Burlington Northern Santa Fe Corporation
1999 Annual Report to Shareholders
Contents The BNSF Vision • Our employees work in a safe
2 Message from Our vision is to realize the environment free of accidents
the Chairman tremendous potential of the and injuries, are focused on con-
Burlington Northern and tinuous improvement, share the
8 Introduction Santa Fe Railway by providing opportunity for personal and pro-
transportation services that fessional growth that is available
10 Industrial Products consistently meet our cus- to all members of our diverse
tomers’ expectations. work force, and take pride in
12 Coal their association with BNSF.
We will know we have
14 Consumer Products succeeded when: • Our owners earn financial
returns that exceed other rail-
16 Agricultural Products • Our customers find it easy roads and the general market
to do business with us, receive as a result of BNSF’s superior
18 BNSF’s Values 100-percent on-time, damage- revenue growth, an operating
free service, accurate and timely ratio in the low 70s, and a return
19 Financial Review information regarding their on invested capital which is
shipment, and the best value greater than our cost of capital.
45 Executive Officers for their transportation dollar.
and Directors • The communities we serve
benefit from our sensitivity
46 Corporate Information to their interests and to the
environment in general, our
adherence to the highest legal
and ethical standards, and
the participation of our com-
pany and our employees in
About the Cover
A BNSF Industrial Products train
approaches Chemult, Oregon,
bound for Southern California.
BNSF’s on-time performance
averaged 91 percent across all
commodities in 1999, setting
BNSF a new record in meeting cus-
Consolidated Financial Highlights
Burlington Northern Santa Fe Corporation and Subsidiaries
(Dollars in millions, except per share data)
December 31, 1999 1998 1997 1996
For The Year Ended:
Revenues $ 9,100 $ 8,941 $ 8,370 $ 8,109 $ 6,099
Operating 2,205 2,158 1,767 1,748 526
Income before extraordinary item and cumulative
effect of change in accounting method 1,137 1,155 885 889 198
Accounting change/Extraordinary item(2) – – – – (106)
Net income $ 1,137 $ 1,155 $ 885 $ 889 $ 92
Earnings available for common stockholders $ 1,137 $ 1,155 $ 885 $ 889 $ 71
Basic earnings per share:
Before extraordinary item and change
in accounting method $ 2.46 $ 2.45 $ 1.91 $ 1.95 $ 0.57
Accounting change/Extraordinary item(2) – – – – (0.34)
Basic earnings per share $ 2.46 $ 2.45 $ 1.91 $ 1.95 $ 0.23
Average shares (in millions) 463.2 470.5 464.4 456.3 313.2
Diluted earnings per share:
Before extraordinary item and change
in accounting method $ 2.44 $ 2.43 $ 1.88 $ 1.91 $ 0.55
Accounting change/Extraordinary item(2) – – – – (0.33)
Diluted earnings per share $ 2.44 $ 2.43 $ 1.88 $ 1.91 $ 0.22
Average shares (in millions) 466.8 476.2 471.1 464.4 317.7
Dividends declared per common share $ 0.48 $ 0.44 $ 0.40 $ 0.40 $ 0.40
At Year End:
Total assets $23,700 $22,646 $21,266 $19,693 $18,199
Long-term debt and commercial paper,
including current portion 5,813 5,456 5,289 4,711 4,233
Stockholders’ equity 8,172 7,784 6,822 5,994 5,037
Total debt to capital 41.6% 41.2% 43.7% 44.0% 45.7%
For The Year Ended:
Capital expenditures $ 1,788 $ 2,147 $ 2,182 $ 2,234 $ 890
Depreciation and amortization 897 832 773 760 520
(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) 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.
(3) 1995 includes Burlington Northern Inc. results for the year ended December 31, 1995 and Santa Fe Pacific Corporation results from
September 22, 1995 through December 31, 1995.
Burlington Northern Santa Fe Corporation 1
To Our Shareholders, Customers and Colleagues Lost Workdays per
Lost Workdays per
200,000 Manhours 200,000 Manhours 1994 –1999
fter a slow start in 1999, BNSF produced
record-breaking results in the second- -
half of the year. We capped 1999 by -
46.0 43.6 43.0 -
announcing on December 20 an agreement to -
combine with Canadian National Railway -
1994 1995 1996 1997 1998 1999
Company (CN) to create an end-to-end North Pro Forma Pro Forma
A key safety measure is the severity ratio, or lost workdays per 200,000 hours
American railroad that will offer shippers substan-
worked. It reflects the size of BNSF’s workforce and the number of hours worked,
which fluctuate each year. 1999’s lost workday ratio of 43.0 represents a 65 percent
tially expanded single-line service over a 50,000
reduction compared with 1994.
170 yearly full-time employees who now are
Our decision to combine with CN has pro-
available to serve our customers.
voked considerable talk about rail mergers, and
While our rail traffic has been increasing, our
whether or not they are of benefit to shippers,
system has experienced a 25 percent reduction
employees and shareholders. Obviously, the
in train accidents per one million train miles
merger we know most about is the one between
compared with 1994. The communities we serve
Burlington Northern and Santa Fe, which was
have also benefited from a 37 percent decrease
consummated 54 months ago. And our answer
in the number of highway/rail crossing accidents
to that talk is: BNSF is a resounding success.
per million train miles.
I’d like to review with you BNSF’s results for
With the help of our labor unions and the
1999 and compare our progress, where possible,
Federal Railroad Administration, BNSF has pio-
with the combined pro forma results of Burlington
neered programs that help keep our employees
Northern and Santa Fe for 1994, the year that we
alert and safe on the job as well as provide for
announced our merger. My review will discuss,
efficient work and rest cycles. Predictable off-
in turn, safety, customer service, efficiency and
duty schedules, such as 11-days-on/4-days-off or
financial performance. Then, I’ll discuss the pro-
8-on/3-off, are now in place on 69, or more than
posed combination with CN.
20 percent, of the railroad’s train crew extra
boards. Assigned rest days for pool crews are
Employee injury frequency and severity (lost
now in place at Fort Madison, Iowa, and Superior,
workdays) ratios, as measured per 200,000
Wisconsin. Additional pilot projects in 2000 are
hours worked, have dropped 38 percent and
expected to extend assigned rest-day schedules
65 percent, respectively, since 1994.
to more train, yard and engine employees.
