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    BNSF 2000 annrpt BNSF 2000 annrpt Document Transcript

    • Burlington Northern Santa Fe Corporation 2000 Annual Report to Shareholders
    • Contents The BNSF Vision Message from the Our vision is to realize the tremendous potential of The Burlington 2 Chairman, and Northern and Santa Fe Railway by providing transportation services President and CEO that consistently meet our customers’ expectations. Safety 8 Service We will know we have succeeded when: 10 Efficiency 12 Innovation Our customers find it easy Our owners earn financial 14 • • Growth to do business with us, returns that exceed other 16 BNSF’s Values receive 100-percent on-time, railroads and the general 18 Achievement Awards damage-free service, accurate market as a result of BNSF’s 19 Financial Review and timely information superior revenue growth, an 21 Executive Officers regarding their shipment, operating ratio in the low 47 and Directors and the best value for their 70s, and a return on invested Corporate Information transportation dollar. capital which is greater than 48 our cost of capital. Our employees work in a safe About the Cover • This BNSF grain shuttle environment free of accidents The communities we serve • train approaches Little Falls, and injuries, are focused benefit from our sensitivity Minnesota, en route to on continuous improvement, to their interests and to the load at a grain elevator near share the opportunity for environment in general, Sioux City, Iowa. personal and professional our adherence to the highest growth that is available to all legal and ethical standards, members of our diverse work and the participation of our force, and take pride in their company and our employees association with BNSF. in community activities.
    • Consolidated Financial Highlights Burlington Northern Santa Fe Corporation and Subsidiaries (Dollars in millions, except per share data) December 31, 2000 1999 1998 1997 1996 For The Year Ended: Revenues $ 9,205 $ 9,189 $ 9,054 $ 8,489 $ 8,192 Operating income $ 2,108 $ 2,205 $ 2,158 $ 1,767 $ 1,748 Net income $ 980 $ 1,137 $ 1,155 $ 885 $ 889 Basic earnings per share $ 2.38 $ 2.46 $ 2.45 $ 1.91 $ 1.95 Average shares (in millions) 412.1 463.2 470.5 464.4 456.3 Diluted earnings per share $ 2.36 $ 2.44 $ 2.43 $ 1.88 $ 1.91 Average shares (in millions) 415.2 466.8 476.2 471.1 464.4 Dividends declared per common share $ 0.48 $ 0.48 $ 0.44 $ 0.40 $ 0.40 At Year End: Total assets $24,375 $23,700 $22,646 $21,266 $19,693 Long-term debt and commercial paper, Including current portion $ 6,846 $ 5,813 $ 5,456 $ 5,289 $ 4,711 Stockholders’ equity $ 7,480 $ 8,172 $ 7,784 $ 6,822 $ 5,994 Total debt to capital 47.8% 41.6% 41.2% 43.7% 44.0% For The Year Ended: Capital expenditures $ 1,399 $ 1,788 $ 2,147 $ 2,182 $ 2,234 Depreciation and amortization $ 895 $ 897 $ 832 $ 773 $ 760 1
    • On December 7, 2000, the Board of Directors elected Matthew K. Rose Chief Executive Officer of BNSF. Matt, who joined the BNSF Board in July, continues as BNSF President, a position he has held since June 1999. Rob Krebs continues as Chairman. In commenting on the announcement, Rob said, “Matt began his transportation career in 1981, and has management experience in both the trucking and railroad industries. At BNSF, he has held a series of senior leadership positions in both marketing and operations. I’ve been a railroad president or CEO for 20 years and I know one of my most important jobs is to identify a successor. I’m grateful that Matt has the confidence of all of our important constituencies—our owners, customers and employees, and that the transition has been flawless. I know Matt has a great career ahead of him.” To Our Shareholders, In addition, BNSF repur- Limited exports of U.S. • Customers and Colleagues: chased 65 million shares in agricultural commodities, BNSF had a number of bright 2000 at an average price of especially corn, lowered spots in 2000. In particular, $23 per share. our revenues $80 million, the growth of our intermodal or 6 percent, in 2000 com- revenue and volume and our pared with 1999. However, four factors impacted success in controlling oper- And the slowdown in the performance of BNSF • ating expenses clearly made America’s economy pro- in 2000. the difference. Both areas are duced sluggish traffic Soaring fuel prices through- • expected to contribute similarly throughout the second out the year added more to BNSF’s 2001 performance. half of 2000 in our car- than $230 million to our Intermodal revenues grew load sector, including fuel expenses compared • $147 million, or 6 percent, forest products, metals and with 1999. and intermodal volumes chemicals. This restrained Weak demand for coal, • exceeded a record 3.44 the sector’s revenue growth due to milder-than- million containers and to only 1 percent, or $16 expected weather most trailers, a 7 percent increase million, for the full year, of the year coupled with over 1999. after a first-half revenue large stockpiles during Adjusted operating expenses growth rate of 3 percent, the first half of 2000 at • on a year-over-year basis compared with 1999. the utilities we serve, con- grew only 1 percent, despite tributed to a reduction a $230 million increase in our coal revenues of A Five-Year Review in fuel costs for 2000 com- Although the past year has $95 million, or 4 percent, pared with 1999. had its ups and downs, when from 1999. 2
    • we look at what we have Regrettably, in July 2000, performance are worthy to together with CN, we gave up achieved since the merger note because they demonstrate our efforts to combine our of Burlington Northern and our people’s commitment to two companies. We believed Santa Fe in late 1995, we have the BNSF vision: “To realize the risks and uncertainty made enormous progress in the tremendous potential involved in waiting up to every area: safety; customer of BNSF by providing trans- two-and-one-half years for service; efficiency, and finan- portation services that con- a decision from the Surface cial performance. Based on sistently meet our customers’ Transportation Board (STB) our progress, we were prepared expectations.” This commit- were not in the best inter- to take the next step. We ment is reflected throughout ests of our shareholders, felt our plan, announced in our organization. The BNSF employees and customers. December 1999, to offer ship- Achievement Award is designed The STB’s moratorium on pers substantially expanded to recognize employee con- rail mergers is scheduled to single-line service through a tributions to this Vision and end on June 15, four days competitive end-to-end com- to the Values that shape our after the STB’s new merger bination with the Canadian community. Beginning on rules become effective. National Railway Company page 19 is a list of these (CN) would have provided BNSF employees and the BNSF successes since 1995 significant growth potential activities for which they in safety, customer service, and shareholder value, building won an Achievement Award on our successes since 1995. efficiency and financial in 2000. BNSF System Map BNSF’s employees handled 8.167 million loads of customer freight, including record levels of traffic along the transcontinental main line, which runs between Chicago BNSF Lines and Trackage Rights and Los Angeles. Regional Connections 3
    • Safety Severity Ratio 1995-2000 railroad has operated better than (lost work days/200,000 hours worked) ever. We also made on-time serv- ice data available to customers, and introduced in 2000 a new web-based tracking and tracing application. And each week, our web site offers discounted rates on intermodal shipments between specific locations on The severity ratio measures lost workdays due to injury per 200,000 hours worked. Figures reflect Federal Railroad our network through a program Administration data. 2000 ratio is preliminary, as of January 31, 2001. called ValueTrax. Safety our 33,500 route-mile network. Revenues grew 14 percent to At BNSF, we want to achieve In addition, highway/rail- our potential, but we want to $9.2 billion during the period crossing accidents per million do it safely. That’s the mark of train miles were 39 percent from 1995 to 2000. At the same true leadership and our com- lower for 2000 than for 1995, time, system-wide on-time mitment to our employees, benefiting members of the performance improved to the 90 customers and the public. We hundreds of communities that percent range throughout 1999 believe safety and efficiency go BNSF serves in 28 states and and 2000, up from 79 percent hand-in-hand. Our goal is to two Canadian provinces. and 82 percent, respectively, have an injury-free, accident- in 1997 and 1998. As a result free workplace. Customer Service of this improvement, we intro- Providing consistent on-time duced guaranteed intermodal Our progress toward this goal service to our customers is the service, including a 100 percent since 1995 has been outstanding. key to revenue growth and money-back option, on six key Employee injury frequency and realizing our potential. We long-haul corridors in 2000. severity (lost work days) ratios, have changed our business We are also providing a similar as measured per 200,000 hours processes to make it easier for service assurance option to car- worked, have dropped 12 per- customers to do business with load customers shipping along cent and 52 percent, respectively, BNSF. We invested more than our high-growth I-5 corridor in this five-year period. This $500 million since 1995 to running from Vancouver, develop, expand and enhance reduction in severity reflects British Columbia to Southern our real-time integrated infor- approximately 22,000 fewer lost California and into Phoenix. mation system as well as to workdays in 2000 compared constantly expand our suite with 1995, or the equivalent Each of these offerings is bring- of web-based applications. of 110 full-time employees. ing new freight business to BNSF, taking advantage of our We cut over in mid-1997 to BNSF has also experienced a efficient rail network that has our new system that provides 14 percent reduction in train schedule information by car the U.S. rail industry’s lowest accidents per one million train and by train. Since then, our miles during this period across operating cost. 4
    • Efficiency horsepower by 46 percent. execute flawlessly the transporta- Service and efficiency work BNSF’s road fleet of nearly tion service plan (TSP) for every together. As we add business 4,000 locomotives set a fuel car on our system based on our and improve the utilization of efficiency record in 2000, customers’ needs. our railcars and locomotives, generating an average of 746 GTMs per gallon of diesel fuel, our customers benefit, our Our Strategic Sourcing group about a 7 percent improvement system’s efficiency improves and had an equally impressive over the 1996 level. If we had our operating costs decrease. success story in 2000. They operated our locomotive fleet As a result, BNSF can provide identified approximately $125 in 2000 at the 1996 fuel effici- rail rates to customers that are million in annual cash savings, ency level of 700 GTMs per among the most competitive in $65 million of which was gallon, we would have used an the transportation marketplace. realized in 2000. We worked additional 77 million gallons with our suppliers to tighten of fuel in 2000. Since 1995, BNSF has increased specifications and ordering the annual number of gross ton processes and began imple- But BNSF’s most significant miles (GTMs) it handles at a menting standard purchasing efficiency initiatives took place faster rate than other Class I procedures for all expenditures in our mechanical and engi- railroads. Gross ton miles, a throughout BNSF, from office neering departments in 2000. standard industry measure, supplies to locomotive parts Together, the departments reflect the total tons of freight to travel and lodging. In 2001, saved approximately $130 hauled and the distance the we’re focusing on further million by identifying and freight was moved. Over the savings from fuel, freight cars, removing “waste” from numer- past five years, GTMs increased wheel sets and a variety of ous processes associated with 17 percent to 875 billion. For equipment purchases. We are maintaining our locomotives, the same period, adjusted working with other railroads freight cars, track, signals and operating expense per 1,000 to establish industry standards bridges. Our goal is to increase GTMs declined 14 percent for purchasing and maintaining the reliability and predictabil- to $7.20 adjusted for inflation. commonly used equipment ity of our fleets and all of our physical assets in order to and materials. Looked at another way, at year- end 2000, GTMs per employee Efficiency 1995-2000 reached 22.0 million, or a 34 (gross ton miles/employee, in millions) percent increase since 1995. Since the merger, overall employment has been reduced 13 percent. On the equipment side, about $2.5 billion has been invested in the acquisition of 1,624 fuel-efficient road locomotives A key efficiency measure is the number of gross ton miles (GTMs) of freight handled per employee. In 2000, since 1995, boosting our total BNSF handled 22.0 million GTMs/employee, a 34 percent increase compared with 1995. 5
    • Financial Performance track in the Powder River Basin through 2005: revenue growth; A review of the results of the past service; ease of doing business; in Wyoming, and reopening the five years demonstrates signif- efficiency, and BNSF people. Stampede Pass route in Washington. icant progress on all measures: More than 100 initiatives have • Adjusted operating income already been built around With our record capital-spending grew 41 percent to $2.15 these priorities. program behind us, we are now billion; able to generate free cash flow. Free • Our adjusted operating ratio One of the results we are aiming cash flow increased 66 percent to at 76.4 percent is about 5 to achieve through these initia- $431 million in 2000 compared percentage points lower than tives is to generate at least $500 with $260 million in 1999. in 1995; million in free cash flow in 2001 • Adjusted net income grew and exceed $1 billion in free (All 1995 figures are “pro forma” $286 million to $1.02 billion; cash flow by 2005. and include results for both • Adjusted diluted earnings Burlington Northern Inc. and per share rose 52 percent to Here are some of the initiatives Santa Fe Pacific Corporation.) $2.45; and we’ve identified for these five areas: • Dividends per share rose 20 • Revenue Growth – Increase rev- Beginning on Page 8 and contin- percent to 48 cents annually. enues annually at more than uing through Page 17, we describe the rate of America’s economic some of our year 2000 successes Further, we spent more than $11 growth by developing new in safety, efficiency, service, inno- billion in capital to maintain and products and programs, tap- vation and growth. These suc- improve our network and fleets ping and penetrating new cesses are building blocks to help since the beginning of 1995, markets, and expanding BNSF grow and deliver trans- including $1.7 billion on track our franchise with strategic portation solutions that safely and facility expansion projects. and efficiently meet our customers’ alliances and joint ventures. Among these projects were expectations in the years ahead. • Service – Improve service to rebuilding the Argentine yard in the 95 percent on-time level Kansas; double-tracking several for all premium intermodal The Next Five Years hundred miles of the Los Angeles Late in 2000, we announced a set customers and to the 90 to Chicago transcontinental of five strategic, customer-focused percent level for all carload route; adding double and triple priorities that will guide BNSF customers by the end of 2002 Operating Income 1995-2000 Capital Investment 1995-2000 ($ in billions) ($ in billions) BNSF’s adjusted operating income in 2000 of $2.15 billion grew 41 percent compared BNSF spent more than $11 billion in capital investments since the beginning of with 1995. 2000 earnings have been adjusted to exclude second-quarter special 1995. After an aggressive expenditure program following the merger, BNSF has items related to the reduction and redeployment of employees and third-quarter write- scaled back its capital investment. BNSF’s 2000 capital investments of $1.763 billion off of deferred BNSF/CN merger costs. Including the special items, operating income represented a 30 percent decrease compared with the 1998 figure of $2.520 billion. for the year was $2,108 million. Other years have also been adjusted for special items. Chart includes operating leases for freight equipment obtained to expand business. 6
    • through better design and execution of each car’s service plan. We will continue to reset our service goals as we approach 2005. For our coal customers, our goal is to improve train cycle times from the mine to the utility and return to the mine. For our grain customers, our goal is to meet their request dates for Matt Rose and Rob Krebs hopper cars at the elevators and train delivery requirements This is a large undertaking that mandatory retirement age. Ronald to the ports and other receivers. Woodard joined the BNSF board requires marshalling the ideas Ease of Doing Business – • at the time of the merger in and commitment of all 40,000 Play a larger role in our cus- 1995. All three directors have con- BNSF employees. We believe tomers’ supply chains by tributed significantly to shaping it is the right course of action reducing the number of cus- BNSF, and we extend our appre- for our Company at this time, tomer touch points within ciation and thanks to them. and we are confident that we BNSF and by expanding web- can achieve these goals. based transactions to cover Finally, we wouldn’t have achieved all needs of our customers. any of the successes described in Our management team recog- this letter and on the subsequent Efficiency – Keep BNSF’s cost • nizes the importance of creating pages of this report without the per GTM at the lowest level a positive and enthusiastic work- commitment, innovation and in the industry without degra- place environment, as expressed enthusiasm of our employees; the dation to our infrastructure in one of our core shared values: confidence and trust of the thou- or service quality. This will be “Empowering employees and sands of customers who do busi- accomplished by optimizing showing concern for their well- ness with us, and the even larger our fleet size, velocity and being, and respect for their talent number of shareholders who have facility capacity, as well as and achievements.” invested in our future. To all through disciplined execution of you, thank you very much. of each car’s service plan. We have made progress since BNSF People – Retain and 1995 thanks, in part, to the • hire a well-qualified and quality of our management team diverse workforce for BNSF. and the support and trust of our We will continue to improve Board of Directors. Three of our Robert D. Krebs safety performance and work- directors will not be standing for Chairman force development through reelection at our annual sharehold- training, an enhanced per- ers meeting. Joseph F. Alibrandi formance management and George Deukmejian served system and adherence to on the boards of predecessor Matthew K. Rose companies since 1982 and 1991, BNSF’s Vision and Values President and respectively, and have reached (see page 18). Chief Executive Officer 7
