BNSF 2000 annrpt

Burlington Northern Santa Fe Corporation 2000 Annual Report to Shareholders

Contents

2 Message from the

Chairman, and

President and CEO

8 Safety

10 Service

12 Efficiency

14 Innovation

16 Growth

18 BNSF’s Values

19 Achievement Awards

21 Financial Review

47 Executive Officers

and Directors

48 Corporate Information

About the Cover

This BNSF grain shuttle

train approaches Little Falls,

Minnesota, en route to

load at a grain elevator near

Sioux City, Iowa.

• Our owners earn financial

returns that exceed other

railroads and the general

market as a result of BNSF’s

superior revenue growth, an

operating ratio in the low

70s, and a return on invested

capital which is greater than

our cost of capital.

• The communities we serve

benefit from our sensitivity

to their interests and to the

environment in general,

our adherence to the highest

legal and ethical standards,

and the participation of our

company and our employees

in community activities.

• Our customers find it easy

to do business with us,

receive 100-percent on-time,

damage-free service, accurate

and timely information

regarding their shipment,

and the best value for their

transportation dollar.

• Our employees work in a safe

environment free of accidents

and injuries, are focused

on continuous improvement,

share the opportunity for

personal and professional

growth that is available to all

members of our diverse work

force, and take pride in their

association with BNSF.

The BNSF Vision

Our vision is to realize the tremendous potential of The Burlington

Northern and Santa Fe Railway by providing transportation services

that consistently meet our customers’ expectations.

We will know we have succeeded when:

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Consolidated Financial Highlights

Burlington Northern Santa Fe Corporation and Subsidiaries

(Dollars in millions, except per share data)

December 31, 2000 1999 1998 1997 1996

For The Year Ended:

Revenues $ 9,205 $ 9,189 $ 9,054 $ 8,489 $ 8,192

Operating income $ 2,108 $ 2,205 $ 2,158 $ 1,767 $ 1,748

Net income $ 980 $ 1,137 $ 1,155 $ 885 $ 889

Basic earnings per share $ 2.38 $ 2.46 $ 2.45 $ 1.91 $ 1.95

Average shares (in millions) 412.1 463.2 470.5 464.4 456.3

Diluted earnings per share $ 2.36 $ 2.44 $ 2.43 $ 1.88 $ 1.91

Average shares (in millions) 415.2 466.8 476.2 471.1 464.4

Dividends declared per common share $ 0.48 $ 0.48 $ 0.44 $ 0.40 $ 0.40

At Year End:

Total assets $24,375 $23,700 $22,646 $21,266 $19,693

Long-term debt and commercial paper,

Including current portion $ 6,846 $ 5,813 $ 5,456 $ 5,289 $ 4,711

Stockholders’ equity $ 7,480 $ 8,172 $ 7,784 $ 6,822 $ 5,994

Total debt to capital 47.8% 41.6% 41.2% 43.7% 44.0%

For The Year Ended:

Capital expenditures $ 1,399 $ 1,788 $ 2,147 $ 2,182 $ 2,234

Depreciation and amortization $ 895 $ 897 $ 832 $ 773 $ 760

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In addition, BNSF repur-

chased 65 million shares in

2000 at an average price of

$23 per share.

However, four factors impacted

the performance of BNSF

in 2000.

• Soaring fuel prices through-

out the year added more

than $230 million to our

fuel expenses compared

with 1999.

• Weak demand for coal,

due to milder-than-

expected weather most

of the year coupled with

large stockpiles during

the first half of 2000 at

the utilities we serve, con-

tributed to a reduction

in our coal revenues of

$95 million, or 4 percent,

from 1999.

To Our Shareholders,

Customers and Colleagues:

BNSF had a number of bright

spots in 2000. In particular,

the growth of our intermodal

revenue and volume and our

success in controlling oper-

ating expenses clearly made

the difference. Both areas are

expected to contribute similarly

to BNSF’s 2001 performance.

• Intermodal revenues grew

$147 million, or 6 percent,

and intermodal volumes

exceeded a record 3.44

million containers and

trailers, a 7 percent increase

over 1999.

• Adjusted operating expenses

on a year-over-year basis

grew only 1 percent, despite

a $230 million increase

in fuel costs for 2000 com-

pared with 1999.

