
value of these types of claims is most sensitive to the age of the claimant. A
10-percent increase or decrease in either the forecasted number of unasserted
claims or the average claim values would result in an approximate
$25 million increase or decrease in the liability recorded for unasserted
asbestos claims.
Further discussion on asbestos is
incorporated by reference from Note 10 to the Consolidated Financial
Statements.
Other Personal
Injury
BNSF estimates its other personal injury
liability claims and expense quarterly based on the covered population, activity
levels and trends in frequency and the costs of covered injuries. Estimates
include unasserted claims except for certain repetitive stress and other
occupational trauma claims that result from prolonged repeated events or
exposure. Such claims are estimated on an as-reported basis because, while the
Company has concluded that a probable loss has occurred, it cannot estimate the
range of reasonably possible loss due to other contributing causes of such
injuries and the fact that continued exposure is required for the potential
injury to manifest itself as a claim. The Company believes that the low end of
the range of reasonably possible loss, as that term is used in FIN 14,
Reasonable
Estimation of the Amount of a Loss
, is immaterial for these repetitive
stress and other occupational trauma claims.
Key elements of the actuarial assessment
include:
|
•
|
Size and demographics (employee
age and craft) of the
workforce.
|
|
•
|
Activity levels (manhours by
employee craft and
carloadings).
|
|
•
|
Expected claim frequency rates by
type of claim (employee FELA or third-party liability) based on historical
claim frequency trends.
|
|
•
|
Expected dismissal rates by type
of claim based on historical dismissal
rates.
|
|
•
|
Expected average paid amounts by
type of claim for open and incurred but not reported claims that
eventually close with
payment.
|
From these assumptions, BNSF estimates
the number of open claims by accident year that will likely require payment by
the Company. The projected number of open claims by accident year that will
require payment is multiplied by the expected average cost per claim by accident
year and type to determine BNSF’s estimated liability for all asserted claims.
Additionally, BNSF estimates the number of its incurred but not reported claims
that will likely result in payment based upon historical emergence patterns by
type of claim. The estimated number of projected claims by accident year
requiring payment is multiplied by the expected average cost per claim by
accident year and type to determine BNSF’s estimated liability for incurred but
not reported claims.
The most sensitive assumptions for this
accrual are the expected average cost per claim and the projected frequency
rates for the number of claims that will ultimately result in payment. A
10-percent increase or decrease in either the expected average cost per claim or
the frequency rate for claims with payment would result in an
approximate $45 million increase or
decrease in BNSF’s recorded other personal injury reserves.
Further discussion on other personal
injury is incorporated by reference from Note 10 to the Consolidated Financial
Statements.
Environmental
The Company’s operations, as well as
those of its competitors, are subject to extensive federal, state and local
environmental regulation. BNSF’s operating procedures include practices to
protect the environment from the risks inherent in railroad operations, which
frequently involve transporting chemicals and other hazardous materials.
Additionally, many of BNSF’s land holdings are and have been used for industrial
or transportation-related purposes or leased to commercial or industrial
companies whose activities may have resulted in discharges onto the property. As
a result, BNSF is subject to environmental cleanup 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 cleanup and
enforcement costs on current and former owners and operators of a site without
regard to fault or the legality of the original conduct. BNSF has been notified
that it is a potentially responsible party (PRP) for study and cleanup costs at
Superfund sites for which investigation and remediation payments are or will be
made or are yet to be determined (the Superfund sites) and, in many instances,
is one of several PRPs. In addition, BNSF may be considered a PRP under certain
other laws. Accordingly, under CERCLA and other federal and state statutes, BNSF
may be held jointly and severally liable for all environmental costs associated
with a particular site. If there are other PRPs, BNSF generally participates in
the cleanup of these sites through cost-sharing agreements with terms that vary
from site to site. Costs are typically allocated based on such factors as
relative volumetric contribution of material, the amount of time the site was
owned or operated and/or the portion of the total site owned or operated by each
PRP.
Liabilities for environmental cleanup
costs are recorded when BNSF’s liability for environmental cleanup is probable
and reasonably estimable. Subsequent adjustments to initial estimates are
recorded as necessary based upon additional information developed in subsequent
periods. Environmental costs include initial site surveys and environmental
studies as well as costs for remediation of sites determined to be
contaminated.
BNSF estimates the ultimate cost of
cleanup efforts at its known environmental sites on an annual basis during the
third quarter. Ultimate cost estimates for environmental sites are based on
historical payment patterns, current estimated percentage to closure ratios and
benchmark patterns developed from data accumulated from industry and public
sources, including the Environmental Protection Agency and other governmental
agencies. These factors incorporate experience gained from cleanup efforts at
other similar sites into the estimates for which remediation and restoration
efforts are still in progress. The most significant assumptions are as follows:
(i) historical payment patterns of site development and (ii) variance from
benchmark costs. A 10 percent change in any of these individual assumptions
could result in an increase or decrease of up to $20 million in BNSF’s estimated
environmental liability.
Further discussion on environmental is
incorporated by reference from Note 10 to the Consolidated Financial
Statements.
Other Claims
and Litigation
In addition to asbestos, other personal
injury and environmental matters discussed above, BNSF and its subsidiaries are
also parties to a number of other legal actions and claims, various governmental
proceedings and private civil suits arising in the ordinary course of business,
including those related to disputes and complaints involving certain
transportation rates and charges (including complaints seeking refunds of prior
charges paid for coal transportation and the prescription of future rates for
such movements and claims relating to service under contract provisions or
otherwise). Some of the legal proceedings include claims for punitive as well as
compensatory damages, and a few proceedings purport to be class actions. While
the final outcome of these matters cannot be predicted with certainty,
considering among other things the meritorious legal defenses available and
liabilities that have been recorded along with applicable insurance, it is the
opinion of BNSF that none of these items, when finally resolved, will have a
material adverse effect on the Company’s financial position or liquidity.
However, an unexpected adverse resolution of one or more of these items could
have a material adverse effect on the results of operations in a particular
quarter or fiscal year.
Income Taxes
BNSF is subject to various federal,
state and local income taxes in the taxing jurisdictions where the Company
operates. BNSF accounts for income taxes by providing for taxes payable or
refundable in the current year and for deferred tax assets and liabilities for
future tax consequences of events that have been recognized in financial
statements or tax returns.
BNSF recorded total income tax expense,
including federal, state and other income taxes,
of $1,128 million,
$1,107 million and $919 million for the years ended December 31, 2007,
2006 and 2005, respectively. BNSF’s Consolidated Balance Sheets reflect
$290 million and $345 million of net current deferred tax assets at
December 31, 2007 and 2006, respectively. Also included in BNSF’s Consolidated
Balance Sheets are $8,484 million and $8,298 million of net
non-current deferred tax liabilities
at December 31, 2007 and 2006,
respectively. Classification of deferred tax assets and liabilities as current
or non-current is determined by the financial statement classification of the
asset or liability to which the temporary difference is related. If a temporary
difference is not related to an asset or liability for financial reporting, it
is classified according to the expected reversal date of the temporary
difference.
Valuation allowances are established to
reduce deferred tax assets if it is more likely than not that some or all of the
deferred tax asset will not be realized. BNSF has not recorded a valuation
allowance, as it believes that the deferred tax assets will be fully realized in
the future.
All federal income tax returns of BNSF’s
predecessor companies, Burlington Northern Inc. and Santa Fe Pacific
Corporation, are closed through 1994 and the business combination date of
September 22
,
1995, respectively. Internal Revenue
Service (IRS) examination of the years 1995 through 1999 for BNSF is completed,
and the un-agreed issues are pending before IRS Appeals. It is anticipated that
a settlement with the IRS for the years 1995 through 1999 may be reached within
the next twelve months. Examination of the years 2000 through 2002 and 2003
through 2005 for BNSF are completed and protests of the un-agreed issues are
pending before IRS Appeals. BNSF is currently under examination for year
2006.
BNSF and its subsidiaries have various
state income tax returns in the process of examination, administrative appeal or
litigation. State income tax returns are generally subject to examination for a
period of three to five years after filing of the respective return. The state
impact of any federal changes remains subject to examination by various states
for a period of up to one year after formal notification to the
states.
Due to the capital-intensive nature of
BNSF’s business, a significant portion of the audit issues with the IRS and
other taxing authorities relate to whether expenditures are classified as
maintenance or capital and whether certain asset valuations are appropriate. A
provision for taxes resulting from ongoing and future federal and state audits
is based on an estimation of aggregate adjustments that may be required as a
result of the audits. The Company believes that adequate provision has been made
for any adjustment that might be assessed for open years through
2007.
BNSF makes estimates of the potential
liability based on its assessment of all potential tax exposures. In addition,
the Company uses factors such as applicable tax laws and regulations, current
information and past experience with similar issues to make these
judgments.
Deferred tax assets and liabilities are
measured using the tax rates that apply to taxable income in the period in which
the deferred tax asset or liability is expected to be realized or paid. Changes
in the Company’s estimates regarding the statutory tax rate to be applied to the
reversal of deferred tax assets and liabilities could materially affect the
effective tax rate.
The Company has not significantly
changed its methodology for calculating income tax expense for the years
presented, and there are currently no known trends, demands, commitments, events
or uncertainties that are reasonably likely to occur and materially affect the
methodology or assumptions described above. Further information on uncertain tax
positions is incorporated by reference from Notes 2 and 5 to the Consolidated
Financial Statements.
Employment Benefit
Plans
BNSF sponsors a funded, noncontributory
qualified pension plan, the BNSF Retirement Plan, which covers most non-union
employees, and an unfunded non-tax-qualified pension plan, the BNSF Supplemental
Retirement Plan, which covers certain officers and other employees. The benefits
under these pension plans are based on years of credited service and the highest
consecutive sixty months of compensation for the last ten years of salaried
employment with BNSF. BNSF’s funding policy is to contribute annually not less
than the regulatory minimum and not more than the maximum amount deductible for
income tax purposes with respect to the funded plan.
Certain salaried employees of BNSF that
have met age and years of service requirements are eligible for life insurance
coverage and medical benefits, including prescription drug coverage, during
retirement. This postretirement benefit plan, referred to as the retiree health
and welfare plan, is contributory and provides benefits to retirees, their
covered dependents and beneficiaries. Retiree contributions are adjusted
annually. The plan also contains fixed deductibles, coinsurance and
out-of-pocket limitations. The basic life insurance plan is noncontributory and
covers retirees only. Optional life insurance coverage is available for some
retirees; however, the retiree is responsible for the full cost. BNSF’s policy
is to fund benefits payable under the medical and life insurance plans as they
come due. Generally, employees beginning salaried employment with BNSF
subsequent to September 22, 1995, are not eligible for medical benefits during
retirement.
The amounts recorded in the Consolidated
Statements of Income for the pension and the retiree health and welfare plans
were as follows (in millions):
|
Year ended December
31,
|
|
2008
Estimate
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net pension
cost
|
|
$
|
30
|
|
$
|
52
|
|
$
|
68
|
|
$
|
38
|
|
Net retiree health and welfare
cost
|
|
$
|
17
|
|
$
|
17
|
|
$
|
14
|
|
$
|
11
|
The decrease in the
2008 net pension cost as compared to 2007 primarily reflects higher than
expected returns on plan assets over the past several years as well as a 50
basis point increase in the discount rate.
At December 31,
2007, BNSF had net losses, excluding prior service costs, of $234 million and
$67 million related to the pension and retiree health and welfare benefits
plans, respectively, which had been recognized as a component of AOCL under SFAS
No. 158,
Employers’
Accounting for Defined Benefit Pension and Other Postretirement Plans–an
amendment of FASB Statements No. 87, 88, 106 and 132R
, as described in
Note 13 to the Consolidated Financial Statements. These losses were comprised of
gains and losses from changes in discount rates, actuarial assumptions and
census data as well as market gains and losses and will be recognized as a
component of net pension and retiree health and welfare costs over the next 17
and 8 years, respectively, as follows:
|
|
|
Deferred Losses to Be
Recognized (in millions)
|
|
Fiscal
year
|
|
Pension
|
|
Retiree Health and Welfare
Benefits
|
|
2008
a
|
|
$
|
|
|
16
|
|
$
|
|
|
4
|
|
2009
|
|
10
|
|
4
|
|
2010
|
|
5
|
|
4
|
|
2011
|
|
2
|
|
3
|
|
2012
|
|
2
|
|
3
|
|
Thereafter
|
|
21
|
|
21
|
|
a
Excludes
a $5 million pre-tax component of the $7 million net of tax decrease to
retained earnings recorded in January 2008 related to the change in
measurement date
under SFAS No. 158,
Employers’
Accounting for Defined Benefit Pension and Other Postretirement Plans—an
amendment of FASB Statement No. 87, 88, 106 and
132R.
See
Note 13 to the Consolidated Financial
Statements.
|
The Company estimates liabilities and
expenses for the pension and retiree health and welfare plans. Estimated amounts
are based on historical information, current information and estimates about
future events and circumstances. Significant assumptions used in the valuation
of the pension or retiree health and welfare obligations include expected return
on plan assets, discount rate, rate of increase in compensation levels and the
health care cost trend rate.
From time to time, the Company will
change pension and retiree health and welfare assumptions in response to current
conditions and expected future experience. Significant assumptions for the past
three years are as follows:
|
|
|
Pension
Benefits
|
|
|
Retiree Health and Welfare
Benefits
|
|
|
Assumptions Used to Determine
Net
Cost for Fiscal Years Ended
December 31,
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Discount
rate
|
|
|
5.50
|
%
|
|
|
5.25
|
%
|
|
|
5.75
|
%
|
|
|
5.50
|
%
|
|
|
5.25
|
%
|
|
|
5.75
|
%
|
|
Expected
long-term rate of return on plan assets
|
|
|
8.00
|
%
|
|
|
8.00
|
%
|
|
|
8.00
|
%
|
|
|
–
|
%
|
|
|
–
|
%
|
|
|
–
|
%
|
|
Assumed
health care cost trend rate
|
|
|
–
|
%
|
|
|
–
|
%
|
|
|
–
|
%
|
|
|
10.00
|
%
|
|
|
10.50
|
%
|
|
|
10.00
|
%
|
|
Rate to which health care cost
trend rate
is expected to
decline and remain
|
|
|
–
|
%
|
|
|
–
|
%
|
|
|
–
|
%
|
|
|
5.00
|
%
|
|
|
5.00
|
%
|
|
|
5.00
|
%
|
|
Year that the rate reaches the ultimate trend rate
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
2012
|
|
|
|
2012
|
|
|
|
2010
|
|
|
Rate
of compensation increase
|
|
|
3.90
|
%
|
|
|
3.90
|
%
|
|
|
3.90
|
%
|
|
|
3.90
|
%
|
|
|
3.90
|
%
|
|
|
3.90
|
%
|
|
|
|
Pension
Benefits
|
|
|
Retiree Health and Welfare
Benefits
|
|
|
Assumptions Used to Determine
Benefit
Obligations at September
30
a
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
Discount
rate
|
|
|
6.00
|
%
|
|
|
5.50
|
%
|
|
|
6.00
|
%
|
|
|
5.50
|
%
|
|
Assumed
health care cost trend rate
|
|
|
–
|
%
|
|
|
–
|
%
|
|
|
10.50
|
%
|
|
|
10.00
|
%
|
|
Rate to which health care cost
trend rate
is
expected to decline and remain
|
|
|
–
|
%
|
|
|
–
|
%
|
|
|
5.00
|
|
|
|
5.00
|
%
|
|
Year that the rate reaches the ultimate trend rate
|
|
|
–
|
|
|
|
–
|
|
|
|
2016
|
|
|
|
2012
|
|
|
Rate
of compensation increase
|
|
|
3.80
|
%
|
|
|
3.90
|
%
|
|
|
3.80
|
%
|
|
|
3.90
|
%
|
|
a
The Company’s pension and retiree health and welfare plans used a
measurement date of September 30 through 2007. However, BNSF is changing
its measurement date and has
elected to apply the transition option under which a 15-month measurement
was determined as of September 30, 2007 that covers the period until the
fiscal year-end measurement is
required on December 31, 2008. See Note 13 to the Consolidated Financial
Statements.
|
|
BNSF determined the discount rate by
adjusting the Moody’s Aa Corporate bond yield to reflect the difference between
the duration of the future estimated cash flows of the Company’s pension and
retiree health and welfare plans and the duration of the Moody’s Aa index. The
expected return on plan assets reflects the expected long-term rates of return
on those assets. The rate of compensation increase is determined based on
historical experience. Finally, the health care cost trend rates reflect the
expected future increases in health care costs.
The discount rate used for the 2008
calculation of net benefit cost was increased to 6.00 percent to reflect market
conditions at the September 30, 2007 measurement date. The expected rate of
return on plan assets
remained consistent from 2007 to 2008,
and the Company does not
expect any near-term significant changes to the current investment allocation of
assets. However, unforeseen changes in the investment markets or other external
factors could prompt changes in these estimates in future years.
The following table is an estimate of
the impact on future net benefit cost that could result from hypothetical
changes to the most sensitive assumptions, the discount rate and rate of return
on plan assets:
|
Sensitivity
Analysis
|
|
Hypothetical Discount
Rate Change
|
|
Change in Net Benefit
Cost
|
|
Pension
|
|
Retiree Health and
Welfare
|
|
50
basis point decrease
|
|
$6
million increase
|
|
$1
million increase
|
|
50
basis point increase
|
|
$6
million decrease
|
|
$1
million decrease
|
|
Hypothetical
Rate of Return
on
Plan Assets Change
|
|
|
|
|
Pension
|
|
|
|
50
basis point decrease
|
|
$7
million increase
|
|
|
|
50
basis point increase
|
|
$7
million decrease
|
|
|
Based on its current assumptions and
funding methodology, the Company is expected to be required to make
contribution
s
of $34 million
to the BNSF Retirement Plan in
2008.
The Company
currently determines required funding by amortizing asset gains and losses over
a period of five years. If the Company was required to fully fund the unfunded
portion of its projected benefit obligation, which was $173 million at
December 31, 2007, for these pension plans and $299 million for the retiree
health and welfare plan, the Company’s management believes that it would have
sufficient liquidity, and it could fund the balance without a significant impact
to the Company’s financial position. Additionally, the Company expects to make
benefit payments in 2008 of approximately $7 million and $25 million from its
non-qualified defined benefit and retiree health and welfare plans,
respectively.
In August of 2006, the President signed
the Pension Protection Act of 2006 (PPA) into law. While the Act will have some
effect on specific plan provisions in the Company’s retirement program, its
primary effect will be to change the minimum funding requirements. The Company
expects that the Act will accelerate the required funding of future
contributions for the Company’s pension plans beginning with the 2009 fiscal
year. Anticipated payments, including the impact of the PPA, over the next five
years are included in the Contractual Obligations table under the heading
“Long-Term Debt and Other Obligations” in Item 7, Management’s Discussion and
Analysis of Financial Condition and Results of Operations. The Company does not
anticipate that this legislation will significantly impact its results of
operations, financial condition or liquidity.
Further
information on employee benefits is incorporated by reference from Note 13 to
the Consolidated Financial Statements.
Depreciation
Due to the capital-intensive nature of
the railroad industry, depreciation expense is a significant component of the
Company’s operating expense. The Company recorded depreciation and amortization
expenses of $
1,293
million, $1,176 million and
$1,111 million for the years ended December 31, 2007, 2006 and 2005,
respectively. At December 31, 2007 and 2006, the Company had property and
equipment, net balances of
$29,567 million and
$27,921 million, which included $9,
177
million and $8,
617
million, respectively
, of accumulated depreciation.
The Company uses the group method of
depreciation under which a single depreciation rate is applied to the gross
investment in a particular class of property, despite differences in the service
life or salvage value of individual property units within the same class. The
Company conducts studies of depreciation rates and the required accumulated
depreciation balance as required by the STB, which is generally every three
years for equipment property and every six years for track structure and other
roadway property. Changes in the estimated service lives of the assets and their
related depreciation rates are implemented prospectively, and the difference
between the calculated accumulated depreciation and the amount recorded is
amortized over the average remaining service lives of the
assets.
See Note 2 to the Consolidated Financial
Statements for additional information related to the retrospective adoption of
FSP AUG AIR-1,
Accounting for
Planned Major Maintenance Activities
.
A study conducted in 2007 resulted in
the Company adopting new depreciation rates for locomotives that resulted in a
net increase in 2007 depreciation expense
of $17 million and approximately
$22
million on an
ongoing annual basis, as calculated using the asset base at the time of the rate
change.
In 2006, the
Company conducted a depreciation rate study of its equipment (excluding
locomotives). The results of this study
did
not materially impact the Company’s
current or future results of operations.
All other rate studies are current under
the STB’s requirements.
Forward-Looking
Information
To the extent that statements made by
the Company relate to the Company’s future economic performance or business
outlook, projections or expectations of financial or operational results, or
refer to matters that are not historical facts, such statements are
“forward-looking” statements within the meaning of the federal securities laws.
These forward-looking statements include, but are not limited to, statements
regarding:
|
•
|
Expectations as to operating
results, such as revenue growth and earnings per
share;
|
|
•
|
Expectations as to the effect of
claims, litigation, environmental and personal injury costs, commitments,
contingent liabilities, and governmental and regulatory investigations and
proceedings on the Company’s financial
condition;
|
|
•
|
Plans and goals for future
operational improvements and capital commitments;
and
|
|
•
|
Future market conditions or
economic performance.
|
Forward-looking statements involve a
number of risks and uncertainties, and actual performance or results may differ
materially. For a discussion of material risks and uncertainties that the
Company faces, see the discussion in Item 1A, “Risk Factors,” of this Annual
Report on Form 10-K. Important factors that could cause actual results to differ
materially include, but are not limited to, the following:
|
•
|
Economic
and industry conditions:
material adverse changes in
economic or industry conditions, both in the United States and globally,
changes in customer demand, effects of adverse economic conditions
affecting shippers or BNSF’s supplier base, adverse economic conditions in
the industries and geographic areas that produce and consume freight,
changes in demand due
to more stringent regulatory policies such as the regulation of
carbon dioxide emissions that could reduce the demand for coal
governmental tariffs or subsidies that could affect the demand for
grain
, competition
and consolidation within the transportation industry, the extent to which
BNSF is successful in gaining new long-term relationships with customers
or retaining existing ones,
level of service failures that
could lead customers to use
competitors
’
services
,
changes in fuel prices and other key materials and disruptions in supply
chains for these materials, changes in the securities and capital markets
and changes in crew availability, labor costs and labor difficulties,
including stoppages affecting either BNSF’s operations or customers’
abilities to deliver goods to BNSF for
shipment;
|
|
•
|
Legal,
legislative and regulatory factors:
developments and changes in laws
and regulations, including those affecting train operations or the
marketing of services, the ultimate outcome of shipper and rate claims
subject to adjudication or claims, investigations or litigation alleging
violations of the antitrust laws, increased economic regulation of the
rail industry through legislative action and revised rules and standards
applied by the U.S. Surface Transportation Board in various areas
including rates and services, developments in environmental investigations
or proceedings with respect to rail operations or current or past
ownership or control of real property, and developments in and losses
resulting from other types of claims and litigation, including those
relating to personal injuries, asbestos and other occupational diseases,
the release of hazardous materials, environmental contamination and damage
to property; and
|
|
•
|
Operating
factors:
technical
difficulties, changes in operating conditions and costs, changes in
business mix, the availability of equipment and human resources to meet
changes in demand, the extent of the Company’s ability to achieve its
operational and financial initiatives and to contain costs, the
effectiveness of steps taken to maintain and improve operations and
velocity and network fluidity, including the management of the amount of
traffic on the system to meet demand and the ability to acquire sufficient
resources to meet that demand, the ability to expand the capacity of the
system, congestion on other railroads and capacity constraints affecting
all links in the transportation chain that feed traffic and goods to
BNSF’s systems,
restrictions on development and
expansion plans due to environmental concerns
, disruptions to BNSF’s technology
network including computer systems and software, as well as natural events
such as severe weather, fires, floods and earthquakes or man-made or other
disruptions of BNSF Railway’s operating systems, structures, or equipment
including the effects of acts of terrorism on the Company’s system or
other railroads’ systems.
|
The Company cautions against placing
undue reliance on forward-looking statements, which reflect its current beliefs
and are based on information currently available to it as of the date a
forward-looking statement is made. The Company undertakes no obligation to
revise forward-looking statements to reflect future events, changes in
circumstances, or changes in beliefs. In the event the Company does update any
forward-looking statement, no inference should be made that the Company will
make additional updates with respect to that statement, related matters, or any
other forward-looking statements. Any corrections or revisions and other
important assumptions and factors that could cause actual results to differ
materially from forward-looking statements made by the Company may appear in the
Company’s public filings with the SEC, which are accessible at www.sec.gov, and
on the Company’s website at www.bnsf.com, and which investors are advised to
consult.
Item
7A
.
Quantitative and Qualitative Disclosures About Market Risk
In the
ordinary course of business, BNSF utilizes various financial instruments that
inherently have some degree of market risk. The following table summarizes the
impact of these hedging activities on the Company’s results of operations (in
millions):
|
Year ended December
31,
|
|
2007
|
|
2006
|
|
|
Fuel-hedge
benefit (including ineffective
portion of unexpired hedges)
|
|
$
|
31
|
|
$
|
341
|
|
|
Interest rate hedge
loss
|
|
|
(3
|
)
|
|
(1
|
)
|
|
Total
hedge benefit
|
|
|
28
|
|
|
340
|
|
|
Tax
effect
|
|
|
(11
|
)
|
|
(131
|
)
|
|
Hedge
benefit, net of tax
|
|
$
|
17
|
|
$
|
209
|
|
The Company’s fuel-hedge benefit is due
to increases in fuel prices subsequent to the initiation of various hedges. The
information presented in the Management’s Discussion and Analysis of Financial
Condition and Results of Operations section and Notes 3 and 9 to the
Consolidated Financial Statements describe significant aspects of BNSF’s
financial instrument activities that have a material market risk. Additionally,
the Company uses fuel surcharges, which it believes substantially mitigates the
risk of fuel price volatility.
Commodity
Price Sensitivity
BNSF engages in hedging activities to
partially mitigate the risk of fluctuations in the price of its diesel fuel
purchases. Existing hedge transactions as of December 31, 2007, are based on the
front month settlement prices of West Texas Intermediate crude oil (WTI). For
swaps, BNSF either pays or receives the difference between the hedge price and
the actual average price of the hedge commodity during a specified determination
period for a specified number of gallons. Hedge transactions are generally
settled with the counterparty in cash. Based on historical information, BNSF
believes there is a significant correlation between the market prices for diesel
fuel and WTI.
At December 31, 2007, BNSF had recorded
a net fuel-hedging asset of $39 million for fuel hedges covering 2008
through 2010.
The following table is an estimate of
the impact to earnings that could result from hypothetical price changes during
the twelve-month period ending December 31, 2008, and the balance sheet impact
from the hypothetical price changes, both based on the Company’s hedge position
at December 31, 2007:
|
Sensitivity
Analysis
|
|
Hedged Commodity Price
Change
|
|
Fuel-Hedge Annual Pre-Tax
Earnings Impact
|
|
Balance Sheet Impact of Change
in Fuel-Hedge Fair Value
|
|
10
percent increase
|
|
$9
million increase
|
|
$13
million increase
|
|
10
percent decrease
|
|
$9
million decrease
|
|
$13
million decrease
|
Based on fuel consumption during the
twelve-month period ending December 31, 2007, of 1,442 million gallons and
fuel prices during that same period, excluding the impact of the Company’s
hedging activities, a 10-percent increase or decrease in the commodity
price per gallon would result in an approximate $295 million increase or
decrease, respectively, in fuel expense (pre-tax) on an annual
basis.
At December 31, 2007, BNSF maintained
fuel inventories for use in normal operations, which were not material to BNSF’s
overall financial position and, therefore, represent no significant market
exposure. Further information on fuel hedges is incorporated by reference from
Note 3 to the Consolidated Financial Statements.
Interest
Rate Sensitivity
From time to time, BNSF enters into
various interest rate hedging transactions for purposes of managing exposure to
fluctuations in interest rates by establishing rates in anticipation of both
future debt issuances and the refinancing of leveraged leases, as well as to
convert a portion of its fixed-rate long-term debt to floating-rate debt. These
interest rate hedges are accounted for as cash flow or fair value hedges. BNSF’s
measurement of the fair value of these hedges is based on estimates of the
mid-market values for the transactions provided by the counterparties to these
agreements.
At December 31, 2007, the fair value of
BNSF’s debt, excluding capital leases, was $7,475 million, which includes a fair
value interest rate hedge benefit of $6 million. Additionally, the Company had
recorded an interest rate hedging liability of $5 million for cash flow
hedges.
The following table is an estimate of
the impact to earnings and the fair value of the total debt, excluding capital
leases, and interest rate hedges that could result from hypothetical interest
rate changes during the twelve-month period ending December 31, 2008, based on
debt levels and outstanding hedges as of December 31, 2007:
|
Sensitivity
Analysis
|
|
Hypothetical
Change
in
Interest Rates
|
|
|
|
Change
in Fair Value
|
|
Floating
Rate Debt-
Annual Pre-Tax Earnings
Impact
|
|
Total
Debt
a
|
|
Interest
Rate Hedges
|
|
1
percent decrease
|
|
$7
million increase
|
|
$718
million increase
|
|
$8
million decrease
|
|
1
percent increase
|
|
$7
million decrease
|
|
$602
million decrease
|
|
$5
million increase
|
|
a Excludes impact of
interest rate
hedges.
|
Further
information on interest rate hedges is incorporated by reference from Note 3 to
the Consolidated Financial Statements. Information on the Company’s debt, which
may be sensitive to interest rate fluctuations, is incorporated by reference
from Note 9 to the Consolidated Financial Statements.
Item
8.
Financial
Statements and Supplementary Data
The Consolidated Financial Statements
and Management’s Report on Internal Control Over Financial Reporting of BNSF and
subsidiary companies, together with the report of the Company’s independent
registered public accounting firm, are included as part of this
filing.
The following documents are filed as a
part of this report:
|
Consolidated Financial
Statements
|
|
|
Management’s
Report on Internal Control Over Financial Reporting
|
38
|
|
Report
of Independent Registered Public Accounting Firm
|
39
|
|
Consolidated
Statements of Income for each of the three years in the period ended
December 31, 2007
|
40
|
|
Consolidated
Balance Sheets as of December 31, 2007 and 2006
|
41
|
|
Consolidated
Statements of Cash Flows for each of the three years in the
period ended December 31, 2007
|
42
|
|
Consolidated
Statements of Changes in Stockholders’ Equity for each of the three years
in the period ended December 31, 2007
|
43
|
|
Notes
to Consolidated Financial Statements
|
44-73
|
M
anagement’s Report on Internal Control Over Financial
Reporting
To the Shareholders of Burlington
Northern Santa Fe Corporation
and Subsidiaries
The management of
Burlington Northern Santa Fe Corporation (the Company) is responsible for
establishing and maintaining adequate internal control over financial reporting.
The Company’s internal control over financial reporting was designed to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of the Company’s financial statements for external reporting
purposes in accordance with generally accepted accounting principles in the
United States of America.
Management assessed
the effectiveness of the Company’s internal control over financial reporting as
of December 31, 2007. In making this assessment, management used the criteria
set forth by the Committee of Sponsoring Organizations of the Treadway
Commission in
Internal
Control – Integrated Framework
. Based on
management’s assessment, the Company concluded that as of December 31, 2007, the
Company’s internal control over financial reporting was effective based on those
criteria.
The effectiveness
of the Company’s internal control over financial reporting as of December 31,
2007, has been audited by PricewaterhouseCoopers LLP, the Company’s independent
registered public accounting firm, as stated in their report, which appears on
the following page.
R
eport of Independent Registered Public Accounting
Firm
To the Shareholders and Board of
Directors of
Burlington Northern Santa Fe
Corporation
In our opinion, the accompanying
consolidated financial statements listed in the accompanying index present
fairly, in all material respects, the financial position of Burlington Northern
Santa Fe Corporation and its subsidiaries (the Company) at December 31, 2007 and
2006, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 2007 in conformity with accounting
principles generally accepted in the United States of America. Also
in our opinion, the Company maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2007, based on
criteria established in
Internal Control -
Integrated Framework
issued by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO). The Company's management is
responsible for these financial statements, for maintaining effective internal
control over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting, included in the accompanying
Management's Report on Internal Control Over Financial Reporting. Our
responsibility is to express opinions on these financial statements and on the
Company's internal control over financial reporting based on our integrated
audits. We conducted our audits in accordance with the standards of
the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of material
misstatement and whether effective internal control over financial reporting was
maintained in all material respects. Our audits of the financial
statements included examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. Our audit of internal control over
financial reporting included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk. Our audits also included
performing such other procedures as we considered necessary in the
circumstances. We believe that our audits provide a reasonable basis for our
opinions.
As discussed in Note 2 to the
consolidated financial statements, effective January 1, 2007, the Company
changed the manner in which it accounts for planned major maintenance activities
and the manner in which it accounts for uncertain tax
positions.
A company’s internal control over
financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted
accounting principles. A company’s internal control over financial
reporting includes those policies and procedures that (i) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect
the transactions and dispositions of the assets of the company; (ii) provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the financial
statements.
Because of its inherent limitations,
internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
Fort Worth, Texas
February 12, 2008
Burlington
Northern Santa Fe Corporation and Subsidiaries
Consolidated Statements of
Income
In
millions, except per share data
|
Year ended December
31,
|
|
|
2007
|
|
|
|
2006
|
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
(As Adjusted)
a
|
|
|
|
(As Adjusted)
a
|
|
Revenues
|
|
|
$
|
15,802
|
|
|
$
|
14,985
|
|
|
$
|
12,987
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation and
benefits
|
|
|
|
3,773
|
|
|
|
3,816
|
|
|
|
3,515
|
|
Fuel
|
|
|
|
3,197
|
|
|
|
2,734
|
|
|
|
1,959
|
|
Purchased
services
|
|
|
|
2,023
|
|
|
|
1,906
|
|
|
|
1,713
|
|
Depreciation and
amortization
|
|
|
|
1,293
|
|
|
|
1,176
|
|
|
|
1,111
|
|
Equipment rents
|
|
|
|
942
|
|
|
|
930
|
|
|
|
886
|
|
Materials and
other
|
|
|
|
1,088
|
|
|
|
902
|
|
|
|
876
|
|
Total operating
expenses
|
|
|
|
12,316
|
|
|
|
11,464
|
|
|
|
10,060
|
|
Operating
income
|
|
|
|
3,486
|
|
|
|
3,521
|
|
|
|
2,927
|
|
Interest
expense
|
|
|
|
511
|
|
|
|
485
|
|
|
|
437
|
|
Other
expense, net
|
|
|
|
18
|
|
|
|
40
|
|
|
|
37
|
|
Income before income
taxes
|
|
|
|
2,957
|
|
|
|
2,996
|
|
|
|
2,453
|
|
Income
tax expense
|
|
|
|
1,128
|
|
|
|
1,107
|
|
|
|
919
|
|
Net income
|
|
|
$
|
1,829
|
|
|
$
|
1,889
|
|
|
$
|
1,534
|
|
Earnings
per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per
share
|
|
|
$
|
5.19
|
|
|
$
|
5.23
|
|
|
$
|
4.13
|
|
Diluted earnings per
share
|
|
|
$
|
5.10
|
|
|
$
|
5.11
|
|
|
$
|
4.02
|
|
Average
shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
352.5
|
|
|
|
361.0
|
|
|
|
371.8
|
|
Dilutive effect of stock
awards
|
|
|
|
6.4
|
|
|
|
8.8
|
|
|
|
10.0
|
|
Diluted
|
|
|
|
358.9
|
|
|
|
369.8
|
|
|
|
381.8
|
|
a
|
Prior
year numbers have been adjusted for the retrospective adoption of
Financial Accounting Standards Board (FASB) Staff Position (FSP)
|
|
|
AUG AIR-1
,
Accounting for Planned Major Maintenance Activities
. See Note 2 of
the Consolidated Financial Statements for additional
information
.
|
|
|
See
accompanying Notes to Consolidated Financial
Statements.
|
Burlington
Northern Santa Fe Corporation and Subsidiaries
Consolidated Balance
Sheets
Dollars
in millions, shares in thousands
|
December
31,
|
|
|
2007
|
|
|
|
2006
|
|
|
Assets
|
|
|
|
|
|
|
(As Adjusted)
a
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
|
$
|
330
|
|
|
$
|
375
|
|
|
Accounts receivable,
net
|
|
|
|
790
|
|
|
|
805
|
|
|
Materials and
supplies
|
|
|
|
579
|
|
|
|
488
|
|
|
Current portion of deferred
income taxes
|
|
|
|
290
|
|
|
|
345
|
|
|
Other current
assets
|
|
|
|
192
|
|
|
|
168
|
|
|
Total current
assets
|
|
|
|
2,181
|
|
|
|
2,181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
|
29,567
|
|
|
|
27,921
|
|
|
Other
assets
|
|
|
|
1,835
|
|
|
|
1,695
|
|
|
Total assets
|
|
|
$
|
33,583
|
|
|
$
|
31,797
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’
Equity
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and other
current liabilities
|
|
|
$
|
2,824
|
|
|
$
|
2,853
|
|
|
Long-term debt due within one
year
|
|
|
|
411
|
|
|
|
473
|
|
|
Total current
liabilities
|
|
|
|
3,235
|
|
|
|
3,326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt and commercial paper
|
|
|
|
7,735
|
|
|
|
6,912
|
|
|
Deferred
income taxes
|
|
|
|
8,484
|
|
|
|
8,298
|
|
|
Casualty
and environmental liabilities
|
|
|
|
843
|
|
|
|
830
|
|
|
Pension
and retiree health and welfare liability
|
|
|
|
444
|
|
|
|
604
|
|
|
Employee
separation costs
|
|
|
|
77
|
|
|
|
86
|
|
|
Other
liabilities
|
|
|
|
1,621
|
|
|
|
1,213
|
|
|
Total
liabilities
|
|
|
|
22,439
|
|
|
|
21,269
|
|
|
Commitments
and contingencies (see Notes 3, 9 and 10)
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity:
|
|
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par value,
600,000 shares authorized;
537,330
shares and 532,080 shares issued, respectively
|
|
|
|
5
|
|
|
|
5
|
|
|
Additional
paid-in-capital
|
|
|
|
7,348
|
|
|
|
6,990
|
|
|
Retained
earnings
|
|
|
|
11,152
|
|
|
|
9,739
|
|
|
Treasury stock, at cost,
189,626
shares and 174,205 shares, respectively
|
|
|
|
(7,222
|
)
|
|
|
(5,929
|
)
|
|
Accumulated other comprehensive
loss
|
|
|
|
(139
|
)
|
|
|
(277
|
)
|
|
Total stockholders’
equity
|
|
|
|
11,144
|
|
|
|
10,528
|
|
|
Total liabilities and
stockholders’ equity
|
|
|
$
|
33,583
|
|
|
$
|
31,797
|
|
|
a
|
Prior
year numbers have been adjusted for the retrospective adoption of
FSP AUG AIR-1
,
Accounting for Planned Major Maintenance
Activities
.
|
|
|
See
Note 2 of the Consolidated Financial Statements for additional
information.
|
|
|
See
accompanying Notes to Consolidated Financial
Statements.
|
Burlington
Northern Santa Fe Corporation and Subsidiaries
Consolidated Statements of Cash
Flows
In
millions
|
Year ended December
31,
|
|
|
2007
|
|
|
|
2006
|
|
|
|
2005
|
|
|
Operating
Activities
|
|
|
|
|
|
|
(As Adjusted)
a
|
|
|
|
(As Adjusted)
a
|
|
|
Net
income
|
|
|
$
|
1,829
|
|
|
$
|
1,889
|
|
|
$
|
1,534
|
|
|
Adjustments
to reconcile net income to net cash provided
by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
|
1,293
|
|
|
|
1,176
|
|
|
|
1,111
|
|
|
Deferred
income taxes
|
|
|
|
280
|
|
|
|
316
|
|
|
|
219
|
|
|
Employee
separation costs paid
|
|
|
|
(21
|
)
|
|
|
(27
|
)
|
|
|
(30
|
)
|
|
Long-term
casualty and environmental liabilities, net
|
|
|
|
26
|
|
|
|
(55
|
)
|
|
|
(71
|
)
|
|
Other,
net
|
|
|
|
183
|
|
|
|
(43
|
)
|
|
|
2
|
|
|
Changes
in current assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable, net
|
|
|
|
20
|
|
|
|
(127
|
)
|
|
|
(138
|
)
|
|
Change
in accounts receivable sales program
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(350
|
)
|
|
Materials
and supplies
|
|
|
|
(91
|
)
|
|
|
(92
|
)
|
|
|
(57
|
)
|
|
Other
current assets
|
|
|
|
12
|
|
|
|
99
|
|
|
|
(5
|
)
|
|
Accounts
payable and other current liabilities
|
|
|
|
(39
|
)
|
|
|
53
|
|
|
|
491
|
|
|
Net
cash provided by operating activities
|
|
|
|
3,492
|
|
|
|
3,189
|
|
|
|
2,706
|
|
|
Investing
Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
|
(2,248
|
)
|
|
|
(2,014
|
)
|
|
|
(1,750
|
)
|
|
Construction
costs for facility financing obligation
|
|
|
|
(37
|
)
|
|
|
(14
|
)
|
|
|
(4
|
)
|
|
Other,
net
|
|
|
|
(130
|
)
|
|
|
(139
|
)
|
|
|
(366
|
)
|
|
Net
cash used for investing activities
|
|
|
|
(2,415
|
)
|
|
|
(2,167
|
)
|
|
|
(2,120
|
)
|
|
Financing
Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(
decrease)
increase
in
commercial paper and bank borrowings
|
|
|
|
(584
|
)
|
|
|
283
|
|
|
|
563
|
|
|
Proceeds
from issuance of long-term debt
|
|
|
|
1,300
|
|
|
|
300
|
|
|
|
500
|
|
|
Payments
on long-term debt
|
|
|
|
(482
|
)
|
|
|
(467
|
)
|
|
|
(464
|
)
|
|
Dividends
paid
|
|
|
|
(380
|
)
|
|
|
(310
|
)
|
|
|
(267
|
)
|
|
Proceeds
from stock options exercised
|
|
|
|
142
|
|
|
|
116
|
|
|
|
244
|
|
|
Purchase
of BNSF common stock
|
|
|
|
(1,265
|
)
|
|
|
(730
|
)
|
|
|
(799
|
)
|
|
Prepaid
forward repurchase of treasury stock
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(600
|
)
|
|
Excess
tax benefits from equity compensation plans
|
|
|
|
121
|
|
|
|
95
|
|
|
|
–
|
|
|
Proceeds
from facility financing obligation
|
|
|
|
41
|
|
|
|
–
|
|
|
|
–
|
|
|
Other,
net
|
|
|
|
(15
|
)
|
|
|
(9
|
)
|
|
|
(10
|
)
|
|
Net
cash used for financing activities
|
|
|
|
(1,122
|
)
|
|
|
(722
|
)
|
|
|
(833
|
)
|
|
(Decrease)
increase
in cash and cash equivalents
|
|
|
|
(45
|
)
|
|
|
300
|
|
|
|
(247
|
)
|
|
Cash
and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
of year
|
|
|
|
375
|
|
|
|
75
|
|
|
|
322
|
|
|
End
of year
|
|
|
$
|
330
|
|
|
$
|
375
|
|
|
$
|
75
|
|
|
Supplemental Cash Flow
Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
paid, net of amounts capitalized
|
|
|
$
|
494
|
|
|
$
|
462
|
|
|
$
|
427
|
|
|
Income
taxes paid, net of refunds
|
|
|
$
|
680
|
|
|
$
|
779
|
|
|
$
|
545
|
|
|
Non-cash
asset financing
|
|
|
$
|
461
|
|
|
$
|
109
|
|
|
$
|
68
|
|
|
a
|
Prior
year numbers have been adjusted for the retrospective adoption of
FSP AUG AIR-1
,
Accounting for Planned Major Maintenance
Activities
.
|
|
|
See
Note 2 of the Consolidated Financial Statements for additional
information.
|
|
|
See
accompanying Notes to Consolidated Financial
Statements.
|
Burlington
Northern Santa Fe Corporation and Subsidiaries
Co
nsolidated
Statements of Changes in Stockholders’ Equity
Dollars
in millions, shares in thousands, except per share data
|
|
|
Common
Shares
|
|
|
Treasury
Shares
|
|
Common Stock and Paid–in
Capital
|
|
Retained Earnings
a
|
|
Treasury
Stock
|
|
|
Prepaid
Forward
Repurchase
of Treasury
Stock
|
|
|
Unearned
Compensation
|
|
Accumulated
Other
Comprehensive
Loss
|
|
Total
Stockholders’ Equity
a
|
|
|
Balance
at December 31, 2004, as
reported
|
|
|
517,275
|
|
|
|
(140,463
|
)
|
$
|
|
6,304
|
|
$
|
|
6,792
|
|
$
|
|
(3,741
|
)
|
|
$
|
–
|
|
|
$
|
(43
|
)
|
$
|
|
(1
|
)
|
$
|
|
9,311
|
|
|
Cumulative
effect restrospective a
pplication,
net
of tax of $78
a
|
|
|
|
|
|
|
|
|
|
|
–
|
|
|
|
127
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
127
|
|
|
Balance
at December 31, 2004, as adjusted
|
|
|
|
|
|
|
|
|
|
|
6,304
|
|
|
|
6,919
|
|
|
|
(3,741
|
)
|
|
|
–
|
|
|
|
(43
|
)
|
|
|
(1
|
)
|
|
|
9,438
|
|
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
|
|
|
|
|
|
|
|
–
|
|
|
|
1,534
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
1,534
|
|
|
Minimum
pension liability adjustment, net of tax benefit of $25
|
|
|
|
|
|
|
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(39
|
)
|
|
|
(39
|
)
|
|
Fuel/interest
hedge mark-to-market, net of tax benefit of $8
|
|
|
|
|
|
|
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(13
|
)
|
|
|
(13
|
)
|
|
Total
comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
–
|
|
|
|
1,534
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(52
|
)
|
|
|
1,482
|
|
|
Common
stock dividends, $0.74 per share
|
|
|
|
|
|
|
|
|
|
|
–
|
|
|
|
(278
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(278
|
)
|
|
Restricted
stock expense
|
|
|
|
|
|
|
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
37
|
|
|
|
–
|
|
|
|
37
|
|
|
Restricted
stock activity and related tax benefit of $10
|
|
|
665
|
|
|
|
(140
|
)
|
|
|
46
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(16
|
)
|
|
|
–
|
|
|
|
30
|
|
|
Exercise
of stock options and related tax benefit of $84
|
|
|
9,349
|
|
|
|
(540
|
)
|
|
|
357
|
|
|
|
–
|
|
|
|
(29
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
328
|
|
|
Purchase
of BNSF common stock
|
|
|
–
|
|
|
|
(14,575
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
(799
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(799
|
)
|
|
Prepaid
forward repurchase of treasury stock
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(600
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
(600
|
)
|
|
Balance
at December 31, 2005, as adjusted
|
|
|
527,289
|
|
|
|
(155,718
|
)
|
|
|
6,707
|
|
|
|
8,175
|
|
|
|
(4,569
|
)
|
|
|
(600
|
)
|
|
|
(22
|
)
|
|
|
(53
|
)
|
|
|
9,638
|
|
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
|
|
|
|
|
|
|
|
–
|
|
|
|
1,889
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
1,889
|
|
|
Minimum
pension liability adjustment, net of tax expense of $24
|
|
|
|
|
|
|
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
40
|
|
|
|
40
|
|
|
Fuel/interest
hedge mark-to-market, net of tax benefit of $117
|
|
|
|
|
|
|
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(188
|
)
|
|
|
(188
|
)
|
|
Total
comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
–
|
|
|
|
1,889
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(148
|
)
|
|
|
1,741
|
|
|
Adjustment
to initially apply Statement of Financial Accounting Standard (SFAS) No.
158, net of tax benefit of $48
|
|
|
|
|
|
|
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(76
|
)
|
|
|
(76
|
)
|
|
Common
stock dividends, $0.90 per share
|
|
|
|
|
|
|
|
|
|
|
–
|
|
|
|
(325
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(325
|
)
|
|
Restricted
stock and stock options expense
|
|
|
|
|
|
|
|
|
|
|
72
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
72
|
|
|
Restricted
stock activity and related tax benefit of $15
|
|
|
28
|
|
|
|
(33
|
)
|
|
|
16
|
|
|
|
–
|
|
|
|
(1
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
15
|
|
|
Exercise
of stock options and related tax benefit of $80
|
|
|
4,763
|
|
|
|
(376
|
)
|
|
|
225
|
|
|
|
–
|
|
|
|
(29
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
196
|
|
|
Adjustment
upon adoption of SFAS No. 123R
|
|
|
–
|
|
|
|
–
|
|
|
|
(25
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
22
|
|
|
|
–
|
|
|
|
(3
|
)
|
|
Purchase
of BNSF common stock
|
|
|
–
|
|
|
|
(9,860
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
(730
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(730
|
)
|
|
Prepaid
forward repurchase of treasury stock
|
|
|
–
|
|
|
|
(8,218
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
(600
|
)
|
|
|
600
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
Balance
at December 31, 2006, as adjusted
|
|
|
532,080
|
|
|
|
(174,205
|
)
|
|
|
6,995
|
|
|
|
9,739
|
|
|
|
(5,929
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
(277
|
)
|
|
|
10,528
|
|
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
|
|
|
|
|
|
|
|
–
|
|
|
1,829
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
1,829
|
|
|
Change in unrecognized prior service cost and actuarial losses,
net of tax expense of $
76
|
|
|
|
|
|
|
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
122
|
|
|
122
|
|
|
Fuel/interest hedge mark-to-market, net of tax expense of
$
10
|
|
|
|
|
|
|
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
16
|
|
|
16
|
|
|
Total
comprehensive i
ncome
|
|
|
|
|
|
|
|
|
|
|
–
|
|
|
1
,
829
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
138
|
|
|
1
,
967
|
|
|
Adjustment
for the adoption of FASB Interpretation No. (FIN) 48
|
|
|
|
|
|
|
|
|
|
|
–
|
|
|
(13)
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
(13
|
)
|
|
Common
stock dividends, $1.14 per share
|
|
|
|
|
|
|
|
|
|
|
–
|
|
|
(403)
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
(403
|
)
|
|
Restricted
stock and stock options expense
|
|
|
|
|
|
|
|
|
|
66
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
66
|
|
|
Restricted stock activity and related tax benefit of
$
23
|
|
1
|
|
|
(48
|
)
|
|
24
|
|
|
|
–
|
|
|
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
24
|
|
|
Exercise of stock options and related tax benefit of $
98
|
|
5,249
|
|
|
(319
|
)
|
|
268
|
|
|
|
–
|
|
|
(28
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
240
|
|
|
Purchase
of BNSF common stock
|
|
|
–
|
|
|
(15,054
|
)
|
|
|
–
|
|
|
|
–
|
|
|
(1,265
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
(1,265
|
)
|
|
Balance
at December 31, 2007
|
|
537,330
|
|
|
(189,626
|
)
|
$
|
7,353
|
|
$
|
11,152
|
|
$
|
(7,222
|
)
|
|
$
|
–
|
|
|
$
|
–
|
|
$
|
(139
|
)
|
$
|
11,144
|
|
|
a
Prior year numbers have been adjusted for the retrospective adoption of
FSP AUG AIR-1
,
Accounting for Planned Major Maintenance
Activities
.
|
|
See Note 2 of the Consolidated Financial Statements for additional
information.
|
See
accompanying Notes to Consolidated Financial Statements.
Burlington
Northern Santa Fe Corporation and Subsidiaries
No
tes to Consolidated Financial Statements
1. The Company
Burlington
Northern Santa Fe Corporation (BNSF) is a holding company that conducts no
operating activities and owns no significant assets other than through its
interests in its subsidiaries. BNSF’s principal, wholly-owned subsidiary is BNSF
Railway Company (BNSF Railway), which operates one of the largest railroad
networks in North America with approximately 32,000 route miles in 28 states and
two Canadian provinces. Through one operating transportation services segment,
BNSF Railway transports a wide range of products and commodities including the
transportation of Consumer Products, Industrial Products, Coal and Agricultural
Products, derived from manufacturing, agricultural and natural resource
industries, which constituted 37 percent, 24 percent, 21 percent and 18 percent,
respectively, of total freight revenues for the year ended December 31, 2007.
These Consolidated Financial Statements include BNSF, BNSF Railway and other
majority-owned subsidiaries, all of which are separate legal entities
(collectively, the Company).
2. Significant Accounting
Policies
Principles
of Consolidation
The
Consolidated Financial Statements include the accounts of BNSF, including its
principal subsidiary BNSF Railway. All significant intercompany accounts and
transactions have been eliminated. The Company evaluates its less than
majority-owned investments for consolidation pursuant to FIN 46R,
Consolidation
of Variable Interest Entities.
Use of
Estimates
The preparation of
financial statements in accordance with generally accepted accounting principles
in the United States of America (GAAP) requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the periods
presented. These estimates and assumptions are periodically reviewed by
management. Actual results could differ from those
estimates.
Revenue
Recognition
Transportation
revenues are recognized based upon the proportion of service provided as of the
balance sheet date. Revenues from ancillary services are recognized when
performed. Customer incentives, which are primarily provided for shipping a
specified cumulative volume or shipping to/from specific locations, are recorded
as a reduction to revenue on a pro-rata basis based on actual or projected
future customer shipments. When using projected shipments, the Company relies on
historic trends as well as economic and other indicators to estimate the
liability for customer incentives.
Accounts
Receivable, Net
Accounts
receivable, net includes accounts receivable reduced by an allowance for bill
adjustments and uncollectible accounts. The allowance for bill adjustments and
uncollectible accounts is based on historical experience as well as any known
trends or uncertainties related to customer billing and account
collectibility.
Cash and
Cash Equivalents
All
short-term investments with original maturities of 90 days or less are
considered cash equivalents. Cash equivalents are stated at cost, which
approximates market value because of the short maturity of these
instruments.
Materials
and Supplies
Materials and
supplies, which consist mainly of rail, ties and other items for construction
and maintenance of property and equipment, as well as diesel fuel, are valued at
the lower of average cost or market.
Property
and Equipment, Net
Property and
equipment are depreciated and amortized on a straight-line basis over their
estimated useful lives. The Company uses the group method of depreciation in
which a single depreciation rate is applied to the gross investment in a
particular class of property, despite differences in the service life or salvage
value of individual property units within the same class. Upon normal sale or
retirement of certain depreciable railroad property, cost less net salvage value
is charged to accumulated depreciation, and no gain or loss is recognized. The
disposals of land and non-rail property as well as significant premature
retirements are recorded as gains or losses at the time of their
occurrence.
The Company self-constructs portions of
its track structure and rebuilds certain classes of rolling stock. In addition
to direct labor and material, certain indirect costs are capitalized.
Expenditures that significantly increase asset values or extend useful lives are
capitalized. Repair and maintenance expenditures are charged to operating
expense when the work is performed. Property and equipment are stated at
cost.
The Company incurs certain direct labor,
contract service and other costs associated with the development and
installation of internal-use computer software. Costs for newly developed
software or significant enhancements to existing software are typically
capitalized. Research, preliminary project, operations, maintenance and training
costs are charged to operating expense when the work is
performed.
Long-lived assets are reviewed for
impairment when events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. If impairment indicators are present
and the estimated future undiscounted cash flows are less than the carrying
value of the long-lived assets, the carrying value is reduced to the estimated
fair value as measured by the discounted cash flows.
Leasehold improvements that meet
capitalization criteria are capitalized and amortized on a straight-line basis
over the lesser of their estimated useful lives or the remaining lease term.
Cash flows for capitalized leasehold improvements are reported in the investing
activities other, net line of the Consolidated Statements of Cash
Flows.
Planned
Major Maintenance Activities
Effective January 1, 2007, the Company
transitioned to the deferral method of accounting for leased locomotive
overhauls, which includes the refurbishment of the engine and related
components. Previously, the Company used the accrue-in-advance method of
accounting for these planned major maintenance activities; however, under FSP
AUG AIR-1,
Accounting for
Planned Major Maintenance Activities
, issued in September 2006, this method
is no longer allowed. This change was applied retrospectively for all periods
presented. Accordingly, BNSF has eliminated the asset and liability recorded
from the accrue-in-advance methodology and established an asset for overhauls
that have been performed. This asset of
$
245
million,
which is included in property and
equipment, net in the December 31, 2006 Consolidated Balance Sheets, will be
amortized to expense using the straight-line method until the next overhaul is
performed or the end of the lease, whichever comes first, typically between six
and eight years. The effects of these adjustments were as follows (in
millions):
Consolidated Statements of Income
|
|
|
2006
|
|
|
2005
|
|
Year Ended December
31,
|
|
As
Reported
|
|
|
As
Adjusted
|
|
|
As
Reported
|
|
|
As
Adjusted
|
|
Depreciation
and amortization
|
|
$
|
1,130
|
|
|
$
|
1,176
|
|
|
$
|
1,075
|
|
|
$
|
1,111
|
|
Materials
and other
|
|
|
952
|
|
|
|
902
|
|
|
|
917
|
|
|
|
876
|
|
Total
operating expenses
|
|
|
11,468
|
|
|
|
11,464
|
|
|
|
10,065
|
|
|
|
10,060
|
|
Operating
income
|
|
|
3,517
|
|
|
|
3,521
|
|
|
|
2,922
|
|
|
|
2,927
|
|
Income
before income taxes
|
|
|
2,992
|
|
|
|
2,996
|
|
|
|
2,448
|
|
|
|
2,453
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax expense
|
|
|
1,105
|
|
|
|
1,107
|
|
|
|
917
|
|
|
|
919
|
|
Net
income
|
|
$
|
1,887
|
|
|
$
|
1,889
|
|
|
$
|
1,531
|
|
|
$
|
1,534
|
|
Basic
earnings per share
|
|
$
|
5.23
|
|
|
$
|
5.23
|
|
|
$
|
4.12
|
|
|
$
|
4.13
|
|
Diluted
earnings per share
|
|
$
|
5.10
|
|
|
$
|
5.11
|
|
|
$
|
4.01
|
|
|
$
|
4.02
|
Consolidated Balance
Sheets
|
|
|
2006
|
|
December
31,
|
|
As
Reported
|
|
|
As
Adjusted
|
|
Property
and equipment, net
|
|
$
|
27,676
|
|
|
$
|
27,921
|
|
Other
assets
|
|
|
1,786
|
|
|
|
1,695
|
|
Total
assets
|
|
|
31,643
|
|
|
|
31,797
|
|
|
|
|
|
|
|
|
|
|
Deferred
income taxes
|
|
|
8,216
|
|
|
|
8,298
|
|
Other
liabilities
|
|
|
1,273
|
|
|
|
1,213
|
|
Total
liabilities
|
|
|
21,247
|
|
|
|
21,269
|
|
|
|
|
|
|
|
|
|
|
Retained
earnings
|
|
|
9,607
|
|
|
|
9,739
|
|
Total
stockholders’ equity
|
|
|
10,396
|
|
|
|
10,528
|
|
Total liabilities
and stockholders’ equity
|
|
$
|
31,643
|
|
|
$
|
31,797
|
Consolidated
Statements of Cash Flows
|
|
|
2006
|
|
|
2005
|
|
|
Year Ended December
31,
|
|
As
Reported
|
|
|
As
Adjusted
|
|
|
As
Reported
|
|
|
As
Adjusted
|
|
|
Net
income
|
|
$
|
1,887
|
|
|
$
|
1,889
|
|
|
$
|
1,531
|
|
|
$
|
1,534
|
|
|
Depreciation
and amortization
|
|
|
1,130
|
|
|
|
1,176
|
|
|
|
1,075
|
|
|
|
1,111
|
|
|
Deferred
income taxes
|
|
|
314
|
|
|
|
316
|
|
|
|
217
|
|
|
|
219
|
|
|
Operating
activities other, net
|
|
|
(74
|
)
|
|
|
(43
|
)
|
|
|
(54
|
)
|
|
|
2
|
|
|
Net
cash provided by operating activities
|
|
|
3,108
|
|
|
|
3,189
|
|
|
|
2,609
|
|
|
|
2,706
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing
activities other, net
|
|
|
(58
|
)
|
|
|
(139
|
)
|
|
|
(269
|
)
|
|
|
(366
|
)
|
|
Net
cash used by investing activities
|
|
$
|
(2,086
|
)
|
|
$
|
(2,167
|
)
|
|
$
|
(2,023
|
)
|
|
$
|
(2,120
|
)
|
The effects of the adjustments on years
prior to fiscal 200
5
resulted in an adjustment
to increase stockholders
’
equity as of
January
1, 200
5
by $1
27
million.
Environmental
Liabilities
Liabilities for environmental cleanup
costs are initially recorded when BNSF’s liability for environmental cleanup is
both probable and reasonably estimable. Subsequent adjustments to initial
estimates are recorded as necessary based upon additional information developed
in subsequent periods. Estimates for these liabilities are
undiscounted.
Personal
Injury Claims
Liabilities for personal injury claims
are initially recorded when the expected loss is both probable and reasonably
estimable. Subsequent adjustments to initial estimates are recorded as necessary
based upon additional information developed in subsequent periods. Liabilities
recorded for unasserted personal injury claims, including those related to
asbestos, are based on information currently available. Estimates of liabilities
for personal injury claims are undiscounted.
Income
Taxes
Deferred tax assets and liabilities are
measured using the tax rates that apply to taxable income in the period in which
the deferred tax asset or liability is expected to be realized or paid.
Valuation allowances are established to reduce deferred tax assets if it is more
likely than not that some or all of the deferred tax asset will not be realized.
Investment tax credits are accounted for using the flow-through
method.
Uncertain
Tax Positions
In June 2006, the FASB issued FIN 48,
Accounting for
Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109,
Accounting for Income Taxes.
This interpretation addresses the
determination of whether tax benefits claimed or expected to be claimed on a tax
return should be recorded in the financial statements. Under FIN 48, the Company
may recognize the tax benefit from an uncertain tax position only if it is more
likely than not that the tax position will be sustained on examination by the
taxing authorities, based on the technical merits of the position. The tax
benefits recognized in the financial statements from such a position should be
measured based on the largest benefit that has a greater than fifty percent
likelihood of being realized upon ultimate settlement. FIN 48 also provides
guidance on derecognition, classification, interest and penalties on income
taxes, accounting in interim periods and requires increased disclosures. The
Company adopted the provisions of FIN 48 on January 1, 2007. As a result of the
implementation of FIN 48, the Company recorded an $83 million increase in
the liability for unrecognized tax benefits, which is offset by a reduction of
the deferred tax liability of $70 million, resulting in a decrease to the
January 1, 2007, retained earnings balance of $13 million (for additional
information see Note 5 to the Consolidated Financial
Statements).
Stock-Based
Compensation
The Company adopted SFAS No. 123R,
Share-Based Payment,
on January 1, 2006. This
statement requires BNSF to recognize the cost of employee services received in
exchange for the Company’s equity instruments. Under SFAS No. 123R, BNSF is
required to record compensation expense over an award’s vesting period based on
the award’s fair value at the date of grant. BNSF has elected to adopt SFAS No.
123R on a modified prospective basis; accordingly, the financial statements for
periods prior to January 1, 2006, do not include compensation cost calculated
under the fair value method. Since the adoption of this new guidance, there have
been no significant changes in the quantity or types of instruments used in
stock-based compensation programs, nor have there been any significant changes
in the terms of existing stock-based compensation arrangements. The Company did,
however, record a favorable cumulative adjustment for estimated forfeitures of
$3 million, which, due to its immateriality, was included as a reduction to
compensation expense in the first quarter of 2006.
Prior to January 1, 2006, the Company
applied Accounting Principles Board Opinion 25,
Accounting for Stock
Issued to Employees,
and,
therefore, recorded the intrinsic value of stock-based compensation as expense.
The following table illustrates the effect on net income and earnings per share
if the Company had applied the fair value recognition provisions of SFAS No.
123,
Accounting for
Stock-Based Compensation,
to stock-based employee compensation (in
millions, except per share data) prior to January 1, 2006:
|
Year ended December
31,
|
|
2005
|
a
|
|
Net
income, as reported
|
|
$
|
1,534
|
|
|
Stock-based employee
compensation expense included
in reported net income, net of
related tax effects
|
|
|
23
|
|
|
Total stock-based compensation
expense determined
under fair value method for all
awards, net of related tax effects
|
|
|
(42
|
)
|
|
Pro
forma net income
|
|
$
|
1,515
|
|
|
Earnings
per share:
|
|
|
|
|
|
Basic – as
reported
|
|
$
|
4.13
|
|
|
Basic – pro
forma
|
|
$
|
4.07
|
|
|
Diluted – as
reported
|
|
$
|
4.02
|
|
|
Diluted – pro
forma
|
|
$
|
3.97
|
|
|
a
Prior
year numbers have been adjusted for the retrospective adoption of
FSP AUG AIR-1
,
Accounting for
Planned
Major Maintenance
Activities
. See "Planned Major Maintenance Activities" within
this footnote for additional information.
|
|
|
|
|
Employment
Benefit Plans
The Company estimates liabilities and
expenses for the pension and retiree health and welfare plans. Estimated amounts
are based on historical information, current information and estimates regarding
future events and circumstances. Significant assumptions used in the valuation
of pension and/or retiree health and welfare liabilities include the expected
return on plan assets, discount rate, rate of increase in compensation levels
and the health care cost trend rate.
Reclassifications
Certain comparative prior year amounts
in the Consolidated Financial Statements and accompanying notes have been
reclassified to co
n
form to the current year presentation.
These reclassifications had no effect on previously reported operating income or
net income.
3. Hedging
Activities
The Company uses derivative financial
instruments to hedge against increases in diesel fuel prices and interest rates
as well as to convert a portion of its fixed-rate long-term debt to
floating-rate debt. The Company does not hold or issue derivative financial
instruments for trading or speculative purposes. The Company formally documents
the relationship between the hedging instrument and the hedged item, as well as
the risk management objective and strategy for the use of the hedging
instrument. This documentation includes linking the derivatives that are
designated as fair value or cash flow hedges to specific assets or liabilities
on the balance sheet, commitments or forecasted transactions. The Company
assesses at the time a derivative contract is entered into, and at least
quarterly thereafter, whether the derivative item is effective in offsetting the
changes in fair value or cash flows. Any change in fair value resulting from
ineffectiveness, as defined by SFAS No. 133,
Accounting for
Derivative Instruments and Hedging Activities, as amended,
is recognized in current period
earnings. For derivative instruments that are designated and qualify as cash
flow hedges, the effective portion of the gain or loss on the derivative
instrument is recorded in accumulated other comprehensive loss (AOCL) as a
separate component of stockholders’ equity and reclassified into earnings in the
period during which the hedge transaction affects earnings. Cash flows related
to fuel and interest rate hedges are classified as operating activities in the
Consolidated Statements of Cash Flows.
BNSF monitors its hedging positions and
credit ratings of its counterparties and does not anticipate any losses due to
counterparty nonperformance.
Fuel
Fuel costs
represented
26
percent, 24 percent and 19 percent of
total operating expenses during 2007, 2006 and 2005, respectively. Due to the
significance of diesel fuel expenses to the operations of BNSF and the
historical volatility of fuel prices, the Company has entered into hedges to
partially mitigate the risk of fluctuations in the price of its diesel fuel
purchases. The fuel hedges include the use of derivatives that are accounted for
as cash flow hedges. The hedging is intended to protect the Company’s operating
margins and overall profitability from adverse fuel price changes by entering
into fuel-hedge instruments based on management’s evaluation of current and
expected diesel fuel price trends. However, to the extent the Company hedges
portions of its fuel purchases, it may not realize the impact of decreases in
fuel prices. Conversely, to the extent the Company does not hedge portions of
its fuel purchases, it may be adversely affected by increases in fuel prices.
Based on fuel consumption during 2007 and excluding the impact of the hedges,
each one-cent increase in the price of fuel per gallon would result in
approximately
$14 million of additional fuel
expense on an annual basis.
However, BNSF believes any fuel price
increase would be substantially offset by the Company’s fuel surcharge
program.
Total Fuel-Hedging
Activities
As of December 31, 2007, BNSF’s total
fuel-hedging positions covered approximately
3
percent, 1 percent and less than
1
percent of
estimated fuel purchases for 2008, 2009
and 2010, respectively. Hedge positions are closely monitored to ensure that
they will not exceed actual fuel requirements in any period.
The amounts recorded in the Consolidated
Statements of Income for fuel-hedge transactions were as follows (in
millions):
|
Year ended December
31,
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Hedge
benefit
|
|
|
$
|
30
|
|
|
$
|
342
|
|
|
$
|
535
|
|
|
Ineffective
portion of open hedges
|
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
(4
|
)
|
|
Tax
effect
|
|
|
|
(12
|
)
|
|
|
(131
|
)
|
|
|
(203
|
)
|
|
Hedge
benefit, net of tax
|
|
|
$
|
19
|
|
|
$
|
210
|
|
|
$
|
328
|
|
The
amounts recorded in the Consolidated Balance Sheets for fuel-hedge transactions
were as follows (in millions):
|
December
31,
|
|
2007
|
|
|
2006
|
|
|
Short-term
fuel-hedging asset
|
|
$
|
29
|
|
|
$
|
13
|
|
|
Long-term
fuel-hedging asset
|
|
|
10
|
|
|
|
–
|
|
|
Short-term
fuel-hedging liability
|
|
|
–
|
|
|
|
(2
|
)
|
|
Ineffective
portion of open hedges
|
|
|
–
|
|
|
|
1
|
|
|
Tax
effect
|
|
|
(15
|
)
|
|
|
(4
|
)
|
|
Amount
included in AOCL, net of tax
|
|
$
|
24
|
|
|
$
|
8
|
|
|
Settled
fuel-hedging contracts receivable
|
|
$
|
6
|
|
|
$
|
37
|
|
BNSF measures the fair value of hedges
based upon data provided by various external counterparties. To value a swap,
the Company uses the forward commodity price for the period
hedged.
New York
Mercantile Exchange (NYMEX) #2 Heating Oil (HO) Hedges
As of December 31, 2006, BNSF had
outstanding fuel swap agreements utilizing NYMEX #2 HO. No additional HO hedges
were entered into during 2007. As of December 31, 2007, there were no HO hedge
positions outstanding.
West Texas
Intermediate (WTI) Crude Oil Hedges
At December 31, 2007, BNSF had
outstanding fuel swap agreements utilizing WTI crude oil. The hedge prices do
not include taxes, transportation costs, certain other fuel handling costs and
any differences which may occur between the prices of WTI and the purchase price
of BNSF’s diesel fuel, including refining costs. Over the twelve months ended
December 31, 2007, the sum of all such costs averaged
approximately 55 cents per
gallon.
During 2007, the Company entered into
fuel swap agreements utilizing WTI to hedge the equivalent of approximately
1.5 million barrels of fuel wit
h an average swap price of $64.12
per barrel. The following
tables provide fuel-hedge data based on the quarter being hedged
for all WTI fuel hedges outstanding as
of December 31, 2007.
|
|
|
Quarter
Ending
|
|
|
|
|
|
2008
|
|
March
31,
|
|
|
June 30,
|
|
|
September
30,
|
|
|
December
31,
|
|
|
Annual
|
|
|
WTI
Swaps
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Barrels
hedged (in thousands)
|
|
|
290
|
|
|
|
260
|
|
|
|
230
|
|
|
|
230
|
|
|
|
1,010
|
|
|
Equivalent
gallons hedged (in millions)
|
|
|
12.18
|
|
|
|
10.92
|
|
|
|
9.66
|
|
|
|
9.66
|
|
|
|
42.42
|
|
|
Average
swap price (per barrel)
|
|
$
|
63.69
|
|
|
$
|
63.77
|
|
|
$
|
63.70
|
|
|
$
|
63.70
|
|
|
$
|
63.72
|
|
|
Fair
value (in millions)
|
|
$
|
9
|
|
|
$
|
8
|
|
|
$
|
6
|
|
|
$
|
6
|
|
|
$
|
29
|
|
|
|
|
Quarter
Ending
|
|
|
|
|
|
2009
|
|
March
31,
|
|
|
June 30,
|
|
|
September
30,
|
|
|
December
31,
|
|
|
Annual
|
|
|
WTI
Swaps
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Barrels
hedged (in thousands)
|
|
|
100
|
|
|
|
100
|
|
|
|
100
|
|
|
|
70
|
|
|
|
370
|
|
|
Equivalent
gallons hedged (in millions)
|
|
|
4.20
|
|
|
|
4.20
|
|
|
|
4.20
|
|
|
|
2.94
|
|
|
|
15.54
|
|
|
Average
swap price (per barrel)
|
|
$
|
65.10
|
|
|
$
|
65.10
|
|
|
$
|
65.10
|
|
|
$
|
65.00
|
|
|
$
|
65.08
|
|
|
Fair
value (in millions)
|
|
$
|
2
|
|
|
$
|
2
|
|
|
$
|
2
|
|
|
$
|
2
|
|
|
$
|
8
|
|
|
|
|
Quarter
Ending
|
|
|
|
|
|
2010
|
|
March
31,
|
|
|
June 30,
|
|
|
September
30,
|
|
|
December
31,
|
|
|
Annual
|
|
|
WTI
Swaps
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Barrels
hedged (in thousands)
|
|
|
70
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
70
|
|
|
Equivalent
gallons hedged (in millions)
|
|
|
2.94
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
2.94
|
|
|
Average
swap price (per barrel)
|
|
$
|
64.80
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
64.80
|
|
|
Fair
value (in millions)
|
|
$
|
2
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
2
|
|
Summarized
Comparative Prior Year Information
The
following table provides summarized comparative information for hedge
transactions outstanding as of December 31, 2006.
|
Year ended December
31,
|
|
2007
|
|
|
HO Swaps
|
|
|
|
|
Gallons
hedged (in millions)
|
|
|
55.65
|
|
|
Average
swap price (per gallon)
|
|
$
|
2.11
|
|
|
Fair
value (in millions)
|
|
$
|
(16
|
)
|
|
HO
Collars
|
|
|
|
|
|
Gallons
hedged (in millions)
|
|
|
40.95
|
|
|
Average
cap price (per gallon)
|
|
$
|
1.17
|
|
|
Average
floor price (per gallon)
|
|
$
|
1.07
|
|
|
Fair
value (in millions)
|
|
$
|
23
|
|
|
WTI
Collars
|
|
|
|
|
|
Barrels
hedged (in thousands)
|
|
|
150
|
|
|
Equivalent
gallons hedged (in millions)
|
|
|
6.30
|
|
|
Average
cap price (per barrel)
|
|
$
|
33.00
|
|
|
Average
floor price (per barrel)
|
|
$
|
29.00
|
|
|
Fair
value (in millions)
|
|
$
|
4
|
|
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 by establishing rates in anticipation
of both future debt issuances and the refinancing of leveraged leases, as well
as converting a portion of its fixed-rate long-term debt to floating-rate debt.