    • BNSF’s grade crossing safety team, working with landowners Y T and communities along BNSF lines, closed or contracted E to close 635 redundant or rarely used highway-rail grade F A crossings in 2000. This figure was more than three times the S previous year’s figure and was unmatched in the industry. In addition, BNSF employees and volunteers offered 6,800 Operation Lifesaver grade crossing safety programs in communities along its line, including more than 600 truck driver safety classes and 450 school bus driver safety classes. Highway-Rail Grade Crossing Incidents (per million train miles) As the industry leader with the lowest rate of grade crossing collisions, BNSF has reduced its highway-rail grade crossing collision rate by 39 percent since 1995. “What made sense 50 years seven crossings, put active ago, when a road was warning devices at eight, first built, may not make install stop signs at the sense anymore. BNSF remaining crossings, and worked with the Minnesota do roadway work at Department of Trans- nine locations, using a portation and Morrison combination of state County’s Area Council and BNSF funds. Local of Governments to look residents are pleased, and at every BNSF crossing they see the changes have in the county. We asked benefited the community communities to think and improved safety.” realistically about which crossings no longer served – Gene Young the public need. Of these, Township Officer BNSF and the state and Hog Farmer DOT were able to close Little Falls, Minnesota 8
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    • BNSF Guaranteed Service—money back if delivery is not on E C time—was introduced on three intermodal service corridors I in May 2000, and is operating at a 98 percent success rate. V R An industry first, this service has attracted shippers who never E before used rail transportation. The service was expanded to S additional intermodal service corridors in late 2000. A compar- able program for carload shipments, known as Service Assurance, was implemented in November 2000 on the I-5 Corridor, which links the Pacific Northwest with the Pacific Southwest. truck-competitive service, and this is important as we ship product from British Columbia to customers across the U.S. The more we continue to improve our service to customers, the more business opportunities there will be for Pacifica and BNSF.” “At Pacifica Papers, we in how we manage trans- manufacture value added portation of our product, – Rob Broekhuizen paper products that meet and BNSF has been Distribution Manager our customers’ unique able to keep pace. BNSF Pacifica Paper needs. Many of our cus- provides very good, Vancouver, B.C. tomers demand ‘just in time’ delivery. This On-time Performance 2000 (percent on time) requires more coordination In 2000, BNSF moved more than 8.167 million shipments, with an overall on-time and support from our average of about 91 percent across all commodities. BNSF’s Guaranteed Service, a premium service product geared toward customers with stringent delivery requirements, transportation providers. handled more than 700 shipments in 2000 with 98 percent on-time performance. BNSF’s Service Assurance program has allowed us to increase our volume with BNSF in 2000. We have become more sophisticated at Pacifica 10
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    • Each BNSF locomotive spends an average of 31 hours Y C less “in the shop” for scheduled maintenance every N three to four months, thanks to BNSF’s Lean Process E improvements in 2000. BNSF production crews used I C the Lean Process to improve rail and crosstie installation I efficiency by about 19 percent in 2000. BNSF realized F F similar improvements from 400 additional Lean Workshops E in 2000, on issues ranging from railcar inspections to signal installation to shop material inventories. Locomotive Maintenance Process 1999-2000 Since October 1999, average locomotive dwell time for scheduled maintenance has been reduced system-wide by 31 hours, meaning each locomotive is available to pull freight more than one day sooner. Each of BNSF’s 5,000 active locomotives receives scheduled maintenance three to four times a year. “Lean Workshops are about the locomotives instead, 78 Hours working smarter, not harder. we reduced dwell time Locomotive Maintenance We identify waste in our (the time a locomotive is October 1999 work area, gather data, and unavailable to pull freight) reduce waste, or ‘non-value- here at Barstow from added’ (NVA) time. Super- 68 hours to 32 hours! 47 Hours visors and craftspeople set The Lean Process is work- aside job titles and the ‘way ing at locations across things have always been BNSF, and excitement Locomotive Maintenance done’ to search for efficient grows as we rethink our November 2000 solutions. A Lean Workshop work processes to improve at our Barstow locomotive quality and efficiency.” facility found the largest NVA item was moving loco- – Jodie Lee 31 Hours motives 2.5 miles to seven BNSF locations for maintenance. General Foreman Reduction in Maintenance Time By moving the employees to Barstow, California 12
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    • Introduced in April 2000, BNSF ValueTrax, an on-line N O program aimed to increase intermodal volume during off-peak I days and sell excess capacity on certain service corridors, has VAT resulted in an additional 90-100 loads a week. Other BNSF on-line innovations in 2000 include the Customer Logistics O System, which allows customers to create customized shipment N status reports; ePay, which allows customers to view freight N I bills and schedule payments electronically; and CarsOnTrack, which offers consumers rail transit for personal vehicles. out of Southern California. BNSF is the first U.S. freight railroad to offer transportation specials via the Internet. Designed for customers with flexible production and shipping schedules, ValueTrax is truly revolutionary.” – Randy Richardson “With ValueTrax, we put Los Angeles, for instance, BNSF certain intermodal routes helps us attract more Manager, Intermodal ‘on sale’ for the upcoming revenue loads as we repo- Marketing Company Sunday, Monday, and sition equipment for (IMC) Marketing Tuesday, and post those heavy mid-week volumes Fort Worth, Texas discount fares on our web site. It’s like the airlines’ Electronic Transactions 1999-2000 ‘super saver’ program. We (percent of total) Some BNSF e-Business tools, including ValueTrax, attract new business. Other fill more trains, as we e-Business tools improve “ease of doing business” by enabling customers to transact reposition equipment on business electronically. In 2000, BNSF substantially increased the percentage of major transactions completed electronically. low-volume days, and the shipper saves 15 to 20 percent on traffic that would otherwise move another way. An incentive rate on certain westbound departures from Chicago to 14
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    • With a 20 percent surge in international intermodal business H T in 2000, BNSF’s Southern California terminals handled W record volume. This growth was driven by strong import O demand and by larger-capacity vessels used by BNSF R steamship partners, including Maersk, Hyundai, NYK, G OOCL and Evergreen. BNSF responded to this demand by adding service to match steamship schedules, expanding container storage at origin and destination points, and increasing intermodal facility capacity in the Los Angeles area. customers’ success now and well into this new century. Our Los Angeles hub is the busiest rail intermodal facility in the nation. Everybody I know is proud to play a part in handling the fastest growing business segment in the rail industry.” to meet the expectations “These are exciting times, to say the least. It takes – Chuck Potempa of our international a real team effort to BNSF steamship partners, and handle growth rates that Senior Hub Manager we’ve positioned ourselves seemed unimaginable Los Angeles, California to be a key player in our a couple years ago. The surge in international International Intermodal Growth (in number of containers) intermodal business rep- BNSF’s international resents BNSF’s largest intermodal traffic has grown more than growth area in 2000. 60 percent since 1996. And, there is no reason to believe it’s going to slow down. If you think about it, the health of the U.S. and world economy depends on BNSF’s ability 16
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    • In 1997, BNSF’s senior management team developed a set of VALUES core values to complement BNSF’s vision. These values (see below) define and shape BNSF’s culture. A two-day workshop on Vision and Values was presented in 1998 to salaried employees. A follow-up class, “Values in Action,” developed BNSF’S in 2000 shows how these values shape BNSF’s leadership and management style. Vision and Values influences many aspects of BNSF, from transportation and marketing decisions to town hall meetings to BNSF Achievement Awards. Style Shared Values Equality As a Community, we are: As a Community, BNSF values: As a member of the BNSF • Tough-minded optimists • Listening to customers and Community, I can expect: • Decisive yet thorough doing what it takes to meet • To be treated with dignity • Open and supportive, and their expectations and respect • Confident and proud of • Empowering employees and • To be given equal access our success showing concern for their to tools, training and well-being, and respect for development opportunities their talent and achievements • To have equal opportunity to Liberty As a member of the BNSF • Continuously improving by achieve my full potential Community, each of us has the striving to do the right thing right to: safely and efficiently Community • A safe work environment— • Celebrating our rich heritage BNSF is a Community of for the sake of ourselves, our and building on our success as over 40,000 mutually depend- co-workers, our shippers and we shape our promising future ent members. Each one of the communities we serve us depends upon BNSF for • Feel the satisfaction that our livelihood, and through Efficiency comes from a job well Efficiency is the best collective appli- our collective efforts, BNSF done—by using our talent, cation of our resources to meet our depends upon us to defend, judgment and initiative, customers’ expectations. Each of us sustain and strengthen our and by performing to our contributes to efficiency when we: Community. We are an fullest potential • Understand our customers’ effective Community when • Express our individualism, expectations and priorities each of us: • Help develop business • Believes in our Vision and ideas and concerns—con- processes that best match embraces our Shared Values sistent with the Community’s BNSF resources with our • Knows our own role and Vision and Shared Values, customers’ requirements strives to fulfill it to anyone in the Community • Constantly monitor and • Respects, trusts and openly without fear of retribution measure our results in order communicates with other • Participate fully in life to continuously improve Community members outside of work—by • Manage our Community’s • Is proud of our heritage and enjoying the fruits of resources as if they were our own our own labor confident in our future 18
    • Financial Contents Management’s Discussion and Analysis 21 Report of Management 31 Report of Independent Accountants 31 Consolidated Statement of Income 32 Consolidated Balance Sheet 33 Consolidated Statement of Cash Flows 34 Consolidated Statement of Changes in 35 Stockholders’ Equity Notes To Consolidated Financial Statements 36 Revenue Table The following table presents BNSF’s revenue information by commodity for the years ended December 31, 2000, 1999 and 1998 and includes certain reclassifications of prior year information to conform to current year presentation. Average Revenue Revenues Cars/Units Per Car/Unit 2000 1999 1998 2000 1999 1998 2000 1999 1998 (IN MILLIONS) (IN THOUSANDS) Intermodal $2,654 $2,507 $ 2,451 3,441 3,203 3,086 $ 771 $ 783 $ 794 Carload 2,577 2,561 2,593 1,774 1,773 1,801 1,453 1,444 1,440 Coal 2,131 2,226 2,239 2,023 2,123 2,078 1,053 1,049 1,077 Agricultural Commodities 1,257 1,337 1,280 680 715 689 1,849 1,870 1,858 Automotive 493 443 388 249 250 230 1,980 1,772 1,687 Total Freight Revenues 9,112 9,074 8,951 8,167 8,064 7,884 $1,116 $1,125 $1,135 Other Revenues 93 115 103 Total Revenues $9,205 $9,189 $ 9,054 Management’s Discussion And Analysis in the intermodal, carload and automotive sectors, par- Of Financial Condition tially offset by lower coal and agricultural revenues. And Results Of Operations Average revenue per car/unit decreased in 2000 to $1,116 from $1,125 in 1999. Volumes increased for the year but experienced a general slowing late in 2000 based on Management’s discussion and analysis relates to the economic conditions which have continued in January financial condition and results of operations of Burlington 2001. During 2000, based on reporting to the Association Northern Santa Fe Corporation and its majority-owned of American Railroads (AAR), BNSF’s share of the subsidiaries (collectively, BNSF or Company). The prin- western United States rail traffic market decreased 0.4 cipal subsidiary of BNSF is The Burlington Northern and points to 43.1 percent. Santa Fe Railway Company (BNSF Railway). All earnings per share information is stated on a diluted basis. Intermodal revenues of $2,654 million improved $147 Results Of Operations million, or 6 percent, compared with 1999 reflecting increases in the international and truckload sectors, Year Ended December 31, 2000 partially offset by decreases in the intermodal market- Compared With Year Ended December 31, 1999 ing companies (IMC) and direct marketing sectors. Net income in 2000 was $980 million ($2.36 per share) International revenues were up due to high levels of compared with $1,137 million ($2.44 per share) for 1999. Trans-Pacific trade as well as market share gains with The decrease in earnings per share is primarily due to the Mitsui, Yang Ming and Hapag Lloyd. Truckload revenues effect on net income of a $232 million increase in fuel benefited from strong Schneider National loadings. expenses and recognition in 1999 of a gain of $50 million These revenue increases were partially offset by decreases (pre-tax) in connection with prior period line sales, less in the direct marketing sector due to decreased loadings costs of $13 million (pre-tax) related to those sales, partially within the less than truckload segment and in the offset by the favorable effect of the common stock repur- IMC sector due to pricing pressures, and strong over chase program (see Liquidity and Capital Resources: the road competition. Common Stock Repurchase Program). Carload revenues, which include revenues from the chem- Revenues icals, forest products, metals, minerals and machinery, Total revenues for 2000 were $9,205 million or $16 perishable and dry boxcar sectors, of $2,577 million for million higher than 1999 revenues of $9,189 million. 2000 were $16 million, or 1 percent, higher than 1999 The $16 million increase primarily reflects increases 21
    • due to increases from the metals, perishables, and minerals Fuel expenses of $932 million for 2000 were $232 million, sectors, partially offset by decreased chemicals, forest or 33 percent, higher than 1999, as a result of a 20 cent, products, and machinery revenues. The metals increases or 35 percent, increase in the average all-in cost per gallon were a result of a strong market for steel; the growth in of diesel fuel, partially offset by a 1 percent decrease in perishables was from the success of new service offerings consumption from 1,187 million gallons to 1,173 million and a partial recapture of the truck market; and increases gallons. The increase in the average all-in cost per gallon in minerals were due to higher demand for clay and sand of diesel fuel includes a 34 cent increase in the average used in domestic oil production. These increases were purchase price, partially offset by the favorable impact in partially offset by decreased shipments of industrial 2000 from the Company’s fuel hedging program of 13 chemicals, softness in the forest products sector, and cents per gallon compared with additional expense from lower shipments of heavy machinery. hedging of 1 cent per gallon in 1999. Coal revenues of $2,131 million for 2000 decreased $95 Materials and other expenses of $777 million for 2000 million, or 4 percent, as a result of volume decreases due were $41 million, or 5 percent, lower than 1999 princi- to a decrease in demand as a result of milder weather and pally reflecting: (i) reorganization costs of $48 million high customer inventories that affected shipments for most incurred in the second quarter of 1999 for severance, of the year, while 1999 benefited from an inventory build pension, medical and other benefit costs for approx- up in preparation for possible Year 2000 outages. imately 325 involuntarily terminated salaried employees (see Other Matters: Employee Merger and Separation Agricultural commodities revenues of $1,257 million for Costs); (ii) lower current year environmental expenses 2000 were $80 million, or 6 percent, lower than 1999 and other materials costs compared with 1999; and due primarily to weaker corn export shipments to the (iii) higher current year gains from easement sales. Off- Pacific Northwest and Mexico, and decreased shipments setting these decreases were: (i) $22 million of employee- of Gulf and Pacific Northwest wheat, both caused by related severance, medical and other benefit costs worldwide crop competition. Revenues were also lower recorded in the second quarter of 2000 (see Other as a result of decreased shipments of bulk foods due to Matters: Employee Merger and Separation Costs) for an oversupply of sugar and supplier price competition approximately 150 involuntarily terminated employees, in the syrup market which resulted in less traffic. primarily material handlers in mechanical shops and trainmen reserve boards; (ii) $54 million credit for Automotive revenues of $493 million for 2000 were the reversal of certain liabilities associated with the $50 million, or 11 percent, higher than 1999 reflecting consolidation of clerical functions in the second quarter increased industry-wide automobile production for 1999 (see Other Matters: Employee Merger and most of the year and more profitable longer haul traffic Separation Costs); (iii) the loss of previously earned despite essentially flat volumes year-over-year. state tax incentives in the second quarter 2000; and (iv) higher costs in 2000 related to the maintenance of leased equipment. Expenses Total operating expenses for 2000 were $7,097 million, an increase of $113 million, or 2 percent, compared with Interest expense for 2000 of $453 million increased $66 operating expenses for 1999 of $6,984 million, despite a million, or 17 percent, principally reflecting higher debt $232 million increase in fuel expenses. levels resulting from the Company’s share repurchase program and higher interest rates. Total debt increased Compensation and benefits expenses of $2,729 million to $6,846 million at December 31, 2000, from $5,813 were $43 million, or 2 percent, lower than 1999 primarily million at December 31, 1999. due to lower employment levels and reduced incentive expense, partially offset by increased base wages. Other income (expense), net was unfavorable by $71 million compared with 1999 primarily due to Purchased services of $1,022 million for 2000 were $23 a $50 million (pre-tax) deferred gain recognized million, or 2 percent, lower than 1999 primarily as a during 1999 in connection with the sale of rail lines result of decreased joint facility and contract switching in Southern California in 1992 and 1993, and the charges as well as recoveries related to prior periods. recognition in 2000 of $20 million (pre-tax) of This decrease was partially offset by increased contract expenses related to the termination of the proposed equipment maintenance costs due to an increase in the combination with Canadian National Railway number of locomotives under maintenance contracts Company (see Note 3 to the Company’s consolidated and volume-related increases in ramping expenses. financial statements). Equipment rents expenses of $742 million were $10 mil- Year Ended December 31, 1999 lion, or 1 percent, lower than 1999 as a result of lower Compared With Year Ended December 31, 1998 lease rates on rail cars as well as a decrease in the number Earnings per share increased to $2.44 per share for 1999 of leased agricultural commodity and coal cars, partially from $2.43 per share for 1998 although net income was offset by increased locomotive rental expense. slightly lower for 1999 at $1,137 million compared with 22
