Burlington Northern Santa Fe Corporation
  2000 Annual Report to Shareholders
Contents                         The BNSF Vision
     Message from the            Our vision is to realize the tremendous ...
Consolidated Financial Highlights
Burlington Northern Santa Fe Corporation and Subsidiaries
(Dollars in millions, except p...
On December 7, 2000, the Board of Directors elected Matthew K. Rose
          Chief Executive Officer of BNSF. Matt, who j...
we look at what we have              Regrettably, in July 2000,     performance are worthy to
                            ...
Safety Severity Ratio 1995-2000                                                                                      railr...
Efficiency                           horsepower by 46 percent.                                execute flawlessly the trans...
Financial Performance                                         track in the Powder River Basin                           th...
through better design and
    execution of each car’s service
    plan. We will continue to
    reset our service goals as...
BNSF’s grade crossing safety team, working with landowners
    Y
    T

        and communities along BNSF lines, closed o...
9
BNSF Guaranteed Service—money back if delivery is not on
     E
     C

         time—was introduced on three intermodal s...
11
Each BNSF locomotive spends an average of 31 hours
     Y
     C

         less “in the shop” for scheduled maintenance ev...
13
Introduced in April 2000, BNSF ValueTrax, an on-line
     N
     O

           program aimed to increase intermodal volume...
15
With a 20 percent surge in international intermodal business
     H
     T

         in 2000, BNSF’s Southern California t...
17
In 1997, BNSF’s senior management team developed a set of
     VALUES

              core values to complement BNSF’s visi...
Financial Contents
          Management’s Discussion and Analysis
21
          Report of Management
31
          Report of...
due to increases from the metals, perishables, and minerals    Fuel expenses of $932 million for 2000 were $232 million,
s...
1998 net income of $1,155 million. The slight decrease            early in the year at the Powder River Basin mines, and
i...
Materials and other expenses of $818 million for 1999          a $43 million dividend from the Company’s equity
were $111 ...
In April 2000, BNSF issued $300 million of 7.875 per-         February 1999 shelf registration statement. The net
cent not...
BNSF 2000 annrpt
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BNSF 2000 annrpt
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BNSF 2000 annrpt

  1. 1. Burlington Northern Santa Fe Corporation 2000 Annual Report to Shareholders
  2. 2. 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.
  3. 3. 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
  4. 4. 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
  5. 5. 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
  6. 6. 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
  7. 7. 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
  8. 8. 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
  9. 9. 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
  10. 10. 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
  11. 11. 9
  12. 12. 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
  13. 13. 11
  14. 14. 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
  15. 15. 13
  16. 16. 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
  17. 17. 15
  18. 18. 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
  19. 19. 17
  20. 20. 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
  21. 21. 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
  22. 22. 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
  23. 23. 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
  24. 24. 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
  25. 25. 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

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