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BNSF 95 annrpt


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BNSF 95 annrpt

  1. 1. CONSOLIDATED FINANCIAL HIGHLIGHTS Burlington Northern Santa Fe Corporation and Subsidiaries (Dollars in millions, except per share data) The selected financial data shown below include BNI results for each of the five years ended December 31, 1995 and SFP results from September 22, 1995 to December 31, 1995. 1991 1993 1992 1995 1994 Year ended December 31, FOR THE YEAR $ 4,559 $ 4,630 $ 4,995 $ 4,699 Revenues $ 6,183 661 597 853 526 (239) Operating income (loss)(1) Income (loss) before extraordinary item and 296 299 426 198 (306) cumulative effect of change in accounting method - (14) (10) (21) (106) Accounting change/Extraordinary item (2)(3)(4)(5) 278 416 296 92 $ $ (320) $ $ $ Net income (loss) 394 274 275 71 $ $ (321) $ $ $ Earnings (loss) available for common stockholders Primary earnings (loss) per share: Before extraordinary item and change in $ 3.35 $ 4.48 $ 3.06 1.66 $ $ (3.96) accounting method - (.24) (.99) (.11) Accounting change/Extraordinary item (.18) 3.11 4.37 $ 3.06 .67 $ $ $ $ (4.14) Primary earnings (loss) per share 77,462 90,187 89,672 88,617 106,730 Average shares (in thousands) Fully diluted earnings (loss) per share: Before extraordinary item and change in 3.34 4.38 3.04 1.66 $ $ $ $ $ (3.96) accounting method - (.18) (.24) (.99) (.11) Accounting change/Extraordinary item $ 3.10 $ 4.27 3.04 $ $ $ .67 (4.14) Fully diluted earnings (loss) per share 89,492 77,462 97,528 97,189 106,730 Average shares (in thousands) $ 1.20 $ 1.20 $ 1.20 $ 1.20 1.20 $ Dividends declared per common share AT YEAR END $ 6,324 $ 7,592 Totalassets $ 7,045 $ 6,563 $ 18,269 Long-term debt, including current portion 1,567 1,982 1,819 1,737 4,233 and commercial paper - - - 9 11 Redeemable preferred stock 1,202 2,237 1,919 1,728 5,037 Stockholders' equity OTHER 487 509 753 676 $ $ $ $ $ 1,042 Totalcapital expenditures 362 352 338 347 520 Depreciation and amortization 86% 90% 83% 87% 80% Operating ratio (6) Total debt to total capital, excluding 48% 62% 45% 48% 46% redeemable preferred stock (1) 1995 includes $735 million before taxes related to merger, severance and asset charges as discussed in Note 3 of the financial statements. 1991 includes pre-tax charge of $708 million related to: (i) costs for reducing surplus crew positions and a management separation pay program, (ii) increases in estimated personal injury costs and (iii) increases in estimated environmental clean-up costs. (2) 1995 includes the cumulative effect of the change in accounting method for locomotive overhauls which decreased net income by $100 million, or $.94 per common share. Additionally, 1995 includes an extraordinary loss on retirement of debt of $6 million (after tax), or $.05 per common share. (3) 1994 includes the cumulative effect of the implementation of the accounting standard for postemployment benefits. (4) 1992 includes the cumulative effect of the change in accounting method for revenue recognition and the cumulative effect of the implementation of the accounting standard for postretirement benefits. (5) 1991 includes extraordinary loss on retirement of debt. (6) 1995 and 1991 operating ratios exclude the pre-tax charges discussed in note (1) above. P AGE
  2. 2. FE BURLINGTON NORTHERN SANTA T Significant unusual items include merger, severance o OUR SHAREHOLDERS, CUSTOMERSAND COLLEAGUES and asset charges of $453 million after-tax for 1995. 1995 was a historic year for us. It brought together two These charges, along with reserves established at the - time of the merger, cover the costs associated with the successful companies Burlington Northern Inc. and - elimination of some 3,000 positions in 1995 and over Santa Fe Pacific Corporation and created Burlington the next few years, the disposition of about 4,000 miles Northern Santa Fe Corporation in September. The year of low-density track in 14 states, the closing of offices, 1995 was also one of our better years in terms of our on- facilities, and other operations that will not be needed going pursuit of an injury-free workplace, on-time service, customer satisfaction, and financial performance. as a result of combining the two railroads. There also BNSF's well-balanced business portfolio derived was a $100 million after-tax charge associated with a change in accounting for locomotive overhauls and about 25 percent of its combined 1995 revenues from another $6 million for the early retirement of debt. With transporting a record 204 million tons of coal, most of it from the Powder River Basin these items, BNSF net income was of Wyoming and Montana. Another $92 million, or $0.67 per common 25 percent came from intermodal share, on an as reported basis for shipments - more than 2.5 million 1995, compared with $416 million, trailers and containers, another record, or $4.27 per common share, fully were moved on flatcars in 1995. About diluted, in 1994. 