BURLINGTON NORTHERN SANTA FE CORPORATION
1998 ANNUAL REPORT TO SHAREHOLDERS

CONTENTS
ABOUT THE THE BNSF VISION
COVER
their shipment, and market as a result of
2 Message from Our vision is to
the best value for their BNSF’s superior rev-
ew GE Dash the Chairman realize the tremendous
N transportation dollar. enue growth, an oper-
9-44CW potential of the
• Our employees work ating ratio in the low
locomotives lead a 6 Building a Better Burlington Northern
in a safe environment 70s, and a return on
BNSF doublestack Foundation and Santa Fe Railway
free of accidents and invested capital which
intermodal train by providing
injuries, are focused on is greater than our cost
near East Glacier in 1 0 Improving transportation services
continuous improve- of capital.
Northern Montana. Transportation that consistently
ment, share the oppor- • The communities
Efficiency meet our customers’
tunity for personal and we serve benefit from
expectations.
professional growth our sensitivity to their
1 4 BNSF’s Values
that is available to all interests and to the
We will know we have
members of our environment in gener-
1 5 Financial Review succeeded when:
diverse work force, and al, our adherence to
• Our customers find
take pride in their the highest legal and
4 1 Executive Officers it easy to do business
association with BNSF. ethical standards, and
and Directors with us, receive 100-
• Our owners earn the participation of
percent on-time,
financial returns that our company and our
4 2 Corporate damage-free service,
exceed other railroads employees in commu-
Information accurate and timely
and the general nity activities.
information regarding

CONSOLIDATED FINANCIAL HIGHLIGHTS
Burlington Northern Santa Fe Corporation and Subsidiaries
(Dollars in millions, except per share data)
The selected financial data shown below include BNSF results for each of the years ended December 31, 1998, 1997 and 1996,
Burlington Northern Inc. results for each of the two years ended December 31, 1995, and Santa Fe Pacific Corporation results
from September 22, 1995 through December 31, 1995.
December 31, 1998 1997 1996 1995 1994
FOR THE YEAR ENDED:
Revenues $ 8,941 $ 8,370 $ 8,109 $ 6,099 $4,894
Operating income (1) 2,158 1,767 1,748 526 853
Income before extraordinary item and cumulative
effect of change in accounting method (2) 1,155 885 889 198 426
Accounting change/Extraordinary item (3)(4) — — — (106) (10)
Net income $ 1,155 $ 885 $ 889 $ 92 $ 416
Earnings available for common stockholders $ 1,155 $ 885 $ 889 $ 71 $ 394
Basic earnings per share:(5)
Before extraordinary item and change in
accounting method $ 2.45 $ 1.91 $ 1.95 $ .57 $ 1.51
Accounting change/Extraordinary item — — — (.34) (.04)
Basic earnings per share $ 2.45 $ 1.91 $ 1.95 $ .23 $ 1.47
Average shares (in millions) 470.5 464.4 456.3 313.2 267.3
Diluted earnings per share:(5)
Before extraordinary item and change in
accounting method $ 2.43 $ 1.88 $ 1.91 $ .55 $ 1.46
Accounting change/Extraordinary item — — — (.33) (.03)
Diluted earnings per share $ 2.43 $ 1.88 $ 1.91 $ .22 $ 1.43
Average shares (in millions) 476.2 471.1 464.4 317.7 291.3
Dividends declared per common share (5) $ .44 $ .40 $ .40 $ .40 $ .40
AT YEAR END:
Total assets $22,690 $21,336 $19,763 $18,269 $7,592
Long-term debt and commercial paper,
including current portion 5,456 5,289 4,711 4,233 1,819
Stockholders’ equity 7,770 6,812 5,981 5,037 2,237
Total debt to capital 41% 44% 44% 46% 45%
FOR THE YEAR ENDED:
Capital expenditures $ 2,147 $ 2,182 $ 2,234 $ 890 $ 698
Depreciation and amortization 832 773 760 520 362
Operating ratio (6) 75.9% 77.8% 78.4% 79.3% 82.6%
(1) 1997 and 1995 include $90 million ($57 million after-tax) and $735 million ($453 million after-tax), respectively, for special charges principally
related to employee merger and separation costs.
(2) Includes items in note (1) above. Additionally, 1998 includes a $32 million after-tax gain on the sale of substantially all of the Company’s interest
in Santa Fe Pacific Pipeline Partners, L.P. as discussed in Note 2 of the financial statements.
(3) 1995 includes the cumulative effect of the change in accounting method for locomotive overhauls which decreased net income by $100 million.
Additionally, 1995 includes an extraordinary loss on retirement of debt of $6 million (after-tax).
(4) 1994 includes the cumulative effect of the implementation of the accounting standard for post-employment benefits.
(5) Information for prior periods has been restated to reflect the 1998 three-for-one common stock split.
(6) 1997 and 1995 operating ratios exclude the pre-tax charges discussed in note (1) above.
BURLINGTON NORTHERN SANTA FE CORPORATION 1

TO OUR SHAREHOLDERS,
CUSTOMERS AND COLLEAGUES
o matter what measure is used, 1998
N ROBERT D. KREBS
was a record-breaking year for Burlington Chairman, President and
Northern Santa Fe Corporation. Chief Executive Officer,
Our safety severity ratio – the number of Burlington Northern
workdays lost per 200,000 hours worked – Santa Fe Corporation
was 29 percent lower compared with 1997. This
$862 million. We completed 1998 with a 44.3
was BNSF’s third consecutive year of 25 percent
percent share of the western rail market, a gain
or better improvement in this key measure.
of more than four share-points, or 1 million
Our reportable injury frequency, a related
units, in a two-year period.
safety ratio measuring injuries per 200,000
Almost 7.9 million freight units traveled on
hours worked, was 5 percent lower than a year
BNSF’s 34,000-route-mile network in 1998, a
ago at 1.74, moving us another step closer to our
7.3 percent increase from 1997. These units
goal of an injury-free and accident-free work-
generated a record 469 billion revenue-ton-miles
place. This was the seventh consecutive year
(the movement of a ton of revenue freight one
that BNSF posted a reduction. In 1998, we
mile), a 10.5 percent increase from 1997. Inter-
worked 4.7 million more man-hours than we
modal and automotive accounted for a record
did in 1995 (the year of our merger), yet we
3.4 million units; coal represented 2 million loads,
had 540 fewer people injured than in 1995.
or a record 230 million tons; chemicals, metals
This positive trend in personal safety also con-
and minerals, forest products and consumer goods
tributed to an 8 percent reduction in the frequency
accounted for a record 1.9 million loads, and agri-
of reportable rail accidents and incidents per
cultural commodities represented 581,000 loads.
one-million train miles in 1998. Between year
Adjusted operating income grew $301 mil-
end 1995 and 1998, BNSF has achieved a 36
lion, or 16 percent, to a record $2.16 billion
percent improvement in this ratio, significantly
from a year ago. Since 1995, BNSF has gen-
reducing the number of accidents caused by
human factors, track defects and mechanical REVENUE GROWTH GROWTH IN ADJUSTED
malfunctions. Our continuing investments in In Billions OPERATING INCOME
$2.16
$8.94 In Billions
$8.37
track maintenance and new locomotives also $1.86
$8.11 $1.75
have contributed to this improvement.
While BNSF and its people were recording
the safest year in our history, revenues grew
6.8 percent to a record $8.94 billion compared
with 1997. During our first three full years of
1996 1997 1998 1996 1997 1998
operation, BNSF increased annual revenues by
2 BURLINGTON NORTHERN SANTA FE CORPORATION

erated an additional $625 million in adjusted employee productivity and quality of life. Here are
operating income. some of the BNSF programs and initiatives which
Adjusted net income exceeded $1.12 billion, have been undertaken with the help of our labor
or $2.36 per share, a 19 percent improvement unions and the Federal Railroad Administration:
compared with a year ago. Almost $390 million, • During 1997 and early 1998, all BNSF employ-
or $0.75 per share, has been added to BNSF’s ees had the opportunity to receive training and
adjusted net income in the past three years. information on circadian rhythms, alertness
Our operating ratio (the amount of operating strategies, rest environment, diet and exercise.
expense we spend to generate every dollar of • During 1999, a series of Fatigue Counter-
revenue) was 75.9 percent, our lowest ever and measures pamphlets will be distributed to all
nearly two points under 1997’s adjusted ratio. employees, as well as to members of communities
Between 1996 and 1998, BNSF has reduced and government agencies, reviewing the latest
this ratio by 5.2 points, reflecting the compound scientific information on sleep, rest and alertness.
benefits of significant revenue growth and pro- • BNSF piloted six-hour call windows as part of
ductivity gains from new capital investment and several crew rest initiatives in 1997 and 1998, and
smart expense management. we will pilot similar programs at several additional
On September 1, 1998, BNSF implemented locations in 1999 in an effort to determine how to
a three-for-one stock split, the first in its history,
best provide predictable work cycles. In1999, BNSF
and on October 1, we initiated a 20 percent will roll out a new program that gauges train
increase in our dividend rate, which is now 48 lineup accuracy as it relates to crew calling times.
cents per share per year. • Predictable off-duty schedules, either 11-days-
on/4-days-off, or 8-on/3-off, are now in place
IMPROVING QUALITY
on 52 extra boards. The 11/4 arrangement is
OF LIFE AND EFFICIENCY
To ensure that BNSF people remain alert on the being offered for implementation on the remain-
job and have sufficient rest, BNSF has been the ing 200 BNSF extra boards. Assigned rest days
pioneer in exploring and piloting initiatives that for pool crews are now in place at Fort Madison,
study how sleep, rest and work cycles affect Iowa, and Superior, Wisconsin, and will be
extended to other locations during 1999.
ADJUSTED GROWTH IN WESTERN RAIL
OPERATING RATIO MARKET SHARE • BNSF continues to guarantee pool crew
UP
78.4% 77.8% 75.9% 50.1%
employees 14 hours off between trips at their
BNSF UP
44.3% 44.8%
BNSF
home terminal.
39.6%
• BNSF’s napping policy has been in place since
1997 for all train and engine employees, allowing
these people to take up to a 45-minute nap
under certain conditions. This policy is used
1996 1997 1998 1996 1998
on about 15-to-20 percent of all trips.
BURLINGTON NORTHERN SANTA FE CORPORATION 3

Another $1.4 billion was spent to acquire 933
INVESTING FOR
road locomotives increasing the horsepower of
TODAY AND TOMORROW
During 1998, we continued making progress our road fleet by 27 percent, which along with
in two other key areas: investing in our facili- fuel conservation measures have improved fuel
ties, equipment, and information systems in efficiency by 6 percent to 737 gross ton miles/
order to provide better and more consistent gallon at year end 1998 from 693 at year end
on-time service; and investing in our people to 1995. These investments will eliminate approx-
help them relate better to one another and to imately $130 million in annual locomotive
the entire BNSF Community. maintenance costs, that otherwise would have
We believe these types of investments are the been incurred, by reducing the number of dif-
keys to revenue growth and efficiency gains ferent locomotive models in our road fleet
that will provide you with superior returns in from 19 to 10, reducing parts inventory, and
the years ahead and enable BNSF to achieve its simplifying locomotive training.
vision: To realize our tremendous potential by About $3.7 billion has been spent over this
providing transportation services that consis- three-year period on maintaining our track,
tently meet our customers’ expectations. signals, bridges and tunnels, and to overhaul
Between 1996 and 1998, BNSF invested locomotives and freight cars.
$7.1 billion to maintain and expand its net- Another $143 million has been invested in
work to provide customers with more reliable, a new information system, which today pro-
consistent train service. In addition, we hired vides integrated, real-time data for all business
and trained almost 8,100 people, mostly for transactions. Our Transportation Support System
train, yard and engine service, maintenance of is helping us to better manage our rail network
way, shopcraft, and other union-represented and to improve day-to-day performance. In
positions. BNSF’s average workforce for year addition, customers can now order cars, provide
end 1998 was 44,349 people, a reduction of shipping instructions and arrange billing through
1,306 over the past three years. our Internet site at www.bnsf.com. Our goal is
About $1.4 billion was spent on capacity to make it easy for customers to do business
expansion projects to remove constraints to with us and we will be adding new transaction
service improvements. Beginning on page 6, capabilities continuously to our site.
we show in detail, using a map and a train, As a result of a series of shipper forums held
where capacity has been expanded on our net- during the last half of 1998, BNSF and the other
work over the past three years. We also high- Class I railroads have been providing performance
light how these investments in terminal and measurement data since January 13, 1999,
intermodal facilities, main line track capacity, to help our customers remain current on how
and the purchase of track from the Union our railroad is operating, as well as to improve
Pacific (UP) are beginning to produce results. communications. Data on total cars on line,
4 BURLINGTON NORTHERN SANTA FE CORPORATION

average train speed, average terminal dwell Vancouver, British Columbia, to Birmingham,
time and the number of freight cars received Alabama. These meetings give me an opportunity
without a bill of lading is being published to explain how our Company is doing in pursuit
weekly on our Internet site as indicators of how of our vision and to help make sure that all of
well traffic is moving on the BNSF network. our people understand our values, how we want
One annual measure of how well BNSF to operate and make decisions, and the type of
serves customers took place in 1998 during the company we want to be. These meetings also give
27-day period preceding Christmas. For our me an opportunity to hear from our employees
largest intermodal customer, United Parcel about their concerns and expectations, as well
Service (UPS), we handled 31,786 trailers, or as their ideas for improving our company.
55 million packages without a single service To help improve understanding of BNSF’s
failure – the largest UPS peak volume ever Vision and Values (see page 14), all of our 5,200
handled by a railroad and a 15 percent increase salaried people have attended a two-day work-
over BNSF’s 1997 26-day peak volume, which shop over the past 12 months. Now, we will begin
was also failure free. Our latest failure-free taking this program in a condensed format to the
streak for UPS began prior to Thanksgiving other 39,000 BNSF people across our system.
and continued through January 4, 1999 – 45 It is really the people of BNSF that continu-
days during which we handled 43,394 trailers ously make the difference in how well our
without a single service failure. Company achieves its goals. I am impressed every
We expect to invest another $2.5 billion in day by their desire to do things right and by
BNSF’s network and locomotive and equip- their commitment to make BNSF the service
ment fleets during 1999 to further improve standard for our industry.
our ability to provide consistent customer ser-
vice. We will acquire 476 road locomotives, the
largest single-year total in railroad history, which
should alleviate the locomotive shortage we have Robert D. Krebs
Chairman, President and Chief Executive Officer
struggled with since our merger. Beginning in
February 18, 1999
2000, we expect new locomotive acquisitions
to significantly decline compared with 1999.
All of our investment programs will not make
a difference, however, unless all BNSF people can
work well together and communicate honestly
with one another. During 1998, we continued
our Town Hall meetings which began in 1996.
During the past three years, I have personally
met with more than 16,000 employees from
BURLINGTON NORTHERN SANTA FE CORPORATION 5

BUILDING A BETTER FOUNDATION
NSF has invested nearly $2.8 billion over the past
B three years to expand our capacity to provide the
transportation services that consistently meet our
customers’ expectations. We have expanded main line
capacity by constructing 410 miles of double LOST WORK DAYS RATIO
Per 200,000 hours worked
59.29
and triple track on key segments of our
busiest routes, increased our intermodal 39.22
27.80
lift capacity by 7 percent (562,000 units)
at hub centers across our system, and are
close to ending the locomotive shortage by 1996 1997 1998
increasing the size of our road fleet 27 percent in just
the past three years. We have also retied 9,100 miles
of rail line, relayed rail on 2,450 miles of track and
resurfaced the equivalent of our entire route system —
35,500 miles of track. And we have improved
BNSF RAIL
ACCIDENTS & INCIDENTS
our ability to manage the performance of our
Frequency per
million train miles
2.86
2.66
operations with a new information system.
2.46
The map on pages 7 & 8 provides greater
detail on where these investments have
improved BNSF’s foundation.
1996 1997 1998
6 BURLINGTON NORTHERN SANTA FE CORPORATION

This new concrete bridge
girder was part of a
year’s worth of maintenance
work and improvements
that were completed in
just 12 days on a 250-mile
core route during
the Thayer Blitz project.