• Limited exports of U.S.

agricultural commodities,

especially corn, lowered

our revenues $80 million,

or 6 percent, in 2000 com-

pared with 1999.

• And the slowdown in

America’s economy pro-

duced sluggish traffic

throughout the second

half of 2000 in our car-

load sector, including

forest products, metals and

chemicals. This restrained

the sector’s revenue growth

to only 1 percent, or $16

million, for the full year,

after a first-half revenue

growth rate of 3 percent,

compared with 1999.

A Five-Year Review

Although the past year has

had its ups and downs, when

On December 7, 2000, the Board of Directors elected Matthew K. RoseChief Executive Officer of BNSF. Matt, who joined the BNSF Board in July, continues as BNSF President, a position he has held since June 1999.Rob Krebs continues as Chairman.

In commenting on the announcement, Rob said, “Matt began his transportationcareer in 1981, and has management experience in both the trucking and railroad industries. At BNSF, he has held a series of senior leadershippositions in both marketing and operations. I’ve been a railroad presidentor CEO for 20 years and I know one of my most important jobs is to identify a successor. I’m grateful that Matt has the confidence of all of our importantconstituencies—our owners, customers and employees, and that the transitionhas been flawless. I know Matt has a great career ahead of him.”

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we look at what we have

achieved since the merger

of Burlington Northern and

Santa Fe in late 1995, we have

made enormous progress in

every area: safety; customer

service; efficiency, and finan-

cial performance. Based on

our progress, we were prepared

to take the next step. We

felt our plan, announced in

December 1999, to offer ship-

pers substantially expanded

single-line service through a

competitive end-to-end com-

bination with the Canadian

National Railway Company

(CN) would have provided

significant growth potential

and shareholder value, building

on our successes since 1995.

Regrettably, in July 2000,

together with CN, we gave up

our efforts to combine our

two companies. We believed

the risks and uncertainty

involved in waiting up to

two-and-one-half years for

a decision from the Surface

Transportation Board (STB)

were not in the best inter-

ests of our shareholders,

employees and customers.

The STB’s moratorium on

rail mergers is scheduled to

end on June 15, four days

after the STB’s new merger

rules become effective.

BNSF successes since 1995

in safety, customer service,

efficiency and financial

performance are worthy to

note because they demonstrate

our people’s commitment to

the BNSF vision: “To realize

the tremendous potential

of BNSF by providing trans-

portation services that con-

sistently meet our customers’

expectations.” This commit-

ment is reflected throughout

our organization. The BNSF

Achievement Award is designed

to recognize employee con-

tributions to this Vision and

to the Values that shape our

community. Beginning on

page 19 is a list of these

BNSF employees and the

activities for which they

won an Achievement Award

in 2000.

BNSF System Map

BNSF’s employees handled 8.167million loads of customer freight,including record levels of trafficalong the transcontinental main line, which runs between Chicagoand Los Angeles.

BNSF Lines and Trackage RightsRegional Connections

4

railroad has operated better than

ever. We also made on-time serv-

ice data available to customers,

and introduced in 2000 a new

web-based tracking and tracing

application. And each week,

our web site offers discounted

rates on intermodal shipments

between specific locations on

our network through a program

called ValueTrax.

Revenues grew 14 percent to

$9.2 billion during the period

from 1995 to 2000. At the same

time, system-wide on-time

performance improved to the 90

percent range throughout 1999

and 2000, up from 79 percent

and 82 percent, respectively,

in 1997 and 1998. As a result

of this improvement, we intro-

duced guaranteed intermodal

service, including a 100 percent

money-back option, on six key

long-haul corridors in 2000.

We are also providing a similar

service assurance option to car-

load customers shipping along

our high-growth I-5 corridor

running from Vancouver,

British Columbia to Southern

California and into Phoenix.

Each of these offerings is bring-

ing new freight business to

BNSF, taking advantage of our

efficient rail network that has

the U.S. rail industry’s lowest

operating cost.

Safety

At BNSF, we want to achieve

our potential, but we want to

do it safely. That’s the mark of

true leadership and our com-

mitment to our employees,

customers and the public. We

believe safety and efficiency go

hand-in-hand. Our goal is to

have an injury-free, accident-

free workplace.