Total lost workdays are about 65 percent
Improved safety has also provided tangible
lower than 1994, representing an annual
benefits for our customers. Since 1995, we have
decrease of 35,400 days of human pain and
reduced the ratio of freight loss and damage to
suffering. This reduction is the equivalent of
freight revenue by 34 percent.
Burlington Northern Santa Fe Corporation
largest peak volume ever handled by a railroad
of Freight Revenue 1994 –1999
and a 10 percent increase over the BNSF’s
1998 27-day peak volume. It was the fourth
consecutive year that we provided 100 percent
on-time service during the UPS peak season.
BNSF continued operating failure free for UPS
1994 1995 1996 1997 1998 1999 until February 23, 2000, a 96-day period during
Pro Forma Pro Forma
which we handled more than 103,000 trailers —
Since the merger in 1995, our loss/damage ratio has dropped by 34 percent.
Customer Service establishing a new railroad industry record.
In mid-1997, we cut over to a new integrated We met all of our 1999 coal customer require-
information system. As a result, we do not ments, amounting to about 236 million tons
have comparable service data for 1994 through of delivered coal, with a virtual 100 percent on-
1996. We know that in 1997 and 1998, BNSF’s time performance. At the same time, coal cycle
service slipped because larger than planned performance improved for the first time since
volumes were carried by our railroad, brought 1994, even with a 34 percent increase in the
on in part by the service disruptions of our number of unit trains in operation.
foremost competitor. As we predicted, our merger opened new
Since 1994, units, tons and freight revenue markets for our upper Midwest grain shippers.
have all increased approximately 20 percent. Our Traffic volumes have grown 40 percent to more
rate of revenue growth has been about triple the than 75,000 units on seven major new, single-
growth rate of other United States railroads. line routes into California and the Southwest.
Throughout 1999, our railroad operated bet- Since 1997, loads to and from Mexico have
ter than ever. We met on-time service levels increased to almost 120,000 units annually, as
based on customers’ expectations never a result of our trackage rights agreement with
achieved before by a railroad of our size. Our UP/SP and an earlier agreement with SP in our
system-wide on-time performance averaged 91 merger case.
percent for the year compared with 82 percent Volumes over UP/SP lines are now
and 79 percent, respectively, in 1998 and 1997. approaching 30,000 carloads a month, with
From 1995 to 1999, BNSF’s intermodal traffic revenue exceeding $400 million in 1999, and
across selected major routes and new routes has these volumes are still growing.
grown by 40 percent to upwards of 170 percent. On BNSF, freight rates have continued to
During the 28-day period preceding drop both in current and adjusted (for inflation)
Christmas, we handled 35,101 trailers, or about terms since 1994. Based on system revenue-
53 million packages without a single service per-ton-mile averages, current and adjusted
failure for United Parcel Service (UPS), our rates are 11 and 22 percent lower, respectively,
largest intermodal customer. This was the than in 1994.
Burlington Northern Santa Fe Corporation 3
Efficiency During the last four years, we have acquired
Operating expense per 1,000 gross ton miles or overhauled 3,250 road locomotives, about 75
(GTMs) has steadily decreased since 1994, and was percent of our fleet.
about 20 and 25 percent lower in current and in Active freight car inventory has decreased
inflation-adjusted terms, respectively, in 1999. At 6 percent since 1996, while BNSF moved an
$7.90, BNSF has the lowest operating expense per additional 1.1 million units, a 15 percent vol-
1,000 GTMs in the industry, a result of implement- ume increase. This has resulted in a 20 per-
ing $1.29 billion of efficiency initiatives since 1994. cent increase in GTMs per active car.
Our operating ratio is approximately 9 points Financial Performance
lower than in 1994 at 75.4 percent. This has Operating income, which grew to a record $2.24
added about $800 million to operating income, billion in 1999, on an adjusted basis, has increased
based on 1999 revenues of $9.1 billion. at a compounded 14 percent rate since 1994.
Financial Performance* Financial Performance*
Operating Ratio 1994 –1999 $ in Billions Operating Income 1994 –1999
75.9 75.4 1.0
1994 1995 1996 1997 1998 1999 1994 1995 1996 1997 1998 1999
Pro Forma Pro Forma Pro Forma Pro Forma
The 9-point drop in operating ratio is worth about $800 million, based upon revenues of Operating income has increased at a compounded 14 percent rate since 1994.
$9.1 billion in 1999. *Reflects continuing operations adjusted for special items. *1999 operating income has been increased to exclude previously reported second quarter special
items consisting of reorganization costs and environmental expenses, partially offset by a credit for
Employment is 7 percent, or 3,100 people,
the reversal of liabilities associated with the consolidation of certain clerical workforces. 1999 net
lower than in 1994, largely reflecting the elimi- income and diluted earnings per share have also been adjusted to exclude a third-quarter gain in
connection with prior period line sales that was partially offset by costs related to those line sales.
nation of redundant staff positions and clerical In total, these adjustments reduced 1999 net income and diluted earnings per share by $4 million
and $0.01, respectively. Other years have also been adjusted for special items.
consolidation. During this period, we hired about
16,300 people, most of whom work in union oper- Net income was a record $1.13 billion in 1999,
ating and maintenance jobs, to ensure that safety on an adjusted basis, and has increased at a
and customer service would be unaffected. compounded 16 percent rate since 1994.
Workforce utilization, as measured in GTMs per Diluted earnings per share, on an adjusted
employee, has improved 46 percent since 1994. basis, has increased at a compounded 20 percent
Our road locomotive fleet has grown 22 per- rate since 1994 and was a record $2.43 in 1999.
cent, or about 900 units, and available horsepower Between 1996 and 1999, BNSF’s capital
has increased by 40 percent since 1994. As a spending of $9.4 billion was about two times
result, there were many days during the second the combined amount spent in the 1992-1995
half of 1999 when our railroad was virtually free period by both former railroads. Since 1996,
of power delays. almost $1.6 billion has been spent on expan-
sion projects across the BNSF network.