    • 1998 net income of $1,155 million. The slight decrease early in the year at the Powder River Basin mines, and in net income is primarily due to a 1998 gain of $67 a decrease in the demand for coal due to milder weather million on the sale of substantially all of the Company’s for most of the year, contributed to the year-over-year interest in Santa Fe Pacific Pipeline Partners, L.P., along decrease, which was partially offset by an inventory build- with 1998 gains on real estate portfolio sales and higher up in 1999 to prepare for possible Year 2000 outages. The interest expense in 1999 incurred on borrowings to fund total number of rail cars shipped increased by 45,000, or the share repurchase program (see Liquidity and Capital 2 percent, over 1998 volumes. Resources: Common Stock Repurchase Program), and increased 1999 environmental expenses. These decreases Agricultural commodities revenues of $1,337 million for in net income were partially offset by increased operating 1999 were $57 million, or 4 percent, higher than 1998 revenues in 1999 due to volume gains in most sectors. due primarily to increased demand for soybean exports and Pacific Northwest corn. The increase in soybean rev- enue was fueled by favorable pricing and an increased Revenues Total revenues for 1999 were $9,189 million, or 1 supply of soybeans that was sufficient to meet the higher percent, higher compared with revenues of $9,054 demand. Increases in revenue were slightly offset by lower million for 1998. The $135 million increase primarily wheat revenue per car and fewer soybean oil shipments reflects increases in the intermodal, agricultural in 1999 compared with 1998. commodities and automotive sectors, partially offset by lower carload and coal revenues. Average revenue Automotive revenues of $443 million for 1999 were per car/unit decreased slightly in 1999 to $1,125 from $55 million, or 14 percent, higher than 1998 reflecting $1,135 in 1998. During 1999, BNSF’s share of the growth in vehicle shipments due to both a record year western United States rail traffic market, based on of new vehicle production coupled with an increase in reporting to the AAR, decreased 0.8 points to 43.5 revenue per unit as a result of a favorable change in the percent. This decrease in market share was primarily mix of vehicles transported. due to Union Pacific regaining market share as a result of its recovery from operating difficulties experienced Expenses in the prior year. Total operating expenses for 1999 were $6,984 million, an increase of $88 million, or 1 percent, compared with Carload revenues of $2,561 million for 1999 were $32 operating expenses for 1998 of $6,896 million. million, or 1 percent, lower than 1998 due to decreases in the chemicals, minerals and machinery, and metals Compensation and benefits expenses of $2,772 million sectors, partially offset by increased forest product revenues. were $40 million, or 1 percent, lower than 1998 primarily The decreases were a result of weaknesses in the chemicals due to lower employment levels resulting from the second sector due to soft fertilizer markets, weaknesses in the quarter 1999 reorganization discussed in Other Matters: metals sector due to increased steel imports, and a decrease Employee Merger and Separation Costs, partially offset by in dedicated train movements of heavy machinery. These increased base wage rates. decreases were partially offset by increased inland shipments of forest products. Purchased services of $1,045 million for 1999 were $25 million, or 2 percent, higher than 1998 due primarily to Intermodal revenues of $2,507 million improved $56 mil- increased contract equipment maintenance costs as well lion, or 2 percent, compared with 1998 reflecting increases as ramping and other transportation service contracts, in the direct marketing, international and truckload partially offset by lower haulage expenses. sectors, partially offset by decreases in the intermodal marketing companies (IMC) sector. Direct marketing Equipment rents expenses of $752 million were $52 mil- revenues benefited from year-over-year growth of units lion, or 6 percent, lower than 1998 as a result of lower shipped for UPS and Roadway Express. International intermodal equipment costs due to a reduction in time revenues were up due to market share gains and new and mileage, and trailer and container expenses. Lower business with Sealand, NYK, Maersk and K-Line. Truck- agricultural leased car expense due to improved cycle load revenues were driven primarily by year-over-year times also contributed to the decrease. growth in J.B. Hunt, Swift and Triple Crown loadings. These revenue increases were partially offset by decreases Fuel expenses of $700 million for 1999 were $21 million, in the IMC sector due to competitive pricing pressures, or 3 percent, lower than 1998, as a result of a 3 cent, or an overall softening in the IMC market, and increased 6 percent, decrease in the average all-in cost per gallon of trucking capacity. diesel fuel, partially offset by a 3 percent volume-driven increase in consumption from 1,155 million gallons to Coal revenues of $2,226 million for 1999 decreased $13 1,187 million gallons. The average all-in cost per gallon million, or 1 percent, as a result of a decrease in average of diesel fuel decreased year-over-year due to current revenue per car due to a decline in coal shipping rates year fuel hedge losses of 1 cent per gallon compared to on contracts renewed beginning in late 1998 at the lower 7 cents per gallon in the prior year, which were partially 1998 and 1999 market based rates. Operating difficulties offset by a 3 cent increase in the average purchase price. 23
    • Materials and other expenses of $818 million for 1999 a $43 million dividend from the Company’s equity were $111 million, or 16 percent, higher than 1998 investment in TTX Company in March 2000 as principally reflecting higher environmental, personal well as lower merger, separation and environmental injury, property and other tax expenses. As discussed in clean-up payments. Other Matters: Employee Merger and Separation Costs, reorganization costs of $45 million were incurred during Investing Activities the second quarter of 1999 for severance, pension, medical Net cash used for investing activities during 2000 was and other benefit costs for approximately 325 involun- $1,680 million consisting of $1,399 million in capital tarily terminated salaried employees that were part of a expenditures as described below, and $281 million of reorganization program announced in May 1999 to other investing activities which primarily include retired reduce operating expenses and an additional $3 million track structure removal costs, participation in joint of costs incurred for relocating approximately 60 non- investment projects and advances for future investment union employees as a result of the reorganization. In transactions. The increase in other investing activities addition, the Company also reversed during the second compared to 1999 was principally due to an increase quarter certain merger severance liabilities of $54 million in joint investment projects and advances for future associated with the Company’s clerical consolidation investment transactions. plan. These liabilities related to planned work-force reductions which were no longer needed due to the A breakdown of cash capital expenditures is set forth in the Company’s ability to utilize a series of job swaps between following table (in millions): certain locations to achieve the advantages of functional work consolidation. Year ended December 31, 2000 1999 1998 Maintenance of way $ 835 $ 810 $ 799 Interest expense for 1999 of $387 million increased Mechanical 221 240 243 $33 million, or 9 percent, principally reflecting higher Information services 66 74 76 debt levels resulting from the Company’s share repur- Other 144 151 185 chase program. Total debt increased to $5,813 mil- Total maintenance of business 1,266 1,275 1,303 lion at December 31, 1999, from $5,456 million at New locomotives and freight cars – 261 340 December 31, 1998. Expansion and other 133 252 504 Total $1,399 $1,788 $2,147 Other income (expense), net was unfavorable by $44 million compared with 1998 primarily due to the $67 million gain BNSF reduced 2000 cash capital expenditures compared (pre-tax) on the sale of substantially all of the Company’s with 1999 by approximately $389 million to $1,399 interest in Santa Fe Pacific Pipeline Partners, L.P. in 1998 million. Cash used for new locomotives was lower in and gains of $26 million (pre-tax) from the sale of a real 2000 reflecting a decrease in the number of locomotives estate portfolio in 1998. This was partially offset by the purchased. In 2000, 246 new locomotives were delivered recognition in 1999 of a $50 million (pre-tax) deferred to BNSF under long-term operating leases compared with gain in connection with the sale of rail lines in Southern 476 locomotives in 1999. Expansion projects, principally California in 1992 and 1993. main line track and major facility construction, decreased due to a reduced capital program in 2000. Liquidity And Capital Resources Cash generated from operations is BNSF’s principal BNSF has entered into commitments to acquire 100 source of liquidity. BNSF generally funds any additional locomotives in 2001. The locomotives will be financed liquidity requirements through debt issuance, including from one or a combination of sources including, but not commercial paper or leasing of assets. limited to, cash from operations, capital or operating leases, and debt issuances. The decision on the method During 2000, BNSF generated free cash flow after used will depend upon then current market conditions dividends paid (calculated as cash flow from operations and other factors. less capital expenditures, other investing activities and dividends paid) of $431 million, an improvement Financing Activities of $171 million from free cash flow of $260 million Net cash used for financing activities during 2000 in 1999. This increase was due primarily to reduced was $648 million, principally consisting of share repur- capital spending partially offset by reduced cash flow chases of $1,496 million and dividend payments of from operating activities. $206 million, partially offset by net debt borrowings of $1,034 million. Operating Activities Net cash provided by operating activities was $2,317 In February 2000, a put option on $100 million of million during 2000 compared with $2,424 million medium-term notes paying a coupon of 6.10 percent during 1999. The decrease in cash from operations was exercised by the holders and the Company repaid was primarily due to a decrease in net income and the holders primarily with proceeds from the issuance lower deferred taxes, partially offset by the receipt of of commercial paper. 24
    • In April 2000, BNSF issued $300 million of 7.875 per- February 1999 shelf registration statement. The net cent notes due April 2007 and $200 million of 8.125 proceeds were used for general corporate purposes percent debentures due April 2020. The net proceeds including the repayment of commercial paper. At the of the debt issuance were used for general corporate time of issuing the $200 million of 6.125 percent notes purposes including the repayment of outstanding com- discussed above, the Company closed out a $100 mil- mercial paper which increased primarily as a result lion treasury lock transaction at a gain of approximately of higher share repurchases. At the time of issuing the $8 million which has been deferred and is being amortized $300 million of 7.875 percent notes and the $200 to interest expense over the 10-year life of the notes. million of 8.125 percent debentures discussed above, the Company closed out two treasury lock transactions, In April 1999, the holder of a call option on $200 mil- each in an amount of $100 million, at gains of approx- lion of the Company’s puttable reset debentures due imately $9 million and $13 million, respectively, which 2029 exercised the call option. As a result, on May 13, have been deferred and are being amortized to interest 1999, the holder repurchased the debentures which were expense over the lives of the notes and the debentures, subsequently resold to investors. The interest rate on respectively. Subsequent to this debt issuance, the Company the debentures was reset to a fixed interest rate of 7.082 had no remaining capacity under the February 1999 shelf percent. The Company did not receive any proceeds registration statement. from the resale of these debentures. In April 2000, BNSF Railway issued $50 million of Aggregate long-term debt scheduled to mature in 2001 privately placed debt collateralized by locomotives that is $232 million. BNSF’s ratio of total debt to total were acquired in 1999. This debt carries an interest rate capital was 47.8 percent at the end of 2000, 41.6 of 7.77 percent and matures from April 2001 to 2015. percent at the end of 1999, and 41.2 percent at the end of 1998. The increase in 2000 over the prior In May 2000, the Company filed a new shelf registration year is attributable to the increase in debt and lower statement that became effective during May 2000 for equity due primarily to higher share repurchases, as the issuance of debt securities which may be issued in discussed below. one or more series at an aggregate offering price not to exceed $1 billion. Credit Agreements BNSF issues commercial paper from time to time In August 2000, BNSF issued $275 million of 7.95 per- which is supported by bank revolving credit agree- cent debentures due August 2030 under the May 2000 ments. Outstanding commercial paper balances are shelf registration statement. The net proceeds were used considered as reducing the amount of borrowings for general corporate purposes including the repayment available under these agreements. The bank revolving of outstanding commercial paper which increased prima- credit agreements, which were renewed and extended rily as a result of higher share repurchases. At the time effective June 21, 2000, allow borrowings of up to of issuing these debentures, the Company closed out a $1.0 billion on a short-term basis (an increase of treasury lock transaction in the amount of $100 million $250 million over the prior agreement) and $750 mil- at a gain of approximately $8 million which has been lion on a long-term basis. Annual facility fees are deferred and is being amortized to interest expense over currently 0.1 percent and 0.125 percent, respectively, the 30-year life of the debentures. Subsequent to this and are subject to change based upon changes in issuance, the Company had $725 million available for BNSF’s senior unsecured debt ratings. Borrowing borrowing under the May 2000 registration statement. rates are based upon i) LIBOR plus a spread deter- mined by BNSF’s senior unsecured debt ratings, ii) In December 2000, BNSF issued $300 million of 7.125 money market rates offered at the option of the lenders, percent notes due December 2010 under the May 2000 or iii) an alternate base rate. The Company generally shelf registration statement. The net proceeds were used classifies commercial paper as long-term to the extent for general corporate purposes including the repayment of its commitments available under the revolving of outstanding commercial paper which increased prima- credit agreements. The commitments of the lenders rily as a result of higher share repurchases. At the time under the short-term agreement are scheduled to of issuing these debentures, the Company closed out a expire in June 2001, with the ability for any amounts treasury lock transaction in the amount of $100 million then outstanding to mature as late as June 2002. The at a gain of approximately $5 million which has been commitments of the lenders under the long-term deferred and is being amortized to interest expense over agreement are scheduled to expire in June 2005. the 10-year life of the notes. Subsequent to this issuance, the Company had $425 million available for borrowing BNSF also had outstanding bank borrowings at December 31, under the May 2000 registration statement. 2000, with maturity values of $75 million and interest rates similar to commercial paper which, upon maturity, In March 1999, BNSF issued $200 million of 6.125 may be replaced with commercial paper or other bank percent notes due March 2009 and $200 million of borrowings. There were no bank borrowings outstanding 6.750 percent debentures due March 2029 under the at December 31, 1999. 25