M A J O R B N S F I N V E S T M E N T S I N C A P A C I T Y E X P A N S I O N 1 9 9 6 –1 9 9 8
Added capacity Added 53 miles Removed the 1,970-foot Rebuilt and expanded Converted Murray
Completed double tracking
for 40,000 additional of second main track single-track tunnel near Argentine yard in Kansas yard in Kansas City
the 127-mile Orin line
annual lifts to the to key segments Guernsey, Wyoming and City to improve transit to handle coal and
in the Powder River Basin
Acquired and rebuilt the 229-mile South Seattle Inter- of BNSF’s main line expanded the segment to an times and interchanges grain traffic.
and added 146 miles of
Stampede Pass line to add capacity modal hub center. between Pasco, open-cut, double-track line. at a key crossroads
2nd & 3rd main tracks
Vancouver
as a third route to and from the Washington and terminal. Added capacity for
on key segments of BNSF’s
Pacific Northwest. Shelby, Montana 45,000 additional
coal routes in Wyoming
annual lifts to
and Nebraska.
Seattle the Argentine Inter-
modal hub center.
Expanded the coal train
Tacoma
Shelby
Spokane handling capacities of the
Havre
Portland rail yards in Alliance and
Pasco Lincoln, Nebraska.
Helena
Dilworth
Billings
Purchased 335 miles of track, Expanded inter-
including the Bieber to modal hub centers
Minneapolis/St. Paul
Keddie, California, segment in the Chicago area
which completed our single- at Willow Springs
Bieber
line route from British and Corwith to
Columbia to San Diego, and handle a combined
secured access to approxi- 175,000 additional
Alliance
Keddie
mately 3,900 route miles of Guernsey annual lifts.
Chicago
trackage and haulage rights
Omaha
Salt Lake City
from the Union Pacific
Galesburg Completed expansion
Southern Pacific merger. Sacramento
of the Galesburg yard
San Francisco Lincoln to improve handling
Denver
Expanded the yard of eastbound interchange
and locomotive facility trains on BNSF’s system.
at Barstow, California. St. Louis
Kansas
East St. Louis
City
Added a new Springfield
locomotive facility at
Barstow
Commerce, California.
Los Oklahoma
San
Angeles City
Bernardino Amarillo
Phoenix Albuquerque
Memphis
San Diego
Birmingham
Expanded and upgraded the 250-
Added capacity
Dallas/
Added a new mile core route between Springfield,
Ft. Worth at the Memphis
automotive facility Missouri and Memphis, Tennessee.
El Paso Intermodal
in San Diego
hub center
to accommodate
to handle
Added 163 more Mobile Pensacola
MEXICO TRAFFIC
growth in auto- Iowa 25,000 more
miles of second main VOLUME GROWTH Junction
mobile traffic.
lifts per year.
Expanded the San Bernardino track to BNSF’s New Orleans
Houston
Thousands of Units
Intermodal hub center to handle premier Chicago –
103
more than 400,000 lifts per year. Los Angeles route UP LINES VOLUME GROWTH
Eagle Galveston
which is now Corpus
Pass Thousands of Units
Expanded the
more than 85% Christi
Alliance, Texas 305
Laredo
78 Added capacity at
double track.
(DFW) Inter- BNSF’s
the Pearland, Texas
modal hub center traffic
(Houston) Intermodal
to handle 90,000 volumes
hub center to handle
Brownsville Established a joint
additional on UP
35,000 additional
BNSF SYSTEM MAP dispatching center 162
annual lifts. trackage
annual lifts.
with Union Pacific
Secured access to
BNSF Lines & Trackage Rights 1997 1998 rights have
in Spring, Texas to
three more major grown
efficiently handle
Regional Connections gateways to Mexico
Additional 88% from
the chemical business
through additional
gateways have their first
2nd & 3rd Main Track we gained access to,
trackage rights to
helped BNSF’s full year of
and to manage traffic
Brownsville and
traffic volumes utilization.
on the jointly-owned
Eagle Pass, and access
to and from 1997 1998
BNSF-UP line
to Laredo, Texas.
Mexico grow
between Houston
nearly 30%.
and New Orleans.
7 BURLINGTON NORTHERN SANTA FE CORPORATION BURLINGTON NORTHERN SANTA FE CORPORATION 8

IMPROVING TRANSPORTATION EFFICIENCY
ver the last three years, we have taken the steps
O necessary to eliminate many of the physical
constraints that were impairing BNSF’s ability to
provide improved single-line service through- REVENUE PER EMPLOYEE
In Thousands
$201.6
out our system. We now have in place both $192.6
$185.4
the management structure and the tools
required to improve BNSF’s transportation
efficiency. BNSF has generated year-over-year 1996 1997 1998
improvements in operating income, net income, and
earnings per share, adjusted for special items, in all
quarters except the first quarter of 1997, which was
impacted by severe winter weather. As the train spread
on pages 11 & 12 indicates, our capital
ADJUSTED
OPERATING EXPENSE
investments are producing growth in all
Per thousand revenue ton miles
$15.47
$15.34
major traffic segments. These cumulative
$14.46
improvements have helped reduce our
operating ratio by more than five points in
the last three years and will help provide
1996 1997 1998
BNSF with the financial capacity needed to continue to
improve customer service and shareholder returns.
10 BURLINGTON NORTHERN SANTA FE CORPORATION

A BNSF coal train
winds through
Wyoming's Wendover
Canyon carrying
some of the 28 million
tons of coal volumes
BNSF has added
since 1996.

NEW OPPORTUNITIES FOR GROWTH
AG COMMODITIES COAL INTERMODAL AUTOMOTIVE
Approximately 50% PRB coal is 60% BNSF moves more
COAL TONNAGE
FUEL EFFICIENCY INTERMODAL UNIT GROWTH
BNSF serves more More than 11% of the In 1998 a truck trailer A new car or truck was
of the agricultural lower in sulfur than intermodal traffic than
Gross ton miles per gallon GROWTH Millions of annual units
of the nation’s major electricity produced in or container was loaded shipped in a BNSF
commodities traffic most other U.S. coal any other rail system
Millions of tons
grain-producing the United States, onto a BNSF inter- automobile train approx-
BNSF hauled last sources, enabling steam- in the world. Major
737 3.13 Intermodal
per year
regions than any enough to power one modal train every 10 imately every 14 seconds
year was transported electric utilities to products moved in the
230
711 traffic is
other railroad. out of every nine homes seconds. That added in 1998. That amounted
to export points meet even the tougher trailers and containers
the fastest
699 2.57
and jobs in the nation, up to more than 3.1 to more than 2.2 million
in the Pacific Phase II standards of BNSF transports include
PRB coal is also the growing
202
is now generated from million intermodal vehicles, or about 1 out
Northwest, Gulf of the Clean Air Act such things as mail,
most economical fuel traffic
coal hauled by BNSF. shipments (truck trailers of every 7 cars and trucks
Mexico, Mexico and scheduled to take effect small packaged goods,
source for many utili- segment
or containers) that were manufactured or sold in
the Great in the year 2000 by paper products, clothes,
ties. Forty-five of the for BNSF.
More than 90% of the delivered primarily North America.
Lakes. switching to PRB coal appliances,
50 lowest-cost steam- BNSF’s
coal BNSF hauls comes on BNSF’s
instead of installing electronic
electric plants in the intermodal
from the Powder River rail lines
BNSF is the expensive scrubbers. products,
U.S. burn coal, and volume
Basin (PRB) in Wyoming instead
largest grain- and auto parts.
31 of those 45 plants has increased
and Montana, which of the
hauling railroad
burn coal from the by 22 percent
contains the world’s nation’s
in the United
Powder River Basin. since 1996.
largest single deposit of congested
States. In 1998 1996 1998
1996 1997 1998
low-sulfur coal. highways.
BNSF transported
1996 1998
581,000 carloads
of agricultural
BNSF’s coal
commodities, more
volumes have
than 60% of which
increased 14% The new vehicles are
were corn and wheat
since 1996. shipped to 33 destina-
movements.
tion ramps across
BNSF’s system for final
delivery by truck to
local auto dealerships.
METALS
MERCHANDISE
BNSF annually
UNIT GROWTH handles enough coiled
CONSUMER GOODS
Millions of sheet steel to lay the
…enough BNSF is the largest
annual car loads
unrolled coils end to
newsprint to transporter of beer
DAMAGE-FREE SERVICE end between New
1.87 print 1 billion
FOREST and wine by rail in
CHEMICALS
1.73 York City and Seattle,
Loss and damage costs
Sunday
PRODUCTS MINERALS
the United States.
BNSF is the rail
GRADE CROSSING SAFETY Washington 12 times.
per $100 in freight revenue
newspapers.
BNSF serves more BNSF
market share leader in
Collisions per
.36
of North America’s transports
BNSF transported more
BNSF transports
transporting petroleum milllion train miles
.32
…enough
primary timber- the mineral components of
than 1.2 billion cans of
enough sugar to make
in the western
printing 4.67
producing regions many of the products we
canned goods in 1998.
over 3 billion batches
.27 United States.
paper to
than any other enjoy everyday, including
of cookies a year.
3.83
print more
railroad (Pacific the roads we drive on
BNSF transports enough
We transport 3.33
than 1 billion
Northwest, Canada, (cement, asphalt) the build-
canned beverages to
enough lube
catalogs.
Northern Minnesota ings in which we live and
supply every resident
oil to fill 1
and the Southeast). work (gypsum, crushed
of New York, BNSF transports
billion quarts
1996 1998
…and enough stone, limestone, iron ore),
Chicago and Los enough recycled iron
of motor oil.
Merchandise paperboard
BNSF transports the glass (soda ash) in the
Angeles with one and steel annually to
traffic volumes to manufacture …and enough potash
enough lumber windows we look through,
beverage a day for produce reinforcing
… enough propane
have grown more than 2 in one year to fertilize
each year to and even the paper (kaolin
nearly one year. bar to rebuild more
a year to fill over
more than 8% billion card- a field the size of the
build more than clay) used in the document than 3,900 miles of
66 million five-gallon
1996 1997 1998 1996 1997 1998
since 1996. board boxes. entire state of Kansas.
500,000 homes. you are reading now. interstate highway.
propane tanks.
11 BURLINGTON NORTHERN SANTA FE CORPORATION BURLINGTON NORTHERN SANTA FE CORPORATION 12

B NS F ’ S V A L U ES
We are an effective Community
STYLE EQUALITY
when each of us:
As a Community, we are: As a member of the BNSF
•Believes in our Vision and
•Tough-minded optimists Community, I can expect:
embraces our Shared Values
•Decisive yet thorough •To be treated with dignity
•Knows our own role and
•Open and supportive, and and respect
strives to fulfill it
•Confident and proud •To be given equal access
•Respects, trusts and openly
of our success to tools, training and
communicates with other development opportunities
Community members •To have equal opportunity
SHARED VALUES
•Is proud of our heritage and
As a Community, BNSF values: to achieve my full potential
confident in our future
•Listening to customers and
doing what it takes to meet their EFFICIENCY
expectations Efficiency is the best collective
LIBERTY
As a member of the BNSF
•Empowering employees and application of our resources to
Community, each of us has
showing concern for their well- meet our customers’ expectations.
the right to:
being, and respect for their talent Each of us contributes
•A safe work environment –
and achievements to efficiency when we:
for the sake of ourselves, our
•Continuously improving by •Understand our customers’
co-workers, our shippers and
striving to do the right thing expectations and priorities
the communities we serve
safely and efficiently •Help develop business
•Feel the satisfaction that comes
•Celebrating our rich heritage processes that best match
and building on our success as we from a job well done – by using BNSF resources with our
our talent, judgment and
shape our promising future customers’ requirements
initiative, and by performing to •Constantly monitor and
our fullest potential measure our results in order
COMMUNITY
•Express our individualism,
BNSF is a Community of over to continuously improve
ideas and concerns – consistent
40,000 mutually dependent •Manage our Community’s
members. Each one of us depends with the Community’s Vision resources as if they were our own
and Shared Values, to anyone
upon BNSF for our livelihood,
in the Community without
and through our collective efforts,
fear of retribution
BNSF depends upon us to
• Participate fully in life outside
defend, sustain and strengthen
of work – by enjoying the fruits
our Community.
of our own labor
14 BURLINGTON NORTHERN SANTA FE CORPORATION

FIN ANCIAL CONTENTS RESULTS OF OPERATIONS
YEAR ENDED DECEM BER 31 , 1998 COMPAR ED WITH
Management’s Discussion and Analysis
15
YEAR ENDED DECEMBER 31, 1997
Report of Management
25
BNSF recorded net income for 1998 of $1,155 million ($2.43
Report of Independent Accountants
25 per share), compared with net income of $885 million
($1.88 per share) for 1997 principally reflecting increased rev-
Consolidated Statement of Income
26
enues in intermodal, coal and other sectors. More moderate
Consolidated Balance Sheet
27
winter weather in the first quarter of 1998 relative to 1997,
Consolidated Statement of Cash Flows
28
gains on real estate portfolio sales and a first quarter 1998
Consolidated Statement of Changes in
29 $67 million pre-tax gain ($32 million after-tax or $0.07 per
share) on the sale of substantially all of the Company’s inter-
Stockholders’ Equity
est in Santa Fe Pacific Pipeline Partners, L.P. also contributed
Notes to Consolidated Financial Statements
30
to the improvement. In addition, 1997 included a $90 mil-
lion pre-tax special charge ($57 million after-tax or $0.12 per
M AN A G E M E N T’ S D I S C US S I O N A N D A N A LY S IS OF
share) principally related to the consolidation of clerical
FIN ANCIAL CONDITION AND RESULTS OF OPERATIONS
anagement’s discussion and analysis relates to the functions (see Other Matters: Employee Merger and
M financial condition and results of operations of Separation Costs).
Burlington Northern Santa Fe Corporation and its Excluding the 1998 gain on the pipelines sale and the
majority-owned subsidiaries (collectively BNSF or Company). 1997 special charge, BNSF’s adjusted net income for 1998
The principal subsidiary of BNSF is The Burlington Northern was $1,123 million ($2.36 per share) compared with 1997
and Santa Fe Railway Company (BNSF Railway). All earnings adjusted net income of $942 million ($2.00 per share).
per share information is stated on a diluted basis.
REVENUE TABLE
The following table presents BNSF’s revenue information by commodity for the years ended December 31, 1998, 1997 and
1996 and includes certain reclassifications of prior year information to conform to current year presentation.
Revenues Cars/Units Average Revenue Per Car/Unit
1998 1997 1996 1998 1997 1996 1998 1997 1996
( I N M IL L I O N S ) (IN THOUSANDS)
Intermodal $2,469 $2,282 $2,039 3,126 2,854 2,570 $ 790 $ 800 $ 793
Coal 2,239 1,972 1,973 2,078 1,862 1,854 1,077 1,059 1,064
Agricultural Commodities 1,077 1,087 1,171 581 577 587 1,854 1,884 1,995
Chemicals 841 812 782 504 482 460 1,669 1,685 1,700
Metals and Minerals 757 731 693 660 622 628 1,147 1,175 1,104
Forest Products 598 564 548 344 335 334 1,738 1,684 1,641
Consumer Goods 553 497 468 365 349 308 1,515 1,424 1,519
Automotive 388 422 396 226 264 251 1,717 1,598 1,578
Total Freight Revenues 8,922 8,367 8,070 7,884 7,345 6,992 $1,132 $1,139 $1,154
Other Revenues 19 3 39
Total Revenues $8,941 $8,370 $8,109
REVENUES points to 44.3 percent. This gain was primarily the result of
Total revenues for 1998 were $8,941 million, 7 percent or the trackage rights gained from Union Pacific Corporation
$571 million higher than revenues of $8,370 million for (UP) and operating problems experienced by the UP associat-
1997. The increase primarily reflects increases in the inter- ed with consolidating operations.
modal, coal, chemicals, metals and minerals, forest products, Intermodal revenues of $2,469 million improved $187
and consumer goods sectors partially offset by lower agricul- million or 8 percent compared with 1997 reflecting increases
tural commodities and automotive revenues. Average revenue in the direct marketing, international and truckload sectors.
per car/unit decreased slightly in 1998 to $1,132 from Direct marketing revenues benefited from increased units
$1,139 in 1997. During 1998, BNSF’s share of the Western shipped for UPS, less than truckload (LTL) customers and
United States (U.S.) rail traffic market, based on reporting to the United States Postal Service. International revenues were
the Association of American Railroads (AAR), increased 2.9 up due to higher volume associated with market share gains
BURLINGTON NORTHERN SANTA FE CORPORATION 15