15 percent of combined 1995 revenues During the fourth quarter of 1995, reflected the movement of a record we learned that we can achieve high 663,000 carloads of agricultural levels of on-time, damage-free commodities, like corn, wheat and service simultaneously for each of the largest segments of our franchise soybeans, while transportation of foods, - agricultural commodities, coal and beverages, forest products, chemi- ROBERT D. KREBS cals, minerals and metals accounted intermodal. Improving both our BNSF President and Chief Executive Officer for the remaining 35 percent. service performance and our safety We entered 1996 focused on our vision: To realize the record are key to the future success of our company. tremendous potential of the new Burlington Northern In this period, the first one in which we operated as a and Santa Fe Railway by providing transportation merged railroad, one incredible achievement exempli- fied the potential of the new company better than any services that consistently meet our customers' expecta- other: BNSF handled 27,040 trailers without one failure tions. Our new railway, the largest in North America, for our largest Intermodal customeI; United Parcel Service, will provide single-line service with broad geographic from Thanksgiving to Christmas Eve. scope, as shown on pages 8-9, making it easier for This streak continued until January 18, 1996, when a shippers to use the improved services we are now large portion of our railroad in the Midwest was snow- capable of providing. RECORD-SETTING PERFORMANCES bound. For 58 consecutive days, 43,709 trailers arrived THROUGHOUT 1995 at every UPS hub for sorting on schedule to enable UPS - For 1995, BNSF generated $1.576 billion in combined to meet its commitments to its customers a magnifi- operating income, excluding unusual items. This repre- cent example of thousands of BNSF people working as a sents a 32 percent improvement over 1994. Combined team to achieve a common goal. I believe this will revenues grew nearly $500 million year over year, while become the standard for the service we will provide adjusted operating expenses were only $110 million customers in all segments of our business, and this will enable us to achieve one of our goals, consistent higher. As a result, the operating ratio was lowered to revenue growth. For 1996, our overall on-time perfor- 80.7 percent from 84.5. For 1996, we are targeting a 78 mance target is 92 percent. percent operating ratio. P AG(
  3. 3. BURLINGTON NORTHERN SANTA FE Kansas, will be rebuilt from the ground up at a cost of For several years, employees of both BN and Santa Fe about $90 million over a two-year period. The Hobart have aggressively worked to reduce personal injuries intermodal facility in Los Angeles is scheduled for a $25 and lost work days due to injuries. For 1995, personal million upgrade and the final phase of the three-year San injuries were down over 30 percent, as more than 95 Bernardino expansion will be completed this summer. percent of our 45,000 employees worked injury-free. Capacity will also be enhanced at our yard in Barstow, BNSF enters 1996 as the third safest major railroad in California, and at our Chicago Corwith yard this year. North America with the goal of another 25 percent In addition, BNSF is better positioned to participate improvement in 1996. INVESTING FOR GROWTH in NAFTA-driven growth in 1996 as a result of gaining access to the border crossing at Eagle Pass, Texas, In 1996, we plan a capital program approaching $1.7 through our merger trackage agreement with the billion which will support our efforts to increase Southern Pacific. This complements our El Paso, Texas, revenues and reduce our operating ratio. gateway and Canadian access into About $1.1 billion will be spent to quot;we have a strong British Columbia and Manitoba. maintain our franchise, as we resur- Much of the progress made since face more than 12,000 miles of track, franchise, resource- last September is a result of the and replace 700 miles of rail and 3 work and commitment of 45,000 million ties, while keeping our equip- ful employees, employees all over BNSF and their ment fleet at the level required to willingness to pull together as we and the momentum respond to demand and customers' build a new company. The support expectations. BNSF will add 87 loco- from our Board of Directors also has motives in 1996, both alternating to fulfill our enabled us to make rapid progress current and direct current units, merger promise. quot; and to establish a 1996 plan that acquire three aluminum coal sets will demonstrate the wisdom of the and 90 taconite cars, and remanu- merger that created Burlington Northern Santa Fe. facture 1,050 other freight cars. A person who deserves much credit and my personal More than $500 million is slated for capacity expan- appreciation for making BNSF happen is Gerald sion projects at key locations across our network, all of Grinstein, our former chairman, who decided to leave which will enable us to grow our business. The BNSF the company at the end of 1995. All of us will miss his route from the Midwest to the Pacific Northwest (PNW) wisdom and his wit, and we wish him well as he pursues is 11 percent shorter than that of our major competitor, new challenges. which means we can provide better