The Company uses interest rate swaps and treasury locks as part of its interest
rate risk management strategy.
Total Interest Rate Hedging
Program
All interest rate derivative
transactions outstanding are reflected in the following
table:
|
|
|
December 31,
2007
|
|
|
|
|
Maturity
Date
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
Thereafter
|
|
|
Total
|
|
|
Fair
Value
|
|
|
Fair Value
Hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
to variable swaps
(in
millions)
|
|
$
|
–
|
|
|
$
|
200
|
|
|
$
|
250
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
450
|
|
|
$
|
6
|
|
|
Average
fixed rate
|
|
|
–
|
%
|
|
|
6.13
|
%
|
|
|
7.13
|
%
|
|
|
–
|
%
|
|
|
–
|
%
|
|
|
–
|
%
|
|
|
6.68
|
%
|
|
|
|
|
|
Average
floating rate
|
|
|
–
|
%
|
|
|
5.47
|
%
|
|
|
7.86
|
%
|
|
|
–
|
%
|
|
|
–
|
%
|
|
|
–
|
%
|
|
|
6.80
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow
Hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury
locks
(in
millions)
|
|
$
|
175
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
175
|
|
|
$
|
(5
|
)
|
|
Average
rate
|
|
|
4.41
|
%
|
|
|
–
|
%
|
|
|
–
|
%
|
|
|
–
|
%
|
|
|
–
|
%
|
|
|
–
|
%
|
|
|
4.41
|
%
|
|
|
|
|
BNSF’s
measurement of the fair value of interest rate derivatives is based on estimates
of the mid-market values for the transactions provided by the counterparties to
these agreements.
Summarized
Comparative Prior Year Information
|
|
|
December 31,
2006
|
|
|
|
|
Maturity
Date
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
Thereafter
|
|
|
Total
|
|
|
Fair
Value
|
|
|
Fair Value
Hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
to variable swaps (in millions)
|
|
$
|
300
|
|
|
$
|
–
|
|
|
$
|
200
|
|
|
$
|
250
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
750
|
|
|
$
|
(6
|
)
|
|
Average
fixed rate
|
|
|
7.88
|
%
|
|
|
–
|
%
|
|
|
6.13
|
%
|
|
|
7.13
|
%
|
|
|
–
|
%
|
|
|
–
|
%
|
|
|
7.16
|
%
|
|
|
|
|
|
Average
floating rate
|
|
|
7.98
|
%
|
|
|
–
|
%
|
|
|
5.84
|
%
|
|
|
8.23
|
%
|
|
|
–
|
%
|
|
|
–
|
%
|
|
|
7.49
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow
Hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury
locks
(in
millions)
|
|
$
|
130
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
130
|
|
|
$
|
–
|
|
|
Average
rate
|
|
|
4.69
|
%
|
|
|
–
|
%
|
|
|
–
|
%
|
|
|
–
|
%
|
|
|
–
|
%
|
|
|
–
|
%
|
|
|
4.69
|
%
|
|
|
|
|
Fair
Value Interest Rate Hedges
The Company enters into interest rate
swaps to convert fixed-rate long-term debt to floating-rate debt. These swaps
are accounted for as fair value hedges under SFAS No. 133. These fair value
hedges qualify for the short-cut method of recognition; therefore, no portion of
these swaps is treated as ineffective. As of each of the years ended December
31, 2007 and 2006, BNSF
had
outstanding
seven and ten separate swaps,
respectively, with an aggregate notional amount of $450 million and
$750 million, respectively, in which it pays an average floating rate,
which fluctuates quarterly, based on London Interbank Offered Rate (LIBOR). The
average floating rate to be paid by BNSF as of December 31, 2007, was 6.80
percent, and the average fixed rate BNSF is to receive is 6.68
percent.
The amounts recorded in the Consolidated
Statements of Income, as an increase to or reduction of interest expense, for
interest rate fair value hedge transactions were as follows (in
millions):
|
Year ended December
31,
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hedge
(loss)
benefit
|
|
$
|
(3
|
)
|
|
$
|
(1
|
)
|
|
$
|
17
|
|
|
Tax
effect
|
|
|
1
|
|
|
|
–
|
|
|
|
(6
|
)
|
|
Hedge (loss)
benefit,
net of
tax
|
|
$
|
(2
|
)
|
|
$
|
(1
|
)
|
|
$
|
11
|
|
The
amounts recorded in the Consolidated Balance Sheets for interest rate fair value
hedge transactions, which represent the fair value of open hedges, with a
corresponding adjustment to debt or accrued interest, were as follows (in
millions):
|
December
31,
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
interest rate hedging asset
|
|
$
|
6
|
|
|
$
|
–
|
|
|
Long-term
interest rate hedging liability
|
|
$
|
–
|
|
|
$
|
(6
|
)
|
Cash
Flow Interest Rate Hedges
In anticipation of a future debt
issuance, the Company entered into seven treasury locks in September, October
and November 2007, having an aggregate notional amount of
$1
7
5
million, and an average locked-in
rate of 4.41 percent, to fix a portion of the rate for a future 10-year
unsecured debt issuance. The treasury locks are expected to be unwound during
2008, and any gain or loss on the hedges will be amortized to interest expense
over the life of the issued debt. These transactions are accounted for as cash
flow hedges.
In anticipation of a future refinancing
of several leveraged leases, the Company had entered into six treasury locks
having an aggregate notional amount of $147 million to fix the interest
rate inherent in the operating lease payments. The treasury locks were
terminated in May 2007 in connection with the refinancing of the leveraged
leases, and the resulting $0.5 million gain on these hedges will be
amortized to equipment rents over the remaining life of the leases. These
transactions are also accounted for as cash flow hedges.
In anticipation of future debt
issuances, the Company had entered into fourteen treasury locks having an
aggregate notional amount of $450 million to fix a portion of the rate for
a future 10-year unsecured debt issuance and a future 30-year unsecured debt
issuance. The treasury locks were terminated in April 2007 in connection with
the issuance of $650 million 10-year and $650 million 30-year
unsecured debt. Upon termination, BNSF received $6 million from the
counterparties, which will be amortized to interest expense over the life of the
issued debt. These transactions are also accounted for as cash flow
hedges.
The
amounts recorded in the Consolidated Balance Sheets for interest rate cash flow
hedge transactions, which represent the fair value of open and closed hedges,
were as follows (in millions):
|
December
31,
|
|
2007
|
|
|
2006
|
|
|
Interest
rate hedging liability – open hedges
|
|
$
|
(5
|
)
|
|
$
|
–
|
|
|
Unrecognized
gain
on closed hedges
|
|
|
19
|
|
|
|
15
|
|
|
Tax
effect
|
|
|
(5
|
)
|
|
|
(6
|
)
|
|
Unrecognized
gain in AOCL, net of tax
|
|
$
|
9
|
|
|
$
|
9
|
|
4. Other Expense,
Net
Other
expense, net includes the following (in millions):
|
Year ended December
31,
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Accounts
receivable sales fees
|
|
$
|
19
|
|
|
$
|
23
|
|
|
$
|
15
|
|
Loss
from participation in synthetic fuel partnership
|
|
|
5
|
|
|
|
9
|
|
|
|
14
|
|
Miscellaneous,
net
|
|
|
(6
|
)
|
|
|
8
|
|
|
|
8
|
|
Total
|
|
$
|
18
|
|
|
$
|
40
|
|
|
$
|
37
|
The decrease in other expense, net was
predominantly due to lower accounts receivable sales fees, a decrease in losses
on BNSF Railway’s participation in a synthetic fuel partnership and an increase
in interest income.
During the fourth quarter of 2004, BNSF
Railway indirectly purchased a 4.17 percent ownership of a synthetic fuel
partnership through a 50 percent interest in a limited liability company with an
unrelated entity. The synthetic fuel partnership generates Section 29 synthetic
fuel tax credits, which reduce the Company’s effective tax rate (see Note 5 to
the Consolidated Financial Statements for additional information). In 2007, 2006
and 2005, BNSF Railway received a tax benefit from its participation in the
partnership of approximately $7 million, $11 million and $16 million,
respectively, related to the fuel tax credits and the deduction of partnership
operating losses. In 2007, 2006 and 2005, the Company recorded approximately $5
million, $9 million and $14 million, respectively, of other expense,
net related to the Company’s share of the partnership’s losses under the equity
method of accounting. The partnership does not qualify for consolidation under
FIN 46R, as BNSF Railway is not the primary beneficiary of the partnership. The
partnership’s activities terminated on December 31, 2007; therefore, the Company
will not have any additional exposure to loss from the synthetic fuel
partnership.
5. Income Taxes
Income
tax expense was as follows (in millions):
|
Year
ended December 31,
|
|
2007
|
|
|
2006
|
a
|
|
2005
|
a
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
741
|
|
|
$
|
697
|
|
|
$
|
620
|
|
|
State
|
|
|
107
|
|
|
|
94
|
|
|
|
80
|
|
|
Total
current
|
|
|
848
|
|
|
|
791
|
|
|
|
700
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
245
|
|
|
|
300
|
|
|
|
185
|
|
|
State
|
|
|
35
|
|
|
|
16
|
|
|
|
34
|
|
|
Total
deferred
|
|
|
280
|
|
|
|
316
|
|
|
|
219
|
|
|
Total
|
|
$
|
1,128
|
|
|
$
|
1,107
|
|
|
$
|
919
|
|
|
a
Prior year numbers have been adjusted for the retrospective adoption of
FSP AUG AIR-1
,
Accounting for Planned Major Maintenance
Activities
.
See Note 2 to the Consolidated Financial Statements for additional
information.
|
|
Reconciliation
of the federal statutory income tax rate to the effective tax rate was as
follows:
|
Year ended December
31,
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Federal
statutory income tax rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
State
income taxes, net of federal tax benefit
|
|
|
3.1
|
|
|
|
2.6
|
|
|
|
3.0
|
|
|
Tax
law change
|
|
|
–
|
|
|
|
(0.2
|
)
|
|
|
–
|
|
|
Synthetic
fuel credits
|
|
|
(0.2
|
)
|
|
|
(0.3
|
)
|
|
|
(0.4
|
)
|
|
Other,
net
|
|
|
0.3
|
|
|
|
(0.2
|
)
|
|
|
(0.1
|
)
|
|
Effective tax
rate
|
|
|
38.2
|
%
|
|
|
36.9
|
%
|
|
|
37.5
|
%
|
The
components of deferred tax assets and liabilities were as follows (in
millions):
|
December
31,
|
|
2007
|
|
|
2006
|
a
|
|
Deferred
tax liabilities:
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
$
|
(8,977
|
)
|
|
$
|
(8,738
|
)
|
|
Hedging
|
|
|
(26
|
)
|
|
|
(15
|
)
|
|
Other
|
|
|
(170
|
)
|
|
|
(208
|
)
|
|
Total deferred tax
liabilities
|
|
|
(9,173
|
)
|
|
|
(8,961
|
)
|
|
Deferred
tax assets:
|
|
|
|
|
|
|
|
|
|
Casualty
and environmental
|
|
|
348
|
|
|
|
332
|
|
|
Pension
and retiree health and welfare benefits
|
|
|
184
|
|
|
|
247
|
|
|
Compensation
and benefits
|
|
|
145
|
|
|
|
158
|
|
|
Employee
separation costs
|
|
|
35
|
|
|
|
39
|
|
|
Other
|
|
|
267
|
|
|
|
232
|
|
|
Total deferred tax
assets
|
|
|
979
|
|
|
|
1,008
|
|
|
Net deferred tax
liability
|
|
$
|
(8,194
|
)
|
|
$
|
(7,953
|
)
|
|
Non-current
deferred income tax liability
|
|
$
|
(8,484
|
)
|
|
$
|
(8,298
|
)
|
|
Current
portion of deferred income taxes
|
|
|
290
|
|
|
|
345
|
|
|
Net deferred tax
liability
|
|
$
|
(8,194
|
)
|
|
$
|
(7,953
|
)
|
|
a
Prior year numbers have been adjusted for the retrospective adoption of
FSP AUG AIR-1
,
Accounting for Planned Major Maintenance Activities
.
See Note 2 to the Consolidated Financial Statements for additional
information.
|
|
All federal income tax returns of BNSF’s
predecessor companies, Burlington Northern Inc. and Santa Fe Pacific
Corporation, are closed through 1994 and the business combination date of
September 22, 1995, respectively. Internal Revenue Service (IRS) examination of
the years 1995 through 1999 for BNSF is completed, and the un-agreed issues are
pending before IRS Appeals. It is anticipated that a settlement with the IRS for
the years 1995 through 1999 may be reached within the next twelve months.
Examination of the years 2000 through 2002 and 2003 through 2005 for BNSF are
completed and protests of the un-agreed issues are pending before IRS Appeals.
BNSF is currently under examination for year 2006.
BNSF and its subsidiaries have various
state income tax returns in the process of examination, administrative appeal or
litigation. State income tax returns are generally subject to examination for a
period of three to five years after filing of the respective return. The state
impact of any federal changes remains subject to examination by various states
for a period of up to one year after formal notification to the
states.
Due to the capital-intensive nature of
BNSF’s business, a significant portion of the audit issues with the IRS and
other taxing authorities relate to whether expenditures are classified as
maintenance or capital and whether certain asset valuations are appropriate. A
provision for taxes resulting from ongoing and future federal and state audits
is based on an estimation of aggregate adjustments that may be required as a
result of the audits. The Company believes that adequate provision has been made
for any adjustment that might be assessed for open years through
2007.
Uncertain
Tax Positions
The Company adopted
the provisions of FIN 48 on January 1, 2007. As a result of the implementation
of FIN 48, the Company recorded an $83 million increase in the liability
for unrecognized tax benefits, which is offset by a reduction of the deferred
tax liability of $70 million, resulting in a decrease to the January 1,
2007, retained earnings balance of $13 million. The amount of unrecognized
tax benefits at December 31, 2007 was $
125 million,
of which $91 million
would impact the
Company’s effective tax rate if recognized. A reconciliation of the beginning
and ending amount of unrecognized tax benefits is as follows (in
millions):
|
Balance
at January 1, 2007
|
|
$
|
87
|
|
|
|
|
|
|
|
|
Additions
for tax positions related to current year
|
|
|
29
|
|
|
Additions/reductions
for tax positions taken in prior years
|
|
|
12
|
|
|
Reductions
for tax positions as a result of:
|
|
|
|
|
|
Settlements
|
|
|
–
|
|
|
Lapse
of statute of limitations
|
|
|
(3
|
)
|
|
Balance
at December 31, 2007
|
|
$
|
125
|
|
It is expected that
the amount of unrecognized tax benefits will change in the next twelve months;
however, BNSF does not expect the change to have a significant impact on the
results of operations or the financial position of the
Company.
The Company
recognizes interest accrued related to unrecognized tax benefits in interest
expense and penalties in income tax expense in the Consolidated Statements of
Income, which is consistent with the recognition of these items in prior
reporting periods.
The Company had
recorded a liability of approximately $41 million and $65 million for the
payment of interest and penalties for the years ending December 31, 2007, and
2006, respectively. For the year ended December 31, 2007, the Company recognized
a
reduction of
approximately $7
million in interest and penalty expense. For the years ended December 31, 2006,
and 2005, the Company recognized approximately $5 million and $9 million in
interest and penalty expense, respectively.
6. Accounts Receivable,
Net
BNSF Railway
transfers a portion of its accounts receivable to Santa Fe Receivables
Corporation (SFRC), a special purpose subsidiary. SFRC transfers an undivided
interest in such receivables, with limited exceptions, to a master trust and
causes the trust to issue an undivided interest in the receivables to investors
(the A/R sales program). The undivided interests in the master trust may be in
the form of certificates or purchased
interests.
BNSF Railway’s
total capacity to sell undivided interests to investors under the A/R sales
program was $700 million at December 31, 2007, which was comprised of two
$175 million, 364-day accounts receivable facilities and two $175 million,
3-year accounts receivable facilities. BNSF Railway amended the two 364-day
facilities in November 2007,
reducing the
committed amounts to $175 million each and
modifying their
maturities to November 2008. The two 3-year facilities were entered into in
November 2007 concurrently with the amendment and extension of the two 364-day
facilities and will mature in November 2010. Outstanding undivided interests
held by investors under the A/R sales program were $300 million at December
31, 2007 and 2006, respectively
, with $75 million
in each facility.
These undivided
interests in receivables are excluded from accounts receivable by BNSF Railway
in connection with the sale of undivided interests under the A/R sales program.
These undivided interests were supported by $1,105 million and
$1,030 million of receivables transferred by SFRC to the master trust at
December 31, 2007 and 2006, respectively. When SFRC transfers these receivables
to the master trust, it retains an undivided interest in the receivables sold,
which is included in accounts receivable in the Company’s Consolidated Financial
Statements. The interest that continues to be held by SFRC of $805 million
and $730 million at December 31, 2007 and 2006, respectively, less an
allowance for uncollectible accounts, reflected the total accounts receivable
transferred by SFRC to the master trust less $300 million at
both
December 31, 2007
and
2006, of
outstanding undivided interests held by investors. Due to a relatively short
collection cycle, the fair value of the undivided interest transferred to
investors in the A/R sales program approximated book value, and there was no
gain or loss from the transaction.
BNSF Railway
retains the collection responsibility with respect to the accounts receivable.
Proceeds from collections reinvested in the A/R sales program were approximately
$16.8 billion,
$15.8 billion and $13.6 billion in 2007, 2006 and 2005, respectively.
No servicing asset or liability has been recorded because the fees BNSF Railway
receives for servicing the receivables approximate the related costs. SFRC’s
costs of the sale of receivables are included in other expense, net and were
$19 million, $23 million and $15 million for the years ended
December 31, 2007, 2006 and 2005, respectively. These costs fluctuate monthly
with changes in prevailing interest rates and were based on weighted average
interest rates of 5.6 percent, 5.3 percent and 3.3 percent for the years
ended
December 31, 2007, 2006 and 2005, respectively. These costs include interest,
discounts associated with transferring the receivables under the A/R sales
program to SFRC, program fees paid to banks, incidental commercial paper issuing
costs and fees for unused commitment availability.
The amount of accounts receivable
transferred by BNSF Railway to SFRC fluctuates based upon the availability of
receivables and is directly affected by changing business volumes and credit
risks, including dilution and delinquencies. In order for there to be an impact
on the amount of receivables BNSF Railway could sell, the combined dilution and
delinquency percentages would have to exceed an established threshold for the
combined dilution and delinquency percentages. BNSF Railway has historically
experienced very low levels of default or dilution and was well below the
established rate at December 31, 2007. Based on the current levels, if dilution
or delinquency percentages were to increase by one percentage point, there would
be no impact to the amount of receivables BNSF Railway could
sell.
Receivables funded under the A/R sales
program may not include amounts over 90 days past due or concentrations over
certain limits with any one customer and certain other receivables. At December
31, 2007 and 2006, $11 million and $26 million, respectively, of
accounts receivable were greater than 90 days old.
BNSF Railway maintains an allowance for
bill adjustments and uncollectible accounts based upon the expected
collectibility of accounts receivable, including receivables transferred to the
master trust. Credit losses are based on specific identification of
uncollectible accounts and application of historical collection percentages by
aging category. At both December 31, 2007 and
2006
, $36 million of such allowances
had been recorded, of which $34 million had been recorded as a reduction to
accounts receivable, net. The
remaining $2 million at December
31, 2007 and 2006, respectively, had been recorded in accounts payable and other
current liabilities because they relate to the outstanding undivided interests
held by investors. During the years ended December 31, 2007 and 2006,
$4 million and $8 million, respectively, of accounts receivable were
written off.
The investors in the master trust have
no recourse to BNSF Railway’s other assets except for customary warranty and
indemnity claims. Creditors of BNSF Railway have no recourse to the assets of
the master trust or SFRC unless and until all claims of their respective
creditors have been paid. The A/R sales program includes provisions that, if
triggered, allow the investors participating in this program, at their option,
to cancel the program. At December 31, 2007, BNSF Railway was in compliance with
these provisions.
7. Property and Equipment,
Net
Property and equipment, net (in
millions), and the weighted average annual depreciation rates (%) were as
follows:
|
December
31,
|
|
2007
|
|
2006
|
a
|
2007
Depreciation
Rates
|
|
|
Land
|
|
$
|
1,718
|
|
$
|
1,693
|
|
|
–
|
%
|
|
Track
structure
|
|
|
18,037
|
|
|
17,101
|
|
|
3.2
|
%
|
|
Other
roadway
|
|
|
12,370
|
|
|
11,608
|
|
|
2.4
|
%
|
|
Locomotives
|
|
|
4,
003
|
|
|
3,705
|
|
|
6
.
4
|
%
|
|
Freight cars and other
equipment
|
|
|
2,034
|
|
|
1,939
|
|
|
5.2
|
%
|
|
Computer hardware and
software
|
|
|
582
|
|
|
492
|
|
|
14.0
|
%
|
|
Total cost
|
|
|
38,
744
|
|
|
36,538
|
|
|
|
|
|
Less accumulated depreciation and
amortization
|
|
|
(9,
177
|
)
|
|
(8,617
|
)
|
|
|
|
|
Property and equipment,
net
|
|
$
|
29,567
|
|
$
|
27,921
|
|
|
|
|
|
a
Prior
year numbers have been adjusted for the retrospective adoption of FSP AUG
AIR-1,
Accounting
for Planned Major Maintenance Activities.
See
Note 2 to the Consolidated Financial Statements for additional
information.
|
|
The Consolidated Balance Sheets at
December 31, 2007 and 2006,
included $1,507 million, net of
$469 million of amortization and $1,039 million, net of
$409 million of amortization, respectively, for property and equipment
under capital leases, primarily for locomotives.
The Company capitalized
$17 million, $14 million and $13 million of interest for the
years ended December 31, 2007, 2006 and 2005, respectively.
8. Accounts Payable and Other Current
Liabilities
Accounts payable
and other current liabilities consisted of the following (in
millions):
|
December
31,
|
|
2007
|
|
2006
|
|
Compensation and benefits
payable
|
|
$
|
568
|
|
$
|
699
|
|
Rents and
leases
|
|
|
303
|
|
|
350
|
|
Accounts
payable
|
|
|
296
|
|
|
282
|
|
Casualty and environmental
liabilities
|
|
|
246
|
|
|
233
|
|
Customer
incentives
|
|
|
145
|
|
|
163
|
|
Property tax
liabilities
|
|
|
141
|
|
|
132
|
|
Accrued
interest
|
|
|
138
|
|
|
127
|
|
Dividends
payable
|
|
|
112
|
|
|
90
|
|
Income tax
liabilities
|
|
|
82
|
|
|
68
|
|
Other
|
|
|
793
|
|
|
709
|
|
Total
|
|
$
|
2,824
|
|
$
|
2,853
|
9. Debt
Debt outstanding was as follows (in
millions):
|
December
31,
|
|
2007
a
|
|
|
2006
a
|
|
|
Notes and debentures, due 2008 to
2097
|
$
|
6,376
|
|
6.6
|
%
|
$
|
5,364
|
|
6.8
|
%
|
|
Equipment obligations, due 2008 to
2016
|
|
297
|
|
6.6
|
|
|
347
|
|
6.7
|
|
|
Capitalized lease obligations, due
2008 to 2027
|
|
938
|
|
6.3
|
|
|
609
|
|
6.9
|
|
|
Mortgage bonds, due 2008 to
2047
|
|
102
|
|
5.6
|
|
|
106
|
|
5.7
|
|
|
Financing obligations, due
20
08
to 2028
|
|
211
|
|
6.3
|
|
|
153
|
|
6.3
|
|
|
Commercial
paper
|
|
261
|
|
5.5
|
|
|
846
|
|
5.4
|
|
|
Unamortized discount and other,
net
|
|
(39
|
)
|
|
|
|
(40
|
)
|
|
|
|
Total
|
|
8,146
|
|
|
|
|
7,385
|
|
|
|
|
Less current portion of long-term
debt
|
|
(411
|
)
|
7.2
|
%
|
|
(473
|
)
|
7.
7
|
%
|
|
Long-term
debt
|
$
|
7,735
|
|
|
|
$
|
6,912
|
|
|
|
|
a
Amounts represent
debt
outstanding and weighted average interest rates
for
2007 and 2006, respectively
.
Maturities
are as of December 31,
2007.
|
Notes and
debentures include a fair value adjustment increase for hedges of
$6 million and a decrease of
$6 million at
December 31, 2007 and 2006, respectively.
As of December 31,
2007, certain BNSF Railway properties and other assets were subject to liens
securing $102
million of
mortgage debt. Certain locomotives and rolling stock of BNSF Railway were
subject to equipment obligations and capital
leases.
The following table
provides fair value information for the Company’s debt obligations including
principal cash flows and related weighted average interest rates by contractual
maturity dates.
Weighted average
variable rate for commercial paper is the current rate at December 31, 2007. The
remaining
weighted average
variable rates are based on implied forward rates in the yield curve at December
31, 2007.
|
|
|
December 31,
2007
|
|
|
|
Maturity
Date
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
2009
|
|
2010
|
|
2011
|
|
2012
|
|
Thereafter
|
|
Total Including
Capital Leases
|
|
Total Excluding Capital
Leases
|
|
Fair Value Excluding Capital
Leases
|
|
Fixed-rate
debt
(in
millions)
|
|
$
|
411
|
|
$
|
188
|
|
$
|
206
|
|
$
|
515
|
|
$
|
393
|
|
$
|
5,716
|
|
$
|
7,429
|
|
$
|
6,491
|
|
$
|
6,752
|
|
Average
interest rate
|
|
|
7.2
|
%
|
|
6.9
|
%
|
|
6.8
|
%
|
|
6.7
|
%
|
|
6.0
|
%
|
|
6.5
|
%
|
|
6.5
|
%
|
|
|
|
|
|
|
Variable-rate
debt
(in
millions)
|
|
$
|
–
|
|
$
|
204
|
|
$
|
252
|
|
$
|
|
|
$
|
261
|
|
$
|
–
|
|
$
|
717
|
|
$
|
717
|
|
$
|
723
|
|
Average
interest rate
|
|
|
|
%
|
|
4.4
|
%
|
|
6.7
|
%
|
|
|
%
|
|
5.5
|
%
|
|
–
|
%
|
|
5.6
|
%
|
|
|
|
|
|
BNSF has included maturities of
$
261
million of commercial paper in the
2012 column above.
The fair value of BNSF’s long-term debt
is primarily based on quoted market prices for the same or similar issues, or on
the current rates that would be offered to BNSF for debt of the same remaining
maturities. Capital leases have been excluded from the calculation of fair value
for both 2007 and 2006. The carrying amount of commercial paper and bank debt
approximates fair value, and the average interest rate equals the current rate
because of the short maturity of these instruments.
Notes and
Debentures
2007
In February 2007, the Board of Directors
(the Board) authorized an additional $1.4 billion of debt securities that
may be issued pursuant to a debt shelf registration statement that has been
filed with the Securities and Exchange Commission, for a total of
$2.1 billion of debt securities authorized to be
issued.
In April 2007, BNSF issued
$650 million of 5.65 percent debentures and $650 million of 6.15
percent debentures due May 1, 2017 and May 1, 2037, respectively. The net
proceeds from the sale of the debentures are being used for general corporate
purposes including, but not limited to, working capital, capital expenditures,
funding debt which matured in 2007, the repayment of commercial paper and the
repurchase of common stock. The issuance of these debentures reduced the amount
of debt authorized to be issued by the Board through its registration statement
to $800 million.
2006
In August 2006, BNSF issued
$300 million of 6.20 percent debentures due August 15, 2036. The net
proceeds from the sale of the debentures are being used for general corporate
purposes including but not limited to working capital, capital expenditures and
the repayment of outstanding commercial paper.
2005
In December 2005, BNSF issued
$500 million of 6.613 percent junior subordinated notes due December 31,
2055. The junior subordinated notes are callable on or after January 15, 2026,
at par plus accrued and unpaid interest. On January 15, 2026, if the junior
subordinated notes are not called, the interest rate will change to an annual
rate equal to the 3-month LIBOR plus 2.35 percent, reset quarterly. Interest
payments may be deferred, at the option of the Company, on a cumulative basis
for a period of up to five consecutive years; however, during this time the
Company would not be permitted to declare or pay dividends on its common stock.
In the event that certain financial covenants are not maintained, the Company
would be required to sell common stock, the proceeds of which would be used to
pay any accrued and unpaid interest. At December 31, 2007, the Company was in
compliance with these covenants. Because of this structure, certain rating
agencies provide a considerable degree of equity treatment for purposes of
calculating various ratios and metrics. The majority of the net proceeds of the
debt issuance was used to repurchase common stock, with the remainder used for
general corporate purposes.
Capital Leases
In 2007, BNSF entered into several
capital leases totaling approximately $325 million to finance locomotives and
freight cars. The terms of the leases are between 15 and 20
years.
Financing Obligation
In 2005, the Company commenced the
construction of an intermodal facility that it intends to sell to a third party
and subsequently lease back. Once construction of the facility is complete and
all improvements have been sold to the third party, BNSF will lease the facility
from the third party for 20 years. Construction is expected to be completed by
early 2009
with an
approximate cost o
f $160
million
. As of December 31, 2007, BNSF has sold
$41 million of completed improvements. This sale leaseback transaction is being
accounted for as a financing obligation due to continuing involvement. The
outflows from the construction of the facility are classified as investing
activities, and the inflows from the associated financing proceeds are
classified as financing activities in the Company's Consolidated Statements of
Cash Flows.
Revolving
Credit Facility and Commercial Paper
In the fourth quarter, the Company
extended the expiration date of its $1.2 billion long-term bank credit
facility to September 2012. Annual facility fees are currently 0.08 percent for
the facility. The rate is subject to change based upon changes in BNSF’s senior
unsecured debt ratings. Borrowing rates are based upon: (i) LIBOR plus a spread
determined by BNSF’s senior unsecured debt ratings, (ii) money market rates
offered at the option of the lenders, or (iii) an alternate base rate. BNSF must
maintain compliance with certain financial covenants under its revolving credit
agreement. At December 31, 2007, the Company was in compliance with these
covenants.
At December 31, 2007, there were no bank
borrowings against the revolving credit agreement.
BNSF issues commercial paper from time
to time that is supported by the bank revolving credit agreement. Outstanding
commercial paper balances reduce the amount of borrowings available under this
agreement.
The maturity value of commercial paper
as of December 31, 2007, of $391 million reduced the total capacity available
under the revolving credit agreements to $809 million. Commercial paper
outstanding included $129 million issued to a consolidated subsidiary of BNSF
that was eliminated upon consolidation. Consolidated commercial paper
outstanding, which had a maturity value of $262 million, was classified as
long-term debt in the Company’s Consolidated Balance
Sheet.
Guarantees
Debt and other obligations of
non-consolidated entities guaranteed by the Company as of December 31, 2007,
were as follows (dollars in millions):
|
|
|
Guarantees
|
|
Capitalized
Obligations
|
|
|
|
|
BNSF Ownership
Percentage
|
|
|
Principal
Amount
Guaranteed
|
|
|
Maximum
Future
Payments
|
|
|
Maximum
Recourse
Amount
|
a
|
Remaining Term
(in years)
|
|
|
|
Kinder Morgan Energy Partners,
L.P.
|
|
|
0.5
|
%
|
|
$
|
190
|
|
|
$
|
190
|
|
|
$
|
–
|
|
Termination of
Ownership
|
|
$
|
–
|
|
|
Kansas City Terminal Intermodal
Transportation Corporation
|
|
|
0.0
|
%
|
|
$
|
56
|
|
|
$
|
81
|
|
|
$
|
81
|
|
|
11
|
|
$
|
31
|
b
|
|
Westside Intermodal Transportation
Corporation
|
|
|
0.0
|
%
|
|
$
|
40
|
|
|
$
|
61
|
|
|
$
|
–
|
|
|
16
|
|
$
|
34
|
b
|
|
The Unified Government of
Wyandotte County/Kansas City, Kansas
|
|
|
0.0
|
%
|
|
$
|
13
|
|
|
$
|
19
|
|
|
$
|
–
|
|
|
16
|
|
$
|
10
|
b
|
|
Chevron Phillips Chemical Company,
LP
|
|
|
0.0
|
%
|
|
|
N/A
|
d
|
|
|
N/A
|
d
|
|
|
N/A
|
d
|
|
10
|
|
$
|
14
|
c
|
|
Various lessors
(Residual value
guarantees)
|
|
|
0.0
|
%
|
|
|
N/A
|
|
|
$
|
271
|
|
|
$
|
271
|
|
|
Various
|
|
$
|
68
|
c
|
|
All other
|
|
|
0.0
|
%
|
|
$
|
6
|
|
|
$
|
7
|
|
|
$
|
3
|
|
|
Various
|
|
$
|
–
|
|
|
a
Reflects
the maximum amount the Company could recover from a third party other than
the counterparty.
b
Reflects
capitalized obligations that are recorded on the Company’s Consolidated
Balance Sheets.
c
Reflects
the FIN 45,
Guarantor’s
Accounting and Disclosure Requirements for Guarantees
,
asset and corresponding liability for the fair value of these
guarantees.
d
There
is no cap to the liability that can be sought from BNSF for BNSF’s
negligence or the negligence of the indemnified party. However, BNSF could
receive reimbursement from certain insurance policies if the liability
exceeds a certain amount.
|
|
Kinder Morgan Energy Partners,
L.P.
Santa Fe Pacific Pipelines, Inc., an
indirect, wholly-owned subsidiary of BNSF Railway, has a guarantee in connection
with its remaining special limited partnership interest in Santa Fe Pacific
Pipelines Partners, L.P. (SFPP), a subsidiary of Kinder Morgan Energy Partners,
L.P., to be paid only upon default by the partnership. All obligations with
respect to the guarantee will cease upon termination of ownership rights, which
would occur upon a put notice issued by BNSF or the exercise of the call rights
by the general partners of SFPP.
Kansas City Terminal Intermodal
Transportation Corporation
BNSF Railway and another major railroad
jointly and severally guarantee
$56 million of debt of Kansas City
Terminal Intermodal Transportation Corporation, the proceeds of which were used
to finance construction of a double track grade separation bridge in Kansas
City, Missouri, which is operated and used by Kansas City Terminal Railway
Company (KCTRC). BNSF Railway has a 25 percent ownership in KCTRC, accounts for
its interest using the equity method of accounting and would be required to fund
a portion of the remaining obligation upon default by the original
debtor.
Westside Intermodal Transportation
Corporation and The Unified Government of Wyandotte County/Kansas City,
Kansas
BNSF Railway has outstanding guarantees
of $53 million of debt, the proceeds of which
were used to finance construction of a
bridge that connects BNSF Railway’s Argentine Yard in Kansas City, Kansas, with
the KCTRC mainline tracks in Kansas City, Missouri. The bridge is operated by
KCTRC, and payments related to BNSF Railway’s guarantee of this obligation would
only be called for upon default by the original debtor.
Chevron Phillips Chemical Company,
LP
In the third quarter of 2007, BNSF
Railway entered into an indemnity agreement with Chevron Phillips Chemical
Company, LP (Chevron Phillips), granting certain rights of indemnity from BNSF
Railway, in order to facilitate access to a new storage facility. Under certain
circumstances, payment under this obligation may be required in the event
Chevron Phillips were to incur certain liabilities or other incremental costs
resulting from trackage access.
Residual Value Guarantees
(RVG)
In the normal
course of business, the Company enters into leases in which it guarantees the
residual value of certain leased equipment. Some of these leases have renewal or
purchase options, or both, that the Company may exercise at the end of the lease
term. If the Company elects not to exercise these options, it may be required to
pay the lessor an amount not exceeding the RVG. The amount of any payment is
contingent upon the actual residual value of the leased equipment. Some of these
leases also require the lessor to pay the Company any surplus if the actual
residual value of the leased equipment is over the RVG. These guarantees will
expire between
2008 and
2011.
The maximum future
payments, as disclosed in the Guarantees table above, represent the undiscounted
maximum amount that the Company could be required to pay in the event the
Company did not exercise its renewal option and the fair market value of the
equipment had significantly declined. BNSF does not anticipate such a large
reduction in the fair market value of the leased equipment. As of December 31,
2007, the Company had recorded a $
68
million asset
and corresponding liability for the fair value of the RVG.
All Other
As of December 31,
2007, BNSF guaranteed
$6 million of
other debt and leases. BNSF holds a performance bond and has the option to
sub-lease property to recover up to $3 million of the $6 million of
guarantees. These guarantees expire between 2008 and
2013.
Other than as
discussed above, there is no collateral held by a third party that the Company
could obtain and liquidate to recover any amounts paid under the above
guarantees.
Other than as
discussed above, none of the guarantees are recorded in the Consolidated
Financial Statements of the Company. The Company does not expect performance
under these guarantees to have a material effect on the Company in the
foreseeable future.
Indemnities
In the ordinary
course of business, BNSF enters into agreements with third parties that include
indemnification clauses. In general, these clauses are customary for the types
of agreements in which they are included. At times, these clauses may involve
indemnification for the acts of the Company, its employees and agents,
indemnification for another party’s acts, indemnification for future events,
indemnification based upon a certain standard of performance, indemnification
for liabilities arising out of the Company’s use of leased equipment or other
property, or other types of indemnification. Due to the uncertainty of whether
events which would trigger the indemnification obligations would ever occur, the
Company does not believe that these indemnity agreements will have a material
adverse effect on the Company’s results of operations, financial position or
liquidity. Additionally, the Company believes that, due to lack of historical
payment experience, the fair value of indemnities cannot be estimated with any
amount of certainty and that the fair value of any such amount would be
immaterial to the Consolidated Financial Statements. Agreements that contain
unique circumstances, particularly agreements that contain guarantees that
indemnify another party’s acts are disclosed separately if appropriate. Unless
separately disclosed above, no fair value liability related to indemnities has
been recorded in the Consolidated Financial
Statements.
10. Commitments and
Contingencies
Lease
Commitments
BNSF has
substantial lease commitments for locomotives, freight cars, trailers and
containers, office buildings, operating facilities and other property, and many
of these leases provide the option to purchase the leased item at fair market
value at the end of the lease. However, some provide fixed price purchase
options. Future minimum lease payments as of December 31, 2007, are summarized
as follows (in millions):
|
December
31,
|
|
Capital
Leases
|
|
|
Operating
Leases
|
a
|
|
2008
|
|
$
|
204
|
|
|
$
|
699
|
|
|
2009
|
|
|
175
|
|
|
|
681
|
|
|
2010
|
|
|
138
|
|
|
|
629
|
|
|
2011
|
|
|
96
|
|
|
|
582
|
|
|
2012
|
|
|
78
|
|
|
|
525
|
|
|
Thereafter
|
|
|
518
|
|
|
|
4,382
|
|
|
Total
|
|
|
1,
209
|
|
|
$
|
7,498
|
|
|
Less amount representing
interest
|
|
|
(271
|
)
|
|
|
|
|
|
Present value of
minimum lease payments
|
|
$
|
938
|
|
|
|
|
|
|
a
Excludes leases having non-cancelable lease terms of less than one year
and per diem leases.
|
|
Lease rental
expense for all operating leases, excluding per diem leases, was
$706 million, $665 million and $565 million for the years ended
December 31, 2007, 2006 and 2005, respectively. When rental payments are not
made on a straight-line basis, the Company recognizes rental expense on a
straight-line basis over the lease term. Contingent rentals and sublease rentals
were not significant.
Other
Commitments
In the normal
course of business, the Company enters into long-term contractual requirements
for future goods and services needed for the operations of the business. Such
commitments are not in excess of expected requirements and are not reasonably
likely to result in performance penalties or payments that would have a material
adverse effect on the Company’s liquidity.
Personal
Injury and Environmental Costs
Personal
Injury
Personal injury
claims, including asbestos claims and employee work-related injuries and
third-party injuries (collectively, other personal injury), are a significant
expense for the railroad industry. Personal injury claims by BNSF Railway
employees are subject to the provisions of the Federal Employers’ Liability Act
(FELA) rather than state workers’ compensation laws. FELA’s system of requiring
the finding of fault, coupled with unscheduled awards and reliance on the jury
system, contributed to increased expenses in past years. Other proceedings
include claims by non-employees for punitive as well as compensatory damages. A
few proceedings purport to be class actions. The variability present in settling
these claims, including non-employee personal injury and matters in which
punitive damages are alleged, could result in increased expenses in future
years. BNSF has implemented a number of safety programs designed to reduce the
number of personal injuries as well as the associated claims and personal injury
expense.
BNSF records a
liability for personal injury claims when the expected loss is both probable and
reasonably estimable. The liability and ultimate expense projections are
estimated using standard actuarial methodologies. Liabilities recorded for
unasserted personal injury claims are based on information currently available.
Due to the inherent uncertainty involved in projecting future events such as the
number of claims filed each year, developments in judicial and legislative
standards and the average costs to settle projected claims, actual costs may
differ from amounts recorded. Expense accruals and any required adjustments are
classified as materials and other in the Consolidated Statements of
Income.
Asbestos
The Company is
party to a number of personal injury claims by employees and non-employees who
may have been exposed to asbestos. The heaviest exposure for BNSF employees was
due to work conducted in and around the use of steam locomotive engines that
were phased out between the years of 1950 and 1967. However, other types of
exposures, including exposure from locomotive component parts and building
materials, continued after 1967 until they were substantially eliminated at BNSF
by 1985.
BNSF
assesses its unasserted liability exposure on an annual basis during the third
quarter. BNSF determines its asbestos liability by estimating its exposed
population, the number of claims likely to be filed, the number of claims that
will likely require payment, and the estimated cost per claim. Estimated filing
and dismissal rates and average cost per claim are determined utilizing recent
claim data and trends.
During
the third quarters of 2007, 2006 and 2005, the Company analyzed recent filing
and payment trends to ensure the assumptions used by BNSF to estimate its future
asbestos liability were reasonable. In 2007, management recorded a decrease in
expense of $17 million due to a statistically significant reduction in
filing rate experience for non-malignant claims. In 2006 and 2005, management
recorded no additional expense. The Company plans to update its study again in
the third quarter of 2008.
Throughout
the year, BNSF monitors actual experience against the number of forecasted
claims and expected claim payments and will record adjustments to the Company’s
estimates as necessary.
The
following table summarizes the activity in the Company’s accrued obligations for
both asserted and unasserted asbestos matters (in
millions):
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Beginning
balance
|
|
$
|
306
|
|
|
$
|
326
|
|
|
$
|
345
|
|
|
Accruals
|
|
|
(17
|
)
|
|
|
–
|
|
|
|
–
|
|
|
Payments
|
|
|
(19
|
)
|
|
|
(20
|
)
|
|
|
(19
|
)
|
|
Ending balance at December
31,
|
|
$
|
270
|
|
|
$
|
306
|
|
|
$
|
326
|
|
Of
the obligation at December 31, 2007, $226 million was related to unasserted
claims while $44 million was related to asserted claims. At December 31, 2007
and 2006, $17
million
and
$22 million were included in current liabilities, respectively.
The
recorded liability was not discounted. In addition, defense and processing
costs, which are recorded on an as-reported basis, were not included in the
recorded liability. The Company is presently self-insured for asbestos-related
claims.
The
following table summarizes information regarding the number of asserted asbestos
claims filed against BNSF:
|
|
|
2007
|
|
2006
|
|
|
Claims unresolved at January
1,
|
|
|
1,975
|
|
|
2,121
|
|
|
Claims
filed
|
|
|
376
|
|
|
530
|
|
|
Claims settled, dismissed or
otherwise resolved
|
|
|
(570
|
)
|
|
(676
|
)
|
|
Claims unresolved at December
31,
|
|
|
1,781
|
|
|
1,975
|
|
Based
on BNSF’s estimate of the potentially exposed employees and related mortality
assumptions, it is anticipated that unasserted claims will continue to be filed
through the year 2050. The Company recorded an amount for the full estimated
filing period through 2050 because it had a relatively finite exposed population
(former and current employees hired prior to 1985), which it was able to
identify and reasonably estimate and about which it had obtained reliable
demographic data (including age, hire date and occupation) derived from industry
or BNSF specific data that was the basis for the study. BNSF projects that
approximately 5
5
,
70 and 90 percent of the future unasserted asbestos claims will be filed within
the next 10, 15 and 25 years, respectively.
Because
of the uncertainty surrounding the factors used in the study, it is reasonably
possible that future costs to settle asbestos claims may range from
approximately $245 million to $295 million. However, BNSF believes
that the $270 million recorded at
December
31, 2007, is the best estimate of the Company’s future obligation for the
settlement of asbestos claims.
The
amounts recorded by BNSF for the asbestos-related liability were based upon
currently known facts. Future events, such as the number of new claims to be
filed each year, the average cost of disposing of claims, as well as the
numerous uncertainties surrounding asbestos litigation in the United States,
could cause the actual costs to be higher or lower than
projected.
While
the final outcome of asbestos-related matters cannot be predicted with
certainty, considering among other things the meritorious legal defenses
available and liabilities that have been recorded, it is the opinion of BNSF
that none of these items, when finally resolved, will have a material adverse
effect on the Company’s financial position or liquidity. However, the occurrence
of a number of these items in the same period could have a material adverse
effect on the results of operations in a particular quarter or fiscal
year.
Other Personal
Injury
BNSF
estimates its other personal injury liability claims and expense quarterly based
on the covered population, activity levels and trends in frequency and the costs
of covered injuries. Estimates include unasserted claims except for certain
repetitive stress and other occupational trauma claims that result from
prolonged repeated events or exposure. Such claims are estimated on an
as-reported basis because, while the Company has concluded that a probable loss
has occurred, it cannot estimate the range of reasonably possible loss due to
other contributing causes of such injuries and the fact that continued exposure
is required for the potential injury to manifest itself as a claim. The Company
believes that the low end of the range of reasonably possible loss, as that term
is used in FIN 14,
Reasonable
Estimation of the Amount of a Loss
,
is immaterial for these repetitive stress and other occupational trauma
claims.
BNSF
monitors quarterly actual experience against the number of forecasted claims to
be received, the forecasted number of claims closing with payment and expected
claims payments. Adjustments to the Company’s estimates are recorded quarterly
as necessary or more frequently as new events or revised estimates
develop.
The
following table summarizes the activity in the Company’s accrued
obligations
for other personal injury matters (in
millions):
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Beginning
balance
|
|
$
|
439
|
|
|
$
|
422
|
|
|
$
|
459
|
|
|
Accruals
|
|
|
190
|
|
|
|
188
|
|
|
|
181
|
|
|
Payments
|
|
|
(190
|
)
|
|
|
(171
|
)
|
|
|
(218
|
)
|
|
Ending balance at December
31,
|
|
$
|
439
|
|
|
$
|
439
|
|
|
$
|
422
|
|
At
December 31, 2007 and 2006, $163 million and $153 million were included in
current liabilities, respectively
.
BNSF’s liabilities for other personal injury claims are undiscounted. In
addition, defense and processing costs, which are recorded on an as-reported
basis, were not included in the recorded liability. The Company is substantially
self-insured for other personal injury
claims.
b
The following table summarizes
information regarding the number of personal injury claims, other than asbestos,
filed against BNSF:
|
|
|
2007
|
|
2006
|
|
|
Claims unresolved at January
1,
|
|
|
3,130
|
|
|
3,617
|
|
|
Claims
filed
|
|
|
3,894
|
|
|
3,516
|
|
|
Claims settled, dismissed or
otherwise resolved
|
|
|
(3,702
|
)
|
|
(4,003
|
)
|
|
Claims unresolved at December
31,
|
|
|
3,322
|
|
|
3,130
|
|
Because of the uncertainty surrounding
the ultimate outcome of other personal injury claims, it is reasonably possible
that future costs to settle other personal injury claims may range from
approximately $380 million to $530 million. However, BNSF believes
that the $439 million recorded at December 31, 2007, is the best estimate of the
Company’s future obligation for the settlement of other personal injury
claims.
The amounts recorded by BNSF for other
personal injury claims were based upon currently known facts. Future events,
such as the number of new claims to be filed each year, the average cost of
disposing of claims, as well as the numerous uncertainties surrounding personal
injury litigation in the United States, could cause the actual costs to be
higher or lower than projected.
While the final outcome of these other
personal injury matters cannot be predicted with certainty, considering among
other things the meritorious legal defenses available and liabilities that have
been recorded, it is the opinion of BNSF that none of these items, when finally
resolved, will have a material adverse effect on the Company’s financial
position or liquidity. However, the occurrence of a number of these items in the
same period could have a material adverse effect on the results of operations in
a particular quarter or fiscal year.
BNSF Insurance
Company
The Company has a consolidated,
wholly-owned subsidiary, Burlington Northern Santa Fe Insurance Company, Ltd.
(BNSF IC) that provides insurance coverage for certain risks incurred after
April 1, 1998, FELA claims, railroad protective and force account insurance
claims and certain excess general liability coverage incurred after January 1,
2002, and certain other claims which are subject to reinsurance. Beginning in
2004, BNSF IC entered into annual reinsurance pooling agreements with several
other companies. The pooling agreements insure workers compensation, general
liability, auto liability and FELA risk. In accordance with the agreements, BNSF
IC cedes a portion of its FELA exposure to the pool and assumes a proportionate
share of the entire pool’s risk. Each year BNSF IC reviews the objectives and
performance of the pool to determine its continued participation in the pool. At
December 31, 2007, BNSF IC had invested in third-party commercial paper, time
deposits and money market accounts as well as in commercial paper issued by
BNSF. All of the third-party investments are classified as cash and cash
equivalents on the Company’s Consolidated Balance Sheet. At December 31, 2007,
there was approximately $300 million related to these third-party investments,
which were classified as cash and cash equivalents on the Company’s Consolidated
Balance Sheet, as compared with approximately $350 million at December 31,
2006.
Environmental
The Company’s operations, as well as
those of its competitors, are subject to extensive federal, state and local
environmental regulation. BNSF’s operating procedures include practices to
protect the environment from the risks inherent in railroad operations, which
frequently involve transporting chemicals and other hazardous materials.
Additionally, many of BNSF’s land holdings are and have been used for industrial
or transportation-related purposes or leased to commercial or industrial
companies whose activities may have resulted in discharges onto the property. As
a result, BNSF is subject to environmental cleanup 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 cleanup and
enforcement costs on current and former owners and operators of a site without
regard to fault or the legality of the original conduct. BNSF has been notified
that it is a potentially responsible party (PRP) for study and cleanup costs at
Superfund sites for which investigation and remediation payments are or will be
made or are yet to be determined (the Superfund sites) and, in many instances,
is one of several PRPs. In addition, BNSF may be considered a PRP under certain
other laws. Accordingly, under CERCLA and other federal and state statutes, BNSF
may be held jointly and severally liable for all environmental costs associated
with a particular site. If there are other PRPs, BNSF generally participates in
the cleanup of these sites through cost-sharing agreements with terms that vary
from site to site. Costs are typically allocated based on such factors as
relative volumetric contribution of material, the amount of time the site was
owned or operated and/or the portion of the total site owned or operated by each
PRP.
Liabilities for environmental cleanup
costs are recorded when BNSF’s liability for environmental cleanup is probable
and reasonably estimable. Subsequent adjustments to initial estimates are
recorded as necessary based upon additional information developed in subsequent
periods. Environmental costs include initial site surveys and environmental
studies as well as costs for remediation of sites determined to be
contaminated.
BNSF estimates the ultimate cost of
cleanup efforts at its known environmental sites on an annual basis during the
third quarter. Ultimate cost estimates for environmental sites are based on
historical payment patterns, current estimated percentage to closure ratios and
benchmark patterns developed from data accumulated from industry and public
sources, including the Environmental Protection Agency and other governmental
agencies. These factors incorporate experience gained from cleanup efforts at
other similar sites into the estimates for which remediation and restoration
efforts are still in progress.
During the third quarter of 2007, 2006
and 2005, the Company analyzed recent data and trends to ensure the assumptions
used by BNSF to estimate its future environmental liability were reasonable. As
a result of this study, in the third quarter of 2007, 2006 and 2005, management
recorded additional expense of approximately $20 million, $5 million
and $12 million as of the June 30 measurement date, respectively. The
Company plans to update its study again in the third quarter of
2008.
On a quarterly basis, BNSF monitors
actual experience against the forecasted remediation and related payments made
on existing sites and conducts ongoing environmental contingency analyses, which
consider a combination of factors including independent consulting reports, site
visits, legal reviews and analysis of the likelihood of participation in, and
the ability to pay for, cleanup of other PRPs. Adjustments to the Company’s
estimates will continue to be recorded as necessary based on developments in
subsequent periods. Additionally, environmental accruals, which are classified
as materials and other in the Consolidated Statements of Income, include amounts
for newly identified sites or contaminants, third-party claims and legal fees
incurred for defense of third-party claims and recovery
efforts.
Annual studies do not include (i)
contaminated sites of which the Company is not aware, (ii) additional amounts
for third-party claims, which arise out of contaminants allegedly migrating from
BNSF property, due to a limited number of sites, or (iii) natural resource
damage claims. BNSF continues to estimate third-party claims on a site by site
basis when the liability for such claims is probable and reasonably estimable.
BNSF’s recorded liability for third-party claims as of December 31, 2007, is
approximately $21 million.
BNSF is involved in a number of
administrative and judicial proceedings and other mandatory cleanup efforts
for 3
46
sites, including Superfund sites, at
which it is participating in the study or cleanup, or both, of alleged
environmental contamination.
The following table summarizes the
activity in the Company’s accrued obligations for environmental matters (in
millions):
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Beginning
balance
|
|
$
|
318
|
|
|
$
|
370
|
|
|
$
|
385
|
|
|
Accruals
|
|
|
126
|
|
|
|
20
|
|
|
|
33
|
|
|
Payments
|
|
|
(64
|
)
|
|
|
(72
|
)
|
|
|
(48
|
)
|
|
Ending balance at December
31,
|
|
$
|
380
|
|
|
$
|
318
|
|
|
$
|
370
|
|
At December 31, 2007 and 2006, $66
million and $58 million was included in current liabilities, respectively.
In the first quarter of 2007, the Company recorded a $65 million pre-tax
charge, or $0.11 per share, due to an increase in environmental costs primarily
related to a final resolution with the State of Washington and its Department of
Ecology on clean-up of an existing environmental site at Skykomish and an
adverse reversal of a trial court decision on appeal regarding a site at Arvin,
California.
BNSF’s environmental liabilities are not
discounted. BNSF anticipates that the majority of the accrued costs at December
31, 2007, will be paid over the next ten years, and no individual site is
considered to be material.
The following table summarizes the
environmental sites:
|
|
|
BNSF Sites
|
|
Superfund
Sites
|
|
|
|
2007
|
|
|
2006
|
|
2007
|
|
2006
|
|
Number of sites at January
1,
|
|
|
375
|
|
|
369
|
|
|
20
|
|
|
20
|
|
Sites added during the
period
|
|
|
16
|
|
|
23
|
|
|
–
|
|
|
–
|
|
Sites closed during the
period
|
|
|
(45
|
)
|
|
(17
|
)
|
|
–
|
|
|
–
|
|
Number of sites at December
31,
|
|
|
346
|
|
|
375
|
|
|
20
|
|
|
20
|
Liabilities recorded for environmental
costs represent BNSF’s best estimate of its probable future obligation for the
remediation and settlement of these sites and include both asserted and
unasserted claims. Unasserted claims are not a material component of the
liability. Although recorded liabilities include BNSF’s best estimate of all
probable costs, without reduction for anticipated recoveries from third parties,
BNSF’s total cleanup costs at these sites cannot be predicted with certainty due
to various factors such as the extent of corrective actions that may be
required, evolving environmental laws and regulations, advances in environmental
technology, the extent of other parties’ participation in cleanup efforts,
developments in ongoing environmental analyses related to sites determined to be
contaminated and developments in environmental surveys and studies of
contaminated sites.
Because of the uncertainty surrounding
these factors, it is reasonably possible that future costs for environmental
liabilities may range from approximately $300 million to $525 million.
However, BNSF believes that the $380 million recorded at December
31, 2007, is the best estimate of the
Company’s future obligation for environmental costs.
While the final outcome of these
environmental matters cannot be predicted with certainty, it is the opinion of
BNSF that none of these items, when finally resolved, will have a material
adverse effect on the Company’s financial position or liquidity. However, the
occurrence of a number of these items in the same period could have a material
adverse effect on the results of operations in a particular quarter or fiscal
year.
Other Claims
and Litigation
In addition to asbestos, other personal
injury and environmental matters discussed above, BNSF and its subsidiaries are
also parties to a number of other legal actions and claims, various governmental
proceedings and private civil suits arising in the ordinary course of business,
including those related to disputes and complaints involving certain
transportation rates and charges (including complaints seeking refunds of prior
charges paid for coal transportation and the prescription of future rates for
such movements and claims relating to service under contract provisions or
otherwise). Some of the legal proceedings include claims for punitive as well as
compensatory damages, and a few proceedings purport to be class actions. While
the final outcome of these matters cannot be predicted with certainty,
considering among other things the meritorious legal defenses available and
liabilities that have been recorded along with applicable insurance, it is the
opinion of BNSF that none of these items, when finally resolved, will have a
material adverse effect on the Company’s financial position or liquidity.
However, an unexpected adverse resolution of one or more of these items could
have a material adverse effect on the results of operations in a particular
quarter or fiscal year.
11. Employee Separation
Costs
Employee separation costs activity was
as follows (in millions):
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Beginning balance at January
1,
|
|
$
|
107
|
|
|
$
|
132
|
|
|
$
|
154
|
|
|
Accruals
|
|
|
5
|
|
|
|
2
|
|
|
|
8
|
|
|
Payments
|
|
|
(21
|
)
|
|
|
(27
|
)
|
|
|
(30
|
)
|
|
Ending balance at December
31,
|
|
$
|
91
|
|
|
$
|
107
|
|
|
$
|
132
|
|
Employee separation liabilities of
$9
1
million were included in the
Consolidated Balance Sheet at December 31, 2007, and principally represent the
following: (i) $86 million for deferred benefits payable upon separation or
retirement to certain active conductors, trainmen and locomotive engineers; (ii)
$
1
million for employee-related
severance costs for the consolidation of clerical functions, material handlers
in mechanical shops and trainmen on reserve boards; and (iii) $4 million
for certain non-union employee severance costs. Employee separation expenses are
recorded in materials and other in the Consolidated Statements of Income. At
December 31, 2007, $14 million of the remaining liabilities were included
in current liabilities.
The deferred benefits payable upon
separation or retirement to certain active conductors, trainmen and locomotive
engineers were primarily incurred in connection with labor agreements reached
prior to the business combination of BNSF’s predecessor companies, Burlington
Northern Inc. and Santa Fe Pacific Corporation (the Merger). These agreements,
among other things, reduced train crew sizes and allowed for more flexible work
rules. The majority of the remaining costs will be paid between 2008 and 2020.
As of December 31, 2007, the Company had updated its estimate and recorded an
additional liability of $
4
million related to deferred
benefits
(see (i) above)
and a liability of $1
million related to
non-union
severance
costs (see (iii) above)
. The remaining costs for (ii) above are
expected to be paid out between 2008 and approximately 2011, and the costs for
(iii) above will be paid over the next several years based on deferral elections
made by the affected
employees.
12. Earnings Per
Share
Basic earnings per share is based on the
weighted average number of common shares outstanding. Diluted earnings per share
is based on basic earnings per share adjusted for the effect of potential common
shares outstanding that were dilutive during the period, arising from employee
stock awards and incremental shares calculated using the treasury stock
method.
Weighted average stock options totaling
2.2
million, 1.1 million and
0.1 million for 2007, 2006 and 2005, respectively, were not included in the
computation of diluted earnings per share, because the options’ exercise price
exceeded the average market price of the Company’s stock for those
periods.
13. Employment Benefit
Plans
BNSF sponsors a funded, noncontributory
qualified pension plan, the BNSF Retirement Plan, which covers most non-union
employees, and an unfunded non-tax-qualified pension plan, the BNSF Supplemental
Retirement Plan, which covers certain officers and other employees. The benefits
under these pension plans are based on years of credited service and the highest
consecutive sixty months of compensation for the last ten years of salaried
employment with BNSF. BNSF’s funding policy is to contribute annually not less
than the regulatory minimum and not more than the maximum amount deductible for
income tax purposes with respect to the funded plan.
Certain salaried employees of BNSF that
have met age and years of service requirements are eligible for life insurance
coverage and medical benefits, including prescription drug coverage, during
retirement. This postretirement benefit plan, referred to as the retiree health
and welfare plan, is contributory and provides benefits to retirees, their
covered dependents and beneficiaries. Retiree contributions are adjusted
annually. The plan also contains fixed deductibles, coinsurance and
out-of-pocket limitations. The basic life insurance plan is noncontributory and
covers retirees only. Optional life insurance coverage is available for some
retirees; however, the retiree is responsible for the full cost. BNSF’s policy
is to fund benefits payable under the medical and life insurance plans as they
come due. Generally, employees beginning salaried employment with BNSF
subsequent to September 22, 1995, are not eligible for medical benefits during
retirement.
In September 2006, the FASB issued SFAS
No. 158,
Employers’
Accounting for Defined Benefit Pension and Other Postretirement Plans–an
amendment of FASB Statements No. 87, 88, 106 and 132R,
which requires the recognition of the
overfunded or underfunded status of a defined benefit postretirement plan in the
Company’s balance sheet. This portion of the new guidance was adopted by the
Company on December 31, 2006. Additionally, the pronouncement eliminates the
option for the Company to use a measurement date prior to the Company’s fiscal
year-end effective December 31, 2008. SFAS No. 158 provides two approaches to
transition to a fiscal year-end measurement date, both of which are to be
applied prospectively. BNSF has elected to apply the transition option under
which a 15-month measurement was
determined as of September 30, 2007 that
covers the period until the fiscal year-end measurement is required on December
31, 2008. As a result, the Company recorded a $7 million decrease to retained
earnings in January 2008.
The following table show
s
the incremental effect of applying SFAS
No. 158 to both the Company’s pension and retiree health and welfare plans on
individual line items in the Consolidated Balance Sheet as of December 31, 2006
(in millions):
|
|
|
Pension and Retiree Health and
Welfare Benefits
|
|
|
|
|
Balances Prior to Adoption of SFAS
No. 158 and the Minimum Liability Adjustment
|
|
|
Minimum Liability
Adjustment
|
|
|
Balances Prior to Adoption of SFAS
No. 158
|
|
|
SFAS No. 158 Adoption
Adjustments
|
|
|
Ending Balances After Adoption of
SFAS No. 158
|
|
|
Pension
asset
|
|
$
|
156
|
|
|
$
|
–
|
|
|
$
|
156
|
|
|
$
|
(156
|
)
|
|
$
|
–
|
|
|
Total
assets
|
|
$
|
31,953
|
|
|
$
|
–
|
|
|
$
|
31,953
|
|
|
$
|
(156
|
)
|
|
$
|
31,797
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
liability
|
|
$
|
52
|
|
|
$
|
–
|
|
|
$
|
52
|
|
|
$
|
(52
|
)
|
|
$
|
–
|
|
|
Additional minimum pension
liability
|
|
$
|
417
|
|
|
|
(64
|
)
|
|
$
|
353
|
|
|
|
(353
|
)
|
|
$
|
–
|
|
|
Liability for retiree health and
welfare benefits
|
|
$
|
257
|
|
|
|
–
|
|
|
$
|
257
|
|
|
|
(257
|
)
|
|
$
|
–
|
|
|
Pension and retiree health and
welfare liability
|
|
$
|
–
|
|
|
|
–
|
|
|
$
|
–
|
|
|
|
630
|
|
|
$
|
630
|
|
|
Deferred income
taxes
|
|
$
|
8,322
|
|
|
|
24
|
|
|
$
|
8,346
|
|
|
|
(48
|
)
|
|
$
|
8,298
|
|
|
Total
liabilities
|
|
$
|
21,389
|
|
|
$
|
(40
|
)
|
|
$
|
21,349
|
|
|
$
|
(80
|
)
|
|
$
|
21,269
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AOCL
|
|
$
|
(241
|
)
|
|
$
|
40
|
|
|
$
|
(201
|
)
|
|
$
|
(76
|
)
|
|
$
|
(277
|
)
|
|
Total stockholders’
equity
|
|
$
|
10,564
|
|
|
$
|
40
|
|
|
$
|
10,604
|
|
|
$
|
(76
|
)
|
|
$
|
10,528
|
|
Components of the net cost for these
plans were as follows (in millions):
|
|
|
Pension
Benefits
|
|
|
Retiree Health and Welfare
Benefits
|
|
|
Year ended December
31,
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Service
cost
|
|
$
|
25
|
|
|
$
|
25
|
|
|
$
|
20
|
|
|
$
|
2
|
|
|
$
|
3
|
|
|
$
|
2
|
|
|
Interest
cost
|
|
|
97
|
|
|
|
94
|
|
|
|
95
|
|
|
|
17
|
|
|
|
15
|
|
|
|
17
|
|
|
Expected return on plan
assets
|
|
|
(105
|
)
|
|
|
(97
|
)
|
|
|
(102
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
Amortization of net
loss
|
|
|
35
|
|
|
|
46
|
|
|
|
25
|
|
|
|
6
|
|
|
|
3
|
|
|
|
–
|
|
|
Amortization of prior service
cost
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(8
|
)
|
|
|
(7
|
)
|
|
|
(8
|
)
|
|
Net cost
recognized
|
|
$
|
52
|
|
|
$
|
68
|
|
|
$
|
38
|
|
|
$
|
17
|
|
|
$
|
14
|
|
|
$
|
11
|
|
The projected benefit obligation is the
present value of benefit earned to date by plan participants, including the
effect of assumed future salary increases and expected healthcare cost trend
rate increases. The following table shows the change in projected benefit
obligation based on the September 30 measurement date (in
millions):
|
|
|
Pension
Benefits
|
|
|
Retiree Health and Welfare
Benefits
|
|
|
Change in Benefit
Obligation
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
Benefit obligation at beginning of
period
|
|
$
|
1,830
|
|
|
$
|
1,858
|
|
|
$
|
311
|
|
|
$
|
295
|
|
|
Service
cost
|
|
|
25
|
|
|
|
25
|
|
|
|
2
|
|
|
|
3
|
|
|
Interest
cost
|
|
|
97
|
|
|
|
94
|
|
|
|
1
7
|
|
|
|
15
|
|
|
Plan participants’
contributions
|
|
|
–
|
|
|
|
–
|
|
|
|
8
|
|
|
|
8
|
|
|
Actuarial (gain)
loss
|
|
|
(59
|
)
|
|
|
(18
|
)
|
|
|
(3
|
)
|
|
|
19
|
|
|
Medicare
subsidy
|
|
|
–
|
|
|
|
–
|
|
|
|
2
|
|
|
|
1
|
|
|
Benefits
paid
|
|
|
(130
|
)
|
|
|
(129
|
)
|
|
|
(33
|
)
|
|
|
(30
|
)
|
|
Projected benefit obligation at
end of period
|
|
|
1,763
|
|
|
|
1,830
|
|
|
|
304
|
|
|
|
311
|
|
|
Component representing future
salary increases
|
|
|
(57
|
)
|
|
|
(76
|
)
|
|
|
–
|
|
|
|
–
|
|
|
Accumulated benefit obligation
at end of
period
|
|
$
|
1,706
|
|
|
$
|
1,754
|
|
|
$
|
304
|
|
|
$
|
311
|
|
Both the BNSF Retirement Plan and the
BNSF Supplemental Retirement Plan had accumulated and projected benefit
obligations in excess of plan assets at September 30, 2007 and 2006.
The following table shows the change in
plan assets of the plans based on the September 30 measurement date (in
millions):
|
|
|
Pension
Benefits
|
|
|
Retiree Health and Welfare
Benefits
|
|
|
Change in Plan
Assets
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
Fair value of plan assets at
beginning of period
|
|
$
|
1,394
|
|
|
$
|
1,347
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
Actual return on plan
assets
|
|
|
208
|
|
|
|
126
|
|
|
|
–
|
|
|
|
–
|
|
|
Employer
contribution
|
|
|
116
|
|
|
|
50
|
|
|
|
2
3
|
|
|
|
21
|
|
|
Plan participants’
contributions
|
|
|
–
|
|
|
|
–
|
|
|
|
8
|
|
|
|
8
|
|
|
Medicare
subsidy
|
|
|
–
|
|
|
|
–
|
|
|
|
2
|
|
|
|
1
|
|
|
Benefits
paid
|
|
|
(130
|
)
|
|
|
(129
|
)
|
|
|
(33
|
)
|
|
|
(30
|
)
|
|
Fair value of plan assets at
measurement date
|
|
$
|
1,588
|
|
|
$
|
1,394
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
Adjustment for fourth quarter
contribution
|
|
$
|
2
|
|
|
$
|
111
|
|
|
$
|
5
|
|
|
$
|
6
|
|
The following table shows the funded
status, defined as plan assets less the projected benefit obligation, as of
December 31 (in millions):
|
|
|
Pension
Benefits
|
|
|
Retiree Health and Welfare
Benefits
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
Funded status (plan assets less
projected
benefit
obligations)
|
|
$
|
(173
|
)
|
|
$
|
(325
|
)
|
|
$
|
(299
|
)
|
|
$
|
(305
|
)
|
Of the combined pension and retiree
health and welfare benefits liability of $472 million recognized as of December
31, 2007, $28 million was included in other current
liabilities.
Prior to December 31, 2006, actuarial
gains and losses and prior service costs were not recognized in the Company’s
Consolidated Balance Sheets, but were only included in the footnote disclosures.
Beginning on December 31, 2006, upon adoption of SFAS No. 158, the Company began
recognizing these costs in the Consolidated Balance Sheets through an adjustment
to AOCL. Beginning in 2007, the Company recognized actuarial gains and losses
and prior service costs in AOCL as they arose.
The following table shows the pre-tax
change in AOCL attributable to the components of the net cost and the change in
benefit obligation (in millions):
|
|
|
Pension
Benefits
|
|
Retiree Health
and
Welfare
Benefits
|
|
Change in
AOCL
|
|
2007
|
|
2006
|
|
2005
|
|
2007
|
|
2006
|
|
2005
|
|
Balance at January
1,
|
|
$
|
429
|
|
$
|
417
|
|
$
|
353
|
|
$
|
48
|
|
$
|
–
|
|
$
|
–
|
|
Increase (decrease) in minimum
liability included in other comprehensive loss prior to adoption of SFAS
No. 158
|
|
|
–
|
|
|
(64
|
)
|
|
64
|
|
|
–
|
|
|
–
|
|
|
–
|
|
SFAS No. 158 adoption
adjustment
|
|
|
–
|
|
|
76
|
|
|
–
|
|
|
–
|
|
|
48
|
|
|
–
|
|
Amortization of actuarial
loss
|
|
|
(35
|
)
|
|
–
|
|
|
–
|
|
|
(
6
|
)
|
|
–
|
|
|
–
|
|
Amortization of prior service
costs
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
8
|
|
|
–
|
|
|
–
|
|
Actuarial
gain
|
|
|
(161
|
)
|
|
–
|
|
|
–
|
|
|
(4
|
)
|
|
–
|
|
|
–
|
|
Balance at December
31,
|
|
$
|
233
|
|
$
|
429
|
|
$
|
417
|
|
$
|
4
6
|
|
$
|
48
|
|
$
|
–
|
The estimated net actuarial loss and
prior service credit for these defined benefit pension plans that will be
amortized from AOCL into net periodic benefit cost over the next fiscal year is
expected to be $16 million and less than $1 million, respectively. The estimated
net actuarial loss and prior service credit for the retiree health and welfare
benefit plans that will be amortized from AOCL into net periodic benefit cost
over the next fiscal year is expected to be $4 million and $8 million,
respectively. Pre-tax amounts currently recognized in AOCL consist of the
following (in millions):
|
|
|
Pension
Benefits
|
|
|
Retiree Health and Welfare
Benefits
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
Net actuarial
loss
|
|
$
|
234
|
|
|
$
|
430
|
|
|
$
|
67
|
|
|
$
|
77
|
|
|
Prior service
cost
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
(
21
|
)
|
|
|
(29
|
)
|
|
Pre-tax amount recognized
in AOCL at December
31,
|
|
|
233
|
|
|
|
429
|
|
|
|
46
|
|
|
|
48
|
|
|
After-tax amount recognized
in AOCL at December
31,
|
|
$
|
143
|
|
|
$
|
264
|
|
|
$
|
28
|
|
|
$
|
29
|
|
The expected long-term rate of return is
the return the Company anticipates earning, net of plan expenses, over the
period that benefits are paid. It reflects the rate of return on present
investments and on expected contributions. In determining the expected long-term
rate of return, BNSF considered the following: (i) forward looking capital
market forecasts; (ii) historical returns for individual asset classes; and
(iii) the impact of active portfolio management.