and new business established with Sealand, NYK, Maersk Compensation and benefits expenses of $2,812 million
and K-Line. Truckload revenues increased primarily due to were $137 million or 5 percent higher than 1997. Wages
volume growth from J.B. Hunt and Schneider. were higher due to volume related increases primarily in train
Coal revenues of $2,239 million for 1998 increased crew costs, wage increases for salaried and union employees,
$267 million or 14 percent primarily due to strong demand, and increased incentive compensation expense. These
volume gains associated with market share improvements increases were partially offset by lower labor costs associated
and favorable operating conditions as a result of a more with repairs to track and equipment as 1997 was unusually
moderate winter in 1998. high because of severe winter weather.
Agricultural commodities revenues of $1,077 million for Purchased services expenses of $894 million for 1998
1998 were $10 million or 1 percent lower than 1997 due were $71 million or 9 percent higher than 1997 due princi-
to poor Pacific Northwest (PNW) corn and soybeans exports pally to higher joint facility costs from increased operations
as well as weak barley exports. This was partially offset by over trackage rights obtained from UP, increased equipment
increased movements of minor oilseeds exports. maintenance costs, and higher ramping costs related to
Chemicals revenues of $841 million for 1998 were $29 increased intermodal volumes.
million or 4 percent higher than 1997. Increases in industrial Equipment rents expenses of $804 million were $16
chemicals, petroleum products and plastics were partially million or 2 percent lower than 1997. Improved equipment
offset by weak fertilizer markets. utilization and lower performance penalties for grain cars
Metals and minerals revenues of $757 million for 1998 were partially offset by volume driven increases for leased
were $26 million or 4 percent higher than 1997 and were led coal cars and locomotives.
primarily by strength in aluminum and non-ferrous materials Fuel expenses of $724 million for 1998 were $23 million
as well as volume increases in steel products, cement and or 3 percent lower than 1997, as a result of a 6 cent or 8
rock and specialty minerals. percent decrease in the average all-in cost per gallon of diesel
Forest products revenues of $598 million for 1998 were fuel, partially offset by a 6 percent volume driven increase
$34 million or 6 percent higher than 1997 primarily due to in consumption from 1,092 million gallons to 1,155 million
printing paper volume gains as 1997 was impacted by severe gallons. The decrease in the average all-in cost per gallon of
winter weather, increased Canadian newsprint imports diesel fuel includes a 13 cent decrease in the average purchase
and pulpboard volume gains as a result of market share gains. price, partially offset by current year losses related to BNSF’s
Lumber volumes increased due to higher levels of construc- fuel hedging program. Gross ton-miles per gallon of fuel
tion activity. increased 4 percent reflecting a continuing favorable oper-
Consumer goods revenues of $553 million for 1998 were ating trend resulting from new, fuel efficient locomotives
$56 million or 11 percent higher than 1997 primarily due and more fuel efficient operating practices.
to volume increases in corn syrup traffic to Mexico, Texas Materials and other expenses of $717 million for 1998
and California and increased sugar traffic as 1997 was were $42 million or 6 percent higher than 1997 principally
impacted by severe winter weather. Government and machinery due to lower credits from joint facility billings due to lower
revenues increased as a result of increased Boeing traffic. UP traffic levels on BNSF facilities. Other expenses in 1997
Automotive revenues of $388 million for 1998 were $34 also included more income from the sale of easements and
million or 8 percent lower than 1997 reflecting decreases in higher tax incentives from the State of Nebraska related to
volumes due to the loss of For d’s Southwestern U.S. business investment and employment levels in the state.
and the impact of the 1998 General Motors strike, partially Interest expense for 1998 increased by $10 million to
offset by strong Honda loadings. $354 million reflecting higher debt levels which increased to
$5,456 million at December 31, 1998 from $5,289 million
EXPENSES
Total operating expenses for 1998 were $6,783 million, an at December 31, 1997, partially offset by lower interest rates.
increase of $180 million or 3 percent higher than 1997. As Other income (expense), net was favorable by $64 million
discussed above, 1997 included a $90 million ($57 million compared to 1997 primarily due to the $67 million pre-tax
after-tax) special charge principally related to the consolida- gain on the pipeline partnership sale in the first quarter of
tion of clerical functions. Excluding the special charge, 1998 1998 as discussed in Note 2: Sale of Investment in Pipeline
operating expenses were $270 million or 4 percent higher Partnership. In addition, lower equity in earnings of
than 1997. The operating ratio improved to 75.9 percent pipelines due to the first quarter sale of this investment was
for 1998 compared with a 77.8 percent adjusted operating offset by gains on real estate portfolio sales.
ratio for 1997.
16 BURLINGTON NORTHERN SANTA FE CORPORATION

YEAR ENDED DECEMBER 31, 1 997 COM PAR ED WITH OOCL, and Cosco. Truckload revenues increased 21 percent
YEAR E NDED DECEM BE R 3 1, 1996 due to a 20 percent increase in loadings, primarily attributable
BNSF recorded net income for 1997 of $885 million ($1.88 to strength in the Company’s Chicago to California and
per share), compared with net income of $889 million ($1.91 Southeast to California corridors.
per share) for 1996. The decrease in net income is primarily Agricultural commodities revenues decreased $84 million,
due to a fourth quarter special charge of $90 million ($57 or 7 percent, due primarily to a decrease in shipments of
million after-tax or $0.12 per share) principally related to the wheat for export in the first and second quarters due to the
consolidation of clerical functions (see Other Matters: U.S. uncompetitiveness in the world market and severe
Employee Merger and Separation Costs). This was largely weather conditions in the Northern Plains and PNW in the
offset by improved operating results in 1997 despite severe first quarter. Some of the volume losses were partially offset by
weather conditions in the first quarter of 1997 throughout an increased number of shorter haul, lower revenue movements
the Northern Plains and the PNW. The financial impact of from the southern U.S. plains wheat region. Agricultural commodi-
recurring and protracted outages on many parts of the system, ties revenues were also unfavorably impacted by lower revenue
the cost of repairing track, signals and equipment, and the per car for corn movements and volume declines in barley traffic.
operating inefficiencies caused by the weather is virtually Chemicals revenues increased $30 million, or 4 percent,
impossible to measure with precision. However, the Company primarily due to higher demand for petroleum products
estimates that the severe weather in the first quarter of 1997 and plastics. Chemicals carloadings increased 4 percent due
resulted in lost revenue opportunities of approximately $100 to additional traffic from Texas Gulf Coast shippers. Rate
million and increased operating expenses by at least $50 mil- increases in petroleum products offset average revenue per
lion. Excluding the fourth quarter special charge, net income car decreases in agricultural minerals and industrial products.
for 1997 was $942 million ($2.00 per share) compared with Metals and minerals revenues increased $38 million, or 5
1996 net income of $889 million ($1.91 per share). percent, primarily due to strength in steel products as well
REVENUES as volume increases in clay and aggregates, sand, rock and
Total revenues for 1997 were $8,370 million or 3 percent specialty minerals and sodium compounds. This was partially
higher compared with revenues of $8,109 million for 1996. offset by a decrease in shipments of cement, gypsum and lime.
The $261 million increase primarily reflects increases in the Consumer goods revenues increased $29 million, or
intermodal, consumer goods, metals and minerals, chemicals, 6 percent, primarily due to growth in the government and
automotive, and forest products sectors partially offset by machinery and bulk foods sectors. Overall consumer goods
lower agricultural commodities revenues. Average revenue carloadings increased 13 percent. Volume gains in bulk foods
per car/unit decreased slightly in 1997 to $1,139 from $1,154 were the result of strong corn syrup and sugar loadings,
in 1996. During 1997, BNSF’s share of the Western U.S. rail while gains in government and machinery was the result of
traffic market, based on reporting to the AAR, increased 1.8 special moves for Boeing and additional military movements.
points to 41.4 percent. This gain was primarily the result of Automotive revenues increased $26 million, or 7 percent,
the trackage rights gained from UP and operating problems due to a 5 percent volume gain in motor vehicle and vehicle
experienced by the UP associated with consolidating operations. parts traffic. BNSF experienced gains in units moved for
Intermodal revenues improved $243 million or 12 percent Honda and General Motors which were partially offset by
compared with 1996, due to increased volume growth in the reduced Ford shipments. Revenue per revenue ton mile
direct, international, truckload, and international marketing decreased 9 percent due to changes in the traffic mix.
companies sectors. The direct sector experienced a 14 percent EXPENSES
growth in revenues primarily due to an 18 percent gain in load- Total operating expenses for 1997 were $6,603 million or $242
ings. Direct sector growth was due to volume increases from LTL million higher compared with expenses of $6,361 million for
shipments led by Yellow Freight, Consolidated Freightways and 1996. As discussed above, the Company recorded a $90 million
Roadway. LTL volume from Yellow Freight, Consolidated ($57 million after-tax) special charge in the fourth quarter of
Freightways, and Roadway has grown substantially all year with 1997 primarily related to the consolidation of clerical functions.
growth accelerating in the 2nd, 3rd, and 4th quarters in partic- Excluding the special charge, operating expenses for 1997 were
ular due to Yellow Freight’s change of operations completed in $6,513 million, $152 million or 2 percent higher than 1996.
April 1997. International revenues increased 10 percent from The adjusted operating ratio for 1997 was 77.8 percent, com-
1996 due to an 8 percent increase in units moved. International pared with an operating ratio of 78.4 percent for 1996.
growth has been the result of a strong import economy and Compensation and benefits expenses of $2,675 million
increased market share by steamship lines such as Hyundai, were $114 million or 4 percent higher than 1996. A majority
BURLINGTON NORTHERN SANTA FE CORPORATION 17

CAPITAL RESOURCES AND LIQUIDITY
of the increase was due to higher labor costs associated with
ash generated from operations is BNSF’s principal
C
weather-related repairs to track and equipment and slower
source of liquidity. BNSF generally funds any
operations. Wages were also higher due to volume related
additional liquidity requirements through debt issuance,
increases in train crew costs and wage increases for salaried
including commercial paper, or leasing of assets.
and union employees.
BNSF issues commercial paper from time to time which
Purchased services expenses of $823 million increased $23
is supported by bank revolving credit agreements.
million, or 3 percent, compared with 1996 due to higher
Outstanding commercial paper balances are considered as
ramping and drayage costs related to increased intermodal
reducing the amount of borrowings available under these
volumes. Joint facility costs were also higher due to operations
agreements. The bank revolving credit agreements allow
over trackage rights gained as a condition of the merger of
borrowings of up to $425 million on a short-term basis and
UP and Southern Pacific Corporation. This increase was par-
$1.5 billion on a long-term basis. Annual facility fees are
tially offset by lower professional service expenses.
currently 0.075 percent and 0.09 percent, respectively, and
Equipment rents expenses of $820 million were $84
are subject to change based upon changes in BNSF’s senior
million, or 11 percent, higher than 1996. Lower equipment
unsecured debt ratings. Borrowing rates are based upon
utilization and higher volumes resulted in increased locomo-
i) LIBOR plus a spread based upon BNSF’s senior unsecured
tive rents and higher time and mileage expenses for rail car
debt ratings, ii) money market rates offered at the option of
and intermodal trailers and flat cars. In addition, equipment
the lenders, or iii) an alternate base rate. The commitments
related performance penalties for grain cars increased $19
of the lenders under the short-term agreement were extended
million from 1996.
on November 12, 1998 and are currently scheduled to expire
Fuel expenses of $747 million were $20 million higher
on June 15, 1999. The commitments of the lenders under
than in 1996 due to a 1 percent increase in the average price
the long-term agreement are scheduled to expire on
paid per gallon of diesel fuel as well as a 2 percent increase in
November 12, 2002.
consumption due to volume. Gross ton miles per gallon of
At December 31, 1998, there were no borrowings against
fuel increased by 2 percent due to additional new, fuel-
the revolving credit agreements and the maturity value of
efficient locomotives and the adoption of more fuel-efficient
commercial paper outstanding was $474 million, leaving a
operating practices.
total remaining capacity of $1,026 million available under
Materials and other expenses of $675 million were $102
the long-term revolving credit agreement and $425 million
million lower than 1996 partially due to lower derailment
available under the short-term credit agreement.
and personal injury expenses reflecting the continuing benefits
OPERATING ACTIVITIES
of employee safety programs. Other expenses were also
Net cash provided by operating activities was $2,218 million
reduced by income from the sale of signboard easements and
during 1998 compared with $1,814 million during 1997.
tax incentives from the State of Nebraska related to invest-
The increase in cash from operations was primarily due to
ment and employment levels in the state.
higher net income before depreciation and amortization and
Interest expense of $344 million was $43 million higher
deferred taxes, a decrease in cash used for working capital
than in 1996, primarily due to higher debt levels, which
reflecting the timing of payments, and a decrease in payments
increased from $4,711 million at December 31, 1996 to
for employee merger and separation costs.
$5,289 million at December 31, 1997.
INVESTING ACTIVIT IES
Other income (expense), net was $12 million below
Net cash used for investing activities during 1998 was
1996. The increase in expense is due to higher fees from the
$2,418 million, principally comprised of $2,147 million
sale of accounts receivable reflecting an increase in receivables
in capital expenditures.
sold and lower profits from land sales.
A breakdown of cash capital expenditures is set forth in
Income tax expense of $519 million was $32 million
the following table (in millions):
lower in 1997 due to lower pre-tax income and a lower effec-
Year ended December 31, 1998 1997 1996
tive tax rate due to adjustments to prior years’ tax estimates.
Maintenance of Way $ 917 $ 974 $ 854
Equipment 583 572 514
Expansion Projects 488 428 439
Other 159 208 427
Total $2,147 $2,182 $2,234
18 BURLINGTON NORTHERN SANTA FE CORPORATION

Maintenance of way expenditures for 1998 decreased amended the August 1997 shelf registration to combine it
primarily due to use of a higher proportion of second hand with the March 1998 shelf registration.
rail and reduced tie renewal projects. Equipment expenditures In July 1998, BNSF issued $200 million of 6.70 percent
were higher in 1998 reflecting increases for remanufactured debentures due August 1, 2028, and in November 1998 BNSF
freight cars, mechanical shops and shop machinery, partially issued $200 million of puttable reset debentures (PURS) due
offset by lower locomotive purchases as more locomotives May 13, 2029, under the March 1998 shelf registration of
were acquried through operating leases. Expansion projects debt securities. The net proceeds from the sale of the deben-
in both 1998 and 1997 principally reflect double and triple tures were used for general corporate purposes, including the
tracking of main line track and expansion of intermodal repayment of commercial paper. As of December 31, 1998,
terminals. Other projects for 1998 decreased primarily as a the March 1998 shelf registration had $350 million of poten-
result of spending for merger related improvements in 1997 tial borrowings remaining.
which did not occur in 1998, partially offset by higher The PURS included a provision that gave the Company a
capitalized software and computer hardware costs. call option to purchase all of the debentures from the holders
BNSF has entered into commitments to acquire 476 loco- on May 13, 1999. In connection with the debt issuance, the
motives in 1999. The locomotives will be financed from one Company sold the call option to a third party and received
or a combination of sources including, but not limited to, cash of $12 million, which was deferred and is being amor-
cash from operations, capital or operating leases, and debt tized to interest expense over the life of the debt. In addition,
issuances. The decision on the method used will depend upon the Company closed out $200 million of treasury lock trans-
the current market conditions and other factors at the time of actions at a loss of approximately $11 million which was
financing. Beginning in 2000, the Company expects new deferred and is being amortized to interest expense over the
locomotive acquistions to significantly decline compared to life of the debt. Until May 13, 1999, the PURS will have a
1999. BNSF has currently committed to acquire 196 and 50 floating interest rate based upon the one month LIBOR rate
locomotives in 2000 and 2001, respectively. plus 0.75 percent. On May 13, 1999, either the third party
will exercise the call option or the PURS will be put back to
FIN ANCING A CT IVITIES
Net cash provided by financing activities during 1998 was the Company by the holders. If the third party exercises the
$194 million, primarily related to net proceeds from total debt call option, the third party will repurchase the PURS from
of $440 million and proceeds from stock options exercised of the holders and remarket them. The interest rate paid by the
$111 million, partially offset by dividend payments of $197 Company will be reset to a fixed interest rate until maturity
million and common share repurchases of $153 million. in 2029 of approximately 5.67 percent plus a credit spread to
In March 1998, BNSF issued $100 million of 6.05 per- be determined at that time. If the call option is not exercised,
cent medium-term notes due March 15, 2031, under the the Company must repurchase the PURS from the holders.
August 1997 shelf registration of debt securities. The notes During 1998, BNSF Railway entered into $258 million
included a provision that gave the Company a call option to of equipment secured debt of which $173 million was recorded
purchase all of the notes from the holders in 2001. In con- as capital lease obligations.
nection with the debt issuance, the Company sold the call In February 1999, the Company filed a new shelf registra-
option to a third party and received cash of $4 million, which tion of debt securities that may be issued in one or more series
has been deferred and is being amortized to interest expense at an aggregate offering price not to exceed $750 million. As
over the life of the debt. If the third party exercises the call of February 8, 1999, the shelf registration had not yet been
option, the third party will repurchase the notes from the declared effective. When it becomes effective, the Company will
holders and remarket them. If the call option is not exercised, the have $1.1 billion of borrowing capacity available through the
Company must repurchase the notes from the holders. The net combined shelf registrations.
proceeds from the sale of the notes were used for general cor- Aggregate long-term debt scheduled to mature in 1999 is
porate purposes including the repayment of commercial paper. $268 million, excluding the $200 million PURS due 2029
Subsequent to this transaction, the August 1997 shelf registra- which may be redeemed in 1999 as discussed above. BNSF’s
tion had $250 million of potential borrowings remaining. ratio of total debt to total capital was 41 percent at the end
In March 1998, the Company filed a shelf registration of of 1998 and 44 percent at the end of both 1997 and 1996.
debt securities, including medium-term notes that may be During 1998, the Company began share repurchase activity
issued in one or more series at an aggregate offering price not under a 30 million share common stock repurchase program
to exceed $500 million. In April 1998, prior to the effective approved by the Board of Directors in July 1997.
date of the March 1988 shelf registration, the Company
BURLINGTON NORTHERN SANTA FE CORPORATION 19