Burlington Northern Santa Fe Corporation
Capital investment for 1999 totaled $2.27 million. A large portion of our expansion capital
billion, including locomotives acquired through expenditures are behind us, and free cash flow,
purchases and long-term leases. About $1.3 bil- after dividends, will increase considerably in
lion was spent on maintaining our network, loco- 2000 and beyond.
motives, freight cars, and information systems at
Free Cash Flow, After Dividends 1994 –1999
$ in Millions
the highest level to provide customers with more 300
reliable, consistent service.
Another $233 million was spent in 1999 on –110
terminal and line expansion projects, including –557
adding about 53 miles of double track in New –700
1994 1995 1996 1997 1998 1999
Mexico and Texas on BNSF’s transcontinental Pro Forma Pro Forma
Negative free cash flow of $1.654 billion in the first three years after merger reflects
route between Chicago and California; adding
the capital program undertaken to provide shippers with improved service. Cash
flow turned positive in 1999, and should increase significantly in future years.
about 12 miles of double track on our Nebraska
coal route, 18 miles of triple track and six miles During 1998 and 1999, BNSF repurchased
of double track at different locations along the 27 million shares of its common stock for
Wyoming coal route; continued expansion $841 million and in December, our Board of
of the Los Angeles (Hobart) Intermodal facility, Directors authorized an additional 30-million-
which set an annual record of 988,000 lifts; share repurchase program.
expanding our Palos, Alabama yard; and open- Beginning on Page 8, we describe in detail,
ing in May a coordinated dispatch center in including maps and photographs, service
San Bernardino, California. improvements we have made during 1999 to
In addition, $738 million was used to help BNSF customers in all of our business units.
acquire 476 new road locomotives, the largest We also highlight how our investments in loco-
single-year acquisition in railroad history. motives, main-line track capacity, terminals and
As a result, total invested capital reached intermodal facilities are helping BNSF deliver
$16.3 billion at the end of 1999 and has increased transportation solutions that meet, and in some
44 percent since 1995. Return on invested capi- instances exceed, our customers’ expectations.
tal, has remained in the 9-plus percent range BNSF/CN Combination Benefits
since then, up from 7.2 percent in 1994. Shippers and Shareholders
Even with record capital spending and an Based on our accomplishments, the BN and
aggressive stock buyback program since 1997, Santa Fe merger is good for shippers, sharehold-
pre-tax interest coverage has improved about 26 ers and employees. Safety, service, market share,
percent since 1995. Our debt to capital ratio has efficiency and financial performance are all
dropped 400 basis points to 41.6 since 1995. improving. We are convinced that a combination
For the first time, BNSF generated free cash with CN will give us the opportunity to continue
flow in 1999. After dividends, it totaled $260
Burlington Northern Santa Fe Corporation 5
making progress in these areas. I want to tell than could be achieved individually by our
you why I believe the creation of North American companies. CN is a very well run railroad with
Railways, Inc., is in everyone’s best interest. the lowest operating ratio in the industry. CN is
This is a competitive end-to-end combination in the process of integrating the Illinois Central
with little or no overlap. BNSF and CN share a into its network, and over the years has accom-
common vision: to provide shippers with supe- plished significantly improved on-time perform-
rior service by creating an efficient, growing ance, transit times and asset utilization. The CN
North American railroad that will significantly management and our management are a good
expand competitive single-line service. Our match and together, we intend to make North
combination will provide our shippers with the American Railways, Inc. the best railroad in
ability to grow their markets, and we are confi- North America.
dent that we can effect our combination without Based on the condition of our two properties
adversely affecting either BNSF or CN customers and opportunities to improve utilization of cars and
during implementation. The map below illus- locomotives, we do not expect a big increase in
trates the potential shippers will have to access capital expenditures. Our no-premium transaction
new markets and the faster transit times made is expected to be accretive to earnings per share
possible through extended single-line service in the first year after the combination becomes
that will eliminate interchanges. effective, and it is expected to generate more than
For shareholders, we believe the combined $1 billion in free cash flow after dividends are paid
companies will be able to create more value in the first full year.
Sioux City Detroit
Francisco Stockton Denver
Fort Worth Birmingham
Houston New Orleans
Burlington Northern Santa Fe Corporation
The combination of CN and BNSF uses a new
model for railroad consolidation—one that will
enable us to effectively integrate with maximum
ROBERT D. KREBS
efficiency and without sacrificing quality customer
Chairman and Chief Executive Officer,
service or reducing competition. The model pre- Burlington Northern Santa Fe Corporation
serves and protects the existing identities and
efficient rail networks of BNSF and CN, consid-
ered to be the two best operating railroads in
Your BNSF Board of Directors unanimously
North America. What makes this model different
believes this transaction is in the best interests
from previous rail consolidations is that this trans-
of our shareholders, employees, customers and
action is not a merger or a takeover. This combi-
shippers. We plan to file our application with the
nation will have a minimal impact on employees.
Surface Transportation Board (STB) soon and we
But, it has the potential to create jobs based on
plan to hold a special shareholders meeting to
annual revenue and earnings growth that will result
approve this transaction in the near future. Upon
from extended single-line service and superior cus-
STB approval, which we anticipate in the second
half of 2001, we will be uniquely positioned to
As a BNSF shareholder, you will receive for
expand our business and improve profitability.
each BNSF common share a common share in
In closing, I want to thank all of those people
North American Railways and stapled to it will
who have been involved with our success: our
be a CN voting share; they will trade together
shippers for giving us the opportunity to provide
as one security. North American Railways will
them with transportation services at record vol-
hold 100 percent of the equity interest in both
umes; our employees for seeing that the service
companies. The reason for the separate voting
we provide is meeting our customers’ expecta-
share is that Canadian law requires that no
tions; and our owners for supporting our efforts
individual shareholder may hold or control more
to become the number one performer in our
than 15 percent of the voting rights of CN.
industry. We expect our record-setting perform-
North American Railways is a Delaware
ance to continue—and our combination with CN
corporation, but Canadian law requires the head-
will only make us better!