service at lower Another director who will be terribly missed is operating cost for our grain, intermodal and merchandise Barbara Jordan, who passed away in mid-January. customers. To expand PNW capacity, we need a third Although her tenure on the Board was less than five route between eastern Washington and the coast. Several years, her contributions will forever be a part of BNSF. alternatives are being pursued and we expect to be in a I'm confident that BNSF will grow successfully in the position to start running trains over a new route in 1997. years ahead. We have a strong franchise, resourceful Another expansion will be the completion of 55 miles employees, and the momentum to fulfill our merger promise. of double track on BNSF's premier route from Chicago to California. By year end, we will have eliminated more than one-third of the single track that remained on a 660-mile segment of this lane when we began the program two years ago. Robert D. Krebs We have scheduled several yard expansions in 1996 President and Chief Executive Officer to accommodate intermodal growth and improve operat- February 20, 1996 ing efficiencies. The Argentine yard in Kansas City, P AGE
  4. 4. LEVERAGING FRANCHISE STRENGTHS MODAL:THE GROWTH LEADER INTER There is tremendous growth potential for BNSF's Intermodal business. BNSF has some of the fastest and most direct intermodal routes in many of the nation's BLENDING THE major transportation lanes. That includes the shortest ... one route between Chicago and Seattle (2,218 miles) of the shortest routes between Chicago and Los Angeles (2,214 miles) ... and the best single- BEST OF TWO line route between California and the Southeast. Service improvements maq.e during the fourth quarter alone in this GREATRAILROADS largely untapped intermodallane reduced transit times between Memphis, BNSF EMPLOYEES AVE H Tennessee, and Southern California by BEENSO SUCCESSFUL . .. ATREDUCING INJURIES In the long history of American railroading no merger 24 hours III both dIrectIons. Overall, THAT THECOMPANY NOW has been larger, approved so quickly or demonstrated Intermodal on-time performance reached HAS THETHIRD LOWEST greater potential. Combining Burlington Northern Inc. record highs in the third and fourth INJURY RATE AMONG and Santa Fe Pacific Corp. created much more than the quarters on both BN and Santa Fe. MAJOR RAILROADS. largest rail network in North America. It created a new This combination of superior routes and on-time competitor with the market reach needed to deliver new service gives Intermodal the greatest growth opportuni- single-line services to customers throughout two-thirds ties for the new company. To take advantage of those of the United States as well as to Canada and Mexico. strengths, BNSF introduced Guaranteed and Premium BN didn't reach the Southwest. Santa Fe didn't reach intermodal service in addition to regular service in the the Pacific Northwest or the Southeast. Now BNSF fourth quarter of 1995 for customers shipping between the Pacific Northwest and Midwest. BNSF also offers delivers to all of those areas with 31,000 route miles in 27 states and two Canadian provinces stretching from better intermodal service through midwestern gateways all major ports along the West Coast, to the Great Lakes like Chicago, Kansas City and St. Louis to both the PNW and California. and the Gulf, and from Canada to Mexico. BN was primarily a coal, grain and merchandise railroad. To accommodate future growth, BNSF is expanding Santa Fe was primarily an intermodal and automotive capacity at key terminals, improving on-time carrier. Together, BNSF creates a stronger portfolio with performance and equipment utilization, offering new a more diversified and balanced product mix. services, and modifying train schedules to meet cus- More importantly, customers have access to shorter tomers' needs. Multi-year capacity expansion projects routes and faster transit times using at intermodal facilities in Los Angeles (Hobart) and BNSF, and many of the interline traffic Chicago (Corwith) will boost capacity at each to more exchanges that delay shipments will than one million units-per-year when completed in be eliminated, giving customers more 1997. At San Bernardino, California, the intermodal single-line service options to more facility is being expanded to handle more than 400,000 markets than the predecessor railroads units annually after completion in mid-year 1996. The BNSFTOOK DEliVERY total investment to expand capacity at these facilities mc- could deliver independently. The great OF 130 MOREAC TlON LOCOMOTIVES IN alone is $155 million. challenge now facing BNSF is to realize 1995 WHICH ARENOW . BNSF moved more intermodal traffic on a combined its tremendous potential by continu- PARTOF THE INOUSTRY S ing to build on the momentum of the basis in 1995 than any other rail system in the world, LARGEST LOCOMOTIVE record-settingperformancesof 1995. more than 2.5 million containers and trailers. Despite FLEET OF4,400 UNITS. P AGE