During 1997 there were no share repurchases made under in 1998, 1997 and 1996, respectively.
this program. During 1998, the Company repurchased approxi- As discussed in more detail in Note 12: Environmental and
mately 5 million shares of its common stock at an average price Other Contingencies, the Company’s operations, as well as
of $30.75 per share. In connection with its share repurchase those of its competitors, are subject to extensive federal, state
program, during 1998 BNSF sold equity put options for 3 mil- and local environmental regulation. BNSF’s operating procedures
lion shares of BNSF common stock to an independent third include practices to protect the environment from the environ-
party and received cash proceeds of $2 million. All of the equity mental risks inherent in railroad operations, which frequently
put options expired unexercised. Repurchased shares are available involve transporting chemicals and other hazardous materials.
to satisfy future requirements of various stock-based employee Many of BNSF’s land holdings are and have been used for
compensation programs. Management considers many factors industrial or transportation-related purposes or leased to com-
which include, among other things, economic, market and business mercial or industrial companies whose activities may have
conditions and outlook, alternative uses of cash and debt, balance resulted in discharges onto the property. As a result, BNSF is
sheet ratios, and stockholder returns when evaluating the timing subject to environmental clean-up and enforcement actions. In
ofshare repurchases. particular, the Federal Comprehensive Environmental Response,
Compensation and Liability Act of 1980, also known as the
COMMON STOCK SPLIT
On July 16, 1998, the Board of Directors approved a three-for- “Superfund” law, as well as similar state laws generally impose
one common stock split which was effected in the form of a joint and several liability for clean-up and enforcement costs
stock dividend of two additional shares of BNSF common stock without regard to fault or the legality of the original conduct
payable for each share outstanding or held in treasury on Septem- on current and former owners and operators of a site.
ber 1, 1998, to stockholders of record on August 17, 1998. All BNSF is involved in a number of administrative and judicial
equity-based benefit plans reflect the issuance of additional shares proceedings and other clean-up efforts at approximately 400 sites,
or options due to the declaration of the stock split. All share and including the Superfund sites, at which it is participating in the
per share data have been restated to reflect the stock split. study or clean-up, or both, of alleged environmental contami-
nation. BNSF paid approximately $64 million, $55 million and
DIVIDENDS
Common stock dividends declared were $0.44, $0.40 and $47 million during 1998, 1997 and 1996, respectively, for manda-
$0.40 per share annually for 1998, 1997 and 1996, respec- tory and unasserted clean-up efforts, including amounts expend-
tively. Dividends paid on common stock were $197 million, ed under federal and state voluntary clean-up programs. BNSF
$185 million and $184 million during 1998, 1997 and 1996, has accruals of approximately $185 million for remediation and
respectively. On July 16, 1998, the Board of Directors restoration of all known sites. BNSF anticipates that the majority
increased by 20 percent the amount of its regular quarterly of the accrued costs at December 31, 1998 will be paid over the
dividend from 10 cents per share to 12 cents per share. next five years. No individual site is considered to be material.
The dividend increase was effective beginning with the 1998 During 1998, BNSF settled an environmental matter in the
third quarterdividendwhich was paid on October1,1998. State of Missouri related to the release of a reportable quantity
On January 21, 1999, the Board of Directors declared a of lead sulfide into a waterway. BNSF agreed in the settlement
quarterly dividend of 12 cents per share upon its outstanding to pay a fine of $7 million, make restitution payments to the
shares of common stock, $.01 par value, payable April 1, 1999, State of Missouri of $3 million and committed to spend $9 mil-
to stockholders of record on March 10, 1999. lion, which includes amounts previously paid, in connection
with its ongoing remediation efforts. BNSF has made payments
OTHER MATTERS
of approximately $16 million related to this settlement, includ-
C A S U A LT Y A N D E N V I R O N M E N T A L
Personal injury claims, including work-related injuries to ing approximately $12 million that was paid during 1998 which
employees, are a significant expense for the railroad industry. is included in total 1998 payments discussed above.
Employees of BNSF are compensated for work-related injuries Liabilities recorded for environmental costs represent BNSF’s
according to the provisions of the Federal Employers’ Liability best estimates for remediation and restoration of these sites and
Act (FELA). FELA’s system of requiring finding of fault, coupled include both asserted and unasserted claims. Unasserted claims
with unscheduled awards and reliance on the jury system, con- are not considered to be a material component of the liability.
tributed to significant increases in expense in past years. BNSF Although recorded liabilities include BNSF’s best estimates of all
has implemented a number of safety programs to reduce the costs, without reduction for anticipated recoveries from third
number of personal injuries as well as the associated claims and parties, BNSF’s total clean-up costs at these sites cannot be pre-
personal injury expense. BNSF made personal injury payments dicted with certainty due to various factors such as the extent
of approximately $193 million, $210 million, and $249 million of corrective actions that may be required, evolving environmen-
20 BURLINGTON NORTHERN SANTA FE CORPORATION

tal laws and regulations, advances in environmental technology, and (iii) certain non-union employee severance costs.
the extent of other parties’ participation in clean-up efforts, Liabilities related to the consolidation of clerical functions
developments in ongoing environmental analyses related to (the Consolidation Plan) were $211 million and $259 million
sites determined to be contaminated, and developments in at December 31, 1998 and 1997, respectively. These liabilities
environmental surveys and studies of potentially contaminated provide for severance costs associated with the Consolidation
sites. As a result, future charges to income for environmental Plan adopted in 1995 upon consummation of the merger of
liabilities could have a significant effect on results of operations BNSF’s predecessor companies Burlington Northern Inc. and
in a particular quarter or fiscal year as individual site studies Santa Fe Pacific Corporation (the Merger). The Consolidation
and remediation and restoration efforts proceed or as new sites Plan will result in the elimination of approximately 1,600 per-
arise. However, management believes that it is unlikely that any manent positions, of which approximately 1,500 positions have
identified matters, either individually or in the aggregate, will been eliminated through 1998, including approximately 250
have a material adverse effect on BNSF’s consolidated financial positions that were eliminated in 1998. Upon adoption in
position or liquidity. 1995, the Consolidation Plan was expected to be completed by
The railroad industry, including BNSF Railway, is subject early 1999. However, the Consolidation Plan was partially
to future requirements regulating air emissions from diesel delayed as a result of the timing related to completion of merg-
locomotives. Final regulations applicable to new and rebuilt er integration and other issues and is now expected to be com-
locomotive engines were promulgated by the United States pleted by 2001. Remaining clerical positions to be eliminated
Environmental Protection Agency (EPA) and became effective by the Company will result in involuntary separations. Benefits
June 15, 1998. The new standards will be phased in between paid to affected employees are in the form of lump-sum pay-
2000 and 2005. BNSF Railway has evaluated compliance ments or payments made over five to ten years or in some cases
requirements and associated costs and believes the costs will not through retirement.
be material in any given year. BNSF Railway has also entered Liabilities related to deferred benefits payable upon separa-
into agreements with the California State Air Resources Board tion or retirement to certain active conductors, trainmen and
and the EPA regarding a program to reduce emissions in locomotive engineers were $207 million and $224 million at
Southern California through accelerated deployment of loco- December 31, 1998 and 1997, respectively. These costs were
motives which comply with the federal standards. incurred in connection with labor agreements reached prior to
the Merger which, among other things, reduced train crew sizes
OTHER CLAIMS AND LITIGATION
BNSF and its subsidiaries are parties to a number of legal and allowed for more flexible work rules.
actions and claims, various governmental proceedings and Liabilities principally related to certain remaining non-union
private civil suits arising in the ordinary course of business, employee severances resulting from the Merger were $56 million
including those related to environmental matters and personal and $68 million at December 31, 1998 and 1997, respectively.
injury claims. While the final outcome of these items cannot be These costs will be paid over the next several years based on
predicted with certainty, considering among other things the deferral elections made by affected employees. Approximately
meritorious legal defenses available, it is the opinion of manage- 1,500 non-union employees received or are receiving severance
ment that none of these items, when finally resolved, will have payments and special termination benefits under the Company’s
a material adverse effect on the annual results of operations, retirement and health and welfare plans resulting from the Merger.
financial position or liquidity of BNSF, although an adverse During 1998, 1997 and 1996, BNSF made employee merg-
resolution of a number of these items could have a material er and separation payments of $77 million, $116 million and
adverse effect on the results of operations in a particular quarter $183 million, respectively. At December 31, 1998, $65 million
or fiscal year. of the remaining liabilities are included within current liabilities
for anticipated costs to be paid in 1999.
E M P L O Y E E M E RG E R A N D S E P A R AT I O N C O S T S
LIABILITY BALANCE 1997 SPECIAL CHARGE
In the fourth quarter of 1997, the Company recorded a $90 mil-
AND ACTIVITY
Current and long-term employee merger and separation liabili- lion pre-tax special charge. Approximately $65 million of the
ties totaling $474 million and $551 million are included in the charge related to the Consolidation Plan and the remainder of the
consolidated balance sheet at December 31, 1998 and 1997, charge related to severance and other costs for non-union employ-
respectively, and principally represent: (i) employee-related sever- ees. BNSF recorded an initial charge in 1995 for the Consolidation
ance costs for the consolidation of clerical functions; Plan, however, the 1995 charge excluded costs associated with
(ii) deferred benefits payable upon separation or retirement to voluntary severance for employees who were given the opportunity
certain active conductors, trainmen and locomotive engineers; to relocate and follow their work, but elected severance.
BURLINGTON NORTHERN SANTA FE CORPORATION 21

YEAR 2000 environment. The Certification Testing phase also includes vali-
dating Year 2000 compliance for critical third party suppliers and
BACKGROUND
The Company has established a committee of managers and service providers. This phase, which is ongoing, overlaps with the
employees, chaired by the Company’s Chief Information Remediation phase. Certification testing for ISS technologies
Officer, to evaluate and manage the costs and risks associated began in November 1998, with critical applications receiving
with becoming Year 2000 compliant and to minimize the priority; testing for all applications is scheduled for completion
impact of the Year 2000 problem on the Company. Because by the end of September 1999. Certification testing of all critical
many existing computer programs and microprocessors recog- Enterprise technologies began in May 1998 and is scheduled for
nize only the last two digits of years (and not the century desig- completion in February 1999; testing for non-critical Enterprise
nation), they may be unable to accurately recognize and process technologies is scheduled for completion by July 1999.
dates beyond December 31, 1999, and consequently may fail or COSTS
produce erroneous data. The Year 2000 problem may adversely As a result of its merger-related systems integration that was
affect the Company’s operations and financial performance if its completed in 1997, BNSF achieved substantial Year 2000 com-
remediation efforts are not successfully implemented or if the pliance on its core mainframe systems. In addition, spending
railroads with which the Company connects, critical customers on Year 2000 activities approximates $8 million to date.
or suppliers fail to become Year 2000 compliant. Currently, the total cost of achieving Year 2000 compliance for
the Company’s ISS and Enterprise technologies is estimated to
STATE OF READINESS
Year 2000 issues were reviewed in September 1995 following be approximately $20 million.
the approval of the merger of the two railroads that now consti- YEAR 2000 RISKS
tute BNSF Railway. The core mainframe systems for the AND CONTINGENCY PLANS
merged railroad were selected in part because they were sub- Certain BNSF business processes rely on third parties for the
stantially Year 2000 compliant. These systems integrate all efficient functioning of its transportation network. The
transportation-related activities and computer systems that sup- Association of American Railroads (AAR) administers systems
port BNSF’s transportation network, including operations, cus- that benefit all North American railroads and their customers,
tomer information, and revenue data. This merger-related including interline settlement, shipment tracing and waybill pro-
information systems integration and upgrade activity was sub- cessing. BNSF and other AAR-member railroads are participat-
stantially completed by July 1997. ing in a process to test and certify these systems for Year 2000
Following this systems integration, BNSF adopted a three- compliance. The AAR expects that these systems will be compli-
phase approach to Year 2000: Inventory and Assessment; ant and pilot tested by specific carriers by April 1999, with open
Remediation; and Certification Testing. Separate teams address carrier testing conducted promptly thereafter. BNSF plans to
technologies administered or maintained by the Information develop contingency plans for the business processes supported
Systems Services department (ISS technologies) and other by AAR systems.
enterprise-wide products and technologies used by the Certain BNSF routes and resulting revenues are dependent
Company, including embedded microprocessor technology on the use of trackage rights over other railroads, including UP,
(Enterprise technologies). BNSF has completed the Inventory Montana Rail Link and the Arizona and California Railroad.
and Assessment phase for both ISS and Enterprise technologies. Other BNSF traffic may originate or terminate on other carri-
During this phase, BNSF inventoried all ISS-administered ers’ lines or may otherwise involve use of a foreign connection
source code, hardware, software and communications equip- en route. Approximately 60 percent of units handled by BNSF
ment that could be affected by the Year 2000 problem, and run over BNSF facilities only. BNSF’s traffic levels and rev-
identified items potentially needing remediation. In addition, enues could be significantly reduced and/or its operational net-
the Enterprise team completed a company-wide audit of work significantly impaired through congestion and other fac-
Enterprise technologies and associated suppliers and service tors if other railroads are not able to accommodate BNSF trains
providers for potential Year 2000 problems. or interchange traffic for any extended period of time due to
The Remediation phase is more than three-fourths complete. Year 2000 problems. However, as a result of its work with other
Remediation includes converting source code and replacing or railroads to address Year 2000 problems on an industry-wide
upgrading purchased software and hardware. Remediation is basis, management believes that the possibility of extended fail-
substantially complete for ISS technologies and is expected to be ures on other railroads is not significant. At present, the
completed by July 1999 for Enterprise technologies. Company generally has not determined which of its customers
The Certification Testing phase includes validating the perfor- may have Year 2000 problems that could result in reduced
mance of ISS and Enterprise technologies in a Year 2000 test traffic for the Company.
22 BURLINGTON NORTHERN SANTA FE CORPORATION

It is the opinion of management that Year 2000 problems in were approximately $174 million as of December 31, 1998, of
BNSF’s internal information systems and technology infra- which $120 million relates to swap transactions that will expire
structure will not have a materially adverse effect on the results in 1999. BNSF also monitors its hedging positions and credit
of operations, liquidity or financial position of the Company. ratings of its counterparties and does not anticipate losses due
However, there can be no assurance that the systems or equip- to counterparty nonperformance.
ment of other parties which interact with BNSF’s systems will INTEREST RATE
be compliant on a timely basis. BNSF believes that the failure From time to time, the Company enters into various interest rate
of systems or equipment of one or more of its key third parties hedging transactions for the purpose of managing exposure to
or customers is the most reasonably likely worst case Year 2000 fluctuations in interest rates and establishing rates in anticipation
scenario, and that an extended failure could have a material of future debt issuances. As of February 8, 1999, BNSF had
adverse effect on the results of operations, liquidity or financial interest rate swap transactions which fix the interest rate on the
position of the Company. Where appropriate, BNSF is devel- total principal amount of $125 million of its commercial paper
oping contingency plans in the event that BNSF’s key third debt. The interest rate swap transactions require payment of a
parties do not become Year 2000 compliant on a timely basis, weighted average fixed interest rate of approximately 6.1 percent
which effort includes the formalization of existing disaster and the receipt of a variable interest rate based on a commercial
recovery plans. Contingency plans are expected to be in place paper composite rate. The swap transactions expire in December
by the end of the first quarter 1999. 1999. Any gains and losses associated with changes in market
value of these swaps are not recognized. BNSF recognizes, on an
HEDGING ACTIVITIES
accrual basis, a fixed rate of interest on the principal amount of
FUEL
During 1998, 1997 and 1996 fuel expenses approximated 11 commercial paper hedged over the term of the swap agreements.
percent of total operating expenses. Due to the significance of Unrecognized losses from BNSF’s interest rate swap transactions
diesel fuel expenses to the operations of the railroad and the were approximately $2 million as of December 31, 1998.
historical volatility of fuel prices, the Company has established During July 1998, at the time of a $200 million debt
a program to hedge against fluctuations in the price of its diesel issuance, the Company closed out $200 million of treasury
fuel purchases. The intent of the program is to protect the lock transactions at a loss of approximately $7 million which
Company’s operating margins and overall profitability from has been deferred and is being amortized to interest expense
adverse fuel price changes. However, to the extent the Company over the life of the debt.
hedges portions of its fuel purchases, it will not realize the As discussed under Capital Resources and Liquidity:
impact of decreases in fuel prices. The fuel-hedging program Financing Activities, in November 1998, at the time of the
includes the use of commodity swap transactions that are $200 million PURS issuance, the Company closed out $200
accounted for as hedges. Any gains or losses associated with million of treasury lock transactions at a loss of approximately
changes in the market value of the fuel swaps are deferred and $11 million which has been deferred and is being amortized
recognized as a component of fuel expense in the period in which to interest expense over the life of the debt.
the fuel is purchased and used. Based on 1998 fuel consumption In anticipation of future debt issuances, BNSF has entered
and excluding the impact of the hedging program, each one- into treasury lock transactions, based on the 10-year and 30-year
cent increase in the price of fuel would result in approximately U.S. treasury rates, totaling $300 million and $200 million,
$12 million of additional fuel expense on an annual basis. respectively. The 10-year and 30-year treasury lock transactions
As of February 8, 1999, BNSF had entered into fuel swaps have average interest rates of approximately 4.5 percent and 5.0
for approximately 1,776 million gallons at an average price of percent, respectively, and expire between 1999 and 2001. These
approximately 49 cents per gallon. The above price does not rates do not include a credit spread which will be determined at
include taxes, transportation costs, certain other fuel handling the time of the actual debt issuance and included in the all-in
costs, and any differences which may occur from time to time interest rate. The treasury locks can be closed by BNSF anytime
between the prices of commodities hedged and the purchase up to expiration. Unrecognized gains on the treasury lock transac-
price of BNSF’s diesel fuel. tions were approximately $19 million as of December 31, 1998.
Currently, BNSF’s fuel hedging program covers approximately
75 percent, 40 percent, 22 percent and 7 percent of estimated
annual and quarterly fuel purchases for 1999, 2000, 2001, and
2002, respectively. Hedge positions are closely monitored to
ensure that they will not exceed actual fuel requirements in any
period. Unrecognized losses from BNSF’s fuel swap transactions
BURLINGTON NORTHERN SANTA FE CORPORATION 23