The assumptions used in accounting for
the BNSF plans were as follows:
|
Assumptions used to determine net
cost
for fiscal years ended December
31,
|
|
Pension
Benefits
|
|
Retiree Health and Welfare
Benefits
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
2007
|
|
2006
|
|
2005
|
|
|
Discount
rate
|
|
5.50
|
%
|
|
5.25
|
%
|
|
5.75
|
%
|
|
5.50
|
%
|
|
5.25
|
%
|
|
5.75
|
%
|
|
Expected long-term rate of return
on plan assets
|
|
8.00
|
%
|
|
8.00
|
%
|
|
8.00
|
%
|
|
–
|
%
|
|
–
|
%
|
|
–
|
%
|
|
Rate of compensation
increase
|
|
3.90
|
%
|
|
3.90
|
%
|
|
3.90
|
%
|
|
3.90
|
%
|
|
3.90
|
%
|
|
3.90
|
%
|
|
Assumptions used to determine
benefit
obligations at September
30,
|
|
Pension
Benefits
|
|
|
|
Retiree Health and Welfare
Benefits
|
|
|
|
|
|
2007
|
|
2006
|
|
|
|
2007
|
|
2006
|
|
|
|
|
Discount
rate
|
|
6.00
|
%
|
|
5.50
|
%
|
|
|
|
6.00
|
%
|
|
5.50
|
%
|
|
|
|
Rate of compensation
increase
|
|
3.80
|
%
|
|
3.90
|
%
|
|
|
|
3.80
|
%
|
|
3.90
|
%
|
|
|
The following table presents assumed
health care cost trend rates:
|
December
31,
|
|
2007
|
|
2006
|
|
|
2005
|
|
|
Assumed health care cost trend
rate for next year
|
|
|
10.50
|
%
|
|
10.00
|
%
|
|
10.50
|
%
|
|
Rate to which health care cost
trend rate is expected to decline and remain
|
|
|
5.00
|
%
|
|
5.00
|
%
|
|
5.00
|
%
|
|
Year that the rate reaches the
ultimate trend rate
|
|
|
2016
|
|
|
2012
|
|
|
2012
|
|
Assumed health care cost trend rates
have a significant effect on the amounts reported for the health care plans. A
one percentage point change in assumed health care cost trend rates would have
the following effects (in millions):
|
|
|
One Percentage-Point
Increase
|
|
One Percentage-Point
Decrease
|
|
|
Effect on total service and
interest cost
|
|
$
|
2
|
|
$
|
(2
|
)
|
|
Effect on postretirement benefit
obligation
|
|
$
|
23
|
|
$
|
(20
|
)
|
The qualified BNSF Retirement Plan asset
allocation at September 30, 2007 and 2006 and the target allocation for 2007 by
asset category are as follows:
|
|
|
Target
Allocation
|
|
|
Percentage of Pension
Plan
Assets at September
30,
|
|
|
Plan Asset
Allocation
|
|
2007
|
|
|
2007
|
|
|
2006
|
|
|
Equity
Securities
|
|
|
45
– 75
|
%
|
|
|
63
|
%
|
|
|
63
|
%
|
|
Fixed Income
Securities
|
|
|
20
– 40
|
%
|
|
|
2
7
|
|
|
|
28
|
|
|
Real Estate
|
|
|
5
– 15
|
%
|
|
|
1
0
|
|
|
|
9
|
|
|
Total
|
|
|
|
|
|
|
100
|
%
|
|
|
100
|
%
|
The general investment objective of the
BNSF Retirement Plan is to grow the plan assets in relation to the plan
liabilities while prudently managing the risk of a decrease in the plan’s assets
relative to those liabilities. To meet this objective, the Company’s management
has adopted the above asset allocation ranges. This allows flexibility to
accommodate market changes in the asset classes within defined
parameters.
Based on its current assumptions and
funding methodology, the Company is expected to be required to make
contribution
s
of $34 million to the BNSF
Retirement Plan in 2008. The Company expects to make benefit payments in 2008 of
approximately $7 million and $25 million from its non-qualified
defined benefit and retiree health and welfare plans, respectively.
The following table shows expected
benefit payments from
its
defined benefit pension
plans and expected claim payments and Medicare Part D subsidy receipts for the
retiree health and welfare plan for the next five fiscal years and the aggregate
five years thereafter (in millions):
|
Fiscal year
|
|
Expected Pension Plan Benefit
Payments
|
a
|
Expected Retiree Health and
Welfare Payments
|
|
Expected Medicare
Subsidy
|
|
|
2008
|
|
$
|
131
|
|
$
|
25
|
|
$
|
(3
|
)
|
|
2009
|
|
|
133
|
|
|
26
|
|
|
(3
|
)
|
|
2010
|
|
|
134
|
|
|
2
7
|
|
|
(3
|
)
|
|
2011
|
|
|
135
|
|
|
28
|
|
|
(3
|
)
|
|
2012
|
|
|
136
|
|
|
28
|
|
|
(3
|
)
|
|
2013–2017
|
|
|
691
|
|
|
144
|
|
|
(20
|
)
|
|
a
Primarily consists of Qualified Defined Benefit Plan payments, which are
made from the plan trust and do not represent an immediate cash outflow to
the Company.
|
|
Defined
Contribution Plans
BNSF sponsors qualified 401(k) plans
that cover substantially all employees and a non-qualified defined contribution
plan that covers certain officers and other employees. BNSF matches 50 percent
of the first six percent of non-union employees’ contributions and matches 25
percent on the first four percent of a limited number of union employees’
contributions, which are subject to certain percentage limits of the employees’
earnings, at each pay period. Non-union employees are eligible to receive an
annual discretionary matching contribution of up to 30 percent of the first six
percent of their contributions. Employer contributions for all non-union
employees are subject to a five-year length of service vesting schedule. BNSF’s
401(k) matching expense was $21 million, $28 million and $20 million
in 2007, 2006 and 2005, respectively.
Other
Under collective bargaining agreements,
BNSF participates in multi-employer benefit plans that provide certain
post-retirement health care and life insurance benefits for eligible union
employees. Insurance premiums paid attributable to retirees, which are generally
expensed as incurred, were $46 million, $44 million and $43 million,
in 2007, 2006 and 2005, respectively (see Note 11 to the Consolidated Financial
Statements for other deferred benefits payable to certain conductors, trainmen
and locomotive engineers).
14. Stock-Based
Compensation
On April 15, 1999, BNSF shareholders
approved the Burlington Northern Santa Fe 1999 Stock Incentive Plan and
authorized 20 million shares of BNSF common stock to be issued in
connection with stock options, restricted stock, restricted stock units and
performance stock. On April 18, 2001, April 17, 2002, April 21, 2004 and April
19, 2006, BNSF shareholders approved the amendments to the Burlington Northern
Santa Fe 1999 Stock Incentive Plan, which authorized additional awards of
9 million, 6 million, 7 million and 11 million shares,
respectively, of BNSF common stock to be issued in connection with stock
options, restricted stock, restricted stock units and performance stock.
Approximately
10
million common shares were
available for future grant at December 31, 2007.
Additionally, on April 18, 1996, BNSF
shareholders approved the non-employee directors’ stock plan and authorized
900,000 shares of BNSF common stock to be issued in connection with this plan.
Approximately
4
5
0,000
common shares were available for future
grant at December 31, 2007.
Stock
Options
Under BNSF’s stock plans, options may be
granted to directors, officers and salaried employees at the fair market value
of the Company’s common stock on the date of grant. Stock option grants
generally vest ratably over three years and expire within ten years after the
date of grant. Shares issued upon exercise of options may be issued from
treasury shares or from authorized but unissued shares.
The fair value of each option award is
estimated on the date of grant using the Black-Scholes option-pricing model. The
following assumptions apply to the options granted for the periods
presented:
|
Year ended December
31,
|
|
2007
|
|
2006
|
|
2005
|
|
|
Weighted average expected life
(years)
|
|
|
4.6
|
|
|
4.5
|
|
|
4.5
|
|
|
Weighted average expected
volatility
|
|
|
24.0
|
%
|
|
24.0
|
%
|
|
24.0
|
%
|
|
Weighted average dividend per
share
|
|
$
|
1.02
|
|
$
|
0.81
|
|
$
|
0.69
|
|
|
Weighted average risk free
interest rate
|
|
|
4.31
|
%
|
|
4.76
|
%
|
|
3.75
|
%
|
|
Weighted average fair value of
options granted per share
|
|
$
|
21.91
|
|
$
|
20.51
|
|
$
|
11.33
|
|
Expected volatilities are based on
historical volatility of the Company’s stock, implied volatilities from traded
options on the Company’s stock and other factors. The Company uses historical
experience with exercise and post-vesting employment termination behavior to
determine the options’ expected life. The expected life represents the period of
time that options granted are expected to be outstanding. The risk-free rate is
based on the U.S. Treasury rate with a maturity date corresponding to the
options’ expected life.
A summary of the
status of stock options as of, and for the year ended December 31, 2007, is
presented below (options in thousands, aggregate intrinsic value in
millions):
|
Year ended December 31,
2007
|
|
Options
|
|
Weighted Average Exercise
Prices
|
|
Weighted Average Remaining
Contractual Term
(in years)
|
|
Aggregate Intrinsic
Value
|
|
Balance at beginning of
year
|
|
|
15,060
|
|
$
|
38.37
|
|
|
|
|
|
|
|
Granted
|
|
|
1,777
|
|
|
88.3
3
|
|
|
|
|
|
|
|
Exercised
|
|
|
(5,249
|
)
|
|
32.34
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(244
|
)
|
|
7
3
.
95
|
|
|
|
|
|
|
|
Balance at end of
year
|
|
|
11,344
|
|
$
|
48.22
|
|
|
5.32
|
|
$
|
407
|
|
Options exercisable at year
end
|
|
|
8,459
|
|
$
|
38.04
|
|
|
4.26
|
|
$
|
38
4
|
The total intrinsic
value of options exercised was $281 million, $222 million and
$232 million for the years ended December 31, 2007, 2006 and 2005,
respectively.
Other
Incentive Programs
BNSF has other
long-term incentive programs that utilize restricted shares/units. A summary of
the status of restricted shares/units and the weighted average grant date fair
values as of, and for the year ended December 31, 2007, is presented below
(shares in thousands):
|
Year ended
December 31,
2007
|
|
Time Based
|
|
|
Performance
Based
|
|
|
BNSF Incentive Bonus Stock
Program
|
|
|
BNSF Discounted Stock Purchase
Program
|
|
|
Total
|
|
Balance at
beginning of
year
|
|
|
1,267
|
|
|
$
|
48.40
|
|
|
|
765
|
|
|
$
|
53.50
|
|
|
|
861
|
|
|
$
|
46.19
|
|
|
|
64
|
|
|
$
|
49.79
|
|
|
|
2,957
|
|
|
$
|
49.10
|
|
Granted
|
|
|
59
|
|
|
|
86.38
|
|
|
|
560
|
|
|
|
88.80
|
|
|
|
–
|
|
|
|
–
|
|
|
|
7
|
|
|
|
79.28
|
|
|
|
62
6
|
|
|
|
88.4
7
|
|
Vested
|
|
|
(557
|
)
|
|
|
33.96
|
|
|
|
(235
|
)
|
|
|
32.72
|
|
|
|
(219
|
)
|
|
|
32.1
6
|
|
|
|
(20
|
)
|
|
|
34.62
|
|
|
|
(1,031
|
)
|
|
|
33.31
|
|
Cancelled
|
|
|
(51
|
)
|
|
|
60.73
|
|
|
|
(74
|
)
|
|
|
78.33
|
|
|
|
(3
|
)
|
|
|
50.83
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(128
|
)
|
|
|
70.64
|
|
Balance at end of
year
|
|
|
718
|
|
|
$
|
61.83
|
|
|
|
1,016
|
|
|
$
|
75.97
|
|
|
|
639
|
|
|
$
|
50.98
|
|
|
|
51
|
|
|
$
|
59.73
|
|
|
|
2,424
|
|
|
$
|
64.85
|
A summary of the
weighted average grant date fair market values of the restricted share/units as
of, and for the years ended December 31, 2006 and 2005, is presented
below:
|
Grant Date Fair Market Value of
Awards Granted
|
|
Time Based
|
|
Performance
Based
|
|
BNSF Incentive Bonus Stock
Program
|
|
BNSF Discounted Stock Purchase
Program
|
|
Year ended December 31,
2006
|
|
$
|
79.88
|
|
$
|
80.17
|
|
$
|
81.31
|
|
$
|
81.31
|
|
Year ended December 31,
2005
|
|
$
|
49.23
|
|
$
|
49.21
|
|
$
|
47.58
|
|
$
|
46.91
|
A summary of the
fair value of the restricted share/units vested during the years ended December
31, 2007, 2006 and 2005 is presented below:
|
Total Fair Value of Shares
Vested
(in
millions)
|
|
Time Based
|
|
Performance
Based
|
|
BNSF Incentive Bonus Stock
Program
|
|
BNSF Discounted Stock Purchase
Program
|
|
Total
|
|
Year ended December 31,
2007
|
|
$
|
49
|
|
$
|
21
|
|
$
|
18
|
|
$
|
1
|
|
$
|
89
|
|
Year ended December 31,
2006
|
|
$
|
42
|
|
$
|
–
|
|
$
|
25
|
|
$
|
1
|
|
$
|
68
|
|
Year ended December 31,
2005
|
|
$
|
44
|
|
$
|
11
|
|
$
|
8
|
|
$
|
1
|
|
$
|
64
|
Time-based awards
are granted to senior managers within BNSF primarily as a retention tool and to
encourage ownership in the Company. They generally vest over three years,
although in some cases up to five years, and are contingent on continued
salaried employment.
Performance-based awards are granted to
senior managers within BNSF to encourage ownership in the Company and to align
management’s interest with those of its shareholders. Performance-based awards
generally vest over three years and are contingent on the achievement of certain
predetermined corporate performance goals (e.g., return on invested capital
(ROIC)) and continued salaried employment.
Additionally, related to the 2007, 2006
and 2005 performance-based grant, eligible employees may also earn performance
stock that will be granted in 2010, 2009 and 2008, respectively, contingent upon
achievement of higher ROIC goals and continued salaried employment. The Company
has committed to a maximum grant of
approximately 279,000,
235,000 and 316,000 shares,
respectively.
Certain employees were eligible to
exchange through the Burlington Northern Santa Fe Incentive Bonus Stock Program
the cash payment of their bonus for grants of restricted stock. In September
2005, the program was amended so that exchanges of cash bonus payments for
awards of restricted stock were no longer permitted after February
2006.
Certain other salaried employees may
participate in the BNSF Discounted Stock Purchase Program and use their bonus to
purchase BNSF common stock at a discount from the market price. These shares
immediately vest but are restricted for a three-year period.
Shares awarded under each of the plans
may not be sold or used as collateral and are generally not transferable by the
holder until the shares awarded become free of restrictions. Compensation cost,
net of tax, recorded under the BNSF Stock Incentive Plans is shown in the
following table (in millions):
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Compensation
cost
|
|
$
|
66
|
|
|
$
|
72
|
|
|
$
|
37
|
|
|
Income tax
benefit
|
|
|
(23
|
)
|
|
|
(25
|
)
|
|
|
(14
|
)
|
|
Total
|
|
$
|
43
|
|
|
$
|
47
|
|
|
$
|
23
|
|
|
Compensation cost
capitalized
|
|
$
|
7
|
|
|
$
|
6
|
|
|
$
|
3
|
|
At December 31, 2007, there was $105
million of total unrecognized compensation cost related to unvested share-based
compensation arrangements. That cost is expected to be recognized over a
weighted-average period of 1.19 years.
15. Common Stock and Preferred Capital
Stock
Common
Stock
BNSF is authorized to issue
600 million shares of common stock, $0.01 par value. At December 31, 2007,
there were
348
million shares of common stock
outstanding. Each holder of common stock is entitled to one vote per share in
the election of directors and on all matters submitted to a vote of
shareholders. Subject to the rights and preferences of any future issuances of
preferred stock, each share of common stock is entitled to receive dividends as
may be declared by the Board out of funds legally available and to share ratably
in all assets available for distribution to shareholders upon dissolution or
liquidation. No holder of common stock has any preemptive right to subscribe for
any securities of BNSF.
Preferred
Capital Stock
At December 31, 2007, BNSF had
50 million shares of Class A Preferred Stock, $0.01 par value and
25 million shares of Preferred Stock, $0.01 par value available for
issuance. The Board has the authority to issue such stock in one or more series,
to fix the number of shares and to fix the designations and the powers, rights
and qualifications and restrictions of each series. As of December 31, 2007, no
Class A Preferred Stock had been issued.
Share
Repurchase Program
In February 2007, the Board authorized
the extension of the current BNSF share repurchase program, adding
30 million shares to the total of 180 million shares previously
authorized in equal amounts in July 1997, December 1999, April 2000, September
2000, January 2003 and December 2005. During 2007, 2006 and 2005, the Company
repurchased
approximately
1
5
million, 18 million and
14 million, respectively, of its common stock at average prices of $83.96
per share, $73.43 per share and $54.95 per share, respectively. Total
repurchases through December 31, 2007, were 180 million shares at a total
average cost of $38.20 per share, leaving 30 million shares available for
repurchase out of the 210 million shares presently authorized.
Additionally, during 2007, the Company repurchased shares from employees at a
cost of $43 million to satisfy tax withholding obligations on the vesting
of restricted stock or
the
exercise of stock options.
In December 2005, the Company entered
into prepaid forward transactions to purchase $600 million of the Company’s
common stock whereby a net settlement in shares would occur upon settlement of
the transactions. In late February 2006, these transactions were settled, and
approximately 8 million shares were delivered. While the transactions had
no impact on the shares outstanding at the end of 2005, outstanding shares used
in the calculation of 2006 earnings per share were reduced by approximately
8 million shares when the transactions were settled. The Company accounted
for the transactions in accordance with Emerging Issues Task Force (EITF) 00-19,
Accounting for
Derivative Financial Instruments Indexed to, and Potentially Settled in, a
Company’s Own Stock,
which
required that the $600 million prepayment be recorded as a reduction in
equity in 2005. When the final settlement was made in 2006, this reduction in
equity was reclassified from prepaid forward repurchase of treasury stock to
treasury stock.
16. Quarterly Financial
Data—Unaudited
|
Dollars in millions, except per
share data
|
|
|
Fourth
|
|
Third
|
|
Second
|
|
First
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
$
|
4,245
|
|
$
|
4,069
|
|
$
|
3,843
|
|
$
|
3,645
|
|
Operating
income
|
|
|
$
|
950
|
|
$
|
1,001
|
|
$
|
841
|
|
$
|
694
|
|
Net income
|
|
|
$
|
517
|
|
$
|
530
|
|
$
|
433
|
|
$
|
349
|
|
Basic earnings per
share
|
|
|
$
|
1.48
|
|
$
|
1.51
|
|
$
|
1.22
|
|
$
|
0.98
|
|
Diluted earnings per
share
|
|
|
$
|
1.46
|
|
$
|
1.48
|
|
$
|
1.20
|
|
$
|
0.96
|
|
Dividends declared per
share
|
|
|
$
|
0.32
|
|
$
|
0.32
|
|
$
|
0.25
|
|
$
|
0.25
|
|
Common stock price
a
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
$
|
88.03
|
|
$
|
93.04
|
|
$
|
9
4
.
43
|
|
$
|
85.05
|
|
Low
|
|
|
$
|
81.54
|
|
$
|
76.64
|
|
$
|
80.41
|
|
$
|
72.45
|
|
2006
b
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
$
|
3,882
|
|
$
|
3,939
|
|
$
|
3,701
|
|
$
|
3,463
|
|
Operating
income
|
|
|
$
|
943
|
|
$
|
921
|
|
$
|
864
|
|
$
|
793
|
|
Net income
|
|
|
$
|
519
|
|
$
|
489
|
|
$
|
471
|
|
$
|
410
|
|
Basic earnings per
share
|
|
|
$
|
1.45
|
|
$
|
1.36
|
|
$
|
1.30
|
|
$
|
1.12
|
|
Diluted earnings per
share
|
|
|
$
|
1.42
|
|
$
|
1.33
|
|
$
|
1.27
|
|
$
|
1.09
|
|
Dividends declared per
share
|
|
|
$
|
0.25
|
|
$
|
0.25
|
|
$
|
0.20
|
|
$
|
0.20
|
|
Common stock price
a
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
$
|
80.35
|
|
$
|
79.20
|
|
$
|
86.62
|
|
$
|
83.38
|
|
Low
|
|
|
$
|
72.77
|
|
$
|
64.82
|
|
$
|
71.96
|
|
$
|
68.32
|
|
a
Average
of high and low reported daily stock price
b
Prior
year numbers have been adjusted for the retrospective adoption of FSP AUG
AIR-1,
Accounting
for Planned Major Maintenance Activities.
See Note 2 to the Consolidated Financial Statements for additional
information.
|
Ite
m 9. Changes in and
Disagreements With Accountants on Accounting and Financial
Disclosure
None.
Ite
m 9A. Controls and
Procedures
Disclosure
Controls and Procedures
Based on their evaluation as of the end
of the period covered by this annual report on Form 10-K, the
Company's principal executive officer
and principal financial officer
have concluded that BNSF’s disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the
Securities Exchange Act of 1934) are effective to ensure that information
required to be disclosed by BNSF in the reports that it files or submits under
the Securities Exchange Act of 1934 is recorded, processed, summarized and
reported within the time periods specified in Securities and Exchange Commission
rules and forms and that such information is accumulated and communicated to
BNSF’s management, including its principal executive and principal financial
officers, as appropriate to allow timely decisions regarding required
disclosure.
Internal
Control Over Financial Reporting
The report of management on the
Company’s internal control over financial reporting (as defined in Rules
13a-15(f) and 15(d)-15(f) of the Securities Exchange Act of 1934) is
included in “Management’s Report on Internal Control Over Financial Reporting”
in Item 8.
PricewaterhouseCoopers LLP, the
independent registered public accounting firm that audited the Company’s
financial statements contained herein, has issued an attestation report on the
effectiveness of the Company’s internal control over financial reporting as of
December 31, 2007. The attestation report is included in Item
8.
Changes in
Internal Control
O
ver
Financial Reporting
As of the end of the period covered by
this report, the Company has concluded that there have been no changes in BNSF’s
internal control over financial reporting that occurred during BNSF’s fourth
fiscal quarter that have materially affected, or are reasonably likely to
materially affect, BNSF’s internal control over financial
reporting.
Ite
m 9B. Other
Information
None.
Ite
m 10. Directors,
Executive Officers and Corporate Governance
Information concerning the directors of
BNSF will be provided under the heading “Item 1: Election of Directors; Nominees
for Director” in BNSF’s proxy statement for its 2008 annual meeting of
shareholders, which will be filed with the Securities and Exchange Commission no
later than 120 days after the end of the fiscal year, and the information under
that heading is hereby incorporated by reference.
Information concerning the executive
officers of BNSF is included in Part 1 of this Report on Form
10-K.
Information concerning compliance with
Section 16(a) of the Securities Exchange Act of 1934 will be provided under the
heading “Communications and Other Matters; Section 16(a) Beneficial Ownership
Reporting Compliance” in BNSF’s proxy statement for its 2008 annual meeting of
shareholders, which will be filed with the Securities and Exchange Commission no
later than 120 days after the end of the fiscal year, and the information under
that heading is hereby incorporated by reference.
Information concerning the Directors and
Governance Committee’s policy with regard to consideration of any director
candidates recommended by shareholders will be provided under the heading
“Communications and Other Matters; Procedures for Recommending Director
Candidates” in BNSF’s proxy statement for its 2008 annual meeting of
shareholders, which will be filed with the Securities and Exchange Commission no
later than 120 days after the end of the fiscal year, and the information under
that heading is hereby incorporated by reference.
Information concerning the Audit
Committee and the Audit Committee Financial Expert will be provided under the
heading “Governance of the Company; Board Committees; Audit Committee” in BNSF’s
proxy statement for its 2008 annual meeting of shareholders, which will be filed
with the Securities and Exchange Commission no later than 120 days after the end
of the fiscal year, and the information under
that heading is hereby incorporated by
reference into the Form 10-K.
The Company has a Code of Conduct that
applies to members of the Board of Directors, officers, and all salaried
employees of BNSF and its subsidiaries. Only the Board of Directors may waive
the application of the Code of Conduct to a director, executive officer, or the
principal accounting officer or controller, and any such waiver will be promptly
disclosed on the Company’s website. A copy of the Code of Conduct is
available on the Company’s website at
www.bnsf.com
under the “Investors” link and then
“Corporate Governance.”
Ite
m 11. Executive
Compensation
Information concerning the compensation
of directors and executive officers of BNSF will be provided under the headings
“Directors’ Compensation,” “Compensation Discussion and Analysis” and “Executive
Compensation” in BNSF’s proxy statement for its 2008 annual meeting of
shareholders, which will be filed with the Securities and Exchange Commission no
later than 120 days after the end of the fiscal year, and the information under
those headings is hereby incorporated by reference.
Ite
m 12. Security
Ownership of Certain Beneficial Owners
and Management and Related Stockholder
Matters
Certain information about BNSF’s equity
compensation plans is set forth in the table below (number of shares in
thousands) as of December 31, 2007:
|
Plan
Category
|
|
Number of Shares to Be Issued upon
Exercise of Outstanding Options, Warrants and
Rights
|
|
Weighted Average Exercise Price of
Outstanding Options, Warrants and Rights
|
|
Number of Shares Available for
Future
Issuance
|
|
Equity compensation plans approved
by shareholders
|
|
|
11,344
|
|
$
|
48.22
|
|
|
10,190
|
|
Equity compensation plans not
approved by shareholders
|
|
|
–
|
|
|
–
|
|
|
–
|
|
Total
|
|
|
11,344
|
|
$
|
48.22
|
|
|
10,190
|
Information concerning the ownership of
BNSF equity securities by certain beneficial owners and by management will be
provided under the headings “Stock Ownership in the Company; Certain Beneficial
Owners” and “Stock Ownership in the Company; Ownership of Management” in BNSF’s
proxy statement for its 2008 annual meeting of shareholders, which will be filed
with the Securities and Exchange Commission no later than 120 days after the end
of the fiscal year, and the information under that heading is hereby
incorporated by reference.
Ite
m 13. Certain
Relationships and Related Transactions, and Director
Independence
Information concerning certain
relationships and related transactions will be provided under the headings
“Governance of the Company; Director Independence” and “Governance of the
Company; Certain Relationships and Related Person Transactions” in BNSF’s proxy
statement for its 2008 annual meeting of shareholders, which will be filed with
the Securities and Exchange Commission no later than 120 days after the end of
the fiscal year, and the information under that heading is hereby incorporated
by reference.
Item
14. Principal
Accountant Fees and Services
Information concerning principal
accounting fees and services will be provided under the heading “Item 2:
Appointment of Independent Auditor; Independent Auditor Fees” in BNSF’s proxy
statement for its 2008 annual meeting of shareholders, which will be filed with
the Securities and Exchange Commission no later than 120 days after the end of
the fiscal year, and the information under that heading is hereby incorporated
by reference.
Part IV
Ite
m 15. Exhibits and
Financial Statement Schedules
|
|
(a)
The following documents are filed as part of this
report:
|
|
|
1.
Consolidated Financial Statements—see Item
8.
|
Schedules
are omitted because they are not required or applicable, or the required
information is included in the
Consolidated Financial Statements or related notes.
See Index to Exhibits beginning on page E-1 for a description of the exhibits
filed as a part of this Report on Form 10-K.
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, Burlington Northern Santa Fe Corporation has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
|
|
Burlington Northern Santa Fe
Corporation
|
|
|
By:
|
/s/
Matthew
K. Rose
|
|
|
Dated:
February
14, 2008
|
|
Matthew
K. Rose
|
|
|
|
|
Chairman,
President and Chief
|
|
|
|
|
Executive
Officer
|
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of Burlington Northern Santa Fe
Corporation and in the capacities and on the date indicated.
|
Signature
|
|
Title
|
|
/s/
Matthew K. Rose
|
|
Chairman,
President and Chief Executive Officer
|
|
Matthew
K. Rose
|
|
(Principal
Executive Officer), and Director
|
|
/s/
Thomas N. Hund
|
|
Executive
Vice President and Chief Financial Officer
|
|
Thomas
N. Hund
|
|
(Principal
Financial Officer)
|
|
/s/
Paul W. Bischler
|
|
Vice
President and Controller
|
|
Paul
W. Bischler
|
|
(Principal
Accounting Officer)
|
|
/s/
Alan L. Boeckmann*
|
|
Director
|
|
Alan
L. Boeckmann
|
|
|
|
/s/
Donald G. Cook*
|
|
Director
|
|
Donald
G. Cook
|
|
|
|
/s/
Vilma S. Martinez*
|
|
Director
|
|
Vilma
S. Martinez
|
|
|
|
/s/
Marc F. Racicot*
|
|
Director
|
|
Marc
F. Racicot
|
|
|
|
/s/
Roy S. Roberts*
|
|
Director
|
|
Roy
S. Roberts
|
|
|
|
/s/
Marc J. Shapiro*
|
|
Director
|
|
Marc
J. Shapiro
|
|
|
|
/s/
J.C. Watts, Jr.*
|
|
Director
|
|
J.C.
Watts, Jr.
|
|
|
|
Signature
|
|
Title
|
|
/s/
J. Steven Whisler*
|
|
Director
|
|
J.
Steven Whisler
|
|
|
|
/s/
Edward E. Whitacre, Jr.*
|
|
Director
|
|
Edward
E. Whitacre, Jr.
|
|
|
|
|
|
|
|
|
*By:
|
/s/
Roger Nober
|
|
|
Dated:
February
14, 2008
|
|
Roger
Nober
|
|
|
|
|
Executive
Vice President Law and Secretary
|
|
Burlington Northern Santa Fe Corporation
and Subsidiaries
|
Exhibit Number and
Description
|
|
Incorporated by
Reference
(if
applicable)
|
|
|
Form
|
|
File Date
|
|
File No.
|
|
Exhibit
|
|
(3)
|
Articles of Incorporation and
Bylaws
|
|
|
|
|
|
|
|
|
|
|
3.1
Amended and Restated
Certificate of Incorporation of
Burlington
Northern Santa Fe Corproation, dated
December 21, 1994, as
amended.
|
|
10-Q
|
|
8/13/1998
|
|
1-11535
|
|
3.1
|
|
|
3.2
By-Laws
of Burlington Northern Santa Fe Corporation,
as amended and
restated, dated December 6, 2007.**
|
|
|
|
|
|
|
|
|
|
(4)
Instruments defining the rights of
security holders, including indentures
|
|
|
|
|
|
|
|
|
|
|
4.1
Indenture,
dated as of December 1, 1995, between BNSF
and The First
National Bank of Chicago, as
Trustee.
|
|
S-3
|
|
2/8/1999
|
|
333-72013
|
|
4
|
|
|
4.2
Form of BNSF’s 6 1/8% Notes
Due March 15, 2009.
|
|
10-K
|
|
3/31/1999
|
|
1-11535
|
|
4.2
|
|
|
4.3
Form of BNSF’s 6 3/4%
Debentures Due March 15, 2029.
|
|
10-K
|
|
3/31/1999
|
|
1-11535
|
|
4.3
|
|
|
4.4
Form of BNSF’s 6.70% Debentures
Due
August 1,
2028.
|
|
10-K
|
|
3/31/1999
|
|
1-11535
|
|
4.4
|
|
|
4.5
Form of BNSF’s 8.125%
Debentures Due April 15, 2020.
|
|
10-K
|
|
2/12/2001
|
|
1-11535
|
|
4.5
|
|
|
4.6
Form
of BNSF’s 7.95% Debentures Due
August 15,
2030.
|
|
10-K
|
|
2/12/2001
|
|
1-11535
|
|
4.6
|
|
|
4.7
Form of BNSF’s 6.75%
Notes Due July 15, 2011.
|
|
10-Q
|
|
8/3/2001
|
|
1-11535
|
|
4.1
|
|
|
4.8
Form of BNSF’s 5.90% Notes
Due July 1, 2012.
|
|
10-Q
|
|
8/9/2002
|
|
1-11535
|
|
4.1
|
|
|
4.9
Officers’
Certificate of Determination as to the terms of
BNSF’s 4.875%
Notes Due January 15, 2015, including
Exhibit A thereto, the form of
the Notes.
|
|
8-K
|
|
12/9/2004
|
|
1-11535
|
|
4.1
|
|
|
4.10
Indenture, dated as of
December 8, 2005, between BNSF
and U.S. Bank
Trust National Association, as Trustee.
|
|
S-3 ASR
|
|
12/8/2005
|
|
333-130214
|
|
4.1
|
|
|
4.11
Certificate of Trust of BNSF
Funding Trust I, executed
and filed by U.S.
Bank Trust National Association,
Linda Hurt and James
Gallegos,
as
Trustees.
|
|
S-3 ASR
|
|
12/8/2005
|
|
333-130214
|
|
4.3
|
|
|
4.12
Amended and Restated
Declaration of Trust
of BNSF Funding Trust I,
dated as of
December 15,
2005.
|
|
8-K
|
|
12/15/2005
|
|
1-11535
|
|
4.4
|
|
|
4.13
Guarantee Agreement between
BNSF and U.S. Bank
Trust National
Association, as Guarantee Trustee, dated
as of December 15,
2005.
|
|
8-K
|
|
12/15/2005
|
|
1-11535
|
|
4.5
|
|
|
4.14
First Supplemental
Indenture, dated as of
December 15, 2005, between
BNSF and U.S. Bank Trust National Association, as
Trustee.
|
|
8-K
|
|
12/15/2005
|
|
1-11535
|
|
4.6
|
|
|
|
Incorporated
by Reference
(if
applicable)
|
|
Exhibit Number and
Description
|
|
Form
|
|
File Date
|
|
File No.
|
|
Exhibit
|
|
|
4.15
Agreement as to Expenses and
Liabilities dated as of December 15,
2005,
between BNSF and BNSF Funding
Trust I.
|
|
8-K
|
|
12/15/2005
|
|
1-11535
|
|
4.4
(Exhibit C)
|
|
|
4.16
Form of BNSF Funding Trust
I’s 6.613% Trust Preferred Securities.
|
|
8-K
|
|
12/15/2005
|
|
1-11535
|
|
4.4
(Exhibit D)
|
|
|
4.17
Officer’s Certificate of
Determination as to the terms of BNSF’s 6.20%
Debentures Due August 15, 2036, including the form of the
Debentures.
|
|
10-Q
|
|
10/24/2006
|
|
1-11535
|
|
4.1
|
|
|
4.18
First Supplemental
Indenture, dated as of April 13, 2007, to Indenture
dated as of December 1, 1995, between Burlington Northern Santa Fe
Corporation and Bank of New York Trust Company, N.A., as
Trustee.
|
|
8-K
|
|
4/13/2007
|
|
1-11535
|
|
4.1
|
|
|
4.19
Officer’s Certificate of
Determination as to the terms of BNSF’s 5.65%
Debentures due May 1, 2017 and 6.15% Debentures Due May 1, 2037,
including the forms of the Debentures.
|
|
8-K
|
|
4/13/2007
|
|
1-11535
|
|
4.2
|
|
|
Certain instruments evidencing
long-term indebtedness of BNSF are not being filed as exhibits to this
Report because the total amount of securities authorized under any single
such instrument does not exceed 10% of BNSF’s total assets. BNSF will
furnish copies of any material instruments upon request of the Securities
and Exchange Commission.
|
|
(10)
|
Material
Contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.2
Form of Burlington Northern Santa
Fe Non-Employee Directors’
Stock Plan
Director’s Restricted Stock Unit Award Agreement.*
|
|
8-K
|
|
5/23/2005
|
|
1-11535
|
|
10.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.4
Burlington Northern Santa Fe
Corporation Deferred Compensation
Plan, as amended
and restated effective December 9,
2004.*
|
|
10-K
|
|
2/16/2007
|
|
1-11535
|
|
10.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.6
Burlington Northern Santa Fe
Incentive Bonus Stock Program
, as
amended and restated effective September 14, 2005.*
|
|
8-K
|
|
9/19/2005
|
|
1-11535
|
|
10.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.8
Burlington Northern Santa Fe
Supplemental Retirement Plan,
effective
October 1, 1996, as amended
through July 21, 2005.*
|
|
8-K
|
|
7/27/2005
|
|
1-11535
|
|
10.1
|
|
|
10.9
Retirement Benefit Agreement
between BNSF and Matthew K. Rose,
as
amended and restated September 21,
2006.*
|
|
10-Q
|
|
10/24/2006
|
|
1-11535
|
|
10.5
|
|
|
10.10
Retirement Benefit Agreement,
dated January 16, 2003, between BNSF
and John P. Lanigan.*
|
|
10-K
|
|
2/13/2004
|
|
1-11535
|
|
10.29
|
|
|
|
Incorporated
by Reference
(if
applicable)
|
|
Exhibit
Number and Description
|
|
Form
|
|
File
Date
|
|
File
No.
|
|
Exhibit
|
|
|
10.11
Burlington Northern Santa Fe
Estate Enhancement Program, as
amended
and restated, effective November 1, 1996.*
|
|
10-K 405
|
|
3/31/1997
|
|
1-11535
|
|
10.15
|
|
|
10.11.1Amendment of Burlington
Northern Santa Fe Estate Enhancement
Program,
dated December 3, 1998.*
|
|
10-Q
|
|
8/11/1999
|
|
1-11535
|
|
10.2
|
|
|
10.11.2Termination of Burlington
Northern Santa Fe
Estate Enhancement
Program,
dated
September 17, 2003.*
|
|
10-K
|
|
2/16/2007
|
|
1-11535
|
|
10.12.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.13
Burlington Northern Santa Fe
Corporation Supplemental Investment
and
Retirement Plan, as amended September 12, 2006.*
|
|
10-Q
|
|
10/24/2006
|
|
1-11535
|
|
10.6
|
|
|
10.14
Burlington Northern Inc.
Director’s Charitable Award Program.*
|
|
10-K
|
|
4/1/1996
|
|
1-11535
|
|
10.22
|
|
|
10.15
Burlington Northern Santa Fe
Salary Exchange Option Program, as
amended
and restated October 1, 2004.*
|
|
10-K
|
|
2/15/2005
|
|
1-11535
|
|
10.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.24
Burlington Northern Santa Fe
Directors' Retirement Plan*
|
|
10-K
|
|
4/1/1996
|
|
1-11535
|
|
10.27
|
|
|
10.24.1
Termination of Burlington Northern
Santa Fe Directors' Retirement
Plan, dated July 17, 2003.*
|
|
10-K
|
|
2/16/2007
|
|
1-11535
|
|
10.31.1
|
|
|
10.25
Form of Indemnification Agreement
dated as of September 17, 1998,
entered into between BNSF and directors.*
|
|
10-K
|
|
3/31/1999
|
|
1-11535
|
|
10.37
|
|
|
10.26
Form of Indemnification Agreement
dated as of September 17,
1998,
entered into between BNSF and certain officers, including
Messrs, Rose, Hund, Ice, Lanigan, Nober and Rickershauser.*
|
|
10-K
|
|
3/31/1999
|
|
1-11535
|
|
10.38
|
|
|
Incorporated
by Reference
(if
applicable)
|
|
Exhibit
Number and Description
|
Form
|
|
File
Date
|
|
File
No.
|
|
Exhibit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.28
Burlington Northern Santa Fe
Deferred Compensation Plan for
Directors,
as amended and restated December 9, 2004.*
|
|
10-K
|
|
2/16/2007
|
|
1-11535
|
|
10.35
|
|
|
10.29 Replacement Capital
Covenant, dated as of December 15, 2005, by
BNSF
in favor of and for the benefit of each Covered Debtholder
(as
defined therein).
|
|
10-K
|
|
2/17/2006
|
|
1-11535
|
|
10.41
|
|
(12)
|
Statements re: Computation of
Ratios
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(21)
|
Subsidiaries of the
registrant
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(23)
|
Consents of experts and
counsel
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(24)
|
Power of
Attorney
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(31)
|
Rule 13a-14(a)/15d-14(a)
Certifications
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(32)
|
Section 1350
Certifications
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(99)
|
Additional
Exhibits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
Management contract or
compensatory plan
|
E-4
Exhibit
3.2
As
Amended and Restated December 6, 2007
BY-LAWS
OF
BURLINGTON
NORTHERN SANTA FE CORPORATION
BY-LAWS
OF
BURLINGTON
NORTHERN SANTA FE CORPORATION
TABLE OF
CONTENTS
|
|
SECTION
1.
Registered Office and
Agent
1
|
|
|
SECTION
2.
Other
Offices
1
|
|
|
MEETINGS
OF
STOCKHOLDERS
1
|
|
|
SECTION
1. Annual
Meetings
1
|
|
|
SECTION
2. Special
Meetings
1
|
|
|
SECTION
3. Place of
Meetings
1
|
|
|
SECTION
4. Notice of
Meetings
2
|
|
|
SECTION
6.
Organization
2
|
|
|
SECTION
9. List of
Stockholders 3
|
|
|
SECTION
10. Business at Meetings of
Stockholders 4
|
|
|
SECTION
11. No Stockholder Action by
Consent 5
|
|
|
SECTION
1. Number, Qualification and Term of
Office 5
|
|
|
SECTION
3.
Resignations
6
|
|
|
SECTION
5. Place of Meetings; Books and
Records 6
|
|
|
SECTION
6. Annual Meeting of the
Board 6
|
|
|
SECTION
7. Regular
Meetings
7
|
|
|
SECTION
8. Special
Meetings
7
|
|
|
SECTION
9. Quorum and Manner of
Acting
7
|
|
|
SECTION
10. Chairman of the
Board
7
|
|
|
SECTION
11.
Organization
8
|
|
|
SECTION
12. Consent of Directors in Lieu of
Meeting
8
|
|
|
SECTION
13. Telephonic
Meetings
8
|
|
|
SECTION
14.
Compensation 8
|
|
|
COMMITTEES
OF THE BOARD OF
DIRECTORS 8
|
|
|
SECTION
1. Executive
Committee
8
|
|
|
SECTION
2. Audit
Committee 9
|
|
|
SECTION
3. Compensation and Development
Committee 9
|
|
|
SECTION
4. Directors and Corporate Governance
Committee
9
|
|
|
SECTION
5. Committee Chairman; Books and
Records 10
|
|
|
SECTION
7. Other Committees; Subcommittees;
Delegation
10
|
|
|
SECTION
8. Quorum and Manner of
Acting
10
|
|
|
SECTION
9. Election under Delaware General Corporation
Law
11
|
|
|
SECTION
2. Election, Term of Office and
Qualifications
11
|
|
|
SECTION
3.
Resignations 11
|
|
|
SECTION
6. Compensation of
Officers 12
|
|
|
SECTION
7. President and Chief Executive
Officer
12
|
|
|
SECTION
8. Vice President and Chief Financial
Officer
12
|
|
|
SECTION
9. Vice
President-Law
12
|
|
|
SECTION
12. Absence or Disability of
Officers 13
|
|
|
STOCK
AND TRANSFER
THEREOF
13
|
|
|
SECTION
1. Uncertificated Shares and Stock
Certificates
13
|
|
|
SECTION
2. Transfer of
Stock
14
|
|
|
SECTION
3. Transfer Agent and
Registrar
14
|
|
|
SECTION
4. Additional
Regulations 14
|
|
|
SECTION
5. Lost, Destroyed or Mutilated
Certificates
14
|
|
|
SECTION
6. Record
Date
14
|
|
|
DIVIDENDS,
SURPLUS,
ETC.
15
|
|
|
SECTION
1. Right to
Indemnification
15
|
|
|
SECTION
2. Right of Indemnitee to Bring
Suit 16
|
|
|
SECTION
3. Nonexclusivity of
Rights
17
|
|
|
SECTION
4. Insurance, Contracts and
Funding
17
|
|
|
SECTION
5. Definition of Director and
Officer 17
|
|
|
SECTION
6. Indemnification of Employees and Agents of the
Corporation 17
|
|
|
CHECKS,
DRAFTS, BANK ACCOUNTS,
ETC.
17
|
|
|
SECTION
1. Checks, Drafts, Etc.;
Loans
17
|
|
|
NOMINATIONS
OF DIRECTOR
CANDIDATES
18
|
|
|
SECTION
2. Nominations by Board of
Directors
18
|
|
|
SECTION
3. Nominations by
Stockholders
18
|
|
|
SECTION
4. Substitute
Nominees
19
|
|
|
SECTION
5. Void
Nominations
19
|
BY-LAWS
OF
BURLINGTON NORTHERN SANTA FE
CORPORATION
ARTICLE
I
.
OFFICES
SECTION
1
.
Registered Office
and Agent
.
The registered office of the corporation
is located at 1209 Orange Street in the City of Wilmington, County of New
Castle, State of Delaware 19801, and the name of its registered agent at such
address is The Corporation Trust Company.
SECTION
2
.
Other
Offices
.
The corporation may have offices at such
other places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the corporation may
require.
ARTICLE
II
.
MEETINGS OF
STOCKHOLDERS
SECTION
1
.
Annual
Meetings
.
A meeting of the stockholders for the
purpose of electing directors and for the transaction of such other business as
may properly be brought before the meeting shall be held annually at such time
on such day as shall be fixed by resolution of the Board of
Directors. If the day fixed for the annual meeting shall be a legal
holiday, such meeting shall be held on the next succeeding business
day.
SECTION
2
.
Special
Meetings
.
Special meetings of the stockholders for
any purpose or purposes may be called at any time by a majority of the Board of
Directors, by the Chairman of the Board, or by the President and shall be called
by the Secretary at the request of the holders of not less than fifty-one
percent of all issued and outstanding shares of the corporation entitled to vote
at the meeting.
SECTION
3
.
Place of
Meetings
.
The annual meeting of the stockholders
of the corporation shall be held at the general offices of the corporation in
the City of Fort Worth, State of Texas, or at such other place in the United
States as may be stated in the notice of the meeting. All other
meetings of the stockholders shall be held at such places within or without the
State of Delaware as shall be stated in the notice of the
meeting.
SECTION
4
.
Notice of
Meetings
.
Except as otherwise provided by law,
written notice of each meeting of the stockholders, whether annual or special,
shall be given not less than ten nor more than sixty days before the date of the
meeting to each stockholder entitled to vote at such meeting. If
mailed, notice shall be deemed given when deposited in the United States mails,
postage prepaid, directed to such stockholder at his address as it appears in
the stock ledger of the corporation. Each such notice shall state the
place, date and hour of the meeting, and, in the case of a special meeting, the
purpose or purposes for which the meeting is called.
When a meeting is adjourned to another
time and place, notice of the adjourned meeting need not be given if the time
and place thereof are announced at the meeting at which the adjournment is
given. If the adjournment is for more than thirty days, or if after
the adjournment a new record date is fixed for the adjourned meeting, a notice
of the adjourned meeting shall be given to each stockholder of record entitled
to vote at the meeting.
SECTION
5
.
Quorum
.
At any meeting of the stockholders the
holders of record of a majority of the total number of outstanding shares of
stock of the corporation entitled to vote at the meeting, present in person or
represented by proxy, shall constitute a quorum for all purposes, provided that
at any meeting at which the holders of any series or class of stock shall be
entitled, voting as a series or class, to elect Directors or to take any other
action, the holders of record of a majority of the total number of outstanding
shares of such series or class, present in person or represented by proxy, shall
constitute a quorum for the purpose of such election or
action.
In the absence of a quorum at any
meeting, the holders of a majority of the shares of stock entitled to vote at
the meeting, present in person or represented by proxy at the meeting, may
adjourn the meeting, from time to time, until the holders of the number of
shares requisite to constitute a quorum shall be present in person or
represented at the meeting. At any adjourned meeting at which a
quorum is present, any business may be transacted that might have been
transacted at the meeting as originally convened.
SECTION
6
.
Organization
.
At each meeting of the stockholders, the
Chairman of the Board, or if he or she so designates or is absent, the
President, shall act as Chairman of the meeting. In the absence of
both the Chairman of the Board and the President, such person as shall have been
designated by the Board of Directors, or in the absence of such designation a
person elected by the holders of a majority in number of shares of stock present
in person or represented by proxy and entitled to vote at the meeting, shall act
as Chairman of the meeting.
The Secretary or, in his or her absence,
an Assistant Secretary or, in the absence of the Secretary and all of the
Assistant Secretaries, any person appointed by the Chairman of the meeting shall
act as Secretary of the meeting.
SECTION
7
.
Voting
.
Unless otherwise provided in the
Certificate of Incorporation or a resolution of the Board of Directors creating
a series of stock, at each meeting of the stockholders, each holder of shares of
any series or class of stock entitled to vote at such meeting shall be entitled
to one vote for each share of stock having voting power in respect of each
matter upon which a vote is to be taken, standing in his or her name on the
stock ledger of the corporation on the record date fixed as provided in these
By-Laws for determining the stockholders entitled to vote at such meeting or, if
no record date be fixed, at the close of business on the day next preceding the
day on which notice of the meeting is given. Shares of its own
capital stock belonging to the corporation, or to another corporation if a
majority of the shares entitled to vote in the election of directors of such
other corporation is held by the corporation, shall neither be entitled to vote
nor counted for quorum purposes.
At all meetings of stockholders for
the election of Directors the voting shall be as contemplated in
Article III, Section 1. All other elections and questions
submitted to a vote of the stockholders shall, unless otherwise provided by law
or the Certificate of Incorporation, be decided by the affirmative vote of the
majority of votes cast (meaning the number of shares voted “for” the subject
matter must exceed the number of shares voted “against” it).
SECTION
8
.
Inspectors
.
Prior to each meeting of stockholders,
the corporation or the Board of Directors shall appoint two Inspectors who are
not directors, candidates for directors or officers of the corporation, who
shall receive and determine the validity of proxies and the qualifications of
voters, and receive, inspect, count and report to the meeting in writing the
votes cast on all matters submitted to a vote at such meeting. In
case of failure of the corporation or the Board of Directors to make such
appointments or in case of failure of any Inspector so appointed to act, the
Chairman of the Board shall make such appointment or fill such
vacancies.
Each Inspector, immediately before
entering upon his or her duties, shall subscribe to an oath or affirmation
faithfully to execute the duties of Inspector at such meeting with strict
impartiality and according to the best of his or her
ability.
SECTION
9
.
List of
Stockholders
.
The Secretary or other officer or agent
having charge of the stock ledger of the corporation shall prepare and make, at
least ten days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at said meeting, arranged in alphabetical order
and showing the address of each stockholder and the number of shares of each
class and series registered in the name of each such
stockholder. Such list shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours, for a period of at least ten days prior to the meeting, at the principal
place of business of the corporation. Such list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof and may be inspected by any stockholder who is present. The
stock ledger shall be the only evidence as to who are the stockholders entitled
to examine the stock ledger, the list required by this Section, or the books of
the corporation, or to vote in person or by proxy at any such
meeting.
SECTION
10
.
Business at Meetings
of Stockholders.
(a)
General.
The business to be conducted at any
meeting of stockholders of the corporation shall be limited to such business and
nominations as shall comply with the procedures set forth in this Article and
Article XII of these By-laws.
(b)
Notification
of Stockholder Business.
At any special meeting
of stockholders only such business shall be conducted as shall have been brought
before the meeting pursuant to the corporation’s notice of special
meeting. At an annual meeting of stockholders, only such business
shall be conducted as shall have been properly brought before the
meeting. To be properly brought before an annual meeting, business
must be either (i) specified in the notice of meeting (or any supplement
thereto) given by or at the direction of the Board of Directors, including
matters included pursuant to Rule 14a-8 of the Securities and Exchange
Commission, or (ii) otherwise (a) properly requested to be brought before the
meeting by a stockholder of record entitled to vote in the election of directors
generally, and (b) constitute a proper subject to be brought before the
meeting. In addition to any other applicable requirements, for
business (other than the election of directors) to be otherwise properly brought
before an annual meeting by a stockholder, the business must be a proper matter
for stockholder action and the stockholder must have given timely notice thereof
in writing to the Secretary of the corporation. To be timely, a
stockholder's notice must be addressed to and received at the principal
executive offices of the corporation, not more than 150 days and not less than
120 days prior to the first anniversary of the preceding year's annual meeting;
provided
,
however
, that in the event that the date of the
meeting is more than 30 days before or after such anniversary date, notice by
the stockholder to be timely must be so received not later than the close of
business on the 15th day following the day on which notice of the date of the
annual meeting was mailed or public disclosure was made, whichever first
occurs. A stockholder's notice to the Secretary shall set forth as to
each matter (other than the election of directors) the stockholder proposes to
bring before the annual meeting (i) a brief description of the business desired
to be brought before the annual meeting and the reasons for conducting such
business at the annual meeting, (ii) the name and record address of the
stockholder proposing such business and of each beneficial owner on behalf of
which the stockholder is acting, (iii) the class and number of shares of the
corporation which are beneficially owned by the stockholder and by any such
beneficial owner, (iv) a representation that the stockholder is a holder of
record of capital stock of the corporation entitled to vote at such meeting and
intends to appear in person or by proxy at the meeting to present such business,
(v) any material interest of the stockholder and of any such beneficial owner in
such business; and (vi) whether the proponent intends or is part of a group
which intends to solicit proxies from other stockholders in support of such
proposal
.
Notwithstanding anything in these
By-Laws to the contrary, no business shall be conducted at an annual meeting
except in accordance with the procedures set forth in this Section 10 of Article
II,
provided
,
however
, that nothing in this Section 10 of
Article II shall be deemed to preclude discussion by any stockholder of any
business properly brought before the annual meeting.
The Chairman of an annual or
special meeting shall have the power and duty to determine and shall, if the
facts warrant, determine and declare to the meeting that business was not
properly brought before the meeting in accordance with the provisions of this
Section 10 of Article II, and if he or she should so determine, he or she shall
so declare to the meeting and any such business not properly brought before the
meeting shall not be transacted.
SECTION
11
.
No Stockholder
Action by Consent
.
Any action by stockholders of the
corporation shall be taken at a meeting of stockholders and no action may be
taken by written consent of stockholders entitled to vote upon such
action.
ARTICLE
III
.
BOARD OF DIRECTORS
SECTION
1
.
Number,
Qualification and Term of Office
.
The
business, property and affairs of the corporation shall be managed by a Board
consisting of not less than three or more than twenty-one
Directors. The Board of Directors shall from time to time by a vote
of a majority of the Directors then in office fix within the maximum and minimum
limits the number of Directors to constitute the Board. At each
annual meeting of stockholders a Board of Directors shall be elected by the
stockholders for a term of one year.
Except as
provided in Section 2 of this Article, each Director shall be elected by the
vote of the majority of the votes cast with respect to the Director at any
meeting for the election of Directors at which a quorum is present, provided
that if the number of nominees exceeds the number of Directors to be elected,
the Directors shall be elected by the vote of a plurality of the votes cast
(instead
of by votes cast for or against a nominee)
in the election of
Directors. For purposes of this Section, a majority of the votes cast
means that the number of shares voted "for" a Director nominee must exceed the
number of
shares voted
“against”
that Director
nominee. If a director does not receive a majority of the votes cast,
the director shall offer to tender his or her resignation to the Board. The
Directors and Corporate Governance Committee shall consider the resignation
offer and recommend to the Board whether to accept or reject the resignation, or
whether other action should be taken. The independent Directors of
the Board will act on the recommendation of the Directors and Corporate
Governance Committee within 90 days following certification of the shareholder
vote. Thereafter, the Board will promptly disclose their decision
whether to accept or reject the Director’s resignation offer and the reasons for
such a decision. Within ten days from a Board determination on the
tendered resignation, the Company will make a filing with the Securities and
Exchange Commission announcing the decision and the reasons for the
decision. In making its decision, the Board may consider the
following range of actions: accept the resignation; refuse the resignation of
the Director but address the underlying causes of the withheld votes; or take
such other action as the Board deems to be in the best interests of the
Company. Any Director who tenders his or her resignation offer
pursuant to this provision shall not participate in the Directors and Corporate
Governance Committee recommendation or Board action regarding whether to accept
the resignation offer. If no members of the Directors and Corporate
Governance Committee have received a majority of the
votes cast in the election, then the independent
directors of the Board will consider this matter and act without
first
receiving a recommendation from that Committee.
Each Director shall serve until his or
her successor is elected and shall qualify.
SECTION
2
.
Vacancies
.
Vacancies in the Board of Directors and
newly created directorships resulting from any increase in the authorized number
of Directors may be filled by a majority of the Directors then in office,
although less than a quorum, or by a sole remaining Director, at any regular or
special meeting of the Board of Directors.
SECTION
3
.
Resignations
.
Any Director may resign at any time upon
written notice to the Secretary of the corporation. Such resignation
shall take effect on the date of receipt of such notice or at any later date
specified therein; and the acceptance of such resignation, unless required by
the terms
thereof
or
Section 1 of this Article
,
shall not be necessary to make it effective. When one or more
Directors shall resign effective at a future date, a majority of the Directors
then in office, including those who have resigned, shall have power to fill such
vacancy or vacancies to take effect when such resignation or resignations shall
become effective.
SECTION
4
.
Removals
.
Any Director may be removed, with or
without cause, at any special meeting of the stockholders called for that
purpose, by the affirmative vote of the holders of a majority in number of
shares of the corporation entitled to vote for the election of Directors, and
the vacancy in the Board caused by any such removal may be filled by the
stockholders at such a meeting.
SECTION
5
.
Place of Meetings;
Books and Records
.
The Board of Directors may hold its
meetings, and have an office or offices, at such place or places within or
without the State of Delaware as the Board from time to time may
determine.
The Board of Directors, subject to the
provisions of applicable law, may authorize the books and records of the
corporation, and offices or agencies for the issue, transfer and registration of
the capital stock of the corporation, to be kept at such place or places outside
of the State of Delaware as, from time to time, may be designated by the Board
of Directors.
SECTION
6
.
Annual Meeting of
the Board
.
The first meeting of each newly elected
Board of Directors, to be known as the Annual Meeting of the Board, for the
purpose of electing officers, designating committees and the transaction of such
other business as may come before the Board, shall be held as soon as
practicable after the adjournment of the annual meeting of stockholders, and no
notice of such meeting shall be necessary to the newly elected Directors in
order legally to constitute the meeting, provided a quorum shall be
present. In the event such meeting is not held due to the absence of
a quorum, the meeting may be held at such time and place as shall be specified
in a notice given as hereinafter provided for special meetings of the Board of
Directors or as shall be specified in a written waiver signed by all of the
newly elected Directors.
SECTION
7
.
Regular
Meetings
.
The Board of Directors shall, by
resolution, provide for regular meetings of the Board at such times and at such
places as it deems desirable. Notice of regular meetings need not be
given.
SECTION
8
.
Special
Meetings
.
Special meetings of the Board of
Directors may be called by the Chairman of the Board or the President and shall
be called by the Secretary on the written request of three Directors on such
notice as the person or persons calling the meeting shall deem appropriate in
the circumstances. Notice of each such special meeting shall be
mailed to each Director or delivered to each Director by telephone, telegraph or
any other means of electronic communication, in each case addressed to the
Director’s residence or usual place of business, or delivered in person or given
to the Director orally. The notice of meeting shall state the time
and place of the meeting but need not state the purpose
thereof. Attendance of a Director at any meeting shall constitute a
waiver of notice of such meeting except when a Director attends a meeting for
the express purpose of objecting to the transaction of any business because the
meeting was not lawfully called or convened.
SECTION
9
.
Quorum and Manner of
Acting
.
Except as otherwise provided by statute,
the Certificate of Incorporation or these By-Laws, the presence of a majority of
the total number of Directors shall constitute a quorum for the transaction of
business at any regular or special meeting of the Board of Directors, and the
act of a majority of the Directors present at any such meeting at which a quorum
is present shall be the act of the Board of Directors. In the absence
of a quorum, a majority of the Directors present may adjourn the meeting, from
time to time, until a quorum is present. Notice of any such adjourned
meeting need not be given.
SECTION 10.
Chairman of the
Board
.
A Chairman of the Board shall be elected
by the Board of Directors from among its members for a prescribed term and may
or may not be, at the discretion of the Board of Directors, an employee or an
officer of the corporation. If the Chairman is neither an employee
nor an officer of the corporation he or she may be designated
"non-executive." The Chairman of the Board shall perform such duties
as shall be prescribed by the Board of Directors and, when present, shall
preside at all meetings of the stockholders and the Board of
Directors. In the absence or disability of the Chairman of the Board,
the Board of Directors shall designate a member of the Board to serve as
Chairman of the Board and such designated Board Member shall have the powers and
perform the duties of the office; provided, however, that if the Chairman of the
Board shall so designate or shall be absent from a meeting of stockholders, the
President shall preside at such meeting of stockholders.
SECTION 11.
Organization
.
At every meeting of the Board of
Directors, the Chairman of the Board or, in his or her absence the President or,
if both of these individuals are absent, a Chairman chosen by a
majority of the Directors present shall act as Chairman of the
meeting. The Secretary or, in his or her absence, an Assistant
Secretary or, in the absence of the Secretary and all the Assistant Secretaries,
any person appointed by the Chairman of the meeting shall act as Secretary of
the meeting.
SECTION 12.
Consent of Directors
in Lieu of Meeting
.
Unless otherwise restricted by the
Certificate of Incorporation or by these By-Laws, any action required or
permitted to be taken at any meeting of the Board of Directors, or any committee
designated by the Board, may be taken without a meeting by a unanimous consent
of the Directors or committee members in writing or by electronic transmission,
and such written consent is filed with the minutes of the proceedings of the
Board or committee.
SECTION 13.
Telephonic
Meetings
.
Members of the Board of Directors, or
any committee designated by the Board, may participate in a meeting of the Board
or committee by means of conference telephone or other communications equipment
by means of which all persons participating in the meeting can hear each other,
and participation in such a meeting shall constitute presence in person at such
meeting.
SECTION 14.
Compensation
.
Each Director who is not a full-time
salaried officer of the corporation or any of its wholly owned subsidiaries,
when authorized by resolution of the Board of Directors, may receive Director
compensation in the form of a retainer and in addition may be paid a fixed fee
and reimbursed for his or her reasonable expenses for attendance at each regular
or special meeting of the Board or any Committee thereof.
ARTICLE
IV
.
COMMITTEES OF THE BOARD OF
DIRECTORS
SECTION
1
.
Executive
Committee
.
The Board of Directors may, in its
discretion, designate annually an Executive Committee consisting of not less
than three Directors as it may from time to time determine. The
Committee shall have and may exercise all the powers and authority of the Board
of Directors in the management of the business and affairs of the corporation
and may authorize the seal of the corporation to be affixed to all papers which
may require it, but the Committee shall have no power or authority in reference
to the following matters: (i) approving or adopting, or recommending to the
stockholders, any action or matter expressly required by the Delaware General
Corporation Law to be submitted to stockholders for approval, (ii) adopting,
amending or repealing any By-Law of the corporation or (iii) such other matters
as the Board may from time to time specify.
SECTION
2
.
Audit
Committee
.
The Board of Directors shall designate
annually an Audit Committee consisting of not less than three Directors as it
may from time to time determine. The Audit Committee shall provide assistance to
the Board in fulfilling its oversight responsibility with respect to the
integrity of the financial statements of the corporation, the performance of the
corporation’s internal audit function and the independent auditor, the
independent auditor’s qualifications and independence, the compliance by the
corporation with legal and regulatory requirements and such other matters as
prescribed by the Board from time to time. The Board shall adopt a
charter for the Audit Committee, and the Audit Committee shall review and assess
the adequacy of the charter on an annual basis. All members of the
Audit Committee shall meet the requirements of the charter and of the New York
Stock Exchange and any other relevant regulatory body, as interpreted by the
Board in its reasonable business judgment. The Board may elect or
appoint a Chairman of the Audit Committee who will have authority to act on
behalf of the committee between meetings. The Chairman may appoint a
temporary Chairman in his or her absence.
SECTION 3.
Compensation and
Development Committee
.
The Board of Directors shall designate
annually a Compensation and Development Committee, consisting of not less than
three Directors as it may from time to time determine. The
Compensation and Development Committee shall provide assistance to the Board in
discharging its responsibilities relating to the compensation and development of
the Chief Executive Officer and other executive officers as designated by the
Board, and with respect to equity-based plans, incentive compensation plans,
retirement plans, and employee benefit plans, and such other matters as are
prescribed by the Board from time to time. The Board shall adopt a
charter for the Compensation and Development Committee, and the Compensation and
Development Committee shall review and assess the adequacy of the charter on an
annual basis. All members of the Compensation and Development
Committee shall meet the requirements of the charter and of the New York Stock
Exchange and any other relevant regulatory body, as interpreted by the Board in
its reasonable business judgment. The Board may elect or appoint a
Chairman of the Compensation and Development Committee who will have authority
to act on behalf of the committee between meetings. The Chairman may
appoint a temporary Chairman in his or her absence.
SECTION 4.
Directors and
Corporate Governance Committee
.
The Board of Directors may, in its
discretion, designate annually a Directors and Corporate Governance Committee,
consisting of not less than three Directors as it may from time to time
determine. The Directors and Corporate Governance Committee shall
provide assistance to the Board in discharging its responsibility for ensuring
the effective governance of the corporation and such other matters as are
prescribed by the Board from time to time. The Board shall adopt a charter for
the Directors and Corporate Governance Committee, and the Directors and
Corporate Governance Committee shall review and assess the adequacy of the
charter on an annual basis. All members of the Directors and
Corporate Governance Committee shall meet the requirements of the charter and of
the New York Stock Exchange and any other relevant regulatory body, as
interpreted by the Board in its reasonable business judgment. The
Board may elect or appoint a Chairman of the Directors and Corporate Governance
Committee who will have authority to act on behalf of the committee between
meetings. The Chairman may appoint a temporary Chairman in his or her
absence.
SECTION 5.
Committee Chairman,
Books and Records
.
Unless designated by the Board of
Directors, each Committee shall elect a Chairman to serve for such term as it
may determine. Each committee shall fix its own rules of procedure
and shall meet at such times and places and upon such call or notice as shall be
provided by such rules. It shall keep a record of its acts and proceedings, and
all action of the Committee shall be reported to the Board of Directors at the
next meeting of the Board.
SECTION 6.
Alternates
.
Alternate members of the Committees
prescribed by this Article IV may be designated by the Board of Directors from
among the Directors to serve as occasion may require. Whenever a
quorum cannot be secured for any meeting of any such Committee from among the
regular members thereof and designated alternates, the member or members of such
Committee present at such meeting and not disqualified from voting, whether or
not that member or they constitute a quorum, may unanimously appoint another
member of the Board to act at the meeting in the place of any such absent or
disqualified member.
Alternate members of such Committees
shall receive a reimbursement for expenses and compensation at the same rate as
regular members of such Committees.
SECTION 7.
Other Committees;
Subcommittees; Delegation
.
The Board of Directors may designate
such other Committees, each to consist of one or more Directors, as it may from
time to time determine, and each such Committee shall serve for such term and
shall have and may exercise, during intervals between meetings of the Board of
Directors, such duties, functions and powers as the Board of Directors may from
time to time prescribe. Any Committee of the Board may create one or
more subcommittees of the Committee and delegate to the subcommittee any or all
of the powers and authority of the Committee. A subcommittee shall
consist of one or more members of the Committee.
SECTION 8.
Quorum and Manner of
Acting
.
At each meeting of any Committee the
presence of a majority of the members of such Committee, whether regular or
alternate, shall be necessary to constitute a quorum for the transaction of
business, and if a quorum is present the concurrence of a majority of those
present shall be necessary for the taking of any action; provided, however, that
no action may be taken by the Executive Committee when two or more officers of
the corporation are present as members at a meeting of such Committee unless
such action shall be concurred in by the vote of a majority of the
members of such Committee who are not officers of the
corporation.
SECTION 9.
Election under
Delaware General Corporation Law.
The corporation elects to be governed by
paragraph (2) of Section 141(c) of the Delaware General Corporation Law in
determining the authority of the Board of Directors to delegate powers to a
committee of the Board of Directors.
ARTICLE
V
.
OFFICERS
SECTION
1
.
Number
.
The officers of the corporation shall be
a President, a Vice President and Chief Financial Officer, a Vice President-Law,
a Secretary, and a Treasurer, each of which officers shall be elected by the
Board of Directors, and such other officers as the Board of Directors may
determine, in its discretion, to elect. Any number of offices may be
held by the same person. Any officer may hold such additional title
descriptions or qualifiers such as "Chief Executive Officer," "Chief Operating
Officer," "Senior Vice President," "Executive Vice President" or "Assistant
Secretary" or such other title as the Board of Directors shall
determine.
SECTION
2
.
Election, Term of
Office and Qualifications
.
The officers of the corporation shall be
elected annually by the Board of Directors. Each officer elected by
the Board of Directors shall hold office until the officer’s successor shall
have been duly elected and qualified, or until the officer shall have died,
resigned or been removed in the manner hereinafter provided.
SECTION
3
.
Resignations
.
Any officer may resign at any time upon
written notice to the Secretary of the corporation. Such resignation
shall take effect at the date of its receipt, or at any later date specified
therein; and the acceptance of such resignation, unless required by the terms
thereof, shall not be necessary to make it effective.
SECTION
4
.
Removals
.
Any officer elected or appointed by the
Board of Directors may be removed, with or without cause, by the Board of
Directors at a regular meeting or special meeting of the Board. Any
officer or agent appointed by any officer or committee may be removed, either
with or without cause, by such appointing officer or committee or by the Board
of Directors.
SECTION
5
.
Vacancies
.
Any vacancy occurring in any office of
the corporation may be filled for the unexpired portion of the term in the same
manner as prescribed in these By-Laws for regular election or appointment to
such office.
SECTION
6
.
Compensation of
Officers
.
The compensation of all officers elected
by the Board of Directors shall be approved or authorized by the Board of
Directors or by the President when so authorized by the Board of Directors or
these By-Laws, subject to the responsibilities reserved for the Compensation and
Development Committee pursuant to Article IV, Section 3 of these
By-Laws.
SECTION 7.
President and Chief
Executive Officer
.
The President shall be the chief
executive officer of the corporation and shall have, subject to the control of
the Board of Directors, the general executive responsibility for the management
and direction of the business and affairs of the corporation, and the general
supervision of its officers, employees and agents. He or she shall
have the power to appoint any and all officers, employees and agents of the
corporation not required by these By-Laws to be elected by the Board of
Directors or not otherwise elected by the Board of Directors in its
discretion. He or she shall have the power to accept the resignation
of or to discharge any and all officers, employees and agents of the corporation
not elected by the Board of Directors. He or she shall sign all
papers and documents to which his or her signature may be necessary or
appropriate and shall have such other powers and duties as shall devolve upon
the chief executive officer of a corporation, and such further powers and duties
as may be prescribed for the President by the Board of
Directors.
SECTION 8.
Vice President and
Chief Financial Officer.
The Vice President and Chief Financial
Officer shall have responsibility for development and administration of the
corporation's financial plans and all financial arrangements, its insurance
programs, its cash deposits and short-term investments, its accounting policies,
and its federal and state tax returns. Such officer shall also be
responsible for the corporation's internal control procedures and for its
relationship with the financial community.
SECTION 9.
Vice
President-Law
.
The Vice President-Law shall be the
chief legal advisor of the corporation and shall have charge of the management
of the legal affairs and litigation of the corporation.
SECTION 10.
Secretary
.
The Secretary shall record the
proceedings of the meetings of the stockholders and directors, in one or more
books kept for that purpose; see that all notices are duly given in accordance
with the provisions of the By-Laws or as required by law; have charge of the
corporate records and of the seal of the corporation; affix the seal of the
corporation or a facsimile thereof, or cause it to be affixed, to all
certificates for shares, to the extent such shares are certificated, prior to
the issue thereof and to all documents the execution of which on behalf of the
corporation under its seal is duly authorized by the Board of Directors or
otherwise in accordance with the provisions of the By-Laws; keep a register of
the post office address of each stockholder, director or member, sign with the
Chairman of the Board or President certificates for shares of stock of the
corporation, to the extent such shares are certificated, the issuance of which
shall have been duly authorized by resolution of the Board of Directors; have
general charge of the stock transfer books of the corporation; and, in general,
perform all duties incident to the office of Secretary and such other duties as
from time to time may be assigned by the Board of Directors, the Chairman of the
Board, the President or the Vice President-Law.
SECTION 11.
Treasurer
.
The Treasurer shall have the
responsibility for the custody and safekeeping of all funds of the corporation
and shall have charge of their collection, receipt and disbursement; shall
receive and have authority to sign receipts for all monies paid to the
corporation and shall deposit the same in the name and to the credit of the
corporation in such banks or depositories as the Board of Directors shall
approve; shall endorse for collection on behalf of the corporation all checks,
drafts, notes and other obligations payable to the corporation; shall sign or
countersign all notes, endorsements, guaranties and acceptances made on behalf
of the corporation when and as directed by the Board of Directors; shall give
bond for the faithful discharge of his or her duties in such sum and with such
surety or sureties as the Board of Directors may require; shall have the
responsibility for the custody and safekeeping of all securities of the
corporation; and in general shall have such other powers and perform such other
duties as are incident to the office of Treasurer and as from time to time may
be prescribed by the Board of Directors or delegated by the President or the
Vice President and Chief Financial Officer.
SECTION 12.
Absence or
Disability of Officers
.
In the absence or disability of the
Chairman of the Board or the President, the Board of Directors may designate, by
resolution, individuals to perform the duties of those absent or
disabled. The Board of Directors may also delegate this power to a
committee or to a senior corporate officer.
ARTICLE
VI
.
STOCK CERTIFICATES AND TRANSFER
THEREOF
SECTION 1.
Uncertificated
Shares and Stock Certificates
.
The Board of Directors by resolution may
determine that shares of some or all of any or all classes or series of stock of
the corporation shall be uncertificated and shall not be represented by
certificates, except to the extent as may be required by applicable law or as
otherwise may be authorized by the Secretary or an Assistant
Secretary. Notwithstanding the foregoing, shares of stock represented
by a certificate and issued and outstanding prior to the adoption of a Board of
Directors resolution pursuant to the preceding sentence shall remain represented
by a certificate until surrendered to the corporation. In the event
shares of stock are represented by a certificate, such certificates of stock of
each class and series shall be signed by either the Treasurer or an Assistant
Treasurer, or the Secretary or an Assistant Secretary of the corporation,
certifying the number of shares, and the class and series thereof, owned by such
holder in the corporation. Any and all of the signatures on the
certificate may be a facsimile. In case any officer, transfer agent
or registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the corporation with the
same effect as if he or she were such officer, transfer agent or registrar at
the date of issue.
