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Burlington Northern Santa Fe Corporation




  1999 Annual Report to Shareholders
Contents              The BNSF Vision                     • Our employees work in a safe
     2   Message from          Ou...
Consolidated Financial Highlights
Burlington Northern Santa Fe Corporation and Subsidiaries
(Dollars in millions, except p...
To Our Shareholders, Customers and Colleagues                                                                Lost Workdays...
largest peak volume ever handled by a railroad
                                          Loss/Damage Percentage
          ...
Efficiency                                                                                            During the last four...
Capital investment for 1999 totaled $2.27         million. A large portion of our expansion capital
billion, including loc...
making progress in these areas. I want to tell                                               than could be achieved indivi...
The combination of CN and BNSF uses a new
model for railroad consolidation—one that will
enable us to effectively integrat...
NSF made significant strides in service in 1999, in line with our Vision “to realize the tremen-



B                  dou...
Industrial Products
                   chemicals, minerals, metals and forest products




                               ...
Tuesday, 6:46a.m.
Klamath Falls, Oregon
NDUSTRIAL PRODUCTS At 6:46 a.m. on August 10, a BNSF Industrial Products train moved


I       through the area south of K...
Wednesday, 9:20a.m.
 Gillette, Wyoming
OAL At 9:20 a.m., BNSF’s first unit coal train of the day bound for Palos, Alabama passed


C          Gillette, Wyoming. ...
Thursday, 5:34p.m.
Los Angeles, California
ONSUMER PRODUCTS At 5:34 p.m., BNSF was on its way to another record-breaking day


C           at its Los Angeles intermo...
Friday, 9:48p.m.
Hemingford, Nebraska
GRICULTURAL PRODUCTS At 9:48 p.m. near Hemingford, Nebraska, BNSF started move-


A          ment of another wheat shuttle...
BNSF’s Values

Style                           Community                     Liberty                       Equality
 As a ...
Financial Contents
          Management’s Discussion and Analysis
19

          Report of Management
29

          Report ...
Intermodal revenues of $2,518 million improved $81 mil-              Fuel expenses of $700 million for 1999 were $21 milli...
Revenues                                                          Expenses
Total revenues for 1998 were $8,941 million or ...
BNSF 99 annrpt
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BNSF 99 annrpt

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BNSF 99 annrpt

  1. 1. Burlington Northern Santa Fe Corporation 1999 Annual Report to Shareholders
  2. 2. 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 community activities. 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- tomer expectations. On Time!
  3. 3. Consolidated Financial Highlights Burlington Northern Santa Fe Corporation and Subsidiaries (Dollars in millions, except per share data) 1995(3) December 31, 1999 1998 1997 1996 For The Year Ended: Revenues $ 9,100 $ 8,941 $ 8,370 $ 8,109 $ 6,099 income(1) 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
  4. 4. To Our Shareholders, Customers and Colleagues Lost Workdays per Lost Workdays per 200,000 Manhours 200,000 Manhours 1994 –1999 125 fter a slow start in 1999, BNSF produced A 122.3 88.3 100 record-breaking results in the second- - - 75 59.8 half of the year. We capped 1999 by - 46.0 43.6 43.0 - 50 announcing on December 20 an agreement to - 25 - combine with Canadian National Railway - 0 - 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. route-mile network. 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 Safety 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 2
  5. 5. largest peak volume ever handled by a railroad Loss/Damage Percentage of Freight Revenue 1994 –1999 and a 10 percent increase over the BNSF’s .36 0.40% .35 .33 .31 1998 27-day peak volume. It was the fourth .27 0.30% .23 consecutive year that we provided 100 percent 0.20% on-time service during the UPS peak season. 0.10% BNSF continued operating failure free for UPS 0.0% 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
  6. 6. 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 84.4 85% 2.24 2.5 2.16 81.0 1.86 1.75 2.0 1.53 78.4 80% 77.8 1.19 1.5 75.9 75.4 1.0 75% .5 70% 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 4
  7. 7. 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. Financial Performance motives, freight cars, and information systems at Free Cash Flow, After Dividends 1994 –1999 $ in Millions the highest level to provide customers with more 300 260 100 reliable, consistent service. –100 –25 Another $233 million was spent in 1999 on –110 –300 –397 terminal and line expansion projects, including –557 –500 –700 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
  8. 8. 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. Prince Rupert Edmonton Vancouver Calgary Winnipeg Seattle Montréal Halifax Duluth/Superior Gillette Toronto Buffalo Sioux City Detroit Chicago San Omaha Francisco Stockton Denver Kansas City Los Angeles Memphis Dallas/ Fort Worth Birmingham Phoenix Alliance Jackson El Paso Mobile Houston New Orleans Corpus Christi Burlington Northern Santa Fe Corporation 6
  9. 9. 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 tomer service. 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 Chairman and 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
  10. 10. 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 3 1 which connects the Pacific Northwest shortest rail route connecting Southern 4 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 1 Products, including forest products, international intermodal traffic. 3 metals and chemicals. 4 BNSF’s northern line handles a variety of 2 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 8
  11. 11. Industrial Products chemicals, minerals, metals and forest products Coal 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. Consumer Products intermodal, automotive, beverages, canned goods, perishables and farm products Agricultural Products grain commodities and bulk food products
  12. 12. Tuesday, 6:46a.m. Klamath Falls, Oregon
  13. 13. 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 Loaded Units 30,994 25,453 13,450 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’s fleet. Seattle Spokane Portland Wishram Klamath Falls BNSF saw a 44 percent volume increase in lumber and forest Keddie products along the I-5 Corridor in 1999 compared with 1998, a 32 percent increase in coiled steel and other metals, and Stockton a 76 percent increase in chemicals and petroleum products. Bakersfield Barstow Burlington Northern Santa Fe Corporation 11
  14. 14. Wednesday, 9:20a.m. Gillette, Wyoming
  15. 15. 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. Gillette Alliance Guernsey Lincoln More than 90 percent of the coal BNSF hauls comes from Kansas City the Powder River Basin (PRB) in Wyoming and Montana, Springfield which contains the world’s largest single deposit of low-sulfur Palos 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, Birmingham which range up to 10 years. Burlington Northern Santa Fe Corporation 13
  16. 16. Thursday, 5:34p.m. Los Angeles, California
  17. 17. 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. Chicago Galesburg Kansas City Los BNSF has the rail industry’s shortest route Barstow Angeles 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 Beach route is now double track, which helps improve traffic flows and velocity. Burlington Northern Santa Fe Corporation 15
  18. 18. Friday, 9:48p.m. Hemingford, Nebraska
  19. 19. 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, intermodal/automotive, and merchandise shipments. Seattle Whitefish Tacoma Minot Vancouver Spokane Havre Grand Forks Fargo BNSF is the largest grain-hauling railroad in the United States. In 1999, BNSF transported Sioux Falls 700,000 carloads of agricultural commodities, more than half of which were corn and wheat Hemingford 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
  20. 20. BNSF’s Values 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 Efficiency •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 improve •Manage our Community’s resources as if they were our own
  21. 21. Financial Contents Management’s Discussion and Analysis 19 Report of Management 29 Report of Independent Accountants 29 Consolidated Statement of Income 30 Consolidated Balance Sheet 31 Consolidated Statement of Cash Flows 32 Consolidated Statement of Changes 33 in Stockholders’ Equity Notes to Consolidated Financial Statements 34 Revenue Table 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
  22. 22. 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 Expenses 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 20
  23. 23. Revenues Expenses 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

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