LABOR cumulative-effect charge to accumulated other comprehensive
Labor unions represent approximately 88 percent of BNSF Rail- deficit of approximately $125 million if adopted December 31,
way employees under collective bargaining agreements with 13 1998. The Company is presently evaluating the impact SFAS
different labor organizations. The collective bargaining agreements No. 133 will have on its ongoing results of operations.
reached in 1995 and 1996 as a result of industry-wide labor F O R WA R D-LO OK I NG I N F ORM AT I O N
contract negotiations will remain in effect through at least The Year 2000 discussion above contains forward-looking state-
December 31, 1999 and until new agreements are reached or ments, including those concerning the Company’s plans and
the Railway Labor Act’s procedures are exhausted. estimated completion dates, cost estimates, assessments of Year
I N F L AT I O N 2000 readiness of BNSF and third parties, and possible conse-
Due to the capital intensive nature of BNSF’s business, the quences of any failure on the part of the Company or third
full effect of inflation is not reflected in operating expenses parties to be Year 2000 compliant on a timely basis. Forward-
because depreciation is based on historical cost. An assump- looking statements involve a number of risks and uncertainties
tion that all operating assets were depreciated at current price that could cause actual results to differ materially from those
levels would result in substantially greater expense than his- projected in the forward-looking statements. Such factors
torically reported amounts. include, but are not limited to, the following: continued avail-
RECENT ACCOUNTING PRONOUNCEMENTS ability of qualified personnel to assess, remediate, and test ISS
In June 1998, the Financial Accounting Standards Board issued and Enterprise technologies at current estimated costs; emer-
Statement of Financial Accounting Standards (SFAS) No. 133 gence of unforeseen software or hardware problems, including
“Accounting for Derivative Instruments and Hedging Activities.” where applications interact with each other in ways not antici-
The Statement is effective for the Company’s fiscal year 2000; pated, which could delay or hinder commercial transactions or
however, early adoption is permitted. SFAS No. 133 requires other operations; the ability to locate and remediate Year 2000
that all derivative instruments be recorded on the balance sheet problems with software source code and embedded computer
at their fair value. Changes in fair value of derivatives are recorded chips in equipment; the failure, in whole or in part, of other
each period in current earnings or other comprehensive income, railroads or AAR-supported systems to be Year 2000 compliant;
depending on whether a derivative is designated as part of a the Year 2000 compliance of its business partners and customers
hedge transaction and, if it is, the type of hedge transaction. and reduced traffic levels due to their failure, in whole or part,
For fair value hedge transactions in which the Company is to be Year 2000 compliant; business interruption due to delays
hedging changes in the fair value of an asset, liability or an in obtaining supplies, parts, or equipment from key vendors or
unrecognized firm commitment, changes in the fair value of suppliers that are affected by Year 2000 problems; the ripple
the derivative instrument will generally be offset in the income effect of Year 2000-related failures in industries supporting the
statement by changes in the hedged item’s fair value. For cash- nation’s basic infrastructure, including fuel vendors and pipel-
flow hedge transactions in which the Company is hedging the ines, gas, electric, and water utilities, communications compa-
variability of cash flows related to a variable rate asset, liability, nies, banks and financial institutions, and highway, water, and
or a forecasted transaction, changes in the fair value of the air transportation systems; and any significant downturn in the
derivative instrument will be reported in other comprehensive general economy, and adverse industry-specific economic con-
income to the extent it offsets changes in the cash flows related ditions at the international, national, and regional levels, wholly
to the variable rate asset, liability or forecasted transaction, with or partially caused by Year 2000 problems.
the difference reported in current period earnings. The gains To the extent that all other written statements include pre-
and losses on the derivative instrument that are reported in dictions concerning future operations and results of operations,
other comprehensive income will be reclassified in earnings in such statements are forward-looking statements that involve
the periods in which earnings are impacted by the variability risks and uncertainties, and actual results may differ materially.
of the cash flows of the hedged item. The ineffective portion Factors that could cause actual results to differ materially
of all hedges will be recognized in current-period earnings. include, but are not limited to, general economic downturns,
The Company is currently evaluating SFAS No. 133 and which may limit demand and pricing; labor matters, which
whether it will adopt this pronouncement prior to the effective may affect the costs and feasibility of certain operations; and
date. Based on interest rate and fuel hedging instruments out- competition and commodity concentrations, which may
standing at December 31, 1998 and previously deferred losses affect traffic and pricing levels.
from past interest rate hedging transactions, all of which are
cash-flow hedge transactions, the Company currently estimates
that the impact of SFAS No. 133 would result in a net-of-tax
24 BURLINGTON NORTHERN SANTA FE CORPORATION

REPORT OF MANAGEMENT REPORT OF INDEPE NDENT ACCOUNTANTS
TO T HE S TO C K H O LD E R S O F B U RL I N GTO N N O R TH E R N T O T H E S TO C K H O L D E R S A N D B O A R D O F D I R E C TO R S
SANTA FE CORP ORATION OF BURLINGTON NORTHERN SAN TA FE CO RPORATION
T
he accompanying consolidated financial statements of AND SUBSIDIARIES
Burlington Northern Santa Fe Corporation and sub- n our opinion, the accompanying consolidated balance
I
sidiary companies were prepared by management, who sheet and the related consolidated statements of income,
are responsible for their integrity and objectivity. They were of cash flows and of changes in stockholders’ equity pre-
prepared in accordance with generally accepted accounting sent fairly, in all material respects, the financial position of
principles and properly include amounts that are based on Burlington Northern Santa Fe Corporation and subsidiary
management’s best judgments and estimates. Other financial companies at December 31, 1998 and 1997, and the results
information included in this annual report is consistent with of their operations and their cash flows for each of the three
that in the consolidated financial statements. years in the period ended December 31, 1998, in conformity
The Company maintains a system of internal accounting with generally accepted accounting principles. These financial
controls to provide reasonable assurance that assets are safe- statements are the responsibility of the Company’s manage-
guarded and that the books and records reflect the authorized ment; our responsibility is to express an opinion on these
transactions of the Company. Limitations exist in any system financial statements based on our audits. We conducted our
of internal accounting controls based upon the recognition audits of these statements in accordance with generally
that the cost of the system should not exceed the benefits accepted auditing standards which require that we plan and
derived. The Company believes its system of internal perform the audit to obtain reasonable assurance about
accounting controls, augmented by its internal auditing whether the financial statements are free of material mis-
function, appropriately balances the cost/benefit relationship. statement. An audit includes examining, on a test basis,
Independent accountants provide an objective assessment evidence supporting the amounts and disclosures in the
of the degree to which management meets its responsibility financial statements, assessing the accounting principles used
for fairness of financial reporting. They regularly evaluate the and significant estimates made by management, and
system of internal accounting controls and perform such tests evaluating the overall financial statement presentation. We
and other procedures as they deem necessary to express an believe that our audits provide a reasonable basis for the
opinion on the fairness of the consolidated financial statements. opinion expressed above.
The Board of Directors pursues its responsibility for the
Company’s financial statements through its Audit Committee
which is composed solely of directors who are not officers or PricewaterhouseCoopers LLP
employees of the Company. The Audit Committee meets Fort Worth, Texas
regularly with the independent accountants, management February 8, 1999
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.
Robert D. Krebs
Chairman, President and Chief Executive Officer
Denis E. Springer
Senior Vice President and Chief Financial Officer
Thomas N. Hund
Vice President and Controller
BURLINGTON NORTHERN SANTA FE CORPORATION 25

CONSOLIDATED STATEMENT OF INCOME
Burlington Northern Santa Fe Corporation and Subsidiaries
(Dollars in millions, except per share data)
Year ended December 31, 1998 1997 1996
Revenues $8,941 $8,370 $8,109
Operating expenses:
Compensation and benefits 2,812 2,675 2,561
Purchased services 894 823 800
Depreciation and amortization 832 773 760
Equipment rents 804 820 736
Fuel 724 747 727
Materials and other 717 675 777
Special charge — 90 —
Total operating expenses 6,783 6,603 6,361
Operating income 2,158 1,767 1,748
Interest expense 354 344 301
Other income (expense), net 45 (19) (7)
Income before income taxes 1,849 1,404 1,440
Income tax expense 694 519 551
Net income $1,155 $ 885 $ 889
Earnings per share:
Basic $ 2.45 $ 1.91 $ 1.95
Diluted $ 2.43 $ 1.88 $ 1.91
Average shares (in millions):
Basic 470.5 464.4 456.3
Dilutive effect of stock options 5.7 6.7 8.1
Diluted 476.2 471.1 464.4
See accompanying notes to consolidated financial statements.
26 BURLINGTON NORTHERN SANTA FE CORPORATION

CONSOLIDATED B ALANCE SHE ET
Burlington Northern Santa Fe Corporation and Subsidiaries
(Shares in thousands. Dollars in millions)
December 31, 1998 1997
ASSETS
Current assets:
Cash and cash equivalents $ 25 $ 31
Accounts receivable, net 594 635
Materials and supplies 244 205
Current portion of deferred income taxes 335 333
Other current assets 8 30
Total current assets 1,206 1,234
Property and equipment, net 20,662 19,211
Other assets 822 891
Total assets $22,690 $21,336
LIAB ILITIES A ND STOCKH OLDERS’ EQUITY
Current liabilities:
Accounts payable and other current liabilities $ 1,929 $ 1,952
Long-term debt due within one year 268 108
Total current liabilities 2,197 2,060
Long-term debt and commercial paper 5,188 5,181
Deferred income taxes 5,662 5,175
Casualty and environmental liabilities 389 448
Employee merger and separation costs 409 469
Other liabilities 1,075 1,191
Total liabilities 14,920 14,524
Commitments and contingencies (see Notes 8, 11 and 12)
Stockholders’ equity:
Common stock, $.01 par value, 600,000 shares authorized;
477,436 shares and 470,240 shares issued, respectively 5 5
Additional paid-in capital 5,177 4,992
Retained earnings 2,811 1,863
Treasury stock, at cost, 6,961 shares and 1,329 shares, respectively (213) (39)
Accumulated other comprehensive deficit (8) (7)
Other (2) (2)
Total stockholders’ equity 7,770 6,812
Total liabilities and stockholders’ equity $22,690 $21,336
See accompanying notes to consolidated financial statements.
BURLINGTON NORTHERN SANTA FE CORPORATION 27

C O N S O L I DAT E D S TAT EM E N T O F C AS H F LO W S
Burlington Northern Santa Fe Corporation and Subsidiaries
(Dollars in millions)
Year ended December 31, 1998 1997 1996
OPERATING ACTIV ITIES
Net income $ 1,155 $ 885 $ 889
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 832 773 760
Deferred income taxes 489 433 453
Special charge — 90 —
Employee merger and separation costs paid (77) (116) (183)
Other, net (243) (221) (62)
Changes in current assets and liabilities:
Accounts receivable:
Sale of accounts receivable 19 301 40
Other changes 20 (333) (140)
Materials and supplies (39) 17 (2)
Other current assets 22 4 (6)
Accounts payable and other current liabilities 40 (19) 122
Net cash provided by operating activities 2,218 1,814 1,871
INVESTING ACT IVITIES
Capital expenditures (2,147) (2,182) (2,234)
Other, net (271) (147) (10)
Net cash used for investing activities (2,418) (2,329) (2,244)
FIN ANCING ACTIVIT IES
Net decrease in commercial paper and bank borrowings (242) (235) (98)
Proceeds from issuance of long-term debt 794 1,002 626
Payments on long-term debt (112) (177) (83)
Dividends paid (197) (185) (184)
Proceeds from stock options exercised 111 102 118
Purchase of BNSF common stock (153) — —
Other, net (7) (8) (9)
Net cash provided by financing activities 194 499 370
Decrease in cash and cash equivalents (6) (16) (3)
Cash and cash equivalents:
Beginning of year 31 47 50
End of year $ 25 $ 31 $ 47
SUPPLEMENTAL CASH FL OW INFOR MATION
Interest paid, net of amounts capitalized $ 370 $ 346 $ 306
Income taxes paid, net of refunds 220 32 69
Directly financed asset acquisitions — — 43
See accompanying notes to consolidated financial statements.
28 BURLINGTON NORTHERN SANTA FE CORPORATION

C O N S O L I DA TE D S TAT EM E N T O F C H A N GE S I N S TO C K H O L D E RS ’ EQ U I T Y
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
Stock Treasury Paid-in Retained Treasury Comprehensive
Issued Stock Capital Earnings Stock Deficit Other Total
Balance at December 31, 1995 448,950 (135) $ 4,607 $ 459 $ (3) $ (19) $ (7) $5,037
Comprehensive income:
Net income 889 889
Minimum pension liability
adjustment (net of tax of $9) 15 15
Total comprehensive income 904
Common stock dividends,
$0.40 per share (183) (183)
Adjustments associated with
unearned compensation,
restricted stock 1,683 (66) 8 (2) 3 9
Exercise of stock options and
related tax benefit 10,749 (387) 191 (11) 180
Acquisition of a subsidiar y 1,089 31 31
Other 123 3 3
Balance at December 31, 1996 462,594 (588) 4,840 1,165 (16) (4) (4) 5,981
Comprehensive income:
Net income 885 885
Minimum pension liability
adjustment (net of tax
benefit of $2) (3) (3)
Total comprehensive income 882
Common stock dividends,
$0.40 per share (187) (187)
Adjustments associated with
unearned compensation,
restricted stock 366 (117) 13 (4) 2 11
Exercise of stock options and
related tax benefit 7,197 (624) 140 (19) 121
Other 83 4 4
Balance at December 31, 1997 470,240 (1,329) 4,997 1,863 (39) (7) (2) 6,812
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 (4) 2 13
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) $ 5,182 $2,811 $(213) $ (8) $ (2) $7,770
See accompanying notes to consolidated financial statements.
BURLINGTON NORTHERN SANTA FE CORPORATION 29