SECTION 2.
Transfer of
Stock
.
Transfer of shares of the capital stock
of the corporation shall be made only on the books of the corporation by the
holder thereof, or by the holder’s attorney thereunto duly authorized, and, with
regard to certificated shares, on surrender of the certificate or certificates
for such shares. A person in whose name shares of stock stand on the
books of the corporation shall be deemed the owner thereof as regards the
corporation, and the corporation shall not, except as expressly required by
statute, be bound to recognize any equitable or other claim to, or interest in,
such shares on the part of any other person whether or not it shall have express
or other notice thereof.
SECTION 3.
Transfer Agent and
Registrar
.
The corporation shall at all times
maintain a transfer office or agency as required by applicable law. The
corporation may, in addition to the said offices, if and whenever the Board of
Directors shall so determine, maintain in such place or places as the Board
shall determine, one or more additional transfer offices or agencies, each in
charge of a transfer agent designated by the Board, where the shares of capital
stock of the corporation of any class or classes shall be transferable, and also
one or more registry offices, each in charge of a registrar designated by the
Board of Directors, where such shares of stock of any class or classes shall be
registered. Except as otherwise provided by resolution of the Board
of Directors in respect of temporary certificates, no certificates for shares of
capital stock of the corporation shall be valid unless countersigned by a
transfer agent and registered by a registrar authorized as
aforesaid
SECTION 4.
Additional
Regulations
.
The Board of Directors may make such
additional rules and regulations as it may deem expedient concerning the issue,
transfer and registration of shares of the capital stock of the
corporation.
SECTION 5.
Lost, Destroyed or
Mutilated Certificates
.
The Board of Directors may provide for
the issuance of new certificates, or may provide procedures for the issuance of
uncertificated shares, of stock to replace certificates of stock lost, stolen,
mutilated or destroyed or alleged to be lost, stolen, mutilated or destroyed
upon such terms and in accordance with such procedures as the Board of Directors
shall deem proper and prescribe.
SECTION 6.
Record
Date
.
In order that the corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix, in
advance, a record date, which shall not be more than sixty nor less than ten
days before the date of such meeting, nor more than sixty days prior to any
other action. A determination of stockholders of record entitled to
notice of or to vote at a meeting of stockholders shall apply to any adjournment
of the meeting; provided, however, that the Board of Directors may fix a new
record date for the adjourned meeting.
ARTICLE
VII
.
DIVIDENDS, SURPLUS,
ETC.
Except as otherwise provided by statute
or the Certificate of Incorporation, the Board of Directors may declare
dividends upon the shares of its capital stock either (1) out of its surplus, or
(2) in case there shall be no surplus, out of its net profits for the fiscal
year in which the dividend is declared and/or the preceding fiscal year,
whenever, and in such amounts as, in its opinion, the condition of the affairs
of the corporation shall render it advisable. Dividends may be paid
in cash, in property or in shares of the capital stock of the
corporation.
ARTICLE
VIII
.
SEAL
The corporate seal shall have the name
of the corporation inscribed thereon and shall be in such form as may be
approved from time to time by the Board of Directors. The seal may be
used by causing it or a facsimile thereof to be impressed or affixed or in any
other manner reproduced.
ARTICLE
IX
.
FISCAL YEAR
The fiscal year of the corporation shall
begin on the first day of January of each year.
ARTICLE
X
.
INDEMNIFICATION
SECTION
1
.
Right to
Indemnification
.
Each person who was or is made a party
or is threatened to be made a party to or is involved (including, without
limitation, as a witness) in any actual or threatened action, suit or
proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she is or was a
director or officer of the corporation or is or was serving at the request of
the corporation as a director, officer, employee or agent of another corporation
or of a partnership, joint venture, trust or other enterprise, including service
with respect to an employee benefit plan (hereinafter an "indemnitee"), whether
the basis of such proceeding is alleged action in an official capacity as a
director, officer, employee or agent or in any other capacity while serving as a
director, officer, employee or agent, shall be indemnified and held harmless by
the corporation to the full extent authorized by the Delaware General
Corporation Law, as the same exists or may hereafter be amended (but, in the
case of any such amendment, only to the extent that such amendment permits the
corporation to provide broader indemnification rights than said law permitted
the corporation to provide prior to such amendment), or by other applicable law
as then in effect, against all expense, liability and loss (including attorney's
fees, judgments, fines, ERISA excise taxes or penalties and amounts paid in
settlement) actually and reasonably incurred or suffered by such indemnitee in
connection therewith and such indemnification shall continue as to an indemnitee
who has ceased to be a director, officer, employee or agent and shall inure to
the benefit of the indemnitee's heirs, executors and administrators,
provided,
however,
that except as
provided in Section 2 of this Article with respect to proceedings seeking to
enforce rights to indemnification, the corporation shall indemnify any such
indemnitee seeking indemnification in connection with a proceeding (or part
thereof) initiated by such indemnitee only if such proceeding (or part thereof)
was authorized by the Board of Directors of the corporation. The
right to indemnification conferred in this Section shall be a contract right and
shall include the right to be paid by the corporation the expenses incurred in
defending any such proceeding in advance of its final disposition (hereinafter
an "advancement of expenses");
provided, however,
that, if the Delaware
General Corporation Law requires, an advancement of expenses incurred by an
indemnitee in his or her capacity as a director or officer (and not in any other
capacity in which service was or is rendered by such indemnitee while a director
or officer, including, without limitation, service to an employee benefit plan,
except as required by law) shall be made only upon delivery to the corporation
of an undertaking, by or on behalf of such indemnitee, to repay all amounts so
advanced if it shall ultimately be determined that such indemnitee is not
entitled to be indemnified under this Section 1, or
otherwise.
SECTION
2
.
Right of Indemnitee
to Bring Suit
.
If a claim under Section 1 of this
Article is not paid in full by the corporation within sixty days after a written
claim has been received by the corporation, except in the case of a claim for an
advancement of expenses, in which case the applicable period shall be twenty
days, the indemnitee may at any time thereafter bring suit against the
corporation to recover the unpaid amount of the claim and, to the extent
successful in whole or in part, the indemnitee shall be entitled to be paid also
the expense of prosecuting such suit. The indemnitee shall be
presumed to be entitled to indemnification under this Article upon submission of
a written claim (and, in an action brought to enforce a claim for an advancement
of expenses where the required undertaking, if any is required, has been
tendered to the corporation), and thereafter the corporation shall have the
burden of proof to overcome the presumption that the indemnitee is so
entitled. Neither the failure of the corporation (including its Board
of Directors, independent legal counsel or its stockholders) to have made a
determination prior to the commencement of such suit that indemnification of the
indemnitee is proper in the circumstances nor an actual determination by the
corporation (including its Board of Directors, independent legal counsel or its
stockholders) that the indemnitee is not entitled to indemnification shall be a
defense to the suit or create a presumption that the indemnitee is not so
entitled, except as required by law.
SECTION
3
.
Nonexclusivity of
Rights
.
The rights to indemnification and to the
advancement of expenses conferred in this Article shall not be exclusive of any
other right which any person may have or hereafter acquire under any statute,
provision of the Certificate of Incorporation, By-Laws, agreement, vote of
stockholders or disinterested directors or otherwise.
SECTION
4
.
Insurance, Contracts
and Funding
.
The corporation may maintain insurance,
at its expense, to protect itself and any director, officer, employee or agent
of the corporation or another corporation, partnership, joint venture, trust or
other enterprise against any expense, liability or loss, whether or not the
corporation would have the power to indemnify such person against such expense,
liability or loss under the Delaware General Corporation Law. The
corporation may enter into contracts with any indemnitee in furtherance of the
provisions of this Article and may create a trust fund, grant a security
interest or use other means (including, without limitation, a letter of credit)
to ensure the payment of such amounts as may be necessary to effect
indemnification as provided in this Article.
SECTION
5
.
Definition of
Director and Officer
.
Any person who is or was serving as a
director of a wholly owned subsidiary of the corporation shall be deemed, for
purposes of this Article only, to be a director or officer of the corporation
entitled to indemnification under this Article.
SECTION
6
.
Indemnification of
Employees and Agents of the Corporation
.
The corporation may, by action of its
Board of Directors from time to time, grant rights to indemnification and
advancement of expenses to employees and agents of the corporation with the same
scope and effects as the provisions of this Article with respect to the
indemnification and advancement of expenses of directors and officers of the
corporation.
ARTICLE
XI
.
CHECKS, DRAFTS, BANK ACCOUNTS,
ETC.
SECTION
1
.
Checks, Drafts,
Etc.; Loans
.
All checks, drafts or other orders for
the payment of money, notes or other evidences of indebtedness issued in the
name of the corporation shall be signed by such officer or officers, agent or
agents of the corporation and in such manner as shall, from time to time, be
determined by resolution of the Board of Directors. No loans shall be
contracted on behalf of the corporation unless authorized by the Board of
Directors. Such authority may be general or confined to specific
circumstances.
SECTION
2
.
Deposits
.
All funds of the corporation shall be
deposited, from time to time, to the credit of the corporation in such banks,
trust companies or other depositories as the Board of Directors may select, or
as may be selected by any officer or officers, agent or agents of the
corporation to whom such power may, from time to time, be delegated by the Board
of Directors; and for the purpose of such deposit, the Chairman, the President,
any Vice President, the Treasurer or any Assistant Treasurer, the Secretary or
any Assistant Secretary or any other officer or agent to whom such power may be
delegated by the Board of Directors, may endorse, assign and deliver checks,
drafts and other orders for the payment of money which are payable to the order
of the corporation.
ARTICLE
XII
.
NOMINATIONS OF DIRECTOR
CANDIDATES
SECTION
1
.
General
.
Nomination of candidates for election as
directors of the corporation at any meeting of stockholders called for election
of directors (an "Election Meeting") may be made by the Board of Directors or by
any stockholder entitled to vote at such Election Meeting.
SECTION
2
.
Nominations by Board
of Directors
.
Nominations made by the Board of
Directors shall be made at a meeting of the Board of Directors, or by written
consent of directors in lieu of a meeting, not less than 30 days prior to the
date of the Election Meeting. At the request of the Secretary of the
corporation each proposed nominee shall provide the corporation with such
information concerning himself or herself as is required, under the rules of the
Securities and Exchange Commission, to be included in the corporation's proxy
statement soliciting proxies for his or her election as a
director.
SECTION
3
.
Nominations by
Stockholder
.
Any stockholder who intends to make a
nomination at the annual meeting of stockholders shall deliver a notice
addressed to the Secretary of the corporation and received at the principal
executive offices of the corporation in compliance with the timeliness
requirements applicable to a stockholder's notice under Article II, Section 10
of these By-laws and setting forth (a) as to each nominee whom the stockholder
proposes to nominate for election as a director, (i) the name, age, business
address and residence address of the nominee, (ii) the principal occupation or
employment of the nominee, (iii) the class and number of shares of capital stock
of the corporation which are beneficially owned by the nominee and (iv) any
other information concerning the nominee that would be required, under the rules
of the Securities and Exchange Commission, in a proxy statement soliciting
proxies for the election of such nominee; and (b) as to the stockholder giving
the notice, (i) the name and record address of the stockholder, (ii) the class
and number of shares of capital stock of the corporation which are beneficially
owned by the stockholder and (iii) whether the proponent intends or is part of a
group which intends to solicit proxies from other stockholders in support of the
nomination;
provided
,
however
, that in the event that an Election
Meeting is called that is not the annual meeting of stockholders, notice by the
stockholder to be timely must be so delivered not later than the close of
business on the 15th day following the day on which such notice of the date of
the meeting was mailed or public disclosure of such date was made, whichever
first occurs. Such notice shall include a signed consent to serve as
a director of the corporation, if elected, of each such nominee. The
corporation may require any proposed nominee to furnish such other information
as may reasonably be required by the corporation to determine the eligibility of
such proposed nominee to serve as a director of the
corporation.
SECTION
4
.
Substitute
Nominees
.
In the event that a person is validly
designated as a nominee in accordance with Section 2 or Section 3 of this
Article XII and shall thereafter become unable or unwilling to stand for
election to the Board of Directors, the Board of Directors or the stockholder
who proposed such nominee, as the case may be, may designate a substitute
nominee.
SECTION
5
.
Void
Nominations
.
If the Chairman of the Election Meeting
determines that a nomination was not made in accordance with the foregoing
procedures, such nomination shall be void.
ARTICLE
XIII
.
AMENDMENTS
These By-Laws may be altered or repealed
and new By-Laws may be made by the affirmative vote, at any meeting of the
Board, of a majority of the whole Board of Directors, or without a meeting by a
unanimous consent of the Directors in writing or by electronic transmission,
subject to the rights of the stockholders of the corporation to amend or repeal
By-Laws made or amended by the Board of Directors by the affirmative vote of the
holders of record of a majority in number of shares of the outstanding stock of
the corporation present or represented at any meeting of the stockholders and
entitled to vote thereon, provided that notice of the proposed action be
included in the notice of such meeting.
Exhibit
10.1
As
Amended and Restated February 13, 2008
BURLINGTON NORTHERN SANTA
FE
NON-EMPLOYEE DIRECTORS' STOCK
PLAN
SECTION
1
GENERAL
1.1.
Purpose
. The Burlington Northern
Santa Fe Non-Employee Directors' Stock Plan (the "Plan") has been established by
Burlington Northern Santa Fe Corporation (the "Company") to promote the
interests of the Company and its stockholders by enhancing the Company's ability
to attract and retain the services of experienced and knowledgeable directors
and by encouraging such directors to acquire an increased proprietary interest
in the Company.
1.2.
Operation
and Administration
. The operation and
administration of the Plan shall be subject to the provisions of
Section 4. Capitalized terms in the Plan shall be defined as set
forth in Section 7 or elsewhere in the Plan.
SECTION
2
OPTION
AWARDS
2.1.
Terms
and Conditions
.
Each Option Award granted under the Plan
shall be evidenced by an agreement and shall comply with the following terms and
conditions:
(a)
The Board may from time to time
grant Option Awards to one or more Eligible Directors.
(b)
The option exercise price shall be
the Fair Market Value of the Stock subject to such Option Award on the date of
grant.
(c)
The Option Award shall not be sold,
assigned, transferred, pledged or otherwise encumbered, other than by will or
the laws of descent and distribution, unless the Participant has made an
irrevocable election to receive a transferable option with the Secretary of the
Company prior to the date of grant or as may be required by rules established by
the Board. Such transferable Option Awards may be transferred by a
Participant for no consideration to or from the Participant's Immediate Family
(including, without limitation, to a trust for the benefit of a Participant's
Immediate Family or a Family Partnership for members of the Immediate Family),
and the transferee shall remain subject to all of the terms and conditions
applicable to such Option Award prior to such transfer.
(d)
The Option Awards under this
subsection 2.1 shall be subject to the vesting provision set forth in
subsection 2.2.
2.2.
Vesting
. Option Awards shall be
exercisable commencing one (1) year from the date of grant. A
Participant who ceases to be a Director shall forfeit any Option Award which is
not vested on his Date of Termination; provided, however, that (i)
if a Participant ceases to be a Director by reason of his Retirement, death, or
Disability
, all of his Option
Awards that are not then vested shall become vested; and (ii) any portion
of an Option Award that is held by an individual serving as a Director on the
date of a Change in Control that is not then vested shall vest on the date of
the Change in Control.
2.3.
Exercise
. To the extent that an
Option Award is exercisable, it may be exercised in whole or in part by filing a
written notice with the Secretary of the Company at its corporate headquarters
prior to the date the Option expires. Such notice shall specify the
number of shares of Stock which the Participant elects to purchase, and shall be
accompanied by payment of the exercise price for such shares of Stock indicated
by the Participant's election. Payment shall be by cash or by check
payable to the Company, except that all or a portion of such required amount may
be paid by delivery of shares of Stock having an aggregate Fair Market Value
(valued as of the date of exercise) that is equal to the amount of cash which
would otherwise be required.
2.4.
Expiration
. An Option Award granted to
a Director shall expire on the tenth anniversary of the Award Date; provided,
however, that in no event shall the Option Award be exercisable after the first
anniversary of the Date of Termination of the Director.
SECTION
3
RESTRICTED
STOCK UNIT AWARDS
3.1.
Terms
and Conditions
.
Subject to the terms of this Section 3, a Restricted Stock Unit
entitles an Eligible Director to receive one share of Stock for the unit at the
end of a vesting period in accordance with subsection 3.4 and to the extent
provided by the Award with the vesting of such unit also to be contingent upon
such conditions as may be set forth in the Award.
During any period in which Restricted
Stock Units are outstanding and have not been settled in Stock, the Eligible
Director shall not have the rights of a stockholder, but shall have the right to
receive a payment from the Company in lieu of a dividend in an amount equal to
such dividends and at such times as dividends would otherwise be
paid.
3.2.
Grant
.
As of the date of each
Annual Meeting (or, if later, the date that is two business days after the
release of the Company's earnings results for the first quarter of the year),
each Director who is an Eligible Director as of the date of such Annual Meeting
shall be granted, under this Section 3.2, a Restricted Stock Unit Award of
a number of units with a grant date fair value, as measured by SFAS 123R, of
$180,000, rounded to the nearest 10 units. If an individual becomes
an Eligible Director during a Plan Year on a date other than the da
te of the Annual Meeting for such Plan
Year, he shall be granted under this Section
3
.2
,
on the first business day on which he
is an Eligible Director
,
a Restricted Stock Unit
Award in the amount
determined in accordance with the
preceding sentence
reduced
pro-rata to reflect the portion of the Plan Year that has elapsed prior to the
date on which he becomes an Eligible Director
.
The foregoing provisions of
this Section 3.2 shall apply with respect to Restricted Stock Units granted
under the Plan after December 31, 2007.
Notwithstanding the foregoing
provisions
of this Section
3.2, the number of shares covered by Restricted Stock Unit Awards
granted
under the Plan prior to January 1, 2008 shall be determined in accordance with
paragraphs 3A.2(a) and 3A.2(b) as in effect prior to the amendment and
restatement of the Plan as set forth herein.
3.3.
Vesting
. Restricted Stock Unit
Awards granted to a Director in any Plan Year shall vest on the last day of the
Plan Year in which granted, provided that the Director serves on the
Board until such date. A Director who does not serve on the Board at
least until the last day of the Plan Year in which such Restricted Stock Unit
Award was granted, shall forfeit such Restricted Stock Unit
Award.
Notwithstanding the foregoing,
(i)
if the Director ceases to be
a Director by reason of the Director's
death
,
Disability
or
Retirement
,
all of his Restricted Stock Unit Awards
that are not then vested shall become vested, and (ii) all Restricted Stock
Unit Awards that are held by an individual serving as a Director on the
date
of a Change in Control
that are not vested shall become vested on the date of the Change in
Control.
3.4.
Payment
. The shares of Stock
underlying
Restricted Stock Unit Awards that have vested on or prior to
the Date of Termination of an Eligible Director's service on the Board (as
determined pursuant to Section 3.3) shall be payable on such Date of Termination
(or within 30 days thereafter
, subject to Treas. Reg.
Section 1.409A-3(i)(2)
.
3.5.
Limit
on Restricted Stock Units
. Restricted Stock Units
granted as a Restricted Stock Unit Award may not be sold, assigned, transferred,
pledged or otherwise encumbered.
SECTION
4
OPERATION
AND ADMINISTRATION
4.1.
Effective
Date
.
(a)
The Plan was established at the time of the Company's 1996 Annual Meeting, and
was amended and restated September 21, 2006. To satisfy the requirements of
section 409A of the Internal Revenue Code (“Section 409A”) and make certain
other changes, the Plan is amended, restated and continued effective as of
January 1, 2005 (the "Effective Date" of the Plan as set forth
herein). Except as otherwise specifically provided in the Plan to the
contrary, the Plan as set forth herein shall apply to Awards outstanding under
the Plan on or after the Effective Date. Awards that are not
outstanding on or after the Effective Date, will be subject to the applicable
provisions of the Plan as in effect from time to time prior to the Effective
Date.
(b)
Notwithstanding the foregoing provisions of paragraph (a) of this Section 4.1,
Retainer Stock Awards shall be governed by the provisions of Section 3 of the
Plan as in effect prior to this amendment and restatement of the Plan. However,
any Retainer Stock Awards outstanding on or after the Effective Date, will also
be subject to the applicable terms of the Plan as amended and restated as set
forth herein and, with respect to any such Retainer Stock Awards, the provisions
of the Plan as set forth herein shall govern in the event of an inconsistency
between such provisions and the terms of the Plan as previously in
effect.
(c)
The Plan shall be unlimited in duration and, in the event of Plan termination,
shall remain in effect as long as any Awards are outstanding.
4.2.
Shares
Subject to Plan
. The shares of Stock with
respect to which Awards may be made under the Plan shall be shares currently
authorized but unissued or currently held or subsequently acquired by the
Company as treasury shares, including shares purchased in the open market or in
private transactions. Subject to the provisions of
subsection 4.3, the number of shares of Stock which may be issued with
respect to Awards under the Plan shall not exceed 300,000 shares in the
aggregate. Except as otherwise provided herein, any shares subject to
an Award which for any reason expires or is terminated without issuance of
shares (whether or not cash or other consideration is paid to a Participant in
respect of such Award) shall again be available under the
Plan.
4.3.
Adjustments
to Shares
. If
the Company shall effect a reorganization, merger, or consolidation, or similar
event or effect any subdivision or consolidation of shares of Stock or other
capital readjustment, payment of stock dividend, stock split, spin-off,
combination of shares or recapitalization or other increase or reduction of the
number of shares of Stock outstanding without receiving compensation therefor in
money, services or property, then the Committee (as defined below) shall adjust
equitably and proportionally (i) the number of shares of Stock available
under the Plan; (ii) the number of shares available under any individual or
other limits; (iii) the number of shares of Stock
or Restricted
Stock Units
subject to outstanding
Awards; and (iv) the per-share price under any outstanding Award to the
e
xtent that the Participant is required to pay a purchase price per share
with respect to the Award. However, in no event shall this Section
4.3 be construed to permit a modification (including a replacement) of an Option
Award if such modification either: (i) would result in accelerated recognition
of income or imposition of additional tax under
Section 409A
; or (ii)
would cause the Option Award subject to the modification (or cause a replacement
Option Award) to be subject to Section 409A, provided that the restriction of
this clause (ii) shall not apply to any Option Award that, at the time it is
granted, is designated as being deferred compensation subject to Section
409A.
4.4.
Limit
on Distribution
. Distribution of shares of
Stock
or Restricted Stock Units
or other amounts under the Plan shall
be subject to the following:
(a)
Notwithstanding any other
provision of the Plan, the Company shall have no liability to issue any shares
of Stock
or Restricted Stock Units
under the Plan or make any other
distribution of benefits under the Plan unless such delivery or distribution
would comply with all applicable laws and the applicable requirements of any
securities exchange or similar entity.
(b)
The Committee shall add such
conditions and limitations to any Award to any Participant who is subject to
Section 16(a) and 16(b) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), as is necessary to comply with such Section 16(a) or
16(b) and the rules and regulations thereunder or to obtain any exemption
therefrom.
(c)
To the extent that the Plan
provides for issuance of certificates to reflect the transfer of shares of
Stock, the transfer of such shares may, at the direction of the Committee, be
effected on a non-certificated basis, to the extent not prohibited by the
provisions of Rule 16b-3 under the Exchange Act or any other applicable
rules.
4.5.
Taxes
. All Awards and other
payments under the Plan are subject to all applicable taxes which shall be
obligations of the Participant.
4.6.
Distributions
to Disabled Persons
. Notwithstanding any other
provision of the Plan, if, in the Committee's opinion, a Participant or other
person entitled to benefits under the Plan is under a legal disability or is in
any way incapacitated so as to be unable to manage his financial affairs, the
Committee may direct that payment be made to a relative or friend of such person
for his benefit until claim is made by a conservator or other person legally
charged with the care of his person or his estate, and such payment or
distribution shall be in lieu of any such payment to such Participant or other
person. Thereafter, any benefits under the Plan to which such
Participant or other person is entitled shall be paid to such conservator or
other person legally charged with the care of his person or his
estate.
4.7.
Administration
. The authority to control
and manage the operation and administration of the Plan shall be vested in a
committee (the "Committee") in accordance with
Section 5.
4.8.
Form
and Time of Elections
. Any election required or
permitted under the Plan shall be in writing, and shall be deemed to be filed
when delivered to the Secretary of the Company.
4.9.
Agreement
With Company
. Each Award granted under
Sections 2 and 3 shall be evidenced by an Agreement (an "Agreement") duly
executed on behalf of the Company and by the Participant to whom such Award is
granted and dated as of the applicable date of grant. Each Agreement
shall comply with and be subject to the terms of the Plan.
4.10.
Evidence
. Evidence required of anyone
under the Plan may be by certificate, affidavit, document or other information
which the person acting on it considers pertinent and reliable, and signed, made
or presented by the proper party or parties.
4.11.
Action
by Company
. Any
action required or permitted to be taken by the Company shall be by resolution
of the Board, or by action of one or more members of the Board (including a
committee of the Board) who are duly authorized to act for the board, by a duly
authorized officer of the Board, or (except to the extent prohibited by the
provisions of Rule 16b-3 or any other applicable rules) by a duly authorized
officer of the Company.
4.12.
Gender
and Number
. Where the context admits,
words in any gender shall include any other gender, words in the singular shall
include the plural and the plural shall include the
singular.
4.13.
Section
409A
. To the extent that any portion of the Plan and the
Awards under the Plan are subject to the rules applicable to nonqualified
deferred compensation plans under Section 409A, such portion of the Plan and
such Awards are not intended to result in acceleration of income recognition or
imposition of penalty taxes by reason of Section 409A, and the terms of such
portion of the Plan and such Awards shall be interpreted in a manner (and such
portion of the Plan and such Awards may be amended to the extent determined
necessary or appropriate by the Committee) to avoid such acceleration and
penalties.
The
Committee may modify the time at which any Award will be settled, paid-out,
vested or transferred if it determines that such modification may be necessary
to avoid acceleration of tax or imposition of penalties under Section
409A. Regardless of whether the Committee modifies or fails to modify
the time at which any Award is settled, paid-out, vested or transferred, each
Director shall be solely liable for any taxes, including without limitation
taxes that may be imposed under Section 409A, penalties and interest incurred
with respect to all Awards granted to the Director under the
Plan.
SECTION
5
COMMITTEE
5.1.
Selection
of Committee
. The Committee shall be the
Directors and Corporate Governance Committee.
5.2.
Powers
of Committee
. The authority to manage and
control the operation and administration of the Plan shall be vested in the
Committee. The Committee will have the authority to establish, amend,
and rescind any rules and regulations relating to the Plan, to determine the
terms and provisions of any agreements made pursuant to the Plan, and to make
all other determinations that may be necessary or advisable for the
administration of the Plan.
5.3.
Information
to be Furnished to Committee
. The Company shall furnish
the Committee with such data and information as may be required for it to
discharge its duties. The records of the Company as to the period of
a Director's service shall be conclusive on all persons unless determined to be
incorrect. Participants and other persons entitled to benefits under
the Plan must furnish the Committee such evidence, data or information as the
Committee considers desirable to carry out the terms of the
Plan.
5.4.
Liability
and Indemnification of Committee
. No member or authorized
delegate of the Committee shall be liable to any person for any action taken or
omitted in connection with the administration of the Plan unless attributable to
his own fraud or willful misconduct; nor shall the Company be liable to any
person for any such action unless attributable to fraud or willful misconduct on
the part of a director or employee of the Company. The Committee, the
individual members thereof, and persons acting as the authorized delegates of
the Committee under the Plan, shall be indemnified by the Company, to the
fullest extent permitted by law, against any and all liabilities, losses, costs
and expenses (including legal fees and expenses) of whatsoever kind and nature
which may be imposed on, incurred by or asserted against the Committee or its
members or authorized delegates by reason of the performance of a Committee
function if the Committee or its members or authorized delegates did not act
dishonestly or in willful violation of the law or regulation under which such
liability, loss, cost or expense arises. This indemnification shall
not duplicate but may supplement any coverage available under any applicable
insurance.
SECTION
6
AMENDMENT
AND TERMINATION
The Board may, at any time, amend or
terminate the Plan, provided that, subject to subsection 4.3 (relating to
certain adjustments to shares), no amendment or termination may adversely affect
the rights of any Participant or beneficiary under any Award made under the Plan
prior to the date such amendment is adopted by the Board. No
amendment or termination shall be adopted or effective if it would result in
accelerated recognition of income or imposition of additional tax under Section
409A or, except as otherwise provided in the amendment, would cause amounts that
were not otherwise subject to Section 409A to become subject to Section
409A.
SECTION
7
DEFINED
TERMS
For purposes of the Plan, the terms
listed below shall be defined as follows:
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(a)
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Annual
Meeting
. The term "Annual
Meeting" shall mean an annual meeting of the stockholders of the
Company.
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(b)
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Award
. The term "Award"
shall mean an award of stock options, restricted stock or restricted stock
units granted to any person under the
Plan.
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(c)
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Board
. The term "Board"
shall mean the Board of Directors of the
Company.
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(d)
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Change
in Control
. A "Change in Control"
shall be deemed to have occurred
if:
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(1)
|
any "person" as such term is used
in Sections 13(d) and 14(d) of the Exchange Act (other than the
Company, any trustee or other fiduciary holding securities under an
employee benefit plan of the Company, or any company owned, directly or
indirectly, by the stockholders of the Company in substantially the same
proportions as their ownership of stock of the Company), is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Company representing 25% or
more of the combined voting power of the Company's then outstanding
securities;
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(2)
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during any period of two
consecutive years (not including any period prior to the effective date of
this provision), individuals who at the beginning of such period
constitute the Board, and any new director (other than a director
designated by a person who has entered into an agreement with the Company
to effect a transaction described in clause (1), (3) or (4) of this
definition) whose election by the Board or nomination for election by the
Company's stockholders was approved by a vote of at least two-thirds (2/3)
of the directors then still in office who either were directors at the
beginning of the period or whose election or nomination for election was
previously so approved, cease for any reason to constitute at least a
majority thereof;
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(3)
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the stockholders of the Company
approve a merger or consolidation of the Company with any other company
other than (i) a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) more than 80% of
the combined voting power of the voting securities of the Company (or such
surviving entity) outstanding immediately after such merger or
consolidation, or (ii) a merger or consolidation effected to
implement a recapitalization of the Company (or similar transaction) in
which no "person" (as hereinabove defined) acquires more than 25% of the
combined voting power of the Company's then outstanding securities;
or
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(4)
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the stockholders of the Company
adopt a plan of complete liquidation of the Company or approve an
agreement for the sale or disposition by the Company of all or
substantially all of the Company's assets. For purposes of this
clause (4), the term "the sale or disposition by the Company of all or
substantially all of the Company's assets" shall mean a sale or other
disposition transaction or series of related transactions involving assets
of the company or of any direct or indirect subsidiary of the Company
(including the stock of any direct or indirect subsidiary of the Company)
in which the value of the assets or stock being sold or otherwise disposed
of (as measured by the purchase price being paid therefor or by another
objective method in a case where there is no readily ascertainable
purchase price) constitutes more than two-thirds of the fair market value
of the Company. For purposes of the preceding sentence, the
"fair market value of the Company" shall be the aggregate market value of
the outstanding shares of Stock (on a fully diluted basis) plus the
aggregate market value of the Company's other outstanding equity
securities (excluding employee Stock options). The aggregate market value
of the shares of Stock (on a fully diluted basis) outstanding on the date
of the execution and delivery of a definitive agreement with respect to
the transaction or series of related transactions (the "Transaction Date")
shall be determined by the average closing price of the shares of Stock
for the ten trading days immediately preceding the Transaction
Date. The aggregate market value of any other equity securities
of the Company shall be determined in a manner similar to that prescribed
in the immediately preceding sentence for determining the aggregate market
value of the shares of
Stock.
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(e)
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Date
of Termination
.
A
Participant's "Date of Termination" shall be the date of the Participant’s
separation from service from the Company and its affiliates, as determined
under Section 409A.
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(f)
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Director
. The term "Director"
means a member of the Board.
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(g)
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Disability
. A Participant shall
be considered to have a "Disability" during the period in which he is
unable, by reason of a medically determinable physical or mental
impairment, to engage in any substantial gainful activity, which
condition, in the opinion of a physician selected by the Committee, is
expected to have a duration of not less than 120
days.
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(h)
|
Effective
Date
. The
"Effective Date" shall have the meaning ascribed to it in paragraph (a) of
Section 4.1.
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(i)
|
Eligible
Director
. Each Director who is
not an employee of the Company or any Related Company shall be an
"Eligible Director".
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(j)
|
Fair
Market Value
. The "Fair Market
Value" of the Stock shall be the closing price of a share of Common Stock
on the New York Stock Exchange Composite Transaction Report on the
valuation date; provided, however, that if there were no sales on the
valuation date but there were sales on dates within a reasonable period
before the valuation date, the Fair Market Value is the closing price on
the nearest date before the valuation date
; and further provided
that the Fair Market Value for Awards granted under the Plan prior to
January 1, 2008 shall be determined in accordance with the applicable
provisions of the Plan as in effect prior to the amendment and restatement
of the Plan as set forth herein
. In any event, the
determination of "Fair Market Value" shall be consistent with the
requirements of Treasury Regulation Section
1.409A-1(b)(5)(iv)(A).
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(k)
|
Immediate
Family
. With respect to a
particular Participant, the term "Immediate Family" shall mean the
Participant's spouse, children, stepchildren, adoptive relationships,
sisters, brothers and
grandchildren.
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(l)
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Option
Award
. The
term "Option Award" shall mean a non-qualified stock option granted under
the Plan.
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(m)
|
Participant
. A "Participant" is
any person who has received an Award under the
Plan.
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(n)
|
Plan
Year
. The
term "Plan Year" means the period (i) beginning on the date of an
Annual Meeting and (ii) ending on the day immediately prior to the
following Annual Meeting.
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(o)
|
Related
Companies
. The term "Related
Company" means any company during any period in which it is a "subsidiary
corporation" (as that term is defined in Code section 424(f)) with
respect to the Company.
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(p)
|
Retirement
. The term "Retirement"
means termination of service as a Director in accordance with and pursuant
to the Retirement Policy for Directors adopted by the
Company.
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(q)
|
SEC
. "SEC" shall mean the
Securities and Exchange
Commission.
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(r)
|
SFAS
123(R)
. "SFAS 123(R)" shall
mean Statement of Financial Accounting Standards No. 123 (revised
2004).
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(s)
|
Stock
. The term "Stock"
shall mean shares of common stock of the
Company.
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Exhibit
10.3
Amended
and Restated December 17, 2007
BNSF
RAILWAY COMPANY
INCENTIVE
COMPENSATION PLAN
1.0
OBJECTIVE
The BNSF
Railway Company (“BNSF Railway” or the “Company”) Incentive Compensation Plan
(“ICP” or the “Plan”) has as its objective to:
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1.1
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Communicate
and focus attention on key BNSF Railway business goals.
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1.2
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Identify
and reward superior performance.
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1.3 Provide a
competitive compensation package to attract and retain high quality
employees.
2.0
ADMINISTRATION
The ICP
Committee shall provide overall administration of the Plan. The ICP Committee
shall be comprised of the Chief Executive Officer, the Executive Vice President
and Chief Financial Officer, the Executive Vice President Law and Secretary, and
the Vice President-Human Resources and Medical.
The ICP
Committee will have discretionary authority to review and approve any changes in
eligibility, levels of participation, incentive opportunity, basis for award
determination, performance objectives, etc., subject to other requirements of
the Plan; provided, however, that the Chief Executive Officer may approve
incentive opportunities, including, but not limited to, ICP target levels, for
certain employees subject to Section 6.3 and 7.3 of this Plan. Review and
approval of Plan details will be performed on an annual basis.
The ICP
Committee will appoint a plan administrator whose responsibility to the ICP
Committee will include:
2.1
Establishment of procedures for the Plan operation.
2.2 Timely and
effective management of the day-to-day operations of the Plan.
2.3
Performance of periodic analyses to ensure the Plan’s
effectiveness.
3.0
ELIGIBILITY
All
regularly assigned, active salaried employees of BNSF Railway and its rail
subsidiaries shall be eligible to participate in the ICP subject to the
discretion of the ICP Committee. Employees hired into a salaried position after
October 1 of any calendar year will not be eligible until the next calendar
year. The ICP Committee shall designate an employee’s level of participation.
The extent of participation in the ICP may vary according to the employee’s
level of responsibility. Depending on one’s level within the organization and
departmental discretion, some percentage of an employee’s payout potential may
be based upon achievement of personal goals.
3.1
ICP eligibility of newly hired salaried employees or scheduled employees
promoted to a salaried position will be treated as follows:
3.1.1
A new employee hired into an eligible position on or before October 1 will be
eligible to participate in the current calendar year.
3.1.2
A scheduled employee promoted to a regularly assigned salaried position on or
before October 1 will be eligible to participate in the current calendar
year.
3.1.3
The ICP award for a new salaried employee or a scheduled employee promoted into
an eligible position for the first time, on or before October 1, will be
prorated based upon the number of days worked in active service in the eligible
position.
3.2
Promotions, transfers, and assignments of active employees to temporary,
part-time, red-circle or other similar salary band continuation status will be
treated in the following manner:
3.2.1
A scheduled employee placed on temporary assignment to a salaried position will
not be eligible for an ICP payout.
3.2.2
A regularly-assigned salaried employee placed on a temporary assignment to
another salaried position of a higher salary band will maintain his/her
regularly assigned position’s ICP participation level.
3.2.3
A regularly-assigned salaried employee promoted (or demoted) from one position
to another with a higher (or lower) ICP participation level will have his/her
ICP award calculated on a pro-rata basis for the number of days employed at each
level.
3.2.4
A regularly-assigned salaried employee who is assigned for all or a portion of
the year to a part-time position will have his/her ICP award calculated on a
pro-rata basis for the number of days employed at each ICP participation level
and full-time-equivalency level.
3.2.5
A regularly-assigned salaried employee who has red-circle or other similar
salary band continuation status at a higher salary band will have his/her ICP
award calculated on a pro-rata basis at the ICP participation level of the
higher salary band for the number of days of red-circle or other similar salary
band continuation status and at the ICP participation level of the assigned band
for the number of days without such status.
3.3
ICP eligibility with respect to voluntary and involuntary separation will be
determined as follows:
3.3.1
VOLUNTARY RESIGNATIONS
3.3.1
(a) If a
participating employee voluntarily resigns after December 31, but before award
payout, the amount that would have otherwise been received had there been no
resignation will be paid to the employee.
3.3.1
(b) If a
participating employee voluntarily resigns on or before December 31, and is not
eligible for participation in a company-sponsored severance program, the
employee forfeits all rights to an ICP award.
3.3.1
(c) If a
participating employee voluntarily resigns in conjunction with a
Company-sponsored severance program, the participant is eligible to receive a
pro-rata share of the ICP award he/she would otherwise have earned based upon
the number of days worked in active service during the severance
year.
3.3.2
INVOLUNTARY SEPARATION
3.3.2
(a) If a
participating employee is terminated for cause, the participant forfeits all
rights to an ICP award. Cause shall be defined by the ICP
Committee.
3.3.2
(b) If a
participating employee is terminated at the discretion of the Company as part of
a Company-sponsored severance program and other than for cause, the participant
is eligible to receive a pro-rata share of the ICP award he/she would otherwise
have earned based upon the number of days worked in active service during the
severance year.
3.4
ICP
eligibility with respect to the following events will be determined as
indicated.
3.4.1
Retirement — The participant is eligible to receive a pro-rata share of the ICP
award he/she would otherwise have earned based upon the number of days’ service
prior to retirement.
3.4.2
Disability — A participating employee on short-term disability is eligible to
receive the full ICP payout. A participating employee who is placed on long-term
disability (“LTD”) is eligible to receive a pro-rata share of the ICP award
he/she would have earned based upon the number of days’ of otherwise eligible
service accrued prior to being placed on LTD. No ICP eligibility accrues for any
employee while on LTD, but eligibility will be reinstated should the employee be
removed from LTD and return to an active, regularly-assigned salaried
position.
3.4.3
Medical Leave — A participating employee on short-term paid medical leave is
eligible to receive the full ICP payout. An employee on unpaid medical leave
will be ineligible to receive an ICP payout for those days comprising the unpaid
medical leave period. The employee will receive a pro-rata ICP payout based upon
the total of all otherwise eligible salaried service during the year, excluding
the days on unpaid medical leave of absence.
3.4.4
Suspension — A participating employee suspended (without pay) for disciplinary
reasons is ineligible to receive an ICP payout for any and all days comprising
the suspension period.
3.4.5
Leave of Absence with Pay — A participating employee on leave of absence with
pay is entitled to receive the full ICP payout.
3.4.6
Leave of Absence without Pay — A participating employee on leave of absence
without pay will be ineligible to receive an ICP payout for those days
comprising the unpaid leave period. The employee will receive a pro-rata ICP
payout based upon the total of all otherwise eligible salaried service during
the year, excluding the days on unpaid leave of absence.
3.4.7
Military Leave — A participating employee on paid military leave is entitled to
the full ICP payout. An employee on unpaid military leave will be ineligible to
receive an ICP payout for those days comprising the unpaid military leave
period. The employee will receive a pro-rata ICP payout based upon the total of
all otherwise eligible salaried service during the year, excluding the days on
unpaid military leave of absence.
3.4.8
Death — A pro-rata share of the ICP award the participant would otherwise have
earned will be paid to the deceased employee’s estate based upon the total
number of days of eligible service during the award year.
3.4.9
Seniority Exercise — A participating employee who exercises his/her seniority at
any time during the year forfeits all rights to an ICP award for that year
except under circumstances when an employee exercises seniority in lieu of a
severance package which had been offered to the employee.
3.4.10
Position Abolishment — If the Company abolishes a participating salaried
employee’s position and the Company offers a severance package, the participant
is eligible to receive a pro-rata share of the ICP award he/she would otherwise
have earned based upon the number of days’ service prior to
abolishment.
3.4.11
The ICP
Committee may, at its discretion, decide to pay all or a portion of the award a
participant would otherwise have earned when termination occurs
under any subsection to Section 3.0 ELIGIBILITY.
For
purposes of Section 3.0, a pro-rata share of the ICP award a participant would
otherwise have earned shall be based upon the nearest whole number of days in
active service during the award year. Performance awards for eligible persons
terminating employment during the award year shall be based on actual Company
and individual performance through the full year and will be payable at the
payment date for continuing employees.
4.0
INCENTIVE OPPORTUNITIES
The
incentive awards will be designed to reflect the position’s impact on BNSF
Railway performance and will provide incentives that are in line with key
competitors. Incentive levels will be determined and communicated to employees
on an annual basis.
5.0
INCENTIVE AWARD BASES
The ICP
Committee shall annually review the mix of Company goals and individual or
departmental goals (defined further in Section 6.0) and may modify them at its
discretion; provided that this Section 5.0 shall not permit an award that is
designated as Performance-Based Compensation and is otherwise not permitted
under Section 6.3.
6.0
PERFORMANCE OBJECTIVES
Payments
of ICP awards shall be based on performance measured against objectives
established by the Compensation and Development Committee of the Board of
Directors of Burlington Northern Santa Fe Corporation (“BNSF
Corporation”).
Company-wide
performance objectives shall be established at the beginning of each year for
BNSF Railway.
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6.2
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PERSONAL
AND DEPARTMENTAL GOALS
|
If the
ICP Committee determines that departments may have departmental or personal
goals, then each department may establish its own departmental goals and assign
them to some or all departmental employees. The department may also establish
personal goals for selected employees to be accomplished in addition to or in
lieu of any departmental goals.
The
personal goals element of the ICP is intended to be used by the immediate
supervisor of an employee whose salary band is a level approved by the ICP
Committee to have personal goals assigned as part of an employee’s plan
participation. In such circumstances, the manager may deem it necessary or
desirable to encourage the planning and review of written individual objectives
in order to accomplish the following:
6.2.1
Provide a system whereby senior management and subordinates mutually agree on
important objectives to be attained.
6.2.2
Provide an opportunity for regular review and feedback regarding progress
towards stated objectives.
6.2.3
Introduce a discretionary element into the ICP to give senior management greater
flexibility in ensuring that the ICP accomplishes its basic
purposes.
At the
beginning of each year for which there are to be personal goals, it is
recommended that approximately two goals be mutually agreed upon by the
participating employee and his/her immediate supervisor. These objectives are to
represent specific accomplishments desired within the framework of the
responsibilities of the participating employee, or could represent specific
goals beyond the scope of the employee’s usual job requirements. Objectives may
be related solely to one individual, or may relate to a group of two or more
individuals whose efforts are required to complete a common task. Objectives may
apply to the full year, or to a portion of the year, as appropriate. Each
objective shall be designed to be measurable and attainable, but not without
significant effort.
Personal
goals, when they apply, will be established for each participating employee by
the employee and his or her manager subject to the approval of the department
head and the ICP Committee.
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6.3
|
PERFORMANCE-BASED
COMPENSATION
|
The
Compensation and Development Committee of the BNSF Corporation Board of
Directors may designate an ICP award granted to any participating employee as
Performance-Based Compensation. To the extent required by Code section 162(m),
any such ICP award so designated shall be conditioned on the achievement of one
or more Performance Measures, as selected by such committee, and any ICP award
intended to be Performance-Based Compensation shall not be paid prior to
certification of the achievement by such committee. For ICP awards under this
subsection 6.3 intended to be Performance-Based Compensation, (i) the grant of
the awards and the establishment of the Performance Measures shall be made
during the period required under Code section 162(m); (ii) the provisions of the
Plan shall not apply to any ICP award to the extent that the application of such
provision would cause the award to no longer satisfy the requirements of Code
section 162(m); and (iii) such Committee shall have the authority and discretion
to reduce the amount of any ICP award designated as Performance-Based
Compensation at any time prior to payment of the award, with the reduction to be
based on such factors and criteria as the Committee determines to be
relevant.
6.3.1
For ICP Awards that are intended to be Performance-Based Compensation, the
maximum amount payable to any participating employee with respect to any
calendar year shall equal $5 million.
6.3.2
The term “Performance-Based Compensation” shall have the meaning ascribed to it
under Code section 162(m) and the regulations thereunder.
6.3.3
The “Performance Measures” shall be based on any one or more of the following
Company, Subsidiary, operating unit or division performance measures: net
income, earnings per share, safety, on-time train performance, velocity, return
on investment, operating income, operating ratio, cash flow, return on assets,
stockholders return, revenue, customer satisfaction, and return on equity, or
any combination thereof. Each goal may be expressed on an absolute and/or
relative basis, may be based on or otherwise employ comparisons based on
internal targets, the past performance of the Company and/or the past or current
performance of other companies, and in the case of earnings-based measures, may
use or employ comparisons relating to capital, shareholders equity and/or shares
outstanding, investments or to assets or net assets.
6.3.4
The term “Code” means the Internal Revenue Code of 1986, as amended. A reference
to any provision of the Code shall include reference to any successor provision
of the Code.
7.0
PERFORMANCE
Company
performance will be reviewed each quarter when quarterly financial and operating
results are available. The determination and distribution of awards will occur
as soon as practicable after the compilation of the full year
results.
Senior
management and the ICP Committee shall have the discretion to apply judgment to
their performance evaluation at the company, departmental and individual
performance levels. Performance shall be evaluated in light of opportunities and
conditions prevailing during the measurement period.
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7.1
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The
ICP Committee shall approve all awards except as described in Section 7.3.
|
7.2
Subject to Section 7.3, the ICP Committee has the discretion of increasing or
decreasing individual or collective awards on any basis including the following
considerations:
7.2.1
BNSF Railway performance relative to its competitors.
7.2.2
Long term as well as short term performance considerations.
7.2.3
Unforeseen opportunities and obstacles.
7.2.4
The ICP Committee’s judgment of BNSF Railway and individual
performance.
7.3
The awards of all executive officers of BNSF Railway who are also executive
officers of BNSF Corporation shall be recommended by the Compensation and
Development Committee of the BNSF Corporation Board of Directors and approved by
the BNSF Corporation Board of Directors, provided, however, that the award for
the Chief Executive Officer shall be approved by the independent directors on
the BNSF Corporation Board of Directors.
8.0
AWARD PAYMENT
The ICP
Committee will select the payment date at its discretion as soon as practicable
after the close of the year and completion of performance evaluations, provided,
however, that the payment date shall be no later than the 15th day of the third
month following the close of the year unless unforeseeable events make it
impractical to make the payments by such date. ICP awards are subject to all
usual tax and withholding requirements.
To the
extent that the Plan and the awards under the Plan are subject to the rules
applicable to nonqualified deferred compensation plans under section 409A of the
Code, such portion of the Plan and such awards are not intended to result in
acceleration of income recognition or imposition of penalty taxes by reason of
section 409A, and the terms of such portion of the Plan and such awards shall be
interpreted in a manner (and such portion of the Plan and such awards will be
amended to the extent determined necessary or appropriate by the Committee) to
avoid such acceleration and penalties.
NOTE: Annual
ICP awards under the Plan shall not exceed 200% of the target award set for the
year, beginning with awards earned in 2008. If the Company fails to
meet its financial threshold objectives, then no ICP awards (companywide,
departmental, or individual) shall be due or payable for that year above 200
percent of target for each non-financial measure except to the extent that the
ICP Committee shall decide, in its discretion, that ICP awards shall
nevertheless be paid above that level (provided, however, that with respect to
any employees who are executive officers of BNSF Corporation, the Compensation
and Development Committee and the Board of Directors of BNSF Corporation must
concur in this decision, provided, however, that in the case of the Chief
Executive Officer, only the independent directors on the BNSF Corporation Board
of Directors must concur in this decision).
9.0
COMMUNICATIONS
The Plan
administrator, under the direction of the ICP Committee, shall be responsible
for maintaining records and communicating information concerning the
ICP.
10.0
TERMINATION OR AMENDMENT
The ICP
shall remain in effect until terminated or ended by the Board of Directors or
the ICP Committee. However, if a Change in Control shall have occurred during
the term of this Plan, this Plan shall continue in effect through the end of the
year in which such Change in Control occurred, during which time the Company is
contractually bound to maintain the Plan, and provided further that the
membership of the Committee cannot be changed during such period.
A “Change
in Control” shall be deemed to have occurred if:
(a)
any “person”, as such term is used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”) (other than BNSF
Corporation, any trustee or other fiduciary holding securities under an employee
benefit plan of BNSF Corporation, or any company owned, directly or indirectly,
by the stockholders of BNSF Corporation in substantially the same proportions as
their ownership of stock of BNSF Corporation), is or becomes the “beneficial
owner” (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of BNSF Corporation representing 25% or more of the
combined voting power of BNSF Corporation’s then outstanding
securities;
(b)
during any period of two consecutive years (not including any period prior to
the effective date of this provision), individuals who at the beginning of such
period constitute the Board of BNSF Corporation, and any new director (other
than a director designated by a person who has entered into an agreement with
BNSF Corporation to effect a transaction described in clause (a), (c) or (d) of
this definition) whose election by the Board of BNSF Corporation or nomination
for election by BNSF Corporation’s stockholders was approved by a vote of at
least two-thirds (2/3) of the directors then still in office who either were
directors at the beginning of the period or whose election or nomination for
election was previously so approved, cease for any reason to constitute at least
a majority thereof;
(c)
the stockholders of BNSF Corporation approve a merger or consolidation of BNSF
Corporation with any other company other than (i) a merger or consolidation
which would result in the voting securities of BNSF Corporation outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity) more than 80% of the combined voting power of the voting securities of
BNSF Corporation (or such surviving entity) outstanding immediately after such
merger or consolidation, or (ii) a merger or consolidation effected to implement
a recapitalization of BNSF Corporation (or similar transaction) in which no
“person” (as hereinabove defined) acquires more than 25% of the combined voting
power of BNSF Corporation’s then outstanding securities; or
(d)
the stockholders of BNSF Corporation adopt a plan of complete liquidation of
BNSF Corporation or approve an agreement for the sale or disposition by BNSF
Corporation of all or substantially all of BNSF Corporation’s assets. For
purposes of this clause (d), the term “the sale or disposition by BNSF
Corporation of all or substantially all of BNSF Corporation’s assets” shall mean
a sale or other disposition transaction or series of related transactions
involving assets of BNSF Corporation or of any direct or indirect subsidiary of
BNSF Corporation (including the stock of any direct or indirect subsidiary of
BNSF Corporation) in which the value of the assets or stock being sold or
otherwise disposed of (as measured by the purchase price being paid therefore or
by such other method as the Board of Directors of BNSF Corporation determines is
appropriate in a case where there is no readily ascertainable purchase price)
constitutes more than two-thirds of the fair market value of BNSF Corporation
(as hereinafter defined). For purposes of the preceding sentence, the “fair
market value of BNSF Corporation” shall be the aggregate market value of BNSF
Corporation’s outstanding shares of common stock (on a fully diluted basis) plus
the aggregate market value of BNSF Corporation’s other outstanding equity
securities. The aggregate market value of the shares of BNSF Corporation’s
common stock (on a fully diluted basis) outstanding on the date of the execution
and delivery of a definitive agreement with respect to the transaction or series
of related transactions (the “Transaction Date”) shall be determined by the
average closing price for BNSF Corporation’s common stock for the ten trading
days immediately preceding the Transaction Date. The aggregate market value of
any other equity securities of BNSF Corporation shall be determined in a manner
similar to that prescribed in the immediately preceding sentence for determining
the aggregate market value of the shares of BNSF Corporation’s common stock or
by such other method as the Board of Directors of BNSF Corporation shall
determine is appropriate.
Subject
to Section 10.0 hereof, BNSF Railway and its subsidiaries reserve the right to
change Plan provisions or terminate the Plan at any time.
11.0
EFFECTIVE DATE
This
Amended and Restated ICP is effective December 17, 2007.
12.0
NON-DUPLICATION OF BENEFITS
The ICP
is in place of the Burlington Northern Santa Fe Incentive Compensation Plan
effective as of January 1, 1996, and there shall be no duplication of benefits
under such plan and the ICP.
Exhibit 10.5
BURLINGTON
NORTHERN SANTA FE CORPORATION
SENIOR
MANAGEMENT STOCK DEFERRAL PLAN
As
Amended Effective January 1, 2008, January 1, 2005 and November 19,
2001
Originally
Effective January 1, 1997
BURLINGTON
NORTHERN SANTA FE CORPORATION
SENIOR
MANAGEMENT STOCK DEFERRAL PLAN
Table of
Contents
Page
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4.
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Special
Rules for Exercise of Options
|
2
|
|
8.
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Vesting
in Share Units
|
3
|
|
9.
|
Distribution
of Account
|
4
|
|
10.
|
Distribution
Elections
|
4
|
|
11.
|
Permissible
Distribution Events
|
4
|
|
13.
|
Distributions
after Termination.
|
4
|
|
14.
|
Changes
to Distribution Elections
|
6
|
|
15.
|
Hardship
Withdrawals
|
6
|
|
16.
|
Change
in Control Distributions
|
6
|
|
17.
|
Designation
of Beneficiary
|
6
|
|
18.
|
Statement
of Deferred Accounts
|
6
|
|
20.
|
Restrictions
on Share Units
|
6
|
|
22.
|
Plan
Not Contract of Employment
|
7
|
|
23.
|
Successors
and Assigns
|
7
|
Burlington
Northern Santa Fe Corporation
Senior Management Stock
Deferral Plan
The following sets forth the rules that
apply to the Burlington Northern Santa Fe Corporation Senior Management Stock
Deferral Plan (the “Plan”):
1.
Purpose
. The
purpose of the Plan is to permit eligible employees of Burlington Northern Santa
Fe Corporation and its principal subsidiary, The Burlington Northern and Santa
Fe Railway Company (collectively, the “Company”) to defer delivery of common
stock (“Stock”) of Burlington Northern Santa Fe Corporation otherwise
distributable to Eligible Employees (as defined below), and thereby to allow the
employees to defer a portion of their Stock income on a pre-tax
basis. The “Effective Date” of the Plan is January 1,
1997. The “Plan Year” is the calendar year.
2.
Eligible
Employees
. Participation in the Plan shall be limited to
“Eligible Employees.” The determination of the persons selected as
“Eligible Employees” shall be made by the Committee (as described below), and
shall be limited to a select group of management or highly compensated
employees. Beginning as of the Effective Date (as described below),
and until revised by the Committee, the “Eligible Employees” shall consist of
each of those Senior Management employees of the Company who: (i) is at salary
band 34 or higher; and (ii) has a total base salary plus target bonus of at
least $100,000. An Eligible Employee who defers the delivery of Stock
in accordance with the Plan shall thereby become a “Participant” in the
Plan.
3.
Deferral
Election
. An employee may elect to defer the delivery of Stock
otherwise distributable to him or her under the Burlington Northern Santa Fe
1996 Stock Incentive Plan and any other stock-based compensation plan of the
Company, as well as any other predecessor plans and successor plans (the “Stock
Plans”) pursuant to (a) stock options (“Options”); and (b) restricted stock,
including matching stock with respect to such restricted stock (collectively,
“Restricted Stock”). Such deferral shall be made by filing a
“Deferral Election” with the Company in accordance with the Plan, subject to the
following:
|
(a)
|
A
Deferral Election shall be effective only if the employee satisfies the
requirements for an Eligible Employee at the time the Stock would have
been delivered in the absence of the Deferral
Election.
|
|
(b)
|
A
Participant’s Deferral Election with respect to Restricted Stock or
Options shall identify the shares to be covered by the election, and may
apply to all or any portion of the shares of such stock, provided that if
the Participant elects deferral of an award of Restricted Stock or Options
worth $20,000 or less, the entire stock award shall be subject to the
Deferral Election. The election with respect to Restricted
Stock must be made prior to the date of grant of the Restricted Stock (or
such earlier date established by the Committee), and will be
irrevocable.
|
|
(c)
|
A
Participant’s Deferral Election with respect to Options shall identify the
Options that are covered by the election, and may apply to any
non-qualified stock option that is outstanding on the date the Deferral
Election is made; provided that any Deferral Election shall apply to all
(but not less than all) of the shares subject to any outstanding
non-qualified stock options granted to the Participant on any grant
date. The same deferral period shall apply to all Options
granted to a Participant on a single grant date, but, subject to the Plan,
the Participant may elect different deferral periods for Options granted
on different grant dates. A Deferral Election may be made with
respect to the delivery of Option stock by an Eligible Employee at any
time the employee holds Options, except that no election may be made after
the Participant's Termination of Employment. The Deferral
Election with respect to any Option will be
irrevocable.
|
|
(d)
|
The
Deferral Election with respect to any shares of Stock shall specify the
method of distribution of those shares at the end of the deferral period,
as elected by the Participant and subject to the terms of the
Plan.
|
|
(e)
|
A
Deferral Election will be deemed to be filed with the Company on the date
it is received by the Director of
Compensation.
|
|
(f)
|
Notwithstanding
any other provisions of the Plan, no deferrals may be made into the Plan
after December 31, 2004, and no Deferral Election may be made after
December 31, 2004.
|
4.
Special Rules for Exercise
of Options
. The exercise of an Option subject to a Deferral
Election shall be subject to the following:
|
(a)
|
The
Deferral Election for any Option shall be effective for Option exercises
occurring on or after the six-month anniversary of the date of such
election. The Deferral Election shall remain in effect for the
period specified in such election but shall not be less than one
year. The Deferral Election shall expire upon the earlier of
the date set forth in such election or the Option expiration
date.
|
|
(b)
|
After
the Deferral Election is filed for any Option but before it becomes
effective, the Option shall not be exercisable; provided, however, that
the Deferral Election shall be cancelled, and the Option shall become
exercisable (to the extent that it would have otherwise have been
exercisable in the absence of the Deferral Election) upon the occurrence,
prior to the date the election has become effective, of either a Change in
Control or the Participant's Termination of
Employment.
|
|
(c)
|
Subject
to the Plan, Options providing for deferred delivery of Option stock may
be exercised by delivery to the Secretary of the Company of a notice of
exercise specifying the number of shares to be purchased, and accompanied
by shares of Stock then owned by the Participant having value sufficient
to satisfy the exercise price (or, if permitted by the Company, by
submitting a signed statement to the Director of Compensation that the
Participant then owns sufficient shares). The Company shall
require evidence or attestation that the shares have been continuously
owned by the Participant for not less than six months prior to the
exercise. For purposes of the foregoing requirement as to
continuous ownership of shares, (i) shares subject to deferred delivery
are not deemed owned until delivery occurs, and (ii) continuous ownership
of the shares shall be deemed interrupted by delivery for a prior option
exercise (so that the same shares may not be used to satisfy the purchase
price of an Option more than once in any six-month
period). Shares which are delivered by the Participant to
satisfy the exercise price shall be returned to the Participant as soon as
practicable after delivery and
exercise.
|
5.
Withholding
. Any
tax withholding due at the time of crediting of Share Units to a Participant’s
Deferred Account, or at the time of vesting of such Share Units, shall be
payable by the Participant by check to the Company. The Participant
may elect to have the withholding obligation which arises upon distribution of
the Deferred Account satisfied by the Stock credited to the Participant’s
Deferred Account (or that would otherwise be credited to that account)
sufficient to satisfy the withholding obligation.
6.
Deferred
Accounts
. The Company shall establish a Deferred Account (or
more than one Deferred Account, as described below) for each
Participant. A separate Deferred Account shall be established for
each separate Restricted Stock award that is subject to deferral, and for each
exercise of an Option award that is subject to deferral. Each
Deferred Account for a Participant shall be subject to the following
adjustments:
|
(a)
|
For
each Restricted Stock award subject to deferral, the Participant’s
Deferred Account established for that award will be credited with the
number of Share Units equal to the number of shares of Stock that the
Participant would have received in the absence of the deferral, with such
crediting occurring as of the date the shares would have been distributed
in the absence of the deferral.
|
|
(b)
|
For
each Option award subject to deferral, the Participant’s Deferred Account
established for that award will be credited with the number of Share Units
equal to the net additional number of shares of Stock resulting from the
Option exercise that the Participant would have received in the absence of
the deferral, with such crediting occurring as of the date the shares
would have been distributed in the absence of the
deferral.
|
|
(c)
|
As
of the date of any distribution of shares of Stock with respect to a
Participant's Deferred Account under the Plan, the Share Units credited to
a Participant's Deferred Account shall be reduced by the number of Shares
distributed to the Participant.
|
|
(d)
|
The
number of Share Units to be credited to a Participant’s Deferred Account
in accordance with paragraphs (a) and (b), and the number of Share Units
in the Deferred Account balance as of any date, shall be equitably
adjusted by the Company for any change in the outstanding shares of common
stock of the Company by reason of any stock dividend, split, spinoff,
recapitalization or other similar change, to the same extent such
adjustments would be made under the applicable Stock Plan with respect to
shares of Stock, as necessary to preserve the benefit of the Plan for the
Participant and the Company.
|
7.
Dividends
. As
of each dividend record date for Stock occurring on or after the date any
Share Units are credited to a Deferred Account of a Participant, and prior to
the date of distribution of shares of Stock with respect to those Share Units
(or, if applicable, the date of forfeiture of the Share Units), the Participant
shall receive a cash payment equal to the amount of the dividend that would be
payable with respect to the number of shares of Stock equal to the number of
Share Units credited to the Participant’s Deferred Account on the dividend
record date, with such payment made on the date of payment of the applicable
dividend.
8.
Vesting in Share
Units
. The vesting provisions that would have been applicable
to the shares of Stock in the absence of a Deferral Election shall apply to
Share Units credited to the Participant’s Deferred Account as though each Share
Unit represented one share of Stock; provided that dividends shall be fully
vested, to the extent that such dividends are payable with respect to Stock for
record dates occurring on or after the date the Share Units are credited to the
Participant’s Deferred Account and prior to any forfeiture of Share Units, and
would have been vested if the Stock were not subject to a Deferral
Election.
9.
Distribution of
Account
. The Participant shall receive a distribution of
shares of Stock equal to the number of Share Units credited to each of his or
her Deferred Accounts (excluding Share Units that are not vested), in accordance
with the terms of the applicable Deferral Election and subject to the terms of
the Plan. Such shares may consist, either in whole or in part, of the
Company's authorized and unissued Stock or shares of the Company's authorized
and issued Stock reacquired by the Company and held in its
treasury.
10.
Distribution
Elections
. Subject to the provisions of the Plan,
distributions with respect to a Participant’s Deferred Accounts shall be made in
accordance with the election of the Participant. Except as otherwise
provided in the Plan, the Participant may make a different distribution election
with respect to each Deferred Account. Notwithstanding any other
provisions of the Plan, distribution elections must be made not later than
December 31, 2004, and distribution elections on file on December 31, 2004,
shall be irrevocable as of such date. In the absence of a
distribution election, a Participant’s Deferred Account shall be distributed in
a lump sum within 60 days after Termination of Employment.
11.
Permissible Distribution
Events
. Notwithstanding anything to the contrary in any
Participant’s Deferral Election, no distributions with respect to any Deferred
Account (other than Grandfathered Accounts (as defined below)) shall be made at
any time or upon any event that is not a permissible payment event within the
meaning of Treas. Reg. § 1.409A-3(a)(1)-(6), and any provision in any such
Deferral Election to the contrary shall be null and void. In the
event that, after giving effect to the foregoing sentence, a Participant’s
Deferral Election does not contain any such permissible payment event, the
applicable Deferred Account balance shall be distributed in a lump sum within 60
days after Termination of Employment. A "Grandfathered Account” is
any Deferred Account that is exempt from the application of Section 409A of
the Internal Revenue Code of 1986, as amended, by virtue of Treas. Reg. §
1.409A-6.
12.
Specified
Dates
. A Participant’s Deferral Election for any Deferred
Account may provide that all of a Deferred Account balance will be paid on a
specified date, whether or not the Participant is employed by the Company or its
subsidiaries on such date; provided, however, that such date must be not less
than three years from the date on which the Deferral Account is
established. Distributions made to a Participant on a date specified
in the Participant’s Deferral Election will be made in a lump sum on such
date.
13.
Distributions after
Termination
.
|
(a)
|
Termination of
Employment
. For purposes of the Plan and any Deferral
Election,
“Termination of
Employment
”
(including references to an individual’s employment termination, and an
individual’s terminating employment) shall mean the individual ceasing to
be employed by the Company and the Affiliates
(as defined below)
, subject to the
following:
|
(1)
The employment relationship will be
deemed to have ended at the time the e
mployee, the Company and the Affiliates
reasonably anticipate that the
level of bona fide services the employee
would perform for the Company
and the Affiliates
after such date (whether as an employee
or independent contractor, but not as a director) would permanently decrease to
no more than 20% of the average level of bona fide services performed over the
immediately preceding 36 month period (or the full period of service to the
Company
and the
Affiliates
if the employee
has performed services for the Company
and the Affiliates
for less than 36 months). In
the absence of an expectation that the employee will perform at the
above-described level, the date of termination of employment will not be delayed
solely by reason of the employee continuing to be on the Company's
and the Affiliates’
payroll after such date.
Such determination shall be
made in accordance
with
, and in a manner intended to comply
with,
the meaning of
"separation from service"
(as defined in Treas. Reg.
§ 1.409A-1).
(2)
The employment relationship will
be treated as continuing intact while the employee is on a bona fide leave of
absence (determined in accordance with
, and subject to,
Treas. Reg.
§1.409A-1(h)).
(3) For
purposes of the Plan, “Affiliate” means any entity with which the Company is
considered to be a single employer under Section 414(b) or Section 414(c)
of the Code.
|
(b)
|
Retirement
. A
Participant’s Deferral Election for any Deferred Account may provide that
the Deferred Account balance will be paid after the Participant’s
Termination of Employment by reason of Retirement, in a lump sum, or in
equal annual payments over a period of from two (2) to fifteen (15)
years. If distributions are made under this paragraph (b), all
of the Participant’s Deferred Account balances shall be paid in the same
manner. Distributions following Termination of Employment by
reason of Retirement will be made or commence not later than 60 days after
the Participant’s date of Termination of Employment. A
Participant’s Termination of Employment will be considered by reason of
“Retirement” if the Participant’s termination occurs after the Participant
has attained age 55 and completed at least ten (10) years of service;
provided that in 2008, a Participant’s Termination of Employment will be
considered by reason of “Retirement” if the Participant’s termination
occurs at the earlier of: (i) after the Participant has attained age 55
and completed at least ten (10) years of service; or (ii) after the
Participant has attained age 65.
|
|
(c)
|
Termination before
Retirement
. A Participant’s Deferral Election for any
Deferred Account may provide that the Deferred Account balance will be
paid after the Participant’s Termination of Employment prior to Retirement
and death but only in a lump sum. Payments under this paragraph
(c) shall be made within 60 days following the Participant’s Termination
of Employment.
|
|
(d)
|
Death
. A
Participant’s Deferral Election for any Deferred Account may provide that
the Deferred Account balance will be paid after the Participant’s death in
a lump sum. Distributions following death will be made no later
than 60 days after the Participant’s date of
death.
|
|
(e)
|
Beneficiary
. If
a Participant dies after Termination of Employment, but prior to receiving
all of his or her benefits under the Plan, the Participant’s beneficiary
will continue to receive the benefits at the time they would have been
distributed to the Participant if the Participant had
survived.
|
|
(f)
|
Specified
Employee
. Notwithstanding any other provision of the
Plan, in the case of a Participant who is a “Specified Employee,” as
defined in this paragraph (f), at the time of the Participant’s
Termination of Employment, distributions with respect to the Participant’s
Deferred Account following the Participant’s Termination of Employment may
not be made before the first day of the month following the date that is
six months after the date of Termination of Employment. Any
payment to which a Specified Employee would otherwise be entitled prior to
the expiration of such six-month period shall be paid, without interest,
on the first day of the month following the date that is six months after
the date of Termination of Employment. For purposes of the
Plan, “
Specified
Employee
” shall be defined in accordance with Treas. Reg.
§1.409A-1(i) and such rules as may be established by the Chief Executive
Officer of Burlington Northern Santa Fe Corporation or his or her delegate
from time to time.
|
14.
Changes to Distribution
Elections
. [Reserved]
15.
Hardship
Withdrawals
. In the discretion of the Committee, upon a
showing of hardship, a Participant may receive a distribution with respect to
Share Units credited to his or her Deferred Accounts prior to the date otherwise
scheduled for distribution. Notwithstanding the previous provisions
of this section, no hardship withdrawals will be permitted after December 31,
2004.
16.
Change in Control
Distributions
. All Deferral Elections shall be cancelled upon
the occurrence of a Change in Control, and all shares shall be delivered within
60 days after the date of such Change in Control. For purposes of the
Plan, the term “Change in Control” shall have the meaning set forth in the
Burlington Northern Santa Fe 1996 Stock Incentive Plan, as it may be amended
from time to time, provided that a Change in Control shall only deemed to have
occurred to the extent such transaction or event also constitutes a “change in
the ownership or effective control” of the Company or a “change in ownership of
a substantial portion of the assets” of the Company, in each case within the
meaning of Treas. Reg. § 1.409A-3(a)(5).
17.
Designation of
Beneficiary
. Each Participant from time to time, by signing a
form furnished by the Committee, may designate any legal or natural person or
persons (who may be designated contingently or successively) to whom his or her
benefits under the Plan are to be paid if the Participant dies before receiving
all of his or her benefits. A beneficiary designation form will be
effective only when the signed form is filed with the Company while the
Participant is alive and will cancel all beneficiary designation forms filed
earlier. If a deceased Participant failed to designate a beneficiary
as provided above, or if the designated beneficiary of a deceased Participant
dies before the Participant or before complete payment of the Participant's
benefits, the benefits shall be paid to the legal representative or
representatives of the estate of the last to die of the Participant and
designated beneficiary.
18.
Statement of Deferred
Accounts
. As soon as practicable after the end of each Plan
Year, the Company shall provide each Participant with a statement of the
transactions in each of his or her Deferred Accounts during that year and his or
her Deferred Account balances as of the end of the year.
19.
Election
Forms
. Participant election forms made under the Plan shall be
in such form as may be established by the Committee. The Committee
may establish additional rules applicable to such elections as may be set forth
in the election forms.
20.
Restrictions on Share
Units
. Until distribution, Share Units may not be sold,
assigned transferred, pledged or otherwise encumbered, and the Participant shall
not be treated as a stockholder with respect to Share Units.
21.
Rights to
Shares
. Neither the Participant nor any other person shall, by
reason of the Plan, acquire any right in or title to any assets, funds or
property of the Company whatsoever prior to the date shares of Stock are
distributed. The Participant shall have only a contractual right to
the shares and cash distributable under the Plan, unsecured by any assets of the
Company or any subsidiary.
22.
Plan Not Contract of
Employment
. The Plan does not constitute a contract of
employment, and does not give the Participant the right to be retained in the
employ of the Company.
23.
Successors and
Assigns
. The Plan shall be binding upon, and inure to the
benefit of, the Company and its successors and assigns, and upon any person
acquiring, whether by merger, consolidation, purchase of assets or otherwise,
all or substantially all of the Company's assets and business.
24.
Administration
. The
authority to manage and control the operation and administration of the Plan
shall be vested in the BNSF Employee Benefits Committee (the
“Committee”). The Committee is authorized to make appropriate
modifications of the Stock award agreements (including Stock Option and
Restricted Stock agreements) to reflect Deferral Elections under the
Plan. Subject to the provisions of the Plan, the Committee will have
the authority and discretion to interpret the Plan, to establish, amend, and
rescind any rules and regulations relating to the Plan, to determine the terms
and provisions of any agreements made pursuant to the Plan, and to make all
other determinations that may be necessary or advisable for the administration
of the Plan. Any interpretation of the Plan by the Committee and any
decision made by it under the Plan is final and binding on all
persons. Except to the extent prohibited by applicable law or the
rules of any stock exchange, the Committee may allocate all or any portion of
its responsibilities and powers to any one or more of its members and, except as
otherwise provided by the Committee from time to time, the Committee delegates
its responsibilities to the Human Resources Department. Any such
allocation or delegation may be revoked by the Committee at any
time.