    • At December 31, 2000 there were no borrowings against Common Stock Split On July 16, 1998, the Board of Directors approved a the revolving credit agreements and the maturity value three-for-one common stock split, which was effected of commercial paper outstanding was $573 million, in the form of a stock dividend of two additional shares leaving a total capacity of $1,177 million available under of BNSF common stock payable for each share out- the revolving credit agreements. BNSF must maintain standing or held in treasury on September 1, 1998, to compliance with certain financial covenants under its stockholders of record on August 17, 1998. All equity- revolving credit agreements and at December 31, 2000, based benefit plans reflect the issuance of additional the Company was in compliance. shares or options due to the declaration of the stock split. All share and per share data were restated to reflect Common Stock Repurchase Program the stock split. In July 1997, the Board of Directors of BNSF author- ized the repurchase of up to 30 million shares of the Company’s common stock from time to time in the Dividends Common stock dividends declared were $0.48 per open market. In December 1999, April 2000 and share annually for 2000 and 1999 and $0.44 per share September 2000, the Board of Directors authorized annually in 1998. Dividends paid on common stock extensions of the BNSF share repurchase program, were $206 million, $224 million and $197 million adding 30 million shares at each date to the total during 2000, 1999 and 1998, respectively. On January 18, shares previously authorized. During 2000, 1999 2001, the Board of Directors declared a quarterly dividend and 1998, the Company repurchased approximately of 12 cents per share upon outstanding shares of common 65 million, 22 million, and 5 million shares, respec- stock, $.01 par value, payable April 2, 2001, to stock- tively, of its common stock at average prices of holders of record on March 12, 2001. $23.16 per share, $31.08 per share, and $30.75 per share, respectively. There were no repurchases under Other Matters this program in 1997. Total repurchases through January 31, 2001, were 92 million shares at a total Casualty And Environmental Personal injury claims, including work-related injuries average cost of $25.51 per share, leaving 28 million to employees, are a significant expense for the railroad shares available for repurchase out of the 120 million industry. Employees of BNSF are compensated for work- shares authorized. related injuries according to the provisions of the Federal Employers’ Liability Act (FELA). FELA’s system of In connection with its share repurchase program, in April requiring the finding of fault, coupled with unscheduled 1999, BNSF sold equity put options for 0.1 million awards and reliance on the jury system, contributed to shares of common stock to an independent third party significant increases in expense in past years. BNSF has and received cash proceeds of $0.1 million. The third implemented a number of safety programs to reduce party exercised the options on October 12, 1999, which the number of personal injuries as well as the associated resulted in the Company purchasing 0.1 million shares claims and personal injury expense. BNSF made payments of its common stock at $29 per share. The Company for personal injuries of approximately $178 million, accounts for the effects of equity put option transactions $179 million, and $193 million in 2000, 1999 and 1998, within stockholders’ equity. During 2000, there were no respectively. At December 31, 2000 and 1999, the sales of equity put options. Company had recorded liabilities related to both asserted and unasserted personal injury claims of $436 million An equity put option is a financial instrument whereby and $446 million, respectively. BNSF receives an upfront cash premium for granting another party the option to sell a defined number As discussed in more detail in Note 11 to the Company’s of BNSF shares to the Company at a fixed price on consolidated financial statements, the Company’s oper- a specified future date. The Company considers the ations, as well as those of its competitors, are subject to sale of equity put options as a method to acquire its extensive federal, state and local environmental regu- common stock at a share price consistent with its share lation. BNSF’s operating procedures include practices repurchase strategy and potentially reduce the all-in to protect the environment from the risks inherent in cost of the program. The Company’s risk is that it railroad operations, which frequently involve transporting may be required to purchase shares at a specified price chemicals and other hazardous materials. Additionally, that is higher than the common stock price at the many of BNSF’s land holdings are and have been used exercise date of the equity put option. The Company for industrial or transportation-related purposes or leased has the ability to settle its equity put option transac- to commercial or industrial companies whose activities tions on a net share or net cash basis and accounts for may have resulted in discharges onto the property. As a the effects of these transactions within stockholders’ result, BNSF is subject to environmental clean-up and equity. The number of shares subject to outstanding enforcement actions. In particular, the Federal Compre- put options sold by the Company cannot exceed the hensive Environmental Response, Compensation and amount of remaining shares the Board of Directors Liability Act of 1980 (CERCLA), also known as the has authorized for repurchase. As of January 31, 2001, “Superfund” law, as well as similar state laws generally there were no equity put options outstanding. 26
    • impose joint and several liability for clean-up and liabilities include BNSF’s best estimates of all costs, enforcement costs on current and former owners and without reduction for anticipated recoveries from third operators of a site without regard to fault or the legality parties, BNSF’s total clean-up costs at these sites cannot of the original conduct. BNSF has been notified that it be predicted with certainty due to various factors such is a potentially responsible party (PRP) for study and as the extent of corrective actions that may be required, clean-up costs at approximately 31 Superfund sites for evolving environmental laws and regulations, advances which investigation and remediation payments are or in environmental technology, the extent of other parties’ will be made or are yet to be determined (the Superfund participation in clean-up efforts, developments in ongoing sites) and, in many instances, is one of several PRPs. In environmental analyses related to sites determined to addition, BNSF may be considered a PRP under certain be contaminated, and developments in environmental other laws. Accordingly, under CERCLA and other surveys and studies of potentially contaminated sites. federal and state statutes, BNSF may be held jointly and As a result, future charges to income for environmental severally liable for all environmental costs associated with liabilities could have a significant effect on results of a particular site. If there are other PRPs, BNSF generally operations in a particular quarter or fiscal year as participates in the clean-up of these sites through cost- individual site studies and remediation and restoration sharing agreements with terms that vary from site to site. efforts proceed or as new sites arise. However, manage- Costs are typically allocated based on relative volumetric ment believes that it is unlikely that any identified contribution of material, the amount of time the site was matters, either individually or in the aggregate, will owned or operated, and/or the portion of the total site have a material adverse effect on BNSF’s consolidated owned or operated by each PRP. results of operations, financial position or liquidity. Environmental costs include initial site surveys and envi- Other Claims And Litigation ronmental studies of potentially contaminated sites as BNSF and its subsidiaries are parties to a number of well as costs for remediation and restoration of sites legal actions and claims, various governmental proceedings determined to be contaminated. Liabilities for environ- and private civil suits arising in the ordinary course of mental clean-up costs are initially recorded when BNSF’s business, including those related to environmental matters liability for environmental clean-up is both probable and personal injury claims. While the final outcome of and a reasonable estimate of associated costs can be these items cannot be predicted with certainty, considering made. Adjustments to initial estimates are recorded as among other things the meritorious legal defenses available, necessary based upon additional information developed it is the opinion of management that none of these items, in subsequent periods. BNSF conducts an ongoing when finally resolved, will have a material adverse effect environmental contingency analysis, which considers a on the results of operations, financial position or liquidity combination of factors including independent consulting of BNSF, although an adverse resolution of a number of reports, site visits, legal reviews, analysis of the likelihood these items could have a material adverse effect on the of participation in and the ability of other PRPs to pay results of operations in a particular quarter or fiscal year. for clean-up, and historical trend analyses. Employee Merger And Separation Costs BNSF is involved in a number of administrative and Employee merger and separation liabilities of $310 million judicial proceedings and other mandatory clean-up and $356 million are included in the consolidated balance efforts at approximately 385 sites, including the sheet at December 31, 2000 and 1999, respectively, and Superfund sites, at which it is participating in the principally represent: (i) employee-related severance costs study or clean-up, or both, of alleged environmental for the consolidation of clerical functions; (ii) deferred contamination. BNSF paid approximately $49 million, benefits payable upon separation or retirement to certain $67 million and $64 million during 2000, 1999 and active conductors, trainmen and locomotive engineers; 1998, respectively, for mandatory and unasserted clean- and (iii) certain non-union employee severance costs. up efforts, including amounts expended under federal Employee merger and separation expenses are recorded and state voluntary clean-up programs. The Company to Materials and Other in the Company’s consolidated had recorded liabilities for remediation and restoration income statement. of all known sites of approximately $223 million at December 31, 2000, compared with $232 million at Consolidation Of Clerical Functions December 31, 1999. BNSF anticipates that the majority Liabilities related to the consolidation of clerical functions of the accrued costs at December 31, 2000, will be paid were $96 million and $119 million at December 31, 2000 over the next five years. No individual site is considered and 1999, respectively, and primarily provide for severance to be material. costs associated with the clerical consolidation plan adopted in 1995 upon consummation of the business combination Liabilities recorded for environmental costs represent of BNSF’s predecessor companies Burlington Northern, BNSF’s best estimates for remediation and restoration Inc. and Santa Fe Pacific Corporation (the Merger). The of these sites and include both asserted and unasserted consolidation plan resulted in the elimination of approx- claims. Unasserted claims are not considered to be a imately 1,500 permanent positions and was substantially material component of the liability. Although recorded completed during 1999. 27
    • In the fourth quarter of 2000 and the second quarter of 1,000 scheduled (union) positions through severances, 1999, the Company recorded a $10 million and $54 mil- normal attrition and the elimination of contractors. lion, respectively, reversal of certain liabilities associated Components of the charge include approximately with the consolidation plan. These liabilities related to $29 million relating to severance costs for non-union planned work force reductions that are no longer required employees, and approximately $16 million for special due to the Company’s ability to place certain identified termination benefits to be received under the Company’s employees in alternate positions. The remaining liability retirement and medical plans. Substantially all of the balance at December 31, 2000 represents benefits to be planned reductions were made by September 30, 1999. paid to affected employees who did not receive lump-sum No significant costs were incurred as a result of elim- payments, but instead will be paid over five to ten years inating the 1,000 scheduled positions. or in some cases through retirement. During 2000, 1999 and 1998, BNSF made employee In the second quarter of 2000, the Company recorded merger and separation payments of $58 million, $93 a charge of $17 million for severance, medical and million and $77 million, respectively. At December 31, other benefit costs related to approximately 140 material 2000, $49 million of the remaining liabilities are handlers in mechanical shops. Liabilities remaining included within current liabilities for anticipated costs at December 31, 2000 related to this program reflect to be paid in 2001. elections to receive payments over the next several years rather than lump sum payments. Hedging Activities Fuel Conductors, Trainmen And Locomotive Engineers Historically, fuel expenses have approximated 10 percent Liabilities related to deferred benefits payable upon sepa- of total operating expenses; however, fuel costs during ration or retirement to certain active conductors, trainmen 2000 represented 13 percent of total operating expenses and locomotive engineers were $183 million and $193 due to significantly higher than historical fuel prices million at December 31, 2000 and 1999, respectively. which have continued to date into 2001. Due to the These costs were primarily incurred in connection with significance of diesel fuel expenses to the operations labor agreements reached prior to the Merger which, of BNSF and the historical volatility of fuel prices, among other things, reduced train crew sizes and allowed the Company maintains a program to hedge against for more flexible work rules. fluctuations in the price of its diesel fuel purchases. The intent of the program is to protect the Company’s In the second quarter of 2000, the Company incurred operating margins and overall profitability from adverse $3 million of costs for severance, medical and other fuel price changes by entering into fuel hedge instru- benefit costs for approximately 50 trainmen on reserve ments based on management’s evaluation of current boards. The remaining reserve of less than $1 million and expected diesel fuel price trends. However, to the at December 31, 2000 will be paid over the next two extent the Company hedges portions of its fuel pur- years to severed employees who elected to receive their chases, it may not realize the impact of decreases in payments over time. fuel prices. Conversely, to the extent the Company does not hedge portions of its fuel purchases, it may be Non-Union Employee Severance adversely affected by increases in fuel prices. The fuel- Liabilities principally related to certain remaining hedging program includes the use of commodity swap non-union employee severances resulting from the transactions that are accounted for as hedges. Any May 1999 reorganization and from the Merger were gains or losses associated with changes in the market $30 million and $44 million at December 31, 2000 value of the fuel swaps are deferred and recognized and 1999, respectively. These costs will be paid over as a component of fuel expense in the period in which the next several years based on deferral elections made the fuel is purchased and used. Based on 2000 fuel by the employees. consumption and excluding the impact of the hedging program, each one-cent increase in the price of fuel In the second quarter of 2000, the Company incurred would result in approximately $12 million of additional $2 million of costs for severance, medical and other fuel expense on an annual basis. benefit costs for ten involuntarily terminated non-union positions. All of these planned reductions were completed As of January 31, 2001, BNSF had entered into fuel at December 31, 2000. swaps for approximately 378 million gallons at an average price of approximately 50 cents per gallon. In the second quarter of 1999, the Company incurred The above price does not include taxes, transportation $45 million of reorganization costs for severance, costs, certain other fuel handling costs, and any differ- pension, medical and other benefit costs for approx- ences which may occur from time to time between the imately 325 involuntarily terminated non-union prices of commodities hedged and the purchase price employees that were part of the program announced of BNSF’s diesel fuel. Currently, BNSF’s fuel hedging in May 1999 that sought to reduce operating expenses program covers approximately 24 percent and 8 percent by eliminating approximately 400 non-union and of estimated annual fuel purchases for 2001 and 2002, 28
    • respectively. Hedge positions are closely monitored to Labor Labor unions represent approximately 89 percent of ensure that they will not exceed actual fuel requirements BNSF Railway’s employees under collective bargaining in any period. Unrecognized gains from BNSF’s fuel agreements with 13 different labor organizations. The swap transactions were approximately $74 million as of negotiating process for new, major collective bargaining December 31, 2000, of which $60 million relates to swap agreements covering all of BNSF Railway’s union employ- transactions that will expire in 2001. BNSF also monitors ees has been underway since the bargaining round was its hedging positions and credit ratings of its counterparties initiated November 1, 1999. Wages, health and welfare and does not anticipate losses due to counterparty nonper- benefits, work rules, and other issues have traditionally formance. Receivables from fuel hedging activities of $50 been addressed through industry-wide negotiations. million and $29 million at December 31, 2000 and 1999 These negotiations have generally taken place over a respectively, are recorded in the Company’s consolidated number of months and have previously not resulted in balance sheet as part of Other Current Assets and represent any extended work stoppages. The existing agreements settled fuel hedging contracts. remained in effect through the end of the year, and will continue to remain in effect until new agreements are Interest Rate reached or the Railway Labor Act’s procedures (which From time to time, the Company enters into various include mediation, cooling-off periods, and the possibility interest rate hedging transactions for the purpose of of Presidential intervention) are exhausted. The current managing exposure to fluctuations in interest rates and agreements provide for periodic wage increases until establishing rates in anticipation of future debt issuances. new agreements are reached. The National Carriers’ Con- Swaps totaling $125 million which were used to fix the ference Committee, BNSF’s multi-employer collective interest rate on commercial paper debt expired in December bargaining representative, during the third quarter of 2000 1999. While the swaps were outstanding, BNSF recognized, reached a tentative agreement with the United Transpor- on an accrual basis, a fixed rate of interest on the principal tation Union (UTU) covering wage and work rule issues amount of commercial paper hedged over the term of the through the year 2004 for conductors, brakemen, yardmen, swap agreements. As of January 31, 2001, BNSF had no yardmasters and firemen (approximately one third of interest rate swap instruments in place. BNSF’s unionized workforce). The agreement is subject to ratification by the UTU’s membership. Health and welfare At the time of issuing the $300 million of 7.875 percent benefit issues were not resolved by this agreement, and notes and the $200 million of 8.125 percent debentures will remain the subject of continuing negotiations. in April 2000, the Company closed out two treasury lock transactions with expiration dates in 2000, each in an amount of $100 million (one based on the 10-year and Inflation Due to the capital intensive nature of BNSF’s business, one based on the 30-year rates), at gains of approximately the full effect of inflation is not reflected in operating $9 million and $13 million, respectively, which have been expenses because depreciation is based on historical cost. deferred and are being amortized to interest expense An assumption that all operating assets were depreciated over the 30-year and 10-year lives of the notes and the at current price levels would result in substantially greater debentures, respectively. expense than historically reported amounts. At the time of issuing the $275 million of 7.95 percent debentures in August 2000 and the $300 million of Accounting Pronouncements BNSF adopted Statement of Financial Accounting Standards 7.125 percent notes in December 2000, the Company (SFAS) No. 133, Accounting for Derivative Instruments closed out two treasury lock transactions, each in an and Hedging Activities, as amended by SFAS No. 138, amount of $100 million (one based on the 30-year and beginning January 1, 2001. SFAS No. 133, as amended, one based on the 10-year rates and both with expiration requires that all derivative instruments be recorded on the dates in June 2001) at gains of $8 million and $5 million, balance sheet at their fair value. Changes in fair value of respectively, which have been deferred and are being derivatives are recorded each period in current earnings amortized to interest expense over the 30-year and 10-year or other comprehensive income, depending on whether a lives of the debentures and notes, respectively. derivative is designated and qualifies for hedge accounting and, if it does, the type of hedge transaction. In 1999, at the time of issuing $200 million of debt, the Company closed out $100 million of treasury lock trans- For qualifying cash-flow hedge transactions in which actions at a gain of $8 million. During 1998, at the time the Company is hedging the variability of cash flows of issuing $400 million of debt, the Company closed out related to a variable rate asset, liability, or a forecasted $400 million of treasury lock transactions at a loss of transaction, changes in the fair value of the derivative approximately $18 million. In each case, the gain or loss instrument will be reported in other comprehensive has been deferred and is being amortized to interest income to the extent it offsets changes in the cash flows expense over the life of the debt. related to the variable rate asset, liability or forecasted transaction, with the difference reported in current As of December 31, 2000, the Company had no outstand- period earnings. The gains and losses on the derivative ing treasury lock transactions. 29