NOTES TO CON SOLIDAT ED FIN ANCIAL STATEMENTS Expenditures which significantly increase asset values or
BURLINGTON NORTHERN SA NTA FE CORPORATION extend useful lives are capitalized. Repair and maintenance
AND S UBSIDIARIES expenditures are charged to operating expense when the work
ACCOUNTING POLICIE S
1
is performed. Property and equipment are stated at cost.
T H E C O M PA N Y AN D P RI N C I P LE S O F C O N SO L I D AT I O N The Company incurs certain direct labor, contract service
The consolidated financial statements include the and other costs associated with the development and installa-
accounts of Burlington Northern Santa Fe Corporation and tion of computer software. Costs for newly developed soft-
its majority-owned subsidiaries, all of which are separate legal ware or significant enhancements to existing software
entities (collectively, BNSF or Company). All significant inter- are typically capitalized. Research, operations and mainte-
company accounts and transactions have been eliminated. nance costs are charged to operating expense when the work
Through its principal subsidiary, The Burlington Northern is performed.
and Santa Fe Railway Company (BNSF Railway), BNSF REVENUE RECOGNIT ION
operates one of the largest railroad networks in the United Transportation revenues are recognized based upon the pro-
States, with 34,000 route miles covering 28 states and two portion of service provided.
Canadian provinces. Through one operating transportation C O M M O N S TO C K SP L I T
services segment, BNSF Railway transports a wide range of On April 16, 1998, the Company’s stockholders approved an
products and commodities including the transportation of amendment to the Company’s certificate of incorporation to
containers and trailers (intermodal), coal and agricultural increase authorized common shares from 300 million to 600
commodities which constituted 28 percent, 25 percent and million. On July 16, 1998, the Board of Directors approved
12 percent, respectively, of total revenues for the year ended a three-for-one common stock split which was effected in the
December 31, 1998. Revenues derived from sources other form of a stock dividend of two additional shares of BNSF
than transportation services are not significant. common stock payable for each share outstanding or held in
USE OF EST IMATES treasury on September 1, 1998, to the stockholders of record
The preparation of financial statements in accordance with on August 17, 1998. All equity-based benefit plans reflect the
generally accepted accounting principles requires management issuance of additional shares or options due to the declaration
to make estimates and assumptions that affect the reported of the stock split. All share and per share data have been
amounts of assets and liabilities and disclosure of contingent restated to reflect the stock split.
assets and liabilities at the date of the financial statements
2
S A L E O F IN VE ST ME N T IN PI P E LI N E PA R T N E R S H I P
and the reported amounts of revenues and expenses during Santa Fe Pacific Pipelines, Inc. (SFP Pipelines), an
the periods presented. indirect, wholly-owned subsidiary of BNSF, served as
R E C L A S S I F I C AT I O N S the general partner of Santa Fe Pacific Pipeline Partners,
Certain comparative prior year amounts in the consolidated L.P. (Pipeline Partnership) and of its operating partnership
financial statements and notes have been reclassified to con- subsidiary, SFPP, L.P. SFP Pipelines owned a two percent
form with the current year presentation. interest as the Pipeline Partnership’s and SFPP, L.P.’s general
CASH AND CASH EQUIVALENTS partner and an approximate 42 percent interest as limited
All short-term investments with original maturities of less partner of the Pipeline Partnership. As general partner, SFP
than 90 days are considered cash equivalents. Cash equivalents Pipelines received two percent of all amounts available for
are stated at cost, which approximates market value. distribution by the Partnership and an additional incentive
M AT E R I A LS AN D S UP P L I E S depending upon the level of cash distributions paid to holders
Materials and supplies, which consist mainly of rail, ties of limited partner interests in the Pipeline Partnership
and other items for construction and maintenance of (Partnership Units). SFP Pipeline Holdings, Inc., an indirect,
property and equipment, as well as diesel fuel, are valued at wholly-owned subsidiary of BNSF (SFP Holdings), had
the lower of average cost or market. outstanding $219 million principal amount of Variable Rate
PRO PERTY AND EQUIP MENT Exchangeable Debentures due 2010 (VREDs) at December
Property and equipment are depreciated and amortized on a 31, 1997.
straight-line basis over their estimated useful lives. Upon nor- In October 1997, SFP Pipelines and SFP Holdings
mal sale or retirement of depreciable railroad property, cost entered into an agreement with Kinder Morgan Energy
less net salvage is charged to accumulated depreciation and Partners, L.P. (Kinder Morgan) pursuant to which Kinder
no gain or loss is recognized. Significant premature retirements Morgan acquired substantially all of SFP Pipelines’ interests
are recorded as gains or losses at the time of their occurrence. in the Pipeline Partnership and SFPP, L.P. for approximately
30 BURLINGTON NORTHERN SANTA FE CORPORATION

$84 million in cash on March 6, 1998. The Pipeline The components of deferred tax assets and liabilities were
Partnership was liquidated as part of the transaction and as follows (in millions):
each Partnership Unit was converted into the right to receive December 31, 1998 1997
1.39 Kinder Morgan common units. SFP Pipelines’ Deferred tax liabilities:
8,148,148 Partnership Units were converted into the right to Depreciation and amortization $(5,868) $(5,677)
Other (417) (331)
receive 11,325,925 Kinder Morgan common units. In addi-
Total deferred tax liabilities (6,285) (6,008)
tion, the agreement called for the interest of SFP Pipelines in
Deferred tax assets:
SFPP, L.P. to be partially redeemed for a cash distribution of
Casualty and environmental 253 270
$5.8 million, with SFP Pipelines retaining only a 0.5 percent
Employee merger and separation costs 182 213
special limited partnership interest in SFPP, L.P The
. Post-retirement benefits 89 86
Company recognized a $67 million one-time pre-tax gain Non-expiring AMT credit carryforwards — 36
($32 million or $0.07 per share on a diluted basis after-tax) Other 434 561
at the time of the sale. Total deferred tax assets 958 1,166
Consummation of the transaction caused an “Exchange Net deferred tax liability $(5,327) $(4,842)
Event” under the VRED agreement and in June 1998 all Noncurrent deferred income tax liability $(5,662) $(5,175)
VRED holders received either partnership units of Kinder Current deferred income tax asset 335 333
Morgan or cash equal to the par value of the VREDs. As a Net deferred tax liability $(5,327) $(4,842)
result of this transaction, substantially all of the Company’s BNSF filed its first federal income tax return for 1995.
investment in the Pipeline Partnership and SFPP, L.P. and the The federal income tax returns of BNSF’s predecessor com-
VREDs were removed from the consolidated balance sheet. panies, Burlington Northern Inc. (BNI) and Santa Fe Pacific
3
OTHER INCOME (EXPENSE), NET
Corporation (SFP) have been examined through 1994 and
Other income (expense), net includes the following 1992, respectively. All years prior to 1989 for BNI and 1991
(in millions): for SFP are closed. Issues relating to the years 1991-1992 for
Year ended December 31, 1998 1997 1996 SFP and for the years 1989-1994 for BNI are being contest-
Gain on sale of Pipeline Partnership $(67 $ — $ — ed through various stages of administrative appeal. In addi-
Gain on property dispositions 48 14 23 tion, BNSF and its subsidiaries have various state income tax
Equity in earnings of Pipeline Partnership 4 30 24
returns in the process of examination, administrative appeal
Accounts receivable sale fees (34) (27) (14)
or litigation. Management believes that adequate provision
Miscellaneous, net (40) (36) (40)
has been made for any adjustment that might be assessed for
Total $(45 $(19) $ (7)
open years through 1998.
INCOME TAXES
4 5
A CCOUNTS RECEIVABLE , NET
Income tax expense was as follows
Effective June 1997, an accounts receivable sale agree-
(in millions):
ment which allowed the sale of up to $300 million in
Year ended December 31, 1998 1997 1996
receivables effective through 1999, was replaced by an
Current:
amended and restated agreement which allows BNSF Railway,
Federal $191 $ 72 $ 81
through a special purpose subsidiary, to sell up to $600
State 14 14 17
million of variable rate certificates which mature in 2002 evi-
205 86 98
dencing undivided interests in an accounts receivable master
Deferred:
trust. The master trust’s assets include an ownership interest
Federal 410 372 396
State 79 61 57 in a revolving portfolio of BNSF Railway’s accounts receivable
489 433 453 which are used to support the certificates. At December 31,
Total $694 $519 $551 1998, $600 million of certificates were outstanding and were
supported by receivables of approximately $1.1 billion in
Reconciliation of the federal statutory income tax rate to
the master trust. Certificates outstanding were $581 million
the effective tax rate was as follows:
at December 31, 1997. BNSF Railway has retained the col-
Year ended December 31, 1998 1997 1996
lection responsibility with respect to the accounts receivable
Federal statutory income tax rate 35.0% 35.0% 35.0%
held in trust. BNSF Railway is exposed to credit loss related
State income taxes,
to collection of accounts receivable to the extent that the
net of federal tax benefit 3.3 3.5 3.4%
Other, net (0.7) (1.5) (0.1) amount of receivables in the master trust exceeds the amount
Effective tax rate 37.6% 37.0% 38.3% of certificates sold. Costs related to such agreements vary on
BURLINGTON NORTHERN SANTA FE CORPORATION 31

DEBT
8
a monthly basis and are generally related to certain interest
Debt outstanding was as follows
rates. These costs are included in Other income (expense), net.
(in millions):
BNSF maintains an allowance for corrections to and
collectibility of freight and other billings. At December 31, December 31, 1998 1997
1998 and 1997, $84 million and $70 million of such Notes and debentures, weighted average
rate of 7.04%, due 1999 to 2097 $3,073 $2,842
allowances had been recorded, respectively. BNSF believes
Capitalized lease obligations, weighted
the allowance is adequate to cover disputed and uncollectible
average rate of 6.65%, due 1999 to 2012 818 695
receivables at December 31, 1998.
Equipment obligations, weighted average
P R O P E R T Y A N D E Q U I P M E N T, N E T
6
rate of 7.62%, due 1999 to 2016 595 565
Property and equipment, net (in millions), and the weighted Mortgage bonds, weighted average rate of
average annual depreciation rate (%) were as follows: 7.56%, due 1999 to 2047 498 467
1998 Commercial paper, 5.71% (variable) 471 668
Depreciation
Bank borrowings, 5.35% (variable) 25 70
December 31, 1998 1997 Rate
Unamortized discount and other, net (24) (18)
Land $ 1,431 $ 1,416 —%
Total 5,456 5,289
Track structure 11,340 10,527 4.0%
Less current portion of long-term debt (268) (108)
Other roadway 8,389 7,856 2.5%
Long-term debt $5,188 $5,181
Locomotives 2,276 1,874 4.9%
Freight cars and
BNSF issues commercial paper from time to time which is
other equipment 1,860 1,870 4.0%
supported by bank revolving credit agreements. Outstanding
Computer hardware
commercial paper balances are considered as reducing the
and software 405 412 15.5%
amount of borrowings available under these agreements. The
Total cost 25,701 23,955
bank revolving credit agreements allow borrowings of up to
Less accumulated depreciation
and amortization (5,039) (4,744) $425 million on a short-term basis and $1.5 billion on a long-
Property and equipment, net $20,662 $19,211 term basis. Annual facility fees are currently 0.075 percent and
0.09 percent, respectively, and are subject to change based upon
The consolidated balance sheet at December 31, 1998 and
changes in BNSF’s senior unsecured debt ratings. Borrowing
1997 included $1,082 million and $875 million, respectively,
rates are based upon i) LIBOR plus a spread based upon BNSF’s
for property and equipment under capital leases.
senior unsecured debt ratings, ii) money market rates offered at
7
ACCOUNTS PAYAB LE AND
the option of the lenders, or iii) an alternate base rate. The com-
OT HER CURRE NT LIABILITIES
mitments of the lenders under the short-term agreement were
Accounts payable and other current liabilities
extended on November 12, 1998 and are currently scheduled
consisted of the following (in millions):
to expire on June 15, 1999. The commitments of the lenders
December 31, 1998 1997
under the long-term agreement are scheduled to expire on
Compensation and benefits payable $ 386 $ 399
November 12, 2002.
Casualty and environmental liabilities 272 291
Accounts payable 174 222 At December 31, 1998, there were no borrowings against
Rents and leases 155 144 the revolving credit agreements and the maturity value of com-
Tax liabilities 117 132
mercial paper outstanding was $474 million, leaving a total
Employee merger and separation costs 65 82
remaining capacity of $1,026 million available under the long-
Other 760 682
term revolving credit agreement and $425 million available
Total $1,929 $1,952
under the short-term credit agreement. A portion of commer-
cial paper has been hedged to fix interest rates through interest
rate swap transactions (see Note 11: Hedging Activities, Leases
and Other Commitments). The financial covenants of the bank
revolving credit agreements require that BNSF’s consolidated
tangible net worth, as defined in the agreements, be at least $4.4
billion, and that its debt cannot exceed 55 percent of its consoli-
dated total capital as defined in the agreements. BNSF was in
compliance with these financial covenants at December 31, 1998.
In March 1998 the Company filed a shelf registration of debt
securities, including medium-term notes that may be issued in
one or more series at an aggregate offering price not to exceed
32 BURLINGTON NORTHERN SANTA FE CORPORATION

$500 million. In April 1998, prior to the effective date of the conductors, trainmen and locomotive engineers; and (iii) certain
March 1998 shelf registration, the Company amended its non-union employee severance costs.
August 1997 shelf registration to combine it with the March Liabilities related to the consolidation of clerical functions
1998 shelf registration. As of December 31, 1998, the March (the Consolidation Plan) were $211 million and $259 million at
1998 shelf registration had $350 million of potential borrowings December 31, 1998 and 1997, respectively. These liabilities pro-
remaining. In February 1999, the Company filed a new shelf vide for severance costs associated with the Consolidation Plan
registration of debt securities that may be issued in one or more adopted in 1995 upon consummation of the merger of BNSF’s
series at an aggregate offering price not to exceed $750 million. predecessor companies Burlington Northern Inc. and Santa Fe
As of February 8, 1999, the shelf registration had not yet been Pacific Corporation (the Merger). The Consolidation Plan will
declared effective. When it becomes effective, the Company will result in the elimination of approximately 1,600 permanent
have $1.1 billion of borrowing capacity available through the positions, of which approximately 1,500 positions have been
combined shelf registrations. eliminated through 1998, including approximately 250 positions
Aggregate long-term debt scheduled maturities are $268 that were eliminated in 1998. Upon adoption in 1995, the
million, $146 million, $222 million, $744 million and $130 Consolidation Plan was expected to be completed by early 1999.
million for 1999 through 2003, respectively. Commercial paper However, the Consolidation Plan was partially delayed as a
of $471 million is included in maturities for 2002. Maturities result of the timing related to completion of merger integration
in 1999 exclude $200 million of variable rate debentures due and other issues and is now expected to be completed by 2001.
2029 and maturities in 2001 exclude $100 million of 6.05 Remaining clerical positions to be eliminated by the Company
percent notes due 2031, which will either be remarketed by the will result in involuntary separations. Benefits paid to affected
holder of a call option on the debt and mature in 2029 and employees are in the form of lump-sum payments or payments
2031, respectively; or will otherwise be repurchased by the made over five to ten years or in some cases through retirement.
Company in 1999 and 2001, respectively. In addition, maturities Liabilities related to deferred benefits payable upon separa-
in 2000 exclude $100 million of 6.1 percent notes due 2027 tion or retirement to certain active conductors, trainmen and
and maturities in 2003 exclude $175 million of 6.53 percent locomotive engineers were $207 million and $224 million at
notes due 2037, which may be redeemed in 2000 and 2003, December 31, 1998 and 1997, respectively. These costs were
respectively, at the option of the holder. incurred in connection with labor agreements reached prior to
Most BNSF Railway properties and certain other assets are the Merger which, among other things, reduced train crew sizes
pledged as collateral to, or are otherwise restricted under, the and allowed for more flexible work rules.
various BNSF Railway long-term debt agreements. Equipment Liabilities principally related to certain remaining non-union
obligations and capital leases are secured by the underlying employee severances resulting from the Merger were $56 million
equipment. and $68 million at December 31, 1998 and 1997, respectively.
An indirect wholly-owned subsidiary of BNSF, in connection These costs will be paid over the next several years based on defer-
with its remaining 0.5 percent special limited partner interest in ral elections made by affected employees. Approximately 1,500
a pipeline partnership, is contingently liable for $190 million of non-union employees received or are receiving severance payments
certain debt of the pipeline partnership assumed by Kinder and special termination benefits under the Company’s retirement
Morgan pursuant to the sale discussed in Note 2: Sale of Invest- and health and welfare plans resulting from the Merger.
ment in Pipeline Partnership. In addition, BNSF and another During 1998, 1997 and 1996, BNSF made employee merger
major railroad jointly and severally guarantee $75 million of debt and separation payments of $77 million, $116 million and $183
of KCT Intermodal Transportation Corporation, the proceeds of million, respectively. At December 31, 1998, $65 million of the
which are being used to finance the construction of a double remaining liabilities are included within current liabilities for
track grade separation bridge in Kansas City, Missouri, to be anticipated costs to be paid in 1999.
operated and used by Kansas City Terminal Railway Company. 1997 SPE CIA L C H ARG E
In the fourth quarter of 1997, the Company recorded a $90 mil-
9
EMPL O YE E MER GE R A ND S EPA R ATION CO ST S
lion pre-tax special charge. Approximately $65 million of the charge
LIA BI LITY BA LA NC E A ND AC T IVI TY
Current and long-term employee merger and separation lia- related to the Consolidation Plan and the remainder of the charge
bilities totaling $474 million and $551 million are included in related to severance and other costs for non-union employees.
the consolidated balance sheet at December 31, 1998 and 1997, BNSF recorded an initial charge in 1995 for the Consolidation
respectively, and principally represent: (i) employee-related sever- Plan, however, the 1995 charge excluded costs associated with
ance costs for the consolidation of clerical functions; (ii) deferred voluntary severance for employees who were given the opportunity
benefits payable upon separation or retirement to certain active to relocate and follow their work, but elected severance.
BURLINGTON NORTHERN SANTA FE CORPORATION 33