25.
Amendment
. The
Plan may be amended from time to time by the Chief Executive Officer of the
Company, and additional rules may be established by the Chief Executive Officer
of the Company, except that amendments of the rules relating to distributions of
the Chief Executive Officer’s benefits may be amended by the Chief Executive
Officer only with the approval of the Committee.
The
Burlington Northern Santa Fe Corporation Senior Management Stock Deferral Plan
is hereby adopted, effective January 1, 1997 by Burlington Northern Santa Fe
Corporation.
Exhibit 10.7
Amended
and Restated December 6, 2007
BURLINGTON
NORTHERN SANTA FE 1996 STOCK INCENTIVE PLAN
SECTION
1
STATEMENT
OF PURPOSE
1.1
The BURLINGTON NORTHERN SANTA FE CORPORATION 1996 STOCK INCENTIVE PLAN (the
"Plan") has been established by BURLINGTON NORTHERN SANTA FE CORPORATION (the
"Company") to:
|
|
(a)
|
attract
and retain executive, managerial and other salaried employees;
|
|
|
(b)
|
motivate
participating employees, by means of appropriate incentives, to achieve
long-range goals;
|
|
|
(c)
|
provide
incentive compensation opportunities that are competitive with those of
other major corporations; and
|
|
|
(d)
|
further
identify a Participant's interests with those of the Company's other
stockholders through compensation that is based on the Company's common
stock;
|
and
thereby promote long-term financial interest of the Company and the Related
Companies, including the growth in value of the Company's equity and enhancement
of long-term stockholder return.
SECTION
2
DEFINITIONS
2.1.
Unless the context indicates otherwise, the following terms shall have the
meanings set forth below:
|
|
(a)
|
Affiliate
.
“Affiliate”
shall mean all persons with whom the Company is considered to be a single
employer under section 414 (b) of the Code and all persons with whom the
Company would be considered a single employer under section 414 (c) of the
Code.
|
|
|
(b)
|
Award.
The term "Award" shall mean any award or benefit granted to any
Participant under the Plan, including, without limitation, the grant of
Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock
Units, Performance Stock, Stock acquired through purchase under Section
12, or Performance Units.
|
|
|
(c)
|
Board.
The term "Board" shall mean the Board of Directors of the Company.
|
|
|
(d)
|
Cause.
The term "Cause" shall mean (a) the willful and continued failure by the
Participant to substantially perform his duties with the Company (other
than any such failure resulting from his incapacity due to physical or
mental illness), or (b) the willful engaging by the Participant in conduct
which is demonstrably and materially injurious to the Company, monetarily
or other-wise. For purposes of this definition, no act, or failure to act,
shall be deemed "willful" unless done, or omitted to be done, by the
Participant not in good faith and without reasonable belief that his
action or omission was in the best interest of the Company.
|
(e)
Change in Control. A "Change in Control" shall be deemed to have occurred
if:
|
|
(1)
|
any
"person" as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") (other
than the Company, any trustee or other fiduciary holding securities under
an employee benefit plan of the Company, or any company owned, directly or
indirectly, by the stockholders of the Company in substantially the same
proportions as their ownership of stock of the Company), is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Company representing 25% or
more of the combined voting power of the Company's then outstanding
securities;
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(2)
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during
any period of two consecutive years (not including any period prior to the
effective date of this provision), individuals who at the beginning of
such period constitute the Board, and any new director (other than a
director designated by a person who has entered into an agreement with the
Company to effect a transaction described in clause (1), (3) or (4) of
this definition) whose election by the Board or nomination for election by
the Company's stockholders was approved by a vote of at least two-thirds
(2/3) of the directors then still in office who either were directors at
the beginning of the period or whose election or nomination for election
was previously so approved, cease for any reason to constitute at least a
majority thereof;
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(3)
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the
stockholders of the Company approve a merger or consolidation of the
Company with any other company other than (i) a merger or consolidation
which would result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity) more than 80% of the combined voting power of the voting
securities of the Company (or such surviving entity) outstanding
immediately after such merger or consolidation, or (ii) a merger or
consolidation effected to implement a recapitalization of the Company (or
similar transaction) in which no "person" (as hereinabove defined)
acquires more than 25% of the combined voting power of the Company's then
outstanding securities; or
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(4)
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the
stockholders of the Company adopt a plan of complete liquidation of the
Company or approve an agreement for the sale or disposition by the Company
of all or substantially all of the Company's assets. For purposes of this
clause (4), the term "the sale or disposition by the Company of all or
substantially all of the Company's assets" shall mean a sale or other
disposition transaction or series of related transactions involving assets
of the company or of any direct or indirect subsidiary of the Company
(including the stock of any direct or indirect subsidiary of the Company)
in which the value of the assets or stock being sold or otherwise disposed
of (as measured by the purchase price being paid therefor or by such other
method as the Board of Directors of the Company determines is appropriate
in a case where there is no readily ascertainable purchase price)
constitutes more than two-thirds of the fair market value of the Company
(as hereinafter defined). For purposes of the preceding sentence, the
"fair market value of the Company" shall be the aggregate market value of
the outstanding shares of Stock (on a fully diluted basis) plus the
aggregate market value of the Company's other outstanding equity
securities. The aggregate market value of the shares of Stock (on a fully
diluted basis) outstanding on the date of the execution and delivery of a
definitive agreement with respect to the transaction or series or related
transactions (the "Transaction Date") shall be determined by the average
closing price of the shares of Stock for the ten trading days immediately
preceding the Transaction Date. The aggregate market value of any other
equity securities of the Company shall be determined in a manner similar
to that prescribed in the immediately preceding sentence for determining
the aggregate market value of the shares of Stock or by such other method
as the Board of Directors of the Company shall determine is appropriate.
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Notwithstanding
the foregoing, a merger, consolidation, acquisition of common control, or
business combination of the Company and a Class I Railroad or a holding company
of a Class I Railroad that is approved by the Board shall not constitute a
"Change in Control" unless the Board makes a determination that the transaction
shall constitute a "Change in Control".
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(f)
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Code.
The term "Code" means the Internal Revenue Code of 1986, as amended. A
reference to any provision of the Code shall include reference to any
successor provision of the Code.
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(g)
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Date
of Termination. “Date of Termination” shall
mean “separation
from service” (within the meaning of Section 409A of the Code).
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(h)
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Deferred Compensation
.
Payments or benefits that would be
considered to be provided under a nonqualified deferred compensation plan
as that term is defined in Treas. Reg.
§1.409A-1.
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(i)
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Disability.
Except as otherwise provided by the Committee, a Participant shall be
considered to have a "Disability" during the period in which he is unable,
by reason of a medically determinable physical or mental impairment, to
engage in any substantial gainful activity, which condition, in the
discretion of the Committee, is expected to have a duration of not less
than 120 days.
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(j)
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Employee.
The term "Employee" shall mean a person with an employment relationship
with the Company or a Related Company.
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(k)
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Employer.
The Company and each Related Company which, with the consent of the
Company, participates in the Plan for the benefit of its eligible
employees are referred to collectively as the "Employers" and individually
as an "Employer".
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(l)
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Fair
Market Value. The "Fair Market Value" of the Stock shall be the mean
between the highest and lowest quoted sales prices of a share of Common
Stock on the New York Stock Exchange Composite Transaction Report;
provided, that if there were no sales on the valuation date but there were
sales on dates within a reasonable period both before and after the
valuation date, the Fair Market Value is the weighted average of the means
between the highest and lowest sales on the nearest date before and the
nearest date after the valuation date. The average is to be weighed
inversely by the respective numbers of trading days between the selling
dates and the valuation date and shall be determined in good faith by the
Committee. In any event the determination of “Fair Market Value” shall be
consistent with the requirements of Treasury Regulation Section
1.409A-1(b)(5)(iv)(A).
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(m)
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Immediate
Family. With respect to a particular Participant, the term "Immediate
Family" shall mean the Participant's spouse, children, stepchildren,
adoptive relationships, sisters, brothers and grandchildren.
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(n)
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Option.
The term "Option" shall mean any Incentive Stock Option or Non-Qualified
Stock
Option
granted under the Plan.
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(o)
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Participant.
The term "Participant" means an Employee who has been granted an award
under the Plan.
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(p)
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Performance-Based
Compensation. The term "Performance-Based Compensation" shall have the
meaning ascribed to it in section 162(m)(4)(C) of the Code.
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(q)
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Performance
Period. The term "Performance Period" shall mean the period over which
applicable performance is to be measured.
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(r)
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Qualified
Retirement Plan. The term "Qualified Retirement Plan" means any plan of
the Company or a Related Company that is intended to be qualified under
section 401(a) of the Code.
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(s)
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Related
Companies. The term "Related Company" means any company during any period
in which it is a "subsidiary corporation" (as that term is defined in Code
section 424(f)) with respect to the Company.
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(t)
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Restricted
Period. The term "Restricted Period" shall mean the period of time for
which Restricted Stock is subject to forfeiture pursuant to the Plan or
during which Options and Stock Appreciation Rights are not exercisable.
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(u)
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Retirement.
"Retirement" of a Participant shall mean the occurrence of a Participant's
Date of Termination under circumstances that constitute a retirement at
normal requirement age under the terms of the Qualified Retirement Plan of
an Employer or Related Company that is extended to the Participant
immediately prior to the Participant's Date of Termination or, if no such
plan is extended to the Participant on his Date of Termination, under the
terms of any applicable retirement policy of the Participant's employer
provided, that in respect to grants made on or after January 1, 1999, the
following definition shall apply:
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Retirement.
“Retirement” of a Participant shall mean the occurrence of a Participant’s
Date of Termination under circumstances that constitute a retirement with
immediate eligibility for benefits under Article 6 or Article 7 of the
Burlington Northern Santa Fe Retirement Plan, or under the terms of a
Qualified Retirement Plan of an Employer or Related Company that is
extended to the Participant immediately prior to the Participant’s Date of
Termination, or if no such plan is extended to the Participant on his Date
of Termination, under the terms of any applicable retirement policy of the
Participant’s employer.
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(v)
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SEC.
"SEC" shall mean the United States Securities and Exchange Commission.
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(x)
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Specified
Employee. “Specified Employee” shall be defined in accordance with Treas.
Reg. §1.409A-1(i) and such rules as may be established by the Chief
Executive Officer of the Corporation or his or her delegate from time to
time.
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(y)
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Stock.
The term "Stock" shall mean shares of common stock of the Company.
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SECTION
3
ELIGIBILITY
3.1.
Subject to the discretion of the Committee and the terms and conditions of the
Plan, the Committee shall determine and designate from time to time, from among
the salaried, full-time officers and employees of the Employers those Employees
who will be granted one or more awards under the Plan.
SECTION
4
OPERATION
AND ADMINISTRATION
4.1.
Subject to the approval of the stockholders of the Company at the Company's 1996
annual meeting of the stockholders, the Plan shall be effective as of January 1,
1996 ("Effective Date"), provided however, that any awards made under the Plan
prior to approval by stockholders, shall be contingent on approval of the Plan
by stockholders of the Company and all dividends on Awards shall be held by the
Company and paid only upon such approval and all other rights of a Participant
in connection with an Award shall not be effective until such approval is
obtained. The Plan shall be unlimited and remain in effect until termination by
the Board, provided however, that no Incentive Stock Options may be granted
under the Plan on a date that is more than ten years from the Effective Date or,
if earlier, the date the Plan is adopted by the Board.
4.2.
The Plan shall be administered by the Compensation Committee of the Board which
shall be selected by the Board, shall consist of members of the Board who are
not employees of the Company and are not eligible to participate in the Plan,
and shall consist of not less than two members of the Board, or such greater
number as may be required for compliance with SEC Rule 16b-3. The authority to
manage and control the operation and administration of the Plan shall be vested
in the Committee, subject to the following:
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(a)
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Subject
to the provisions of the Plan, the Committee will have the authority and
discretion to select Employees to receive Awards, to determine the time or
times of receipt, to determine the types of Awards and the number of
shares covered by the Awards, to establish the terms, conditions,
performance criteria, restrictions, and other provisions of such Awards,
and to cancel or suspend Awards. In making such Award determinations, the
Committee may take into account the nature of services rendered by the
respective Employee, his present and potential contribution to the
Company's success and such other factors as the Committee deems relevant.
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(b)
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Subject
to the provisions of the Plan, the Committee will have the authority and
discretion to determine the extent to which Awards under the Plan will be
structured to conform to the requirements applicable to Performance-Based
Compensation as described in Code section 162(m), and to take such action,
establish such procedures, and impose such restrictions at the time such
awards are granted as the Committee determines to be necessary or
appropriate to conform to such requirements.
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(c)
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The
Committee will have the authority and discretion to interpret the Plan, to
establish, amend, and rescind any rules and regulations relating to the
Plan, to determine the terms and provisions of any agreements made
pursuant to the Plan, and to make all other determinations that may be
necessary or advisable for the administration of the Plan.
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(d)
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Any
interpretation of the Plan by the Committee and any decision made by it
under the Plan is final and binding on all persons.
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(e)
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Except
as otherwise expressly provided in the Plan, where the Committee is
authorized to make a determination with respect to any Award, such
determination shall be made at the time the Award is made, except that the
Committee may reserve the authority to have such determination made by the
Committee in the future (but only if such reservation is made at the time
the Award is granted and is expressly stated in the Agreement reflecting
the Award).
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(f)
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Except
to the extent prohibited by applicable law or the rules of any stock
exchange, the Committee may allocate all or any portion of its
responsibilities and powers to any one or more of its members and other
than in respect to eligibility, times of Awards, and terms, conditions,
performance criteria, restrictions and other provisions of Awards, and
except as otherwise provided by the Committee from time to time, the
Committee delegates its responsibilities and powers to the Senior Vice
President-Employee Relations or his successor. Any such allocation or
delegation may be revoked by the Committee at any time.
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(g)
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No
member or authorized delegate of the Committee shall be liable to any
person for any action taken or omitted in connection with the
administration of the Plan unless attributable to his own fraud or willful
misconduct; nor shall the Employers be liable to any person for any such
action unless attributable to fraud or willful misconduct on the part of a
director or employee of the Employers. The Committee, the individual
members thereof, and persons acting as the authorized delegates of the
Committee under the plan, shall be indemnified by the Employers against
any and all liabilities, losses, costs and expenses (including legal fees
and expenses) of whatsoever kind and nature which may be imposed on,
incurred by or asserted against the Committee or its members or authorized
delegates by reason of the performance of a Committee function if the
Committee or its members or authorized delegates did not act dishonestly
or in willful violation of the law or regulation under which such
liability, loss, cost or expense arises. This indemnification shall not
duplicate but may supplement any coverage available under any applicable
insurance.
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4.3.
Notwithstanding any other provision of the Plan to the contrary, no Participant
shall receive any Award of an Option or a Stock Appreciation Right under the
Plan to the extent that the sum of:
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(a)
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the
number of shares of Stock subject to such Award;
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(b)
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the
number of shares of Stock subject to all other prior Awards of Options and
Stock Appreciation Rights under the Plan during the one-year period ending
on the date of the Award; and
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(c)
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the
number of shares of Stock subject to all other prior stock options and
stock appreciation rights granted to the Participant under other plans or
arrangements of the Employers and Related Companies during the one-year
period ending on the date of the Award;
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would
exceed the Participant's Individual Limit under the Plan. The
determination made under the foregoing provisions of this subsection 4.3 shall
be based on the shares subject to the awards at the time of grant, regardless of
when the awards become exercisable. Subject to the provisions of
Section 14, a Participant's "Individual Limit" shall be 1,000,000 shares per
calendar year.
4.4.
To the extent that the Committee determines that it is necessary or desirable to
conform any Awards under the Plan with the requirements applicable to
“Performance-Based Compensation”, as that term is used in Code section
162(m)(4)(C), it may, at or prior to the time an Award is granted, take such
steps and impose such restrictions with respect to such Award as it determines
to be necessary to satisfy such requirements. To the extent that is
necessary to establish performance goals for a particular performance period,
those goals will be based on one or more of the following business criteria: net
income, earnings per share, debt reduction, safety, on-time train performance,
return on investment, operating ratio, cash flow, return on assets, stockholders
return, revenue, customer satisfaction, and return on equity. If the
Committee establishes performance goals for a performance period relating to one
or more of these business criteria, the Committee may determine to approve a
payment for that particular performance period upon attainment of the
performance goal relating to any one or more of such criteria.
4.5.
To the extent that the Plan and the Awards under the Plan are subject to the
rules applicable to nonqualified deferred compensation plans under section 409A
of the Code, such portion of the Plan and such awards are not intended to result
in acceleration of income recognition or imposition of penalty taxes by reason
of section 409A, and the terms of such portion of the Plan and such awards shall
be interpreted in a manner (and such portion of the Plan and such awards may be
amended to the extent determined necessary or appropriate by the Committee) to
avoid such acceleration and penalties.
SECTION
5
SHARES
AVAILABLE UNDER THE PLAN
5.1
The shares of Stock with respect to which Awards may be made under the Plan
shall be shares currently authorized but unissued or treasury shares acquired by
the Company, including shares purchased in open market or in private
transactions. Subject to the provisions of Section 14, the total number of
shares of Stock available for grant of Awards shall not exceed ten million
(10,000,000) shares of stock. Except as otherwise provided herein, any shares
subject to an Award which for any reason expires or is terminated without
issuance of shares (whether or not cash or other consideration is paid to a
Participant in respect to such Award) as well as shares used to pay an Option
Purchase Price under this Plan or a predecessor plan shall again be available
under the Plan.
SECTION
6
OPTIONS
6.1.
The grant of an "Option" under this Section 6 entitles the Participant to
purchase shares of Stock at a price fixed at the time the Option is granted, or
at a price determined under a method established at the time the Option is
granted, subject to the terms of this Section 6. Options granted under this
section may be either Incentive Stock Options or Non-Qualified Stock Options,
and subject to Sections 13 and 18, shall not be exercisable for six months from
date of grant, as determined in the discretion of the Committee. An "Incentive
Stock Option" is an Option that is intended to satisfy the requirements
applicable to an "incentive stock option" described in section 422(b) of the
Code. A "Non-Qualified Option" is an Option that is not intended to be an
"incentive stock option" as that term is described in section 422(b) of the
Code.
6.2.
The Committee shall designate the Participants to whom Options are to be granted
under this Section 6 and shall determine the number of shares of Stock to be
subject to each such Option. To the extent that the aggregate fair market value
of Stock with respect to which Incentive Stock Options are exercisable for the
first time by any individual during any calendar year (under all plans of the
Company and all Related Companies) exceeds $100,000, such options shall be
treated as Non-Qualified Stock Options, to the extent required by section 422 of
the Code.
6.3.
The determination and payment of the purchase price of a share of Stock under
each Option granted under this section shall be subject to the
following:
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(a)
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The
purchase price shall be established by the Committee or shall be
determined by a method established by the Committee at the time the Option
is granted; provided, however, that in no event shall such price be less
than Fair Market Value on the date of the grant.
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(b)
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Subject
to the following provisions of this subsection 6.3, the full purchase
price of each share of Stock purchased upon the exercise of any Option
shall be paid at the time of such exercise and, as soon as practicable
thereafter, a certificate representing the shares so purchased shall be
delivered to the person entitled thereto.
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(c)
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The
purchase price shall be payable in cash or in shares of Stock (valued at
Fair Market Value as of the day of exercise).
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(d)
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A
Participant may elect to pay the purchase price upon the exercise of an
Option through a cashless exercise arrangement as may be established by
the Company.
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6.4.
Except as otherwise expressly provided in the Plan, an Option granted under this
Section 6 shall be exercisable in accordance with the following terms of this
subsection 6.4:
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(a)
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The
terms and conditions relating to exercise of an Option shall be
established by the Committee, and may include, without limitation,
conditions relating to completion of a specified period of service,
achievement of performance standards prior to exercise of the Option, or
achievement of Stock ownership objectives by the Participant. No Option
may be exercised by a Participant after the expiration date applicable to
that Option.
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(b)
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The
exercise of an Option will result in the surrender of the corresponding
rights under a tandem Stock Appreciation Right, if any.
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6.5.
The exercise period of
any Option shall be determined by the Committee and shall not extend more than
ten years after the Date of Grant.
6.6.
In the event the Participant exercises an Option under this Plan or a
predecessor plan of the Company or a Related Company and pays all or a portion
of the purchase price in Common Stock, in the manner permitted by subsection
6.3, such Participant, pursuant to the exercise of Committee discretion at the
time the Option is exercised or to the extent previously authorized by the
Committee, may be issued a new Option to purchase additional shares of Stock
equal to the number of shares of Stock surrendered to the Company in such
payment. Such new Option shall have an exercise price equal to the Fair Market
Value per share on the date such new Option is granted, shall first be
exercisable six months from the date of grant of the new Option and shall have
an expiration date on the same date as the expiration date of the original
Option so exercised by payment of the purchase price in shares of
Stock.
SECTION
7
STOCK
APPRECIATION RIGHTS
7.1.
Subject to the terms of this Section 7, a Stock Appreciation Right granted under
the Plan entitles the Participant to receive, in cash or Stock (as determined in
accordance with subsection 7.4), value equal to all or a portion of the excess
of: (a) the Fair Market Value of a specified number of shares of Stock at the
time of exercise; over (b) a specified price which shall not be less than 100%
of the Fair Market Value of the Stock at the time the Stock Appreciation Right
is granted, or, if granted in tandem with an Option, the exercise price with
respect to shares under the tandem Option.
7.2.
Subject to the provisions of the Plan, the Committee shall designate the
Participants to whom Stock Appreciation Rights are to be granted under the Plan,
shall determine the exercise price or a method by which the price shall be
established with respect to each such Stock Appreciation Right, and shall
determine the number of shares of Stock on which each Stock Appreciation Right
is based. A Stock Appreciation Right may be granted in connection with all or
any portion of a previously or contemporaneously granted Option or not in
connection with an Option. If a Stock Appreciation Right is granted in
connection with an Option then, in the discretion of the Committee, the Stock
Appreciation Right may, but need not, be granted in tandem with the
Option.
7.3.
The exercise of Stock Appreciation Rights shall be subject to the
following:
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(a)
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If
a Stock Appreciation Right is not in tandem with an Option, then the Stock
Appreciation Right shall be exercisable in accordance with the terms
established by the Committee in connection with such rights but, subject
to Sections 13 and 18 shall not be exercisable for six months from the
date of grant; and may include, without limitation, conditions relating to
completion of a specified period of service, achievement of performance
standards prior to exercise of the Stock Appreciation Rights, or
achievement of objectives relating to Stock ownership by the Participant.
However, except as otherwise expressly provided in the Plan, no Stock
Appreciation Right subject to this paragraph (a) may be exercised by a
Participant after the expiration date applicable to that Stock
Appreciation Right.
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(b)
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If
a Stock Appreciation Right is in tandem with an Option, then the Stock
Appreciation Right shall be exercisable at the time the tandem Option is
exercisable. The exercise of a Stock Appreciation Right will result in the
surrender of the corresponding rights under the tandem Option.
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7.4.
Upon the exercise of a Stock Appreciation Right, the value to be distributed to
the Participant, in accordance with subsection 7.1, shall be distributed in
shares of Stock (valued at their Fair Market Value at the time of exercise), in
cash, or in a combination thereof, in the discretion of the
Committee.
7.5.
The Committee may grant Limited Stock Appreciation Rights. Notwithstanding the
foregoing provisions of this Section 7, a Limited Stock Appreciation Rights
shall be subject to the following:
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(a)
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A
Limited Stock Appreciation Right may (but need not) be granted in
connection with all or any portion of a previously or contemporaneously
granted Option and shall not be exercisable for six months from the date
of grant. A Limited Stock Appreciation Right may be granted in tandem with
an Option regardless of whether the Option is in tandem with a Stock
Appreciation Right.
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(b)
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A
Limited Stock Appreciation Rights entitles the Participant to receive a
cash payment in connection with a Change in Control. In the case of a
Limited Stock Appreciation Right that is in tandem with an Option, the
payment amount shall be equal to the difference between the exercise price
per share of the Stock covered by the tandem Option and the Fair Market
Value of a share of Stock upon the date of exercise.
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(c)
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To
the extent provided by the Committee, a Limited Stock Appreciation Right
may be automatically exercisable at a time determined by the Committee, or
it may be exercised by the Participant during the period beginning not
earlier than the date of a Change in Control, and ending not later than
ninety (90) days following the date of the Change in Control, and may be
exercisable regardless of whether the Participant is then employed by an
Employer or a Related Company.
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(d)
|
If
the Limited Stock Appreciation Right is in tandem with an Option, the
exercise of the Limited Stock Appreciation Right shall result in the
cancellation of the tandem Option (and any Stock Appreciation Right in
tandem with such Option).
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SECTION
8
RESTRICTED
STOCK
8.1.
Subject to the terms of this Section 8, Restricted Stock Awards under the Plan
are grants of Stock to Participants, the vesting of which is subject to certain
conditions established by the Committee, with some or all of those
conditions relating to events (such as performance or
continued employment)
occurring after the date of grant, provided however that to the extent that
vesting of a Restricted Stock Award is contingent on continued employment, the
required employment period shall not generally be less than three years
following the grant of the Award unless such grant is in substitution for an
Award under this Plan or a predecessor plan of the Company or a Related
Company.
8.2. The
Committee shall designate the Participants to whom Restricted Stock is to be
granted, and the number of shares of Stock that are subject to each such Award.
The Award of shares under this Section 8 may, but need not, be made in
conjunction with a cash-based incentive compensation program maintained by the
Company, and may, but need not, be in lieu of cash otherwise awardable under
such program.
8.3.
Shares of Restricted Stock granted to Participants under the Plan shall be
subject to the following terms and conditions:
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(a)
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Except
as otherwise hereinafter provided, Restricted Stock granted to
Participants may not be sold, assigned, transferred, pledged or otherwise
encumbered during the Restricted Period. Except for such restrictions, the
Participant as owner of such shares shall have all the rights of a
stockholder, including but not limited to the right to vote such shares
and, except as otherwise provided by the Committee or as otherwise
provided by the Plan, the right to receive all dividends paid on such
shares.
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(b)
|
Each
certificate issued in respect of shares of Restricted Stock granted under
the Plan shall be registered in the name of the Participant and, at the
discretion of the Committee, each such certificate may be deposited with
the Company with a stock power endorsed in blank or in a bank designated
by the Committee.
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(c)
|
The
Committee may award Performance-Based Restricted Stock, which shall be
Restricted Stock that becomes vested (or for which vesting is accelerated)
upon the achievement of performance goals established by the Committee.
The Committee may specify the number of shares that will vest upon
achievement of different levels of performance. Except as otherwise
provided by the Committee, achievement of maximum targets during the
Performance Period shall result in the Participant's receipt of the full
Performance-Based Restricted Stock Award. For achievement of the minimum
target but less than the maximum target the Committee may establish a
portion of the Award which the Participant is entitled to receive.
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(d)
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Except
as otherwise provided by the Committee, any Restricted Stock which is not
earned by the end of a Performance Period shall be forfeited. If a
Participant's Date of Termination occurs during a Performance Period with
respect to any Restricted Stock subject to a Performance Period granted to
him, the Committee may determine that the Participant will be entitled to
settlement of all or any portion of the Restricted Stock subject to a
Performance Period as to which he would otherwise be eligible, and may
accelerate the determination of the value and settlement of such
Restricted Stock subject to a Performance Period or make such other
adjustments as the Committee, in its sole discretion, deems desirable.
Subject to the limitations of the Plan and the Award of Restricted Stock,
upon the vesting of Restricted Stock, such Restricted Stock will be
transferred free of all restrictions to a Participant (or his or her legal
representative, beneficiary or heir).
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8.4
A grant
of Restricted Stock subject to a Performance Period shall be made in 1996 and
shall vest as follows:
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(1)
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One-third
of the Award shall vest after three years, but no later than six years
from the date of grant upon attaining Fair Market Value equal to the Fair
Market Value on date of grant increased by a 12% compound annual growth
rate for a three year period, provided such price has been maintained for
thirty (30) consecutive trading days either immediately prior to or any
time after the third year;
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(2)
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One-third
of the Award shall vest after four years, but no later than six years from
the date of grant upon attaining Fair Market Value equal to the Fair
Market Value on date of grant increased by a 12% compound annual growth
rate for a four year period, provided such price has been maintained for
thirty (30) consecutive trading days either immediately prior to or any
time after the fourth year;
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(3)
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One-third
of the Award shall vest after five years, but no later than six years from
the date of grant upon attaining Fair Market Value equal to the Fair
Market Value on date of grant increased by a 12% compound annual growth
rate for a five year period, provided such price has been maintained for
thirty (30) consecutive trading days either immediately prior to or any
time after the fifth year.
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SECTION
9
RESTRICTED
STOCK UNITS
9.1.
Subject to the terms of this Section 9, a Restricted Stock Unit entitles a
Participant to receive shares for the units at the end of a Restricted Period to
the extent provided by the Award with the vesting of such units to be contingent
upon such conditions as may be established by the Committee (such as continued
employment which, when required shall be not less than three years or
satisfaction of performance criteria). The Award of Restricted Stock
Units under this Section 9 may, but need not, be made in conjunction with a
cash-based incentive compensation program maintained by the Company, and may,
but need not, be in lieu of cash otherwise awardable under such
program.
9.2.
The Committee shall designate the Participants to whom Restricted Stock Units
shall be granted and the number of units that are subject to each such Award.
During any period in which units are outstanding and have not been settled in
stock, the Participant shall not have the rights of a stockholder, but shall
have the right to receive a payment from the Company in lieu of a dividend in an
amount equal to such dividends and at such times as dividends would otherwise be
paid.
9.3.
If a
Participant's Date of Termination occurs during a Restricted Period with respect
to any Restricted Stock Units granted to him, the Committee may determine that
the Participant will be entitled to settlement of all or any portion of the
Restricted Stock Units as to which he would otherwise be eligible, and may
accelerate the determination of the value and settlement of such Restricted
Stock Units or make such other adjustments as the Committee, in its sole
discretion, deems desirable.
SECTION
10
PERFORMANCE
STOCK
10.1. Subject
to the terms of this Section 10, a Performance Stock Award provides for the
distribution of Stock to a Participant upon the achievement of performance
objectives established by the Committee. For purposes of the Plan, the
"Performance Period" with respect to any Award shall be the period over which
the applicable performance is to be measured.
10.2. The
Committee shall designate the Participants to whom Performance Stock Awards are
to be granted, and the number of shares of Stock that are subject to each such
Award. The Award of shares under this Section 10 may, but need not, be made in
conjunction with a cash-based incentive compensation program maintained by the
Company, and may, but need not, be in lieu of cash otherwise awardable under
such program.
10.3. If
a Participant's Date of Termination occurs during a Performance Period with
respect to any Performance Stock granted to him, the Committee may determine
that the Participant will be entitled to settlement of all or any portion of the
Performance Stock as to which he would otherwise be eligible, and may accelerate
the determination of the value and settlement of such Performance Stock or make
such other adjustments as the Committee, in its sole discretion, deems
desirable.
SECTION
11
PERFORMANCE
UNITS
11.1. Subject
to the terms of this Section 11, the Award of Performance Units under the Plan
entitles the Participant to receive value for the units at the end of a
Performance Period to the extent provided under the Award. The number
of units earned, and value received for them, will be contingent on the degree
to which the performance measures established at the time of grant of the Award
are met.
11.2.
The Committee shall designate the Participants to whom Performance Units are
to be
granted, and the number of units to be the subject to each such
Award.
11.3. For
each Participant, the Committee will determine the value of units, which may be
stated either in cash or in units representing shares of Stock; the performance
measures used for determining whether the Performance Units are earned; the
Performance Period during which the performance measures will apply; the
relationship between the level of achievement of the performance measures and
the degree to which Performance Units are earned; whether, during or after the
Performance Period, any revision to the performance measures or Performance
Period should be made to reflect significant events or changes that occur during
the Performance Period; and the number of earned Performance Units that will be
settled in cash and/or shares of Stock.
11.4. Settlement
of Performance Units shall be subject to the following:
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(a)
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The
Committee will compare the actual performance to the performance measures
established for the Performance Period and determine the number of units
as to which settlement is to be made, and the value of such units.
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(b)
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Settlement
of units earned shall be wholly in cash, wholly in Stock or in a
combination of the two, to be distributed in a lump sum or installments,
as determined by the Committee.
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(c)
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Shares
of Stock distributed in settlement of the units shall be subject to such
vesting requirements and other conditions, if any, as the Committee shall
determine. Such vesting restrictions may include, without limitation,
restrictions of the type that may be imposed with respect to Restricted
Stock under Section 8.
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11.5. If
a Participant's Date of Termination occurs during a Performance Period with
respect to any Performance Units granted to him, the Committee may determine
that the Participant will be entitled to settlement of all or any portion of the
Performance Units as to which he would otherwise be eligible, and may accelerate
the determination of the value and settlement of such Performance Units or make
such other adjustments as the Committee, in its sole discretion, deems
desirable.
SECTION
12
STOCK
PURCHASE PROGRAM
12.1. The
Committee may, from time to time, establish one or more programs under which
Participants will be permitted to purchase shares of Stock under the Plan, and
shall designate the Participants eligible to participate under such Stock
purchase programs. The purchase price for shares of Stock available under such
programs, and other terms and conditions of such programs, shall be established
by the Committee. The purchase price may not be less than 75% of the Fair Market
Value of the Stock at the time of purchase (or, in the Committee's discretion,
the average Stock value over a period determined by the Committee), and further
provided that the purchase price may not be less than par value.
12.2. The
Committee may impose such restrictions with respect to shares purchased under
this section, as the Committee determines to be appropriate. Such restrictions
may include, without limitation, restrictions of the type that may be imposed
with respect to Restricted Stock under Section 8.
SECTION
13
TERMINATION
OF EMPLOYMENT
13.1. If
a Participant's Date of Termination occurs for any reason other than death,
Disability, early retirement under the terms of a Qualified Retirement Plan of
an Employer, Retirement, or by reason of the Participant's employment being
terminated by the Participant's employer for any reason other than Cause, all
Awards shall be forfeited.
13.2. If
a Participant's Date of Termination occurs by reason of death, all Options and
Stock Appreciation Rights outstanding immediately prior to the Participant's
Date of Termination shall immediately become exercisable and all restrictions on
Restricted Stock, Restricted Stock Units, Performance Units, Performance Stock
and shares purchased under the Stock Purchase Program outstanding immediately
prior to the Participant's Date of Termination shall lapse.
13.3.
If a Participant's Date of Termination occurs by reason of Disability, early
retirement under the terms of a Qualified Retirement Plan of an Employer, or
Retirement, the Restricted Period shall lapse on a proportion of any Awards
outstanding immediately prior to the Participant's Date of Termination (except
to the extent that an Award of Restricted Stock, Restricted Stock Units,
Performance Units and Performance Stock is subject to a Performance Period, such
proportion of the Award shall remain subject to the same terms and conditions
for vesting as were in effect prior to termination). The proportion of an Award
upon which the Restricted Period shall lapse shall be a fraction, the
denominator of which is the total number of months of any Restricted Period
applicable to an Award and the numerator of which is the number of months of
such Restricted Period which elapsed prior to the Date of
Termination.
13.4. If
a Participant's Date of Termination occurs by reason of the Participant's
employment being terminated by the Participant's employer for any reason other
than for Cause, the Restricted Period shall lapse on a proportion of any
outstanding Awards (except Restricted Stock and Restricted Stock Units subject
only to a Performance Period, Performance Units and Performance Stock which
shall be forfeited). The proportion of an Award upon which the Restricted Period
shall lapse shall be a fraction, the denominator of which is the total number of
months of any Restricted Period applicable to an Award and the numerator of
which is the number of months of such Restricted Period which elapsed prior to
the Date of Termination.
13.5. Stock
Appreciation Rights and Non-Qualified Stock Options which are or become
exercisable by reason of death, Disability, early retirement under the terms of
a Qualified Retirement Plan of an Employer, or Retirement shall expire on the
expiration date set forth in the award or, if earlier:
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(a)
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three
years after the Date of Termination, if the Participant’s termination
occurs because of death, Disability, or Retirement; and
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(b)
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three
months after the Date of Termination, if the Participant’s employment is
terminated by the Participant’s employer for reasons other than Cause or
early retirement under the terms of a Qualified Retirement Plan of an
Employer
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Incentive
stock options which are or become exercisable by reason of death, Disability,
early retirement under the terms of a Qualified Retirement Plan of an Employer,
or Retirement shall expire on the expiration date set forth in the award or, if
earlier;
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(a)
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three
years after the Date of Termination, if the Participant’s termination
occurs because of death; and
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(b)
|
three
months after the Date of Termination, if the Participant’s is terminated
because of Disability, by the Participant’s employer for reasons other
than Cause, early retirement under the terms of a Qualified Retirement
Plan of an Employer, or Retirement.
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Options
and Stock Appreciation Rights which are or become exercisable at the time of a
Participant’s death may be exercised by the Participant’s designated beneficiary
or, in the absence of such designation, by the person to whom the Participant’s
rights will pass by will or the laws of descent and distribution.
13.6. If
a Participant's employment is terminated by the Participant's employer for
reasons other than Cause in connection with a merger, consolidation, acquisition
of common control, or business combination of the Company and a Class I Railroad
or a holding company of a Class I Railroad:
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(a)
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All
outstanding Options and Stock Appreciation Rights then held by the
Participant shall become exercisable on the Participant’s Date of
Termination.
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(b)
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Any
restrictions on Awards held by the Participant as of the Participant’s
Date of Termination shall lapse and all Awards vested as if all
performance objectives have been attained.
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13.7.
Except to
the extent the Committee shall otherwise determine, if as a result of a sale or
other transaction, a Participant's employer ceases to be a Related Company (and
the Participant's employer is or becomes an entity that is separate from the
Company), the occurrence of such transaction shall be treated as the
Participant's Date of Termination caused by the Participant being discharged by
the Employer.
13.8.
Notwithstanding
the foregoing provisions of this section, the Committee may, with respect to any
Awards of a Participant (or portion thereof) that are outstanding immediately
prior to the Participant's Date of Termination, determine that a Participant's
Date of Termination will not result in forfeiture or other termination of the
Award.
13.9.
Notwithstanding
the foregoing provisions of this section, Awards of Non-Qualified Stock Options
issued after January 1, 1999 which are or become exercisable upon early
retirement under the terms of a Qualified Retirement Plan shall expire on the
expiration date set forth in the award or, if earlier, three years after the
Date of Termination.
SECTION
14
ADJUSTMENTS
TO SHARES
14.1. If
the Company shall effect a reorganization, merger, or consolidation, or similar
event or effect any subdivision or consolidation of shares of Stock or other
capital readjustment, payment of stock dividend, stock split, spin-off,
combination of shares or recapitalization or other increase or reduction of the
number of shares of Stock outstanding without receiving compensation therefor in
money, services or property, then the Committee shall adjust equitably and
proportionally (i) the number of shares of Stock available under the Plan; (ii)
the number of shares available under any individual or other limits; (iii) the
number of shares of Stock subject to outstanding Awards; and (iv) the per-share
price under any outstanding Award to the extent that the Participant is required
to pay a purchase price per share with respect to the Award.
SECTION
15
TRANSFERABILITY
OF AWARDS
15.1. Awards
under the Plan are not transferable except as designated by the Participant by
will or by the laws of descent and distribution. To the extent that the
Participant who receives an Award under the Plan has the right to exercise such
Award, the Award may be exercised during the lifetime of the Participant only by
the Participant. Notwithstanding the foregoing provisions of this Section 15,
the Committee may permit Awards under the Plan (other than an Incentive Stock
Option) to be transferred by a Participant for no consideration to or for the
benefit of the Participant's Immediate Family (including, without limitation, to
a trust for the benefit of a Participant's Immediate Family or to a Family
Partnership for members of the Immediate Family), subject to such limits as the
Committee may establish and the transferee shall remain subject to all of the
terms and conditions applicable to such Award prior to such
transfer.
SECTION
16
AWARD
AGREEMENT
16.1. Each
employee granted an Award pursuant to the Plan shall sign an Award Agreement
which signifies the offer of the Award by the Company and the acceptance of the
Award by the employee in accordance with the terms of the Award and the
provisions of the Plan. Each Award Agreement shall reflect the terms and
conditions of the Award. Participation in the Plan shall confer no rights to
continued employment with the Company nor shall it restrict the right of the
Company to terminate a Participant's employment at any time.
SECTION
17
TAX
WITHHOLDING
17.1. All
Awards and other payments under the Plan are subject to withholding of all
applicable taxes, which withholding obligations shall be satisfied (without
regard to whether the Participant has transferred an Award under the Plan) by a
cash remittance, or with the consent of the Committee, through the surrender of
shares of Stock which the Participant owns or to which the Participant is
otherwise entitled under the Plan pursuant to an irrevocable election submitted
by the Participant to the Company at the office designated for such purpose. The
number of shares of Stock needed to be submitted in payment of the taxes shall
be determined using the Fair Market Value as of the applicable tax date rounding
down to the nearest whole share; provided that no election to have shares of
Stock withheld from an Award or submission of shares shall be effective with
respect to an Award which was transferred by a Participant in accordance with
the Plan.
17.2
The
Committee may modify the time at which any Award will be transferred if it
determines that such modification may be necessary to avoid acceleration of tax
or imposition of penalties under section 409A of the Internal Revenue
Code. Regardless of whether the Committee modifies or fails to modify
the time at which any such Award is transferred, the Employee shall be solely
liable for any taxes, including without limitation taxes that may be imposed
under section 409A of the Internal Revenue Code, penalties and interest incurred
by reason of such transfer.
17.3.
If, at the time of an Employee’s
“separation from service” (within the meaning of Section 409A
of the Code
), (a) the Employee shall be a Specified
Employee and (b) the Company shall make a good faith determination that an
issuance of Stock or payment of cash in settlement of an Award constitutes
Deferred Compensation, the payment of which is required to be delayed pursuant
to the six-month delay rule set forth in Section 409A
of the Code
in order to avoid taxes or penalties
under Section 409A
of the
Code
, then the Company
shall not issue such Stock or pay such cash, as applicable, but shall instead
accumulate and pay it, without interest, on the first business day of the
seventh month following such separation from service.
SECTION
18
CHANGE
IN CONTROL
18.1. Subject
to the provisions of Section 14 (relating to the adjustment of shares), and
except as otherwise provided in the Plan or the Agreement reflecting the
applicable Award, upon the occurrence of a Change in Control:
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(a)
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All
outstanding Options (regardless of whether in tandem with Stock
Appreciation Rights) shall become fully exercisable, except to the extent
that the right to exercise the Option is subject to any restrictions
established in connection with a Limited Stock Appreciation Right that is
in tandem with the Option.
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(b)
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All
outstanding Stock Appreciation Rights (regardless of whether in tandem
with Options) shall become fully exercisable, except that if Stock
Appreciation Rights are in tandem with an Option, and the Option is in
tandem with a Limited Stock Appreciation Right, the right to exercise the
Stock Appreciation Right shall be subject to any restrictions established
in connection with the Limited Stock Appreciation Right.
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(c)
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All
shares of Restricted Stock, Restricted Stock Units and Performance Stock
shall become fully vested.
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(d)
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All
vesting restrictions imposed under Section 12 (relating to restrictions on
shares purchased by the Participants) shall cease to apply, and the
Participant shall become fully vested in those shares.
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(e)
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Performance
Units may be paid out in such manner and amounts as determined by the
Committee.
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SECTION
19
TERMINATION
AND AMENDMENT
19.1. The
Board may suspend, terminate, modify or amend the Plan, provided that any
amendment that would increase the aggregate number of shares which may be issued
under the Plan; materially increase the benefits accruing to Participants under
the Plan; or materially modify the requirements as to eligibility for
participation in the Plan, shall be subject to the approval of BNSF's
stockholders, except that any such increase or modification that may result from
adjustments authorized by Section 14 does not require such approval. No
suspension, termination, modification or amendment of the Plan may terminate a
Participant's existing Award or materially and adversely affect a Participant's
rights under such Award without the Participant's
consent.
Exhibit 10.12
Amended and Restated
Change in
Control Agreement
as of
December 31,
2007
Mr.
XXXXXXXXXXXXXX:
Burlington
Northern Santa Fe Corporation (the “Corporation”) considers it essential to the
best interests of its stockholders to foster the continuous employment of key
management personnel. In this connection, the Board of Directors of
the Corporation (the “Board”) recognizes that, as is the case with many publicly
held corporations, the possibility of a Change in Control (as defined in Section
2) may exist, and that such possibility, and the uncertainty and questions which
it may raise among management, may result in the departure or distraction of
management personnel to the detriment of the Corporation and its
stockholders.
The Board
has determined that appropriate steps should be taken to reinforce and encourage
the continued attention and dedication of members of the Corporation’s
management, including yourself, to their assigned duties without distraction in
the face of potentially disturbing circumstances arising from the possibility of
a Change in Control.
In order
to induce you to remain in the employ of the Corporation or any entity with
which the Corporation is considered to be a single employer under Section 414
(b) or Section 414(c) of the Internal Revenue Code of 1986, as amended from time
to time (the “Code”) (all such entities, collectively, “Affiliates”), the
Corporation agrees that you shall receive the severance benefits set forth in
this letter agreement (the “Agreement”) in the event your employment with the
Corporation is terminated under the circumstances described below subsequent to
a Change in Control, and that you shall be eligible for the parachute tax
gross-up and certain other benefits described in this Agreement.
1.
TERM. The
“Agreement Term” shall begin on December 31, 2007 (the “Effective Date” of this
Agreement), and shall end on December 31, 2008, subject to the
following:
(i)
As of
January 1, 2009, and each January 1 thereafter, the Agreement Term shall
automatically be extended to the next following December 31;
provided
,
however
, that no such
extension shall take place if, on or before the September 30 next preceding the
date on which the extension would otherwise take place, the Corporation has
given notice that it does not wish to extend the Agreement Term; and further
provided that no such extension shall take place if the effect of the extension
would be to extend the Agreement Term beyond the December 31 coincident with or
next following the two-year anniversary of the date on which you cease to be in
a position that is at or above salary band 36 (unless, as of such December 31,
you are again in a position that is at or above salary band 36); and further
provided that subject to paragraph 1(ii) below no such extension shall take
place if a Change in Control has occurred prior to the date on which the
extension would otherwise take place. For the avoidance of doubt, it
is recited here that if a Change in Control described in paragraph 2(i) or
2(iii) occurs, and your Date of Termination occurs after the 24-month
anniversary of the date of the Change in Control but before consummation of the
transaction approved by the shareholders and before the Agreement Term expires
by reason of paragraph (iii) below (relating to a Board determination that
consummation will not occur), the Agreement Term shall be extended to your Date
of Termination.
(ii)
Subject
to paragraph 1(iii) next below, if a Change in Control occurs during the
Agreement Term (as it may be extended from time to time), the Agreement Term
shall be extended for a period of twenty-four (24) months beyond the last day of
the calendar month in which the Change in Control occurs, but in no event less
than twelve (12) months beyond the date of the consummation of the Change in
Control.
(iii)
If a
Change in Control described in paragraph 2(iii) or 2(iv) occurs during the
Agreement Term (as it may be extended from time to time), but the Board
thereafter determines that it will not consummate the transaction or regulatory
approval for the transaction is not obtained, then the Board may reduce the
24-month extension period set forth in paragraph 1(ii) next above;
provided
that the
Agreement Term may not end earlier than six (6) months after such notice of
reduction is provided by the Board or, if earlier, the date such Agreement Term
would end in the absence of action under this paragraph 1(iii).
(iv)
In no
event, however, shall the Agreement Term extend beyond the end of the calendar
month in which your 65th birthday occurs if you are subject to mandatory
retirement at such age or to the extent permitted by law.
2.
CHANGE IN
CONTROL. A “Change in Control” shall be deemed to have occurred
if:
(i)
Any
“person” as such term is used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”) (other than the
Corporation, any trustee or other fiduciary holding securities under an employee
benefit plan of the Corporation, or any company owned, directly or indirectly,
by the stockholders of the Corporation in substantially the same proportions as
their ownership of stock of the Corporation), is or becomes the “beneficial
owner” (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Corporation representing 25% or more of the
combined voting power of the Corporation’s then outstanding
securities.
(ii)
During
any period of two consecutive years (not including any period prior to the
Effective Date), individuals who at the beginning of such period constitute the
Board, and any new director (other than a director designated by a person who
has entered into an agreement with the Corporation to effect a transaction
described in paragraphs (i), (iii) or (iv) of this definition) whose election by
the Board or nomination for election by the Corporation’s stockholders was
approved by a vote of at least two-thirds (2/3) of the directors then still in
office who either were directors at the beginning of the period or whose
election or nomination for election was previously so approved, cease for any
reason to constitute at least a majority thereof.
(iii)
The
stockholders of the Corporation approve a merger or consolidation of the
Corporation with any other company other than (a) a merger or consolidation
which would result in the voting securities of the Corporation outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity) more than 80% of the combined voting power of the voting securities of
the Corporation (or such surviving entity) outstanding immediately after such
merger or consolidation, or (b) a merger or consolidation effected to implement
a recapitalization of the Corporation (or similar transaction) in which no
“person” (as hereinabove defined) acquires more than 25% of the combined voting
power of the Corporation’s then outstanding securities.
(iv)
The
stockholders of the Corporation adopt a plan of complete liquidation of the
Corporation or approve an agreement for the sale or disposition by the
Corporation of all or substantially all of the Corporation’s
assets. For purposes of this paragraph 2(iv), the term “the sale or
disposition by the Corporation of all or substantially all of the Corporation’s
assets” shall mean a sale or other disposition transaction or series of related
transactions involving assets of the Corporation or of any direct or indirect
subsidiary of the Corporation (including the stock of any direct or indirect
subsidiary of the Corporation) in which the value of the assets or stock being
sold or otherwise disposed of (as measured by the purchase price being paid
therefor or by another objective method in a case where there is no readily
ascertainable purchase price) constitutes more than two-thirds of the fair
market value of the Corporation (as hereinafter defined). For
purposes of the preceding sentence, the “fair market value of the Corporation”
shall be the aggregate market value of the outstanding shares of common stock of
the Corporation (on a fully diluted basis) plus the aggregate market value of
the Corporation’s other outstanding equity securities (excluding employee stock
options). The aggregate market value of the shares of common stock of
the Corporation (on a fully diluted basis) outstanding on the date of the
execution and delivery of a definitive agreement with respect to the transaction
or series of related transactions (the “Transaction Date”) shall be determined
by the average closing price of the shares of common stock of the Corporation
for the ten trading days immediately preceding the Transaction
Date. The aggregate market value of any other equity securities of
the Corporation shall be determined in a manner similar to that prescribed in
the immediately preceding sentence for determining the aggregate market value of
the shares of common stock of the Corporation.
A Change
in Control that occurs prior to the beginning of the Agreement Term shall be
disregarded for purposes of this Agreement.
3.
BASIS OF
EMPLOYMENT TERMINATION. If (x) your Date of Termination (or the date
of delivery of the applicable Notice of Termination) occurs during the Agreement
Term and is coincident with or follows the occurrence of a Change in Control or
(y) if you have a disability during the Agreement Term after the occurrence of a
Change in Control, then you shall be eligible for payments and benefits in
accordance with, and to the extent provided by, Section 4, with such eligibility
determined on the basis for your termination of employment. For
purposes of this Agreement, the basis for your termination of employment shall
be determined in accordance with this Section 3.
(i)
Disability. If,
as a result of your incapacity due to physical or mental illness or injury, you
shall have been absent from the full-time performance of your duties with the
Corporation for six (6) consecutive months, and within thirty (30) days after
written Notice of Termination is given by the Corporation, you shall not have
returned to the full-time performance of your duties, your employment may be
terminated by the Corporation for unavailability due to
“Disability.” Notwithstanding any other provision of this Agreement,
a termination of employment under this paragraph 3(i) shall not cause you to be
considered a terminated employee within the meaning of the Corporation’s long
term disability plan and your rights thereunder shall not be affected by this
Agreement.
(ii)
Cause. Your
Date of Termination shall be deemed to have occurred for “Cause,” if your Date
of Termination occurs because of circumstances described in paragraph 3(ii)(a)
or paragraph 3(ii)(b) next below, as determined in accordance with the
procedures set forth in paragraphs 3(ii)(A), (B) and (C) next
below:
(a)
the
willful and continued failure by you to substantially perform your duties with
the Corporation (other than any such failure resulting from your incapacity due
to physical or mental illness or injury, or any such actual or anticipated
failure after the issuance of a Notice of Termination by you for Good Reason);
or
(b)
the
willful engaging by you in conduct which is demonstrably and materially
injurious to the Corporation, monetarily or otherwise.
For
purposes of this paragraph 3(ii), no act, or failure to act, on your part shall
be deemed “willful” unless done, or omitted to be done, by you not in good faith
and without a reasonable belief that your action or omission was in the best
interest of the Corporation. Your Date of Termination shall not be
deemed to have occurred for “Cause” unless the procedures described in
paragraphs 3(ii)(A), (B) and (C), next below, have been satisfied:
(A)
A written
notice of alleged Cause is delivered to you by the Board or a member of the
Board. In the case of “Cause” described in paragraph 3(ii)(a)
(relating to a failure to perform your duties), the written notice shall consist
of specific identification of the manner in which the Board or such Board member
believes that you have not substantially performed your duties, and shall
include a demand for such performance. In the case of “Cause”
described in paragraph 3(ii)(b) (relating to conduct injurious to the
Corporation), the written notice shall consist of specific identification of the
manner in which the Board or such Board member believes that you have engaged in
conduct which is demonstrably and materially injurious to the
Corporation.
(B)
You have
received an opportunity to be heard by the Board or a member of the Board, which
will consist of delivery to you of reasonable advance written notice of a Board
meeting (to be delivered at or after the time you receive the notice of alleged
Cause, described in paragraph 3(ii)(A) next above), at which you, together with
your counsel, may be heard by the Board, concerning the contents of the notice
of alleged Cause and, in the case of “Cause” described in paragraph 3(ii)(a),
the manner in which you intend to achieve substantial performance.
(C)
You have
received a copy of your Notice of Termination, which will include a copy of a
resolution duly adopted by the affirmative vote of not less than three-quarters
(3/4) of the entire membership of the Board at a meeting of the Board, which
occurs after your opportunity to be heard by the Board (at that meeting or a
subsequent meeting), and which finds that in the good faith opinion of the Board
you were guilty of conduct set forth in the notice of alleged Cause and which
specifies the particulars thereof in detail. The Date of Termination
set forth in the Notice of Termination shall be not earlier than thirty (30)
days after the notice of alleged Cause has been delivered to you in accordance
with paragraph 3(ii)(A).
(iii)
Good
Reason. Subject to the procedures set forth in paragraphs 3(iii)(A),
(B) and (C) next below, you shall be entitled to terminate your employment for
Good Reason. For purposes of this Agreement, “Good Reason” shall
mean, without your express written consent, the occurrence, after a Change in
Control, of any of the circumstances described in paragraphs 3(iii)(a) through
(h) next below. However, “Good Reason” shall not exist if such
circumstances are fully corrected (or in the case of a relocation described in
paragraph 3(iii)(c) next below, if the request to relocate your base of
operations is withdrawn) prior to the Date of Termination specified in the
Notice of Termination given in respect thereof.
(a)
The
assignment to you of any duties with a level of responsibility materially
inconsistent with the position in the Corporation that you held immediately
prior to the Change in Control, or a significant adverse alteration in the
status of your responsibilities from those in effect immediately prior to such
Change in Control.
(b)
A
material reduction by the Corporation in your annual base salary as in effect on
the Effective Date, and adjusted to reflect such increases as may be made after
the Effective Date and prior to the occurrence of a Change in Control, and also
adjusted to reflect such decreases as may be made after the Effective Date, but
taking decreases into account only to the extent that they are part of
across-the-board salary reductions similarly affecting all management personnel
of the Corporation and all management personnel of any person in control of the
Corporation.
(c)
The
relocation of your base of operations for the Corporation or any of its
Affiliates to a place that is fifty (50) miles farther from your residence
immediately prior to the Change in Control than the distance from such residence
to your former base of operations for the Corporation or such
Affiliate. The determination of whether the distance exceeds 50 miles
shall be performed in a manner that is consistent with Internal Revenue Service
rules applicable to the determination of deductibility of moving
expenses.
(d)
The
failure by the Corporation to pay to you any material portion of your current
compensation or to pay to you any portion of an installment of deferred
compensation under any deferred compensation program of the Corporation when
such compensation is due.
(e)
The
failure by the Corporation to continue in effect any compensation plan in which
you participate immediately prior to the Change in Control that is material to
your total compensation, including but not limited to a material reduction in
the benefits (or, in the case of incentive- or performance-based compensation,
opportunities) provided to you under the Corporation’s Retirement Plan,
Supplemental Retirement Plan, Investment and Retirement Plan, Supplemental
Investment and Retirement Plan, Incentive Compensation Plan, Stock Incentive
Plan, or any substitute plans adopted prior to the Change in Control, unless an
equitable arrangement (embodied in an ongoing substitute or alternative plan)
has been made with respect to such plan, or the failure by the Corporation to
continue your participation therein (or in such substitute or alternative plan)
on a basis not materially less favorable, both in terms of the amount of
benefits provided and the level of your participation relative to other
participants, as existed at the time of the Change in Control.
(f)
The
failure by the Corporation to continue to provide you with benefits
substantially similar to those enjoyed by you under any of the Corporation’s
life insurance, medical, health and accident, or disability plans in which you
were participating at the time of the Change in Control, the taking of any
action by the Corporation which would directly or indirectly materially reduce
any of such benefits or deprive you of any material fringe benefit enjoyed by
you at the time of the Change in Control, or the provision by the Corporation to
you of a number of paid vacation days that is materially less than the number of
vacation days to which you were entitled on the basis of years of service with
the Corporation in accordance with the Corporation’s normal vacation policy in
effect at the time of the Change in Control.
(g)
The
failure of the Corporation to obtain an agreement from any successor to assume
and agree to perform this Agreement, as contemplated in Section 7.
(h)
Any
purported termination of your employment that is not effected pursuant to a
Notice of Termination in material compliance with the requirements of paragraph
3(vi) (and, if applicable, the requirements of paragraph 3(ii)), which purported
termination shall not be effective for purposes of this Agreement.
You shall
not be deemed to have terminated employment for Good Reason unless, within a
reasonable time (not more than six (6) months) after the initial existence of
the circumstances constituting Good Reason, you have delivered a written Notice
of Termination, which:
(A)
identifies
the circumstances, and the provisions of this paragraph 3(iii), which form the
basis for your termination for Good Reason;
(B)
demands
correction; and
(C)
specifies
a Date of Termination which is not less than fifteen (15) days nor more than
sixty (60) days after the Notice of Termination has been provided to the
Corporation;
provided
that if the
Corporation is reasonably unable to correct the circumstances described in your
Notice of Termination within the time period prior to your scheduled Date of
Termination, and responds to you in writing within seven (7) days of the receipt
of your Notice of Termination notifying you of the time reasonably required to
correct the circumstances (which may not be more than thirty (30) days after
receipt of your Notice of Termination), your scheduled Date of Termination in
your Notice of Termination will be deemed to be postponed until the end of such
correction period, and Good Reason will not exist if the circumstances are fully
corrected (or, if applicable, the request for relocation is withdrawn) within
that correction period. Your continued employment shall not
constitute consent to, or a waiver of rights with respect to, any circumstance
constituting Good Reason hereunder, and your failure to relocate after filing
the Notice of Termination will not adversely affect the characterization of the
Corporation’s relocation request as Good Reason under paragraph 3(iii)(c)
above.
(iv)
Discharge
Absent Cause or Disability. You shall be deemed to have been
discharged by the Corporation absent Cause or Disability if your employment is
terminated by the Corporation other than in accordance with paragraph 3(i)
(relating to Disability) or paragraph 3(ii) (relating to Cause). Your
Date of Termination under this paragraph 3(iv) may not be earlier than sixty
(60) days after the written Notice of Termination is delivered to you, except
that the sixty (60) day notice requirement shall not apply to the extent the
Date of Termination occurs prior to the date of a Change in
Control. If your employment is terminated in accordance with this
paragraph 3(iv) and the Notice of Termination is delivered to you within sixty
(60) days prior to the occurrence of a Change in Control, your Date of
Termination shall be deemed to be, for purposes of Section 4(iii), the day after
such Change in Control;
provided
that, for purposes of
the timing of any payments or benefits owed to you under Section 4, the Date of
Termination shall be the date specified in the Notice of
Termination.
(v)
Payment
in Lieu of Notice. The Corporation shall be deemed to have complied
with the requirement of this Section 3 relating to advance Notice of Termination
notwithstanding that the Corporation may have provided you with fewer days’
notice than otherwise required pursuant to this Section 3, and in the event of a
termination of employment by you for Good Reason, the Corporation may waive your
obligation to provide the number of days of notice otherwise required pursuant
to this Section 3 (and thereby cause your Date of Termination to occur earlier
than the Date of Termination specified in your Notice of Termination for Good
Reason) (the days of notice otherwise required to be given by the Corporation or
you, as applicable, the “Required Notice Days” and the number of Required Notice
Days less the number of days of notice actually provided by the Corporation or
you, as applicable, the “Waived Notice Days”);
provided
that the
Corporation shall pay you a cash amount equal to the base salary that you would
have earned during the Waived Notice Days had the Corporation provided you with,
or you provided the Corporation with, as applicable, the number of Required
Notice Days. Such payment shall be made in a lump sum no later than
the fifth day following your Date of Termination.
(vi)
Notice of
Termination. “Notice of Termination” shall mean a notice that shall
indicate the specific termination provision in this Agreement relied upon, shall
set forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of your employment under the provision so indicated and
shall specify a Date of Termination in accordance with this Section
3.
(vii)
Date of
Termination. “Date of Termination” shall mean your ceasing to be employed by the
Corporation and the Affiliates;
provided
that the
employment relationship will be deemed to have ended at the time you and your
employer reasonably anticipate that the level of bona fide services you would
perform for the Corporation and the Affiliates after such date (whether as an
employee or independent contractor, but not as a director) would permanently
decrease to no more than 20% of the average level of bona fide services
performed over the immediately preceding 36 month period (or the full period of
service to the Corporation and the Affiliates if you have performed services for
the Corporation and the Affiliates for less than 36 months). In the
absence of an expectation that you will perform at the above-described level,
the Date of Termination of employment will not be delayed solely by reason of
your continuing to be on the Corporation’s and the Affiliates’ payroll after
such date. The employment relationship will be treated as continuing
intact while you are on a bona fide leave of absence (determined in accordance
with Treas. Reg. §1.409A-1(h)).
4.
COMPENSATION
UPON TERMINATION OR DURING DISABILITY. If (x) your Date of
Termination (or the date of delivery of the applicable Notice of Termination)
occurs during the Agreement Term and is coincident with or follows the
occurrence of a Change in Control or (y) if you have a disability during the
Agreement Term and after the occurrence of a Change in Control, then you shall
be entitled to payments and benefits in accordance with, and to the extent
provided by, this Section 4.
(i)
Discharge
for Cause and Voluntary Resignation. If your employment is terminated
by the Corporation for Cause, or is terminated by you other than for Good
Reason, the Corporation shall pay you your full base salary through the Date of
Termination at the rate in effect at the time Notice of Termination is given,
with payment to be made no later than the fifth day following your Date of
Termination, plus all other amounts to which you are entitled under any
compensation plan of the Corporation or any Affiliate at the time such payments
are due, and the Corporation shall have no further obligations to you under this
Agreement.
(ii)
Disability. During
any period that you fail to perform your full-time duties with the Corporation
as a result of incapacity due to physical or mental illness or injury, you shall
continue to receive your base salary at the rate in effect at the commencement
of any such period, together with all compensation payable to you under any long
term disability plan or other similar plan during such period, until your
employment is terminated pursuant to paragraph 3(i). Thereafter, or
in the event your employment shall be terminated by reason of your death, your
benefits shall be determined under the Corporation’s retirement, insurance and
other compensation programs then in effect in accordance with the terms of such
program; however, your receipt of benefits under the long term disability plan
will not be affected by your termination under this Agreement.
(iii)
Termination
for Good Reason and Discharge Absent Cause or Disability. If your
employment is terminated by you for Good Reason, or by the Corporation absent
Cause or
Disability
(as described in paragraph 3(iv)), then you shall be entitled to the payments
and benefits described below, subject to Section 14:
(a)
Prior
Salary and Deferrals. The Corporation shall pay to you (1) your full
base salary through your Date of Termination at the rate in effect at the time
the Notice of Termination is given, with payment to be made no later than the
fifth day following your Date of Termination; (2) a lump sum cash payment equal
to your Bonus Rate (defined below) for the year in which your Date of
Termination occurs, subject to a pro rata reduction for the portion of the year
after your Date of Termination, with payment to be made at the time specified in
paragraph 4(iv)(a); and (3) all other amounts to which you are entitled under
any compensation plan of the Corporation, at the time such payments are due
under the terms of such plans.
(b)
Additional
Salary and Severance. In lieu of any further salary or bonus payments
to you for periods subsequent to your Date of Termination, and except as
provided in paragraph 4(iv)(b), the Corporation will pay to you, at the time
specified in paragraph 4(iv)(a), a lump sum salary and bonus distribution, in an
amount equal to the sum of: (I) a severance payment of (1)
2.0 times your Salary Rate plus (2) 2.0 times your Bonus Rate plus (II) a
payment in return for the imposition of the requirements of paragraph 4(iv)(b)
(relating to competition) equal to (1) 0.5 times your Salary Rate plus (2) 0.5
times your Bonus Rate.
For
purposes of this paragraph 4(iii)(b):
(A)
Your
“Salary Rate” shall be equal to the greatest of: (1) your annual
salary as in effect as of the Date of Termination, inclusive of amounts that
would have been included in annual salary if such amounts had not been deferred
under the Burlington Northern Santa Fe Corporation Supplemental Investment and
Retirement Plan or foregone under any other arrangement of the Corporation or
its Affiliates providing for the elective deferral of salary, (2) your highest
consecutive twelve (12) months’ salary over the twenty-four (24) month period
preceding the Date of Termination, or (3) your annual salary as in effect
immediately prior to the Change in Control.
(B)
Your
“Bonus Rate” shall be the amount which you would have received under the
Corporation’s Incentive Compensation Plan (or other successor annual bonus plan)
for the calendar year in which your Date of Termination occurs, if you had
remained employed by the Corporation for that entire year, and the target level
of performance established annually by the Corporation had been achieved for the
year. For the avoidance of doubt, it is recited here that achievement
of target level of performance shall mean the achievement of a performance level
whereby all of the performance objectives for the year are at planned and
budgeted levels of performance (as provided in the bonus plan); and such level
of performance shall be greater than threshold level of performance (which is
the minimum level of performance that will result in payment of any bonus), and
shall be less than the maximum level of performance, which is a level of
performance above the performance level planned and budgeted for the year, which
would result in maximum bonus.
(c)
Outstanding
Stock Awards. The following provisions of this paragraph 4(iii)(c)
shall apply to stock awards granted under the Corporation’s 1996 Stock Incentive
Plan, 1999 Stock Incentive Plan, or any similar successor plan:
(A)
Except as
provided in paragraph 4(iii)(d) below, the restrictions shall lapse (to the
extent that they have not previously lapsed) on any stock option award or stock
appreciation right award outstanding on the Date of Termination, such stock
options and stock appreciation rights shall become fully exercisable beginning
as of the Date of Termination, and such exercisability shall continue until it
would otherwise terminate in accordance with the terms of the applicable award
agreement.
(B)
Except as
provided in paragraph 4(iii)(c)(C) below and paragraph 4(iii)(d) below, the
restricted period (or other vesting or similar period) with respect to any
restricted stock, restricted stock units and, except for stock options and stock
appreciation rights, all other stock-based awards granted to you as of a date
prior to the date of the Change in Control shall lapse on your Date of
Termination, and such shares shall be distributed to you at the same time as the
cash payments described in paragraph 4(iv) are paid. However, any
change in the time or form of distribution otherwise provided under this
paragraph (B) shall be disregarded to the extent that such change would
otherwise result in the application of penalties under Section
409A.
(C)
The
foregoing provisions of this paragraph 4(iii)(c) shall not apply to the vesting
of Performance Stock Awards, and the vesting of Performance Stock Awards shall
be governed by the applicable award agreements for such awards, without regard
to the terms of this Agreement. For purposes of this Agreement, the
term “Performance Stock Awards” shall have the meaning set forth in Section 9 of
the 1999 Stock Incentive Plan (and shall include any awards expressly designated
as “Performance Stock Awards” under any successor to the 1999 Stock Incentive
Plan), but shall not include performance-based Restricted Stock,
performance-based Restricted Stock Units, or any other awards.
(d)
Awards
Granted after Change in Control. For any stock option, stock
appreciation right, restricted stock, restricted stock unit, or other
stock-based award granted after a transaction that constitutes a Change in
Control, such preceding transaction will not be treated as a Change in Control
for purposes of paragraph 4(iii)(c) above.
(e)
Legal
Fees. The Corporation shall pay to you all legal fees and expenses
incurred by you at any time during your lifetime as a result of such termination
including all such fees and expenses, if any, incurred in contesting or
disputing any such termination or in seeking to obtain or enforce any right or
benefit provided by this Agreement;
provided
,
however
, that payment
with respect to any legal action other than in connection with a tax dispute
(which is addressed in Section 5) shall be made only if you are successful in
the action. With respect to any such fees or expenses paid with
respect to any legal action other than a tax dispute, any such payment to you
shall be made no later than the end of the calendar year next following the year
in which such legal fees or expenses are incurred by you; the amount of fees and
expenses reimbursed in any calendar year shall not affect the amount reimbursed
in any other year; and such right to reimbursement may not be liquidated or
exchanged for any other benefit.
(f)
Group
Health Coverage. You and your eligible family members shall be
entitled to group health coverage to the extent that such coverage is required
to be provided in accordance with the provisions of Section 4980B of the Code
and Section 601 of the Employee Retirement Income Security Act (sometimes
referred to as “COBRA coverage”);
provided
that your
eligibility for such coverage shall be determined as though such coverage was
required for the greater of twenty-four (24) months after your Date of
Termination or the period otherwise required under the applicable COBRA coverage
provisions. For the twenty-four (24) month period during which you
are entitled to such medical benefit coverage under this paragraph 4(iii)(f),
the premiums for such coverage shall be paid by the Corporation (either by
direct payment of such premiums, or by reimbursing you for the premiums, at the
election of the Corporation), and the period of such coverage provided under
this paragraph 4(iii)(f) shall be counted toward the Corporation’s obligation to
provide COBRA coverage. (For the avoidance of doubt, it is recited
that the value of all or a portion of such coverage may be included in your
taxable gross income as reported by the Corporation.) Except as
specifically permitted by Section 409A of the Code and the regulations
thereunder as in effect from time to time (collectively, “Section 409A”), the
amount of coverage provided pursuant to this paragraph 4(iii)(f) to you and your
eligible family members during any calendar year will not affect the amount of
such coverage to be provided to you and your eligible family members in any
other calendar year, and any reimbursement for any premiums pursuant to this
paragraph 4(iii)(f) shall be paid to you no later than the end of the calendar
year next following the year in which you pay such premiums.
(g)
Welfare
Benefits. For the twenty-four (24) month period after your Date of
Termination, the Corporation shall arrange to provide you with life and
disability insurance benefits substantially similar to those which you were
receiving immediately prior to the Notice of Termination. Benefits
otherwise receivable by you pursuant to this paragraph 4(iii)(g) shall be
reduced to the extent comparable benefits are actually received by you from
another employer or otherwise during the twenty-four (24) month period following
your termination, and any such benefits actually received by you shall be
reported to the Corporation. Except as specifically permitted by
Section 409A, the amount of coverage provided to you pursuant to this
paragraph 4(iii)(g) during any calendar year will not affect the amount of such
coverage to be provided to you in any other calendar year.
(h)
Retiree
Coverage. You and your eligible family members shall be eligible for
(I) retiree medical benefits under the Corporation’s applicable plan, and (II)
retiree life insurance coverage under the Corporation’s applicable plan to the
extent that if, on your Date of Termination, you had terminated employment with
the Corporation and its Affiliates and you would have become eligible for
severance benefits under the BNSF Railway Company Severance Plan (the “Severance
Plan”) if you had not been covered by this Agreement, and by reason of the terms
of the Severance Plan, you would otherwise have qualified for medical or life
coverage or benefits, respectively, either upon your Date of Termination or at
such later date as provided in the Severance Plan. In determining
whether you would have become eligible for severance benefits under the
Severance Plan for purposes of the foregoing provisions of this paragraph
4(iv)(h), you will be treated as having been involuntarily terminated by the
Corporation for reasons other than Cause under the Severance Plan, and thereby
became an “Eligible Employee” under the Severance Plan, if your employment is
terminated by you for Good Reason (as defined in this
Agreement). Notwithstanding the foregoing, nothing in this paragraph
4(iv)(h) shall be construed to require your being provided with the benefits
described in clause (I) or clause (II) above to the extent that:
(A)
you would
not have been covered by the Severance Plan as of your Date of Termination,
or
(B)
you would
not have been eligible for such benefits under the Severance Plan as of your
Date of Termination,
with such
eligibility for coverage or benefits under paragraph (A) or (B) above determined
as though you were not covered by this Agreement, and regardless of whether such
reduction or elimination of eligibility for coverage or benefits occurs by
reason of amendment or termination of the Severance Plan or for any other
reason. For purposes of this paragraph (h), the term “Severance Plan”
shall include any successor to the Severance Plan to the extent that it provides
for post-termination health or life insurance benefits. Except as
specifically permitted by Section 409A, the amount of coverage provided pursuant
to this paragraph 4(iii)(h) to you and your eligible family members during any
calendar year will not affect the amount of such coverage to be provided to you
and your eligible family members in any other calendar year.