quarters to be in Montreal, Canada, where CN
will continue to have its headquarters. BNSF will
continue to be headquartered in Fort Worth. We
expect about 70 percent of the assets of North
Robert D. Krebs
American Railways will be in the United States
and about 90 percent of its shares will be held by Chief Executive Officer
U.S. individuals, institutions or funds. March 6, 2000
Burlington Northern Santa Fe Corporation 7
NSF made significant strides in service in 1999, in line with our Vision “to realize the tremen-
B dous potential” of BNSF by “providing transportation services that consistently meet our
customers’ expectations.” With the combined efforts of a community of more than 40,000
people, we also made progress toward achieving our No. 1 Shared Value: “Listening to customers and
doing what it takes to meet their expectations.” (See BNSF Vision on inside front cover and BNSF Values
on Page 18.) This service commitment was one reason BNSF received transportation awards in the past
year from Honda, Toyota, Shell, Chevron, Dow Chemical, Solvay Polymers, Schneider and Wal-Mart.
Every day, BNSF operates about 1,300 trains across its 33,500 route miles. The challenge of coordi-
nating this traffic with thousands of customer schedules is formidable. BNSF is sharpening its focus on
customers, developing a better understanding of their needs and designing transportation solutions
that not only meet, but exceed, their expectations.
BNSF has implemented various programs to improve on-time performance—from capacity expan-
sion to facility enhancements to new operating strategies. These improvements paid off. BNSF
BNSF’s Pacific north-south corridor, BNSF’s transcontinental main line is the
which connects the Pacific Northwest shortest rail route connecting Southern
with Northern and Southern California California and Chicago. BNSF moves a wide
markets, saw tremendous volume variety of traffic along this line, led by
growth in 1999, led by Industrial Consumer Products, including domestic and
Products, including forest products, international intermodal traffic.
metals and chemicals. 4 BNSF’s northern line handles a variety of
2 BNSF’s line between Wyoming’s traffic, but some of the biggest growth along
Powder River Basin (PRB) and the this line in 1999 came with Agricultural
Southeast is one of BNSF’s key routes for Products, especially corn shipments that
Coal traffic. spiked from August through November.
achieved a 91 percent on-time average across all commodities in 1999. In 1999, BNSF also launched
an “Ease of Doing Business” initiative, which focuses on improving communication, simplifying the
marketing of our services, and consistently executing the operating plan for each customer. To empha-
size our commitment to being customer-focused, we introduced a company-wide brand identity in late
1999 with the line, “We Can Move Your World. ™ This commitment will continue to guide our corpo-
rate initiatives in the years ahead.
On the following pages, we’ll profile BNSF’s service achievements for our four commodity groups,
and we’ll look at how capital investments and service strategies on key corridors are benefiting our
customers. These achievements and the dedication to further improvement position BNSF for growth.
Although a grain elevator operator, an auto manufacturer and a chemicals producer operate in differ-
ent markets with different transportation needs, BNSF can bring value to all of them.
Burlington Northern Santa Fe Corporation
chemicals, minerals, metals and forest products
BNSF’s unified marketing department has four marketing groups—Industrial Products,
Coal, Consumer Products and Agricultural Products. This unified structure allows
customers to have a single point of contact, even when shipping multiple commodities.
It also enables BNSF to consistently implement strategies that respond to customer
needs, enhance communication, and deliver results across all commodities.
intermodal, automotive, beverages, canned goods, perishables and farm products
grain commodities and bulk food products
NDUSTRIAL PRODUCTS At 6:46 a.m. on August 10, a BNSF Industrial Products train moved
I through the area south of Klamath Falls, Oregon, known as the I-5 Corridor. The train is precisely
on time thanks to expedited handling at BNSF’s Klamath Falls yard and an optimal Transportation
Service Plan created by BNSF’s Service Design and Performance group. BNSF examined all aspects of
the route to ensure truck competitive service for all commodities on this route. The result? By the end of
1999, BNSF saw on-time percentages in the mid 80s on this route and saw volumes increase 50 percent
compared with 1998. Strong market demand for Industrial Products—such as lumber, steel, aluminum,
chemicals and construction-related materials—in Southern California and Arizona created by the region’s
continuing population growth has contributed to the significant opportunities for BNSF along this corridor.
UP/SP Merger Condition Lines
BNSF Average Monthly
1997 1998 1999
Distribution Centers Responsive Equipment Planning Growth on UP/SP Merger On-Time Performance
In 1999, BNSF’s volume growth Having the right equipment avail- Condition Lines BNSF’s on-time service to
from northern I-5 origins was able at the right time and in the BNSF acquired the I-5 Corridor Industrial Products shippers
due largely to customers’ ability right markets requires good com- in 1996 as part of the track and overall improved to 86 percent
to ship directly on BNSF to dis- munication and planning. For trackage rights agreement as a in 1999 from 77 percent in
tribution centers. These include instance, BNSF serves more North condition of the UP/SP merger. 1998. BNSF’s Service Design
BNSF’s Quality Distribution American timber-producing regions In all, BNSF acquired 335 miles and Performance group, working
Center (QDC) in Sparks, Nevada, than any other railroad, from the of track and gained trackage with field operations, continually
and distribution centers near Pacific Northwest to Minnesota to rights on another 3,900 miles scrutinizes traffic flows between
San Francisco, Los Angeles, the Southeast. To improve the pre- through the UP/SP agreement. various origins and destinations
and Phoenix, Arizona. In all, dictability of centerbeam cars for From 1997 through 1999, BNSF to improve the Transportation
BNSF has more than 100 lumber and building materials, increased average monthly loads Service Plan, looking at sched-
distribution centers on its net- BNSF introduced LOGS™ in late on the UP/SP merger condition ules by carload, customer and
work, handling commodities as 1999, the industry’s first Loading lines from 13,450 to 30,994, destination.
diverse as corn syrup, plastic Origin Guarantee program. LOGS™ respectively, an increase of
pellets, paper, roofing tile and allows customers to electronically 130 percent.
structural steel. secure guaranteed centerbeam car
capacity weeks before shipping
and improves the efficiency of
BNSF saw a 44 percent volume increase in lumber and forest
products along the I-5 Corridor in 1999 compared with 1998,
a 32 percent increase in coiled steel and other metals, and
a 76 percent increase in chemicals and petroleum products.