    • instrument that are reported in other comprehensive with the hedged transaction will be immediately recog- income will be reclassified in earnings in the periods in nized in net income. which earnings are impacted by the variability of the cash flows of the hedged item. The ineffective portion of Forward-Looking Information all hedges will be recognized in current-period earnings. To the extent that the statements made by the Company in this annual report or otherwise relate to the Company’s Based on fuel hedging instruments outstanding at January 1, future economic performance or business outlook, predic- 2001 and previously deferred net gains from past interest tions or expectations of financial or operational results, rate hedging transactions, all of which are cash-flow hedge or refer to matters which are not historical facts, such transactions, the Company will record a net-of-tax statements are “forward-looking” statements within the cumulative-effect benefit to accumulated other comprehen- meaning of the federal securities laws. These forward- sive deficit in the Company’s consolidated balance sheet looking statements involve a number of risks and uncertain- of approximately $58 million on adoption in the first ties, and actual results may differ materially. Factors that quarter 2001. Because the Company’s derivative instruments could cause actual results to differ materially include, but historically have been highly effective in hedging the expo- are not limited to, economic and industry conditions: material sure to changes in cash flows associated with forecasted adverse changes in economic or industry conditions, purchases of diesel fuel and changes in the risk-free rate customer demand, effects of adverse economic conditions of interest on anticipated issuances of long-term debt, we affecting shippers, adverse economic conditions in the do not expect the adoption of SFAS 133, as amended, to industries and geographic areas that produce and consume have a material impact on our future results of operations. freight, changes in fuel prices, and labor difficulties including strikes; legal and regulatory factors: change in Although BNSF expects the derivative instruments it laws and regulations and the ultimate outcome of shipper currently uses to hedge to continue to be highly effective, claims, environmental investigations or proceedings and if they are determined not to be highly effective in the other types of claims and litigation; and operating factors: future, or if the Company uses derivative instruments technical difficulties, changes in operating conditions and that do not meet the stringent requirements for hedge costs, competition and commodity concentrations as well accounting under SFAS 133, as amended, then future as natural events such as severe weather, floods and earth- earnings could reflect greater volatility. Additionally, if quakes. The factors noted, individually or in combination a cash flow hedge is discontinued because the forecasted could, among other things, limit demand and pricing, transaction is no longer expected to occur, any gain or affect costs and the feasibility of certain operations, or loss in accumulated comprehensive income associated affect traffic and pricing levels. 30
    • Report Of Management Report Of Independent Accountants To The Shareholders Of To The Shareholders And Board Of Directors Of Burlington Northern Santa Fe Corporation Burlington Northern Santa Fe Corporation The accompanying consolidated financial statements of And Subsidiaries Burlington Northern Santa Fe Corporation and subsidiary In our opinion, the accompanying consolidated balance sheet companies were prepared by management, who are respon- and the related consolidated statements of income, of cash sible for their integrity and objectivity. They were prepared flows and of changes in stockholders’ equity present fairly, in accordance with generally accepted accounting principles in all material respects, the financial position of Burlington and properly include amounts that are based on manage- Northern Santa Fe Corporation and subsidiary companies ment’s best judgments and estimates. Other financial at December 31, 2000 and 1999, and the results of their information included in this annual report is consistent operations and their cash flows for each of the three years in with that in the consolidated financial statements. the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States The Company maintains a system of internal accounting of America. These financial statements are the responsibility controls to provide reasonable assurance that assets are of the Company’s management; our responsibility is to express safeguarded and that the books and records reflect the an opinion on these financial statements based on our audits. authorized transactions of the Company. Limitations exist We conducted our audits of these statements in accordance in any system of internal accounting controls based upon with auditing standards generally accepted in the United the recognition that the cost of the system should not States of America, which require that we plan and perform exceed the benefits derived. The Company believes its the audit to obtain reasonable assurance about whether the system of internal accounting controls, augmented by its financial statements are free of material misstatement. An internal auditing function, appropriately balances the audit includes examining, on a test basis, evidence supporting cost/benefit relationship. the amounts and disclosures in the financial statements, assessing the accounting principles used and significant Independent accountants provide an objective assessment estimates made by management, and evaluating the overall of the degree to which management meets its responsibility financial statement presentation. We believe that our audits for fairness of financial reporting. They regularly evaluate provide a reasonable basis for our opinion. the system of internal accounting controls and perform such tests and other procedures as they deem necessary to express an opinion on the fairness of the consolidated financial statements. PricewaterhouseCoopers LLP The Board of Directors pursues its responsibility for the Fort Worth, Texas Company’s financial statements through its Audit Committee February 2, 2001 which is composed solely of directors who are not officers or employees of the Company. The Audit Committee meets regularly with the independent accountants, management and internal auditors. The independent accountants and the Company’s internal auditors have direct access to the Audit Committee, with and without the presence of management representatives, to discuss the scope and results of their work and their comments on the adequacy of internal accounting controls and the quality of financial reporting. Matthew K. Rose President and Chief Executive Officer Thomas N. Hund Executive Vice President and Chief Financial Officer Dennis R. Johnson Vice President and Controller 31
    • Consolidated Statement Of Income Burlington Northern Santa Fe Corporation and Subsidiaries (Dollars in millions, except per share data) Year ended December 31, 2000 1999 1998 Revenues $9,205 $9,189 $9,054 Operating expenses: Compensation and benefits 2,729 2,772 2,812 Purchased services 1,022 1,045 1,020 Depreciation and amortization 895 897 832 Equipment rents 742 752 804 Fuel 932 700 721 Materials and other 777 818 707 Total operating expenses 7,097 6,984 6,896 Operating income 2,108 2,205 2,158 Interest expense 453 387 354 Other income (expense), net (70) 1 45 Income before income taxes 1,585 1,819 1,849 Income tax expense 605 682 694 Net income $ 980 $1,137 $1,155 Earnings per share: Basic $ 2.38 $ 2.46 $ 2.45 Diluted $ 2.36 $ 2.44 $ 2.43 Average shares (in millions): Basic 412.1 463.2 470.5 Dilutive effect of stock awards 3.1 3.6 5.7 Diluted 415.2 466.8 476.2 See accompanying notes to consolidated financial statements. 32
    • Consolidated Balance Sheet Burlington Northern Santa Fe Corporation and Subsidiaries (Shares in thousands, Dollars in millions) December 31, 2000 1999 Assets Current assets: Cash and cash equivalents $ 11 $ 22 Accounts receivable, net 314 397 Materials and supplies 220 255 Current portion of deferred income taxes 299 326 Other current assets 132 66 Total current assets 976 1,066 Property and equipment, net 22,369 21,681 Other assets 1,030 953 Total assets $24,375 $23,700 Liabilities And Stockholders’ Equity Current liabilities: Accounts payable and other current liabilities $ 1,954 $ 1,917 Long-term debt due within one year 232 158 Total current liabilities 2,186 2,075 Long-term debt and commercial paper 6,614 5,655 Deferred income taxes 6,422 6,097 Casualty and environmental liabilities 430 423 Employee merger and separation costs 262 302 Other liabilities 981 976 Total liabilities 16,895 15,528 Commitments and contingencies (see Notes 8, 10 and 11) Stockholders’equity: Common stock, $.01 par value 600,000 shares authorized; 486,637 shares and 484,572 shares issued, respectively 5 5 Additional paid-in-capital 5,428 5,390 Retained earnings 4,505 3,726 Treasury stock, at cost, 95,045 shares and 30,013 shares, respectively (2,413) (913) Unearned compensation (35) (29) Accumulated other comprehensive deficit (10) (7) Total stockholders’ equity 7,480 8,172 Total liabilities and stockholders’ equity $24,375 $23,700 See accompanying notes to consolidated financial statements. 33
    • Consolidated Statements Of Cash Flows Burlington Northern Santa Fe Corporation and Subsidiaries (Dollars in millions) Year ended December 31, 2000 1999 1998 Operating Activities Net income $ 980 $ 1,137 $ 1,155 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 895 897 832 Deferred income taxes 353 444 489 Employee merger and separation costs paid (58) (93) (77) Other, net 33 (112) (243) Changes in current assets and liabilities: Accounts receivable: Sale of accounts receivable – – 19 Other changes 83 127 20 Materials and supplies 35 (11) (39) Other current assets (66) (32) (4) Accounts payable and other current liabilities 62 67 66 Net cash provided by operating activities 2,317 2,424 2,218 Investing Activities Capital expenditures (1,399) (1,788) (2,147) Other, net (281) (152) (271) Net cash used for investing activities (1,680) (1,940) (2,418) Financing Activities Net increase (decrease) in commercial paper and bank borrowings 169 (23) (242) Proceeds from issuance of long-term debt 1,125 679 794 Payments on long-term debt (260) (293) (112) Dividends paid (206) (224) (197) Proceeds from stock options exercised 13 121 111 Purchase of BNSF common stock (1,496) (688) (153) Other, net 7 (59) (7) Net cash provided by (used for) financing activities (648) (487) 194 Decrease in cash and cash equivalents (11) (3) (6) Cash and cash equivalents: Beginning of year 22 25 31 End of year $ 11 $ 22 $ 25 Supplemental Cash Flow Information Interest paid, net of amounts capitalized $ 437 $ 382 $ 354 Income taxes paid, net of refunds $ 296 $ 142 $ 220 See accompanying notes to consolidated financial statements. 34
    • Consolidated Statement Of Changes In Stockholders’ Equity Burlington Northern Santa Fe Corporation and Subsidiaries (Shares in thousands, Dollars in millions, except per share data) Common Shares of Stock and Accumulated Common Shares of Additional Other Com- Stock Treasury Paid-in Retained Treasury Unearned prehensive Issued Stock Capital Earnings Stock Compensation Deficit Total Balance at December 31, 1997 470,240 (1,329) $ 5,033 $ 1,863 $ (36) $(31) $ (7) $ 6,822 Comprehensive income: Net income 1,155 1,155 Minimum pension liability adjustment (net of tax benefit of $0.5) (1) (1) Total comprehensive income 1,154 Common stock dividends, $0.44 per share (207) (207) Adjustments associated with unearned compensation, restricted stock 527 (132) 15 2 17 Exercise of stock options and related tax benefit 6,669 (537) 167 (17) 150 Purchase of BNSF common stock (4,963) (153) (153) Other 3 (2) 1 Balance at December 31, 1998 477,436 (6,961) 5,218 2,811 (206) (31) (8) 7,784 Comprehensive income: Net income 1,137 1,137 Minimum pension liability adjustment (net of tax expense of $0.5) 1 1 Total comprehensive income 1,138 Common stock dividends, $0.48 per share (222) (222) Adjustments associated with unearned compensation, restricted stock 811 (332) 14 2 16 Exercise of stock options and related tax benefit 6,325 (600) 163 (19) 144 Purchase of BNSF common stock (22,120) (688) (688) Balance at December 31, 1999 484,572 (30,013) 5,395 3,726 (913) (29) (7) 8,172 Comprehensive income: Net income 980 980 Minimum pension liability adjustment (net of tax benefit of $1.5) (3) (3) Total comprehensive income 977 Common stock dividends, $0.48 per share (197) (197) Adjustments associated with unearned compensation, restricted stock 808 (297) 14 (6) 8 Exercise of stock options and related tax benefit 1,257 (154) 24 (4) 20 Shares issued from treasury 2 Shareholder rights redemption (4) (4) Purchase of BNSF common stock (64,583) (1,496) (1,496) Balance at December 31, 2000 486,637 (95,045) $5,433 $4,505 $(2,413) $(35) $(10) $ 7,480 See accompanying notes to consolidated financial statements. 35
    • Notes To Consolidated Financial Statements Property And Equipment Property and equipment are depreciated and amortized on Burlington Northern Santa Fe Corporation a straight-line basis over their estimated useful lives. Upon And Subsidiaries normal sale or retirement of depreciable railroad property, cost less net salvage is charged to accumulated depreciation 1. The Company and no gain or loss is recognized. Significant premature Burlington Northern Santa Fe Corporation including its retirements and the disposal of land and nonrail property are majority-owned subsidiaries (collectively, BNSF or Company) recorded as gains or losses at the time of their occurrence. is engaged primarily in railroad transportation through its Expenditures which significantly increase asset values or principal subsidiary, The Burlington Northern and Santa Fe extend useful lives are capitalized. Repair and maintenance Railway Company (BNSF Railway), which operates one of expenditures are charged to operating expense when the work the largest railroad networks in North America with approxi- is performed. Property and equipment are stated at cost. mately 33,500 route miles covering 28 states and two Canadian provinces. Through one operating transportation services The Company incurs certain direct labor, contract serv- segment, BNSF Railway transports a wide range of products ice and other costs associated with the development and and commodities including the transportation of containers installation of internal-use computer software. Costs for and trailers (intermodal), coal and agricultural commodities newly developed software or significant enhancements which constituted 29 percent, 23 percent and 14 percent, to existing software are typically capitalized. Research, respectively, of total revenues for the year ended December 31, preliminary project, operations, maintenance and training 2000. Other significant aspects of BNSF’s business include costs are charged to operating expense when the work the transportation of chemicals, forest products, consumer is performed. goods, metals, minerals, automobiles and automobile parts. Revenues derived from other sources are not significant. Revenue Recognition Transportation revenues are recognized based upon the 2. Accounting Policies proportion of service provided as of the balance sheet date. Principles Of Consolidation Revenues from ancillary services are recognized when performed. The consolidated financial statements include the accounts of Burlington Northern Santa Fe Corporation and its The Company adopted Emerging Issues Task Force Issue No. majority-owned subsidiaries, including its principal subsidiary 99-19, Reporting Revenue Gross as a Principal Versus Net as an BNSF Railway, all of which are separate legal entities. All Agent, beginning in the fourth quarter of 2000. Accordingly, significant intercompany accounts and transactions have reclassifications were made between revenue and operating been eliminated. expense for all periods presented. These reclassifications had no effect on previously reported operating income and net income. Use Of Estimates The preparation of financial statements in accordance with 3. Other Income (Expense), Net generally accepted accounting principles (GAAP) requires Other income (expense), net includes the following management to make estimates and assumptions that (in millions): 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 Year ended December 31, 2000 1999 1998 Gain on property dispositions $ 29 $ 26 $ 48 revenues and expenses during the periods presented. Actual Deferred gain on prior results could differ from those estimates. period line sale – 50 – Gain on sale of Pipeline Partnership – – 67 Reclassifications Equity in earnings of Certain comparative prior year amounts in the consolidated Pipeline Partnership – – 4 financial statements and accompanying notes have been Accounts receivable sale fees (40) (33) (34) reclassified to conform with the current year presentation. Merger costs (20) – – These reclassifications had no effect on previously reported Miscellaneous, net (39) (42) (40) operating income and net income. Total $(70) $ 1 $ 45 Cash And Cash Equivalents On December 18, 1999, BNSF and Canadian National All short-term investments with original maturities of less Railway Company (CN) entered into an agreement to than 90 days are considered cash equivalents. Cash equiv- combine the two companies. On July 20, 2000, BNSF and alents are stated at cost, which approximates market value CN announced their mutual termination of the combination because of the short maturity of these instruments. agreement with neither party paying any break-up fees. Due to the termination, the Company recorded to Other Income Materials And Supplies (Expense), Net $20 million (pre-tax) in costs related to the Materials and supplies, which consist mainly of rail, ties combination during the third quarter. These costs would and other items for construction and maintenance of have been included as part of the purchase price had the property and equipment, as well as diesel fuel, are valued combination been consummated. at the lower of average cost or market. 36