(i)
Outplacement
and Financial Assistance. The Corporation shall pay you a lump sum
cash payment equal to $20,000 to be used for outplacement and financial
assistance following your Date of Termination (provided that the financial
assistance will not be available to you if, during the year in which your Date
of Termination occurs, you are expected by the Corporation to be a named
executive officer for that year for proxy reporting purposes), with payment to
be made at the time specified in paragraph 4(iv)(A);
provided
that you
must submit documentation of any such expenses to the
Corporation. If, as of the date that is 12 months following your Date
of Termination, you have not provided the Corporation with documentation showing
that you have spent $20,000 on outplacement and financial assistance, you shall
repay to the Corporation in cash within five (5) business days after written
demand made therefor by the Corporation an amount equal to $20,000 less the
amount you have spent on outplacement and financial assistance within the
12-month period following your Date of Termination.
(iv)
Form of
and Restrictions on Payment. The payments provided for in paragraph
4(iii)(a)(2), paragraph 4(iii)(b) and paragraph 4(iii)(i) (the “Severance
Payments”) shall be
paid in
accordance with the following:
(a)
The
Severance Payments shall be made not later than the 60th day following your Date
of Termination or, if earlier, the fifth day after the General Release and
Covenant Not to Sue (as defined below) becomes irrevocable in accordance with
its terms.
(b)
If you
are treated as terminating your employment for Good Reason, or if your
employment is terminated by the Corporation without Cause, then, for the
12-month period immediately following your Date of Termination, you agree
that:
(I)
You will
not, without the express written consent of the Chief Executive Officer of the
Corporation, be in Competition. For purposes of this
paragraph 4(iv)(b)(I), you shall be considered to be in “Competition”
during any period in which you are employed by, perform any material services
for, or own any interest in (except for an interest of not more than 1% in any
publicly traded business) any “Competitor.” The term “Competitor”
shall mean:
(A)
any Class
I railroad;
(B)
any
company or other enterprise that offers shipping services to the public
(including, without limitation, trucking services, rail services, air-freight
services, and water-going freight services);
(C)
any
shipper for or customer of the Corporation; and
(D)
any
Affiliate or agent of any entity described in paragraphs (A), (B) or (C) above,
if the provision of services to or ownership of the interest in such Affiliate
or agent could conflict with or impair the interests of the Corporation, in the
reasonable judgment of its chief legal officer.
(II)
You will
not, without the express written consent of the Chief Executive Officer of the
Corporation, solicit or attempt to solicit any party who is then or, during the
12-month period prior to such solicitation or attempt by you was (or was
solicited to become), a customer or supplier of the Corporation or Affiliate;
provided
that
the restriction in this paragraph 4(iv)(b)(II) shall not apply to any
activity on behalf of a business that is not a Competitor.
(III)
You will
not, without the express written consent of the Chief Executive Officer of the
Corporation, solicit, entice, persuade or induce any individual who is employed
by the Corporation or any Affiliate of the Corporation (or was so employed
within 90 days prior to your action) to terminate or refrain from renewing or
extending such employment or to become employed by or enter into contractual
relations with any other individual or entity other than the Corporation or its
Affiliates, and you will not approach any such employee for any such purpose or
authorize or knowingly cooperate with the taking of any such actions by any
other individual or entity.
If,
during the 12-month period after your Date of Termination, you violate any of
the foregoing provisions of this paragraph (b), you shall not be paid any of the
Severance Payments if you have not yet been paid them as of the date of such
violation, and the Corporation may, in its discretion, require you to
immediately (or at such other time determined by the Corporation) repay to the
Corporation all (or, in the discretion of the Corporation, less than all)
Severance Payments previously paid to you. You agree that the
Corporation, in addition to any other remedies available to it for such breach
or threatened breach, shall be entitled to a preliminary injunction, temporary
restraining order, or other equivalent relief, restraining you from any actual
or threatened breach of the foregoing provisions of this paragraph
4(iv)(b).
(v)
Mitigation
and Set-Off. Except as provided in paragraph 4(iii)(f), paragraph
4(iii)(g) and paragraph 4(iv)(b), you shall not be required to mitigate the
amount of any payment
provided
for in this Section 4 by seeking other employment or otherwise, nor shall the
amount of any payment or benefit provided for in this Section 4 be reduced by
any
compensation
earned by you as the result of employment by another employer or by retirement
benefits, or be offset against any amount claimed to be owed by you to the
Corporation,
or otherwise.
(vi)
Section
409A. It is intended that the provisions of this Agreement comply
with Section 409A, and all provisions of this Agreement shall be construed and
interpreted in a
manner
consistent with the requirements for avoiding taxes or penalties under Section
409A.
(a)
Neither
you nor any of your creditors or beneficiaries shall have the right to subject
any deferred compensation (within the meaning of Section 409A) payable under
this Agreement or under any other plan, policy, arrangement or agreement of or
with the Corporation or any of its Affiliates (this Agreement and such other
plans, policies, arrangements and agreements, the “Corporation Plans”) to any
anticipation, alienation, sale, transfer, assignment, pledge, encumbrance,
attachment or garnishment. Except as permitted under Section 409A,
any deferred compensation (within the meaning of Section 409A) payable to you or
for your benefit under the Corporation Plans may not be reduced by, or offset
against, any amount owing by you to the Corporation or any of its
Affiliates.
(b)
If, at
your separation from service (as defined under Treas. Reg. §1.409A-1(h)), (I)
you are a Specified Employee and (II) the Corporation makes a good faith
determination that an amount payable under a Corporation Plan constitutes
deferred compensation (within the meaning of Section 409A) the payment of which
is required to be delayed pursuant to the six-month delay rule set forth in
Section 409A in order to avoid taxes or penalties under Section 409A, then the
Corporation (or its Affiliate, as applicable) shall not pay such amount on the
otherwise scheduled payment date but shall instead accumulate such amount and
pay it, without interest, on the first day of the seventh month following such
separation from service. “Specified Employee” shall be defined in
accordance with Treas. Reg. §1.409A-1(i) and such rules as may be established by
the Chief Executive Officer of the Corporation or his or her delegate from time
to time.
(c)
Notwithstanding
any provision of any Corporation Plan to the contrary, in light of the
uncertainty with respect to the proper application of Section 409A, the
Corporation reserves the right to make amendments to this Agreement and any
Corporation Plan as the Corporation deems necessary or desirable to avoid the
imposition of taxes or penalties under Section 409A. In any case,
except as specifically provided in Section 5, you are solely responsible and
liable for the satisfaction of all taxes (together with interest and penalties
thereon) that may be imposed on you or for your account in connection with any
Corporation Plan (including any taxes and penalties under Section 409A), and
neither the Corporation nor any Affiliate shall have any obligation to indemnify
or otherwise hold you harmless from any or all of such taxes or
penalties.
(vii)
Vesting
Of Stock Awards. Notwithstanding the foregoing provisions of this Section 4, the
following provisions of this paragraph (vii) shall apply to awards described in
this
paragraph (vii) that were granted on or before September 21, 2006:
(a)
If the
consummation of a Change in Control occurs before your Date of Termination, the
restrictions shall lapse (to the extent that they have not previously lapsed) on
any stock option award or stock appreciation right award outstanding on such
consummation, such stock options and stock appreciation rights shall become
fully exercisable upon such consummation, and such exercisability shall continue
until it would otherwise terminate in accordance with the terms of the
applicable award agreement.
(b)
If the
consummation of a Change in Control occurs before your Date of Termination, the
restricted period (or other vesting or similar period) with respect to any
restricted stock, restricted stock units and, except for stock options and stock
appreciation rights, all other stock based awards granted to you shall lapse on
such consummation, and such shares shall be distributed to you at the same time
as the cash payments described in paragraph 4(iv) are paid. However, any change
in the time or form of distribution otherwise provided under this paragraph (b)
shall be disregarded to the extent that such change would otherwise result in
the application of penalties under Code Section 409A.
(c)
If your
Date of Termination occurs prior to the consummation of a Change in Control, the
vesting in the awards described in this paragraph (vii) shall be determined in
accordance with paragraphs 4(i), (ii), (iii), and (iv), to the extent
applicable, without regard to this paragraph (vii).
5.
PARACHUTE
TAX.
(i)
In the
event it shall be determined that any payment, benefit or distribution (or
combination thereof) by the Corporation, any affiliate (as that term is used in
Treas. Reg. §1.280G-1, Q/A-46) or associated company or any trust established by
the Corporation, any such affiliate or associated company for the benefit of its
employees, to or for your benefit (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement, or otherwise) (a
“Payment”) would be subject to the excise tax imposed by Section 4999 of the
Code, or any interest or penalties are incurred by you with respect to such
excise tax (such excise tax, together with any such interest and penalties,
hereinafter collectively referred to as the “Excise Tax”), you shall be entitled
to receive an additional payment (a “Gross-Up Payment”) in an amount such that
after payment by you of all taxes (including any interest or penalties imposed
with respect to such taxes), including, without limitation, any income taxes
(and any interest and penalties imposed with respect thereto) and the Excise Tax
imposed upon the Gross-Up Payment, you retain an amount of the Gross-Up Payment
equal to the Excise Tax imposed upon the Payments. For purposes of
this Section 5, “Payments” will include any payments, benefits or distributions
to other persons with respect to awards granted to you and transferred by you to
such other person in accordance with the terms of the awards, to the extent that
such awards result in taxable income being attributable to you.
Notwithstanding
the foregoing provisions of this paragraph (5)(i), if it is determined that
you are entitled to a Gross-Up Payment, but that the value of the Parachute
Payments (as defined below) does not exceed 110% (105% if you are Recently Hired
(as defined below) by the Corporation) of the Safe Harbor Amount (as defined
below), then no Gross-Up Payment will be made to you and the Payments, in the
aggregate, will be reduced to the Safe Harbor Amount. The reduction
of the Payments to the Safe Harbor Amount will be made in the following
order:
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(a)
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First,
by reducing the cash amounts of Parachute Payments (including welfare
benefits described in paragraph 4(iii)(g)) that would not constitute
deferred compensation (within the meaning of Section 409A) subject to
Section 409A (with the Payments subject to such reduction to be determined
by you), to the extent necessary to decrease the Payments that would
otherwise constitute Parachute Payments to the Safe Harbor Amount.
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(b)
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Next,
if after the reduction to zero of the amounts described in paragraph (a)
above, the remaining scheduled Parachute Payments are greater than the
Safe Harbor Amount, then by reducing the cash amounts of Payments
(excluding welfare benefits described in paragraph 4(iii)(g)) that
constitute deferred compensation (within the meaning of Section 409A)
subject to Section 409A, with the reductions to be applied first to the
Payments scheduled for the latest distribution date, and then applied to
distributions scheduled for progressively earlier distribution dates, to
the extent necessary to decrease the Payments that would otherwise
constitute Parachute Payments to the Safe Harbor Amount.
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(c)
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Next,
if after the reduction to zero of the amounts described in paragraphs (a)
and (b) above, the remaining scheduled Parachute Payments are greater than
the Safe Harbor Amount, then, by reducing any of the remaining scheduled
Payments, in an order to be determined by the Corporation, to the extent
necessary to decrease the Payments that would otherwise constitute
Parachute Payments to the Safe Harbor Amount.
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The term
“Parachute Payment” is the portion of the Payments that would be treated as
parachute payments under Code Section 280G. The “Safe Harbor Amount”
is the maximum amount of Payments that could be made to you without giving rise
to any Excise Tax. You will be treated as “Recently Hired” by the
Corporation if you were first employed by the Corporation or any of its
Affiliates in a calendar year that is less than three years prior to the
calendar year in which the change in control occurs for purposes of Code Section
280G.
(ii)
Subject
to the provisions of paragraph 5(iii), all determinations required to be made
under this Section 5, including whether and when a Gross-Up Payment is required
and the amount of such Gross-Up Payment, whether a reduction to the Safe Harbor
amount is required and, if so, the amount of the reduction, and the assumptions
to be utilized in arriving at such determination, shall be made by such
nationally recognized certified public accounting firm as may be designated by
the Corporation (the “Accounting Firm”), which shall provide detailed supporting
calculations both to the Corporation and you within fifteen (15) business days
of the receipt of notice from you that there has been a Payment, or such earlier
time as is requested by the Corporation. All fees and expenses of the
Accounting Firm shall be borne solely by the Corporation. Any
Gross-Up Payment, as determined pursuant to this Section 5, shall be paid by the
Corporation to you within five (5) days after the receipt of the Accounting
Firm’s determination. If the Accounting Firm determines that no
Excise Tax is payable by you, it shall so indicate to you in
writing. Any determination by the Accounting Firm shall be binding
upon the Corporation and you. As a result of the uncertainty in the
application of Section 4999 of the Code at the time of the initial determination
by the Accounting Firm hereunder, it is possible that Gross-Up Payments which
will not have been made by the Corporation should have been made
(“Underpayment”), consistent with the calculations required to be made
hereunder. In the event that the Corporation exhausts its remedies
pursuant to paragraph 5(iii) and you thereafter are required to make a payment
of any Excise Tax, the Accounting Firm shall determine the amount of the
Underpayment that has occurred and any such Underpayment shall be promptly paid
by the Corporation to you or for your benefit.
(iii)
You shall
notify the Corporation in writing of any claim by the Internal Revenue Service
that, if successful, would require the payment by the Corporation of the
Gross-Up Payment. Such notification shall be given as soon as
practicable but no later than ten (10) business days after you are informed in
writing of such claim and shall apprise the Corporation of the nature of such
claim and the date on which such claim is requested to be paid. You
shall not pay such claim prior to the expiration of the thirty (30) day period
following the date on which you give such notice to the Corporation (or such
shorter period ending on the date that any payment of taxes with respect to such
claim is due). If the Corporation notifies you in writing prior to
the expiration of such period that it desires to contest such claim, you
shall:
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(a)
|
give
the Corporation any information requested by the Corporation relating to
such claim;
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(b)
|
take
such action in connection with contesting such claim as the Corporation
shall reasonably request in writing from time to time, including, without
limitation, accepting legal representation with respect to such claim by
an attorney reasonably selected by the
Corporation;
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(c)
|
cooperate
with the Corporation in good faith in order to effectively contest such
claim; and
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(d)
|
permit
the Corporation to participate in any proceedings relating to such
claim;
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provided
,
however
, that the
Corporation shall bear and pay directly all costs and expenses (including
additional interest and penalties) incurred in connection with such contest and
shall indemnify and hold you harmless, on an after-tax basis, for any Excise Tax
or income tax (including interest and penalties with respect thereto) imposed as
a result of such representation and payment of costs and
expenses. Without limitation on the foregoing provisions of this
paragraph 5(iii), the Corporation shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or forego any
and all administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may pay the tax claimed on your
behalf and direct you to sue for a refund or contest the claim in any
permissible manner, and you agree to prosecute such contest to a determination
before any administrative tribunal, in a court of initial jurisdiction and in
one or more appellate courts, as the Corporation shall determine;
provided
,
however
, that if the
Corporation pays the tax claimed on your behalf and directs you to sue for a
refund, the Corporation shall indemnify and hold you harmless, on an after-tax
basis, from any Excise Tax or income tax (including interest or penalties with
respect thereto) imposed with respect to such payment; and
provided
,
further
, that if you
are required to extend the statute of limitations to enable the Corporation to
contest such claim, you may limit this extension solely to such contested
amount. The Corporation’s control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be payable hereunder and
you shall be entitled to settle or contest, as the case may be, any other issue
raised by the Internal Revenue Service or any other taxing
authority.
(iv)
If, after
the payment by the Corporation of any tax claim pursuant to paragraph 5(iii),
you become entitled to receive any refund with respect to such claim, you shall
(subject to the Corporation’s complying with the requirements of paragraph
5(iii)) promptly pay to the Corporation the amount of such refund (together with
any interest paid or credited thereon after taxes applicable
thereto). If, after the payment by the Corporation of any tax claim
pursuant to paragraph 5(iii), a determination is made that you shall not be
entitled to any refund with respect to such claim and the Corporation does not
notify you in writing of its intent to contest such denial of refund prior to
the expiration of thirty (30) days after such determination, then the amount the
Corporation paid in respect of such claim shall offset, to the extent thereof,
the amount of Gross-Up Payment required to be paid.
(v)
You shall
be eligible for benefits under this Section 5, and shall be subject to the terms
of this Section 5, regardless of whether the Change in Control occurs or the
payments are made during the Agreement Term, regardless of whether you are
employed by the Corporation on or after the occurrence of a Change in Control
and, if your Date of Termination shall have occurred, regardless of the reason
for such termination.
(vi)
Any
amounts that you become entitled to receive in respect of taxes, interest and
penalties pursuant to this Section 5 shall be paid to you (or to the applicable
taxing authority on your behalf) not later than the last day of the calendar
year after the calendar year in which you remit the underlying taxes to the
applicable taxing authority, and any amounts that you become entitled to receive
in respect of costs and expenses incurred in connection with a contest pursuant
to this Section 5 shall be paid not later than the later of (a) the last day of
the calendar year after the calendar year in which you remit the underlying
taxes to the applicable taxing authority and (b) the last day of the calendar
year after the calendar year in which the applicable contest is
concluded. The foregoing provisions of this paragraph (vi) are
intended to conform the payments under this paragraph 5 and reimbursements under
this Agreement to the requirements of Section 409A, and shall not be construed
to permit delay by the Corporation of payment of amounts due earlier in
accordance with this Agreement.
6.
RIGHTS OF
EMPLOYMENT, CONTINUATION OF EQUITY AWARDS. Except as otherwise
expressly provided in this Agreement:
(i)
Nothing
in this Agreement shall be construed as limiting your right to resign prior to
the beginning or after the end of the Agreement Term.
(ii)
Nothing
in this Agreement shall be construed as limiting the Corporation’s right to
discharge you at any time prior to the beginning or after the end of the
Agreement Term, or to renegotiate the terms of your employment for any period
prior to the beginning or after the end of the Agreement Term.
(iii)
Except as
otherwise provided in paragraph 3(iv) (relating to discharge absent Cause or
Disability), or as otherwise expressly provided in this Agreement, this
Agreement shall be inapplicable to the determination of your rights to payments
and benefits, if your Date of Termination occurs prior to the occurrence of a
Change in Control, or if your Date of Termination occurs after the end of the
Agreement Term and you are not subject to a disability after a Change in
Control.
(iv)
This
paragraph 6(iv) will apply to any stock awards granted to you under the
Corporation’s 1996 Stock Incentive Plan, 1999 Stock Incentive Plan, or any
similar successor Plan that you hold immediately before a Change in Control
(“Equity Awards”).
(a)
The Board
(as constituted immediately prior to the Change in Control) shall determine, not
later than immediately before the Change in Control date, whether immediately
after the Change in Control, the Equity Awards in each Award Category (as
defined below) will be Comparable (as defined below) to the Equity Awards in
that Award Category that you held immediately before the Change in
Control. The three “Award Categories” are: (1)
Appreciation Awards, which includes stock options, stock appreciation rights,
and other similar awards based on appreciation in the price of the Corporation’s
stock after the grant date; (2) Non-Performance Based Full Value Awards, which
includes restricted stock, restricted stock units, and other awards the value of
which is based on the full value of the Corporation’s stock (rather than being
based on appreciation), and no portion of the value of which is based on
performance measures other than stock value; and (3) Performance Based Full
Value Awards, which includes restricted stock, restricted stock units and other
awards (but not Performance Stock), the value of which is based in part on the
full value of the Corporation’s stock, where vesting or other aspects of the
value of the awards is based on performance measures other than the value of the
Corporation’s stock. The following shall apply to that
determination:
(I)
The
category of Appreciation Awards will not be treated as Comparable if, for any of
the awards in that category, the intrinsic value of such award (that is, the
excess of the fair market value of the shares covered by such award over the
exercise price) immediately after the Change in Control is less than the
intrinsic value of such award immediately before the Change in
Control.
(II)
The
category of Performance Based Full Value Awards and the category of
Non-Performance Based Full Value Awards, respectively, will not be treated as
Comparable for any of the awards in that category unless the fair market value
of the stock covered by the award immediately after the Change in Control is at
least equal to the fair market value of the stock subject to the award prior to
the Change in Control.
(III)
In
determining whether awards are Comparable, the Board shall take into account
such factors as it determines to be relevant, including the credit quality of
the acquiring or remaining entity, the business fundamentals of the entity whose
shares are covered by the awards, and whether the shares subject to the awards
will be readily tradable or saleable to the Corporation or its successor at fair
market value after the Change in Control.
(IV)
In
determining whether awards are Comparable, the Board shall disregard reductions
in value that are not material.
(b)
If the
Board determines in accordance with paragraph 6(iv)(a) that awards in any Award
Category will not be Comparable after the Change in Control, the
following
will apply:
(I)
If
Appreciation Awards are determined not to be Comparable after a Change in
Control, the restrictions on exercise (or any similar limitations) shall lapse
(to the extent that they have not previously lapsed) for all awards in that
category outstanding immediately prior to the Change in Control, all awards in
that category shall become fully exercisable beginning immediately prior to the
Change in Control, and to the extent such awards would otherwise remain
outstanding, such exercisability shall continue until they would otherwise
terminate in accordance with the terms of the applicable award
agreement.
(II)
If
Non-Performance Based Full Value Awards, or Performance Based Full Value Awards,
respectively, are determined not to be Comparable after a Change in Control, the
restricted period (or other vesting or similar period) for all awards in the
applicable category or categories shall lapse immediately before the Change in
Control, and shares covered by the awards in the applicable category or
categories shall be distributed to you immediately before the Change in
Control. However, any change in the time or form of distribution
otherwise provided under this paragraph 6(iv)(b)(II) shall be disregarded to the
extent that such change would otherwise result in the application of penalties
under Section 409A, and such shares shall instead be delivered at the earliest
time that would not result in such penalties.
(III)
If such
determination applies to Performance Based Full Value Awards, the performance
objectives for all awards in that category will be deemed to have been achieved
at the target level of performance (without reduction to reflect that the Change
in Control occurred prior to the end of the performance
period). However, the foregoing provisions of this paragraph
6(iv)(b)(III) shall not be applicable to Performance Stock, and the effect of a
Change in Control with respect to such stock shall be determined in accordance
with the provisions of the agreement governing the terms of such
award.
(c)
Nothing
in this paragraph 6(iv) shall be construed to authorize the cancellation of
Equity Awards without the grant of replacement awards in the absence of such
authorization under the applicable Equity Award and/or stock plan or payment of
cash or other property therefor.
7.
SUCCESSORS;
BINDING AGREEMENT.
(i)
The
Corporation will require (a) any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of the Corporation or (b) in the event of a transaction
described in paragraph 2(iii) or (iv), the acquiring or surviving entity in such
transaction, in each case, to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the Corporation would
be required to perform it if no such succession had taken
place. Failure of the Corporation to obtain such assumption and
agreement prior to the effectiveness of any such succession shall be a breach of
this Agreement. As used in this Agreement, “Corporation” shall mean
the Corporation as hereinbefore defined and any successor to its business and/or
assets or acquiring or surviving entity as aforesaid which assumes and agrees to
perform this Agreement by operation of law, or otherwise, and “Board” shall mean
the Board as hereinbefore defined or equivalent governing body of such successor
or other entity, as applicable.
(ii)
This
Agreement shall inure to the benefit of and be enforceable by you and your
personal or legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. If you should die while any
amount would still be payable to you hereunder had you continued to live, all
such amounts, unless otherwise provided herein, shall be paid in accordance with
the terms of this Agreement to your devisee, legatee or other designee or, if
there is no such designee, to your estate.
8.
NOTICE. For
the purpose of this Agreement, notices and all other communications provided for
in this Agreement shall be in writing and shall be deemed to have been duly
given when delivered or mailed by United States certified or registered mail,
return receipt requested, postage prepaid, addressed to the respective addresses
set forth on the first page of this Agreement, provided that all notices to the
Corporation shall be directed to the attention of the Board with a copy to the
Secretary of the Corporation, or to such other address as either party may have
furnished to the other in writing in accordance herewith, except that notice of
change of address shall be effective only upon receipt.
9.
MISCELLANEOUS.
(i)
Subject
to paragraph 4(vi), no provision of this Agreement may be modified, waived
or discharged unless such waiver, modification or discharge is agreed to in
writing and signed by you and such officer as may be specifically designated by
the Board. No amendment, modification, or termination of this
Agreement shall be adopted or effective if it would result in accelerated
recognition of income or imposition of additional tax under Section
409A. No waiver by either party hereto at any time of any breach by
the other party hereto of, or compliance with, any condition or provision of
this Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been made by
either party which are not expressly set forth in this Agreement. The
validity, interpretation, construction and performance of this Agreement shall
be governed by the laws of the State of Texas without regard to its conflicts of
law principles. All references to sections of the Exchange Act or the
Code shall be deemed also to refer to any successor provisions to such
sections. Any payments provided for hereunder shall be paid net of
any applicable withholding required under federal, state or local
law. Except as otherwise specifically provided in this Agreement, to
the extent that the provision of payments or benefits to you results in your
being liable for taxes, you shall not be entitled to any make-whole, gross-up,
or other indemnification with respect to such taxes. The obligations
of the parties to this Agreement shall survive the expiration of the Agreement
Term. Capitalized terms used in this Agreement shall be defined as
set forth in this Agreement.
(ii)
If any
amount owed to you hereunder is not paid on the applicable due date, then, upon
the actual payment of such amount to you, you shall also receive interest
thereon from the original due date until the date of actual payment at an annual
rate of interest equal to the Prime Rate reported in The Wall Street Journal,
Northeast Edition, on the last business day of the month preceding the Payment
Date, compounded annually.
10.
VALIDITY. The
invalidity or unenforceability of any provision of this Agreement shall not
affect the validity or enforceability of any other provision of this Agreement,
which shall remain in full force and effect.
11.
COUNTERPARTS. This
Agreement may be executed in several counterparts, each of which shall be deemed
to be an original but all of which together will constitute one and the same
instrument.
12.
ARBITRATION. Any
dispute or controversy arising under or in connection with this Agreement shall
be settled exclusively by arbitration, conducted before a panel of three
arbitrators in Ft. Worth, Texas, in accordance with the rules of the American
Arbitration Association then in effect. Judgment may be entered on
the arbitrator’s award in any court having jurisdiction;
provided
,
however
, that you
shall be entitled to seek specific performance of your right to be paid until
the Date of Termination during the pendency of any dispute or controversy
arising under or in connection with this Agreement.
13.
AMENDMENT. This
Agreement may be amended or canceled only by mutual agreement of the parties in
writing without the consent of any other person. So long as you shall
live, no person, other than the parties hereto, shall have any rights under or
interest in this Agreement or the subject matter hereof.
14.
GENERAL
RELEASE AND COVENANT NOT TO SUE. You agree that as a condition of
receiving the Severance Payments and other benefits under paragraph 4(iii) of
this Agreement in connection with your termination of employment, you shall
execute the attached General Release and Covenant Not to Sue within thirty (30)
days following your Date of Termination. You will be deemed to have
executed a general release as described in the preceding sentence only if such
release is properly executed by you and returned to the Corporation within such
thirty (30) day period. Notwithstanding any other provision herein,
unless the executed General Release and Covenant Not to Sue has been received by
the Corporation within such thirty (30) day period and a seven (7) day
revocation period from the date of execution has expired without your revoking
such release, (i) no Severance Payments shall be provided and all
entitlements to Severance Payments shall expire and be forfeited, (ii) the
Corporation shall be relieved of all obligations to make any further payments,
or provide or make available any further benefits, to you pursuant to paragraphs
4(iii)(e), 4(iii)(f), 4(iii)(g) and 4(iii)(h), (iii) you shall be required
to repay the Corporation, in cash within five (5) business days after written
demand is made therefor by the Corporation, an amount equal to the value of any
benefits received by your pursuant to paragraph 4(iii)(e), 4(iii)(f), 4(iii)(g)
or 4(iii)(h) and (iv) you shall forfeit any stock awards that vested or became
exercisable pursuant to paragraph 4(iii)(c)(A) or 4(iii)(B) and any other
stock-based or other awards that otherwise vested (without regard to this
Agreement) under the terms of the applicable plan or award agreements by reason
of your termination of employment following a change in control, as defined in
this Agreement or any applicable plan or award agreement, and you shall not
receive any shares with respect thereto.
15.
ENTIRE
AGREEMENT. This Agreement sets forth the entire agreement of the
parties hereto in respect of the subject matter contained herein and supersedes
all prior agreements, promises, covenants, arrangements, communications,
representations or warranties, whether oral or written, by any officer, employee
or representative of any party hereto; and any prior agreement of the parties
hereto in respect of the subject matter contained herein is hereby terminated
and canceled. This Agreement constitutes an amendment, restatement,
and continuation of your Change in Control Agreement. The terms of
this Agreement, as set forth herein, shall apply with respect to any Change in
Control that occurs on or after December 31, 2007, and the terms of your
Agreement in effect prior to this amendment and restatement shall be deemed to
be completely replaced by the terms set forth herein. For the
avoidance of doubt, it is recited here that this Agreement shall not apply to
any award (regardless of when granted) if the document(s) applicable to such
award provide that the terms of the award will be determined based solely on the
provisions of such award document(s), or determined without regard to the terms
of any other change in control arrangement.
If this
letter sets forth our agreement on the subject matter hereof, kindly sign and
return to the Corporation the enclosed copy of this letter, which will then
constitute our agreement on this subject.
Sincerely,
Burlington
Northern
Santa Fe
Corporation
Attachment
GENERAL
RELEASE AND COVENANT NOT TO SUE
For and
in consideration of the terms of the Agreement between Burlington Northern Santa
Fe Corporation and its Affiliates and _____________dated _____________, _____,
(“Agreement”), the undersigned (i) does hereby agree to comply with the
restrictions applicable to me under the change in control agreement dated
________ between Burlington Northern Santa Fe Corporation and me (as well as any
other restrictions applicable to me) after my termination of employment, and
(ii) does hereby fully waive, release, acquit, and forever discharge Burlington
Northern Santa Fe Corporation and any and all of its Affiliates, divisions,
subsidiaries, benefit plans, officers, directors, stockholders, agents,
advisors, fiduciaries, administrators, and employees, or any of their successors
or assigns, from any and all claims, demands or causes of action, including but
not limited to any claims for merger protection benefits pursuant to the
Interstate Commerce Commission decision in the
Northern Lines
,
BNSF
, or
Frisco
merger
proceedings, claims arising under Title VII of the Civil Rights Act of 1964, as
amended, 42 U.S.C. § 2000(e),
et seq.
, the Civil
Rights Act of 1866, 42 U.S.C. § 1981, the Age Discrimination in Employment Act
of 1967, as amended, 29 U.S.C. § 621,
et seq.
, the Federal
Employers’ Liability Act, and any other federal, state or local law, order,
regulation, common law, contract or collective bargaining agreement, which
relates to my employment or cessation of employment by Burlington Northern Santa
Fe Corporation and its Affiliates; provided however that the undersigned does
not waive enforcement of rights to any benefits provided or extended pursuant to
the terms of the Agreement or to assert any counterclaims in response to any
litigation initiated by Burlington Northern Santa Fe Corporation against
me. The undersigned specifically waives all claims, whether past or
present, known or unknown, and whether or not in litigation, which I, or acting
on my behalf, my heirs, successors, executors, administrators or assigns, may
have based on any action, omission or event occurring prior to this
date. Included in this Release are any and all claims for future
damages allegedly arising from the alleged continuation of the effects of any
past action, omission or event.
I
acknowledge that (i) I have read the Agreement including this General Release
and Covenant Not to Sue (“Release”); (ii) I am advised by the Corporation to
consult, and have had the opportunity to consult, an attorney about the meaning
and effect of this Agreement and Release; (iii) I have had sufficient time, and
at least 45 days, to consider and fully understand the meaning and effect of
signing this Agreement and Release; (iv) I have 7 days after signing to change
my mind and revoke my acceptance by so notifying __________________________; (v)
this Agreement and Release will not become effective and enforceable until that
7-day period has passed; (vi) I am not otherwise entitled to the benefits of the
Agreement; (vii) I am not relying on any written or oral statement or promise
other than as set out in the Agreement and Release; and (viii) this Agreement
and Release shall be governed by and construed in accordance with the laws of
the State of Texas.
This
General Release and Covenant Not to Sue is executed knowingly and voluntarily,
for adequate consideration, and is irrevocable and binding upon the
undersigned.
ACCEPTED
AND AGREED TO this _____ day of _______, 20___:
Person’s
Name: _________________________
Signature:_______________________________
Exhibit 10.16
Amended
and Restated February 13, 2008
BURLINGTON
NORTHERN SANTA FE
1999
STOCK INCENTIVE PLAN
SECTION
1
STATEMENT
OF PURPOSE
1.1. The
BURLINGTON NORTHERN SANTA FE 1999 STOCK INCENTIVE PLAN (the "Plan") has been
established by BURLINGTON NORTHERN SANTA FE CORPORATION (the "Company")
to:
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(a)
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attract
and retain executive, managerial and other salaried
employees;
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(b)
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motivate
participating employees, by means of appropriate incentives, to achieve
long-range goals;
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(c)
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provide
incentive compensation opportunities that are competitive with those of
other major corporations; and
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(d)
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further
identify a Participant's interests with those of the Company's other
stockholders through compensation that is based on Stock (as defined
below);
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and
thereby promote long-term financial interest of the Company and the Related
Companies, including the growth in value of the Company's equity and enhancement
of long-term stockholder return.
SECTION
2
DEFINITIONS
2.1. Unless
the context indicates otherwise, the following terms shall have the meanings set
forth below:
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(a)
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Affiliates.
The
term
"Affiliates"
shall mean all persons with whom the Company is considered to be a single
employer under section 414 (b) of the Code and all persons with whom the
Company would be considered a single employer under section 414 (c) of the
Code.
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(b)
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Award.
The
term "Award" shall mean any award or benefit granted to any Participant
under the Plan, including, without limitation, the grant of Options,
Restricted Stock, Restricted Stock Units, Performance Stock, Achievement
Award Stock, or Stock acquired through purchase under Section
10.
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(c)
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Board.
The
term "Board" shall mean the Board of Directors of the
Company.
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(d)
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Cause.
The
term "Cause" shall mean (a) the willful and continued failure by the
Participant to substantially perform his or her duties with the Company
(other than any such failure resulting from his or her incapacity due to
physical or mental illness), or (b) the willful engaging by the
Participant in conduct which is demonstrably and materially injurious to
the Company, monetarily or otherwise. For purposes of this definition, no
act, or failure to act, shall be deemed "willful" unless done, or omitted
to be done, by the Participant not in good faith and without reasonable
belief that his or her action or omission was in the best interest of the
Company.
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(e)
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Change in
Control
. A "Change in Control" shall be deemed to have
occurred if:
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(1)
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any
"person" as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") (other
than the Company, any trustee or other fiduciary holding securities under
an employee benefit plan of the Company, or any company owned, directly or
indirectly, by the stockholders of the Company in substantially the same
proportions as their ownership of stock of the Company), is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Company representing 25% or
more of the combined voting power of the Company's then outstanding
securities;
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(2)
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during
any period of two consecutive years (not including any period prior to the
effective date of this provision), individuals who at the beginning of
such period constitute the Board, and any new director (other than a
director designated by a person who has entered into an agreement with the
Company to effect a transaction described in clause (1), (3) or (4) of
this definition) whose election by the Board or nomination for election by
the Company's stockholders was approved by a vote of at least two-thirds
(
⅔
) of
the directors then still in office who either were directors at the
beginning of the period or whose election or nomination for election was
previously so approved, cease for any reason to constitute at least a
majority thereof;
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(3)
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the
stockholders of the Company approve a merger or consolidation of the
Company with any other company other than (i) a merger or consolidation
which would result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity) more than 80% of the combined voting power of the voting
securities of the Company (or such surviving entity) outstanding
immediately after such merger or consolidation, or (ii) a merger or
consolidation effected to implement a recapitalization of the Company (or
similar transaction) in which no "person" (as hereinabove defined)
acquires more than 25% of the combined voting power of the Company's then
outstanding securities; or
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(4)
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the
stockholders of the Company adopt a plan of complete liquidation of the
Company or approve an agreement for the sale or disposition by the Company
of all or substantially all of the Company's assets. For purposes of this
clause (4), the term "the sale or disposition by the Company of all or
substantially all of the Company's assets" shall mean a sale or other
disposition transaction or series of related transactions involving assets
of the company or of any direct or indirect subsidiary of the Company
(including the stock of any direct or indirect subsidiary of the Company)
in which the value of the assets or stock being sold or otherwise disposed
of (as measured by the purchase price being paid therefor or by another
objective method in a case where there is no readily ascertainable
purchase price) constitutes more than two-thirds of the fair market value
of the Company (as hereinafter defined). For purposes of the preceding
sentence, the "fair market value of the Company" shall be the aggregate
market value of the outstanding shares of Stock (on a fully diluted basis)
plus the aggregate market value of the Company's other outstanding equity
securities (excluding Employee stock options). The aggregate market value
of the shares of Stock (on a fully diluted basis) outstanding on the date
of the execution and delivery of a definitive agreement with respect to
the transaction or series of related transactions (the "Transaction Date")
shall be determined by the average closing price of the shares of Stock
for the ten trading days immediately preceding the Transaction Date. The
aggregate market value of any other equity securities of the Company shall
be determined in a manner similar to that prescribed in the immediately
preceding sentence for determining the aggregate market value of the
shares of Stock.
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(f)
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Code.
The
term "Code" means the Internal Revenue Code of 1986 and the regulations
thereunder, as each may be amended from time to time. A reference to any
provision of the Code shall include reference to any successor provision
of the Code.
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(g)
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Date of Termination.
The term "Date of Termination" shall mean your ceasing to be
employed by the Company and the Affiliates; provided that the employment
relationship will be deemed to have ended at the time you and your
employer reasonably anticipate that the level of bona fide services you
would perform for the Company and the Affiliates after such date (whether
as an Employee or independent contractor, but not as a director) would
permanently decrease to no more than 20% of the average level of bona fide
services performed over the immediately preceding 36 month period (or the
full period of service to the Company and the Affiliates if you have
performed services for the Company and the Affiliates for less than 36
months). In the absence of an expectation that you will perform
at the above-described level, the Date of Termination of employment will
not be delayed solely by reason of your continuing to be on the Company's
and the Affiliates' payroll after such
date.
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(h)
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Deferred
Compensation
. The term "Deferred Compensation" means any
payments or benefits that would be considered to be provided under a
"nonqualified deferred compensation plan" as that term is defined in
Treas. Reg. § 1.409A-1.
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(i)
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Disability.
Except
as otherwise provided by the Committee, a Participant shall be considered
to have a "Disability" during the period in which he or she is unable, by
reason of a medically determinable physical or mental impairment, to
engage in any substantial gainful activity, which condition, in the
discretion of the Committee, is expected to have a duration of not less
than 120 days.
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(j)
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Employee.
The
term "Employee" shall mean a person with an employment relationship with
the Company or a Related Company.
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(k)
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Employer.
The
Company and each Related Company which, with the consent of the Company,
participates in the Plan for the benefit of its eligible Employees are
referred to collectively as the "Employers" and individually as an
"Employer."
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(l)
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Fair Market
Value.
The "Fair Market Value" of the Stock shall be the
closing price of a share of Common Stock on the New York Stock Exchange
Composite Transaction Report on the valuation date; provided, that if
there were no sales on the valuation date but there were sales on dates
within a reasonable period before the valuation date, the Fair Market
Value is the closing price on the nearest date before the valuation
date. In any event the determination of "Fair Market Value"
shall be consistent with the requirements of Treas. Reg. §
1.409A-1(b)(5)(iv)(A).
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(m)
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Immediate
Family.
With respect to a particular Participant, the
term "Immediate Family" shall mean the Participant's spouse, children,
stepchildren, adoptive relationships, sisters, brothers and
grandchildren.
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(n)
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Independent
Director.
The term "Independent Director" shall mean a
member of the Board who is not an Employee and who, at the time of acting,
qualifies as a "Non-Employee Director" under Rule 16b-3 of the Exchange
Act and an "outside director" under section 162(m) of the
Code.
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(o)
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Option.
The
term "Option" shall mean any Incentive Stock Option or Non-Qualified Stock
Option granted under the Plan.
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(p)
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Participant.
The
term "Participant" means an Employee who has been granted an Award under
the Plan.
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(q)
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Performance-Based
Compensation
. The term "Performance-Based Compensation"
shall have the meaning ascribed to it in section 162(m)(4)(C) of the
Code.
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(r)
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Performance
Period
. The term "Performance Period" shall mean the
period over which applicable performance is to be measured, provided that
such period shall not be less than one
year.
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(s)
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Qualified Retirement
Plan
. The term "Qualified Retirement Plan" means any
plan of the Company or a Related Company that is intended to be qualified
under section 401(a) of the Code.
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(t)
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Related
Company.
The term "Related Company" means any company
during any period in which it is a "subsidiary corporation" (as that term
is defined in Code section 424(f)) with respect to the
Company.
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(u)
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Restricted
Period.
The term "Restricted Period" shall mean the
period of time for which Restricted Stock is subject to forfeiture
pursuant to the Plan or during which Options are not
exercisable.
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(v)
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Retirement
. "Retirement"
of a Participant shall mean the occurrence of a Participant's Date of
Termination under circumstances that constitute a retirement with
immediate eligibility for benefits under Article 6 or Article 7 of the
Burlington Northern Santa Fe Retirement Plan, or under the terms of the
Qualified Retirement Plan of an Employer or Related Company that is
extended to the Participant immediately prior to the Participant's Date of
Termination or, if no such plan is extended to the Participant on his or
her Date of Termination, under the terms of any applicable retirement
policy of the Participant's
employer.
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(w)
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SEC
. "SEC"
shall mean the United States Securities and Exchange
Commission.
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(x)
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Specified
Employee
. "Specified Employee" shall be defined in
accordance with Treas. Reg. § 1.409A-1(i) and such rules as may be
established by the Chief Executive Officer of the Company or his or her
delegate from time to time.
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(y)
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Stock.
The
term "Stock" shall mean shares of common stock of the Company, par value
$0.01 per share.
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SECTION
3
ELIGIBILITY
3.1. The
Compensation and Development Committee of the Board ("Committee") shall
determine and designate from time to time, from among the salaried, full-time
officers and Employees of the Employers, those Employees who will be granted one
or more Awards under the Plan, and from among the salaried and non-salaried
full- or part-time non-officer Employees of an Employer, those Employees who
will be granted Achievement Award Stock under Section 11 of the
Plan.
SECTION
4
OPERATION
AND ADMINISTRATION
4.1. Subject
to the approval of the stockholders of the Company at the Company's 2006 annual
meeting of the stockholders, the Plan, as amended and restated, shall be
effective as of the date of such approval ("Effective Date"), provided however,
that any Awards made under the Plan, as amended and restated, other than Awards
that can be made under the Plan prior to amendments to be approved at the 2006
annual meeting of the stockholders and that are made prior to approval by
stockholders, shall be contingent on approval of the Plan, as amended and
restated, by stockholders of the Company and all dividends on such Awards shall
be held by the Company and paid only upon such approval and all other rights of
a Participant in connection with such an Award shall not be effective until such
approval is obtained. The Plan will terminate (except with respect to then
outstanding Awards) on April 21, 2014, or, if shareholders approve the Plan, as
amended and restated, at the 2006 annual meeting of stockholders, ten years from
the date of such approval, provided however, that no Incentive Stock Options may
be granted under the Plan on a date that is more than ten years from the
Effective Date or, if earlier, the date the Plan is adopted by the
Board.
4.2. Except
as otherwise provided in Section 4.3, the Plan shall be administered by the
Committee, which shall be selected by the Board in accordance with the charter
of the Committee adopted by the Board. The authority to manage and control the
operation and administration of the Plan is subject to the
following:
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(a)
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Subject
to the provisions of the Plan, the Committee will have the authority and
discretion to select Employees to receive Awards, to determine the time or
times of receipt, to determine the types of Awards and the number of
shares covered by the Awards, to establish the terms, conditions,
performance criteria, restrictions, and other provisions of such Awards,
and to cancel or suspend Awards. In making such Award
determinations, the Committee may take into account the nature of services
rendered by the respective Employee, his or her present and potential
contribution to the Company's success, and such other factors as the
Committee deems relevant.
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(b)
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Subject
to the provisions of the Plan, the Committee will have the authority and
discretion to determine the extent to which Awards under the Plan will be
structured to conform to the requirements applicable to Performance-Based
Compensation as described in Code section 162(m), and to take such action,
establish such procedures, and impose such restrictions at the time such
Awards are granted as the Committee determines to be necessary or
appropriate to conform to such
requirements.
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(c)
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The
Committee will have the authority and discretion to interpret the Plan, to
establish, amend, and rescind any rules and regulations relating to the
Plan, to determine the terms and provisions of any agreements made
pursuant to the Plan, and to make all other determinations that may be
necessary or advisable for the administration of the
Plan.
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(d)
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Any
interpretation of the Plan by the Committee and any decision made by it or
the Independent Directors pursuant to its or their respective authority
under the Plan is final and binding on all
persons.
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(e)
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Except
as otherwise expressly provided in the Plan, where the Committee or the
Independent Directors are authorized to make a determination with respect
to any Award, such determination shall be made at the time the Award is
granted; except that the Committee or the Independent Directors, as
applicable, may reserve the authority to have such determination made by
the Committee or the Independent Directors, as applicable, in the future
(but only if such reservation is either made at the time the Award is
granted and is stated in the Agreement reflecting the Award or, if the
Agreement does not address the issue, is provided in the
Plan);
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(f)
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Except
to the extent prohibited by applicable law or the rules of any stock
exchange, the Committee may allocate all or any portion of its
responsibilities and powers to any one or more of its members or, with
respect to Awards to Employees below the level of Vice President (provided
that such Awards shall not exceed 5% of the shares of Stock currently
available for grant under the Plan), to one or more subcommittees, each
composed of one or more other members of the Board;
and
other than in respect to eligibility, times of Awards, and terms,
conditions, performance criteria, restrictions and other provisions of
Awards, and except as otherwise provided by the Committee from time to
time, the Committee delegates its responsibilities and powers to the Vice
President-Human Resources or his or her successor. Any such allocation or
delegation may be revoked by the Committee at any
time.
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(g)
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No
member or authorized delegate of the Committee or Independent Director
shall be liable to any person for any action taken or omitted in
connection with the administration of the Plan unless attributable to his
or her own fraud or willful misconduct; nor shall the Employers be liable
to any person for any such action unless attributable to fraud or willful
misconduct on the part of a director or Employee of the Employers. The
Committee, the individual members thereof, persons acting as the
authorized delegates of the Committee under the Plan, and the Independent
Directors shall be indemnified by the Employers (to the maximum extent
permitted by law) against any and all liabilities, losses, costs and
expenses (including legal fees and expenses) of whatsoever kind and nature
which may be imposed on, incurred by or asserted against the Committee or
its members or authorized delegates or the Independent Directors by reason
of the performance of a Committee or Independent Director function if the
Committee or its members or authorized delegates or the Independent
Directors did not act dishonestly or in willful violation of the law or
regulation under which such liability, loss, cost or expense arises. This
indemnification shall not duplicate but may supplement any coverage
available under any applicable by-law, contract or
insurance.
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4.3. Notwithstanding
any other provision of the Plan to the contrary, all Awards granted to the Chief
Executive Officer of the Company under the Plan shall be recommended by the
Committee and awarded by the Independent Directors, and the Independent
Directors shall have the authority to determine, subject to the recommendations
of the Committee, the times of such Awards and the terms, conditions,
restrictions and other provisions of such Awards
,
except with respect to the establishment of performance criteria or goals, which
shall be established by the Committee
. With respect to any
Awards granted to the Chief Executive Officer of the Company, the phrase
“Independent Directors, subject to the recommendation of the Committee” shall be
substituted for the word “Committee” each time it appears in Sections 3.1,
4.2(a), 6.2, 6.4, 6.5, 7.1, 7.2, 7.3(a), 7.3(c), 7.3(d), 8.1, 8.2, 8.3, 9.2,
9.3, 12.9 and 16.1 of the Plan, except in each case with respect to the
establishment of performance criteria or goals.
4.4. Notwithstanding
any other provision of the Plan to the contrary, no Participant shall receive
any Award of an Option under the Plan to the extent that the sum
of:
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(a)
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the
number of shares of Stock subject to such
Award;
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(b)
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the
number of shares of Stock subject to all other prior Awards of Options
under the Plan during the one-year period ending on the date of the Award;
and
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(c)
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the
number of shares of Stock subject to all other prior stock options granted
to the Participant under other plans or arrangements of the Employers and
Related Companies during the one-year period ending on the date of the
Award;
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would
exceed the Participant's Individual Limit under the Plan. The determination made
under the foregoing provisions of this subsection 4.3 shall be based on the
shares subject to the Awards at the time of grant, regardless of when the Awards
become exercisable. Subject to the provisions of Section 13, a Participant's
"Individual Limit" shall be 1,000,000 shares per calendar year.
4.5. To
the extent that the Committee determines that it is necessary or desirable to
conform any Awards under the Plan with the requirements applicable to
Performance-Based Compensation, it may, at or prior to the time an Award is
granted, take such steps and impose such restrictions with respect to such Award
as it determines to be necessary to satisfy such requirements. To the extent
that it is necessary to establish performance goals for a particular performance
period, those goals will be based on one or more of the following business
criteria: net income, earnings per share, debt reduction, safety, on-time train
performance, return on investment, operating ratio, cash flow, return on assets,
stockholders' return, revenue, customer satisfaction, and return on equity. If
the Committee establishes performance goals for a performance period relating to
one or more of these business criteria, the Committee may determine to approve a
payment for that particular performance period upon attainment of the
performance goal relating to any one or more of such criteria.
4.6. To
the extent that the Plan and the Awards under the Plan are subject to the rules
applicable to nonqualified deferred compensation plans under section 409A of the
Code ("Section 409A"), such portion of the Plan and such Awards are not intended
to result in acceleration of income recognition or imposition of penalty taxes
by reason of Section 409A, and the terms of such portion of the Plan and such
Awards shall be interpreted in a manner (and such portion of the Plan and such
Awards may be amended to the extent determined necessary or appropriate by the
Committee) to avoid such acceleration and penalties.
SECTION
5
SHARES
AVAILABLE UNDER THE PLAN
5.1. The
shares of Stock with respect to which Awards may be made under the Plan shall be
shares currently authorized but unissued or treasury shares acquired by the
Company, including shares purchased in open market or in private transactions.
Subject to the provisions of Section 13, the total number of shares of Stock
available for grant of Awards shall not exceed fifty-three million (53,000,000)
shares of Stock. Except as otherwise provided herein, any shares subject to an
Award which for any reason expires or is terminated without issuance of shares
(whether or not cash or other consideration is paid to a Participant in respect
to such Award) shall again be available under the Plan. Shares tendered by a
Participant in full or partial payment to the Company upon exercise of an Option
granted under the Plan or shares withheld by, or otherwise remitted to, the
Company to satisfy a Participant's tax withholding obligation in respect to any
Award shall not become available for issuance under the Plan.
SECTION
6
OPTIONS
6.1. The
grant of an "Option" under this Section 6 entitles the Participant to purchase
shares of Stock at a price fixed at the time the Option is granted, or at a
price determined under a method established at the time the Option is granted,
subject to the terms of this Section 6. Options granted under this section may
be either Incentive Stock Options or Non-Qualified Stock Options, and subject to
Section 12, shall not be exercisable for six months from date of grant, as
determined in the discretion of the Committee. An "Incentive Stock Option" is an
Option that is intended to satisfy the requirements applicable to an "incentive
stock option" described in section 422(b) of the Code. A "Non-Qualified Stock
Option" is an Option that is not intended to be an "incentive stock option" as
that term is described in section 422(b) of the Code.
6.2. The
Committee shall designate the Participants to whom Options are to be granted
under this Section 6 and shall determine the number of shares of Stock to be
subject to each such Option. To the extent that the aggregate fair market value
of Stock with respect to which Incentive Stock Options are exercisable for the
first time by any individual during any calendar year (under all plans of the
Company and all Related Companies) exceeds $100,000, such options shall be
treated as Non-Qualified Stock Options, to the extent required by section 422 of
the Code.
6.3. The
determination of the purchase price of a share of Stock under each Option and
the payment of the purchase price of a share of Stock under each Option shall be
subject to the following:
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(a)
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The
purchase price of an Option shall be established by the Committee or shall
be determined by a method established by the Committee at the time the
Option is granted; provided, however, that in no event shall such price be
less than Fair Market Value on the date of the
grant.
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(b)
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Subject
to the following provisions of this subsection 6.3, the full purchase
price of each share of Stock purchased upon the exercise of any Option
shall be paid at the time of such exercise and, as soon as practicable
thereafter, a certificate representing the shares so purchased shall be
delivered to the person entitled
thereto.
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(c)
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The
purchase price of an Option shall be payable in cash or in shares of Stock
(valued at Fair Market Value as of the day of
exercise).
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(d)
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A
Participant may elect to pay the purchase price upon the exercise of an
Option through a cashless exercise arrangement as may be established by
the Company.
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(e)
|
Except
for either adjustments pursuant to Section 13 of the Plan (relating to the
adjustments to shares), or reductions of the purchase price approved by
the Company's stockholders, and subject to any applicable restrictions
imposed by Section 409A, the purchase price for any outstanding Option may
not be decreased after the date of grant nor may an outstanding Option
granted under the Plan be surrendered to the Company as consideration for
the grant of a replacement Option with a lower purchase
price.
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6.4. Except
as otherwise expressly provided in the Plan, the terms and conditions relating
to the exercise of an Option shall be established by the Committee, and may
include, without limitation, conditions relating to completion of a specified
period of service, achievement of performance standards prior to exercise of the
Option, or achievement of Stock ownership objectives by the Participant. No
Option may be exercised by a Participant after the expiration date applicable to
that Option.
6.5. The
exercise period of any Option shall be determined by the Committee and shall not
extend more than ten years after the Date of Grant.
6.6. In
the event the Participant exercises an Option granted before February 28, 2005,
under this Plan or a predecessor plan of the Company or a Related Company and
pays all or a portion of the purchase price in Common Stock, in the manner
permitted by subsection 6.3, such Participant, pursuant to the exercise of
Committee discretion at the time the Option is exercised or to the extent
previously authorized by the Committee, may be issued a new Option to purchase
additional shares of Stock equal to the number of shares of Stock surrendered to
the Company in such payment. Such new Option shall have an exercise price equal
to the Fair Market Value per share on the date such new Option is granted, shall
first be exercisable six months from the date of grant of the new Option and
shall have an expiration date on the same date as the expiration date of the
original Option so exercised by payment of the purchase price in shares of
Stock. No new Option shall be granted pursuant to this subsection 6.6 in
connection with the exercise of any Option granted on or after February 28,
2005.
SECTION
7
RESTRICTED
STOCK
7.1. Subject
to the terms of this Section 7, Restricted Stock Awards under the Plan are
grants of Stock to Participants, the vesting of which is subject to certain
conditions established by the Committee, with some or all of those conditions
relating to events (such as performance or continued employment) occurring after
the date of grant, provided however that to the extent that vesting of a
Restricted Stock Award is contingent on continued employment, then (i) the
required employment period shall not be less than three years following the
grant of the Award unless the Award is being granted in replacement of a
previously granted Award under the Plan or another plan and, as of the date of
the replacement, the required employment period for the replacement grant is not
less than the remaining required employment period under the grant that is being
replaced, and (ii) the grant may provide for equal, annual, pro-rata vesting
during the employment period.
7.2. The
Committee shall designate the Participants to whom Restricted Stock is to be
granted, and the number of shares of Stock that are subject to each such Award.
The maximum number of shares of Stock that may be issued in conjunction with
Awards granted under Sections 7, 8 and 9 of the Plan shall be twenty-three
million shares. The Award of shares under this Section 7 may, but need not, be
made in conjunction with a cash-based incentive compensation program maintained
by the Company, and may, but need not, be in lieu of cash otherwise awardable
under such program, provided, however, that one million of the shares remaining
to be granted under Sections 7, 8 and 9 of the Plan as of April 18, 2002, shall
only be used for Awards of shares of Performance-Based Restricted Stock,
performance-based Restricted Stock Units or Performance Stock or in lieu of cash
otherwise awardable under such program.
7.3. Shares
of Restricted Stock granted to Participants under the Plan shall be subject to
the following terms and conditions:
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(a)
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Except
as otherwise hereinafter provided, Restricted Stock granted to
Participants may not be sold, assigned, transferred, pledged or otherwise
encumbered during the Restricted Period. Except for such restrictions, the
Participant as owner of such shares shall have all the rights of a
stockholder, including but not limited to the right to vote such shares
and, except as otherwise provided by the Committee or as otherwise
provided by the Plan, the right to receive all dividends paid on such
shares.
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(b)
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Each
certificate issued in respect of shares of Restricted Stock granted under
the Plan shall be registered in the name of the Participant and, at the
discretion of the Committee, each such certificate may be deposited with
the Company with a stock power endorsed in blank or in a bank designated
by the Committee.
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(c)
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The
Committee may award Performance-Based Restricted Stock, which shall be
Restricted Stock that becomes vested (or for which vesting is accelerated)
upon the achievement of performance goals established by the Committee.
The Committee may specify the number of shares that will vest upon
achievement of different levels of performance. Except as otherwise
provided by the Committee, achievement of maximum targets during the
Performance Period shall result in the Participant's receipt of the full
Performance-Based Restricted Stock Award. For achievement of the minimum
target but less than the maximum target the Committee may establish a
portion of the Award which the Participant is entitled to
receive.
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(d)
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Except
as otherwise provided by the Committee, any Restricted Stock which is not
earned by the end of a Performance Period shall be forfeited. If a
Participant's Date of Termination occurs during a Performance Period with
respect to any Restricted Stock subject to a Performance Period granted to
him or her, the Committee may determine that the Participant will be
entitled to settlement of all or any portion of the Restricted Stock
subject to a Performance Period as to which he or she would otherwise be
eligible or make such other adjustments as the Committee, in its sole
discretion, deems desirable. Subject to the limitations of the Plan and
the Award of Restricted Stock, upon the vesting of Restricted Stock, such
Restricted Stock will be transferred free of all restrictions to a
Participant (or his or her legal representative, beneficiary or
heir).
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SECTION
8
RESTRICTED
STOCK UNITS
8.1. Subject
to the terms of this Section 8, a Restricted Stock Unit entitles a Participant
to receive shares for the units at the end of a Restricted Period to the extent
provided by the Award with the vesting of such units to be contingent upon such
conditions as may be established by the Committee (such as continued employment
which, when required, shall be not less than three years (although the grant may
provide for equal, annual, pro-rata vesting during that period), or satisfaction
of performance criteria). The Award of Restricted Stock Units under this Section
8 may, but need not, be made in conjunction with a cash-based incentive
compensation program maintained by the Company, and may, but need not, be in
lieu of cash otherwise awardable under such program, provided, however, that one
million of the shares remaining to be granted under Sections 7, 8 and 9 of the
Plan as of April 18, 2002, shall only be used for Awards of shares of
Performance-Based Restricted Stock, performance-based Restricted Stock Units or
Performance Stock or in lieu of cash otherwise awardable under such
program.
8.2. The
Committee shall designate the Participants to whom Restricted Stock Units shall
be granted and the number of units that are subject to each such Award. The
maximum number of shares of Stock that may be issued in conjunction with Awards
granted under Sections 7, 8 and 9 of the Plan shall be twenty-three million
shares. During any period in which units are outstanding and have not been
settled in Stock, the Participant shall not have the rights of a stockholder,
but shall have the right to receive a payment from the Company in lieu of a
dividend in an amount equal to such dividends and at such times as dividends
would otherwise be paid.
8.3.
If a
Participant's Date of Termination occurs during a Restricted Period with respect
to any Restricted Stock Units granted to him or her, the Committee may determine
that the Participant will be entitled to settlement of all or any portion of the
Restricted Stock Units as to which he or she would otherwise be eligible or make
such other adjustments as the Committee, in its sole discretion, deems
desirable.
SECTION
9
PERFORMANCE
STOCK
9.1. Subject
to the terms of this Section 9, a Performance Stock Award provides for the
distribution of Stock to a Participant upon the achievement of performance
objectives established by the Committee.
9.2. The
Committee shall designate the Participants to whom Performance Stock Awards are
to be granted, and the number of shares of Stock that are subject to each such
Award. The maximum number of shares of Stock that may be issued in conjunction
with Awards granted under Sections 7, 8 and 9 of the Plan shall be twenty-three
million shares. The Award of shares under this Section 9 may, but need not, be
made in conjunction with a cash-based incentive compensation program maintained
by the Company, and may, but need not, be in lieu of cash otherwise awardable
under such program, provided, however, that one million of the shares remaining
to be granted under Sections 7, 8 and 9 of the Plan as of April 18, 2002, shall
only be used for Awards of shares of Performance-Based Restricted Stock,
performance-based Restricted Stock Units or Performance Stock or in lieu of cash
otherwise awardable under such program.
9.3. If
a Participant's Date of Termination occurs during a Performance Period with
respect to any Performance Stock granted to him or her, the Committee may
determine that the Participant will be entitled to settlement of all or any
portion of the Performance Stock as to which he or she would otherwise be
eligible or make such other adjustments as the Committee, in its sole
discretion, deems desirable.
SECTION
10
STOCK
PURCHASE PROGRAM
10.1. The
Committee may, from time to time, establish one or more programs under which
Participants will be permitted to purchase shares of Stock under the Plan, and
shall designate the Participants eligible to participate under such Stock
purchase programs. The purchase price for shares of Stock available under such
programs, and other terms and conditions of such programs, shall be established
by the Committee. The purchase price may not be less than 85% of the Fair Market
Value of the Stock at the time of purchase (or, in the Committee's discretion,
the average Stock value over a period determined by the Committee), and the
purchase price may not be less than par value. Issuances under the Stock
purchase programs authorized under this Section 10.1 shall not exceed a
cumulative total of 400,000 shares subsequent to April 17, 2002.
10.2. The
Committee may impose such restrictions with respect to shares purchased under
this section, as the Committee determines to be appropriate. Such restrictions
may include, without limitation, restrictions of the type that may be imposed
with respect to Restricted Stock under Section 7.
SECTION
11
ACHIEVEMENT
AWARD STOCK
11.1. Subject
to the eligibility provisions of Section 3, the Committee may determine and
designate from time to time from among the eligible Employees of an Employer
those Employees who will be granted Achievement Award Stock. Such Employees
shall be those Employees who are recognized for specific and unique achievements
that exceed normal expectations for the job.
11.2. Stock
granted under this Section 11 shall consist of shares of Stock, which shall not
be subject to a vesting period. The total number of shares of Stock to be
awarded under this Section 11 shall not exceed 50,000 shares, and in any
calendar year no Employee may be granted more than 25 shares of Stock (or such
other number as the Committee may determine) under this Section 11, and such
Stock shall be granted in lieu of a cash payment equal to no more than 25 (or
such other number as the Committee may determine) times the Fair Market Value of
one share of Stock on the date of grant.
SECTION
12
TERMINATION
OF EMPLOYMENT
12.1. If
a Participant's Date of Termination occurs for any reason other than death,
Disability, Retirement, or by reason of the Participant's employment being
terminated by the Participant's employer for any reason other than Cause, all
outstanding Awards shall be forfeited.
12.2. If
a Participant's Date of Termination occurs by reason of death, all Options
outstanding immediately prior to the Participant's Date of Termination shall
immediately become exercisable and all restrictions on Restricted Stock,
Restricted Stock Units, Performance Stock and shares purchased under the Stock
Purchase Program outstanding immediately prior to the Participant's Date of
Termination shall lapse.
12.3. If
a Participant's Date of Termination occurs by reason of Disability or
Retirement, the Restricted Period shall lapse on a proportion of any Awards
outstanding immediately prior to the Participant's Date of Termination (except
that to the extent an Award of Restricted Stock, Restricted Stock Units or
Performance Stock is subject to a Performance Period, such proportion of the
Award shall remain subject to the same terms and conditions for vesting as were
in effect prior to termination). The proportion of an Award upon which the
Restricted Period shall lapse shall be a fraction, the denominator of which is
the total number of months of any Restricted Period applicable to an Award and
the numerator of which is the number of months of such Restricted Period which
elapsed prior to the Date of Termination.
12.4. If
a Participant's Date of Termination occurs by reason of the Participant's
employment being terminated by the Participant's employer for any reason other
than for Cause, the Restricted Period shall lapse on a proportion of any
outstanding Awards (except that to the extent an Award of Restricted Stock,
Restricted Stock Units or Performance Stock is subject to a Performance Period,
such proportion of the Award shall remain subject to the same terms and
conditions for vesting as were in effect prior to termination). The proportion
of an Award upon which the Restricted Period shall lapse shall be a fraction,
the denominator of which is the total number of months of any Restricted Period
applicable to an Award and the numerator of which is the number of months of
such Restricted Period which elapsed prior to the Date of
Termination.
12.5. Non-Qualified
Stock Options which are exercisable at the time of (or become exercisable by
reason of) the Participant's death, Disability, Retirement, or other termination
of employment by the Participant's employer for reasons other than Cause shall
expire on the expiration date set forth in the Award or, if earlier, five years
after the Date of Termination, if the Participant's termination occurs because
of death, Disability, or Retirement or if the Participant's employment is
terminated by the Participant's employer for reasons other than
Cause.
Incentive Stock Options which are exercisable at the time of (or become
exercisable by reason of) the Participant's death, Disability, Retirement, or
other termination of employment by the Participant's employer for reasons other
than Cause and not exercised prior to the Date of Termination shall be treated
as Non-Qualified Stock Options on the day following the Date of Termination and
shall expire on the expiration date set forth in the Award or, if earlier, five
years after the Date of Termination, if the Participant's termination occurs
because of death, Disability, or Retirement or if the Participant's employment
is terminated by the Participant's employer for reasons other than
Cause.
12.6. Notwithstanding
any other provision of this Section 12 to the contrary, if a Participant's
employment is terminated by the Participant's employer for reasons other than
Cause in connection with and after a Change in Control:
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(a)
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All
Options outstanding on the Participant's Date of Termination shall become
exercisable (to the extent not already exercisable) on the Participant's
Date of Termination, provided that this paragraph (a) shall apply only to
options that were held by the Participant on the date of a Change in
Control.
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(b)
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Any
restrictions shall lapse on awards of Restricted Stock and Restricted
Stock Units, including without limitation performance-based Restricted
Stock and performance-based Restricted Stock Units, that are outstanding
on the Participant's Date of Termination, and such Awards shall be fully
vested as if all performance objectives have been attained (provided that
this paragraph (b) shall apply only to Restricted Stock and Restricted
Stock Units that were held by the Participant on the date of the Change in
Control, and further provided that this paragraph (b) shall not apply to
Performance Stock).
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(c)
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Any
Performance Stock awards held by a Participant on the date of a Change in
Control shall vest to the extent provided by the terms in the applicable
Performance Stock Award Agreement.
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For
purposes of this Section 12.6, a Participant will be treated as having been
terminated by the Participant's employer for reasons other than Cause if the
employment is terminated by the Participant for Good Reason. For
purposes of this Plan, "Good Reason" shall mean the occurrence after a Change in
Control of one or more of the following conditions without the consent of the
Participant:
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(i)
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The
relocation of the Participant's base of operations for the Company or
Related Company to a place that is 50 miles farther from his or her
residence immediately prior to the Change in Control than the distance
from such residence to the Participant's former base of operations for the
Company or Related Company.
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(ii)
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The
Participant's salary rate is reduced to a level that is less than 85% of
the Participant's salary level immediately prior to the Change in
Control.
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(iii)
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The
aggregate value of a Participant's (A) annual salary rate at the time of
termination, (B) bonus opportunity for the year in which the Date of
Termination occurs, and (C) long-term incentive compensation awards for
the year in which the Date of Termination occurs, is less than 85% of the
aggregate value of a Participant's salary rate, bonus opportunity and
long-term incentive awards for the year ending prior to the year in which
the Change in Control occurs (with all such values to be determined by the
Committee).
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However,
if the reduction in compensation described in paragraph (ii) or (iii) is
consistent with a broad-based company reduction in compensation by the
Participant's employer (as determined by the Committee), the reduction will not
be a basis for treating the Participant as having been terminated by the
Participant's employer for reasons other than Cause, and the reduction shall be
disregarded for purposes of paragraph (ii) and (iii).
A
Participant shall be considered to have terminated employment for Good Reason
if:
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(I)
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in
regard to paragraph (i), the Participant resigns within 60 days of being
notified by the Participant's employer in writing that the Participant's
base of operations is being relocated to a destination that is described
in paragraph (i), unless the employer notifies the Participant in writing
of the cancellation of such relocation within 30 days after the
Participant notifies the Company in writing that such relocation would
constitute Good Reason; or
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(II)
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in
regard to paragraphs (ii) and (iii): (a) the Participant
provides written notice to the Company of the occurrence of Good Reason
within 60 days of being notified by the Participant's employer
in writing that any of the actions described in preceding paragraphs (ii)
or (iii) will apply to him or her; (b) the Company fails to notify the
Participant of the Company's intended method of correction within 30 days
after the Company's receipt of the notice, or the Company fails to correct
the circumstances within said 30 day period; and (c) the Participant
resigns within 60 days after receiving the Company's response, if such
response does not indicate an intention to correct such circumstances, or
within a reasonable time after the Company fails to correct such
circumstances (provided that in no event may such termination occur less
than 30 days following the provision of notice to the Company, or more
than six (6) months after the initial existence of the condition
constituting Good Reason).
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12.7. Notwithstanding
any other provision of this Section 12 to the contrary and provided that the
provisions of Section 12.6 do not apply, except as otherwise provided in the
Award Agreement or by the Committee at the date of grant, in the event of a
Change in Control, to the extent outstanding Awards granted under this Plan are
not assumed, converted or replaced by the resulting entity on terms comparable
to the Awards immediately prior to the Change in Control as determined by the
Board of Directors (as constituted at the time of the Change in Control), all
outstanding Awards that may be exercised shall become fully exercisable, all
restrictions with respect to outstanding Awards shall lapse and become vested
and non-forfeitable, and any specified corporate goals and objectives with
respect to outstanding Awards shall be deemed to be satisfied at
target.
12.8. Except
to the extent the Committee shall otherwise determine, if as a result of a sale
or other transaction, a Participant's employer ceases to be a Related Company
(and the Participant's employer is or becomes an entity that is separate from
the Company), the occurrence of such transaction shall be treated as the
Participant's Date of Termination caused by the Participant being discharged by
the Employer other than for Cause.
12.9. Notwithstanding
the foregoing provisions of this section, the Committee may, with respect to any
Awards of a Participant (or portion thereof) that are outstanding immediately
prior to the Participant's Date of Termination, determine that a Participant's
Date of Termination will not result in forfeiture or other termination of the
Award.
SECTION
13
ADJUSTMENTS
TO SHARES
13.1. If
the Company shall effect a reorganization, merger, or consolidation, or similar
event or effect any subdivision or consolidation of shares of Stock or other
capital readjustment, payment of stock dividend, stock split, spin-off,
combination of shares or recapitalization or other increase or reduction of the
number of shares of Stock outstanding without receiving compensation therefor in
money, services or property, then the Committee shall adjust equitably and
proportionally (i) the number of shares of Stock available under the Plan; (ii)
the number of shares available under any individual or other limits; (iii) the
number of shares of Stock subject to outstanding Awards; and (iv) the per-share
price under any outstanding Award to the extent that the Participant is required
to pay a purchase price per share with respect to the Award.
SECTION
14
TRANSFERABILITY
OF AWARDS
14.1. Awards
under the Plan are not transferable except as designated by the Participant by
will or by the laws of descent and distribution. To the extent that the
Participant who receives an Award under the Plan has the right to exercise such
Award, the Award may be exercised during the lifetime of the Participant only by
the Participant. Notwithstanding the foregoing provisions of this Section 14,
the Committee may permit Awards under the Plan (other than an Incentive Stock
Option) to be transferred by a Participant for no consideration to or for the
benefit of the Participant's Immediate Family (including, without limitation, to
a trust for the benefit of a Participant's Immediate Family or to a family
partnership for members of the Immediate Family), subject to such limits as the
Committee may establish, and the transferee shall remain subject to all of the
terms and conditions applicable to such Award prior to such
transfer.
SECTION
15
AWARD
AGREEMENT
15.1. Each
Employee granted an Award pursuant to the Plan shall execute an Award Agreement
which signifies in writing, electronically or by such other means as the Company
may designate, the offer of the Award by the Company and the acceptance of the
Award by the Employee in accordance with the terms of the Award and the
provisions of the Plan. Each Award Agreement shall reflect the terms and
conditions of the Award. In the event of a disagreement between the individual
Award Agreement and the Plan or the Compensation and Development Committee
resolution, the Plan or the resolution will govern. Participation in the Plan
shall confer no rights to continued employment with the Company nor shall it
restrict the right of the Company to terminate a Participant's employment at any
time.
SECTION
16
TAX
WITHHOLDING; SECTION 409A
16.1.
All
Awards and other payments under the Plan are subject to withholding of all
applicable taxes, which withholding obligations shall be satisfied (without
regard to whether the Participant has transferred an Award under the Plan) by a
cash remittance, or with the consent of the Committee, through the surrender of
shares of Stock which the Participant owns or to which the Participant is
otherwise entitled under the Plan pursuant to an irrevocable election submitted
by the Participant to the Company at the office designated for such purpose,
provided that if shares are used for Awards granted on or after July 1, 2000,
shares from the Awards may be used only in an amount equal to the minimum
applicable tax withholding rate as established by the Code and relevant state or
local tax authorities, and any additional amount due must be satisfied by use of
attestation of ownership of other shares. The number of shares of Stock needed
to be submitted in payment of the taxes shall be determined using the Fair
Market Value as of the applicable tax date rounding down to the nearest whole
share; provided that no election to have shares of Stock withheld from an Award
or submission of shares shall be effective with respect to an Award which was
transferred by a Participant in accordance with the Plan.
16.2.
The
Committee may modify the time at which any Award will be settled, paid-out,
vested or transferred if it determines that such modification may be necessary
to avoid acceleration of tax or imposition of penalties under Section
409A. Regardless of whether the Committee modifies or fails to modify
the time at which any such Award is settled, paid-out, vested or transferred,
the Employee shall be solely liable for any taxes, including without limitation
taxes that may be imposed under Section 409A, penalties and interest incurred by
reason of such transfer.