  5. 5. the PRB. PRB coal is cheaper to mine than most other sluggish economic conditions, BNSF domestic sources. It also burns much cleaner, with an posted a 4 percent increase in com- ~~~~~~~~; average sulfur content one-sixth to one-half that of most bined volume, mostly attributable to 7' r':quot;quot;-;'''':;,'~:''~'::'';;X ~.-, -~.: quot; '. -~~~~ other coal. As a result, PRB coal is helping to bring many growth of international and less-than -- nil, ~ truck-load (LTL) traffic. utilities into compliance with the 1990 Clean Air Act ,e 1',, TO AUTOMOTIVE: GROWTH Amendments without having to install expensive scrubber BNSF HASACCESS TH R 0 UGH INN 0 VAT ION ALLMUORWESTCOAST systems or purchase emissions credits. The PRB contains . PORTS, WHICHEXPECT. Combmed BNSF automotIve carloads 73 percent of the nation's low-sulfur coal reserves. Those COITAINER VOLUMES TO factors, low-fuel cost, low-delivered cost, and low-sulfur DOUBLE THE EXTdeclined OVER N less than one-half percent content, have driven unprecedented demand for PRB coal. 20 YEARS. despite depressed automobile sales In 1995, Burlington Northern Santa Fe hauled a and reduced production. While BNSF only serves a combined total of 204 million tons of coal which takes couple of auto-assembly plants directly, it is leveraging into account the coal traffic interchanged between the innovation as a means of increasing market share. former BN and Santa Fe. Independently, BN moved BNSF is a technological leader in the development of 183 million tons of coal, most of it from the PRB, a 7 equipment designed to improve protection for automo- percent increase from 1994. The Santa Fe Railway. biles in transit. The company has acquired intermodal hauled 36 millions tons of coal, down 10 percent from trailer and container equipment designed to ship 1994 as a result of abundant western hydroelectric automobiles in a fully enclosed environment and has supply and lower-than-normal natural gas prices. helped develop a lightweight, fully enclosed, articulated EXPANDING COAL CAPACITY multilevel rail car to provide the same protection in standard rail service. The record 1995 tonnage represents the kind of growth COAL: A BRIGHT FUTURE BNSF has prepared for with its multi-year investment Since the first unit train left the Powder River Basin strategy designed to capture the anticipated increase in demand for Powder River Basin coal. In 1995, BNSF (PRB) in 1969, BNSF has helped transform this remote invested $385 million in track and equipment to boost ranching area straddling northeastern Wyoming and southeastern Montana into one of the nation's most impor- transportation capacity by: . Constructing 21 miles of double and triple track on tant fuel sources for generating electricity. Today, nearly 10 percent of the electricity produced in the United States the joint BNSF/UP Orin Line (120 miles of the 127-mile is generated from coal hauled by BNSF, most of it from line are now double or triple tracked); .Const ructing 25 miles of additional track between :;:i~'quot; ~~~'- ~ ?--ci:~;~-., <~ i.I.IM Alliance, Neb., and Gillette, Wyo.; : ~ . I~~~~quot;~ Expanding Alliance yard with four '. new receiving and departure tracks and eight storage tracks; and .Acqui ring 130 AC locomotives, eight new aluminum train sets, and the Trough Train (an extended car with 13 articu- ABOUT PERCENT 25 OF . . BNSF's 1995 REVENUE coa I lated sectIOns that Increases FROMCOAL WASDERIVED carrying capacity by 30 to 40 percent). TRAFFIC,25 PERCENT Phase n of the Clean Air Act, which FROM INTERMODAL, 15 PERCENT FROMAGRICUL- requires even lower sulfur emissions in TURALCOMMODITIES AND the year 2000, and impending electric 35 PERCENT FROMCON, utility deregulation, will stimulate addi- SUMERPRODUCTS, tional demand for PRB coal over the CHEMICALS,MINERALS AND METALS. next several years. To respond to these P AGE I
  6. 6. -.- ~ quot; ' -quot;'''''''iIiJ.~-41 'quot; JUt! ~ . quot; '~ :-' . t:quot;'':'>~I''...!
  7. 7. . ~ BNSF offers businesses new international shipping opportunities because it links all major ports on the west Coast and the Gulf with the Midwest, Pacific fr Northwest, Southwest and the Southeast. NAFTA North American I shippers can J take better SAFETY advantage of wearing proper safety equipment is an NAFTA with important part of BNSF's success in BNSF's north- making the railroad a safer place to south direct work. BN reduced reportable injuries by routes between 30% in 1995. Santa Fe reduced them Canada and by 38%. Together, BNSF has set a Mexico. unified target for reducing reportable injuries by another 25% in 1996. FORESTRODUCTS P Companies in the Northwest, Northern Midwest and Southeast have access to new mar- kets in the Southwest and west Coast. In 1996, BNSF will invest BURLINCTON NORTHERN nearly $1.7 billion to maintain CHEMICal COMPANIES and improve its infrastructure BN's strengths in coal, in the PNW and by adding more double grain and merchandise combined with Santa Fe's Canada gain access and triple track, expanding to a new single-line yards and terminals, acquiring strengths in intermodal route to the west more new locomotives and and automotive give BNSF Coast via BNSF. freight car equipment. a stronger and more diver- sified traffic base. I o rrrrrrCiT , 9712 ' P AGE