    • BNSF recognized a $50 million deferred gain in the third The components of deferred tax assets and liabilities were quarter of 1999 in connection with the sale of rail lines in as follows (in millions): Southern California in 1992 and 1993 that was partially offset by $13 million of costs related to those sales. December 31, 2000 1999 Deferred tax liabilities: Santa Fe Pacific Pipelines, Inc. (SFP Pipelines), an indirect, Depreciation and amortization $(6,382) $(6,106) wholly-owned subsidiary of BNSF, served as the general Other (477) (441) partner of Santa Fe Pacific Pipeline Partners, L.P. (Pipeline Total deferred tax liabilities (6,859) (6,547) Partnership) and of its operating partnership subsidiary, Deferred tax assets: SFPP, L.P. SFP Pipelines owned a two percent interest as the Casualty and environmental 273 272 Pipeline Partnership’s and SFPP, L.P.’s general partner and Employee merger and separation costs 119 137 an approximate 42 percent interest in partnership units of Postretirement benefits 95 93 the Pipeline Partnership. SFP Pipeline Holdings, Inc., an Other 249 274 indirect, wholly-owned subsidiary of BNSF (SFP Holdings), Total deferred tax assets 736 776 had outstanding $219 million principal amount of Variable Net deferred tax liability $(6,123) $(5,771) Rate Exchangeable Debentures due 2010 (VREDs) at Noncurrent deferred income tax liability $(6,422) $(6,097) December 31, 1997. Current deferred income tax asset 299 326 Net deferred tax liability $(6,123) $(5,771) On March 6, 1998, Kinder Morgan Energy Partners, L.P. (Kinder Morgan) acquired substantially all of SFP Pipelines’ The federal income tax returns of BNSF’s predecessor interest in the Pipeline Partnership and SFPP, L.P. for approx- companies, Burlington Northern Inc. (BNI) and Santa Fe imately $84 million in cash. The Pipeline Partnership was Pacific Corporation (SFP) have been examined through liquidated as part of the transaction and SFP Pipelines’ part- 1994 and merger date September 1995, respectively. nership units were converted into the right to receive Kinder All years prior to 1992 for BNI and 1993 for SFP are Morgan common units. Consummation of the transaction closed. Issues relating to the years 1992-1994 for BNI caused an “Exchange Event” under the VRED agreement and and for years 1993 through merger date September in June 1998 all VRED holders received either partnership 1995 for SFP are being contested through various stages units of Kinder Morgan or cash equal to the par value of the of administrative appeal. BNSF is currently under IRS VREDs. In addition, the agreement called for SFP Pipelines’ examination for years 1995-1997. In addition, BNSF interest in SFPP, L.P. to be partially redeemed for a cash distri- and its subsidiaries have various state income tax returns bution of $5.8 million, with SFP Pipelines retaining only a in the process of examination, administrative appeal or 0.5 percent special limited partnership interest in SFPP, L.P. litigation. Management believes that adequate provision As a result of the transaction, the Company recognized a has been made for any adjustment that might be assessed $67 million gain and substantially all of the Company’s for open years through 2000. investment in the Pipeline Partnership and SFPP, L.P. and the 5. Accounts Receivable, Net VREDs were removed from the consolidated balance sheet. BNSF Railway, through a special purpose subsidiary, has an 4. Income Taxes account receivable sales agreement which allows it to sell up to Income tax expense was as follows (in millions): $600 million of variable rate certificates that mature in 2002 and evidence undivided interests in an accounts receivable master trust. The master trust’s assets include an ownership Year ended December 31, 2000 1999 1998 interest in a revolving portfolio of BNSF Railway’s accounts Current: receivable which are used to support the certificates. Federal $ 225 $213 $191 State 27 25 14 At both December 31, 2000 and 1999, $600 million of cer- 252 238 205 tificates were outstanding. These certificates were supported Deferred: by $882 million of receivables at December 31, 2000 and Federal 303 376 410 $972 million of receivables at December 31, 1999. When State 50 68 79 BNSF sells these receivables to the master trust it retains an 353 444 489 undivided interest in the receivables sold. Due to a relatively Total $ 605 $682 $694 short collection cycle, the fair value of this undivided interest Reconciliation of the federal statutory income tax rate to is calculated as the gross amount receivable less an allowance the effective tax rate was as follows: for uncollectible accounts. At December 31, 2000 and 1999, BNSF’s retained interest in these receivables totaled $282 mil- lion and $372 million, respectively, less the normal allowances Year ended December 31, 2000 1999 1998 for uncollectible accounts. The retained interest in both years Federal statutory income tax rate 35.0% 35.0% 35.0% reflects the total receivables sold less $600 million of receiv- State income taxes, ables derecognized in connection with the sale of the certifi- net of federal tax benefit 3.2 3.3 3.3 cates. The investors in the master trust have no recourse to Other, net – (0.8) (0.7) BNSF Railway’s other assets. Effective tax rate 38.2% 37.5% 37.6% 37
    • BNSF Railway has retained the collection responsibility 8. Debt with respect to the accounts receivable. The costs of the Debt outstanding was as follows (in millions): sales of receivables to the master trust vary monthly relative to certain interest rates. These costs are included December 31, 2000 1999 in Other Income (Expense), Net. The costs of these sales Notes and debentures, weighted average in 2000 and 1999 were $40 million and $33 million, rate of 7.2%, due 2001 to 2097 $4,294 $3,321 respectively. These costs were based on weighted average Capitalized lease obligations, weighted interest rates of 6.7% in 2000 and 5.5% in 1999. Proceeds average rate of 6.6%, due 2001 to 2016 736 791 from collections reinvested in the securitization were Equipment obligations, weighted average approximately $10 million in 2000 and 1999. rate of 7.3%, due 2001 to 2016 742 755 Mortgage bonds, weighted average rate BNSF maintains an allowance for uncollectible accounts of 7.9%, due 2001 to 2047 467 503 receivable. At December 31, 2000 and 1999, $45 mil- Commercial paper, 7.0% (variable) 567 473 lion and $50 million, respectively, of such allowances Bank borrowings, 6.9% 74 – had been recorded. Unamortized discount and other, net (34) (30) Total 6,846 5,813 6. Property And Equipment, Net Less: current portion of long-term debt (232) (158) Property and equipment, net (in millions), and the weighted Long-term debt $6,614 $5,655 average annual depreciation rate (%) were as follows: BNSF issues commercial paper from time to time which is supported by bank revolving credit agreements. Outstanding 2000 Depreciation commercial paper balances are considered as reducing the December 31, 2000 1999 Rate amount of borrowings available under these agreements. The Land $ 1,420 $ 1,430 –% bank revolving credit agreements, which were renewed and Track structure 11,900 11,322 4.0% extended effective June 21, 2000, allow borrowings of up to Other roadway 9,137 8,884 2.5% $1.0 billion on a short-term basis (an increase of $250 mil- Locomotives 2,799 2,602 5.0% lion over the prior agreement) and $750 million on a long- Freight cars and other term basis. Annual facility fees are currently 0.1 percent and equipment 1,821 1,838 3.8% 0.125 percent, respectively, and are subject to change based Computer hardware upon changes in BNSF’s senior unsecured debt ratings. and software 362 448 14.7% Borrowing rates are based upon i) LIBOR plus a spread Total cost 27,439 26,524 determined by BNSF’s senior unsecured debt ratings, ii) Less accumulated depre- money market rates offered at the option of the lenders, or ciation and amortization (5,070) (4,843) iii) an alternate base rate. The Company generally classifies Property and equipment, net $22,369 $21,681 commercial paper as long-term to the extent of its commit- ments available under the revolving credit agreements. The The consolidated balance sheet at December 31, 2000 commitments of the lenders under the short-term agreement and 1999 included $1,195 million and $1,218 million, are scheduled to expire in June 2001 with the ability for any respectively, for property and equipment under amounts then outstanding to mature as late as June 2002. capital leases. The commitments of the lenders under the long-term agree- ment are scheduled to expire in June 2005. 7. Accounts Payable And Other Current Liabilities At December 31, 2000, there were no borrowings against Accounts payable and other current liabilities consisted of the revolving credit agreements and the maturity value of the following (in millions): commercial paper outstanding was $573 million, leaving a total remaining capacity of $1,177 million available under December 31, 2000 1999 the revolving credit agreements. BNSF must maintain com- Compensation and benefits payable $ 352 $ 376 pliance with certain financial covenants under its revolving Casualty and environmental liabilities 229 255 credit agreements and at December 31, 2000, the Company Accounts payable 212 161 was in compliance. Tax liabilities 143 201 Rents and leases 142 160 In February 2000, a put option on $100 million of medium- Accrued interest 114 98 term notes paying a coupon of 6.10 percent was exercised Contract allowances 109 96 by the holders and the Company repaid the holders primarily Employee merger and separation costs 49 54 with proceeds from the issuance of commercial paper. Other 604 516 Total $1,954 $1,917 In April 2000, BNSF issued $300 million of 7.875 percent notes due April 2007 and $200 million of 8.125 percent debentures due April 2020. The net proceeds of the debt issuance were used for general corporate purposes including 38
    • the repayment of outstanding commercial paper which transaction at a gain of approximately $8 million which increased primarily as a result of higher share repurchases. has been deferred and is being amortized to interest At the time of issuing the $300 million of 7.875 percent expense over the 10-year life of the notes. notes and the $200 million of 8.125 percent debentures discussed above, the Company closed out two treasury In April 1999, the holder of a call option on $200 million lock transactions, each in an amount of $100 million, of the Company’s puttable reset debentures due 2029 at gains of approximately $9 million and $13 million, exercised the call option. As a result, on May 13, 1999, respectively, which have been deferred and are being the holder repurchased the debentures which were sub- amortized to interest expense over the lives of the notes sequently resold to investors. The interest rate on the and the debentures, respectively. Subsequent to this debt debentures was reset to a fixed interest rate of 7.082 issuance, the Company had no remaining capacity under percent. The Company did not receive any proceeds the February 1999 shelf registration statement. from the resale of these debentures. In April 2000, BNSF Railway issued $50 million of privately Most BNSF Railway properties and certain other assets are placed debt collateralized by locomotives that were acquired pledged as collateral to, or are otherwise restricted under, in 1999. This debt carries an interest rate of 7.77 percent the various BNSF Railway long-term debt agreements. and matures from April 2001 to 2015. Equipment obligations and capital leases are collateralized by the underlying equipment. In May 2000, the Company filed a new shelf registration statement that became effective during May 2000 for SFP Pipelines, Inc., in connection with its remaining 0.5 the issuance of debt securities which may be issued in percent special limited partner interest in SFPP, L.P., is one or more series at an aggregate offering price not to contingently liable for $190 million of certain Kinder exceed $1 billion. Morgan debt pursuant to the sale discussed in Note 3: Other Income (Expense), Net. In addition, BNSF and In August 2000, BNSF issued $275 million of 7.950 per- another major railroad jointly and severally guarantee cent debentures due August 2030 under the May 2000 $75 million of debt of KCT Intermodal Transportation shelf registration statement. The net proceeds were used Corporation, the proceeds of which were used to finance for general corporate purposes including the repayment of the construction of a double track grade separation outstanding commercial paper which increased primarily as bridge in Kansas City, Missouri, to be operated and used a result of higher share repurchases. At the time of issuing by Kansas City Terminal Railway Company. these debentures, the Company closed out a treasury lock transaction in the amount of $100 million at a gain of Aggregate long-term debt scheduled maturities are $232 mil- approximately $8 million which has been deferred and is lion, $288 million, $145 million, $244 million and $1,081 being amortized to interest expense over the 30-year life of million for 2001 through 2005, respectively. Maturities in the debentures. Subsequent to this issuance, the Company 2001 exclude $100 million of 6.050 percent notes due had $725 million available for borrowing under the May 2031, which will either be remarketed by the holder of a call 2000 registration statement. option on the debt and mature in 2031 or will otherwise be repurchased by the Company in March 2001. Maturities In December 2000, BNSF issued $300 million of 7.125 in 2003 exclude $175 million of 6.530 percent notes due percent notes due December 2010 under the May 2000 2037, which may be redeemed in 2003 at the option of the shelf registration statement. The net proceeds were used holder. In addition, commercial paper and bank borrowings for general corporate purposes including the repayment of $641 million are included in maturities for 2005. BNSF of outstanding commercial paper which increased prima- had bank borrowings outstanding at December 31, 2000, rily as a result of higher share repurchases. At the time with maturity values of $75 million, and interest rates of issuing these debentures, the Company closed out a similar to commercial paper which, upon maturity, may treasury lock transaction in the amount of $100 million be replaced with commercial paper or other bank borrow- at a gain of approximately $5 million which has been ings. There were no bank borrowings outstanding at deferred and is being amortized to interest expense over December 31, 1999. the 10-year life of the notes. Subsequent to this issuance, the Company had $425 million available for borrowing The carrying amounts of BNSF’s long-term debt and under the May 2000 registration statement. commercial paper at December 31, 2000 and 1999 were $6,846 million and $5,813 million, respectively, while In March 1999, BNSF issued $200 million of 6.125 the estimated fair values at December 31, 2000 and 1999 percent notes due March 2009 and $200 million of 6.750 were $6,804 million and $5,632 million, respectively. The percent debentures due March 2029 under the February fair value of BNSF’s long-term debt is primarily based on 1999 shelf registration statement. The net proceeds were quoted market prices for the same or similar issues, or on used for general corporate purposes including the repay- the current rates that would be offered to BNSF for debt ment of commercial paper. At the time of issuing the of the same remaining maturities. The carrying amount $200 million of 6.125 percent notes discussed above, of commercial paper approximates fair value because of the Company closed out a $100 million treasury lock the short maturity of these instruments. 39
    • 9. Employee Merger And Separation Costs Non-Union Employee Severance Liabilities principally related to certain remaining non- Employee merger and separation liabilities of $310 million union employee severances resulting from the May 1999 and $356 million are included in the consolidated balance reorganization and from the Merger were $30 million and sheet at December 31, 2000 and 1999, respectively, and $44 million at December 31, 2000 and 1999, respectively. principally represent: (i) employee-related severance costs These costs will be paid over the next several years based for the consolidation of clerical functions; (ii) deferred on deferral elections made by the employees. benefits payable upon separation or retirement to certain active conductors, trainmen and locomotive engineers; In the second quarter of 2000, the Company incurred $2 and (iii) certain non-union employee severance costs. million of costs for severance, medical and other benefit Employee merger and separation expenses are recorded costs for ten involuntarily terminated non-union posi- in Materials and Other in the Company’s consolidated tions. All of these planned reductions were completed at income statement. December 31, 2000. Consolidation Of Clerical Functions In the second quarter of 1999, the Company incurred Liabilities related to the consolidation of clerical func- $45 million of reorganization costs for severance, pension, tions were $96 million and $119 million at December 31, medical and other benefit costs for approximately 325 invol- 2000 and 1999, respectively, and primarily provide for untarily terminated non-union employees that were part severance costs associated with the clerical consolidation of the program announced in May 1999 that sought to plan adopted in 1995 upon consummation of the business reduce operating expenses by eliminating approximately 400 combination of BNSF’s predecessor companies Burlington non-union and 1,000 scheduled (union) positions through Northern, Inc. and Santa Fe Pacific Corporation (the severances, normal attrition and the elimination of contrac- Merger). The consolidation plan resulted in the elimina- tors. Components of the charge include approximately $29 tion of approximately 1,500 permanent positions and million relating to severance costs for non-union employees, was substantially completed during 1999. and approximately $16 million for special termination benefits to be received under the Company’s retirement and medical In the fourth quarter of 2000 and the second quarter of plans. Substantially all of the planned reductions were made 1999, the Company recorded a $10 million and $54 by September 30, 1999. No significant costs were incurred million, respectively, reversal of certain liabilities associated as a result of eliminating the 1,000 scheduled positions. with the consolidation plan. These liabilities related to planned work-force reductions that are no longer required During 2000, 1999 and 1998, BNSF made employee merger due to the Company’s ability to place certain identified and separation payments of $58 million, $93 million and employees in alternate positions. The remaining liability $77 million, respectively. At December 31, 2000, $49 mil- balance at December 31, 2000 represents benefits to be lion of the remaining liabilities are included within current paid to affected employees who did not receive lump-sum liabilities for anticipated costs to be paid in 2001. payments, but instead will be paid over five to ten years or in some cases through retirement. 