Our progress toward this goal

since 1995 has been outstanding.

Employee injury frequency and

severity (lost work days) ratios,

as measured per 200,000 hours

worked, have dropped 12 per-

cent and 52 percent, respectively,

in this five-year period. This

reduction in severity reflects

approximately 22,000 fewer lost

workdays in 2000 compared

with 1995, or the equivalent

of 110 full-time employees.

BNSF has also experienced a

14 percent reduction in train

accidents per one million train

miles during this period across

our 33,500 route-mile network.

In addition, highway/rail-

crossing accidents per million

train miles were 39 percent

lower for 2000 than for 1995,

benefiting members of the

hundreds of communities that

BNSF serves in 28 states and

two Canadian provinces.

Customer Service

Providing consistent on-time

service to our customers is the

key to revenue growth and

realizing our potential. We

have changed our business

processes to make it easier for

customers to do business with

BNSF. We invested more than

$500 million since 1995 to

develop, expand and enhance

our real-time integrated infor-

mation system as well as to

constantly expand our suite

of web-based applications.

We cut over in mid-1997 to

our new system that provides

schedule information by car

and by train. Since then, our

Safety Severity Ratio 1995-2000 (lost work days/200,000 hours worked)

The severity ratio measures lost workdays due to injury per 200,000 hours worked. Figures reflect Federal RailroadAdministration data. 2000 ratio is preliminary, as of January 31, 2001.

5

execute flawlessly the transporta-

tion service plan (TSP) for every

car on our system based on our

customers’ needs.

Our Strategic Sourcing group

had an equally impressive

success story in 2000. They

identified approximately $125

million in annual cash savings,

$65 million of which was

realized in 2000. We worked

with our suppliers to tighten

specifications and ordering

processes and began imple-

menting standard purchasing

procedures for all expenditures

throughout BNSF, from office

supplies to locomotive parts

to travel and lodging. In 2001,

we’re focusing on further

savings from fuel, freight cars,

wheel sets and a variety of

equipment purchases. We are

working with other railroads

to establish industry standards

for purchasing and maintaining

commonly used equipment

and materials.

horsepower by 46 percent.

BNSF’s road fleet of nearly

4,000 locomotives set a fuel

efficiency record in 2000,

generating an average of 746

GTMs per gallon of diesel fuel,

about a 7 percent improvement

over the 1996 level. If we had

operated our locomotive fleet

in 2000 at the 1996 fuel effici-

ency level of 700 GTMs per

gallon, we would have used an

additional 77 million gallons

of fuel in 2000.

But BNSF’s most significant

efficiency initiatives took place

in our mechanical and engi-

neering departments in 2000.

Together, the departments

saved approximately $130

million by identifying and

removing “waste” from numer-

ous processes associated with

maintaining our locomotives,

freight cars, track, signals and

bridges. Our goal is to increase

the reliability and predictabil-

ity of our fleets and all of

our physical assets in order to

Efficiency

Service and efficiency work

together. As we add business

and improve the utilization of

our railcars and locomotives,

our customers benefit, our

system’s efficiency improves and

our operating costs decrease.

As a result, BNSF can provide

rail rates to customers that are

among the most competitive in

the transportation marketplace.

Since 1995, BNSF has increased

the annual number of gross ton

miles (GTMs) it handles at a

faster rate than other Class I

railroads. Gross ton miles, a

standard industry measure,

reflect the total tons of freight

hauled and the distance the

freight was moved. Over the

past five years, GTMs increased

17 percent to 875 billion. For

the same period, adjusted

operating expense per 1,000

GTMs declined 14 percent

to $7.20 adjusted for inflation.

Looked at another way, at year-

end 2000, GTMs per employee

reached 22.0 million, or a 34

percent increase since 1995. Since

the merger, overall employment

has been reduced 13 percent.

On the equipment side, about

$2.5 billion has been invested

in the acquisition of 1,624

fuel-efficient road locomotives

since 1995, boosting our total

Efficiency 1995-2000(gross ton miles/employee, in millions)

A key efficiency measure is the number of gross ton miles (GTMs) of freight handled per employee. In 2000,BNSF handled 22.0 million GTMs/employee, a 34 percent increase compared with 1995.