16.3. If,
at the time of an Employee's "separation from service" (within the meaning of
Section 409A), (a) the Employee shall be a Specified Employee and
(b) the Company shall make a good faith determination that an issuance of
Stock or payment of cash in settlement of an Award constitutes Deferred
Compensation, the payment of which is required to be delayed pursuant to the
six-month delay rule set forth in Section 409A in order to avoid taxes or
penalties under Section 409A, then the Company shall not issue
such Stock or pay such cash, as applicable, but shall instead accumulate and pay
it, without interest, on the first business day of the seventh month following
such separation from service.
SECTION
17
TERMINATION
AND AMENDMENT
17.1. The
Board may suspend, terminate, modify or amend the Plan, provided that any
amendment that would increase the aggregate number of shares which may be issued
under the Plan; materially increase the benefits accruing to Participants under
the Plan; modify Section 6.3(e) or materially modify the requirements as to
eligibility for participation in the Plan, shall be subject to the approval of
the Company's stockholders, except that any such increase or modification that
may result from adjustments authorized by Section 13 does not require such
approval. No suspension, termination, modification or amendment of the Plan may
terminate a Participant's existing Award or materially and adversely affect a
Participant's rights under such Award without the Participant's
consent.
Exhibit 10.17
STOCK
OPTION AWARD AGREEMENT
DATED
____________________
The
Compensation and Development Committee of the Burlington Northern Santa Fe
Corporation (“BNSF” or the “Company”) Board of Directors has awarded you (the
“Employee”) a grant of Non-Qualified Stock Options (“NQSOs” or “Options”) as
follows:
Grant Date:
Total Number of NQSOs:
Option Price:
Vesting -- First Third
--
Second Third
--
Last Third
Expiration Date:
The
Options are granted under and governed by the terms and conditions of the BNSF
1999 Stock Incentive Plan (the “Plan”) and the terms and conditions set forth
herein below.
To accept
this Award Agreement, you must click on the acceptance box at the end of this
Agreement. Anything herein contained to the contrary notwithstanding,
unless this Award Agreement is electronically accepted or executed by the
Employee and delivered to the Secretary of BNSF on or before _______________,
the award described herein may be withdrawn and cancelled by the
Company.
By your
acceptance of this Award Agreement:
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(1)
you agree to abide by the terms and conditions of the Plan and this Award
Agreement; and
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(2)
you attest that you were a salaried employee of the Company or a Related
Company on _________________, with respect to the award made herein
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The following terms and conditions
shall apply to the award made by this Award Agreement.
1.
Acceptance
. The
Employee agrees to perform services for BNSF or its Related Companies and
accepts this grant along with the terms and provisions of the Plan and this
Agreement.
2.
Right to Purchase
.
BNSF grants the Employee a right and option to purchase, from time to time, the
number of shares of Stock ("Option Shares") specified in this Agreement,
providing the purchase(s) occurs during the exercise period, beginning on the
respective vesting dates specified herein and ending no later than ten years
after the date of grant, but in no event earlier than six (6) months from the
date of grant. This grant of NQSOs, is subject to the terms and conditions of
this Agreement and the Plan.
3.
Restricted Period
.
The Options granted hereby shall vest as set forth above. Fractional Options are
not exercisable.
4.
Partial Exercise
.
The grant of Options hereunder may be exercised in its entirety or in part and
at different times during the exercise period. However, the right to exercise an
Option ceases and the Option may not be exercised if it terminates or lapses at
an earlier date under the Plan or this Agreement.
5.
Taxes
.
The Employee agrees
that BNSF or the Related Companies may require payment by Employee of federal,
state, railroad retirement or local taxes upon the exercise of
Options. Employee may use cash or shares to satisfy tax liabilities
incurred, provided that if shares are used, shares from Options being exercised
may be used only to satisfy (i) applicable railroad retirement taxes, and (ii)
state income taxes and federal income taxes to the extent of the Supplemental
Federal Income Tax Withholding Rate as established by the Internal Revenue
Code. Any additional taxes may be satisfied by use of attestation of
ownership of other shares, provided, however, that the total shall not exceed
the combined maximum marginal tax rates applicable under federal and state tax
laws. In the absence of a response from the Employee, BNSF will use
shares to satisfy the tax liabilities incurred.
6.
Exercise Notice
.
Same-day-sale, sell-to-cover, and cash exercises must be completed through
E*TRADE or such other party as the Company may designate (the
“Administrator”). Swap exercises may be completed by written notice
to the Administrator which states the number of shares to be exercised and is
effective upon receipt by the Administrator. Once the notice to
exercise is delivered to the Administrator, the election to exercise is
irrevocable.
7.
Payment of Option Purchase
Price
. An Employee electing to exercise an Option must pay the full
Option purchase price of the Option Shares on the date of exercise. Payment may
be made in cash or Stock of BNSF. If Stock is offered as payment, such shares
shall be valued at Fair Market Value on the date of exercise of the Option as
defined in the Plan.
8.
Options Not
Transferable
. Unless otherwise established by the Committee, an Option
may be exercised only by the Employee, and is not transferable by the Employee.
In the event of death, the Employee's beneficiary designation will apply. In the
absence of such designation or if for any reason such designation is defective,
the Employee's will or the laws of descent and distribution will apply.
9.
Forfeiture
. Subject
to paragraphs 10 and 11 below, all unexercised Options granted are forfeited by
the Employee and lapse upon termination of salaried employment. Options will be
forfeited by the Employee in the event of resignation, termination by the
Company for Cause, or for any other similar reason.
10.
Death
. In the event
of an Employee’s death, the Restricted Period, as defined in the Plan, shall
lapse on the Options awarded. The Options which are or become
exercisable at the time of death may be exercised by the Employee's designated
beneficiary or, in the absence of such designation, by the person to whom
his/her rights shall pass by will or the laws of descent and distribution, until
the expiration date of the Options set forth herein or, if earlier, the date
which is five (5) years from the Date of Termination
of employment, and will
not be exercisable thereafter.
11.
Termination for Other than
Cause; Exercise of Seniority
. In the event an Employee terminates
employment because of Disability or Retirement under a Qualified Retirement Plan
or is terminated by the Company for any reason other than Cause, the Restricted
Period shall lapse on a pro rata portion (
i.e
., a fraction equal to
the number of whole months from the date of the grant to the date of termination
divided by the number of whole months from the date of the grant to the original
vesting date) of outstanding Options which are then subject to a Restricted
Period, subject to any limitations in the Plan The Options which are or become
exercisable because of the Employee's Disability or Retirement under a Qualified
Retirement Plan, or termination by the Company other than for cause, may be
exercised by the Employee until the expiration date of the Options set forth
herein or, if earlier, the date which is five (5) years from the Date of
Termination
of
employment, and will not be exercisable thereafter. If an Employee terminates
employment and his rights to exercise his Options under this Plan expire prior
to six months from the grant date, such Options shall be immediately forfeited
and cancelled. If an Employee exercises his seniority at any time after the
grant date of any Options, such Options, including vested Options, shall be
immediately forfeited and cancelled. Notwithstanding any provisions to the
contrary, no Options may be exercised after the expiration date of the Options
set forth herein.
12.
Change
in Control
.
In the event of termination by the
Company for reasons other than cause in connection with and after
a Change in Control
, Options will become
exercisable
as
described
in
Section 12.6 of
the
Plan or, if applicable, the
Employee's individual Change in Control letter agreement, the BNSF Railway
Company Employee Retention Program, or such other arrangement as may be approved
pursuant to the terms of the Plan.
13.
No Contract of
Employment
.
Nothing in this Agreement or in the Plan
shall confer any right to continued employment with BNSF or the Related
Companies nor restrict BNSF or the Related Companies from termination of the
employment relationship of Employee at any time.
14
.
Heirs
and Successors
. Th
is
Award Agreement shall be binding upon,
and inure to the benefit of, the Company and its successors and assigns, and
upon any person acquiring, whether by merger, consolidation, purchase of assets
or otherwise, all or substantially all of the Company’s assets and
business. If any rights exercisable by the Employee or benefits
deliverable to the Employee under th
is
Award Agreement have not been exercised
or delivered, respectively, at the time of the Employee’s death, such rights
shall be exercisable by the Designated Beneficiary, and such benefits shall be
delivered to the Designated Beneficiary, in accordance with the provisions of
th
is
Award Agreement. The
“Designated Beneficiary” shall be the beneficiary or beneficiaries designated by
the Employee in a writing filed with the Company in such form and at such time
as the Company shall require. If a deceased Employee fails to
designate a beneficiary, or if the Designated Beneficiary does not survive the
Employee, any rights that would have been exercisable by the Employee and any
benefits distributable to the Employee shall be exercised by or distributed to
the legal representative of the estate of the Employee. If a deceased
Employee designates a beneficiary and the Designated Beneficiary survives the
Employee but dies before the Designated Beneficiary’s exercise of all rights
under this Award Agreement or before the complete distribution of benefits to
the Designated Beneficiary under this Agreement, then any rights that would have
been exercisable by the Designated Beneficiary shall be exercised by the legal
representative of the estate of the Designated Beneficiary, and any benefits
distributable to the Designated Beneficiary shall be distributed to the legal
representative of the estate of the Designated Beneficiary.
15.
No
Violation of Law
. Notwithstanding any other
provision of this Agreement, Employee agrees that BNSF shall not be obligated to
deliver any shares of Stock or make any cash payment, if counsel to BNSF
determines such exercise, delivery or payment would violate any law or
regulation of any governmental authority or agreement between BNSF and any
national securities exchange upon which the Stock is listed.
16.
Conflicts
. In the event of a conflict
between the terms of this Agreement and the Plan or a resolution of the
Committee, the Plan or the resolution shall be the controlling
document.
17.
Administration
. Any interpretation of
th
is
Award Agreement by the Committee or its
delegate and any decision made by the Committee or its delegate with respect to
th
is
Award Agreement are final and binding on
all persons.
18.
Amendment
. Th
is
Award Agreement may be amended in
accordance with the provisions of the Plan, and may otherwise be amended by
written agreement of the Employee and the Company without the consent of any
other person.
|
19.
|
Terms
. Except as otherwise
provided in th
is
Award Agreement, and
except
where the context clearly implies
or indicates the contrary, a word, term, or
phrase
defined in the Plan shall have the
same meaning in th
is
Award
Agreement.
|
IN WITNESS WHEREOF, the parties hereto
have executed this Agreement as of the day and year first above
written.
BURLINGTON NORTHERN
SANTA FE CORPORATION
Exhibit 10.18
BURLINGTON NORTHERN SANTA
FE
1999 STOCK INCENTIVE
PLAN
RESTRICTED
STOCK UNIT AWARD AGREEMENT
This Award Agreement ("Award Agreement")
was made and entered into this
[_______________]
(“Grant Date”) by and between Burlington
Northern Santa Fe Corporation, a Delaware Corporation, (hereinafter "BNSF")
and
_____________________
an employee of BNSF or one of its
subsidiary companies (hereinafter "Employee").
W
I
T
N
E
S
S
E
T
H
BNSF has adopted the Burlington Northern
Santa Fe 1999 Stock Incentive Plan for Burlington Northern Santa Fe Corporation
and Related Companies (the "Plan"). The purpose of the Plan is to
attract and retain key executives possessing outstanding ability, motivate
executives to achieve the growth goals of BNSF by making a portion of their
total compensation dependent on the accomplishment of these goals and to further
the identity of the interests of the shareholders of BNSF and key executives of
BNSF and its subsidiaries by increasing the opportunities for these executives
to become shareholders.
WHEREAS, the Compensation and
Development Committee ("Committee") of the BNSF Board of Directors wishes to
encourage superior performance by the Employee by granting Employee an award of
Restricted Stock Units as defined in the Plan;
WHEREAS, the Employee desires to perform
services for BNSF and to accept said grant in accordance with the terms and
provisions of the Plan and this Award Agreement;
NOW THEREFORE, BNSF grants to the
Employee
[_____]
shares of Restricted Stock Units
(“Award”) with the restrictions to lapse on
[_____________]
as set forth below.
BNSF and Employee hereby agree that this
Award of Restricted Stock Units shall be subject to the following terms,
conditions and restrictions:
1.
Restrictions
on Transfer
. Restricted Stock Units as
referenced in the Plan shall not be sold, pledged, assigned, transferred, or
encumbered during the period the Restricted Stock Units are subject to
restrictions set forth in this Award Agreement, and the Employee shall not be
treated as a stockholder with respect to the Restricted Stock
Units.
2.
Stock
Power
. Restricted Stock
Units awarded hereunder shall be registered in the name of the Company on behalf
of the Employee and the Employee’s acceptance of this Award Agreement
constitutes a grant by the Employee of a power of attorney authorizing a Stock
Power to be endorsed in b
lank prior to the distribution with respect to
the award or the forfeiture of the award.
3.
Dividends
. As of each dividend record
date for Stock occurring on or after the Grant Date of the Restricted Stock
Units, and prior to the date of distribution of shares of Stock with respect to
the Restricted Stock Units (or, if applicable, the date of forfeiture of the
Restricted Stock Units), the Employee shall receive as wages a cash payment
equal to the amount of the dividend that would be payable with respect to shares
of Stock equivalent in number to the Restricted Stock Units held on the dividend
record date. Such payment shall be made on the date of payment of the
applicable dividend. Notwithstanding the foregoing
, however,
in the event that an extraordinary cash dividend is paid on Stock prior to the
vesting date of the Restricted Stock Units granted herein, a cash payment shall
vest and be paid to the Employee at the same time and in the same proportion as
the Restricted Stock Units vest.
4.
Vesting
. Subject to paragraph 5, if
the Employee's Date of Termination does not occur prior to the vesting date of
the time-based Restricted Stock Units, then the Employee shall become vested in
such Restricted Stock Units on the vesting date. As of the vesting
date and subject to the payment of taxes, the Employee shall receive one share
of Stock for each Restricted Stock Unit in which the Employee is then vested,
subject to the terms of this Award Agreement, provided, however, that the
Company shall be entitled to retain possession of each such share of Stock for
such time as is necessary for the Company to make the distribution of each share
of Stock to the Employee. As of the vesting date of the shares of
Stock with respect to any Units, such Units shall no longer be
outstanding.
5.
Termination
of Employment
. The Restricted Stock Units
are forfeited upon the Employee's Date of Termination (which, for purposes of
this Award Agreement, shall be the earlier of the "Date of Termination" as
defined in the Plan or the date on which the Employee ceases to be in salaried
employment of the Company and Related Companies) for any reason other than
death, Disability, termination by the Company other than for Cause, or
Retirement. In the event of an Employee's Date of Termination due to
death, all restrictions shall lapse and one share of the Stock for each
Restricted Stock Unit shall be issued to the Employee's designated beneficiary
or, in the absence of such designation, by the person to whom the Employee's
rights shall pass by will or the laws of descent and
distribution.
In the event of an Employee's Date of
Termination due to Disability, termination by an Employer or Related Company
other than for Cause or Retirement, the restrictions shall lapse on a pro rata
portion of the Restricted Stock Units.
For purposes of the
preceding sentence, the pro rata portion
of the Award shall equal the
total number of Restricted Stock Units covered by this Award Agreement
multiplied by a fraction, the denominator of which is the total number of months
of the period between the Grant Date and the vesting date applicable to the
Award, and the numerator of which is the number of complete months which elapsed
between the Grant Date and the Date of Termination. Notwithstanding
anything to the contrary set forth elsewhere in this Award Agreement, nothing is
intended to curtail any rights the Employee may have to any vesting of Stock as
set forth in the BNSF Railway Company Employee Retention Program, as amended, or
in any Severance Agreement or Change in Control Agreement which the Company may
have in effect with the Employee. In the event that an Employee's
Date of Termination is for Cause, or the Employee resigns, all Restricted Stock
Units that are not vested on the Date of Termination shall be
forfeited. The Restricted Stock Units shall be forfeited upon the
exercise of seniority at any time after the Grant Date.
6.
Taxes
.
The Employee agrees
that BNSF or the Related Companies may require payment by Employee of federal,
state, railroad retirement or local taxes upon the vesting of an
Award. Employee may use cash or shares to satisfy tax liabilities
incurred, provided that if shares are used, shares from the vesting Award may be
used only to satisfy (i) applicable railroad retirement taxes, and (ii) state
income taxes and federal income taxes to the extent of the Supplemental Federal
Income Tax Withholding Rate as established by the Internal Revenue
Code. Any additional taxes may be satisfied by use of attestation of
ownership of other shares of Stock, provided, however, that the total shall not
exceed the combined maximum marginal tax rates applicable under federal and
state tax laws. In the absence of a response from the Employee, BNSF
will use shares of Stock to satisfy the tax liabilities incurred.
7.
Change
in Control
. In the event of
termination by the Company for reasons other than Cause in connection with and
after a Change in Control, shares of Stock shall be released as described in
Section 12.6 of the Plan or, if applicable, the Employee’s individual Change in
Control letter agreement, the BNSF Railway Company Employee Retention Program,
or such other arrangement as may be approved pursuant to the terms of the
Plan.
8.
IRC
Section 409A
. Notwithstanding any other
provisions of this Award Agreement to the contrary, the Company shall
not make any such payments or deliver any such shares of Stock until such time
as it may reasonably believe that such delivery will not result in acceleration
of tax or imposition of penalties under section 409A of the Internal Revenue
Code.
9.
No Contract of
Employment
.
Nothing in this Award Agreement or in
the Plan shall confer any right to continued employment with BNSF or the Related
Companies nor restrict BNSF or the Related Companies from termination of the
employment relationship of Employee at any time.
10
.
Heirs
and Successors
. This Award Agreement shall
be binding upon, and inure to the benefit of, the Company and its successors and
assigns, and upon any person acquiring, whether by merger, consolidation,
purchase of assets or otherwise, all or substantially all of the Company’s
assets and business. If any rights exercisable by the Employee or
benefits deliverable to the Employee under this Award Agreement have not been
exercised or delivered, respectively, at the time of the Employee’s death, such
rights shall be exercisable by the Designated Beneficiary, and such benefits
shall be delivered to the Designated Beneficiary, in accordance with the
provisions of this Award Agreement. The “Designated Beneficiary”
shall be the beneficiary or beneficiaries designated by the Employee in a
writing filed with the Company in such form and at such time as the Company
shall require. If a deceased Employee fails to designate a
beneficiary, or if the Designated Beneficiary does not survive the Employee, any
rights that would have been exercisable by the Employee and any benefits
distributable to the Employee shall be exercised by or distributed to the legal
representative of the estate of the Employee. If a deceased Employee
designates a beneficiary and the Designated Beneficiary survives the Employee
but dies before the Designated Beneficiary’s exercise of all rights under this
Award Agreement or before the complete distribution of benefits to the
Designated Beneficiary under this Award Agreement, then any rights
that would have been exercisable by the Designated Beneficiary shall be
exercised by the legal representative of the estate of the Designated
Beneficiary, and any benefits distributable to the Designated Beneficiary shall
be distributed to the legal representative of the estate of the Designated
Beneficiary.
11.
No
Violation of Law
. Notwithstanding any other
provision of this Award Agreement, Employee agrees that BNSF shall not be
obligated to deliver any shares of Stock or make any cash payment, if counsel to
BNSF determines such exercise, delivery or payment would violate any law or
regulation of any governmental authority or agreement between BNSF and any
national securities exchange upon which the Stock is listed.
12.
Conflicts
. In the event of a conflict
between the terms of this Award Agreement and the Plan or a resolution of the
Committee, the Plan or the resolution shall be the controlling
document.
13.
Administration
. Any interpretation of this
Award Agreement by the Committee or its delegate and any decision made by the
Committee or its delegate with respect to this Award Agreement shall be final
and binding on all persons.
14.
Amendment
. This Award Agreement may be
amended in accordance with the provisions of the Plan, and may otherwise be
amended by written agreement of the Employee and the Company without the consent
of any other person.
15.
Terms
. Except as otherwise
provided in this Award Agreement, and except where the context clearly implies
or indicates the contrary, a word, term, or phrase defined in the Plan shall
have the same meaning in this Award Agreement.
Anything herein contained to the
contrary notwithstanding, this Award Agreement shall cease to be of any force or
effect unless executed by the Employee and delivered to the Secretary of BNSF by
_____________
.
IN WITNESS WHEREOF, the parties hereto
have executed this Award Agreement as of the day and year first above
written.
BURLINGTON NORTHERN
SANTA
FE CORPORATION
Exhibit 10.19
BURLINGTON
NORTHERN SANTA FE
1999
STOCK INCENTIVE PLAN
RELOAD
STOCK OPTION AGREEMENT
This Agreement ("Agreement") was made
and entered into this _________________ by and between Burlington Northern Santa
Fe Corporation, a Delaware corporation, (hereinafter "BNSF"), and
Name
an
employee of BNSF or one of its affiliates, (hereinafter
"Employee").
WITNESSETH
WHEREAS, BNSF has adopted the
Burlington Northern Santa Fe 1999 Stock Incentive Plan ("Plan") for BNSF and
affiliated companies for the purpose of attracting and retaining employees and
creating an identity of interests of the employees with the shareholders of
BNSF;
and
WHEREAS, the Compensation and
Development Committee of the Board of Directors of BNSF, in order to encourage
superior performance by the Employee, granted the Employee an award of
non-qualified stock options with a reload feature as part of an Award grant
dated ______________ (the "Original Options"); and
WHEREAS, the Employee has exercised
some or all of the Original Options and is now entitled to a reload award with
respect to such exercised Original Options;
NOW, THEREFORE, BNSF grants to the
Employee effective _____________ a right and option to purchase, from time to
time, ___________ shares of Common Stock ("Option Shares"). The
options granted hereby (the "Options") will vest and become exercisable in six
(6) months or ____________ and remain exercisable until ____________, subject to
the terms and conditions set forth in this Agreement and the
Plan. The Options shall be Non-Qualified Stock
Options. Upon exercise of the Options, the Employee shall
pay to BNSF $________ per share (hereinafter the "Option Purchase Price"), a
price equal to the weighted average mean between the highest and lowest sales on
the New York Stock Exchange Composite Transaction Report on the date of
grant.
BNSF and Employee hereby agree that
this award of Non-Qualified Stock Options shall be subject to the following
terms and conditions:
1.
Restricted
Period
. The Option Shares shall be available for purchase six
months from the date of grant. Fractional shares are not
exercisable.
2.
Partial
Exercise
. The grant of Options hereunder may be exercised in
its entirety or in part and at different times during the option
period. However, the right to exercise an Option ceases and the
Option may not be exercised if it terminates or lapses at an earlier date under
the Plan or this Agreement.
3.
Withholding
Taxes
. The Employee agrees that BNSF or its subsidiaries may require
payment by Employee of federal, state, railroad retirement or local taxes upon
the exercise of an Option. Employee may use cash or shares to satisfy
tax liabilities incurred, provided that if shares are used, shares from the
option exercise may be used only to an amount equal to the Supplemental Federal
Income Tax Withholding Rate as established by the Internal Revenue Code and any
additional amount due must be satisfied by use of attestation of ownership of
other shares.
4.
Exercise
Notice
. Same-day-Sale, Sell-to-Cover, and Cash exercises must
be completed through E*Trade. Swap exercises may be completed by
written notice to the BNSF Human Resources Department, at its offices at 2500
Lou Menk Drive, Fort Worth, Texas 76131, which states the number of
shares to be exercised and shall be effective upon receipt by the Human
Resources Department. Once the notice to exercise is delivered to
E*Trade or to the BNSF Human Resources Department, the election to exercise is
irrevocable.
5.
Payment of Option
Purchase Price
. An Employee electing to exercise an Option
must pay the full Option Purchase Price of the Option Shares on the date of
exercise. Payment may be made in cash or Common Stock of
BNSF. If Common Stock is offered as payment, such shares shall be
valued at Fair Market Value on the date of exercise of the Option as defined in
the Plan. If this Option is exercised by payment in whole or in part
by the submission of shares of BNSF Common Stock, the Employee will not be
eligible by reason of such payment for a reload option grant.
6.
Options Not
Transferable
. Unless otherwise established by the Committee, an Option
may be exercised only by the Employee, and is not transferable by the
Employee. In the event of death, the Employee's beneficiary
designation will apply. In the absence of such designation or if for
any reason such designation is defective, the Employee's will or the laws of
descent and distribution will apply.
7.
Forfeiture
. Subject
to paragraph 8 and 9 below, all unexercised Options granted are forfeited by the
Employee and lapse upon termination of employment. Options will be
forfeited by the Employee in the event of resignation, termination by the
Company for Cause, or for any other similar reason.
8.
Death
. In
the event of an Employee's death, the Restricted Period, as defined in the Plan,
shall lapse on the Options awarded. Options which are or become
exercisable at the time of death, may be exercised by the Employee's designated
beneficiary or in the absence of such designation, by the person to whom his/her
rights shall pass by will or the laws of descent and distribution, within five
years following the date of death and will be unexercisable thereafter, but in
no event shall the Options be exercisable after _____________.
9.
Termination for Other
than Cause
. In the event Employee is terminated because of
Disability, Retirement or by the Company for any reason other than Cause, the
Restricted Period shall lapse on the proportion of outstanding Options, which
are then subject to a Restricted Period, subject to any limitations in the
Plan. The Options which are or become exercisable because of the
Employee's Disability, Retirement or termination by the Company for any reason
other than Cause may be exercised by the Employee within five years following
such termination of employment and will be unexercisable thereafter, but in no
event shall the Options be exercisable after ______________. Options
will not be exercisable within six (6) months from the date of
grant.
10.
Change in
Capitalization
. In the event of a change in the capitalization
of BNSF due to a stock split, stock dividend, recapitalization, merger,
consolidation, combination, or similar event, the aggregate shares subject to
the Plan and the terms of any existing Awards shall be adjusted by the Board to
reflect such change.
11.
Change in
Control
. Notwithstanding any other provision in the Plan, if a
Change in Control occurs while unexercised Options remain outstanding under the
Plan, then from and after the Acceleration Date, all Options shall be
exercisable in full, whether or not otherwise exercisable.
12.
No Right to Continued
Employment
. Nothing in this Agreement or in the Plan shall
provide any right to continued employment with BNSF or its
subsidiaries. BNSF or its subsidiaries may terminate employment
relationships at any time.
13.
Violation of
Law
. Notwithstanding any other provision of this Agreement,
BNSF may refuse to recognize Employee's exercise of Options and shall not be
obligated to deliver any shares of Common Stock or make any cash payment, if
counsel to BNSF determines such exercise, delivery or payment would violate any
law, regulation of any governmental authority, or agreement between BNSF and any
national securities exchange upon which the Common Stock is listed.
14.
Exercise After
Hardship Distribution
. Unless otherwise permitted by law and
then only at the discretion of the Compensation and Development Committee of the
Board of Directors of BNSF, in no event may any Option be exercised within 12
months after the receipt by the Employee of a distribution on account of
hardship from a qualified cash or deferred arrangement (section 401(k) plan)
maintained by BNSF or its affiliates.
15.
Terms
. The
capitalized terms used herein shall have the same meaning as set forth in the
Plan.
16.
Modifications
. This
Agreement can only be modified by a written agreement signed by both the
Employee and an Officer of BNSF. In the event of a conflict between
the terms of this Agreement and the Plan, the Plan shall be the controlling
document.
IN WITNESS WHEREOF, the parties hereto
have executed this Agreement as of the day and year first written
above.
BURLINGTON NORTHERN SANTA FE CORPORATION
Exhibit 10.20
BURLINGTON NORTHERN SANTA
FE
1999 STOCK INCENTIVE
PLAN
SPECIAL RETENTION
RESTRICTED
STOCK UNIT AWARD AGREEMENT
This
Award
Agreement ("
Award
Agreement") was made and entered into
this
___
day of
________, _______
(“Grant Date”) by and between Burlington
Northern Santa Fe Corporation, a Delaware Corporation, (hereinafter "BNSF")
and
[_____
Fname
MI Lname
_____]
an employee of BNSF or one of its
subsidiary companies (hereinafter "Employee").
W
I
T
N
E
S
S
E
T
H
BNSF has adopted the Burlington Northern
Santa Fe 1999 Stock Incentive Plan for Burlington Northern Santa Fe Corporation
and Related Companies (the "Plan"). The purpose of the Plan is to
attract and retain key executives possessing outstanding ability, motivate
executives to achieve the growth goals of BNSF by making a portion of their
total compensation dependent on the accomplishment of these goals and to further
the identity of the interests of the shareholders of BNSF and key executives of
BNSF and its subsidiaries by increasing the opportunities for these executives
to become shareholders.
WHEREAS, the Compensation and
Development Committee ("Committee") of the
BNSF
Board of Directors wishes to
grant
the
Employee an award of Restricted Stock
Units as defined in the Plan
for the purpose of retention and
recognition
;
WHEREAS, the Employee desires to perform
services for BNSF and to accept said grant in accordance with the terms and
provisions of the Plan and
this Award Agreement
;
NOW THEREFORE, BNSF grants to the
Employee
[_____]
shares of Restricted Stock Units
(“Award”)
with the
restrictions to lapse on [
___________
] as set forth below
.
BNSF and Employee hereby agree that this
Award of Restricted Stock Units shall be subject to the following terms,
conditions and restrictions:
1.
Restrictions
on Transfer
. Restricted Stock Units as
referenced in the Plan shall not be sold, pledged, assigned, transferred, or
encumbered during the period the Restricted Stock Units are subject to
restrictions set forth in
this Award Agreement
, and the Employee shall not be treated
as a stockholder with respect to the Restricted Stock Units.
2.
S
tock
Power
. Restricted Stock Units
awarded hereunder shall be registered in the name of the Company on behalf of
the Employee and the Employee’s acceptance of this Award Agreement constitutes a
grant by the Employee of a power of attorney authorizing a Stock Power to be
endorsed in b
lank prior to the distribution with respect to the award or
the forfeiture of the award.
3.
Dividends
. As of each dividend record
date for Stock occurring on or after the Grant
D
ate of the Restricted Stock Units, and
prior to the date of distribution of shares of Stock with respect to the
Restricted Stock Units (or, if applicable, the date of forfeiture of the
Restricted Stock Units), the Employee shall receive
as wages
a cash payment equal to the amount of
the dividend that would be payable with respect to shares of Stock
equ
ivalent
in
number
to the
Restricted Stock Units
held
on the dividend record date
.
S
uch payment
shall be
made on the date of payment of the
applicable dividend
.
Notwithstanding the
foregoing, however,
in the event
that an extraordinary cash dividend is paid on Stock prior to the vesting date
of the Restricted Stock Units granted herein, a cash payment shall vest and be
paid to the Employee at the same time and in the same proportion as the
Restricted Stock Units vest.
4.
Vesting
. Subject to paragraph 5, if
the Employee's Date of Termination does not occur prior to the vesting date
of
the time-based Restricted Stock Units,
then the Employee shall become vested in such Restricted Stock Units
on
the vesting date. As of the
vesting date
and subject to
the payment of taxes
, the
Employee shall receive one share of Stock for each Restricted Stock Unit in
which the Employee is then vested, subject to the terms of
this Award Agreement
, provided, however, that the Company
shall be entitled to retain possession of
each
such share of Stock for such time as is
necessary for the Company to make the distribution of
each
share of Stock to the
Employee
.
As of the vesting date of the shares of
Stock with respect to any Units, such Units
shall no longer be
outstanding
.
5.
Termination
of Employment
. The Restricted Stock Units
are forfeit
ed
upon the Employee's Date of Termination
(which, for purposes of
this Award Agreement
, shall be the earlier of the "Date of
Termination" as defined in the Plan or the date on which the Employee ceases to
be in salaried employment of the Company and Related Companies) for any reason
other than
in the event of termination by the Company for reasons other
than Cause in connection with and after a Change in Control, as addressed in
paragraph 7.
6.
Taxes
.
The Employee agrees
that BNSF or the Related Companies may require payment by Employee of federal,
state, railroad retirement or local taxes upon the vesting of an
Award. Employee may use cash or shares to satisfy tax liabilities
incurred, provided that if shares are used, shares from the vesting Award may be
used only to satisfy (i) applicable railroad retirement taxes, and (ii) state
income taxes and federal income taxes to the extent of the Supplemental Federal
Income Tax Withholding Rate as established by the Internal Revenue
Code. Any additional taxes may be satisfied by use of attestation of
ownership of other shares of Stock, provided, however, that the total shall not
exceed the combined maximum marginal tax rates applicable under federal and
state tax laws. In the absence of a response from the Employee, BNSF
will use shares of Stock to satisfy the tax liabilities incurred.
7.
Change
in Control
.
In the event of termination by the
Company for reasons other than Cause in connection with and after
a Change in Control
, shares of Stock shall be
released
as
described
in
Section 12.6 of
the Plan.
Notwithstanding any
provision in any other Change in Control arrangement, program or contract, this
Award shall be solely subject to the terms and conditions of this Award
Agreement and the Plan.
8.
IRC Section
409A
. Notwithstanding any other provisions of this Award
Agreement to the contrary,
the
Company shall not make any such payments
or deliver any such shares of Stock
until such time as it
may reasonably
believe
that such delivery
w
ill
not result in acceleration of tax or
imposition of penalties under section 409A of the Internal Revenue
Code.
9.
No Contract of
Employment
.
Nothing in
this Award Agreement
or in the Plan shall confer any right
to continued employment with BNSF or the Related Companies nor restrict BNSF or
the Related Companies from termination of the employment relationship of
Employee at any time.
10
.
Heirs
and Successors
.
This Award Agreement
shall be binding upon, and inure to the
benefit of, the Company and its successors and assigns, and upon any person
acquiring, whether by merger, consolidation, purchase of assets or otherwise,
all or substantially all of the Company’s assets and business. If any
rights exercisable by the Employee or benefits deliverable to the Employee under
th
is
Award Agreement have not been exercised
or delivered, respectively, at the time of the Employee’s death, such rights
shall be exercisable by the Designated Beneficiary, and such benefits shall be
delivered to the Designated Beneficiary, in accordance with the provisions of
th
is
Award Agreement. The
“Designated Beneficiary” shall be the beneficiary or beneficiaries designated by
the Employee in a writing filed with the Company in such form and at such time
as the Company shall require. If a deceased Employee fails to
designate a beneficiary, or if the Designated Beneficiary does not survive the
Employee, any rights that would have been exercisable by the Employee and any
benefits distributable to the Employee shall be exercised by or distributed to
the legal representative of the estate of the Employee. If a deceased
Employee designates a beneficiary and the Designated Beneficiary survives the
Employee but dies before the Designated Beneficiary’s exercise of all rights
under this Award Agreement or before the complete distribution of benefits to
the Designated Beneficiary under
this Award Agreement
, then any rights that would have been
exercisable by the Designated Beneficiary shall be exercised by the legal
representative of the estate of the Designated Beneficiary, and any benefits
distributable to the Designated Beneficiary shall be distributed to the legal
representative of the estate of the Designated Beneficiary.
1
1
.
No
Violation of Law
. Notwithstanding any other
provision of
this Award
Agreement
, Employee agrees
that BNSF shall not be obligated to deliver any shares of Stock or make any cash
payment, if counsel to BNSF determines such exercise, delivery or payment would
violate any law or regulation of any governmental authority or agreement between
BNSF and any national securities exchange upon which the Stock is
listed.
1
2
.
Conflicts
. In the event of a conflict
between the terms of
this
Award Agreement
and the Plan
or a resolution of the Committee, the Plan or the resolution shall be the
controlling document.
1
3
.
Administration
. Any interpretation of
th
is
Award Agreement by the Committee or its
delegate and any decision made by the Committee or its delegate with respect to
th
is
Award Agreement
shall be
final and binding on all
persons.
1
4
.
Amendment
. Th
is
Award Agreement may be amended in
accordance with the provisions of the Plan, and may otherwise be amended by
written agreement of the Employee and the Company without the consent of any
other person.
1
5
.
Terms
. Except as otherwise
provided in th
is
Award Agreement, and except where the
context clearly implies or indicates the contrary, a word, term, or phrase
defined in the Plan shall have the same meaning in th
is
Award Agreement.
Anything herein contained to the
contrary notwithstanding,
this Award Agreement
shall cease to be of any force or effect
unless executed by the Employee and delivered to the Secretary of BNSF
by
_____________
.
IN WITNESS WHEREOF, the parties hereto
have executed
this Award
Agreement
as of the day and
year first above written.
BURLINGTON NORTHERN
SANTA FE CORPORATION
Exhibit 10.21
PERFORMANCE-BASED
RESTRICTED STOCK UNIT AWARD
AGREEMENT
DATED
____________
First MI
Last
The
Compensation and Development Committee (the “Committee”) of the Burlington
Northern Santa Fe Corporation (the "Company") Board of Directors has awarded you
(the “Employee”) a grant of performance-based Restricted Stock Units (“PRSUs”)
as follows:
Grant Date:
Number of PRSUs:
Vesting Date:
|
|
Performance
Criteria: As defined by the Compensation and Development Committee from
time to time
|
The PRSUs
are Restricted Stock Units granted under and governed by the terms and
conditions of the BNSF 1999 Stock Incentive Plan (the “Plan”) and the terms and
conditions set forth below.
The purpose of the Plan is to attract
and retain key
employees
possessing outstanding ability,
motivate executives to achieve the growth goals of BNSF by making a portion of
their total compensation dependent on the accomplishment of these goals and to
further the identity of the interests of the shareholders of BNSF and key
employees
of BNSF and its subsidiaries by
increasing the opportunities for these
employees
to become
shareholders.
To accept
this Award Agreement, you must click on the acceptance box at the end of this
Agreement. Anything herein contained to the contrary notwithstanding,
unless this Award Agreement is electronically accepted or executed by the
Employee and delivered to the Secretary of BNSF on or before _______________,
the award described herein may be withdrawn and cancelled by the
Company.
By your
acceptance of this Award Agreement:
|
|
(1)
you agree to abide by the terms and conditions of the Plan and this Award
Agreement; and
|
|
|
(2)
you attest that you were a salaried employee of the Company or a Related
Company on _______________, with respect to the award made herein.
|
The following terms and conditions shall
apply to the award made by this Award Agreement:
1.
Acceptance
.
The Employee agrees to perform services for BNSF or its Related Companies and
accepts this grant along with the terms and provisions of the Plan and this
Agreement.
2.
Restrictions
on Transfer
.
P
R
SUs
as referenced in the
Pl
an shall not be sold, pledged, assigned,
transferred, or encumbered during the period the
PRSUs
are subject to restrictions set forth in
the Award Agreement, and the Employee shall not be treated as a stockholder with
respect to the
P
R
SUs
.
3
.
Stock
Power
.
P
R
SUs
awarded hereunder shall be registered in
the name of the Company on behalf of the Employee and the Employee’s acceptance
of this Award Agreement constitutes a grant by the Employee of a power of
attorney authorizing a Stock Power to be endorsed in b
lank prior to the
distribution with respect to the award or the forfeiture of the
award.
4
.
Dividends
. As of each dividend record
date for Stock occurring on or after the Grant date of the
P
R
SUs
, and prior to the date of distribution
of shares of Stock with respect to the
P
R
SUs
(or, if applicable, the date of
forfeiture of the
P
R
SUs
), the Employee shall
receive
as wages
a cash payment equal to the
amount of the dividend that would be payable with respect to shares of
Stock
equivalent in number
to the P
R
SU
s
held
on the dividend record date
. Such
payment
shall be
made on the date of payment of the
applicable dividend
. Notwithstanding the
foregoing, however, in the event
that an extraordinary cash dividend is
paid on Stock prior to the vesting date of the PRSUs granted herein, a cash
payment shall vest and be paid to the Employee at the same time and in the same
proportion as the PRSUs vest.
5
.
Vesting
. Subject to paragraph
6
, if the Employee's Date of Termination
does not occur prior to the
vesting date of
the
P
R
SU
s, then, to the extent that the
applicable performance criteria are achieved, the Employee shall become vested
in such
P
R
SU
s on the vesting date. As of
the vesting date
and subject
to the payment of taxes
,
the Employee shall receive one share of Stock for each
P
R
SU
in which the Employee is then vested,
subject to the terms of the Award Agreement, provided, however, that the Company
shall be entitled to retain possession of
each
such share of Stock for such time as is
necessary for the Company to make distribution of
each
share of Stock to the
Employee
.
As of the vesting date of the shares of
Stock with respect to any
PRSUs
, such
PRSUs
shall no longer be
outstanding.
6
.
Termination
of Employment
. The
P
R
SU
s are forfeit
ed
upon the Employee's Date of Termination
(which, for purposes of the Award Agreement, shall be the earlier of the "Date
of Termination" as defined in the Plan or the date on which the Employee ceases
to be in salaried employment of the Company and Related Companies) for any
reason other than death, Disability, termination by the Company other than for
Cause, or Retirement. In the event of an Employee's Date of
Termination due to death, all restrictions shall lapse and
one share of Stock for each PRSU
shall be issued to the
Employee's designated beneficiary or, in the absence of such designation, by the
person to whom the Employee's rights shall pass by will or the laws of descent
and distribution.
In the event of an Employee's Date of
Termination due to Disability, termination by an Employer or Related Company
other than for Cause, or Retirement, then a pro rata portion of the PRSUs will
remain subject to the time and performance criteria established by the Committee
with respect to such period and the balance of the Award shall be
forfeited.
For purposes
of the preceding sentence, the pro rata portion
of the Award shall equal
the total number of PRSUs covered by this Award Agreement multiplied by a
fraction, the denominator of which is the total number of months of the period
between the Grant Date and the vesting date applicable to the Award, and the
numerator of which is the number of complete months which elapsed between the
Grant Date and the Date of Termination. Notwithstanding anything to
the contrary set forth elsewhere in this Agreement, nothing is intended to
curtail any rights the Employee may have to any vesting of Stock as set forth in
the BNSF Railway Company Employee Retention Program, as amended, or in any
Severance Agreement or Change in Control Agreement which the Company may have in
effect with the Employee. In the event that an Employee's Date of
Termination is for Cause, or the Employee resigns, all PRSUs that are not vested
on the Date of Termination shall be forfeited. The PRSUs shall be
forfeited upon the exercise of seniority at any time after the Grant
Date.
7
.
Taxes
.
The Employee agrees
that BNSF or the Related Companies may require payment by Employee of federal,
state, railroad retirement or local taxes upon the vesting of an
Award. Employee may use cash or shares to satisfy tax liabilities
incurred, provided that if shares are used, shares from the vesting Award may be
used only to satisfy (i) applicable railroad retirement taxes, and (ii) state
income taxes and federal income taxes to the extent of the Supplemental Federal
Income Tax Withholding Rate as established by the Internal Revenue
Code. Any additional taxes may be satisfied by use of attestation of
ownership of other shares of Stock, provided, however, that the total shall not
exceed the combined maximum marginal tax rates applicable under federal and
state tax laws. In the absence of a response from the Employee, BNSF
will use shares of Stock to satisfy the tax liabilities incurred.
8
.
Change
in Control
.
In the event of termination by the
Company for reasons other than Cause in connection with and after
a Change in Control
, shares of Stock shall be
released
as
described
in
Section 12.6 of
the Plan
or, if applicable, the
Employee's individual Change in Control letter agreement, the BNSF Railway
Company Employee Retention Program
,
or such other arrangement as
may be approved pursuant to the terms of the Plan.
9.
IRC Section
409A
. Notwithstanding any other provisions of this agreement
to the contrary,
the Company shall
not make any such payments
or deliver any such shares of Stock
until such time as it
may reasonably
believe
that such
delivery
will
not result in acceleration of tax or
imposition of penalties under section 409A of the Internal Revenue
Code.
10.
No Contract of
Employment
.
Nothing in this Agreement or in the Plan
shall confer any right to continued employment with BNSF or the Related
Companies nor restrict BNSF or the Related Companies from termination of the
employment relationship of Employee at any time.
11
.
Heirs and
Successors
. The
Award Agreement shall be binding upon, and inure to the benefit of, the Company
and its successors and assigns, and upon any person acquiring, whether by
merger, consolidation, purchase of assets or otherwise, all or substantially all
of the Company’s assets and business. If any rights exercisable by
the Employee or benefits deliverable to the Employee under th
is
Award Agreement have not been exercised
or delivered, respectively, at the time of the Employee’s death, such rights
shall be exercisable by the Designated Beneficiary, and such benefits shall be
delivered to the Designated Beneficiary, in accordance with the provisions of
th
is
Award Agreement. The
“Designated Beneficiary” shall be the beneficiary or beneficiaries designated by
the Employee in a writing filed with the Company in such form and at such time
as the Company shall require. If a deceased Employee fails to
designate a beneficiary, or if the Designated Beneficiary does not survive the
Employee, any rights that would have been exercisable by the Employee and any
benefits distributable to the Employee shall be exercised by or distributed to
the legal representative of the estate of the Employee. If a deceased
Employee designates a beneficiary and the Designated Beneficiary survives the
Employee but dies before the Designated Beneficiary’s exercise of all rights
under this Award Agreement or before the complete distribution of benefits to
the Designated Beneficiary under this Agreement, then any rights that would have
been exercisable by the Designated Beneficiary shall be exercised by the legal
representative of the estate of the Designated Beneficiary, and any benefits
distributable to the Designated Beneficiary shall be distributed to the legal
representative of the estate of the Designated Beneficiary.
1
2
.
No Violation
of Law
. Notwithstanding any other
provision of this Agreement, Employee agrees that BNSF shall not be obligated to
deliver any shares of Stock or make any cash payment, if counsel to BNSF
determines such exercise, delivery or payment would violate any law or
regulation of any governmental authority or agreement between BNSF and any
national securities exchange upon which the Stock is listed.
1
3
.
Conflicts
. In the event of a conflict
between the terms of this Agreement and the Plan or a resolution of the
Committee, the Plan or the resolution shall be the controlling
document.
1
4
.
Administration
. Any interpretation of
th
is
Award Agreement by the Committee or its
delegate and any decision made by the Committee or its delegate with respect to
th
is
Award Agreement
shall be
final and binding on all
persons.
1
5
.
Amendment
. Th
is
Award Agreement may be amended in
accordance with the provisions of the Plan, and may otherwise be amended by
written agreement of the Employee and the Company without the consent of any
other person.
16.
Terms
. Except as otherwise
provided in th
is
Award Agreement, and excep
t
where the context clearly implies or
indicates the contrary, a word, term, or phrase defined in the Plan shall have
the same meaning in th
is
Award Agreement.
IN WITNESS WHEREOF, the parties hereto
have executed this Agreement as of the day and year first above
written.
BURLINGTON NORTHERN
SANTA FE CORPORATION
Exhibit 10.22
PERFORMANCE STOCK
AWARD AGREEMENT
DATED
_____________
First MI
Last
The
Compensation and Development Committee (the “Committee”) of the Burlington
Northern Santa Fe Corporation (the "Company") Board of Directors has agreed that
to the extent that the performance objectives established by the Committee (as
the same may be amended from time to time) are achieved, BNSF will distribute to
the Employee shares of Performance Stock as follows:
Grant Date:
Number of Shares of Performance
Stock:
Vesting Date:
|
|
Performance
Criteria: As defined by the Compensation and Development Committee from
time to time
|
The
Performance Stock is granted under and governed by the terms and conditions of
the BNSF 1999 Stock Incentive Plan (the “Plan”) and the terms and conditions set
forth below.
The
purpose of the Plan is to attract and retain key
employees
possessing outstanding ability,
motivate executives to achieve the growth goals of BNSF by making a portion of
their total compensation dependent on the accomplishment of these goals and to
further the identity of the interests of the shareholders of BNSF and key
employees
of BNSF and its subsidiaries by
increasing the opportunities for these
employees
to become
shareholders.
The Compensation and Development
Committee (the “Committee”) of the Board of Directors wishes to encourage
superior performance by the Employee by making a Performance Stock Award to the
Employee.
The Employee desires to perform services
for BNSF and to accept the distribution of Stock upon the achievement of the
performance objectives established by the Committee in accordance with the terms
and provisions of the Plan and this Agreement.
To accept
this Award Agreement, you must click on the acceptance box at the end of this
Agreement. Anything herein contained to the contrary notwithstanding,
unless this Award Agreement is electronically accepted or executed by the
Employee and delivered to the Secretary of BNSF on or before _____________, the
award described herein may be withdrawn and cancelled by the
Company.
By your
acceptance of this Award Agreement:
|
|
(1)
you agree to abide by the terms and conditions of the Plan and this Award
Agreement; and
|
|
|
(2)
you attest that you were a salaried employee of the Company or a Related
Company on ______________, with respect to the award made herein.
|
The following terms and conditions shall
apply to the award made by this Award Agreement:
1.
Acceptance
.
The Employee agrees to perform services for BNSF or its Related Companies and
accepts this grant along with the terms and provisions of the Plan and this
Agreement.
2.
Restrictions
on Transfer
.
The Performance Stock shall not be
permitted to be used in payment of a stock option exercise for a period of six
months following the April 27, 2010, date for the distribution of such
Performance Stock to the Employee
.
3.
Stock
Power
. Employee’s acceptance of
this Award Agreement constitutes a grant by the Employee of a power of attorney
authorizing a Stock Power to be endorsed in b
lank prior to the
distribution with respect to the award or the forfeiture of the
award. In addition, t
he
Company shall be entitled to retain possession of the Performance Stock for such
time as is necessary for the Company to make the distribution of the Performance
Stock to the Employee.
4.
Dividends
. No dividends or dividend
equivalents are payable during or with respect to the period prior to
April 26, 2010
.
5.
Salaried
Employment Condition;
Termination
of Employment
. Employee hereby agrees that
Employee shall not be entitled to the distribution of the Performance Stock
unless Employee was a salaried employee of BNSF Railway Company or its successor
on the date of this Agreement and throughout the period from the date of this
Agreement until
April 26,
2010
. Notwithstanding any
provision of the Plan, all of the Performance Stock is forfeited upon
termination of salaried employment for any reason.
6.
Taxes
.
The Employee agrees
that BNSF or its Related Companies may require payment by Employee of federal,
state, railroad retirement or local taxes upon the vesting of an
Award. Employee may use cash or shares to satisfy tax liabilities
incurred, provided that if shares are used, shares from the vesting Award may be
used only to satisfy (i) applicable railroad retirement taxes, and (ii) state
income taxes and federal income taxes to the extent of the Supplemental Federal
Income Tax Withholding Rate as established by the Internal Revenue
Code. Any additional tax due must be satisfied by use of attestation
of ownership of other shares, provided, however, that the total shall not exceed
the combined maximum marginal tax rates applicable under federal and state tax
laws.
7.
No Contract of
Employment
.
Nothing in this Agreement or in the Plan
shall confer any right to continued employment with BNSF or its Related
Companies nor restrict BNSF or its Related Companies from termination of the
employment relationship of Employee at any time.
8.
No
Violation of Law
. Notwithstanding any other
provision of this Agreement, Employee agrees that BNSF shall not be obligated to
deliver any shares of
Performance
Stock or make any cash payment, if
counsel to BNSF determines such exercise, delivery or payment would violate any
law or regulation of any governmental authority or agreement between BNSF and
any national securities exchange upon which the
Performance
Stock is listed.
9.
Conflicts
. In the event of a conflict
between the terms of this Agreement and the Plan or the Compensation and
Development Committee resolution, the Plan or the resolution shall be the
controlling document.
10.
Termination
Upon Failure to Achieve Performance Objectives
. In the event the
performance objectives established by the Committee are not achieved, then this
Award Agreement shall terminate on
April 26, 2010
, and be of no further force or effect
with no further action by the parties being required.
11.
Terms
. Except as otherwise
provided in this Award Agreement, and except where the context clearly implies
or indicates the contrary, a word, term, or phrase defined in the Plan shall
have the same meaning in this Award Agreement.
IN WITNESS WHEREOF, the parties hereto
have executed this Agreement as of the day and year first above
written.
BURLINGTON NORTHERN
SANTA FE CORPORATION
Exhibit 10.23
BURLINGTON
NORTHERN SANTA FE CORPORATION
AMENDED
AND RESTATED
BENEFITS PROTECTION
TRUST
(As
amended through January 8, 2008)
BURLINGTON
NORTHERN SANTA FE CORPORATION
BENEFITS PROTECTION
TRUST
TABLE OF
CONTENTS
ARTICLE
PAGE
1:
Definitions
2
2:
Creation of
Trust
7
3:
Trustee Expense
Account
9
4:
Benefit
Account
10
5:
Payments from the
Trust
11
6:
Management of Trust
Assets
14
7:
Administrative
Powers 17
8:
Insurance and Annuity
Contracts
18
9:
Trustee's Powers after Change of
Control
21
10:
Taxes, Expenses and Compensation of
Trustee
26
11:
General Duties of
Trustee 27
12:
Indemnification
28
13:
No Duty to Advance
Funds
29
14:
Accounts
29
15:
Administration of the Plans;
Communications
32
16:
Resignation or Removal of
Trustee
33
17:
Amendment of Agreement; Termination of Trust; Termination
with Respect to an Affiliate and
Transfer to Successor
Trustee
38
18:
Prohibition of
Diversion
41
19:
Prohibition of Assignment of
Interest 43
20:
Miscellaneous
44
AMENDED AND
RESTATED
BENEFITS PROTECTION TRUST
AGREEMENT
(As
amended through January 8, 2008)
THIS AGREEMENT (the "Agreement"), made
as of the 31st day of March, 2004, by and between BURLINGTON NORTHERN SANTA FE
CORPORATION, a corporation organized and existing under the laws of the State of
Delaware, and WACHOVIA BANK, NATIONAL ASSOCIATION, a national banking
association (hereinafter referred to as the "Trustee").
W I T N E S S E T
H
WHEREAS, the Company (as hereinafter
defined) or an Affiliate (as hereinafter defined) thereof has adopted the plans,
programs, and policies and has entered into the contracts listed on Schedule 1
(hereinafter referred to either specifically by name or collectively as the
"Plans") and may adopt or enter into other such plans which will be listed from
time to time on Schedule 1 and may, from time to time, amend, modify or
terminate any such Plan in accordance with its terms or to comply with any
changes in the law and to increase the number of participants in any such Plan
(subject to the terms of this Agreement); and
WHEREAS, the Company initially
established this Trust on March 22nd, 1996 with BANKERS TRUST COMPANY, and on
December 1st, 2003 appointed WACHOVIA BANK, NATIONAL ASSOCIATION as Successor
Trustee under the agreement dated December 1, 2003; and
WHEREAS, the Company desires to
establish a Benefits Protection Trust (hereinafter referred to as this "Trust")
in order to ensure that Participants (as hereinafter defined) and their
beneficiaries will receive the benefits which the Company and its Affiliates are
obligated to provide for them or which they reasonably anticipate
receiving pursuant to the Plans; and
WHEREAS, the Trustee is not a party to
the Plans; and
WHEREAS, the aforesaid obligations of
the Company are not funded or otherwise secured and the Company has agreed to
take steps to assure that the future payment of amounts under such Plans will
not be improperly withheld in the event that a "Change of Control" (as
hereinafter defined) of the Company should occur; and
WHEREAS, for purposes of assuring that
such payments will not be improperly withheld, the Company desires to: (a)
deposit with the Trustee, subject to the claims of the Company's existing or
future general creditors, amounts of cash and/or marketable securities for the
payment of the fees and expenses of the Trustee in pursuing claims of the
Participants and their beneficiaries against the Company for such payments
and/or in requiring the Company to deposit sufficient cash and/or marketable
securities in the Trust to pay benefits under the Plans; and (b) retain the
right to deposit with the Trustee, subject to the same conditions, further
amounts of cash and/or marketable securities for the payment of amounts under
such Plans as they may become due and payable; and
WHEREAS, in the event that the Trustee
resigns in accordance with Section 16.1 or
16.2 hereof, the Company
shall have the exclusive right and power to appoint, in its sole discretion, a
successor trustee in accordance with Section 16.
NOW, THEREFORE, the Company and the
Trustee agree as follows:
ARTICLE 1:
Definitions.
1.1
"Affiliate" shall mean any corporation, partnership or other entity, the
majority interest in which is held by the Company directly or through one or
more intermediaries.
1.2
The "Board" shall mean the Board of Directors of Burlington Northern Santa Fe
Corporation.
1.3
"Change of Control" shall mean the occurrence of any of the
following:
(a)
any person (as such term is used in sections 13(d) and 14(d)(2) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) being or
becoming the "beneficial owner" (as defined in Rule 13d-3 of the Exchange Act)
directly or indirectly, of securities of the Company representing twenty five
percent (25%) or more of the combined voting power of the Company's then
outstanding securities, provided that the determination of whether any person
has become the beneficial owner of twenty five percent (25%) or more of the
combined voting power of the Company's outstanding securities for purposes of
this Section (a) shall be determined in accordance with Exhibit C
hereto,
(b)
the first purchase by any person (as such term is used in subsection (a) of this
Section 1.3) of the Company's Common Stock pursuant to a tender or exchange
offer to acquire such number of shares of the Company's Common Stock as would
result in such person holding twenty five percent (25%) or more of the combined
voting power of the Company's then outstanding Common Stock (other than a tender
or exchange offer made by the Company or an Affiliate),
(c) the
approval by the Company's stockholders of a merger or consolidation, a sale or
disposition of all or substantially all of the Company's assets or a plan of
liquidation or dissolution of the Company, or
(d)
during any period of two consecutive years, individuals who at the beginning of
such period constitute the Board of Directors of the Company ceasing for any
reason to constitute at least a majority thereof, unless the election or
nomination for the election by the Company's stockholders of each new director
was approved by a vote of at least two thirds of the directors then still in
office who were directors at the beginning of the period,
(e)
notwithstanding (a) through (d), the business combination of Burlington Northern
Inc. and Santa Fe Pacific Corporation, which was effective September 22, 1995,
does not constitute a Change of Control.
Notwithstanding the foregoing, a Change
of Control shall not be deemed to occur if the Company either merges or
consolidates with or into another company or sells or disposes of all or
substantially all of its assets to another company, if such merger,
consolidation, sale or disposition is in connection with a corporate
restructuring wherein the stockholders of the Company immediately before such
merger, consolidation, sale or disposition own, directly or indirectly,
immediately following such merger, consolidation, sale or disposition at least
eighty percent (80%) of the combined voting power of all outstanding classes of
securities of the company resulting from such merger or consolidation, or to
which the Company sells or disposes of its assets, in substantially the same
proportion as their ownership in the Company immediately before such merger,
consolidation, sale or disposition. Further
notwithstanding the
foregoing, an event will not be treated as a Change of Control for purposes of
this Agreement if the Board so determines by an affirmative vote of at least two
thirds of its incumbent members immediately prior to the occurrence of such
event, and the Company shall provide prompt notice of such determination to the
Trustee.
In addition, notwithstanding any
provision herein to the contrary, a Change of Control shall not be deemed to
occur where the acquirer is, directly or indirectly, a Class I railroad or a
holding company of a Class I railroad ("Merger Transaction"), or any events or
transactions that form a part of, or are in furtherance of the Merger
Transaction (including, without limitation, any announcement of the Merger
Transaction or the execution of any agreement in furtherance of the Merger
Transaction) for the purposes of this Trust, unless the Board so determines by
an affirmative vote of at least two thirds of its incumbent members immediately
prior to the occurrence of such event, and the Company shall provide prompt
notice of such determination to the
Trustee.
1.4
"Company" shall mean Burlington Northern Santa Fe Corporation, its successors,
and assigns.
1.5
"Equitable Share" shall mean the interest of any Plan in the assets of the
Trust.
1.6
"Investment Manager" shall mean a bank, an insurance company or an investment
adviser registered under the Investment Advisers Act of 1940, appointed pursuant
to Article VI hereto to manage all or a portion of the assets of the
Trust.
1.7
"Participants" shall mean active and former directors and employees of the
Company and/or of its Affiliates.
1.8
"Responsible Employer" shall mean, in connection with a particular Plan, an
entity (either the Company or an Affiliate) that is obligated to provide
benefits to directors or employees pursuant to that Plan, either through
contributions to the Trust or otherwise.
1.9
"Threatened Change of Control" shall mean either of the following
events:
(a)
A person described in Section 1.3 of this Article 1,
|
|
(1)
|
initiates
a tender offer to acquire such number of shares as would result in such
person holding twenty five percent (25%) or more of the voting power of
the Company's outstanding common shares; or
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(2)
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solicits
proxies for votes to elect members of the Board at a shareholders' meeting
of the Company;
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provided,
however, that, an event will not be treated as a Threatened Change of
Control for purposes of this Agreement if the Board so determines by an
affirmative vote of at least two thirds of its incumbent members
immediately prior to the occurrence of such event, and the Company shall
provide prompt notice of such determination to the Trustee, or
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(b)
The Company notifies the Trustee in writing that such a Threatened Change
of
Control
exists.
1.10
"Threatened Change of Control Period" shall mean the period beginning on the
date a Threatened Change of Control commences and ending on the earliest
of:
(a)
The date
when a person described in Section 1.3 of this Article 1, (1) shall have
abandoned the tender offer, or (2) shall not have elected a member of the Board
as the case may be, or (3) shall own less than five percent (5%) of the voting
power of the Company's outstanding common shares; or
(b)
If the Threatened Change of Control Period has commenced by reason of a written
notification by the Company as provided in Section 1. 9(b) of this Article 1,
the earlier of (1) the expiration of six (6) months after the Trustee has
received such notification, if a Threatened Change of Control described in
Section 1.9(a) has not occurred within such 6-month period, and (2) the date the
Company shall have notified the Trustee in writing that the Threatened Change of
Control has terminated; or
(c)
The date a Change of Control occurs.
ARTICLE 2:
Creation of
Trust.
2.1
The Company hereby establishes with the Trustee and the Trustee hereby accepts a
trust consisting of two accounts established by the Trustee for purposes of
accounting for funds delivered to the Trustee by the Company, upon direction
from the Company. One such account shall be known as the "Trustee Expense
Account," and shall be used exclusively to pay the fees, expenses and
indemnities due or incurred by the Trustee in accordance with the terms of this
Agreement. The other such account shall be known as the "Benefit Account," and
shall be used to make payments under the Plans and, solely to the extent the
trustee expense account is insufficient, to pay the fees, expenses and
indemnities due or incurred by the trustee in accordance with the terms of this
agreement. Upon direction from the Company, the Benefit Account shall be divided
into a separate Equitable Share for each Plan which is funded by the Company in
accordance with Section 4.1 of Article 4. If a single Plan has more than one
Responsible Employer, then a separate Equitable Share shall be created for each
such Responsible Employer, upon direction from the Company.
2.2
The Company and the Trustee agree that the Trust created herein shall be
revocable by the Company as to any assets held in the Trustee Expense Account at
any time before a Change of Control, but shall not be revocable by the Company
or by any successor thereto as to assets held in the Benefit Account at any
time, or as to any amounts held under the Trust at any time during a Threatened
Change of Control or after a Change of Control. The principal of the Trust, and
any earnings thereon, shall be used exclusively for the uses and purposes of
Participants and their beneficiaries and general creditors of each Responsible
Employer, as herein set forth. Participants and their beneficiaries shall have
no preferred claim on, or any beneficial ownership interest in, any assets of
the Trust. Any rights created under the Plans and this Agreement shall be mere
unsecured contractual rights of Participants and their beneficiaries against the
appropriate Responsible Employer. Any assets held by the Trust will be subject
to the claims of the general creditors of the Responsible Employers under
federal and state law in the event that any such Responsible Employer becomes
insolvent, as defined in Section 18.2(a). The Trust established hereunder is
intended to be a grantor trust within the meaning of Section 671 of the Internal
Revenue Code of 1986, as amended (the "Code"), and all interest and other income
earned on the investment of the Trust shall for such purposes be the property
of, and taxable to, the Company. All taxes on or with respect to the Trust shall
be payable by the Company from its separate funds, provided, however, that to
the extent that the Company does not timely make any such payments, such taxes
shall be paid from the Trustee Expense Account, and if the Trustee Expense
Account is insufficient then from the Benefit Account.
2.3
The Company may amend any existing Plans, provided, however, that a Plan
amendment may not materially increase the administrative duties of the Trustee
under this Agreement without the Trustee's express prior written consent
thereto. The Company may add plans, other than plans intended to be qualified
under Section 401(a) of the Code, under the Trust upon prior written notice
thereof to the Trustee and by amending Schedule 1; provided, however, that the
Company may not add any such plan under the Trust without the Trustee's express
prior written consent to such addition. The Company shall furnish to the Trustee
copies of all Plans, and the Trustee shall have no duties or obligations
whatsoever under this Agreement with respect to any Plan of which the Trustee
has not received a copy from the Company. If the Company amends any existing
Plans or adds plans, it shall send to the Trustee a copy of any such amendments
or plans and the Trustee shall have no duties or obligations whatsoever under
this Agreement with respect to any amendment to a plan or new plans of which the
Trustee has not received a copy from the Company.
ARTICLE 3:
Trustee Expense
Account.
3.1
Upon the Trustee's obtaining actual knowledge of the existence of a Threatened
Change of Control or a Change of Control, the Trustee shall require the Company
to deliver the amount of two million dollars ($2,000,000) in cash to the Trust,
to be credited to the Trustee Expense Account. The Trustee shall make written
demand for any such additional amount, and the Company will comply with such
demand within 15 days of its receipt thereof. In the event the Company fails to
provide the Trustee with such additional amount within 15 days of the receipt by
the Company of such written demand, the Trustee shall have the right to resign
immediately as Trustee, and immediately upon such resignation shall have no
further duties hereunder. The Trustee will have no duty to find or secure the
appointment of a Successor Trustee upon its resignation pursuant to this
Section, nor shall its resignation or the termination of any further duties be
contingent upon the appointment and qualification of a successor trustee. If the
Threatened Change of Control Period terminates and no Change of Control has
occurred, the Company may withdraw any portion of the two million dollars
($2,000,000) deposited upon the demand of the Trustee, together with any income
actually earned thereon and reduced by any losses attributable
thereto.
3.2
At any time, the Company shall have the unlimited right to add to the Trustee
Expense Account additional amounts of cash and/or marketable securities
acceptable to the trustee. Such amounts (together with the income attributable
thereto) which are over and above the aggregate amount of $2,000,000 described
in Section 3.1 may be withdrawn by the Company at any time prior to a Change of
Control, but not after.
ARTICLE 4:
Benefit
Account.
4.1
The Company may elect at any time to deliver cash, life insurance contracts as
provided in Section 8 of this Agreement and/or marketable securities reasonably
acceptable to the Trustee to be credited to the Benefit Account. Any such
delivery shall be accepted by the Trustee only if it is accompanied by a
designation of the Plan or Plans under the provisions of which such funds are to
be disbursed, the Responsible Employer whose obligations are being funded, and
if more than one Plan or the obligations of more than one Responsible Employer
are being funded, the amount being allocated in respect of each Plan and each
Responsible Employer. Such delivery shall be credited to the Equitable Share or
Equitable Shares of the Plan or Plans in respect of which funds are being
provided within the Benefit Account.
4.2
On and after a Change of Control, the Company shall have the following
contribution obligations:
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(a)
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Within
thirty (30) days following a Change of Control, the Company shall deliver
to the Trustee an amount, in cash or property, that, when added to amounts
then held under the Trust allocated to the Equitable Shares of each of the
Plans, is equal to the present value of benefits accrued under each Plan,
respectively ("Accrued Benefits") as of the Change of Control Date,
provided that the determination of the Accrued Benefits under this Section
(a) shall take into account benefits accrued through the time immediately
after the Change of Control.
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(b)
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During
the period beginning on the Change of Control and ending on the two (2)
year anniversary of the Change of Control, the present value of Accrued
Benefits will be calculated no less frequently than annually by the
Company's vice president - human resources or his delegate or, if the
calculation is not performed in a timely manner by the vice president –
human resources or his delegate, the calculation shall be made by a person
selected by the Trustee. The calculation shall be made as of a
date not earlier than forty five (45) days prior to the date such
determination is finalized, and the person responsible for the calculation
will deliver to the Trustee within fourteen (14) days after the
calculation is finalized an amount, in cash or property, that, when added
to the amounts then held by the Trust with respect to each of the Plans,
is equal to the Accrued Benefits as of such determination date.
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For
purposes of Sections (a) and (b) above:
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(I)
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Benefits
provided under the Burlington Northern Santa Fe Railway Company Severance
Plan, the Burlington Northern Santa Fe Railway Company Employee Retention
Program, and the change in control agreements between the Company and the
individual employees of the Company party thereto shall be treated as
Accrued Benefits only at such time as those benefits have been earned by
the participant by reason of a termination of employment giving rise to
severance benefits eligibility.
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(II)
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The
Accrued Benefits with respect to the BNSF Railway Company Incentive
Compensation Plan for the year in which the Change of Control occurs shall
be the amount determined by the Company prior to the Change of Control to
be the aggregate amount that would be payable under such plan based on the
performance through the period immediately prior to the Change of Control.
Accrued Benefits with respect to the BNSF Railway Company Incentive
Compensation Plan shall not include amounts earned with respect to
performance periods ending in any calendar year following the calendar
year in which the Change of Control occurs.
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If, after
a Change of Control has occurred, the Trustee determines that the Company has
failed to satisfy its obligations under the provisions of Sections (a) or (b)
above, the Trustee will make a written demand on the Responsible Employer or
Responsible Employers to provide funds in an amount determined by the Trustee to
be sufficient to pay all Accrued Benefits payable (whether currently or on a
deferred basis) under such Plan or Plans. If, after a Change of Control, the
Trustee shall determine that Accrued Benefits under one or more Plans which are
not payable from assets of an Equitable Share under the Trust are not being paid
to Participants and beneficiaries in the proper amounts and in a timely manner,
the Trustee may in its discretion demand in writing that the Responsible
Employer or Responsible Employers deliver to the Trustee assets sufficient to
pay all Accrued Benefits payable (whether currently or on a deferred basis)
under such Plan or Plans. The Responsible Employer or Responsible Employers
shall transfer such funds or other assets acceptable to the Trustee, within 30
days from the time the written demand is mailed.
4.3 Notwithstanding
anything herein to the contrary, no amount or property of any kind shall be
transferred or delivered by the Company or any Responsible Employer to the
Trustee (and the Trustee shall have no right to demand, and shall not accept,
the same) to the extent that such transfer or delivery would result in a
property transfer taxable under Section 83 of the Code pursuant to Section
409A(b)(3) of the Code. To the extent any transfer or delivery
cannot be made when otherwise due because of the foregoing sentence, such
transfer or delivery shall instead be made on the first date subsequent to the
original due date on which it may be made without it being treated
as a property transfer under Section 83 of the Code pursuant to
Section 409A(b)(3) of the Code.
ARTICLE 5:
Payments from
the Trust.
5.1
The Company shall, from time to time, furnish the Trustee with such written
information regarding the Participants and beneficiaries under the Plans
(including updated mailing addresses) and the amount and/or method of
determination of benefits under the Plans (hereinafter referred to as
"Participant Data") as the Company deems relevant or as the Trustee shall
request in writing. The Company shall, after a Change of Control, furnish the
Trustee with such Participant Data and other information as the Trustee may from
time to time request within thirty (30) days of such request. The Company will,
from time to time, but not less frequently than annually, update Participant
Data with respect to all Plans.
5.2
Prior to a Change of Control, the Trustee, at the direction of the Company,
shall make payments to Participants and beneficiaries or to any disbursing agent
designated by the Company (including the Company itself) in such manner and in
such amounts as the Company shall direct, to the extent funds are available in
the Equitable Share (s) of the applicable Plan or Plans. After a Change of
Control and notwithstanding any other provisions of this Agreement, the Trustee
shall, without direction from the Company, to the extent funds are available in
the corresponding Equitable Share(s) of such Plan or Plans, make payments to any
disbursing agent previously retained by the Company for such purpose or, in the
Trustee's sole discretion, directly to Plan Participants and beneficiaries in
such manner and in such amounts as the Trustee shall determine they are entitled
to be paid under the Plans based on the most recent Participant Data furnished
to the Trustee by the Company and any supplemental information furnished to the
Trustee by a Participant or beneficiary upon which the Trustee may reasonably
rely in making such determination and based upon the terms of the Plans,
including any amendments thereto, as in effect on the date of such Change of
Control to the extent that copies of such Plans and amendments were received by
the Trustee prior to the date of such Change of Control.
5.3
After a Change of Control, in the event the Internal Revenue Service issues a
notice of deficiency to any Participant and/or beneficiary of a Plan stating
that such Participant and/or beneficiary is required to include as income
benefits provided under a Plan by reason of the Plan’s failure to comply with
section 409A of the Code and applicable guidance issued thereunder (“Section
409A”), then such benefits will be distributed from the Trust, but only to the
extent of the lesser of the amount of the required inclusion or the amount, if
any, allocated to those benefits under the Benefits Account. The
Trustee, upon presentation of a copy of such notice and written direction from
the Participant and/or beneficiary, shall distribute such amount to such
Participant and/or beneficiary. The Trustee shall not be liable in
any way for any payment made pursuant to any such written direction, including,
without limitation, for any such inclusion of such amount in any Participant's
or beneficiary's taxable gross income. Any benefit to which such
Participant and/or beneficiary subsequently becomes entitled shall be offset by
the actuarial equivalent of the amount previously distributed pursuant to the
preceding provisions of this Section 5.3.
5.4
Payments to Participants and beneficiaries pursuant to Sections 5.2 and 5.3 of
this Article 5 shall be made by the Trustee to the extent that funds in the
relevant Equitable Share(s) are sufficient to allow such payments. In any month
in which the Trustee determines that the Equitable Share of one or more Plans in
the Benefit Account does not have sufficient funds to provide for the current
payment of all amounts otherwise payable to Participants and beneficiaries in
such month under a Plan or Plans, the amount otherwise currently payable by the
Trust to each such Participant or beneficiary under such Plan or Plans during
such month shall be reduced by a fraction, the numerator of which is the amount
of funds then available in the Equitable Share(s) of such Plan or Plans and the
denominator of which is the total of the benefits paid prior to such reduction
during such month to all Participants and beneficiaries under such Plan or
Plans. In the event that the Trustee shall at any time determine that all
liabilities to Participants and beneficiaries, whether present or deferred,
fixed or contingent, under any Plan or Plans have been satisfied in full, and at
such time there are assets remaining in the Equitable Share or Equitable Shares
allocated to such Plan or Plans, the Trustee shall allocate such remaining
assets among the Equitable Shares of any or all of the remaining Plans in such
manner as the Trustee deems appropriate, taking into account the liabilities
outstanding under each such other Plan and the funding level of each such other
Equitable Share. In any event, the Trustee shall have no duty to make any
benefit payment out of the assets of the Trust to any Participant or beneficiary
in excess of the aggregate benefits to which such Participant or beneficiary is
entitled under any Plan or Plans.