  8. 8. OPERATING SUERGIES BNSF will benefit from the consolidation of operations and administrative functions, disposition of about 4,000 miles of low-density track, and the disposal of excess office space and other facilities, and operations. between Chicago and the Pacific Northwest, (2,218 miles), and one of the shortest between Chicago and Southern California (2,214 miles). COAl/ELECTRICITY Nearly 10% of the electricity produced in the United States is generated from coal hauled by BNSF. The new railroad's extended routes will enable cleaner- ;:::;, 1 , :iquot; . 1 burning, low-sulfur ~ coal to be delivered -iW to more markets. ~ QUIPMENT BNSF will improve equipment utilization of .. .. its combined 90,000-car ,- fleet and of its combined 4,400-10comotive fleet. INTERMOOAl NIPPERS S have access to new direct routes on BNSF between Southern California and the Southeast, and combined with BN's routes in large fleet will enable to new single-line the Pacific Northwest, Midwest BNSF to move grain cars north with the harvest as service options and Southeast give BNSF throughout most of the extended market reach through it moves from Texas to western United States. the Canadian border. most of the Western two-thirds of the United States. P AGE
  9. 9. ports. High barge rates on the Mississippi River and BNSF's ROUTESTRUCTURENABlESIT TO ORICINATE E MORECRAINFROMMORE ocean freight spreads that favored exporting grain from CRAINPRODUCINC RECIONSTNANANY OTHERRAILROAD THE INDUSTRY. IN ports in the Pacific Northwest over those on the Gulf ~, ~._quot; quot;quot;7quot;quot;..quot;:... , .:l'( .,.. -quot;'~<;'., ~ . ;;rquot;rf{,~l ; f. quot;(:.,.. quot; ~ -:,. ~- ~.lS~~'- l~ i, combined with a good crop supply on BNSF's system to '#.; , '~ .,~l'r ~':'~i !7~''-it~1 .. ,. '. ~~ ~ ~t' <tl quot; ~'i~fli,~~.-, jJ!;. i. ~ create an opportunity BNSF anticipated, planned for t:~~ ...'J./ -quot;.~ ~ ~ ,, . . quot;~~I';quot; ~~-'~.. 'quot; quot;quot; ~ ' . ,~ :--~~,quot;,.,z.' , 'I' t.~, ~.Ji., f ' ~:.. ~-.~ ,., ,quot;,-' - and capitalized on very successfully. :.'1~ ~~~~~~C,,{/ I: 'quot; ~)''u'{':'t.;, ~ ,.' . ., AT' ~..~~~1f.'~'t(' ...,., .- ,...''' 1.'r<'1,'/.quot; .,,~/ quot;- .. ;;:;#1.. , It( ~':'. r.-quot;quot;quot;':.i~~ ')::'tquot;. - ~ (' ~quot; .. ,~,~ ~ BNSF is the largest rail transporter ~..,~,.: '~ quot;quot;)!~quot; 1.quot;J, . .f','~ t ~!ii.),,:.,>J~Iquot;':quot;:s. .quot; fquot;quot;:~~'~r ,. f ,f j:>.. ,,/,?J'('J..: S I,~'~.{::.I~, I. .., ~ 'lquot;,,,,, . ,t ~ CI lquot; .~ ;~;.: ~1t-.. ft;'. .,-~~.~ -t-~fi quot;(:(.'~~'quot; of grain in North America, in part, 'i'~.r ::'(tt:'t{'.:f< '1[: ~I. .'t ~~ fI '::'~ ~;;' ~ '~J';'t:' :';'I' '{:-~~ftquot;';('{~.~ . ~ .. ~ because it connects most of the nation's /r~~~ ,' {quot;quot;,::;' . ~quot;quot; ~ ~~~ .~I i'£'-dquot;.l//J,i...,~f':' .:.~f ; '<!ff* . 1:~~:~.- ~ ~~~ '.tt/ iO:<i~1~ ... . 1quot;;1i:1f{l,<~.~ . . '11', . . ., key grain-producing areas to most of its 1':,.(t~£,~,.. I'Z-~~I~,~l,<If 1 ~~b.l~-::'quot; ' I ~A: . .quot; . ~I . j' ,~ ~ ,~,J', to£..- ',,,, . . .f ~ ;''' ' ;,~~.~ ~~~~,~:~ (.~t ,;'t~;~,,: quot; ~'~:ii':quot; I'quot; major domestic consumption markets . 'f/. I~''.!,: ~. quot;~.,~ (~~~::'~~ ..~-'~~~-'<;r~ ~.'~~quot; . . . . ,,-,-11:,~~fL:1: ' '~~~ ~~ ' <'''.,'1/:.'' '~''''' . r!i-r<. .t. :. :~,'<,' ( :'1.,.-quot;(/ . !'It and grain export ports. BNSF serves BNSF SERVES . . quot;~s.}quot; AlSO .tf~~~ :;'('C,' ~ ; v. ~~ < ''f'''''. . ~.!t'quot; ,~,i'J l:tJ . &:,. , . . ~ ' key grain-producing regions stretching ~,!~'.~.,.~j'/~1'-quot; MOSTOF THE NATION'S quot;,quot; 'i.. ~';;'~I quot;, - ~'. j LARGEST DOMESTIC :',~:):!~;,:~. :~ t:-~~ .,J.1quot;~~i;~fl~~~;:'~«('~~{~'l~;~'{' , ,,': <'iJ from the Northern to the Southern Great ~ ~ quot;quot;.,;~.,' t:::1:t/{{ 11b!~(>'I' '~i~: 'V! ,l'.quot;>-' [ '0' t.quot;quot; quot;.:,' GRAINMARKETSAND ,i[,~,~.~,. ~:(.~~;:,~ ~i,,~)q~~1tquot;I:~';:Jt(~,f~'!i~J~Qr: ':.~~ )~'.'~ Plains, and from the Pacific Northwest MOSTOF ITS KEY GRAIN to the Midwest.Com accountsfor about growthopportunities, BNSF is continuing to focus on cus- EXPORT PORTS. tomer service. Innovative pricing, faster cycle times for 35 percent of BNSF's grain revenue, wheat 34 percent, coal trains (the time it takes to move a loaded coal train feeds and minor oilseeds 8 percent, soybeans 7 per- from the mine to the utility and back) and reduced cent, barley 5 percent, and flour, mill products, malt, costs through new technologies are helping BNSF lay oil and specialty grains 11 percent. It is this diversity the groundwork for long-tenn growth in the coal business. of grain-producing regions, and of the grains and grain METALS AND MINERALS: ACCESS TO STRONG products produced in those areas that hedges BNSF's PRODUCTION CAPACITY exposure to fluctuations in the market for specific Improved demand for pipe, alumina and structural types of grains. NEW OPPORTUNITIES IN GRAIN steel helped increase metals traffic a combined total of 7 percent in 1995. BNSF has on-line access to more The USDA's long-term outlook indicates continued than 40 percent of the nation's aluminum production strong growth in United States agricultural exports over capacity, to the