6

through 2005: revenue growth;

service; ease of doing business;

efficiency, and BNSF people.

More than 100 initiatives have

already been built around

these priorities.

One of the results we are aiming

to achieve through these initia-

tives is to generate at least $500

million in free cash flow in 2001

and exceed $1 billion in free

cash flow by 2005.

Here are some of the initiatives

we’ve identified for these five areas:

• Revenue Growth – Increase rev-

enues annually at more than

the rate of America’s economic

growth by developing new

products and programs, tap-

ping and penetrating new

markets, and expanding

our franchise with strategic

alliances and joint ventures.

• Service – Improve service to

the 95 percent on-time level

for all premium intermodal

customers and to the 90

percent level for all carload

customers by the end of 2002

track in the Powder River Basin

in Wyoming, and reopening the

Stampede Pass route in Washington.

With our record capital-spending

program behind us, we are now

able to generate free cash flow. Free

cash flow increased 66 percent to

$431 million in 2000 compared

with $260 million in 1999.

(All 1995 figures are “pro forma”

and include results for both

Burlington Northern Inc. and

Santa Fe Pacific Corporation.)

Beginning on and contin-

uing through Page 17, we describe

some of our year 2000 successes

in safety, efficiency, service, inno-

vation and growth. These suc-

cesses are building blocks to help

BNSF grow and deliver trans-

portation solutions that safely

and efficiently meet our customers’

expectations in the years ahead.

The Next Five Years

Late in 2000, we announced a set

of five strategic, customer-focused

priorities that will guide BNSF

Operating Income 1995-2000($ in billions)

Financial Performance

A review of the results of the past

five years demonstrates signif-

icant progress on all measures:

• Adjusted operating income

grew 41 percent to $2.15

billion;

• Our adjusted operating ratio

at 76.4 percent is about 5

percentage points lower than

in 1995;

• Adjusted net income grew

$286 million to $1.02 billion;

• Adjusted diluted earnings

per share rose 52 percent to

$2.45; and

• Dividends per share rose 20

percent to 48 cents annually.

Further, we spent more than $11

billion in capital to maintain and

improve our network and fleets

since the beginning of 1995,

including $1.7 billion on track

and facility expansion projects.

Among these projects were

rebuilding the Argentine yard in

Kansas; double-tracking several

hundred miles of the Los Angeles

to Chicago transcontinental

route; adding double and triple

Capital Investment 1995-2000($ in billions)

BNSF’s adjusted operating income in 2000 of $2.15 billion grew 41 percent comparedwith 1995. 2000 earnings have been adjusted to exclude second-quarter special items related to the reduction and redeployment of employees and third-quarter write-off of deferred BNSF/CN merger costs. Including the special items, operating income for the year was $2,108 million. Other years have also been adjusted for special items.

BNSF spent more than $11 billion in capital investments since the beginning of1995. After an aggressive expenditure program following the merger, BNSF hasscaled back its capital investment. BNSF’s 2000 capital investments of $1.763 billionrepresented a 30 percent decrease compared with the 1998 figure of $2.520 billion.Chart includes operating leases for freight equipment obtained to expand business.

7

mandatory retirement age. RonaldWoodard joined the BNSF boardat the time of the merger in1995. All three directors have con-tributed significantly to shapingBNSF, and we extend our appre-ciation and thanks to them.

Finally, we wouldn’t have achievedany of the successes described inthis letter and on the subsequentpages of this report without thecommitment, innovation andenthusiasm of our employees; theconfidence and trust of the thou-sands of customers who do busi-ness with us, and the even largernumber of shareholders who haveinvested in our future. To all of you, thank you very much.

Robert D. KrebsChairman

Matthew K. RosePresident and Chief Executive Officer

This is a large undertaking thatrequires marshalling the ideas

and commitment of all 40,000

BNSF employees. We believe

it is the right course of action

for our Company at this time,

and we are confident that we

can achieve these goals.

Our management team recog-

nizes the importance of creating

a positive and enthusiastic work-

place environment, as expressed

in one of our core shared values:

“Empowering employees and

showing concern for their well-being, and respect for their talentand achievements.”