DIS CLOSUR ES ABOUT FAIR VALUE
10
commodities hedged and the purchase price of BNSF’s diesel fuel.
OF FINANCIAL INS TRUMENTS Currently, BNSF’s fuel hedging program covers approximate-
The estimated fair values of BNSF’s financial instru- ly 75 percent, 40 percent, 22 percent and 7 percent of estimated
ments at December 31, 1998 and 1997 and the methods and annual and quarterly fuel purchases for 1999, 2000, 2001, and
assumptions used to estimate the fair value of each class of finan- 2002, respectively. Hedge positions are closely monitored to
cial instruments held by BNSF, were as follows (see also Note 11: ensure that they will not exceed actual fuel requirements in any
Hedging Activities, Leases and Other Commitments regarding period. Unrecognized losses from BNSF’s fuel swap transactions
the fair values of BNSF’s outstanding hedging instruments): were approximately $174 million as of December 31, 1998, of
CASH AND CASH EQUIVALENTS which $120 million relates to swap transactions that will expire
The carrying amount approximated fair value because of the in 1999. BNSF also monitors its hedging positions and credit rat-
short maturity of these instruments. ings of its counterparties and does not anticipate losses due to
L O N G -T E R M D E BT A N D CO M ME R C I A L PA P E R counterparty nonperformance.
The fair value of long-term debt was primarily based on quoted INTEREST RATE
market prices for the same or similar issues, or on the current From time to time, the Company enters into various interest
rates that would be offered for debt of the same remaining rate hedging transactions for the purpose of managing exposure
maturities. The carrying amount of commercial paper approxi- to fluctuations in interest rates and establishing rates in anticipa-
mated fair value because of the short maturity of these instru- tion of future debt issuances. As of February 8, 1999, BNSF
ments. The carrying amounts of long-term debt and commer- had interest rate swap transactions which fix the interest rate on
cial paper at December 31, 1998 and 1997 were $5,456 mil- the total principal amount of $125 million of its commercial
lion and $5,289 million, respectively, while the estimated fair paper debt. The interest rate swap transactions require payment
values at December 31, 1998 and 1997 were $5,712 million of a weighted average fixed interest rate of approximately 6.1
and $5,472 million, respectively. percent and the receipt of a variable interest rate based on a
HEDGING ACTIVIT IES, LEASES
11
commercial paper composite rate. The swap transactions expire
AND OTHER COMMITME NTS in December 1999. Any gains and losses associated with
HEDGING ACTIVIT IES changes in market value of these swaps are not recognized.
BNSF recognizes, on an accrual basis, a fixed rate of interest on
FUEL
During 1998, 1997 and 1996 fuel expenses approximated 11 the principal amount of commercial paper hedged over the term
percent of total operating expenses. Due to the significance of of the swap agreements. Unrecognized losses from BNSF’s inter-
diesel fuel expenses to the operations of the railroad and the est rate swap transactions were approximately $2 million as of
historical volatility of fuel prices, the Company has established a December 31, 1998.
program to hedge against fluctuations in the price of its diesel In anticipation of future debt issuances, BNSF has entered
fuel purchases. The intent of the program is to protect the into treasury lock transactions, based on the 10-year and 30-year
Company’s operating margins and overall profitability from U.S. treasury rates, totaling $300 million and $200 million,
adverse fuel price changes. However, to the extent the Company respectively. The 10-year and 30-year treasury lock transactions
hedges portions of its fuel purchases, it will not realize the have average interest rates of approximately 4.5 percent and 5.0
impact of decreases in fuel prices. The fuel-hedging program percent, respectively, and expire between 1999 and 2001. These
includes the use of commodity swap transactions that are rates do not include a credit spread which will be determined at
accounted for as hedges. Any gains or losses associated with the time of the actual debt issuance and included in the all-in
changes in the market value of the fuel swaps are deferred and interest rate. The treasury locks can be closed by BNSF anytime
recognized as a component of fuel expense in the period in up to expiration. Unrecognized gains on the treasury lock trans-
which the fuel is purchased and used. Based on 1998 fuel actions were approximately $19 million as of December 31, 1998.
consumption and excluding the impact of the hedging program, During 1998, at the time of issuing $400 million of debt, the
each one-cent increase in the price of fuel would result in Company closed out $400 million of treasury lock transactions at
approximately $12 million of additional fuel expense on an a loss of approximately $18 million which has been deferred and
annual basis. is being amortized to interest expense over the life of the debt.
As of February 8, 1999, BNSF had entered into fuel swaps for
approximately 1,776 million gallons at an average price of approxi-
mately 49 cents per gallon. The above price does not include taxes,
transportation costs, certain other fuel handling costs, and any dif-
ferences which may occur from time to time between the prices of
34 BURLINGTON NORTHERN SANTA FE CORPORATION

LEASES BNSF is subject to environmental clean-up and enforcement
BNSF has substantial lease commitments for locomotives, actions. In particular, the Federal Comprehensive Environ-
freight cars, trailers, office buildings and other property. mental Response, Compensation and Liability Act of 1980
Most of these leases provide the option to purchase the (CERCLA), also known as the “Superfund” law, as well as
equipment at fair market value at the end of the lease. similar state laws generally impose joint and several liability
However, some provide fixed price purchase options. Future for clean-up and enforcement costs without regard to fault or
minimum lease payments (which reflect leases having non- the legality of the original conduct on current and former
cancelable lease terms in excess of one year) as of December owners and operators of a site. BNSF has been notified that
31, 1998 are summarized as follows (in millions): it is a potentially responsible party (PRP) for study and
Capital Operating clean-up costs at approximately 32 Superfund sites for which
Year ended December 31 Leases Leases
investigation and remediation payments are or will be made
1999 $116 $350
or are yet to be determined (the Superfund sites) and, in
2000 105 256
many instances, is one of several PRPs. In addition, BNSF
2001 116 206
may be considered a PRP under certain other laws.
2002 110 175
2003 109 164 Accordingly, under CERCLA and other federal and state
Thereafter 594 1,814 statutes, BNSF may be held jointly and severally liable for all
Total 1,150 $2,965 environmental costs associated with a particular site. If there
Less amount representing interest 332 are other PRPs, BNSF generally participates in the clean-up
Present value of minimum lease payments $ 818 of these sites through cost-sharing agreements with terms
that vary from site to site. Costs are typically allocated based
Lease rental expense for all operating leases was $503
on relative volumetric contribution of material, the amount
million, $456 million and $446 million for the years ended
of time the site was owned or operated, and/or the portion
December 31, 1998, 1997 and 1996, respectively.
of the total site owned or operated by each PRP.
Contingent rentals and sublease rentals were not significant.
Environmental costs include initial site surveys and envi-
OTHER COMMIT MENT S
ronmental studies of potentially contaminated sites as well as
BNSF has entered into commitments to acquire 476 locomo-
costs for remediation and restoration of sites determined to
tives in 1999. The locomotives will be financed from one or
be contaminated. Liabilities for environmental clean-up costs
a combination of sources including, but not limited to, cash
are initially recorded when BNSF’s liability for environmen-
from operations, capital or operating leases, and debt issuances.
tal clean-up is both probable and a reasonable estimate of
The decision on the method used will depend upon the current
associated costs can be made. Adjustments to initial estimates
market conditions and other factors at the time of financing.
are recorded as necessary based upon additional information
Additionally, BNSF has committed to acquire 196 and 50
developed in subsequent periods. BNSF conducts an on-
locomotives in 2000 and 2001, respectively.
going environmental contingency analysis, which considers a
In connection with the closing of the sale of rail lines in
combination of factors including independent consulting
Southern California in 1992 and 1993, BNSF has a $50
reports, site visits, legal reviews, analysis of the likelihood of
million liability recorded for an obligation retained by BNSF
participation in and the ability of other PRPs to pay for
which under certain conditions requires the Company to
clean-up, and historical trend analyses.
repurchase a portion of the properties sold.
BNSF is involved in a number of administrative and
ENVIRONMENTAL AND
12 judicial proceedings and other clean-up efforts at approxi-
OTHER CONTINGENCIES
mately 400 sites, including the Superfund sites, at which it is
E N V I R O N M E N TA L
participating in the study or clean-up, or both, of alleged
BNSF’s operations, as well as those of its competitors, are
environmental contamination. BNSF paid approximately
subject to extensive federal, state and local environmental
$64 million, $55 million and $47 million during 1998,
regulation. BNSF’s operating procedures include practices
1997 and 1996 respectively, for mandatory and unasserted
to protect the environment from the environmental risks
clean-up efforts, including amounts expended under federal
inherent in railroad operations, which frequently involve
and state voluntary clean-up programs. BNSF has accruals of
transporting chemicals and other hazardous materials.
approximately $185 million for remediation and restoration
Additionally, many of BNSF’s land holdings are and have
of all known sites. BNSF anticipates that the majority of the
been used for industrial or transportation-related purposes or
accrued costs at December 31, 1998, will be paid over the
leased to commercial or industrial companies whose activities
next five years. No individual site is considered to be material.
may have resulted in discharges onto theproperty. As a result,
BURLINGTON NORTHERN SANTA FE CORPORATION 35

During 1998, BNSF settled an environmental matter in including those related to environmental matters and per-
sonal injury claims. While the final outcome of these items
the State of Missouri related to the release of a reportable
cannot be predicted with certainty, considering among other
quantity of lead sulfide into a waterway. BNSF agreed in the
things the meritorious legal defenses available, it is the opin-
settlement to pay a fine of $7 million, make restitution pay-
ion of management that none of these items, when finally
ments to the State of Missouri of $3 million and committed
resolved, will have a material adverse effect on the annual
to spend $9 million, which includes amounts previously
results of operations, financial position or liquidity of BNSF,
paid, in connection with its ongoing remediation efforts.
although an adverse resolution of a number of these items
BNSF has made payments of approximately $16 million
could have a material adverse effect on the results of opera-
related to this settlement, including approximately $12 mil- tions in a particular quarter or fiscal year.
lion that was paid during 1998, which is included in total RETIREMENT PLANS
13
1998 payments discussed above. AND OTHER POSTEMPL OYM ENT
Liabilities recorded for environmental costs represent BENEFIT PLANS
BNSF’s best estimates for remediation and restoration of BNSF sponsors two significant defined benefit pension plans:
these sites and include both asserted and unasserted claims. the noncontributory qualified BNSF Retirement Plan, which
Unasserted claims are not considered to be a material com- covers substantially all non-union employees, and the non-
ponent of the liability. Although recorded liabilities include qualified BNSF Supplemental Retirement Plan, which covers
BNSF’s best estimates of all costs, without reduction for certain officers and other employees. The benefits under
anticipated recoveries from third parties, BNSF’s total clean- BNSF’s plans are based on years of credited service and the
up costs at these sites cannot be predicted with certainty due highest five-year average compensation levels. BNSF’s
to various factors such as the extent of corrective actions that funding policy is to contribute annually not less than the
may be required, evolving environmental laws and regula- regulatory minimum and not more than the maximum
tions, advances in environmental technology, the extent of amount deductible for income tax purposes.
other parties’ participation in clean-up efforts, developments Certain salaried employees of BNSF that have met certain
in ongoing environmental analyses related to sites determined age and years of service requirements are eligible for medical
to be contaminated, and developments in environmental benefits and life insurance coverage during retirement. The
surveys and studies of potentially contaminated sites. As a retiree medical plan is contributory and provides benefits to
result, future charges to income for environmental liabilities retirees, their covered dependents and beneficiaries. Retiree con-
could have a significant effect on results of operations in a tributions are adjusted annually. The plan also contains fixed
particular quarter or fiscal year as individual site studies and deductibles, coinsurance and out-of-pocket limitations. The life
remediation and restoration efforts proceed or as new sites insurance plan is noncontributory and covers retirees only.
arise. However, management believes that it is unlikely that BNSF’s policy is to fund benefits payable under the medical and
any identified matters, either individually or in the aggregate, life insurance plans as they come due. Employees beginning
will have a material adverse effect on BNSF’s consolidated salaried employment with BNSF subsequent to September 22,
financial position or liquidity. 1995 are not eligible for benefits under these plans.
The railroad industry, including BNSF Railway, is subject
to future requirements regulating air emissions from diesel Components of the net benefit costs for these plans were as
locomotives. Final regulations applicable to new and rebuilt follows (in millions):
locomotive engines were promulgated by the United States Pension Benefits
Environmental Protection Agency (EPA) and became effective Year ended December 31, 1998 1997 1996
June 15, 1998. The new standards will be phased in between Service cost $ 15 $ 14 $ 17
Interest cost 101 100 97
2000 and 2005. BNSF Railway has evaluated compliance
Expected return on plan assets (117) (112) (113)
requirements and associated costs and believes the costs will
Net amortization and deferred amounts 4 4 8
not be material in any given year. BNSF Railway has also
Net benefit cost $3$6$9
entered into agreements with the California State Air Resources
Medical and Life Benefits
Board and the EPA regarding a program to reduce emissions
Year ended December 31, 1998 1997 1996
in Southern California through accelerated deployment of
Service cost $ 4 $ 4$5
locomotives which comply with the federal standards.
Interest cost 16 14 16
OT H E R CL A I MS A N D L I TI G AT I O N
Net amortization and deferred amounts — (1) —
BNSF and its subsidiaries are parties to a number of legal Net benefit cost $ 20 $ 17 $ 21
actions and claims, various governmental proceedings and
private civil suits arising in the ordinary course of business,
36 BURLINGTON NORTHERN SANTA FE CORPORATION

The following tables show the change in benefit obligation BNSF uses a September 30 measurement date. The assump-
and plan assets of these plans (in millions): tions used in accounting for the BNSF plans were as follows:
Pension Medical and
Pension Medical and
Benefits Life Benefits
Benefits Life Benefits
Assumptions 1998 1997 1998 1997
Change in benefit obligation 1998 1997 1998 1997
Discount rate 7.0% 7.5% 7.0% 7.5%
Benefit obligation at
Rate of increase in
beginning of year $1,404 $1,286 $190 $210
compensation levels 4.0% 4.0% N/A N/A
Service cost 15 14 4 4
Expected return on plan assets 9.5% 9.5% N/A N/A
Interest cost 101 100 16 14
Plan participants’ contributions — — 3 5 For purposes of the medical and life benefits calculations
Amendments — — 13 — for 1998, the assumed health care cost trend rate for both
Actuarial (gain) loss 85 117 39 (22)
managed care and non-managed care medical costs is 9 percent
Benefits paid (118) (113) (16) (21)
and is assumed to decrease gradually to 5 percent by 2005
Benefit obligation at year end $1,487 $1,404 $249 $190
and remain constant thereafter. Increasing the assumed
Pension Medical and
health care cost trend rates by one percentage point would
Benefits Life Benefits
increase the accumulated postretirement benefit obligation
Change in plan assets 1998 1997 1998 1997
by $18 million and the combined service and interest compo-
Fair value of plan assets
nents of net postretirement benefit cost recognized in 1998
at beginning of year $1,540 $1,320 $ — $ —
Actual return on plan assets 43 329 — — by $1 million. Decreasing the assumed health care cost trend
Employer contribution 4 4 13 16 rates by one percentage point would decrease the accumulated
Plan participants’ contributions — — 3 5
postretirement benefit obligation by $17 million and the
Benefits paid (118) (113) (16) (21)
combined service and interest components of net postretire-
Fair value of plan assets
ment benefit cost recognized in 1998 by $1 million.
at year end $1,469 $1,540 $— $—
OTHER PLANS
Under collective bargaining agreements, BNSF participates
The following tables show the reconciliation of the funded in multiemployer benefit plans which provide certain post-
status of these plans with amounts recorded in the retirement health care and life insurance benefits for eligible
consolidated balance sheet (in millions): union employees. Insurance premiums paid attributable to
Pension Medical and
retirees, which are generally expensed as incurred, were $18
Benefits Life Benefits
million, $15 million and $14 million, in 1998, 1997 and
December 31, 1998 1997 1998 1997
1996, respectively.
Funded status $(18) $ 136 $(249) $(190)
Unrecognized net (gain) loss 7 (151) 4 (16) DEFINE D CONT RIBUTION PL ANS
Unrecognized prior service cost (8) (8) 13 — BNSF sponsors 401(k) thrift and profit sharing plans which
Unamortized net cover substantially all non-union employees and certain
transition obligation 11 14 — —
union employees. BNSF matches 50 percent of the first 6
Net amount recognized $ (8) $ (9) $(232) $(206)
percent of non-union employees’ contributions, which are
Pension Medical and subject to certain percentage limits of the employees’ earnings,
Benefits Life Benefits
at each pay period. Depending on BNSF’s performance, an
December 31, 1998 1997 1998 1997
additional matching contribution of up to 30 percent of the
Amounts recognized in the
first 6 percent can be made at the end of the year. Employer
consolidated balance sheet:
contributions for all non-union employees are subject to
Prepaid benefit cost $ 20 $ 17 $ — $ —
a five year length of service vesting schedule. BNSF’s 401(k)
Accrued benefit liability (43) (39) (232) (206)
Intangible asset 2 2 — — matching expense was $16 million, $14 million and $13
Accumulated other million in 1998, 1997 and 1996, respectively.
comprehensive income 13 11 — —
Net amount recognized $ (8) $ (9) $(232) $(206)
BURLINGTON NORTHERN SANTA FE CORPORATION 37