Burlington Northern Santa Fe Corporation 11
OAL At 9:20 a.m., BNSF’s first unit coal train of the day bound for Palos, Alabama passed
C Gillette, Wyoming. In 1999, BNSF initiated service under a new long-term contract with
Southern Company to Plant Miller at Palos, the largest producer of electricity in Alabama
and one of the largest producers in the country. Prior to the exclusive contract, Plant Miller
received eastern coal via truck, barge, and several railroads. The decision was made to switch
to cleaner-burning Powder River Basin (PRB) coal to comply with the Federal Clean Air Act
requirements and take advantage of the low delivered price of PRB coal. BNSF was chosen as
the sole supplier, consistently delivering two to three 135-car trains daily, feeding the plant the
equivalent of 1,420 tons of coal per hour via a six-state, 1,500-mile “conveyor belt.”
Capacity Expansion Distributive Power Coordinated Dispatching On-Time Performance
In 1999, BNSF added about In 1999, BNSF took on a major In 1999, BNSF and UP initiated BNSF coal unit trains operated
12 miles of double track on its initiative to convert unit coal coordinated dispatching on the 99.5 percent on-time in 1999,
Nebraska coal route, 18 miles trains to distributive power coal territory, headquartered due to close coordination
of triple track and six miles of (DP), placing locomotives at at BNSF’s Network Operations between marketing and opera-
double track at different loca- the end of the train, remotely Center in Fort Worth, to manage tions and BNSF’s investment
tions along the Wyoming coal controlled from the lead loco- traffic volumes over a 102-mile of $1.2 billion in coal-related
route. To handle increased coal motives. DP allows for longer, segment on the PRB known as assets since 1996. Increased
volumes, the Palos, Alabama, heavier trains. By the end of the “joint line.” BNSF and UP coal velocity benefits customers
yard was expanded with addi- 1999, approximately 122 coal have jointly operated the line during peak demand and ensures
tional storage tracks. Since sets were operated with DP since 1984 and have invested cars are available sooner for
1996, BNSF has acquired 444 power, or about 37 percent of record amounts in capacity reloading. From 1990 to 1999,
new high-traction AC-powered BNSF’s coal sets. expansion. Approximately 120 BNSF increased its coal tonnage
locomotives, which are ideally to 130 trains operate per day by 39 percent to about 236 mil-
suited to coal service, as part on the joint line, making it one lion tons, while also improving
of its acquisition of more than of the busiest track segments on-time performance, due to
1,400 locomotives. anywhere. a combination of increased ton-
nage per car, increased cars per
train, and increased velocity.
More than 90 percent of the coal BNSF hauls comes from Kansas City
the Powder River Basin (PRB) in Wyoming and Montana,
which contains the world’s largest single deposit of low-sulfur
coal. In 1999, the Coal group extended more than 20 contracts with Memphis
commitments of nearly 250 million tons over the life of the agreements,
which range up to 10 years.
Burlington Northern Santa Fe Corporation 13
ONSUMER PRODUCTS At 5:34 p.m., BNSF was on its way to another record-breaking day
C at its Los Angeles intermodal facility. This facility, which handles more container and trailer
volume than any other facility in the nation, continued to break daily lift records in 1999. In
fact, on December 11, it set a daily record of 3,888 lifts, or 2.7 lifts per minute. And the volume was
handled efficiently. BNSF’s capacity investments helped, including $42 million for parking and track
expansion projects at the Los Angeles facility in 1998 and 1999. BNSF also redesigned its checkpoints
and sped up processing at the ports of Los Angeles and Long Beach. The regional dispatching center
at San Bernardino, California, which opened in May 1999, enabled BNSF and Union Pacific to better
manage the heavy train volumes that operate through Southern and Northern California.
Automotive Growth Ice Cold Express Intermodal Networks On-Time Performance
In 1999, the automotive group In June, BNSF introduced Ice In 1999, BNSF formed an alliance BNSF’s on-time performance
saw increases in volume and Cold Express, a truck-competi- with Wal-Mart, the nation’s to Consumer Products shippers
revenue per unit. This reflected tive alternative for fast, reliable, largest retailer, to handle their in 1999 averaged nearly 90
a record-breaking year for the temperature-controlled trans- freight across our entire trans- percent overall, and averaged
overall North American vehicle portation. The train features portation network. In 1999, 95 percent for BNSF’s most
market, as well as BNSF market RoadRailer™ equipment for Wal-Mart named BNSF its rail service-sensitive intermodal
share gains due to General superior ride quality and satellite carrier of the year. BNSF also customers. This was a signifi-
Motors’ strength, increased Ford technology for real-time status has a long-standing alliance cant increase over the previous
business and improved length of reports. The weekly service has with UPS, the world’s largest year’s performance, thanks
haul. BNSF innovations included been so successful in converting package delivery company. Train to capacity investments, better
development of a “mixing cen- formerly over-the-road traffic to schedules are designed to meet service plans, increased ter-
ter” type of operation for Ford the railroad that BNSF will soon tight sorting windows at UPS minal efficiency, and other
at Naperville, Illinois, for Pacific double its volume by adding facilities across the nation. velocity improvements.
Northwest traffic and introduc- another dedicated train between
tion of the Automax railcar with Southern California and Chicago.
substantially more capacity to
transport top-selling SUVs.
BNSF has the rail industry’s shortest route
between Chicago and Southern California Needles Albuquerque
(2,214 miles to Los Angeles). More than 85
Long San Bernardino Amarillo
percent of the Chicago to Southern California Belen
route is now double track, which helps
improve traffic flows and velocity.
Burlington Northern Santa Fe Corporation 15
GRICULTURAL PRODUCTS At 9:48 p.m. near Hemingford, Nebraska, BNSF started move-
A ment of another wheat shuttle train destined for the Pacific Northwest. BNSF handled an average
of 2000 carloads of grain per day from August through November. That was about 300 more
cars per day than BNSF loaded in the same months in 1998. How did BNSF handle these volumes?