We have made progress since

1995 thanks, in part, to thequality of our management teamand the support and trust of our

Board of Directors. Three of our

directors will not be standing forreelection at our annual sharehold-ers meeting. Joseph F. Alibrandi

and George Deukmejian servedon the boards of predecessor

companies since 1982 and 1991,respectively, and have reached

through better design and

execution of each car’s service

plan. We will continue to

reset our service goals as we

approach 2005. For our coal

customers, our goal is to

improve train cycle times from

the mine to the utility and

return to the mine. For our

grain customers, our goal is

to meet their request dates for

hopper cars at the elevators

and train delivery requirements

to the ports and other receivers.

• Ease of Doing Business –

Play a larger role in our cus-

tomers’ supply chains by

reducing the number of cus-

tomer touch points within

BNSF and by expanding web-

based transactions to cover

all needs of our customers.

• Efficiency – Keep BNSF’s cost

per GTM at the lowest level

in the industry without degra-

dation to our infrastructure

or service quality. This will be

accomplished by optimizing

our fleet size, velocity and

facility capacity, as well as

through disciplined execution

of each car’s service plan.

• BNSF People – Retain and

hire a well-qualified and

diverse workforce for BNSF.

We will continue to improve

safety performance and work-

force development through

training, an enhanced per-

formance management

system and adherence to

BNSF’s Vision and Values

(see page 18).

Matt Rose and Rob Krebs

8

SA

FE

TY BNSF’s grade crossing safety team, working with landowners

and communities along BNSF lines, closed or contracted to close 635 redundant or rarely used highway-rail gradecrossings in 2000. This figure was more than three times theprevious year’s figure and was unmatched in the industry. In addition, BNSF employees and volunteers offered 6,800Operation Lifesaver grade crossing safety programs incommunities along its line, including more than 600 truckdriver safety classes and 450 school bus driver safety classes.

seven crossings, put activewarning devices at eight,install stop signs at theremaining crossings, anddo roadway work at nine locations, using acombination of state and BNSF funds. Localresidents are pleased, andthey see the changes havebenefited the communityand improved safety.”

– Gene YoungTownship Officer and Hog FarmerLittle Falls, Minnesota

“What made sense 50 years ago, when a road was first built, may not makesense anymore. BNSFworked with the MinnesotaDepartment of Trans-portation and MorrisonCounty’s Area Council of Governments to look at every BNSF crossing in the county. We askedcommunities to thinkrealistically about whichcrossings no longer servedthe public need. Of these,BNSF and the state DOT were able to close

Highway-Rail Grade Crossing Incidents (per million train miles)

As the industry leader with the lowestrate of grade crossing collisions,BNSF has reduced its highway-railgrade crossing collision rate by 39percent since 1995.

10

SE

RV

IC

E BNSF Guaranteed Service—money back if delivery is not ontime—was introduced on three intermodal service corridorsin May 2000, and is operating at a 98 percent success rate. An industry first, this service has attracted shippers who neverbefore used rail transportation. The service was expanded toadditional intermodal service corridors in late 2000. A compar-able program for carload shipments, known as Service Assurance,was implemented in November 2000 on the I-5 Corridor,which links the Pacific Northwest with the Pacific Southwest.

in how we manage trans-portation of our product,and BNSF has been able to keep pace. BNSFprovides very good,

On-time Performance 2000 (percent on time)

In 2000, BNSF moved more than 8.167 million shipments, with an overall on-timeaverage of about 91 percent across all commodities. BNSF’s Guaranteed Service, apremium service product geared toward customers with stringent delivery requirements,handled more than 700 shipments in 2000 with 98 percent on-time performance.

truck-competitive service,and this is important as we ship product fromBritish Columbia to customers across the U.S.The more we continue to improve our service to customers, the morebusiness opportunitiesthere will be for Pacificaand BNSF.”

– Rob Broekhuizen Distribution ManagerPacifica PaperVancouver, B.C.