STOCK OPTIONS A ND
14
grant dates consistent with Statement of Financial
OTHER INCENTIV E PLANS Accounting Standards No. 123 “Accounting for Stock Based
Under BNSF’s stock option plans, options may be Compensation,” the Company’s pro forma net income and
granted to officers and salaried employees at the fair market earnings per share would have been as follows:
value of the Company’s common stock on the date of grant. 1998 1997 1996
Approximately 3.9 million common shares were available Net income (in millions) $1,124 $ 857 $ 871
for future grant at December 31,1998. All options generally Basic earnings per share $ 2.39 $1.85 $1.91
vest within one year and expire within 10 years from the Diluted earnings per share $ 2.36 $1.82 $1.88
date of grant. Shares issued upon exercise of options may The pro forma amounts were estimated using the Black-
be issued from treasury shares or from authorized but Scholes option pricing model with the following assumptions:
unissued shares.
1998 1997 1996
The Company applies Accounting Principles Board (APB)
Weighted average expected
Opinion 25 and related interpretations in accounting for its
life (years) 3.0 3.0 3.0
stock option plans. Accordingly, no compensation expense Expected volatility 20% 20% 20%
has been recognized for its fixed stock option plans as the Annual dividend per share $0.48 $0.40 $0.40
exercise price equals the stock price on the date of grant. Had Risk free interest rate 5.11% 5.81% 6.11%
Weighted average fair value
compensation expense been determined for stock options
of options granted $5.13 $5.15 $4.45
granted in 1998, 1997 and 1996 based on the fair value at
A summary of the status of the stock option plans as of December 31, 1998, 1997 and 1996, and changes during the years
then ended, is presented below:
1998 1997 1996
Weighted Average Weighted Average Weighted Average
Options Exercise Prices Options Exercise Prices Options Exercise Prices
Balance at beginning of year 25,761,369 $20.98 24,765,855 $16.49 28,795,959 $12.48
Granted 9,587,926 29.33 8,778,036 29.40 7,318,140 25.26
Exercised (6,666,864) 18.66 (7,092,690) 15.46 (10,748,892) 11.46
Cancelled (546,562) 26.25 (689,832) 23.58 (599,352) 21.34
Balance at end of year 28,135,869 $24.27 25,761,369 $20.98 24,765,855 $16.49
Options exercisable at year end 17,763,770 $21.45 16,419,858 $16.31 17,082,372 $13.06
The following table summarizes information regarding stock options outstanding at December 31, 1998:
Options Outstanding Options Exercisable
Range of Number Weighted Average Weighted Average Number Weighted Average
Exercise prices Outstanding Remaining Life Exercise Prices Exercisable Exercise Prices
$03.01 to $16.55 4,091,142 3.6 Years $7.93 4,091,142 $7.93
$16.86 to $29.08 8,407,778 6.6 Years $22.70 7,259,231 $21.90
$29.10 to $29.10 8,595,519 9.0 Years $29.10 — —
$29.38 to $35.19 7,041,430 8.0 Years $29.76 6,413,397 $29.56
$03.01 to $35.19 28,135,869 7.2 Years $24.27 17,763,770 $21.45
38 BURLINGTON NORTHERN SANTA FE CORPORATION

OT HER IN CENTIVE P LANS C O M M O N S TO C K A N D
15
BNSF has other long-term incentive programs in addition PREFERRED CAPITAL STOCK
to stock options which are administered separately on behalf COMM ON STOCK
of employees. BNSF is authorized to issue 600 million shares of common
Under the BNSF 1996 Stock Incentive Plan and the Non- stock, $.01 Par Value. At December 31, 1998, there were
Employee Directors’ Stock Plan (NEDS), up to 30 million 470.5 million shares of common stock outstanding. Each
and 900,000 shares of BNSF common stock, respectively, holder of common stock is entitled to one vote per share in
have been authorized to be issued in the form of stock options, the election of directors and on all matters submitted to a
restricted stock, performance shares and performance units. vote of stockholders. Subject to the rights and preferences of
During 1996, BNSF awarded a total of approximately any future issuances of preferred stock, each share of com-
1.2 million shares of restricted stock to eligible employees mon stock is entitled to receive dividends as may be declared
and directors. No cash payment is required by the individual. by the Board of Directors out of funds legally available and
Shares awarded under the plans may not be sold, transferred to share ratably in all assets available for distribution to
or used as collateral by the holder until the shares awarded stockholders upon dissolution or liquidation. No holder of
become free of restrictions. The restrictions will be lifted in common stock has any preemptive right to subscribe for any
thirds over three years beginning on the third anniversary of securities of BNSF.
the grant date if certain stock price based performance goals PREFERRED CAPITAL STOCK
are met. If, however, the performance goals are not met, the At December 31, 1998, BNSF had 50 million shares of Class
restricted shares will be forfeited. All shares still subject to A Preferred Stock, $.01 Par Value and 25 million shares of
restrictions are generally forfeited and returned to the plan if Preferred Stock, $.01 Par Value available for issuance. The
the employee’s or director’s relationship is terminated. A total Board of Directors has the authority to issue such stock in
of approximately 934,000 restricted shares related to this one or more series, to fix the number of shares and to fix the
award were outstanding as of December 31, 1998. Additionally, designations and the powers, rights, and qualifications and
in December 1997, BNSF issued 90,000 restricted shares of restrictions of each series.
stock. The shares are time-vesting and vest ratably over the SH ARE REP URCHASE PROG RA M
five year period ending December 31, 2002. At December In July 1997, the Board of Directors of BNSF authorized the
31, 1998, 72,000 restricted shares related to this award were repurchase of up to 30 million shares of the Company’s common
outstanding. stock from time to time in the open market. Repurchased
Under the BNSF 1996 Stock Incentive Plan certain eligible shares will be available to satisfy future requirements of vari-
employees may defer the cash payment of their bonus paid under ous stock-based employee compensation programs. During
the Incentive Compensation Plan (ICP) and will receive restricted 1998, the Company repurchased approximately 5 million
stock which restrictions lapse in three years or in two years if shares of its common stock at an average price of $30.75
certain performance goals are met. The number of restricted per share. Total repurchases through February 8, 1999, were
shares awarded are based on the amount of bonus deferred, plus 6.1 million shares at a total average cost of $31.29 per share.
incremental shares, using the market price of BNSF common In November 1997, BNSF sold equity put options for
stock on the date of grant. Restricted awards granted under this 1.5 million shares of the Company’s common stock to an
program totaled approximately 380,000 shares in 1998. A total independent third party and received cash proceeds of $1
of approximately 936,000 awards were outstanding under this million. The option contracts had an exercise price of $29.33
andpriorprogramson December31,1998. and an expiration date of May 5, 1998. The option contracts
In addition, all regularly-assigned salaried employees not permitted a net-share or net-cash settlement method at BNSF’s
eligible to participate in deferrals of ICP are eligible to partic- election. These options expired unexercised.
ipate in the BNSF Discounted Stock Purchase Program. This During the second and third quarters of 1998, BNSF sold
program allows employees to use their bonus earned under equity put options for 3 million shares of the Company’s
the ICP to purchase BNSF common stock at a discount from common stock to an independent third party and received
the market price and requires that the stock be restricted for a cash proceeds of $2 million. The option contracts had exercise
three year period. During the years ended December 31, prices ranging from $29.00 to $30.00 per share with expiration
1998, 1997 and 1996, approximately 54,000, 84,000 and dates ranging from November 1998 to February 1999. The
87,000 shares, respectively, were purchased under this plan. option contracts permitted a net-share or net-cash settlement
Compensation expense is recorded under the BNSF Stock method at BNSF’s election. These options expired unexercised.
Incentive Plan in accordance with APB Opinion 25 and was The Company accounted for the effects of these equity put
not material in 1998, 1997 or 1996. option transactions within stockholders’ equity.
BURLINGTON NORTHERN SANTA FE CORPORATION 39

QUARTERLY
16 FIN ANCIAL DATA —
UNAUDITED
(Dollars in millions, except per share data) Fourth Third Second First
1998
Revenues (1) $2,294 $2,294 $2,205 $2,148
Operating income 568 614 529 447
Net income (2) $ 296 $ 317 $ 277 $ 265
Basic earnings per share (3) $ .63 $ .67 $ .59 $ .56
Diluted earnings per share (3) $ .63 $ .66 $ .58 $ .56
Dividends declared per share(3) $ .12 $ .12 $ .10 $ .10
Common stock price:
High(3) $34.81 $35.58 $35.71 $35.65
Low(3) 28.63 26.87 31.25 28.08
1997
Revenues(1) $ 2,174 $2,125 $2,055 $2,016
Operating income(4) 438 541 459 329
Net income(4) $ 217 $ 283 $ 235 $ 150
Basic earnings per share (3) $ .47 $ .61 $ .51 $ .32
Diluted earnings per share (3) $ .46 $ .60 $ .50 $ .32
Dividends declared per share(3) $ .10 $ .10 $ .10 $ .10
Common stock price:
High(3) $33.46 $32.67 $30.50 $29.83
Low(3) 30.44 30.19 23.63 24.67
(1) Amounts do not agree to previously reported amounts due to certain reclassifications between revenues and expenses which are not significant.
(2) First quarter 1998 results include a $67 million pre-tax gain ($32 million after-tax) on the sale of substantially all of the Company’s interest in Santa Fe
Pacific Pipeline Partners, L.P. as discussed in Note 2–Sale of Investment in Pipeline Partnership.
(3) Information for prior periods presented has been restated to reflect the 1998 three-for-one common stock split as discussed in Note 1–Accounting Policies.
(4) Fourth quarter 1997 results include a $90 million pre-tax charge ($57 million after-tax) as discussed in Note 9–Employee Merger and Separation Costs.
40 BURLINGTON NORTHERN SANTA FE CORPORATION

BURLINGTON NORTHERN SANTA FE CORPORATION OFFICERS
ROBERT D. KREBS* M AT T HE W K. ROSE* GREGORY T. SWIENTON* T H O M A S N. H U N D * R I C H A R D A. R U S S A C K
Chairman, President and Senior Vice President and Senior Vice President- Vice President and Vice President-
Chief Executive Officer Chief Operations Officer Coal and Agricultural Controller Corporate Relations
Commodities Business Unit
GARY L. CROSBY
DOUGLAS J. BABB* C HA RLE S L. SCHULTZ* M AR SH A K. MORGAN R I C H A R D E. W E I C H E R
Vice President-
Senior Vice President- Senior Vice President- Litigation Vice President- Vice President and
Merchandise Business Unit Intermodal and Investor Relations and General Counsel
Automotive Business Unit Corporate Secretary
A . R . (S KI P ) EN D R ES , J R.
JEFFREY R. MORELAND* DENIS E. SPRINGER* PA T RIC K J. DANIEL J. WESTERBECK
Vice President-
OTTENSMEYER
Senior Vice President- Senior Vice President and Government Relations Vice President and
Law and Chief of Staff Chief Financial Officer Vice President- General Tax Counsel
Finance and Treasurer
BRUCE E . FREEMAN
Vice President and * Executive Officer of
Chief Information Officer Burlington Northern
Santa Fe Corporation
B UR LING TO N NO RT HE RN SA NT A F E C OR P OR AT IO N D IR E CT ORS **
JOSEPH F. ALIBRANDI GEORGE DEUKMEJIAN VIL MA S. MARTINEZ ROBERT H. WEST RON AL D B . W OOD AR D
(1)(2) (3)(4) (3)(4) (2)(3) (2)(3)
Chairman and Chief Partner, Sidley and Partner, Munger, Tolles Chairman of the Board, Retired President, Boeing
Executive Officer, Whittaker Austin (law firm) and and Olson LLP (law firm), Butler Manufacturing Commercial Airplane Group
Corporation (aerospace), former Governor of the Los Angeles, California. Company (manufacturer (aerospace), Seattle, Washington.
Los Angeles, California. State of California, Board member since 1998. of pre-engineered Board member since 1995.
Board member since 1982. Los Angeles, California. building systems and
ROY S. ROBERTS MICHAEL B. YANNEY
Board member since 1991. specialty components),
JACK S. BLANTON (3)(4) Kansas City, Missouri. (1)(2)
R OBER T D. KREBS
(2)(4) Vice President and Group Board member since 1980. Chairman and Chief
Chairman and Chief (1) Executive, North American Executive Officer,
J. STEVE N WHISLER
Executive Officer, Houston Chairman, President Vehicle Sales, Service America First Companies
Endowment, Inc. (charitable and Chief Executive Officer, and Marketing, General (3)(4) L.L.C. (investments),
foundation), Houston, Texas. Burlington Northern Motors Corporation President and Chief Omaha, Nebraska.
Board member since 1989. Santa Fe Corporation, (motor vehicle manufacturer), Operating Officer, Board member since 1989.
Fort Worth,Texas. Detroit, Michigan. Phelps Dodge Corporation
J O H N J. B U R N S , J R Board member since 1983. Board member since 1993. (mining and manufacturing), Committee Assignments:
(1)(2) Phoenix, Arizona. (1) Executive Committee
BILL M. LINDIG M A R C J. S H A P I R O
President and Chief Executive Board member since 1995. (2) Compensation Committee
Officer, Alleghany Corporation (2)(4) (3)(4) (3) Audit Committee
(holding company with E D W A R D E. W H I T A C R E, J R.
Chairman and Chief Executive Vice Chairman for Finance (4) Directors and Corporate
investment management, Officer, SYSCO Corporation and Risk Management, (1)(4) Governance Committee
reinsurance, industrial (marketer and distributor The Chase Manhattan Chairman and Chief
minerals, steel fastener of foodservice products), Corporation (banking), Executive Officer, ** Years of Board service
operations, and an investment Houston, Texas. New York, New York. SBC Communications Inc. includes service on Boards
position in BNSF), Board member since 1993. Board member since 1995. (telecommunications), of Burlington Northern
New York, New York. San Antonio, Texas. Inc. and Santa Fe Pacific
A R N O L D R. W E B E R
Board member since 1995. Board member since 1993. Corporation and
(1)(3) predecessor corporations.
President Emeritus,
Northwestern University,
Evanston, Illinois.
Board member since 1986.
BURLINGTON NORTHERN SANTA FE CORPORATION 41

B U RLING T ON N ORT H ERN SA N TA FE C OR POR AT E INF OR MA T ION
SHARES LISTED SHAREHOLDERS DIVIDEND FOR M 10 -K INSTITUTIONAL
New York Stock As of January 31, A copy of the
REINVESTMENT PLAN INVESTORS
A dividend reinvest- Inquiries from
Exchange, Chicago 1999, there were Company’s Annual
ment plan is provided security analysts and
Stock Exchange, approximately 56,000 Report on Form
for registered share- investment profession-
Pacific Stock shareholders of record. 10-K when filed with
holders as a convenient als should be directed
Exchange. Ticker the Securities and
way to purchase more to the Company’s
Symbol: BNI Exchange Commission
SHAREHOLDER
shares through invest- investor relations
SERVICES will be available to
You are encouraged to ment of dividends contact: Ms. Marsha
shareholders free of
PRINCIPA L
contact our Transfer or voluntary cash pay- K. Morgan, Vice
CORPORATE OFFICE charge upon request
2650 Lou Menk Drive, Agent directly for the ments. A booklet President-Investor
to the Company’s
Second Floor, shareholder services describing the plan Relations and
Investor Relations
Fort Worth, Texas listed below: is available from the Corporate Secretary
Department at
76131-2830 transfer agent. (817) 352-6452
2650 Lou Menk Drive,
(817) 333-2000 Change in Certificate Second Floor,
www.bnsf.com Registration, Dividend ANNUA L ME ETIN G
Fort Worth, Texas
Reinvestment Service, The Annual Meeting
76131-2830.
Change of Mailing of Shareholders will
S T OC K T RA NSF ER
A GE NT AN D R EG IS T RAR Address, Lost or be held at the
First Chicago Stolen Certificates, Worthington Hotel,
Trust Company Replacement of 200 Main Street,
of New York, Dividend Checks, Fort Worth, Texas,
c/o EquiServe, Direct Deposit on Thursday, April 15,
P.O. Box 2500, of Dividends, 1999 at 9:00 a.m.
Jersey City, Consolidation of
New Jersey Multiple Accounts,
07303-2500 Elimination of
(800) 526-5678 Duplicate Report
Mailings, Replacement
of Form 1099-DIV.
42 BURLINGTON NORTHERN SANTA FE CORPORATION

BURLINGTON NORTHERN SANTA FE 150TH ANNIVERSARY
There are more than
330 different railroad
names in BNSF’s family
tree including
Burlington Northern;
Santa Fe; the CB&Q;
Great Northern;
Northern Pacific; the
The Burlington ‘Frisco’; Spokane,
Northern and Santa Fe Portland and Seattle;
Railway (BNSF) is cele- Colorado & Southern
brating a symbolic 150th and the Fort Worth
anniversary in 1999. & Denver. As some
of the most storied
BNSF’s two oldest names in the industry,
predecessor railroads, they helped develop
the Aurora Branch the nation, its economy,
Line (which eventually and in one way or
became the Chicago, another touched the
Burlington and lives of generations
Quincy [CB&Q]), of Americans.
and the Pacific
Railroad of Missouri
(whose Southwest
Branch became the
St. Louis-San Francisco
Railway,) were both
PRINTING: ANDERSON LITHOGRAPH
founded in 1849.
ILLUSTRATIONS: WILL NELSON, JEFF WEST
P H O T O G R A P H Y: L O U I S B E N C Z E , C H A R L I E D I S C H I N G E R