For one, increased use of shuttle trains and investment in higher-capacity covered hoppers enabled
BNSF and customers to load and unload greater volumes more quickly. In addition, closer coordination
between marketing, field operations, and the grain desk in the Network Operations Center, as well as
tailored service plans by Service Design and Performance, enabled BNSF to move enormous amounts of
grain while minimizing supply/demand imbalances that in earlier years might have led to car shortages.
Shuttle Trains Equipment, Track Grain Desk On-Time Performance
During peak periods in 1999, and Facility Capacity To coordinate the efficient BNSF’s grain and agricultural
BNSF operated 30 grain shuttle In 1998, BNSF announced the movement of grain equipment products on-time performance
trains, using dedicated equip- acquisition of 6,000 high capacity and locomotives, as well as to was 88 percent in 1999, improved
ment and locomotives. A 110- grain cars, 2,000 per year in expedite customer notification, from 79 percent in 1998.
car shuttle can load 440,000 1998, 1999 and 2000. From BNSF trainmasters and other
bushels of grain in 15 hours and 1996 to 1999, BNSF customers field personnel are in frequent
can unload the same volume at invested more than $330 mil- contact with the grain desk in
destination in 15 hours. Covered lion in their own expansion the Network Operations Center
hoppers in a shuttle, on average, programs, increasing storage (NOC) in Fort Worth. The grain
are two to three times more pro- capacity and speed at their desk, which was expanded in
ductive than those in conven- on-line elevators and loading 1999 with additional personnel
tional service. This improves tracks to accommodate and a customized computer
equipment utilization and avail- 110-car shuttle trains. application, operates around-
ability, enhancing BNSF’s ability the-clock, every day of the year.
to meet customer needs. BNSF has comparable commod-
ity desks to coordinate coal,
Vancouver Spokane Havre Grand Forks
BNSF is the largest grain-hauling railroad in
the United States. In 1999, BNSF transported
700,000 carloads of agricultural commodities,
more than half of which were corn and wheat
movements. The northern corridor handled much of
the growth in 1999, including export shipments destined
for the ports at Tacoma, Seattle, and Vancouver, Washington.
Burlington Northern Santa Fe Corporation 17
Style Community Liberty Equality
As a Community, BNSF is a Community As a member of the As a member of the
we are: of over 40,000 mutually BNSF Community, each BNSF Community, I can
•Tough-minded optimists dependent members. Each of us has the right to: expect:
•Decisive yet thorough one of us depends upon •A safe work •To be treated with dignity
•Open and supportive, BNSF for our livelihood, environment—for the and respect
and and through our collective sake of ourselves, our •To be given equal access to
•Confident and proud of efforts, BNSF depends co-workers, our shippers tools, training and devel-
our success upon us to defend, sus- and the communities opment opportunities
tain and strengthen we serve •To have equal oppor-
Shared Values our Community. •Feel the satisfaction that tunity to achieve my full
As a Community, BNSF We are an effective comes from a job well potential
values: Community when each done—by using our
•Listening to customers of us: talent, judgment and
and doing what it takes •Believes in our Vision initiative, and by Efficiency is the best
to meet their expectations and embraces our performing collective application of
•Empowering employees Shared Values to our fullest potential our resources to meet our
and showing concern for •Knows our own role and •Express our individual- customers’ expectations.
their well-being, and strives to fulfill it ism, ideas and concerns— Each of us contributes to
respect for their talent •Respects, trusts and consistent with the efficiency when we:
and achievements openly communicates Community’s Vision and •Understand our cus-
•Continuously improving with other Community Shared Values, to anyone tomers’ expectations
by striving to do the right members in the Community with- and priorities
thing safely and efficiently •Is proud of our heritage out fear of retribution •Help develop business
•Celebrating our rich and confident in our •Participate fully in life processes that best
heritage and building on future outside of work—by match BNSF resources
our success as we shape enjoying the fruits of with our customers’
our promising future our own labor requirements
•Constantly monitor and
measure our results in
order to continuously
•Manage our Community’s
resources as if they were
Management’s Discussion and Analysis
Report of Management
Report of Independent Accountants
Consolidated Statement of Income
Consolidated Balance Sheet
Consolidated Statement of Cash Flows
Consolidated Statement of Changes
in Stockholders’ Equity
Notes to Consolidated Financial Statements
The following table presents BNSF’s revenue information by commodity for the years ended December 31, 1999, 1998 and
1997 and includes certain reclassifications of prior year information to conform to current year presentation.
Revenues Cars/Units Average Revenue Per Car/Unit
1999 1998 1997 1999 1998 1997 1999 1998 1997
(IN MILLIONS) (IN THOUSANDS)
Carload $ 2,553 $ 2,588 $2,482 1,773 1,801 1,739 $1,440 $1,437 $1,427
Intermodal 2,518 2,437 2,243 3,203 3,086 2,811 786 790 798
Coal 2,227 2,239 1,972 2,123 2,078 1,862 1,049 1,077 1,059
Agricultural Commodities 1,329 1,271 1,248 715 689 669 1,859 1,845 1,865
Automotive 443 390 422 250 230 264 1,772 1,696 1,598
Total Freight Revenues 9,070 8,925 8,367 8,064 7,884 7,345 $1,125 $1,132 $1,139
Other Revenues 30 16 3
Total Revenues $ 9,100 $8,941 $8,370
Management’s Discussion and Analysis of Revenues
Financial Condition and Results of Operations Total revenues for 1999 were $9,100 million or 2 percent
higher compared with revenues of $8,941 million for 1998.
anagement’s discussion and analysis relates to
M The $159 million increase primarily reflects increases in the
the financial condition and results of operations
intermodal, agricultural commodities and automotive sectors,
of Burlington Northern Santa Fe Corporation
partially offset by lower carload and coal revenues. Average
and its majority-owned subsidiaries (collectively, BNSF
revenue per car/unit decreased slightly in 1999 to $1,125
or Company). The principal subsidiary of BNSF is The
from $1,132 in 1998. During 1999, BNSF’s share of the
Burlington Northern and Santa Fe Railway Company
Western United States rail traffic market, based on reporting
(BNSF Railway). All earnings per share information
to the Association of American Railroads (AAR), decreased
is stated on a diluted basis.