“At Pacifica Papers, we manufacture value addedpaper products that meetour customers’ uniqueneeds. Many of our cus-tomers demand ‘just in time’ delivery. Thisrequires more coordinationand support from ourtransportation providers.BNSF’s Service Assuranceprogram has allowed us to increase our volumewith BNSF in 2000. We have become moresophisticated at Pacifica

EF

FI

CI

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“Lean Workshops are about working smarter, not harder.We identify waste in ourwork area, gather data, andreduce waste, or ‘non-value-added’ (NVA) time. Super-visors and craftspeople setaside job titles and the ‘waythings have always beendone’ to search for efficientsolutions. A Lean Workshopat our Barstow locomotivefacility found the largestNVA item was moving loco-motives 2.5 miles to sevenlocations for maintenance.By moving the employees to

the locomotives instead,we reduced dwell time(the time a locomotive isunavailable to pull freight)here at Barstow from 68 hours to 32 hours!The Lean Process is work-ing at locations acrossBNSF, and excitementgrows as we rethink ourwork processes to improvequality and efficiency.”

– Jodie LeeBNSFGeneral ForemanBarstow, California

12

Each BNSF locomotive spends an average of 31 hours less “in the shop” for scheduled maintenance every three to four months, thanks to BNSF’s Lean Processimprovements in 2000. BNSF production crews used the Lean Process to improve rail and crosstie installationefficiency by about 19 percent in 2000. BNSF realizedsimilar improvements from 400 additional Lean Workshopsin 2000, on issues ranging from railcar inspections to signal installation to shop material inventories.

Locomotive MaintenanceProcess 1999-2000

Since October 1999, average locomotivedwell time for scheduled maintenancehas been reduced system-wide by 31hours, meaning each locomotive isavailable to pull freight more than oneday sooner. Each of BNSF’s 5,000active locomotives receives scheduledmaintenance three to four times a year.

Locomotive MaintenanceNovember 2000

Reduction in Maintenance Time

47 Hours

31 Hours

78 Hours

Locomotive MaintenanceOctober 1999

Electronic Transactions 1999-2000(percent of total)

Some BNSF e-Business tools, including ValueTrax, attract new business. Other e-Business tools improve “ease of doing business” by enabling customers to transactbusiness electronically. In 2000, BNSF substantially increased the percentage ofmajor transactions completed electronically.

IN

NO

VA

TI

ON

Los Angeles, for instance,helps us attract morerevenue loads as we repo-sition equipment for heavy mid-week volumes

Introduced in April 2000, BNSF ValueTrax, an on-lineprogram aimed to increase intermodal volume during off-peakdays and sell excess capacity on certain service corridors, hasresulted in an additional 90-100 loads a week. Other BNSFon-line innovations in 2000 include the Customer LogisticsSystem, which allows customers to create customized shipmentstatus reports; ePay, which allows customers to view freightbills and schedule payments electronically; and CarsOnTrack,which offers consumers rail transit for personal vehicles.

14

out of Southern California.BNSF is the first U.S.freight railroad to offertransportation specials viathe Internet. Designed forcustomers with flexibleproduction and shippingschedules, ValueTrax istruly revolutionary.”

– Randy Richardson BNSFManager, IntermodalMarketing Company (IMC) MarketingFort Worth, Texas

“With ValueTrax, we put certain intermodal routes‘on sale’ for the upcomingSunday, Monday, andTuesday, and post thosediscount fares on our website. It’s like the airlines’‘super saver’ program. Wefill more trains, as wereposition equipment onlow-volume days, and the shipper saves 15 to 20 percent on traffic thatwould otherwise moveanother way. An incentiverate on certain westbounddepartures from Chicago to

16

GR

OW

TH

to meet the expectationsof our internationalsteamship partners, andwe’ve positioned ourselvesto be a key player in our

customers’ success nowand well into this newcentury. Our Los Angeleshub is the busiest railintermodal facility in thenation. Everybody I knowis proud to play a part in handling the fastestgrowing business segmentin the rail industry.”

– Chuck PotempaBNSF Senior Hub ManagerLos Angeles, California

International Intermodal Growth (in number of containers)

BNSF’s international intermodal traffic has grown more than 60 percent since 1996.

With a 20 percent surge in international intermodal businessin 2000, BNSF’s Southern California terminals handledrecord volume. This growth was driven by strong importdemand and by larger-capacity vessels used by BNSFsteamship partners, including Maersk, Hyundai, NYK,OOCL and Evergreen. BNSF responded to this demand byadding service to match steamship schedules, expandingcontainer storage at origin and destination points, andincreasing intermodal facility capacity in the Los Angeles area.