nation's largest deposit of taconite (iron the next 10 years. The greatest demand is expected to ore) in Minnesota's 'Iron Range', and to some of the come from China, which could account for almost most efficient steel mini-mills in the United States. one-third of the estimated increase in grain exports. Expanded single-line service opportunities will enable BNSF is well positioned to participate in that opportunity. BNSF to extend the market reach of many of its metal In addition, the merger has created single-line opportu- and mineral shippers. nities to Southern California and Mexico, and for direct AGRICULTURALCOMMODITIES: routing of spring wheat to the Gulf of Mexico. Linkages A RECORD YEAR from Kansas and Oklahoma to the Pacific Northwest No BNSF business segment did a and from the upper Midwest to Southern California better job in 1995 of seizing traffic provide opportunities for opening new markets and cre- opportunities than Agricultural ating more transportation options in existing markets. BNSF HASON,LINE Commodities.A record combined ACCESS TOSOME OFTHE The expanded grain market coverage and larger grain NATION'SMOSTEFFI. car fleet will enable BNSF to move cars in line with the 663,000 carloads of grain were CIENTSTEEl MINI- natural seasonal rotation of the harvest as it moves transported by BNSF.The record MillS, ITS LARGEST north from Texas to the Canadian border. grain performance was led by strong DEPOSIT IRON ORE OF domestic demand and by export To help improve the productivity of that 35,000 grain- (TACONITE)ANDA LARGE demand for com and soybean ship- car fleet, BNSF invested in additional track sidings and PARTOF ITS AlUMINUM ments through the Pacific Northwest PRODUCTION APACITY. C yard expansions along many of its key grain routes in P AGE 10
  10. 10. tI 1995, significantly expanding the rail yards at Hauser, in capital projects, including about $5.00 million for terminal and track Idaho, and at Pasco and Vancouver, Washington, which handle most of BNSF's grain trains bound for the PNW capacity expansion. CONSUMER AND INDUSTRIAL PRODUCTS: Yet investing in traditional rail EXTENDED MARKET REACH infrastructure is not enough. BNSF THE NOC PLACES cannot expect to reach its service, Strong demand for petroleum helped increase BNSF's OPEIATiORSTEAM MEM- growth, safety and operating cost combined Chemical carloads by 3 percent, helping to BERSWITHIN FEETOF goals without the benefit of the very offset reduced demand for lumber and canned goods in UCI OTHERTO best real-time information and control the Forest Products and Consumer Goods units. INCREASE THE SPEED Access to new markets and new direct routes will systems. BNSF is developing and ANDOORDINATION F C O benefit most of BNSF's chemical, consumer and forest implementing the industry's best DECISIORS. examples of those technologies at its new operations products customers as much as it does, grain, coal, center in Fort Worth. intermodal or automobile shippers. THE NOC: A 21sT CENTURY CONTROL CENTER In Forest Products, for example, BNSF serves more NetworkOperations The of North America's primary Center (NOC) is the largest timber producing areas than and most technologically any other railroad and is con- advanced control center sequently one of the largest of its kind in any industry. carriers of lumber, paper It has the ability to not only products, plywood, pulpmill . ~~ view, track and help manage feedstock and wood pulp in the industry. BNSF's extend- day-to-day operations, but to ed market coverage enables provide an electronic overview of the entire system, forest products producers in the Southeast, Minnesota and helping to identify potential the Pacific Northwest to reach problems in advance and destinations in the Southwest prevent them from occurring. The NOC is currently with single-line service. Chemical shippers in the PNW and Canada have providing these services for the Northern and Burlington Lines on BNSF's system. The Systems access to a new single-line route to the West Coast and to Mexico, and consumer products shippers now have Operations Control Center in Schaumburg, performs these functions for most of the Santa Fe Lines on a new single-line alternative to virtually all of the BNSF's network. major consumer markets in the Western two-thirds of the United States. SUMMARY EXPANDING CAPACITY The new company got off to a great start in the BNSF is continuing to make record fourth quarter of 1995, capping off what had been a great year for the predecessor companies - capital investments to provide the service levels needed to win addition- a remarkable accomplishment of service improvement al business. In 1996, BNSF will add achieved in spite of severe weather problems on many THE MAINTENANCEND A TRACK,TERMINALAND parts of the system. The challenge for 1996 is to 87 new locomotives, bringing to EQUIP.En CAPACITY build on that momentum, to make BNSF a safer place nearly a thousand the number of new EXPANSION PROJECTS to work by reducing injuries another 25 percent, to power units that have been added to CDNmlE AT BNSF the combined BNSF fleet in the reach an overall on-time performance level of 92 TO STAYIN STEP percent, and to reduce the ratio of expenses to 1990's. In total, the new company will WITH RElENUEGRDWTH income to 78 percent. invest approximately $1.7 billion OPPORTUNITIES. P AGE 12