0.8 points to 43.5 percent. This decrease in market share was
Results of Operations
primarily due to Union Pacific Corporation (UP) regaining
Year Ended December 31,1999 Compared With
market share as a result of its recovery from operating diffi-
Year Ended December 31,1998
culties experienced in the prior year.
Earnings per share increased to $2.44 per share for 1999
Carload revenues, which include revenues from the
from $2.43 per share for 1998 although net income was
chemicals, forest products, metals, minerals and machinery,
slightly lower for 1999 at $1,137 million compared with 1998
perishable and dry boxcar sectors, of $2,553 million for
net income of $1,155 million. The slight decrease in net
1999 were $35 million or 1 percent lower than 1998 due
income is primarily due to a 1998 gain of $67 million on the
to decreases in the chemicals, minerals and machinery, and
sale of substantially all of the Company’s interest in Santa Fe
metals sectors, partially offset by increased forest product
Pacific Pipeline Partners, L.P along with 1998 gains on real
revenues. The decreases were a result of weaknesses in the
estate portfolio sales and higher interest expense in 1999
chemicals sector due to soft fertilizer markets, weaknesses
incurred on borrowings to fund the repurchase of 22 million
in the metals sector due to increased steel imports, and a
shares of BNSF common stock, as compared to 5 million
decrease in dedicated train movements of heavy machinery.
shares in 1998, and increased 1999 environmental expenses.
These decreases were partially offset by increased inland
These decreases in net income were partially offset by
shipments of forest products.
increased operating revenues in 1999 due to volume gains
in most sectors.
Burlington Northern Santa Fe Corporation 19
Intermodal revenues of $2,518 million improved $81 mil- Fuel expenses of $700 million for 1999 were $21 million
lion or 3 percent compared with 1998 reflecting increases in or 3 percent lower than 1998, as a result of a 3 cent or 6
the direct marketing, international and truckload sectors, par- percent decrease in the average all-in cost per gallon of
tially offset by decreases in the intermodal marketing compa- diesel fuel, partially offset by a 3 percent volume driven
nies (IMC) sector. Direct marketing revenues benefited from increase in consumption from 1,155 million gallons to 1,187
year over year growth of units shipped for UPS and Roadway. million gallons. The average all-in cost per gallon of diesel
International revenues were up due to market share gains and fuel decreased year over year due to current year fuel
new business with Sealand, NYK, Maersk and K-Line. hedge losses of 1 cent per gallon compared to 7 cents per
Truckload revenues were driven primarily by year over year gallon in the prior year, which were partially offset by a
growth in J.B. Hunt, Swift and Triple Crown loadings. These 3 cent increase in the average purchase price.
revenue increases were partially offset by decreases in the Materials and other expenses of $834 million for
IMC sector due to UP pricing pressures, an overall softening 1999 were $114 million or 16 percent higher than 1998
in the IMC market, and increased trucking capacity. principally reflecting higher environmental, personal injury
Coal revenues of $2,227 million for 1999 decreased $12 and property and other tax expenses.
million or less than 1 percent, as a result of a decrease in aver- As discussed in Other Matters: Employee Merger and
age revenue per car due to a decline in coal shipping rates on Separation Costs, reorganization costs of $48 million were
contracts renewed beginning in late 1998 at the lower1998 incurred during the second quarter of 1999 for severance,
and 1999 market based rates. Operating difficulties early in the pension, medical and other benefit costs for approximately
year at the Powder River Basin mines and a decrease in the 325 involuntarily terminated salaried employees that were
demand for coal due to milder weather for most of the year part of a reorganization program announced in May 1999 to
also contributed to the year over year decrease. reduce operating expenses. In addition, the Company also
Agricultural commodities revenues of $1,329 million for reversed during the second quarter certain merger sever-
1999 were $58 million or 5 percent higher than 1998 due ance liabilities of $54 million associated with the Company’s
primarily to increased demand for soybean exports and corn clerical consolidation plan. These liabilities related to
from the Midwest that moved to the Pacific Northwest for planned work-force reductions which were no longer need-
export. The increase in soybean revenue was fueled by ed due to the Company’s ability to utilize a series of job
favorable pricing and an increased supply of soybeans that swaps between certain locations to achieve the advantages
was sufficient to meet the higher demand. Increases in vol- of functional work consolidation.
ume were slightly offset by lower wheat revenue per car and Interest expense for 1999 increased by $33 million to
fewer soybean oil shipments in 1999 compared to 1998. $387 million principally reflecting higher debt levels used
Automotive revenues of $443 million for 1999 were $53 to fund the share repurchase program. Total debt increased
million or 14 percent higher than 1998 reflecting growth in to $5,813 million at December 31, 1999, from $5,456 million
vehicle shipments due to both a record year of new vehicle at December 31, 1998.
production coupled with an increase in revenue per unit as a Other income (expense), net was unfavorable by $44
result of a favorable change in the mix of vehicles transported. million compared to 1998 primarily due to the $67 million
gain on the sale of substantially all of the Company’s interest
Total operating expenses for 1999 were $6,895 million, in Santa Fe Pacific Pipeline Partners, L.P in 1998 and gains
an increase of $112 million or 2 percent, compared with of $26 million from the sale of a real estate portfolio in
operating expenses for 1998 of $6,783 million. 1998. This was partially offset by the recognition in 1999
Compensation and benefits expenses of $2,772 million of a $50 million deferred gain in connection with the sale
were $40 million or 1 percent lower than 1998 primarily due of rail lines in Southern California in 1992 and 1993.
to lower employment levels due in part to the second quar- Year Ended December 31, 1998 Compared With
ter 1999 reorganization, as discussed in Other Matters: Year Ended December 31, 1997
Employee Merger and Separation Costs, partially offset by BNSF recorded net income for 1998 of $1,155 million
increased wage rates. ($2.43 per share), compared with net income of $885
Purchased services of $946 million for 1999 were $52 million ($1.88 per share) for 1997 principally reflecting
million or 6 percent higher than 1998 due primarily to increased revenues in intermodal, coal and other sectors.