ARTICLE 6:
Management of
Trust Assets.
6.1
Prior to a Change of Control, the Trust assets shall be held, invested and
reinvested by the Trustee as designated by the written direction of the Company
or of any Investment Manager appointed by the Company to manage all or a portion
of the assets of the Trust, with respect to those assets as to which the Company
has notified the Trustee that such Investment Manager has been granted
investment authority. The Trustee shall not be under any duty, or have any
right, to question any such directions of the Company or any Investment Manager
or to review any securities or other property held pursuant to such direction,
or to make any suggestions to the Company or any Investment Manager in
connection therewith; and the Trustee shall as promptly as practicable comply
with any directions given by the Company hereunder or such Investment Manager.
In exercising the powers of the Company under this Section 6.1 of Article 6 the
Company shall act by its Corporate Treasurer or his written designees, each of
whom is fully authorized to exercise such powers. The Trustee may, and shall,
follow the written directions signed by said Corporate Treasurer or such
designees.
6.2
In the absence of written direction of the Company, the Trustee shall invest the
assets as if a Change of Control had occurred as provided in Section 6.3 of this
Article 6 and Article 9.
6.3
After a Change of Control, the Trustee shall have exclusive authority and
discretion to manage and control the Trust assets and may employ Investment
Managers including affiliates of the Trustee to manage the investment of the
Trust assets. Pursuant to such authority and discretion, the Trustee may
exercise, from time to time and at any time, the power:
(a)
To invest and reinvest the assets of the Trust, without distinction between
principal and income, in shares of stock (whether common or preferred) or other
evidences of ownership; shares of any registered investment company or mutual
fund for which an Investment Manager or any affiliate of an Investment Manager
or the Trustee or any affiliate of the Trustee, provides, for compensation,
custodial, advisory, or other services; bonds; debentures; notes or other
evidences of indebtedness, unsecured or secured by mortgages on real or personal
property wherever situated (including any part interest in a bond and mortgage
or note and mortgage whether insured or uninsured) and other property, including
without limitation shares in any collective investment fund maintained by the
Trustee, or part interest in property, real or personal, foreign or domestic,
and in order to reduce the rate of interest rate fluctuations, contracts, as
either buyer or seller, for the future delivery of United States Treasury
securities and comparable Federal Government-backed securities and life
insurance contracts as provided by Section 8 of this agreement; provided,
however, that no portion of the assets of the Trust may be directly invested in
common or preferred stock, or evidences of indebtedness, of the Company or any
entity controlled, controlling, or under common control with the
Company;
(b)
To sell, convey, redeem, exchange, grant options for the purchase or exchange
of, or otherwise dispose of, any real or personal property, at public or private
sale, for cash or upon credit, with or without security, without obligation on
the part of any person dealing with the Trustee to see to the application of the
proceeds of or to inquire into the validity, expediency or propriety of any such
disposition;
(c)
To exercise, personally or by general or limited proxy, the right to vote any
shares of stock, bonds or other securities held in the Trust; to delegate
discretionary voting power to trustees of a voting trust for any period of time;
and to exercise, personally or by power of attorney, any other rights
appurtenant to any securities or other property of the Trust;
(d)
To join
in or oppose any reorganization, recapitalization, consolidation, merger or
liquidation, or any plan therefor, or any lease, mortgage or sale of
the property, of any
organization the securities of which are held in the Trust; to pay from the
assets of the Trust any assessments, charges or compensation specified in any
plan of reorganization, recapitalization, consolidation, merger or liquidation;
to deposit any property with any committee or depositary; and to retain any
property allotted to the Trust in any reorganization, recapitalization,
consolidation, merger or liquidation;
(e)
To exercise or sell any conversion or subscription or other rights appurtenant
to any stock, security or other property held in the Trust;
(f)
To borrow from any lender (including the Trustee in its individual capacity)
money, in any amount and upon any reasonable terms and conditions, for purposes
of this Agreement, and to pledge or mortgage any property held in the Trust to
secure the repayment of any such loan;
(g)
To compromise, settle or arbitrate any claim, debt, or obligation of or against
the Trust; to enforce or abstain from enforcing any right, claim, debt or
obligation (subject to the provisions of Section 9.3 of Article 9); and to
abandon any property determined by it to be worthless;
(h)
To make loans of securities held in the Trust to registered brokers and dealers
upon such terns and conditions as are permitted by applicable law and
regulations, and in each instance to permit the securities so lent to be
registered in the name of the borrower or a nominee of the borrower, provided
that in each instance the loan is adequately secured and neither the borrower
nor any affiliate of the borrower has discretionary authority or control with
respect to the assets of the Trust involved in the transaction or renders
investment advice with respect to those assets;
(i)
To invest and reinvest any property in the Trust in any other form or type of
investment not specifically mentioned in this section; and
(j)
To open and maintain any bank account or accounts, in the name of the Trustee in
any bank or banks, including, if the Trustee is a bank, the Trustee's own
banking department.
ARTICLE
7:
Administrative
Powers.
The Trustee shall have and in its sole
and absolute discretion may exercise from time to time and at any time the
following administrative powers and authority with respect to the
Trust:
7.1
To hold property of the Trust in its own name or in the name of a nominee or
nominees, without disclosure of the trust, or in bearer form so that it will
pass by delivery, but no such holding shall relieve the Trustee of its
responsibility for the safe custody and disposition of the Trust in accordance
with the provisions of this Agreement; the Trustee's books and records shall at
all times show that such property is part of the Trust; and the Trustee shall be
absolutely liable for any loss occasioned by the acts of its nominee or nominees
with respect to securities registered in the name of the nominee or
nominees;
7.2
To
organize and incorporate under the laws of any state it may deem advisable one
or more corporations (and to acquire an interest in any such corporation that it
may have organized and incorporated) for the purpose of acquiring and holding
title to any property, interests or rights that the Trustee is authorized to
acquire under Article 6 hereof;
7.3
To employ in the management of the Trust and to rely on advice given by suitable
agents, without liability for any loss occasioned by any such agents selected by
the Trustee with the care, skill, prudence and diligence under the circumstances
then prevailing that a prudent person acting in a like capacity and familiar
with such matters would use in the conduct of an enterprise of a like character
and with like aims;
7.4
To make, execute and deliver, as Trustee, any deeds, conveyances, leases,
mortgages, contracts, waivers or other instruments in writing that the Trustee
may deem necessary
or
desirable in the exercise of its powers under this Agreement; and
7.5
To do all other acts that the Trustee may deem necessary or proper to carry out
any of the powers set forth in this Agreement or otherwise in the best interests
of the Trust.
7.6
Notwithstanding any powers granted to the Trustee pursuant to this Agreement or
applicable law, the Trustee shall not have any power that could give the Trust
the objective of carrying on a business and dividing the gains therefrom, within
the meaning of section 301.7701-2 of the Procedure and Administrative
Regulations promulgated pursuant to the Code.
ARTICLE
8: Insurance and Annuity Contracts.
8.1
The Trustee, upon written direction of the Company prior to a Change of Control,
shall pay from the Benefit Account such sums to such insurance company or
companies as the Company may direct for the purpose of procuring participating
or nonparticipating insurance and/or annuity contracts for the Plans
(hereinafter referred to as "Contracts"). The Company shall prepare or cause to
be prepared in such form as it shall prescribe, the application for any Contract
to be applied for. The Trustee shall receive and hold in the Trust, subject to
the provisions hereinafter set forth in this Article 8, all Contracts so
obtained.
8.2
The Trustee shall be the complete and absolute owner of Contracts held in the
trust and, upon written direction of the Company prior to a Change of Control,
shall have power, without the consent of any other person, to exercise any and
all of the rights, options or privileges that belong to the absolute owner of
any Contract held in the Trust or that are granted by the terms of any such
Contract or by the terms of this Agreement. Prior to a Change of Control, the
Trustee shall have no discretion with respect to the exercise of any of the
foregoing powers or to take any other action permitted by any Contract held in
the Trust, but shall exercise such powers or take such action only upon the
written direction of the Company and the Trustee shall have no duty to exercise
any of such powers or to take any such action unless and until it shall have
received such direction. After a Change of Control, the Trustee shall exercise,
without directions from the Company, any and all of the rights, options or
privileges that belong to the absolute owner of any Contract held in the Trust
or that are granted by the terms of any such Contract or by the terms of this
Agreement. The Trustee, upon the written direction of the Company prior to a
Change of Control, shall deliver any Contract held in the Trust to such person
or persons as may be specified in the direction.
8.3
The Trustee shall hold in the Trust the proceeds of any sale, assignment or
surrender of any Contract held in the Trust and any and all dividends and other
payments of any kind received in respect of any Contract held in the
Trust.
8.4
Upon the written direction of the Company prior to a Change of Control, the
Trustee shall pay from the Benefit Account premiums, assessments, dues, charges
and interest, if any, upon any Contract held in the Trust. The Trustee shall
have no duty to make any such payment unless and until it shall have received
such direction. After a Change of Control, the Trustee shall pay from the
Benefit Account premiums, assessments, dues, charges and interest, if any, upon
any Contract held in the Trust, without direction from the Company.
8.5
No insurance company that may issue any Contract or Contracts held in the Trust
shall be deemed to be a party to this Agreement for any purpose or to be
responsible in any way for the validity of this Agreement or to have any
liability under this Agreement other than as stated in each Contract that it may
issue. Any insurance company may deal with the Trustee as sole owner of any
Contract issued by it and held in the Trust, without inquiry as to the authority
of the Trustee to act and may accept and rely upon any written notice,
instruction, direction, certificate or other communication from the Trustee
believed by it to be genuine and to be signed by an officer of the Trustee and
shall incur no liability or responsibility for so doing. Any sums paid out by
any insurance company under any of the terms of a Contract issued by it and held
in the Trust either to the Trustee, or, in accordance with the direction of the
Trustee, to any other person or persons designated as payees in such Contract
shall be a full and complete discharge of the liability to pay such sums, and
the insurance company shall have no obligation to look to the disposition of any
sums so paid. No insurance company shall be required to look into the terms of
this Agreement, to question any action of the Trustee or to see that any action
of the Trustee is authorized by the terms of this Agreement.
8.6
Anything contained herein to the contrary notwithstanding, neither the Company
nor the Trustee shall be liable for the refusal of any insurance company to
issue or change any Contract or Contracts or to take any other action requested
by the Trustee; nor for the form, genuineness, validity, sufficiency or effect
of any Contract or Contracts held in the Trust; nor for the act of any person or
persons that may render any such Contract or Contracts null and void; nor for
the failure of any insurance company to pay the proceeds and avails of any such
Contract or Contracts as and when the same shall become due and payable; nor for
any delay in payment resulting from any provision contained in any such Contract
or Contracts; nor for the fact that for any reason whatsoever (other than their
own negligence or willful misconduct) any Contract or Contracts shall lapse or
otherwise become uncollectible.
ARTICLE 9:
Trustee's
Powers after Change of Control.
9.1
After a Change of Control, the Trustee shall exercise for the sole benefit of
the Plan Participants and their beneficiaries any of the powers set forth in
Section 5.2 of Article 5, Section 6.3 of Article 6 and Sections 8.2 through 8.6
of Article 8 without direction from the Company including the power to negotiate
for and purchase Contracts the rates of return and maturity dates of
which may reasonably be
expected to yield assets of the Trust sufficient to discharge any or all of
the obligations of
the Company and its
Affiliates under the Plans. After the occurrence of
a Change of Control,
the Trustee shall have the power to settle all Trust liabilities with respect to
any or all Plan Participants and beneficiaries with respect to any periodic
payment obligation by the purchase and distribution of an annuity contract of an
insurance company providing for such periodic payment.
9.2
Within thirty (30) days after a Change of Control, the Company shall notify all
Participants and beneficiaries who are entitled to receive benefits under the
Plans in writing (1) with respect to each Plan for which benefits are payable
from assets of an Equitable Share under the Trust, that the Trustee shall
continue to pay such benefits from the assets of such Equitable Share after the
Change of Control and (2) with respect to any Plan for which benefits are not
payable from assets of an Equitable Share under the Trust, that the Trustee is
available to aid the Participants and beneficiaries entitled to benefits under
such Plan in pursuing any claims they may have against the Company or an
Affiliate under the terms of such Plan. The Company shall provide such notice by
using the same method as required by the Department of Labor pursuant to 29 C.F
.R. 5 2520.1 04b-l(b)( 1) as now in effect without regard to subsequent
amendments. If the Company fails to do so, to the extent that the Trustee has
actual knowledge of any such failure, the Trustee shall send such notice by
certified mail return receipt requested to all unnotified Participants and/or
the beneficiaries described above to their last address provided to the Trustee
by the Company prior to a Change of Control. Alternatively, the Trustee may, at
its option, provide such notification by placing an advertisement in one
newspaper of general circulation in each of the ten locations in which the
largest number of employees of the Company and its Affiliates are located as
communicated by the Company to the Trustee prior to a Change of
Control.
9.3
(a) If, after a Change of Control, a Participant or beneficiary notifies the
Trustee that a Responsible Employer (or insurance company, contract
administrator or any other party acting on the Responsible Employer's behalf, if
applicable) has refused to pay a claim under any Plan the benefits under which
are not payable from assets of an Equitable Share under the Trust, then, unless
the Trustee shall determine that the claim has no basis in law and fact, the
Trustee:
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(1)
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will
promptly attempt to negotiate with the Responsible Employer to obtain
payment, settlement, or other disposition of the claim, subject to the
consent of the Participant or beneficiary.
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(2)
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will,
if negotiations fail within ninety (90) days to result in a payment,
settlement or other disposition agreeable to the Participant or
beneficiary (hereinafter referred to as the "Plaintiff"), upon the receipt
of written authorization from the Participant or beneficiary in
substantially the form attached as Exhibit A hereto, institute and
maintain legal proceedings (hereinafter referred to as the "Litigation")
against the Responsible Employer or other appropriate person or entity to
recover on the claim on behalf of the Plaintiff; and (3) may, subject to
the consent of the Plaintiff, settle or discontinue the Litigation.
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If a
benefit subject to this Section 9.3, constitutes Deferred Compensation,
nothing in this Section
9.3 shall relieve the Participant or beneficiary for satisfying the requirements
of Treas. Reg. §1.409A-3(g) (related to disputed payments and refusals to
pay). “Deferred Compensation” means payments or benefits that would
be considered to be provided under a nonqualified deferred compensation plan as
that term is defined in Treas. Reg. §1.409A-1.
(b)
The
Trustee shall direct the course of the Litigation and shall keep the Plaintiff
informed of the progress of the Litigation as the Trustee deems appropriate, but
no less frequently than quarterly. If, during the
Litigation,
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(1)
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the
Plaintiff directs in writing that the Litigation on behalf of the
Plaintiff be settled or discontinued, the Trustee shall take all
appropriate action to follow such direction, provided that the written
direction specifies the terms and conditions of the settlement or
discontinuance, and further provided that the Plaintiff, if requested by
the Trustee, shall execute and deliver to the Trustee a document in a form
acceptable to the Trustee releasing and holding harmless the Trustee from
any liability resulting from the Trustee's following such direction;
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(2)
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the
Plaintiff refuses to consent to the settlement or other disposition of the
Litigation on terms recommended in writing by the Trustee or does not
agree with the Trustee's conduct of the litigation, the Trustee may
proceed in its sole and absolute discretion, to take such action as it
deems appropriate in the Litigation, including entering into settlement or
discontinuance of the Litigation, provided that the Trustee shall first
afford the Plaintiff at least fourteen (14) days' advance notice of any
decision to settle or otherwise discontinue the Litigation; further
provided, however, that the Trustee shall not be authorized to proceed in
the Litigation on behalf of the Plaintiff after (i) the Plaintiff shall
have revoked in writing the authorization of the Trustee to proceed on his
behalf (in substantially the form attached as Exhibit B hereto) and shall
have delivered such writing to the Trustee and (ii) the Plaintiff shall
have appointed his own counsel, whose fees and expenses are to be paid by
the Plaintiff and who shall appear in the Litigation on behalf of the
Plaintiff in lieu of counsel retained by the Trustee. Thereafter, the
Trustee shall have no obligation to proceed further on behalf of such
Plaintiff or to pay from the Trustee Expense Account any costs or expenses
incurred in the Litigation after the date of the delivery of such writing.
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(c)
The Trustee is empowered to utilize, at the expense of the Trust, and to charge
the Trustee Expense Account, counsel and other appropriate experts, including
nationally recognized pension or benefit consultants, actuaries and accountants
to aid the Trustee in making any determination under this Article 9 and in
determining whether to pursue or settle any Litigation, provided that, prior to
the occurrence of a Change of Control (and also excluding the period of any
Threatened Change of Control) such counsel or other experts shall be identified
in writing by the Company to the Trustee as and when the services of any such
counselor experts are to be utilized by the Trustee. The Trustee shall be fully
protected, without any independent duty of investigation, in reliance upon any
assumptions or actuarial or other determinations rendered by any pension or
benefit consulting or actuarial firm retained pursuant to this Section 9.3(c).
The Trustee shall have the discretion to determine the form and nature that any
Litigation against the Company, or other appropriate person or entity, shall
take, and the procedural rules and laws applicable to such Litigation shall
supersede any inconsistent provision in this Agreement.
9.4
After a Change of Control, the Trustee shall bill the Company directly, on a
monthly basis, for all fees and expenses described in Section 10.2. The Trustee
may commence legal action against the Company to recover any amount not paid
within 30 days of the billing date, and shall be obligated to commence such an
action if the Company's failure to pay causes a reduction in the assets of the
Trustee Expense Account below two million dollars ($2,000,000).
9.5
After a Change of Control, the Trustee shall be obligated to commence legal
action to compel a Responsible Employer to provide funds to pay benefits under
all Plans if the Trustee has issued a demand pursuant to Section 4.2 of Article
4 and the Responsible Employer has failed to transfer the demanded funds in a
timely fashion under Section 4.2 of Article 4. The Trustee’s responsibility to
commence legal action under this Section 9.5 is only required if the Expense
Fund has adequate assets in the sole and absolute opinion of the
Trustee.
9.6
After a Change of Control, the Trustee shall appoint a nationally recognized
pension or benefit consulting or actuarial firm, which shall be identified in
writing by the Company to the Trustee prior to the occurrence of a Change of
Control (or, if earlier, a Threatened Change of Control related to such Change
of Control), to determine any assumptions and make any actuarial or other
determinations necessary or appropriate to any determinations required to be
made by the Trustee under this Agreement, including, without limitation, under
Sections 4.2, 5.2, 5.3, 5.4 and 9.3 hereof, and the Trustee shall be fully
protected in acting under this Agreement in reliance upon any such assumptions
or determinations rendered by such firm without any duty by the Trustee to make
any determination or investigation of its own with respect thereto. Moreover,
after a Change of Control, in making any determination under this Agreement, the
Trustee shall be fully protected in reliance upon Participant Data (as defined
in Section 5 hereof) furnished to the Trustee by the Company and any
supplemental information furnished to the Trustee by a Participant or
beneficiary, as provided under Section 5.2 hereof, and upon the terms of the
Plans, including any amendments thereto, as in effect on the date of such Change
of Control to the extent that copies of such Plans and amendments were received
by the Trustee prior to the date of such Change of Control. If no nationally
recognized pension or benefit consulting firm was designated by the Company
prior to the occurrence of a Change of Control (or, if earlier, a Threatened
Change of Control related to such Change of Control), the Trustee shall appoint
the firm or firms utilized by the Company immediately prior to the Threatened
Change of Control.
ARTICLE
10: Taxes, Expenses and Compensation of Trustee.
10.1
The Company shall pay any Federal, state, local or other taxes imposed or levied
with respect to the assets and/or income of the Trust or any part thereof under
existing or future laws, and the Company, in its discretion, or the Trustee, in
its discretion, may contest the validity or amount of any tax, assessment, claim
or demand respecting the Trust or any part thereof. The Trustee shall deduct any
taxes required to be withheld with respect to any payments made pursuant to the
Trust.
10.2
The Trustee shall be reimbursed on a monthly basis, or on such other basis as
the Trustee deems reasonable, for the fees and expenses set forth in Schedule 2
attached hereto and its reasonable expenses, including but not limited to the
retention of legal counsel (including but not limited to legal counsel and other
professionals retained by the Trustee pursuant to this Agreement and to legal
counsel retained to represent the Trustee in any action brought by the Company
or any Participant against the Trustee), accountants and actuaries and such
other professionals as the Trustee determines are necessary or appropriate to
enable it to perform its services as Trustee. Retention of outside counsel or
other professionals by the Trustee prior to a Change of Control or Threatened
Change of Control shall be subject to the prior approval of the Company. Such
approval shall not be unreasonably withheld.
10.3
Notwithstanding the foregoing provisions of this Article 10, to the extent that
the Company does not timely pay or reimburse any amounts payable or reimbursable
by the Company pursuant to this Article 10, such amounts shall be paid or
reimbursed from the Trustee Expense Account, and if the Trustee Expense Account
is insufficient, then from the Benefit Account.
ARTICLE
11: General Duties of Trustee.
11.1
Subject to Article 17 hereof, the Trustee shall discharge its duties under this
Agreement solely in the interest of the Participants in the Plans and their
beneficiaries and (1) for the exclusive purpose of providing benefits to such
Participants and their beneficiaries and defraying reasonable expenses of
administering the Trust; and (2) with the care, skill, prudence and diligence
under the circumstances then prevailing that a prudent person acting in a like
capacity and familiar with such matters would use in the conduct of an
enterprise of a like character and with like
aims.
11.2
(a) The Trustee is not responsible for ascertaining whether a Threatened Change
of Control has occurred or whether a Threatened Change of Control Period exists.
The Company
will
notify the Trustee of the commencement and/or termination of a Threatened Change
of Control
Period.
(b) The
Executive Vice Law or other chief legal officer of the Company shall have the
specific authority to determine whether a Threatened Change of Control or Change
of Control has transpired and shall be required to give the Trustee notice of a
Change of Control or a Threatened Change of Control. The Trustee shall be
entitled to rely upon such notice. If the Trustee receives notice of a
Threatened Change of Control or Change of Control from any other person, the
Trustee shall be responsible for ascertaining whether a Threatened Change of
Control or Change of Control has occurred. In so ascertaining, the Trustee shall
rely upon publicly available information and any other information available to
the Trustee.
11.3
The Trustee may consult with counsel, who may be counsel for the
Company
prior to
a Change of Control or for the Trustee in its individual capacity, and shall not
be deemed
imprudent
by reason of its taking or refraining from taking any action in accordance with
the
opinion
of counsel.
11.4
The Company may designate in writing, prior to the occurrence of a Change of
Control (or, if earlier, a Threatened Change of Control related to such Change
of Control), counsel to be retained by the Trustee after a Change of Control to
enforce the rights of Participants and beneficiaries to benefits under the
Plans. If
the
designated counsel declines to provide representation, or if the Trustee so
elects for any reason or no reason, the Trustee may dismiss the designated law
firm and engage another qualified law firm for this purpose; however, the law
firm so engaged may not be the same law firm which represents the Trustee with
respect to its responsibilities as Trustee under this
Agreement. The
Company may not dismiss
or engage such counsel or cause the Trustee to engage or dismiss such counsel
after a Change of Control.
ARTICLE
12: Indemnification.
12.1
The Company agrees to indemnify and hold the Trustee harmless from and against
any liability (including attorneys' fees and expenses) that the Trustee may
incur unless arising from the Trustee’s negligence, willful misconduct, or
breach of this Agreement. The Trustee shall not be required to give
any bond or any other security for the faithful performance of its duties under
this Agreement, except as required by law. The Trustee agrees to
indemnify and hold the Company harmless from and against any liability
(including attorneys’ fees and expenses) that the Company may incur arising from
the Trustee’s negligence, willful misconduct or breach of this
Agreement.
12.2
Any amount payable to the Trustee under this Agreement and not previously paid
by the Company shall be paid by the Company promptly upon written demand
therefor by the Trustee or, if the Company fails to make payment within 15 days
after such written demand, from the Trustee Expense Account, and if the Trustee
Expense Account is insufficient then from the Benefit Account. In the event that
payment is made hereunder to the Trustee from the assets of the Trust, the
Trustee shall promptly notify the Company in writing of the amount of such
payment. The Company agrees that, upon receipt of such notice, it will deliver
to the Trustee to be held in the Trust an amount in cash (or in marketable
securities or in some combination thereof) equal to any payments made from the
Trust to the Trustee pursuant to this Article 12. The failure of the Company to
transfer any such amount shall not in any way impair the Trustee's right to
indemnification, reimbursement and payment pursuant to this Article 12. The
provisions of this Article 12 shall survive the termination of this Trust
Agreement.
ARTICLE 13: No
Duty to Advance Funds.
Excluding
any liability arising under Section 12.1 of Article 12, nothing contained in
this Agreement shall require the Trustee to risk or expend its own funds in the
performance of the duties as the trustee hereunder. In the acceptance
and performance of its duties hereunder, the Trustee acts solely as trustee and
not in its individual capacity, and all persons, other than the Company, having
any claim against the Trustee related to this Agreement or the actions or
agreements of the Trustee contemplated hereby shall look solely to the assets of
the Trust for the payment or satisfaction thereof except as required by law or
to the extent that the Trustee has engaged in willful misconduct or negligence,
or the Trustee has breached its obligations under this
Agreement. Without limiting the foregoing, and subject to the
provisions of Section 12.1 of Article 12, the Trustee shall not be liable in its
individual capacity for the payment of the fees and expenses of counsel and
other professionals retained by the Trustee in accordance with this
Agreement.
ARTICLE
14: Accounts.
14.1
(a) The Trustee shall keep accurate and detailed accounts of all its receipts,
investments and disbursements under this Agreement on a calendar year basis.
Such person or persons as the Company shall designate shall be allowed to
inspect the books of account relating to the Trust upon request at any
reasonable time during the business hours of the Trustee.
(b) Within 120 days after (1) the close of each calendar year, (2)
the date of the Trustee's resignation or removal as provided in Article 16
hereof or (3) the date of termination of the Trust as provided in Article 17
hereof, the Trustee shall transmit to the Company, and certify the accuracy of,
a written statement of the assets and liabilities of the Trust, showing the
current value of each asset at that date, and a written account of all the
Trustee's transactions relating to the Trust during the period from the last
previous accounting to the close of that year.
(c) Unless
the Company shall have filed with the Trustee written exceptions or objections
to any such statement and account, within 120 days after receipt thereof, the
Company shall be deemed to have approved such statement and account; and in such
case or upon the written approval by the Company of any such statement and
account, the Trustee shall be forever released and discharged with respect to
all matters and things contained in such statement and account as though it had
been settled by decree of a court of competent jurisdiction in an action or
proceeding to which the Company and all persons having any beneficial interest
in the Trust were parties.
14.2
The Trustee shall determine the fair market value of the Trust, the Benefit
Account, the Trustee Expense Account and, if so directed by the Company, each
Equitable Share as of each December 31, or more frequently (but not more often
than monthly) if it so desires. If there is a diminution in value of the Trustee
Expense Account below (1) five hundred thousand dollars ($500,000) prior to the
commencement or after the end of a Threatened Change of Control Period, or (2)
two million dollars ($2,000,000) during a Threatened Change of Control Period or
upon the occurrence of a Change of Control, but only if the Trustee has demanded
one million five hundred thousand dollars ($1,500,000) pursuant to Section 3.2
of Article 3 hereof, the Company shall provide the Trustee with sufficient funds
to make up for any such diminution in value within 15 days after written demand
by the Trustee for such payment. At any time other than a Threatened Change of
Control Period or
after a Change of
Control, if the Company fails to comply with the Trustee's written demand within
15 days to provide the Trustee with sufficient funds to make up for any
diminution in value below five hundred thousand dollars ($500,000) in the
Trustee Expense Account, the Trustee may resign as Trustee upon one hundred
twenty (120) days' written notice in accordance with Section 16.1 of Article 16
hereof. In the event that the Trustee Expense Account falls below two
million dollars ($2,000,000) during a Threatened Change of Control Period or on
or after the occurrence of a Change of Control, and the Company fails to comply
with the Trustee's written demand to make up for any such diminution in value
below $2,000,000 within 15 days of receipt of such written demand, the Trustee
has the right to resign immediately as trustee under this Agreement, and
immediately upon such resignation shall have no further duties
hereunder. The Trustee will have no duty to find or secure the
appointment of a successor trustee upon its resignation pursuant to this
Section, nor shall its resignation or the termination of any further duties be
contingent upon the appointment and qualification of a successor
trustee.
14.3
Nothing contained in this Agreement or in the Plans shall deprive the Trustee of
the right to have a judicial settlement of its accounts. In any proceeding for a
judicial settlement of the Trustee's accounts or for instructions in connection
with the Trust, the only other necessary
party
thereto in addition to the Trustee shall be the Company. If the
Trustee so elects, it may bring in as a party or parties defendant any other
person or persons. No person interested in the Trust, other than the Company,
shall have a right to compel an accounting, judicial or otherwise, by the
Trustee, and each such person shall be bound by all accountings by the Trustee
to the Company, as herein provided, as if the account had been settled by decree
of a court of competent jurisdiction in an action or proceeding to which such
person was a party.
ARTICLE
15: Administration of the Plans; Communications.
15.1
The Company shall administer the plans as provided therein and subject to
Section 5.2 of Article 5, Section 6.3 of Article 6, and of Article 9 hereof,
and, subject to any other delegation by the Company and express written
assumption by the Trustee of the duties of administering the Plans, the Trustee
shall not be responsible in any respect for administering the Plans. The Trustee
shall not be responsible for the adequacy of the Trust to meet and discharge all
payments and liabilities under the Plans. The Trustee shall be fully protected
in relying upon any written notice, instruction, direction or other
communication signed by an officer of the Company designated pursuant to this
Agreement. The Company, from time to time, shall furnish the Trustee with the
names and specimen signatures of the designated officers of the Company and
shall promptly notify the Trustee of the termination of office of any designated
officer of the Company and the appointment of a successor thereto. Until
notified to the contrary, the Trustee shall be fully protected in relying upon
the most recent list of the designated officers of the Company furnished to it
by the Company.
15.2
Any action required by any provision of this Agreement to be taken by the Board
shall be evidenced by a resolution of such Board certified to the Trustee by the
Secretary or an Assistant Secretary of the Company under its corporate seal, and
the Trustee shall be fully protected in relying upon any resolution so certified
to it. Unless other evidence with respect thereto has been specifically
prescribed in this Agreement, any other action of the Company under any
provision of this Agreement, including any approval of or exceptions to the
Trustee's accounts, shall be evidenced by a certificate signed by an officer of
the Company, and the Trustee shall be fully protected in relying upon such
certificate. The Trustee may accept a certificate signed by an officer of the
Company as proof of any fact or matter that it deems necessary or desirable to
have established in the administration of the Trust (unless other evidence of
such fact or matter is expressly prescribed herein), and the Trustee shall be
fully protected in relying upon the statements in the certificate.
15.3
The Trustee shall be entitled conclusively to rely upon any written notice,
instruction, direction, certificate or other communication believed by it to be
genuine and to be signed by the proper person or
persons.
15.4
All notices to the Trustee hereunder shall be in writing and, until written
notice is given to the contrary, shall be sent to the Trustee at its office at
One West Fourth Street, NC6251, Winston-Salem, North Carolina 27150, Attention:
Executive Services, Telecopy (336) 747-8874; communications to the Company shall
be sent to it at its office at 2500 Lou Menk Drive, Fort Worth, Texas
76131-2828, Attention: Vice President-Human Resources and Medical, fax (817)
352-7326.
ARTlCLE
16: Resignation or Removal of Trustee.
16.1
The Trustee may resign at any time, other than during a Threatened Change of
Control Period or after a Change of Control, upon one hundred twenty (120) days'
written notice to the Company or such shorter period as is acceptable to the
Company (hereinafter referred to as
the
"Resignation Period") and immediately after the Resignation Period shall have no
further duties hereunder. The Trustee will have no duty to find or
secure the appointment of a Successor Trustee upon its resignation pursuant to
this Section, nor shall the Trustee have any liability to any person in
connection with the appointment, or failure to secure the appointment, of any
such Successor Trustee, nor shall its resignation or its termination of any
further duties be contingent upon the appointment and qualification of a
Successor Trustee. Promptly after receipt of such notice, the Company
shall appoint a Successor Trustee, such trustee to become trustee under this
Agreement upon its acceptance of this Trust.
16.2
During a Threatened Change of Control Period or after a Change of Control, the
Trustee may resign only under one of the following circumstances:
(a)
A final decision of a court of competent jurisdiction removing the Trustee by
reason of such court's determination of the existence of a conflict of interest
which prevents the Trustee from properly performing its duties hereunder. The
Trustee agrees to use its best efforts to avoid any such conflict. For the
purpose of this Agreement, the decision of a court shall not be deemed to be
final unless the decision is not appealable, or no appeal has been taken from
the decision and the time for an appeal has expired. Notwithstanding the
foregoing provisions of this subsection (a), such resignation shall not be
effective until the Trustee or the Company has obtained the agreement of a bank
to act as Successor Trustee which bank (1) is among the 100 largest banks in the
United States, as measured by deposits, and (2) has a rating of "B/C" or greater
based upon the most current rating from Keefe, Bruyett & Woods ("KB&W")
or its successor, or if KB&W or its successor should cease to publish
ratings, then a short-term debt rating from Moody's of "P-1," or greater, or
from Standard and Poor's of "A-1." In any event the Trustee shall
continue to be custodian of the Trust until the new trustee is in place, and the
Trustee shall be entitled to expenses and fees through the later of the
effective date of its resignation as Trustee or the end of its custodianship of
the Trust assets.
(b)
The Trustee has exhausted all of its legal remedies and has been unsuccessful in
such litigation to require the Company to remit to the Trustee such amounts as
are billed pursuant to Section 9.4 of Article 9 hereof and the assets of the
Trust have been exhausted. In such event, the Trustee shall have the right to
resign immediately as Trustee, and immediately upon such resignation shall have
no further duties hereunder. The Trustee will have no duty to find or secure the
appointment of a Successor Trustee upon its resignation pursuant to this Section
(b), nor shall its resignation or the termination of any further duties be
contingent upon the appointment and qualification of a Successor
Trustee.
(c)
The Trustee has made a good faith determination that all liabilities to
Participants and beneficiaries under the Plans, whether present or deferred,
fixed or contingent, have been satisfied in full.
(d)
Notwithstanding the foregoing provisions of this Section 16.2, in addition, the
Trustee may resign under the circumstances described in Sections 3.1 and 14.2
hereof. Immediately upon the resignation of the Trustee under the circumstances
described in either Section 3.1 or 14.2 hereof, the Company shall have the sole
right and power to select and appoint a Successor Trustee hereunder, and, if so
appointed, such Successor Trustee shall become trustee under this Agreement upon
its acceptance of this Trust. In the event of the Trustee's resignation in
accordance with the preceding sentence, the Trustee shall have no duty to find
or secure the appointment of a Successor Trustee, nor shall the Trustee have any
liability to any person in connection with the appointment, or failure to secure
the appointment of any such Successor Trustee, and following such resignation by
the Trustee, the Trustee shall have no further duties or obligations under this
Agreement, except that, prior to the earlier to occur of (i) the date that a
Successor Trustee appointed by the Company becomes trustee under this Agreement
and (ii) sixty (60) days following the date of such resignation by the Trustee,
the Trustee's sole duty with respect to this Agreement shall be to preserve the
principal of the assets held in the Benefit Account and the Trustee Expense
Account as of the date of such resignation by the Trustee until the Successor
Trustee is appointed.
16.3
Prior to a Change of Control, and except during a Threatened Change of Control,
the Company may remove the Trustee upon 30 days written notice to the Trustee,
or upon shorter notice if acceptable to the Trustee. Such removal shall become
effective, however only upon the occurrence of all of the following
events:
(a)
The appointment by the Company of a Successor Trustee; and
(b)
The acceptance of the Trust by the Successor Trustee; and
(c)
The delivery of the Trust assets to the Successor Trustee.
16.4
If the Trustee resigns in accordance with Section 16.2, the Company will use
best efforts to appoint a Successor Trustee in accordance with Section 16.2. If,
following a resignation in accordance with Section 16.2 the Company is unable to
appoint a Trustee that satisfies the requirements of Section 16.2(a)(1) and (2),
the Company shall appoint a bank that does not satisfy the requirements of
Section 16.2(a)(1) and/or (2), or shall appoint itself, an Affiliate, or a
committee comprised of one or more officers of the Company and/or the Affiliates
as Trustee; provided that after the appointment of a Trustee that does not
satisfy the requirements of Section 16.2(a)(1) and (2) in accordance with this
sentence, the Company shall continue to use its best efforts to appoint a bank
that satisfies the requirements of Section 16.2(a)(1) and (2).
16.5
Each Successor Trustee shall have the powers and duties conferred upon the
Trustee in this Agreement, and the term "Trustee" as used in this Agreement
shall be deemed to include any Successor Trustee. Upon designation or
appointment of a Successor Trustee, the Trustee shall transfer and deliver the
assets of the Trust to the Successor Trustee, reserving such reasonable sums as
the Trustee shall deem necessary to defray its expenses in settling its
accounts, to pay any of its compensation due and unpaid and to discharge any
obligation of the Trust for which the Trustee may be liable. If the sums so
reserved are not sufficient for these purposes, the Trustee shall be entitled to
recover the amount of any deficiency from either the Company or the Successor
Trustee, or both. When the Trust shall have been transferred and delivered to
the Successor Trustee and the accounts of the Trustee have been settled as
provided in Article 14 hereof, the Trustee shall be released and discharged from
all further accountability or liability for the Trust and shall not be
responsible in any way for the further disposition of the Trust or any part
thereof.
16.6
Notwithstanding anything to the contrary, in the event it resigns or is removed,
the Trustee shall have a right to have its accounts settled as provided in
Article 14 hereof.
ARTICLE 17: Amendment of
Agreement; Termination of Trust; Termination with Respect to an Affiliate and
Transfer to Successor Trustee.
17.1
The Company expressly reserves the right at any time to amend in writing or
terminate this Agreement and the Trust created thereby to any extent that it may
deem advisable; provided, however, that (1) subsequent to a Change of Control,
no such amendment or termination may result, directly or indirectly, in the
return of any assets of the Benefit Account to the Company prior to the
satisfaction of all liabilities under the Plans to Plan Participants and
beneficiaries, (2) no amendment may be made unless the Company, in its
reasonable judgment believes that such amendment would have no material adverse
effect on the amount of benefits payable under the Trust to Participants or
their beneficiaries or that such amendment is necessary
to avoid
a greater adverse impact on the Participants or their beneficiaries, and (3) no
amendment
or
termination may be made after the date on which a Change of Control occurs which
would (i) permit the Company to withdraw any assets from the Trustee Expense
Account, (ii) directly or indirectly reduce or restrict the Trustee's rights and
duties under this Agreement, or (iii) permit the Company to remove the Trustee
following the date on which a Change of Control occurs. No amendment
shall be made without the Trustee's consent thereto in writing if, and to the
extent that the effect of such amendment is to increase the Trustee's
responsibilities hereunder, and/or reduce the Trustee's rights hereunder in any
way, including, without limitation, the Trustee's rights hereunder to require
the Company to deliver the amount of $2,000,000 upon the occurrence of a
Threatened Change of Control or a Change of Control, and/or affect in any way
the Trustee's right to resign under this Agreement. Such
proposed amendment shall
be delivered to the Trustee as a written instrument of amendment, duly executed
and acknowledged by the Company. The Company also shall deliver to
the Trustee a copy of any modifications or amendments to the
Plans. Subject to Section 17.2 hereof, the Trustee's consent shall
not be required for the termination of the Trustee Expense Account or its
removal as Trustee.
17.2
In the event the Company terminates the Trustee Expense Account, prior to the
occurrence of a Change of Control, the Trustee shall reserve such sums it deems
necessary to pay its fees and expenses, and shall distribute all remaining
assets of the Trustee Expense Account in accordance with the written directions
of the Company and the Trustee shall provide the Company with a final written
account in accordance with Article 14 hereof. The Company shall have no right to
terminate the Trustee Expense Account during a Threatened Change of Control
Period or upon or after the occurrence of a Change of Control.
17.3
This Trust shall be terminated upon the final payment of all amounts payable to
all of the Participants and beneficiaries pursuant to the Plans, and the
payments of all amounts due to the Trustee and all costs and expenses chargeable
to the Trust. Upon termination of this Trust, the Trustee shall have a right to
have its account settled as provided in Article 14 hereof. Promptly upon
termination of this Trust, and after payment of all fees, expenses and
indemnities due to or incurred by the Trustee hereunder, any remaining portion
of the assets of the Trust shall be paid to the Company.
17.4
In the event that, whether before or after a Change of Control, the Company
shall dispose of substantially all its interest in an Affiliate which is a
participating employer under one or more Plans, the Trustee shall, upon
instruction by the Company, transfer to a substantially similar irrevocable
grantor trust designated by such Affiliate or its successor a portion of the
assets of the Benefit Account equal to the portion, if any, of each Equitable
Share allocable to benefits payable in respect of the employees of such
Affiliate. In the case of any instruction received by the Trustee pursuant to
this Section 17.4 prior to a Change of Control, the Trustee may conclusively
rely on the Company's determination as to the portion of the assets of the
Benefit Account allocable to the benefits payable in respect of employees of
such Affiliate under the Plans. After the date on which a Change of Control
occurs, the Trustee shall not make any transfer pursuant to this Section 17.4
except pursuant to a determination by a nationally recognized pension or benefit
consulting or actuarial firm appointed by the Trustee as to the portion of the
Benefit Account allocable to benefits payable in respect of employees of the
former Affiliate, which determination the Trustee in its good faith judgment
determines to have been made on an independent good faith basis and on the basis
of all pertinent Participant Data furnished to the Trustee by the Company before
the occurrence of a Change of Control. Upon the making of any transfer in
accordance with this Section 17.4, the Trustee shall be released and discharged
from any and all obligations with respect to such transferred assets and with
respect to any benefits payable in respect of the employees of the former
Affiliate.
17.5
The Trust shall be terminated upon resignation of the Trustee under subsection
(b) of Section 16.2 and final payment of all amounts payable under Section 16.1
and subsection (d) of Section 16.2.
ARTICLE
18: Prohibition of Diversion.
18.1
Except as provided in Sections 2.2, 3.1, 3.2, 17.1, and 18.2 at no time prior to
the satisfaction of all liabilities with respect to Participants and their
beneficiaries under this Trust shall any part of the corpus and/or income of the
Trust be used for, or diverted to, purposes other than for the exclusive benefit
of such Participants and their beneficiaries and, except as provided in Section
17.3, the assets of the Trust shall never inure to the benefit of the Company
and shall be held for the exclusive purposes of providing benefits to
Participants in the Plans and their beneficiaries and defraying reasonable
expenses of administering the Plans and of the Trustee and/or performing any of
the Trustee's duties under this Agreement.
18.2
(a)
Notwithstanding any provision of this Agreement to the contrary, the Trustee
shall cease payment of benefits to Participants and beneficiaries with respect
to any Responsible Employer that is "insolvent," as defined below. The assets of
the Trust shall at all times, as provided for in Section 2.2 and as set forth
below, be subject to claims of the general creditors of each Responsible
Employer under federal and state laws. For purposes of this Agreement, a
Responsible Employer shall be considered "insolvent" if such Responsible
Employer is subject to a pending proceeding as a debtor under the Bankruptcy
Code of the United States or bankruptcy laws of any state, or if such
Responsible Employer is unable to pay its debts as they become due.
(b) Any time
the Trustee has actual knowledge, or has determined that a Responsible Employer
is insolvent, the Trustee shall deliver, to satisfy the claims of the insolvent
Responsible Employer's general creditors as a court of competent jurisdiction
may direct, that portion of any undistributed principal and income in the Trust
attributable to the insolvent Responsible Employer's contributions to the Trust.
The Board of Directors and the Chief Executive Officer of the Responsible
Employer shall have the duty, respectively, to inform the Trustee, in writing,
of the insolvency of such Responsible Employer.
(c) Unless the
Trustee has actual knowledge of the insolvency of a Responsible Employer, or has
received notice of the insolvency of a Responsible Employer, as provided in
subsection (d) of this Section 18.2, the Trustee shall have no duty to inquire
whether any Responsible Employer is insolvent. The Trustee may in all events
rely on such evidence concerning the insolvency of a Responsible Employer as may
be furnished to the Trustee and that provides the Trustee with a reasonable
basis for making a determination concerning the solvency of the Responsible
Employer.
(d) If a
Responsible Employer, or a person claiming to be a creditor of a Responsible
Employer, alleges in writing to the Trustee that a Responsible Employer has
become insolvent, the Trustee shall determine, within thirty (30) days after the
receipt of such notice, whether such Responsible Employer is insolvent and,
pending such determination, the Trustee shall, only with respect to those
benefit payments that are made under a Plan of the Responsible Employer alleged
to be insolvent, discontinue payments of amounts on behalf of Participants and
beneficiaries, and shall hold that portion of the assets of the Trust
attributable to the alleged insolvent Responsible Employer's contributions to
the Trust for the benefit of such Responsible Employer's general creditors. From
the date of discontinuance of such payments until the Trustee receives an order
from a court of competent jurisdiction directing the disposition of the held
assets in the Trust, the provisions of Article 10 governing the payment of Trust
expenses or taxes shall not be suspended.
(e) The
Trustee shall resume the payments discontinued under subsection (d) that are
payable on behalf of Participants and beneficiaries in accordance with Section
5.2 and/or 5.3 of this
Agreement only after
the Trustee has determined that the Responsible Employer alleged to be insolvent
is not insolvent (or is no longer insolvent, if the Trustee initially determined
such entity was insolvent). Upon resumption of such payments, the
first payment following such discontinuance shall include the aggregate amount
of all payments from the assets of the Trust which would have been made to the
Participant or beneficiary during the period of discontinuance, less the
aggregate amount of payments made to the Participant or beneficiary by the
Responsible Employer in lieu of payments from the Trust during any such period
of discontinuance.
(f) Except as
otherwise specifically provided in this Agreement, to the extent that the
provision of payments or benefits to any Participant results in his being liable
for taxes, he shall not be entitled to any make-whole, gross-up, or other
indemnification with respect to such taxes from the Company, the Affiliates, or
the Trustee.
ARTICLE
19: Prohibition of Assignment of Interest.
No
interest, right or claim in or to any part of the Trust or any payment therefrom
shall be
assignable,
transferable or subject to sale, mortgage, pledge, hypothecation, commutation,
anticipation, garnishment, attachment, execution or levy of any kind, and the
Trustee shall not recognize any attempt to assign, transfer, sell, mortgage,
pledge, hypothecate, commute or anticipate the same, except to the extent
required by law.
ARTICLE
20: Miscellaneous.
20.1
This Agreement shall be interpreted, construed and enforced, and the Trust
hereby created shall be administered, in accordance with the laws of the United
States and of the state of New York. Nothing in this Agreement shall be
construed to subject the Trust created hereunder to the Employee Retirement
Income Security Act of 1974, as amended.
20.2 The
Company shall, at any time and from time to time, upon the reasonable request of
the Trustee, execute and deliver such further instruments and do such further
acts as may be necessary or proper to effectuate the purpose of this
Agreement.
20.3
The titles to Articles of this Agreement are placed herein for convenience of
reference only, and the Agreement is not to be construed by reference
thereto.
20.4
This Agreement shall bind and inure to the benefit of the successors and assigns
of the Company and the Trustee, respectively and the Plans.
20.5
This Agreement may be executed in any number of counterparts, each of which
shall be deemed to be an original but all of which together shall constitute but
one instrument, which may be sufficiently evidenced by any
counterpart.
20.6
If any provision of this Agreement is determined to be invalid or unenforceable,
the remaining provisions shall not for that reason alone also be determined to
be invalid or
unenforceable.
20.7
Each Participant and his beneficiary is an intended beneficiary under this
Trust, and shall be entitled to enforce all terms and provisions hereof with the
same force and effect as if such person had been a party hereto, provided that,
no action taken by any Participant or beneficiary by virtue of this Section 20.7
shall in any way affect any rights or duties of the Trustee under this
Agreement.
20.8
It is intended that neither the Plans nor this Trust shall result in
acceleration of income or the imposition of tax penalties by reason of Section
409A. This Trust shall be interpreted in a manner that is consistent with the
foregoing intent, and if any provision of this Trust is found to result in
acceleration of income or the imposition of tax penalties by reason of Section
409A, such provision shall be modified in a manner consistent with its purpose
to conform to the requirements of Section 409A or, if such modification is not
possible, such provisions shall be void.
IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed
in their
respective names by their duly authorized officers under their corporate seals
as of the day and year first above written.
BURLINGTON
NORTHERN SANTA FE CORPORATION
By: __/s/
Linda Longo-Kazanova__________________
ATTEST:
/s/ Craig Smetko_____________________________
Asst Secretary
WACHOVIA BANK, NATIONAL ASSOCIATION
By: __/s/ Signature
illegible_____________________
ATTEST:
____/s/ Signature illegible___________________
Schedule
1
THE
PLANS
The
following Company plans and agreements (collectively referred to as the "Plans")
are subject to this Trust:
Burlington
Northern Santa Fe Supplemental Retirement Plan
Burlington
Northern Santa Fe Supplemental Investment and Retirement Plan
Burlington
Northern Santa Fe Corporation Deferred Compensation Plan for
Directors
Burlington
Northern Santa Fe Corporation Directors' Retirement Plan
Burlington
Northern Santa Fe Corporation Deferred Compensation Plan
The
following additional plans and agreements shall be subject to the Trust and
shall constitute Plans in the event of a Change of Control:
The
Burlington Northern and Santa Fe Railway Company Incentive Compensation
Plan
Burlington
Northern Santa Fe Corporation Senior Management Stock Deferral Plan
The
Burlington Northern and Santa Fe Railway Company Severance Plan
The
Burlington Northern and Santa Fe Railway Company Employee Retention
Program
The
Burlington Northern and Santa Fe Railway Company/UTU Voluntary separation
Program for the Former Eastern and Western Lines (Excluding Northern and
Southern Divisions)
The
Burlington Northern and Santa Fe Railway Company/UTU Voluntary Separation
Program
Burlington
Northern Santa Fe Change in Control Agreements (34 Individual
agreements)
BNI
Change in Control Agreements ( 7 Individual Agreements )
SFP
Change in Control Agreements ( 3 Individual Agreements )
[Intentionally
Omitted]
Exhibit 10.27
As
Amended and Restated February 13, 2008
BURLINGTON
NORTHERN SANTA FE
2005 DEFERRED COMPENSATION
PLAN FOR NON-EMPLOYEE DIRECTORS
Article
I
Purpose and Effective
Date
|
1.01
|
The
purpose of this 2005 Deferred Compensation Plan for
Non-Employee
Directors (the "Plan") is to attract and retain highly qualified
individuals to serve as members of the Board of Directors (the "Board") of
Burlington Northern Santa Fe Corporation (the "Company"). The
Effective Date of the Plan is April 21, 2005.
|
Article
II
Administration
|
2.01
|
The
Plan shall be administered by the Directors and Corporate Governance
Committee of
the Board (the
"Committee"). The Committee shall interpret the Plan,
prescribe, amend and rescind the rules relating to it from time to time as
it deems proper and in the best interests of
the Company, and
take any other action necessary for the administration of
the
Plan. Any decision or interpretation adopted by the Committee
shall be final and conclusive and shall be binding upon all Participants
(as defined below).
|
Article
III
Participation
|
3.01
|
Participation
in the Plan is voluntary. Any member of the Board who is not an employee
of the Company or any of its subsidiaries (a "non-employee director")
shall be eligible to participate in the Plan beginning 30 days after
becoming a non-employee director, subject to the terms of the Plan.
|
|
3.02
|
A
non-employee director shall become a "Participant" in the Plan by electing
to defer payment of all or a portion of his Compensation (as defined
below) pursuant to the terms of a "Deferral Election." A director's
Deferral Election shall be subject to the following:
|
|
|
(a)
|
An
individual who, prior to the beginning of any calendar year, is a
non-employee director shall be eligible to file a Deferral Election with
respect to his Compensation earned in such calendar year. Except as
otherwise provided in this Section 3.02, a Deferral Election with respect
to Compensation earned in a calendar year shall be filed during such
period before the first day of such year as may be established by the
Committee.
|
|
|
(b)
|
Notwithstanding
the provisions of paragraph (a) above, for the first calendar year in
which an individual is a non-employee director, the director may file a
Deferral Election not later than 60 days after the individual becomes a
non-employee director. A Deferral Election made under this paragraph (b)
shall not apply to amounts earned for services rendered prior to the
30
th
day after the individual becomes a non-employee director, and shall not
apply to amounts earned for services rendered prior to the date the
election has become irrevocable in accordance with Section 3.04.
|
|
|
(c)
|
A
Participant shall be fully vested in the Participant's deferral amounts
and earnings at all times, subject to investment gains and losses.
|
|
3.03
|
For
calendar year 2005, an individual who is a non-employee director on the
Effective Date may file a Deferral Election not later than 30 days after
the Effective Date, and such election shall not apply to amounts earned
for services rendered prior to the date the election is filed.
|
|
3.04
|
A
non-employee director's Deferral Election applicable to Compensation
amounts earned in any calendar year shall also apply to Compensation
earned in each subsequent calendar year while the individual is a
non-employee director. However, a non-employee director, in accordance
with paragraph 3.02(a), may modify or cancel a Deferral Election, or file
a new Deferral Election, provided that no Deferral Election with respect
to Compensation earned in any year may be changed on or after, and all
such Deferral Elections shall be irrevocable as of the day immediately
preceding, the date the year has begun, except that a Deferral Election
made in accordance with Section 3.02(b) shall be irrevocable when filed.
|
|
3.05
|
Subject
to the terms of the Plan, the Participant shall specify, as part of his
initial Deferral Election, and in accordance with Article IV, the time and
form of distribution of the amounts deferred under the Plan (“Distribution
Election”), including amounts deferred with respect to Compensation earned
in the first year to which the Deferral Election applies and all future
years. Except as otherwise permitted under §409A of the
Internal Revenue Code (the "Code"), and notwithstanding the provisions of
Section 3.04, the Distribution Election shall be irrevocable.
|
Article
IV
Compensation
|
4.01
|
Each
Participant may elect to have all or a specified percentage of his
Compensation deferred pursuant to Article III until he ceases to be a
director.
|
|
4.02
|
"Compensation"
shall mean the annual retainer and meeting fees for Board and Board
committee meetings. Annual retainer fees which are paid in quarterly
installments shall be treated as earned on a pro rata basis over the
course of the calendar quarter for which they are paid.
|
|
4.03
|
The
Company shall establish a memorandum account for each Participant who has
elected to defer a portion of his Compensation for any year and shall
credit such account for Compensation on the date payment would otherwise
have been made.
|
|
4.04
|
Investment
gains and losses shall be credited to each member's memorandum account no
less frequently than at the end of each quarter and at such other periods
as may be determined by the Committee. Such gains and losses shall be
based on the investment option or options selected and the returns on such
investment option or options. The available investment options shall be
established by the Board with such terms and conditions as it may deem
appropriate.
|
|
4.05
|
Distribution
of a Participant's memorandum account shall be as follows:
|
|
(a)
|
in
a lump sum in cash in January of the year following the year in which the
Participant ceases to be a director;
or
|
|
|
(b)
|
if
irrevocably elected by the Participant at the time of the initial Deferral
Election described in Section 3.02 or 3.03, in a number of equal annual
installments, not to exceed ten, commencing in January of the year
following the year in which the Participant ceases to be a director.
|
A
Participant shall be treated as ceasing to be a director at the time the
Participant incurs a separation from service under §409A of the
Code. Notwithstanding Section 4.05(a), any Participant who is a
Specified Employee (as defined below) at the time he ceases to be a director and
whose memorandum account is otherwise scheduled to be distributed in accordance
with Section 4.05(a) shall receive such distribution, without interest, on the
later of (i) the otherwise scheduled payment date and (ii) the first day of the
seventh month following the Participant's cessation of
directorship. Notwithstanding Section 4.05(b), with respect to any
Participant who is a Specified Employee at the time he ceases to be a director
and whose memorandum account is otherwise scheduled to be distributed in
accordance with Section 4.05(b), any installment of such Participant's
memorandum account otherwise scheduled to be paid in the first six months
following his cessation of directorship shall be paid, without interest, on the
first day of the seventh month following his cessation of directorship. All
other installments for any such Participants shall be paid as provided in
Section 4.05(b). For purposes of the Plan, the term "Specified Employee" shall
be defined in accordance with Treas. Reg. §1.409A-1(i) and such rules as may be
established by the Chief Executive Officer of the Company or his delegate from
time to time.
|
4.06
|
Investment
returns shall continue to accrue on the balance of any memorandum account
until the date of its distribution.
|
|
4.07
|
Notwithstanding
Section 4.05, if a Participant dies prior to payment of all amounts due
under the Plan, any unpaid balance of the Participant's memorandum account
shall be payable to the Participant's Beneficiary (as defined below) in a
lump sum as soon as practicable in January of the year following the year
in which the Participant died. "Beneficiary" shall mean any individual,
trust or other recipient named by a Participant to receive amounts due
hereunder upon his death. Subject to the discretion of the Committee, a
Participant may at any time designate the Beneficiary to receive any
amounts due hereunder in the event of the Participant's death, and may
change any such designation. Each such designation of a Beneficiary shall
be evidenced by a written instrument filed with the Committee and signed
by the Participant. A Beneficiary designation may be revoked or amended at
any time but only by the completion and filing with the Committee of a new
Beneficiary designation instrument, provided, however, that if a
Participant's spouse is named as such Participant's Beneficiary, and the
Participant and such spouse are subsequently divorced, then the
designation of the spouse made prior to the divorce shall be null and
void. In
order to designate
a former spouse as a Beneficiary, a new Beneficiary designation instrument
must be completed. If no Beneficiary designation is on file
with the Committee at the time of the death of a Participant, or if for
any reason such designation is defective, then the Participant's estate
shall be deemed to be the Beneficiary.
|
|
4.08
|
The
Committee shall distribute periodic earnings reports to the Participants
under the Plan.
|
Article
V
General
Provisions
|
5.01
|
The
deferred compensation to be paid to the Participants pursuant to the Plan
is an unfunded obligation of the Company. Nothing herein contained shall
require the Company to segregate any monies from its general funds, or to
create any trusts, or to make any special deposits with respect to this
obligation. Title to and beneficial ownership of any funds invested or
reinvested, including the income or profits therefrom, which the Company
may make to fulfill its obligations under the Plan shall at all times
remain in the Company. A Participant's right to receive the payment of any
deferred compensation may not be assigned, transferred, pledged or
encumbered except by will or by the laws of descent or distribution.
|
|
5.02
|
The
Board may from time to time amend, suspend or terminate the Plan, in whole
or in part, and if the Plan is suspended or terminated, the Board may
reinstate any or all of its provisions. Notwithstanding the preceding
sentence, an amendment or termination of the Plan may accelerate payment
of Plan benefits only to the extent permitted under Code §409A.
|
|
5.03
|
It
is intended that the provisions of the Plan comply with Code §409A, and
all provisions of the Plan shall be construed and interpreted in a manner
consistent with the requirements for avoiding taxes or penalties under
Code §409A. Each Participant is solely responsible and liable
for the satisfaction of all taxes and penalties that may be imposed on or
for the account of such Participant in connection with the Plan (including
any taxes and penalties under Code §409A), and the Company shall not have
any obligation to indemnify or otherwise hold any Participants harmless
from any or all of such taxes or penalties.
|
Exhibit 12.1
Burlington Northern
Santa Fe Corporation and Subsidiaries
Computation of Ratio of
Earnings to Fixed Charges
In millions, except ratio
amounts
(Unaudited)
|
|
|
Year ended December
31,
|
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
2004
|
|
2003
|
|
|
Earnings:
|
|
|
|
|
(As
Adjusted
|
)
a
|
(As
Adjusted
|
)
a
|
(As
Adjusted
|
)
a
|
(As
Adjusted
|
)
a
|
|
Income before income taxes and
cumulative effect of accounting change
a
|
|
$
|
2,957
|
|
$
|
2,996
|
|
$
|
2,453
|
|
$
|
1,296
|
|
$
|
1,241
|
|
|
Add:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other fixed charges,
excluding capitalized interest
|
|
|
511
|
|
|
485
|
|
|
437
|
|
|
409
|
|
|
420
|
|
|
Reasonable approximation of
portion of rent under long-term operating leases representative of an
interest factor
|
|
|
282
|
|
|
261
|
|
|
221
|
|
|
195
|
|
|
182
|
|
|
Distributed income of investees
accounted for under the equity method
|
|
|
4
|
|
|
3
|
|
|
4
|
|
|
4
|
|
|
3
|
|
|
Amortization
of capitalized interest
|
|
|
4
|
|
|
4
|
|
|
8
|
|
|
8
|
|
|
8
|
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings of
investments
accounted
for under
the
equity
method
|
|
|
19
|
|
|
27
|
|
|
15
|
|
|
9
|
|
|
14
|
|
|
Total earnings available for
fixed charges
|
|
$
|
3,739
|
|
$
|
3,722
|
|
$
|
3,108
|
|
$
|
1,903
|
|
$
|
1,840
|
|
|
Fixed
charges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and fixed
charges
|
|
$
|
528
|
|
$
|
499
|
|
$
|
450
|
|
$
|
419
|
|
$
|
429
|
|
|
Reasonable approximation of
portion of rent under long-term operating leases representative of an
interest factor
|
|
|
282
|
|
|
261
|
|
|
221
|
|
|
195
|
|
|
182
|
|
|
Total fixed
charges
|
|
$
|
810
|
|
$
|
760
|
|
$
|
671
|
|
$
|
614
|
|
$
|
611
|
|
|
Ratio of earnings to fixed
charges
|
|
|
4.62x
|
|
|
4.90x
|
|
|
4.63x
|
|
|
3.10x
|
|
|
3.01x
|
|
|
a
Prior
year numbers have been adjusted for the retrospective adoption of
Financial Accounting Standards Board (FASB) Staff Position
(FSP) AUG AIR-1,
Accounting
for Planned Major Maintenance Activities.
See Note 2 to the
Consolidated Financial Statements for additional
information.
|
|
Exhibit 21.1
BURLINGTON
NORTHERN SANTA FE CORPORATION
SUBSIDIARIES
BURLINGTON
NORTHERN SANTA FE CORPORATION (DE)
BNSF Acquisition, Inc.
(DE)
100%
Burlington Northern Santa Fe Insurance
Company, Ltd.
(Bermuda)
100%
FreightWise, Inc.
(DE)
100%
BNSF Logistics, LLC
(DE)
100%
BNSF Logistics International, Inc.
(TX)
100%
Meteor
Communications Corporation
(WA) 100%
BNSF
Railway Company
(DE)
100%
BN Leasing Corporation
(DE)
100%
BNSF Equipment Acquisition Company, LLC
(DE)
100%
Bayport Systems, Inc.
(TX)
100%
BayRail, LLC
(DE)
100%
The Burlington Northern and Santa Fe
Railway
Company
de Mexico, S.A. de C.V.
(Mexico)
99%
Burlington Northern Santa Fe British
Columbia, Ltd.
(DE)
100%
BNSF
Railway International Services, Inc.
(DE) 100%
Burlington Northern (Manitoba) Limited.
(Manitoba)
100%
Burlington Northern Railroad Holdings,
Inc.
(DE)
100%
Burlington Northern Santa Fe Manitoba,
Inc.
(DE)
100%
Burlington Northern Santa Fe
Properties, L.L.C.
(DE)
100%
INB Corp.
(NV)
100%
Los Angeles Junction Railway Company
(CA) 100%
Midwest/Northwest Properties Inc.
(DE)
100%
Northern Radio Limited (British
Columbia) 100%
Pine Canyon Land Company
(DE)
100%
Rio Grande, El Paso and Santa Fe
Railroad Company
(TX)
100%
SFP Pipeline Holdings, Inc.
(DE)
100%
Santa Fe Pacific Pipelines, Inc.
(DE) 100%
Santa Fe Pacific Insurance Company
(VT) 100%
Santa Fe Pacific Railroad Company (Act
of
Congress)
100%
Santa Fe Receivables Corporation
(DE)
100%
Star Lake Railroad Company
(DE)
100%
Transportation Group Management, Inc.
(DE) 100%
Wyoming Transportation Group, L.L.C.
(WY)
100%
Western Fruit Express Company
(DE)
100%
Winona Bridge Railway Company
(MN)
100%
The Zia Company
(DE)
100%
* The
names of certain subsidiaries of Burlington Northern Santa Fe Corporation are
omitted as those subsidiaries, considered as a single subsidiary, would not
constitute a significant subsidiary.
Exhibit
23.1
CONSENT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby
consent to the incorporation by reference in the Registration Statement on Form
S-3 (No. 333-130214) and the Registration Statements on Form S-8 (Nos. 33-62829,
33-62835, 33-63249, 333-03275, 333-03277, 333-118732, 333-19241, 333-77615,
333-59854, 333-108384, 333-133434, 333-135893, 333-135894 and 333-135897) of
Burlington Northern Santa Fe Corporation of our report dated February 12, 2008
relating to the consolidated financial statements and the effectiveness of
internal control over financial reporting, which appears in this Form
10-K.
/s/
PricewaterhouseCoopers LLP
Fort Worth, Texas
February 14, 2008
Exhibit 24.1
POWER
OF ATTORNEY
WHEREAS, BURLINGTON NORTHERN SANTA FE
CORPORATION, a Delaware corporation (the “Company”), will file with the
Securities and Exchange Commission, under the provisions of the Securities
Exchange Act of 1934, as amended, its Annual Report on Form 10-K for the fiscal
year ended December 31, 2007; and
WHEREAS, the undersigned serve the
Company in the capacity indicated;
NOW, THEREFORE, the undersigned hereby
constitutes and appoints THOMAS N. HUND or ROGER NOBER, his or her attorney with
full power to act for him or her in his or her name, place and stead, to sign
his or her name in the capacity set forth below, to the Annual Report on Form
10-K of the Company for the fiscal year ended December 31, 2007, and to any and
all amendments to such Annual Report on Form 10-K, and hereby ratifies and
confirms all that said attorney may or shall lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, this Power of
Attorney has been executed by the undersigned this 13th day of February,
2008.
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/s/
Alan L. Boeckmann
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/s/
Donald G. Cook
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Alan
L. Boeckmann, Director
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Donald
G. Cook, Director
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/s/
Vilma S. Martinez
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/s/
Marc F. Racicot
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Vilma
S. Martinez, Director
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Marc
F. Racicot, Director
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/s/
Roy S. Roberts
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Roy
S. Roberts, Director
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Matthew
K. Rose, Director and Chairman,
President
and Chief Executive Officer
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/s/
Marc J. Shapiro
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/s/
J.C. Watts, Jr.
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Marc
J. Shapiro, Director
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J.C.
Watts, Jr., Director
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/s/
Edward E. Whitacre, Jr.
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Robert
H. West, Director
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Edward
E. Whitacre, Jr., Director
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/s/
J. Steven Whisler
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J.
Steven Whisler, Director
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Exhibit 31.1
Principal Executive Officer’s
Certifications
Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
I, Matthew K. Rose, certify
that:
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1.
I have reviewed this annual report
on Form 10-K of Burlington Northern Santa Fe
Corporation;
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2.
Based on my knowledge, this report
does not contain any untrue statement of a material fact or omit to state
a material fact necessary to
make the
statements made, in light of
the circumstances under which such
statements were made, not misleading with respect to the period
covered
by this report;
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3.
Based on my knowledge, the
financial statements, and other financial information included in this
report, fairly present in all material
respects
the financial condition,
results
of operations and cash flows of
the registrant as of, and for, the periods presented in this
report;
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4.
The registrant’s other certifying
officer and I are responsible for establishing and maintaining disclosure
controls and procedures (as
defined
in Exchange Act Rules
13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act
Rules
13a-15(f) and 15d-15(f)) for the registrant and
have:
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(a)
Designed such disclosure controls
and procedures, or caused such disclosure controls and procedures to be
designed under our
supervision, to ensure that material
information relating to the
registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the
period in which
this report is being
prepared;
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(b)
Designed such internal control
over financial reporting, or caused such internal control over financial
reporting to be designed
under our supervision, to provide
reasonable assurance regarding
the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally
accepted accounting
principles;
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(c)
Evaluated the effectiveness of the
registrant’s disclosure controls and procedures and presented in this
report our conclusions
about the effectiveness of the disclosure
controls and procedures, as
of the end of the period covered by this report based on
such evaluation; and
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(d)
Disclosed in this report any
change in the registrant’s internal control over financial reporting that
occurred during the
registrant’s fourth fiscal quarter that has materially
affected, or is reasonably
likely to materially affect, the registrant’s
internal control over financial reporting;
and
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5.
The registrant’s other certifying
officer and I have disclosed, based on our most recent evaluation of
internal control over financial
reporting, to the registrant’s auditors and the
audit committee of the
registrant’s board of directors (or persons performing the
equivalent functions):
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(a)
All significant deficiencies and
material weaknesses in the design or operation of internal control over
financial reporting which
are reasonably likely to adversely affect
the registrant’s ability to
record, process, summarize and report financial information;
and
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(b)
Any fraud, whether or not
material, that involves management or other employees who have a
significant role in the registrant’s
internal control over financial
reporting.
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/s/ Matthew K.
Rose
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Date:
February 14,
2008
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Matthew K.
Rose
Chairman, President
and
Chief Executive
Officer
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Exhibit 31.2
Principal
Financial Officer’s Certifications
Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
I, Thomas N. Hund, certify
that:
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1.
I have reviewed this annual report
on Form 10-K of Burlington Northern Santa Fe
Corporation;
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2.
Based on my knowledge, this report
does not contain any untrue statement of a material fact or omit to state
a material fact necessary to
make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the
period
covered by this report;
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3.
Based on my knowledge, the
financial statements, and other financial information included in this
report, fairly present in all material
respects
the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
report;
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4.
The registrant’s other certifying
officer and I are responsible for establishing and maintaining disclosure
controls and procedures (as
defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act
Rules
13a-15(f) and 15d-15(f)) for the registrant and
have:
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(a)
Designed such disclosure controls
and procedures, or caused such disclosure controls and procedures to be
designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the
period in which this report is being
prepared;
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(b)
Designed such internal control
over financial reporting, or caused such internal control over financial
reporting to be designed
under our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally
accepted accounting
principles;
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(c)
Evaluated the effectiveness of the
registrant’s disclosure controls and procedures and presented in this
report our conclusions
about the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on
such evaluation; and
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(d)
Disclosed in this report any
change in the registrant’s internal control over financial reporting that
occurred during the
registrant’s fourth fiscal quarter that has materially affected, or is
reasonably likely to materially affect, the registrant’s
internal control over financial reporting;
and
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5.
The registrant’s other certifying
officer and I have disclosed, based on our most recent evaluation of
internal control over financial
reporting, to the registrant’s auditors and the audit committee of the
registrant’s board of directors (or persons performing the
equivalent functions):
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(a)
All significant deficiencies and
material weaknesses in the design or operation of internal control over
financial reporting which
are
reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information;
and
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(b)
Any fraud, whether or not
material, that involves management or other employees who have a
significant role in the registrant’s
internal control over financial
reporting.
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/s/ Thomas N.
Hund
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Date:
February 14,
2008
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Thomas N. Hund
Executive Vice President
and
Chief Financial
Officer
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Exhibit 32.1
Certification Pursuant to 18 U.S.C. §
1350
(Section 906 of Sarbanes-Oxley Act of
2002)
Burlington Northern Santa Fe
Corporation
In connection with the Annual Report of
Burlington Northern Santa Fe Corporation (the “Company”) on Form 10-K for the
year ended December 31, 2007, as filed with the Securities and Exchange
Commission on the date hereof (the “Report”), the undersigned, Matthew K. Rose,
Chairman, President and Chief Executive Officer of the Company, and Thomas N.
Hund, Executive Vice President and Chief Financial Officer of the Company, each
hereby certifies that, to his knowledge on the date hereof:
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1.
The Report fully complies with the
requirements of section 13(a) or 15(d) of the Securities Exchange Act of
1934; and
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2.
The information contained in the
Report fairly presents, in all material respects, the financial condition
and results of operations of the
Company.
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Dated:
February 14, 2008
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/s/ Matthew K.
Rose
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/s/ Thomas N.
Hund
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Matthew K.
Rose
Chairman, President
and
Chief Executive
Officer
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Thomas N. Hund
Executive Vice President
and
Chief Financial
Officer
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A signed original of this written
statement required by Section 906 has been provided to Burlington Northern Santa
Fe Corporation and will be retained by Burlington Northern Santa Fe Corporation
and furnished to the Securities and Exchange Commission or its staff upon
request.
Exhibit 99.1
Annual CEO
Certification
(Section 303A.12(a) of the New York
Stock Exchange Listed Company Manual)
As the Chief Executive Officer of
Burlington Northern Santa Fe Corporation and as required by Section 303A.12(a)
of the New York Stock Exchange Listed Company Manual, I hereby certify that as
of the date hereof I am not aware of any violation by the Company of NYSE’s
Corporate Governance listing standards, other than has been notified to the
Exchange pursuant to Section 303A.12(b) and disclosed on Exhibit H to the
Company’s Domestic Company Section 303A Annual Written
Affirmation.
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/s/ Matthew K.
Rose
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Matthew K.
Rose
Chairman, President and Chief
Executive Officer
May 18,
2007
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[This certification is without
qualification.]
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