10. Hedging Activities Fuel In the second quarter of 2000, the Company recorded a Historically, fuel expenses have approximated 10 percent charge of $17 million for severance, medical and other of total operating expenses; however, fuel costs during 2000 benefit costs related to approximately 140 material represent 13 percent of total operating expenses due to signifi- handlers in mechanical shops. Liabilities remaining at cantly higher than historical fuel prices. Due to the signifi- December 31, 2000 related to this program reflect cance of diesel fuel expenses to the operations of BNSF and elections to receive payments over the next several years, the historical volatility of fuel prices, the Company main- rather than lump sum payments. tains a program to hedge against fluctuations in the price of its diesel fuel purchases. The intent of the program is to protect Conductors, Trainmen And Locomotive Engineers the Company’s operating margins and overall profitability Liabilities related to deferred benefits payable upon separation from adverse fuel price changes by entering into fuel hedge or retirement to certain active conductors, trainmen and instruments based on management’s evaluation of current locomotive engineers were $183 million and $193 million at and expected diesel fuel price trends. However, to the extent December 31, 2000 and 1999, respectively. These costs were the Company hedges portions of its fuel purchases, it may primarily incurred in connection with labor agreements reached not realize the impact of decreases in fuel prices. Conversely, prior to the Merger which, among other things, reduced train to the extent the Company does not hedge portions of crew sizes and allowed for more flexible work rules. its fuel purchases, it may be adversely affected by increases in fuel prices. The fuel-hedging program includes the use In the second quarter of 2000, the Company incurred of commodity swap transactions that are accounted for as $3 million of costs for severance, medical and other benefit hedges. Any gains or losses associated with changes in the costs for approximately 50 trainmen on reserve boards. market value of the fuel swaps are deferred and recognized The remaining reserve of less than $1 million will be paid as a component of fuel expense in the period in which the over the next two years to severed employees who elected to fuel is purchased and used. Based on 2000 fuel consumption receive their payments over time. 40
    • and excluding the impact of the hedging program, each and $5 million, respectively. These gains have been deferred one-cent increase in the price of fuel would result in and are being amortized to interest expense over the 30-year approximately $12 million of additional fuel expense on and 10-year lives of the debentures and notes, respectively. an annual basis. In 1999, at the time of issuing $200 million of debt, the As of January 31, 2001, BNSF had entered into fuel swaps Company closed out $100 million of treasury lock trans- for approximately 378 million gallons at an average price of actions at a gain of $8 million. During 1998, at the time approximately 50 cents per gallon. The above price does not of issuing $400 million of debt, the Company closed out include taxes, transportation costs, certain other fuel handling $400 million of treasury lock transactions at a loss of costs, and any differences which may occur from time to approximately $18 million. In each case, the gain or loss time between the prices of commodities hedged and the has been deferred and is being amortized to interest purchase price of BNSF’s diesel fuel. Currently, BNSF’s fuel expense over the life of the debt. hedging program covers approximately 24 percent and 8 per- cent of estimated annual fuel purchases for 2001 and 2002, As of December 31, 2000, the Company had no outstand- respectively. Hedge positions are closely monitored to ensure ing treasury lock transactions. that they will not exceed actual fuel requirements in any 11. Commitments And Contingencies period. Unrecognized gains from BNSF’s fuel swap trans- actions were approximately $74 million as of December 31, Lease Commitments 2000, of which $60 million relates to swap transactions that BNSF has substantial lease commitments for locomotives, will expire in 2001. BNSF also monitors its hedging positions freight cars, trailers, office buildings and other property, and and credit ratings of its counterparties and does not anticipate many of these leases provide the option to purchase the leased losses due to counterparty nonperformance. Receivables from item at fair market value at the end of the lease. However, fuel hedging activities of $50 million and $29 million at some provide fixed price purchase options. Future minimum December 31, 2000 and 1999, respectively, are recorded in lease payments (which reflect leases having non-cancelable the Company’s consolidated balance sheet as part of Other lease terms in excess of one year) as of December 31, 2000 Current Assets and represent settled fuel hedging contracts. are summarized as follows (in millions): Interest Rate Capital Operating Year ended December 31, Leases Leases From time to time, the Company enters into various interest 2001 $ 112 $ 345 rate hedging transactions for the purpose of managing expo- 2002 106 311 sure to fluctuations in interest rates and establishing rates 2003 106 299 in anticipation of future debt issuances. Swaps totaling $125 2004 106 294 million which were used to fix the interest rate on commer- 2005 97 275 cial paper debt expired in December 1999. While the swaps Thereafter 434 3,082 were outstanding, BNSF recognized, on an accrual basis, a Total 961 $4,606 fixed rate of interest on the principal amount of commercial Less amount representing interest 225 paper hedged over the term of the swap agreements. Present value of minimum lease payments $ 736 As of January 31, 2001, BNSF had no interest rate swap instruments in place. Lease rental expense for all operating leases was $424 mil- lion, $435 million and $466 million for the years ended As discussed in Note 8 to these consolidated financial state- December 31, 2000, 1999, and 1998, respectively. Contin- ments, at the time of issuing the $300 million of 7.875 gent rentals and sublease rentals were not significant. percent notes and the $200 million of 8.125 percent deben- tures in April 2000, the Company closed out two treasury Other Commitments lock transactions with expiration dates in 2000, each in BNSF has entered into commitments to acquire 100 loco- an amount of $100 million (one based on the 10-year and motives in 2001. The locomotives will be financed from one based on the 30-year rates), at gains of approximately one or a combination of sources including, but not limited $9 million and $13 million, respectively. These gains have to, cash from operations, capital or operating leases, and been deferred and are being amortized to interest expense debt issuances. The decision on the method used will depend over the 30-year and 10-year lives of the notes and the upon then current market conditions and other factors. debentures, respectively. Environmental Also discussed in Note 8 to these consolidated financial BNSF’s operations, as well as those of its competitors, statements, at the time of issuing the $275 million of are subject to extensive federal, state and local environ- 7.95 percent debentures in August 2000 and the $300 mental regulation. BNSF’s operating procedures include million of 7.125 percent notes in December 2000, the practices to protect the environment from the risks Company closed out two treasury lock transactions each inherent in railroad operations, which frequently involve in an amount of $100 million (one based on the 30-year transporting chemicals and other hazardous materials. and one based on the 10-year rates and both with expiration dates in June 2001) at gains of $8 million Additionally, many of BNSF’s land holdings are and 41
    • have been used for industrial or transportation-related Liabilities recorded for environmental costs represent purposes or leased to commercial or industrial companies BNSF’s best estimates for remediation and restoration of whose activities may have resulted in discharges onto these sites and include both asserted and unasserted claims. the property. As a result, BNSF is subject to environ- Unasserted claims are not considered to be a material com- mental clean-up and enforcement actions. In particular, ponent of the liability. Although recorded liabilities include the Federal Comprehensive Environmental Response, BNSF’s best estimates of all costs, without reduction for Compensation and Liability Act of 1980 (CERCLA), anticipated recoveries from third parties, BNSF’s total clean- also known as the “Superfund” law, as well as similar state up costs at these sites cannot be predicted with certainty laws generally impose joint and several liability for clean- due to various factors such as the extent of corrective actions up and enforcement costs on current and former owners that may be required, evolving environmental laws and and operators of a site without regard to fault or the regulations, advances in environmental technology, the legality of the original conduct. BNSF has been notified extent of other parties’ participation in clean-up efforts, that it is a potentially responsible party (PRP) for study developments in ongoing environmental analyses related to and clean-up costs at approximately 31 Superfund sites for sites determined to be contaminated, and developments in which investigation and remediation payments are or will environmental surveys and studies of potentially contami- be made or are yet to be determined (the Superfund sites) nated sites. As a result, future charges to income for environ- and, in many instances, is one of several PRPs. In addition, mental liabilities could have a significant effect on results of BNSF may be considered a PRP under certain other laws. operations in a particular quarter or fiscal year as individual Accordingly, under CERCLA and other federal and state site studies and remediation and restoration efforts proceed statutes, BNSF may be held jointly and severally liable or as new sites arise. However, management believes that for all environmental costs associated with a particular it is unlikely that any identified matters, either individually site. If there are other PRPs, BNSF generally participates or in the aggregate, will have a material adverse effect in the clean-up of these sites through cost-sharing agree- on BNSF’s consolidated results of operations, financial ments with terms that vary from site to site. Costs are position or liquidity. typically allocated based on relative volumetric contribution of material, the amount of time the site was owned or Other Claims And Litigation operated, and/or the portion of the total site owned or BNSF and its subsidiaries are parties to a number of legal operated by each PRP. actions and claims, various governmental proceedings and private civil suits arising in the ordinary course of business, Environmental costs include initial site surveys and envi- including those related to environmental matters and ronmental studies of potentially contaminated sites as well personal injury claims. While the final outcome of these as costs for remediation and restoration of sites determined items cannot be predicted with certainty, considering to be contaminated. Liabilities for environmental clean-up among other things the meritorious legal defenses available, costs are initially recorded when BNSF’s liability for environ- it is the opinion of management that none of these items, mental clean-up is both probable and a reasonable estimate when finally resolved, will have a material adverse effect of associated costs can be made. Adjustments to initial on the results of operations, financial position or liquidity estimates are recorded as necessary based upon additional of BNSF, although an adverse resolution of a number information developed in subsequent periods. BNSF conducts of these items could have a material adverse effect on the an ongoing environmental contingency analysis, which results of operations in a particular quarter or fiscal year. considers a combination of factors including independent 12. Retirement Plans And consulting reports, site visits, legal reviews, analysis of the Other Postemployment Benefit Plans likelihood of participation in and the ability of other PRPs to pay for clean-up, and historical trend analyses. BNSF sponsors two significant defined benefit pension plans: the noncontributory qualified BNSF Retirement BNSF is involved in a number of administrative and Plan, which covers substantially all non-union employees, judicial proceedings and other mandatory clean-up efforts and the nonqualified BNSF Supplemental Retirement Plan, at approximately 385 sites, including the Superfund sites, which covers certain officers and other employees. The at which it is participating in the study or clean-up, or benefits under BNSF’s plans are based on years of credited both, of alleged environmental contamination. BNSF service and the highest five-year average compensation paid approximately $49 million, $67 million and $64 levels. BNSF’s funding policy is to contribute annually not million during 2000, 1999 and 1998, respectively, for less than the regulatory minimum and not more than the mandatory and unasserted clean-up efforts, including maximum amount deductible for income tax purposes. amounts expended under federal and state voluntary clean-up programs. The Company had recorded liabilities Certain salaried employees of BNSF that have met certain for remediation and restoration of all known sites of age and years of service requirements are eligible for medical approximately $223 million at December 31, 2000 benefits and life insurance coverage during retirement. The compared to $232 million at December 31, 1999. retiree medical plan is contributory and provides benefits BNSF anticipates that the majority of the accrued costs to retirees, their covered dependents and beneficiaries. at December 31, 2000 will be paid over the next five Retiree contributions are adjusted annually. The plan also years. No individual site is considered to be material. contains fixed deductibles, coinsurance and out-of-pocket 42
    • limitations. The life insurance plan is noncontributory and The following table shows the reconciliation of the funded covers retirees only. BNSF’s policy is to fund benefits payable status of the plans with amounts recorded in the consolidated under the medical and life insurance plans as they come balance sheet (in millions): due. Employees beginning salaried employment with BNSF subsequent to September 22, 1995 are not eligible Pension Medical and Benefits Life Benefits for benefits under these plans. December 31, 2000 1999 2000 1999 Funded status $ 158 $ 143 $(247) $(244) Components of the net benefit costs for these plans were as Unrecognized net (gain) loss (146) (151) (1) (7) follows (in millions): Unrecognized prior service cost (6) (7) (1) 7 Unamortized net Pension Medical and transition obligation 5 9 – – Year ended Benefits Life Benefits Net amount recognized $ 11 $ (6) $(249) $(244) December 31, 2000 1999 1998 2000 1999 1998 Service cost $ 13 $ 15 $ 15 $4 $5 $4 Interest cost 100 100 101 18 17 16 Pension Medical and Benefits Life Benefits Expected return December 31, 2000 1999 2000 1999 on plan assets (129) (126) (117) – – – Amounts recognized in the Special termination consolidated balance sheet benefits – 10 – – 6 – consist of: Net amortization and Prepaid benefit cost $ 45 $ 24 $ – $ – deferred amounts 3 3 4 1 1 – Accrued benefit liability (50) (44) (249) (244) Net benefit cost $ (13) $ 2 $ 3 $23 $29 $20 Intangible asset – 2 – – Accumulated other The following tables show the change in benefit obligation comprehensive deficit 16 12 – – and plan assets of the plans (in millions): Net amount recognized $ 11 $ (6) $(249) $(244) Pension Medical and BNSF uses a September 30 measurement date. The assump- Benefits Life Benefits tions used in accounting for the BNSF plans were as follows: Change in benefit obligation 2000 1999 2000 1999 Benefit obligation at beginning of year $1,387 $1,487 $244 $249 Pension Medical and Benefits Life Benefits Service cost 13 15 4 5 Assumptions 2000 1999 2000 1999 Interest cost 100 100 18 17 Discount rate 7.5% 7.5% 7.5% 7.5% Plan participants’ contributions – – 3 4 Rate of increase in Amendments – – (7) – compensation levels 4.0% 4.0% N/A N/A Actuarial (gain) loss 39 (115) 7 (17) Expected return on plan assets 9.5% 9.5% N/A N/A Special termination benefits – 10 – 6 Curtailment loss – 7 – – For purposes of the medical and life benefits calculations Benefits paid (120) (117) (22) (20) for 2000, the assumed health care cost trend rate for Benefit obligation at year end $1,419 $1,387 $247 $244 both managed care and non-managed care medical costs is 9.5 percent and is assumed to decrease gradually to Pension Medical and five percent by 2006 and remain constant thereafter. Benefits Life Benefits Increasing the assumed health care cost trend rates by Change in plan assets 2000 1999 2000 1999 one percentage point would increase the accumulated Fair value of plan assets postretirement benefit obligation by $19 million and at beginning of year $1,530 $1,469 $ – $ – the combined service and interest components of net Actual return on plan assets 162 174 – – postretirement benefit cost recognized in 2000 by $2 Employer contribution 5 4 19 16 million. Decreasing the assumed health care cost trend Plan participants’ contributions – – 3 4 rates by one percentage point would decrease the accu- Benefits paid (120) (117) (22) (20) mulated postretirement benefit obligation by $16 million Fair value of plan assets and the combined service and interest components of at year end $1,577 $1,530 $ – $ – net postretirement benefit cost recognized in 2000 by $2 million. Other Plans Under collective bargaining agreements, BNSF participates in multi-employer benefit plans which provide certain postretirement health care and life insurance benefits for eligible union employees. Insurance premiums paid attributable to retirees, which are generally expensed as 43