  11. 11. BURLINGTON NORTHERN SANTA FE FINANCIAL CONTENTS Agreement qualified as a tax-free transaction for federal income tax purposes, the parties utilized the Holding Company Structure. 13 Management's Discussion and Analysis Under the Holding Company Structure, BNSF created two 21 Report of Management subsidiaries. One subsidiary merged with and into BNI, and 21 Report of Independent Accountants the other subsidiary merged with and into SFP. Each holder of 22 Consolidated Statements of Income one share of BNI common stock received one share of BNSF 23 Consolidated Balance Sheets common stock and each holder of one share of SFP common 24 Consolidated Statements of Cash Flows stock, excluding the SFP common stock acquired by BNI in 25 Consolidated Statements of Changes in the Tender Offer and the SFP common stock held by SFP as Stockholders' Equity treasury stock, received 0.41143945 shares of BNSF common 26 Notes to Consolidated Financial Statements stock, which reflects the effects of the repurchase program discussed below. The rights of each stockholder of BNSF are MANAGEMENT'S DISCUSSION AND ANALYSIS substantially identical to the rights of a stockholder of BNI, OF FINANCIAL CONDITION and the Holding Company Structure has the same economic AND RESULTS OF OPERATIONS effect with respect to the stockholders of BNI and SFP as anagement's discussion and analysis relates to the M financial condition and results of operations of Burlington would a direct merger of BNI and SFP. In the Merger Agreement, the exchange ratio of BNSF Northern Santa Fe Corporation and its majority-owned common shares for each share of outstanding SFP common subsidiaries (collectively BNSF or Company). The principal stock upon consummation of the Merger was set at not less subsidiaries are Burlington Northern Inc. (BNI), Burlington than 0.40 shares to not more than 0.4347 shares, with Northern Railroad Company (BNRR), Santa Fe Pacific repurchases of SFP common stock by SFP increasing the Corporation (SFP) and The Atchison, Topeka and Santa Fe exchange ratio pro rata. SFP repurchased approximately Railway Company (ATSF). 3.6 million shares which, along with the effect of SFP stock ACQUISITION OF SFP options exercised, resulted in the final exchange ratio of O n June 29, 1994, BNI and SFP entered into an Agreement 0.41143945 shares. and Plan of Merger (as amended on October 26,1994, RESULTS OF OPERATIONS December 18, 1994, January 24, 1995 and September 19,1995, T he results of operations discussed below include BNI the Merger Agreement) pursuant to which SFP would merge results for the years ended December 31, 1995, 1994 with BNI in the manner set forth below (the Merger). and 1993 and SFP results from September 22,1995 through Stockholders of BNI and SFP approved the Merger Agreement December 31, 1995. at special stockholders' meetings held on February 7, 1995. YEAR ENDED DECEMBER 31, 1995 COMPAREDWITH On August 23,1995, the Interstate Commerce Commission YEAR ENDED DECEMBER 31, 1994 (ICC) issued a written decision approving the Merger and BNSF recorded net income for 1995 of $92 million ($.67 per on September 22,1995 the Merger was consummated. As common share, primary and fully diluted) compared with net discussed in Note 2, the business combination with SFP was income of $416 million ($4.37 per common share, primary, accounted for by the purchase method. and $4.27 per common share, fully diluted) for 1994. Results Pursuant to the Merger Agreement, on December 23,1994, for 1995 were reduced by $735 million of merger, severance BNI and SFP commenced tender offers (together, the Tender and asset charges (see Note 3: Merger, severance and asset Offer) to acquire 25 million and 38 million shares of SFP charges). The corresponding reduction in net income was common stock, respectively, at $20 per share in cash. During approximately $453 million, or $4.24 per common share. the first quarter of 1995, SFP borrowed $1.0 billion under a Results for 1995 were further reduced by $100 million (after credit facility of which $760 million of the proceeds were tax), or $.94 per common share, for the cumulative effect of used to purchase the 38 million shares pursuant to the Tender an accounting change for locomotive overhauls and $6 million Offer. In addition, BNI borrowed $500 million under a credit (after tax), or $.05 per common share, for an extraordinary facility of which the proceeds were used to finance BNI's loss on early retirement of debt. Results for 1994 were reduced purchase of SFP common stock in the Tender Offer. The Tender by $10 million (after tax), or $.11 per common share, for the Offer was completed on February 21,1995. cumulative effect of an accounting change for postemployment Also, pursuant to the Merger Agreement, BNI and SFP were benefits. Excluding the above items, net income for 1995 would entitled to elect to consummate the Merger through the use have been $651 million compared to $426 million in 1994. of one of two possible structures: (i) a merger of SFP with and into BNI or (ii) the Holding Company Structure described below. To ensure that the transaction contemplated by the Merger P AGE I3