increased contract equipment maintenance costs as well More moderate winter weather in the first quarter of 1998
as ramping and other transportation service contracts. relative to 1997, gains on 1998 real estate portfolio sales
Equipment rents expenses of $752 million were $52 and a 1998 $67 million gain on the sale of substantially
million or 6 percent lower than 1998 as a result of lower all of the Company’s interest in Santa Fe Pacific Pipeline
intermodal equipment costs due to a reduction in time Partners, L.P also contributed to the improvement.
and mileage, and trailer and container expenses. Lower Additionally, 1997 included a $90 million pre-tax special
agricultural leased car expense due to improved cycle charge ($57 million after-tax or $0.12 per share) principally
times also contributed to the decrease. related to the consolidation of clerical functions (see
Other Matters: Employee Merger and Separation Costs).
Burlington Northern Santa Fe Corporation
Total revenues for 1998 were $8,941 million or 7 percent Total operating expenses for 1998 were $6,783 million,
higher compared with revenues of $8,370 million an increase of $180 million or 3 percent, compared with
for 1997. The $571 million increase primarily reflects operating expenses for 1997 of $6,603 million. 1997
increases in the carload, intermodal, coal and agricultural included a $90 million ($57 million after-tax) special charge
commodities sectors partially offset by lower automotive principally related to the consolidation of clerical functions.
revenues. Average revenue per car/unit decreased Compensation and benefits expenses of $2,812 million
slightly in 1998 to $1,132 from $1,139 in 1997. During were $137 million or 5 percent higher than 1997. Wages
1998, BNSF’s share of the Western United States (U.S.) were higher due to volume related increases primarily in
rail traffic market, based on reporting to the AAR, train crew costs, 1998 wage increases to both salaried and
increased 2.9 points to 44.3 percent. This gain was union employees, and increased incentive compensation
primarily the result of the trackage rights gained from UP expense. These increases were partially offset by lower labor
and operating problems experienced by UP associated costs associated with repairs to track and equipment as
with consolidating operations. 1997 was unusually high because of severe winter weather.
Carload revenues of $2,588 for 1998 were $106 million Purchased services of $894 million for 1998 were $71
or 4 percent higher than 1997 due to increases in the chemi- million or 9 percent higher than 1997 due principally to
cals, forest products, minerals and machinery, and metals higher joint facility costs from increased operations over
sectors, partially offset by a decrease in dry boxcar revenues. trackage rights obtained from UP increased equipment
Chemicals revenues increased due to strength in industrial maintenance costs, and higher ramping costs related to
chemicals, petroleum products and plastics. Forest products increased intermodal volumes.
revenues increased due to printing paper and pulpboard Equipment rents expenses of $804 million were $16
volume gains, increased Canadian newsprint imports, and million or 2 percent lower than 1997. Improved equipment
increased lumber volumes due to higher levels of construction utilization and lower equipment related performance
activity. Minerals and machinery revenues increased primari- penalties for grain were partially offset by volume driven
ly due to volume increases in cement and specialty minerals increases for leased coal cars and locomotives.
and increased heavy machinery traffic. Metals revenues Fuel expenses of $721 million for 1998 were $26 million
increased due to strength in aluminum and non-ferrous or 3 percent lower than 1997, as a result of a 6 cent or
materials as well as volume increases in steel products. 9 percent decrease in the average all-in cost per gallon
Intermodal revenues of $2,437 million improved $194 of diesel fuel, partially offset by a 6 percent volume driven
million or 9 percent compared with 1998 reflecting increases increase in consumption from 1,092 million gallons to 1,155
in the direct marketing, international and truckload sectors. million gallons. The decrease in average all-in cost per
Direct marketing revenues benefited from increased units gallon of diesel fuel includes a 13 cent decrease in the
shipped for UPS, less than truckload customers and the average purchase price, partially offset by current year losses
United States Postal Service. International revenues were up related to BNSF’s fuel hedging program. Gross ton-miles per
due to volume increases associated with market share gains gallon of fuel increased 4 percent reflecting the continuing
and new business established with Sealand, NYK, Maersk favorable operating trend resulting from new, fuel efficient
and K-Line. Truckload revenues increased due to volume locomotives and more fuel efficient operating practices.
growth from J.B. Hunt and Schneider. Materials and other expenses of $720 million for 1998
Coal revenues of $2,239 million for 1998 increased were $45 million or 7 percent higher than 1997 principally
$267 million or 14 percent primarily due to strong demand, due to lower credits from joint facility billings due to lower
volume increases associated with market share gains, UP traffic levels on BNSF facilities. Additionally, other
and favorable operating conditions as a result of a more expenses in 1997 included more income from the sale of
moderate winter in 1998. easements and tax incentives from the State of Nebraska
Agricultural commodities revenues of $1,271 million related to investment and employment levels in the state.
for 1998 were $23 million or 2 percent higher than 1997 Interest expense for 1998 increased by $10 million to
primarily due to increased corn syrup loadings and the $354 million reflecting higher debt levels which increased
recovery of sugar traffic which was hampered in 1997 to $5,456 million at December 31, 1998 from $5,289 million
due to poor weather conditions. This increase was partially at December 31, 1997, partially offset by lower interest rates.
offset by poor Pacific Northwest corn and soybeans exports Other income (expense), net was favorable $64 million
as well as a record breaking year in 1997 of barley exports. compared to 1997 primarily due to the $67 million gain on
Automotive revenues of $390 million for 1998 were $32 the sale of substantially all of the Company’s interest in Santa
million or 8 percent lower than 1997 reflecting decreases Fe Pacific Pipeline Partners, L.P Additionally, lower equity in
in volumes due to the loss of Ford’s southwestern United earnings of the pipeline partnership due to the first quarter
States business and the impact of the General Motors strike, 1998 sale of this investment was offset by gains of $26 mil-
partially offset by strong Honda loadings. lion on real estate portfolio sales.
Burlington Northern Santa Fe Corporation 21