    • incurred, were $15 million, $14 million and $18 million, 10 years after the date of grant. Shares issued upon exercise in 2000, 1999 and 1998, respectively. of options may be issued from treasury shares or from authorized but unissued shares. Defined Contribution Plans BNSF sponsors 401(k) thrift and profit sharing plans The Company applies Accounting Principles Board (APB) which cover substantially all non-union employees Opinion 25 and related interpretations in accounting for its and certain union employees. BNSF matches 50 per- stock option plans. Accordingly, no compensation expense cent of the first six percent of non-union employees’ has been recognized for its fixed stock option plans as the contributions, which are subject to certain percentage exercise price equals the stock price on the date of grant. limits of the employees’ earnings, at each pay period. Had compensation expense been determined for stock Depending on BNSF’s performance, an additional options granted in 2000, 1999 and 1998 based on the fair matching contribution of up to 30 percent of the value at grant dates consistent with Statement of Financial first six percent can be made at the end of the year. Accounting Standards (SFAS) No. 123 “Accounting for Employer contributions for all non-union employees Stock Based Compensation,” the Company’s pro forma net are subject to a five year length of service vesting income and earnings per share would have been as follows: schedule. BNSF’s 401(k) matching expense was $16 million, $18 million and $16 million in 2000, 1999 2000 1999 1998 and 1998, respectively. Net income (in millions) $ 933 $1,092 $1,124 Basic earnings per share $2.26 $ 2.36 $ 2.39 13. Stock Options And Other Incentive Plans Diluted earnings per share $2.25 $ 2.34 $ 2.36 On April 15, 1999, BNSF shareholders approved the BNSF 1999 Stock Incentive Plan and authorized 20 million The pro forma amounts were estimated using the Black- shares of BNSF common stock to be issued in connection Scholes option pricing model with the following assumptions: with stock options, restricted stock, restricted stock units and performance stock. Total shares authorized under 1999 2000 1999 1998 and 1996 stock incentive plans and the non-employee Weighted average expected directors’ stock plan are up to 50 million and 0.9 million life (years) 3.0 3.0 3.0 shares of BNSF common stock, respectively. Approximately Expected volatility 35% 30% 20% five million common shares were available for future grant Annual dividend per share $0.48 $0.48 $0.48 at December 31, 2000. Risk free interest rate 5.36% 6.63% 5.11% Weighted average fair value Stock Options of options granted $6.70 $8.43 $5.13 Under BNSF’s stock option plans, options may be granted to officers and salaried employees at the fair market value A summary of the status of the stock option plans as of of the Company’s common stock on the date of grant. December 31, 2000, 1999 and 1998, and changes during All options generally vest in one year and expire within the years then ended, is presented below: 2000 1999 1998 Weighted Average Weighted Average Weighted Average Options Exercise Prices Options Exercise Prices Options Exercise Prices Balance at beginning of year 29,808,157 $27.37 28,135,869 $24.27 25,761,369 $20.98 Granted 11,521,045 25.56 9,857,345 32.96 9,587,926 29.33 Exercised (1,255,643) 12.73 (6,315,238) 21.24 (6,666,864) 18.66 Cancelled (1,650,957) 29.95 (1,869,819) 30.94 (546,562) 26.25 Balance at end of year 38,422,602 $27.22 29,808,157 $27.37 28,135,869 $24.27 Options exercisable at year end 26,729,220 $27.90 20,710,679 $25.00 17,763,770 $21.45 The following table summarizes information regarding stock options outstanding at December 31, 2000: Options Outstanding Options Exercisable Number Weighted Average Weighted Average Number Weighted Average Range of Exercise Prices Outstanding Remaining Life Exercise Prices Exercisable Exercise Prices $4.23 to $24.83 7,000,483 4.5 Years $19.17 6,196,614 $18.50 $25.66 to $28.73 11,227,022 8.7 Years $25.75 708,115 $27.15 $28.76 to $30.97 11,577,288 6.6 Years $29.24 11,206,682 $29.26 $31.17 to $36.73 8,617,809 7.9 Years $32.96 8,617,809 $32.96 $4.23 to $36.73 38,422,602 7.1 Years $27.22 26,729,220 $27.90 44
    • Weighted average stock options totaling 25.0 million, 35.6 and 1999, respectively. A total of 408 thousand restricted million, 35.3 million and 31.6 million for the first, second, shares related to these awards were outstanding on third and fourth quarters of 2000, respectively, and 8.9 December 31, 2000. million and 21.4 million for the third and fourth quarters of 1999, respectively, were not included in the computation On January 1, 2001, approximately 625 thousand restricted of diluted earnings per share, because the options’ exercise shares were granted. These shares have a value of $28.49 price exceeded the average market price of the Company’s per share which is equal to the fair market value of BNSF stock for those periods. common stock on the date of grant and the restrictions will lapse at the end of three years. Total compensation expense of $17.8 million will be recognized ratably over the three Other Incentive Plans BNSF has other long-term incentive programs in addition year vesting period. to stock options which are administered separately on behalf of employees. Shares awarded under the plans may not be sold or used as collateral, and are generally not transferable, by the holder BNSF awarded a total of approximately 1.2 million until the shares awarded become free of restrictions. shares of restricted stock subject to performance periods Compensation expense is recorded under the BNSF Stock to eligible employees and directors during 1996. No Incentive Plans in accordance with APB Opinion 25 and cash payment is required by the individuals. The restric- was not material in 2000, 1999 or 1998. tions will be lifted in thirds over three years beginning 14. Common Stock And Preferred Capital Stock on the third anniversary of the grant date if certain stock price-based performance goals are met. If, however, the Common Stock performance goals are not met, the restricted shares will BNSF is authorized to issue 600 million shares of common be forfeited. All shares still subject to restrictions are gen- stock, $.01 Par Value. At December 31, 2000, there were erally forfeited and returned to the plan if the employee’s 391.6 million shares of common stock outstanding. Each or director’s relationship is terminated. Approximately holder of common stock is entitled to one vote per share 616 thousand restricted shares related to this award were in the election of directors and on all matters submitted outstanding as of December 31, 2000. to a vote of stockholders. Subject to the rights and pref- erences of any future issuances of preferred stock, each Under the BNSF 1999 and 1996 Stock Incentive Plans share of common stock is entitled to receive dividends as certain eligible employees may defer through the BNSF may be declared by the Board of Directors out of funds Incentive Bonus Stock Program (IBSP) the cash payment legally available and to share ratably in all assets available of their bonus paid under the Incentive Compensation for distribution to stockholders upon dissolution or Plan (ICP) and receive restricted stock for which restric- liquidation. No holder of common stock has any preemp- tions lapse in three years (or in two years if certain tive right to subscribe for any securities of BNSF. performance goals are met). The number of restricted shares awarded are based on the amount of bonus Shareholder Rights Plan deferred, plus incremental shares, using the market price In December 1999, BNSF’s Board of Directors (the Board) of BNSF common stock on the date of grant. Restricted approved a shareholder rights plan (Rights Plan). In connec- awards granted under this program totaled approximately tion with the Rights Plan, the Board declared a dividend 350 thousand, 400 thousand and 380 thousand shares of one Preferred Stock Purchase Right (Right or Rights) for in 2000, 1999 and 1998, respectively. A total of approxi- each outstanding share of BNSF common stock to share- mately 1.1 million shares were outstanding under this holders of record on December 31, 1999. Shareholders and prior programs of this type on December 31, 2000. were automatically entitled to the Rights corresponding to their shares owned. The distribution was not taxable In addition, all regularly-assigned salaried employees not to shareholders under current United States tax laws. eligible to participate in the IBSP are eligible to participate Adoption of the Rights Plan was required by the terms of in the BNSF Discounted Stock Purchase Program. This the proposed combination between BNSF and Canadian program allows employees to use their bonus earned under National which was terminated on July 20, 2000. the ICP to purchase BNSF common stock at a discount from the market price and requires that the stock be Under the Rights Plan, Rights were redeemable for $0.01 restricted for a three year period. During the years ended per Right, subject to adjustment, before the acquisition of December 31, 2000, 1999 and 1998, approximately 45 control, by a person or group, of 15 percent or more of thousand, 65 thousand and 55 thousand shares, respectively, BNSF common stock. On December 7, 2000, the Board were purchased under this program. of Directors voted to redeem all Rights under the Rights Plan. As a result of the redemption, the Rights may no Additionally, the Company periodically issues time vesting longer be exercised and shareholders are only entitled to restricted shares, which generally vest ratably over three receive a redemption payment of $0.01 per Right. The to five years. Restricted stock awards under these plans, redemption payment will be distributed on April 2, 2001 net of forfeitures, were approximately 116 thousand, to shareholders of record as of March 12, 2001. Each Right and 330 thousand for the years ended December 2000 would have expired on December 18, 2009. 45
    • Preferred Capital Stock with expiration dates ranging from November 1998 to At December 31, 2000, BNSF had 50 million shares of February 1999. The option contracts permitted a net-share Class A Preferred Stock, $.01 Par Value and 25 million or net-cash settlement method at BNSF’s election. These shares of Preferred Stock, $.01 Par Value available for options expired unexercised. In April 1999, BNSF sold issuance. The Board of Directors has the authority to issue equity put options for 0.1 million shares of BNSF com- such stock in one or more series, to fix the number of mon stock to an independent third party and received shares and to fix the designations and the powers, rights, cash proceeds of $0.1 million. The third party exercised and qualifications and restrictions of each series. the options on October 12, 1999, which resulted in the Company purchasing 0.1 million shares of its common Share Repurchase Program stock at $29 per share. The Company accounts for the In July 1997, the Board of Directors of BNSF authorized effects of equity put option transactions within the repurchase of up to 30 million shares of the Company’s stockholders’ equity. common stock from time to time in the open market. In December 1999, April 2000, and September 2000, An equity put option is a financial instrument whereby the Board of Directors authorized extensions of the BNSF BNSF receives an upfront cash premium for granting share repurchase program, adding 30 million shares at another party the option to sell a defined number of BNSF each date to the total shares previously authorized. During shares to the Company at a fixed price on a specified 2000, 1999, and 1998, the Company repurchased approx- future date. The Company considers the sale of equity imately 65 million, 22 million, and 5 million shares, put options as a method to acquire its common stock at respectively, of its common stock at average prices of a share price consistent with its share repurchase strategy $23.16 per share, $31.08 per share, and $30.75 per share, and potentially reduce the all-in cost of the program. The respectively. There were no repurchases under this program Company’s risk is that it may be required to purchase in 1997. Total repurchases through January 31, 2001, were shares at a specified price that is higher than the common 92 million shares at a total average cost of $25.51 per stock price at the exercise date of the equity put option. share, leaving 28 million shares available for repurchase The Company has the ability to settle its equity put option under the authorization. transactions on a net share or net cash basis and accounts for the effects of these transactions within stockholders’ During the second and third quarters of 1998, BNSF sold equity. The number of shares subject to outstanding put equity put options for 3 million shares of the Company’s options sold by the Company cannot exceed the amount common stock to an independent third party and received of remaining shares the Board of Directors has authorized cash proceeds of $2.2 million. The option contracts had for repurchase. As of January 31, 2001 there were no exercise prices ranging from $29.00 to $30.00 per share equity put options outstanding. 15. Quarterly Financial Data – Unaudited (Dollars in millions, except per share data) Fourth Third Second First 2000 Revenues(1) $2,339 $2,342 $2,260 $2,264 Operating income $ 544 $ 571 $ 483 $ 510 Net income $ 255 $ 259 $ 223 $ 243 Basic earnings per share $ 0.65 $ 0.65 $ 0.53 $ 0.55 Diluted earnings per share $ 0.65 $ 0.64 $ 0.53 $ 0.55 Dividends declared per share $ 0.12 $ 0.12 $ 0.12 $ 0.12 Common stock price: High $29.56 $27.44 $26.25 $27.50 Low $20.88 $20.38 $21.63 $19.06 1999 Revenues(1) $ 2,390 $ 2,367 $ 2,219 $2,213 Operating income $ 603 $ 631 $ 491 $ 480 Net income $ 315 $ 348 $ 238 $ 236 Basic earnings per share $ 0.69 $ 0.76 $ 0.51 $ 0.50 Diluted earnings per share $ 0.69 $ 0.75 $ 0.50 $ 0.50 Dividends declared per share $ 0.12 $ 0.12 $ 0.12 $ 0.12 Common stock price: High $ 32.75 $ 33.38 $ 37.94 $36.44 Low $ 22.88 $ 25.63 $ 29.75 $31.56 (1) All periods have been reclassified to conform with the current year presentation (see Note 2 to these consolidated financial statements). 46
    • Burlington Northern Santa Fe Corporation Officers Jeffrey R. Moreland* Bruce E. Freeman Richard A. Russack Robert D. Krebs* Executive Vice President-Law Vice President and Vice President- Chairman and Chief of Staff Chief Information Officer Corporate Relations Matthew K. Rose* Charles L. Schultz* Dennis R. Johnson* Shelley J. Venick President and Executive Vice President Vice President and Vice President and Chief Executive Officer and Chief Marketing Officer Controller General Tax Counsel Thomas N. Hund* Gary L. Crosby Marsha K. Morgan Richard E. Weicher Executive Vice President and Vice President- Vice President- Vice President and Chief Financial Officer Law and General Counsel Investor Relations and Senior Regulatory Counsel Carl R. Ice* Corporate Secretary A. R. (Skip) Endres, Jr. *Executive Officer of Executive Vice President and Vice President- Burlington Northern Chief Operations Officer Government Affairs Santa Fe Corporation Burlington Northern Santa Fe Corporation Directors** Joseph F. Alibrandi Bill M. Lindig (2) (4) Marc J. Shapiro (3) (4) Ronald B. Woodard (1) (2) (2) (3) Retired Chairman and Retired Chairman Vice Chairman for Finance, Risk President and Chief Executive Officer, SYSCO Corporation Management and Administration Chief Executive Officer, Whittaker Corporation (marketer and distributor J.P. Morgan Chase & Co. MagnaDrive, Inc. (aerospace), of foodservice products), (bank holding company), (industrial equipment Los Angeles, California. Houston, Texas. New York, New York. manufacturer), Board member since 1982. Board member since 1993. Board member since 1995. Seattle, Washington Retired President, Boeing John J. Burns, Jr (1) (2) Vilma S. Martinez (3) (4) Arnold R. Weber (1) (2) Commercial Airplane President and Partner, Munger, Tolles President Emeritus, Group (aerospace), Chief Executive Officer, and Olson LLP (law firm), Northwestern University, Seattle, Washington. Alleghany Corporation Los Angeles, California. Evanston, Illinois. Board member since 1995. (holding company with Board member since 1998. Board member since 1986. Michael B. Yanney (1) (2) reinsurance, industrial Roy S. Roberts Robert H. West (2) (4) (2) (3) minerals, steel fastener Chairman and operations, and an investment Retired Group Vice President, Retired Chairman of the Board, Chief Executive Officer, position in BNSF), North American Vehicle Butler Manufacturing Company America First Companies L.L.C. New York, New York. Sales, Service and Marketing, (manufacturer of pre-engineered (investments), Board member since 1995. General Motors Corporation building systems and specialty Omaha, Nebraska. (motor vehicle manufacturer), components), Board member since 1989. George Deukmejian (3) (4) Detroit, Michigan. Kansas City, Missouri. Retired Senior Counsel, Sidley Board member since 1993. Board member since 1980. Committee Assignments: and Austin (law firm) and (1) Executive Committee Matthew K. Rose J. Steven Whisler (3) (4) former Governor of the (2) Compensation Committee State of California, President and Chairman, President and (3) Audit Committee Los Angeles, California. Chief Executive Officer Chief Executive Officer, (4) Directors and Corporate Board member since 1991. Burlington Northern Phelps Dodge Corporation Governance Committee Santa Fe Corporation, (mining and manufacturing), Robert D. Krebs (1) Fort Worth, Texas. Phoenix, Arizona. **Years of Board service includes Chairman Board member since 2000. Board member since 1995. service on Boards of Burlington Burlington Northern Northern Inc. and Santa Fe Edward E. Whitacre, Jr. (1) (4) Santa Fe Corporation, Pacific Corporation and Fort Worth, Texas. Chairman and predecessor corporations. Board member since 1983. Chief Executive Officer, SBC Communications Inc. (diversified communications holding company), San Antonio, Texas. Board member since 1993. 47
    • Shares Listed Dividend Shareholders Institutional Investors New York Stock Reinvestment Plan As of January 31, 2001, Inquiries from security Exchange, Chicago A dividend reinvestment there were approximately analysts and investment Stock Exchange, plan is provided for regis- 44,000 shareholders professionals should be Pacific Stock Exchange tered shareholders as a of record. directed to the Company’s Ticker Symbol: BNI convenient way to pur- investor relations contact: chase more shares through Ms. Marsha K. Morgan, Shareholder Services investment of dividends or Principal You are encouraged to Vice President – Investor voluntary cash payments. Corporate Office contact our Transfer Agent Relations and Corporate 2650 Lou Menk Drive, A booklet describing the directly for the shareholder Secretary (817)352-6452 Fort Worth, Texas plan is available from the services listed below: 76131-2830 Transfer Agent. Annual Meeting (817) 333-2000 Change in Certificate The Annual Meeting of www.bnsf.com Form 10-K Registration, Dividend Shareholders will be held A copy of the Company’s Reinvestment Service, at the Fort Worth Club, Annual Report on Form Stock Transfer Change of Mailing 306 West 7th Street, 10-K filed with the Agent and Registrar Address, Lost or Stolen Fort Worth, Texas, on First Chicago Trust Securities and Exchange Certificates, Replacement Wednesday, April 18, 2001, Company of New York, Commission is available of Dividend Checks, Direct at 2:00 p.m. a division of Equiserve, to shareholders free of Deposit of Dividends, P.O. Box 2500, charge upon request to Consolidation of Multiple Jersey City, New Jersey the Company’s Investor Accounts, Elimination of 07303-2500 Relations Department at Duplicate Report Mailings, (800)526-5678 2650 Lou Menk Drive, Replacement of Form Fort Worth, Texas 1099-DIV. 76131-2830. 48
    • Copyright © 2001 Burlington Northern Santa Fe Corporation Design: Pentagram Design Inc. Cover and Principal Photography: Arthur Meyerson Additional Photography: Glen E. Ellman Map Illustration: Will Nelson Printing: Williamson Printing Corporation Printed on Recycled Paper
    • Burlington Northern Santa Fe Corporation 2650 Lou Menk Drive Fort Worth, Texas 76131-2830