  12. 12. BURLINGTON NORTHERN SANTA FE Revenue table The following table presents BNSF's revenue infonnation by commodity for the years ended December 31,1995,1994 and 1993 and includes certain reclassifications of prior year infonnation to confonn to current year presentation. SFP results are included only for the period of September 22,1995 to December 31,1995. Revenue Per Revenue Thousand RTM Revenues Ton Miles (RTM) 1994 1993 1994 1993 1994 1995 1995 1993 1995 (IN MILLIONS) (IN MILLIONS) $12.26 $1l.85 $13.02 136,164 117,654 153,169 Coal $1,669 $1,532 $1,815 29.03 30.20 30.86 24,671 22,718 745 701 38,516 Intermodal 1,1l8 20.92 19.89 22.37 33,945 710 55,356 33,922 759 1,101 Agricultural Commodities 22.57 22.86 23.15 19,495 18,329 440 419 19,828 459 Forest Products 26.56 26.57 26.51 315 11,862 402 310 15,127 11,695 Chemicals/Plastics 29.97 28.14 29.40 9,711 291 12,332 10,341 347 304 Food 22.31 21.99 22.08 11,503 308 253 248 11,233 13,804 Metals 22.69 22.69 23.46 10,752 10,136 244 230 12,147 285 Minerals and Ores 80.53 66.50 74.84 1,751 210 152 141 3,158 2,031 Automotive 112 138 119 Other $18.71 $18.69 $19.33 260,574 237,339 323,437 Total $4,699 $6,183 $4,995 Revenues Current year revenues for Forest Products increased $19 million and Chemicals/Plastics revenues increased $92 million Total revenues for 1995 were $6,183 million compared with revenues of $4,995 million for 1994. The $1,188 million when compared to 1994. The increase in Forest Product rev- enues was due to the addition of $32 million of SFP revenues increase reflects $802 million of SFP revenues for the period and was partially offset by lower traffic levels for lumber. The of September 22,1995 to December 31, 1995. Excluding SFp, addition of $80 million of SFP revenues along with strong revenues increased by $386 million or 8 percent primarily petroleum products demand contributed to the increase in due to improved Coal and Agricultural Commodities revenues. Chemicals/Plastics revenues. Coal revenues improved $146 million during 1995 due to Revenue increases in all other commodity groups are higher traffic levels caused primarily by new business, favorable weather conditions early in the year and increased principally due to the inclusion of SFP revenues from demand for low-sulfur coal from the Powder River Basin as September 22, 1995. well as the addition of $58 million of SFP revenues in 1995. Expenses As discussed in Note 3: Merger, severance and asset charges, Revenue per thousand revenue ton miles declined as a result the Company recorded $735 million for merger, severance and of continuing competitive pricing pressures and a change in traffic mix. asset charges in 1995. The principal components of the charge were $287 million related to BNSF's plan to centralize the Agricultural Commodities revenues during 1995 were majority of its union clerical functions and $254 million $342 million greater than 1994. The increase was principally related to salaried employee costs for severance, pension and caused by improvements in com and soybean revenues of other employee benefits and costs for employee relocations $259 million and $41 million, respectively. Com and soybean during the period. Additionally, $105 million was recorded for revenues benefited from increased crop production as well as planned branch line dispositions, while the remaining $89 higher traffic volumes to the Pacific Northwest due to stronger million included obligations for vacating leased facilities and export demand during 1995. Barley and wheat revenues the write-off of duplicate and excess assets. Additional accruals declined primarily due to weaker export demand when compared of $138 million were recorded through purchase accounting with the strong demand in 1994. Additionally, Agricultural Commodities revenues included $59 million of SFP revenues related to fonner SFP employees and assets. When its plans are completed, BNSF expects to have elim- during 1995. The shift in commodities to lower yielding com inated approximately 3,000 positions and disposed of approxi- and soybeans from higher yielding wheat led to the aggregate decrease in revenue per thousand revenue ton miles. mately 4,000 miles of low density track. Total annual savings Intennodal revenues increased $373 million when compared related to these plans, when fully implemented, are expected to exceed $250 million. Insignificant savings were recognized with 1994, almost exclusively due to the inclusion of SFP revenues in 1995. Metals revenues increased $55 million due in 1995 due to timing of severances. A significant portion of to increased taconite, aluminum and steel products revenues the savings will be recognized in 1996 and the full benefit of as well as the addition of $28 million of SFP revenues in 1995. savings are anticipated to be realized by the end of 1998, when the plan is fully implemented. Also, as described in Note 3, costs related to union employee relocation as well as I4 P AGE