“These are exciting times,to say the least. It takes a real team effort tohandle growth rates thatseemed unimaginable a couple years ago. Thesurge in internationalintermodal business rep-resents BNSF’s largestgrowth area in 2000.And, there is no reason to believe it’s going to slow down. If you thinkabout it, the health of theU.S. and world economydepends on BNSF’s ability

18

In 1997, BNSF’s senior management team developed a set ofcore values to complement BNSF’s vision. These values (seebelow) define and shape BNSF’s culture. A two-day workshopon Vision and Values was presented in 1998 to salariedemployees. A follow-up class, “Values in Action,” developedin 2000 shows how these values shape BNSF’s leadershipand management style. Vision and Values influences manyaspects of BNSF, from transportation and marketing decisionsto town hall meetings to BNSF Achievement Awards.B

NS

F’

S

VA

LU

ES

Style

As a Community, we are:• Tough-minded optimists• Decisive yet thorough• Open and supportive, and• Confident and proud of

our success

Liberty

As a member of the BNSFCommunity, each of us has theright to:

• A safe work environment—for the sake of ourselves, ourco-workers, our shippers andthe communities we serve

• Feel the satisfaction thatcomes from a job welldone—by using our talent,judgment and initiative, and by performing to ourfullest potential

• Express our individualism,ideas and concerns—con-sistent with the Community’sVision and Shared Values, to anyone in the Communitywithout fear of retribution

• Participate fully in lifeoutside of work—by enjoying the fruits of our own labor

Shared Values

As a Community, BNSF values:• Listening to customers and

doing what it takes to meettheir expectations

• Empowering employees and showing concern for their well-being, and respect fortheir talent and achievements

• Continuously improving by striving to do the right thingsafely and efficiently

• Celebrating our rich heritageand building on our success aswe shape our promising future

Efficiency

Efficiency is the best collective appli-cation of our resources to meet ourcustomers’ expectations. Each of uscontributes to efficiency when we:

• Understand our customers’expectations and priorities

• Help develop business processes that best matchBNSF resources with ourcustomers’ requirements

• Constantly monitor andmeasure our results in order to continuously improve

• Manage our Community’sresources as if they were our own

Equality

As a member of the BNSFCommunity, I can expect:

• To be treated with dignityand respect

• To be given equal access to tools, training anddevelopment opportunities

• To have equal opportunity to achieve my full potential

Community

BNSF is a Community of over 40,000 mutually depend-ent members. Each one of us depends upon BNSF for our livelihood, and through our collective efforts, BNSFdepends upon us to defend,sustain and strengthen ourCommunity. We are an effective Community when each of us:

• Believes in our Vision andembraces our Shared Values

• Knows our own role andstrives to fulfill it

• Respects, trusts and openlycommunicates with otherCommunity members

• Is proud of our heritage andconfident in our future

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Financial Contents21 Management’s Discussion and Analysis31 Report of Management31 Report of Independent Accountants32 Consolidated Statement of Income33 Consolidated Balance Sheet34 Consolidated Statement of Cash Flows35 Consolidated Statement of Changes in

Stockholders’ Equity36 Notes To Consolidated Financial Statements

Revenue TableThe following table presents BNSF’s revenue information by commodity for the years ended December 31, 2000, 1999 and1998 and includes certain reclassifications of prior year information to conform to current year presentation.

Average Revenue Revenues Cars/Units Per Car/Unit

2000 1999 1998 2000 1999 1998 2000 1999 1998(IN MILLIONS) (IN THOUSANDS)

Intermodal $2,654 $2,507 $2,451 3,441 3,203 3,086 $ 771 $ 783 $ 794Carload 2,577 2,561 2,593 1,774 1,773 1,801 1,453 1,444 1,440Coal 2,131 2,226 2,239 2,023 2,123 2,078 1,053 1,049 1,077Agricultural Commodities 1,257 1,337 1,280 680 715 689 1,849 1,870 1,858Automotive 493 443 388 249 250 230 1,980 1,772 1,687Total Freight Revenues 9,112 9,074 8,951 8,167 8,064 7,884 $1,116 $1,125 $1,135Other Revenues 93 115 103Total Revenues $9,205 $9,189 $9,054

Management’s Discussion And Analysis Of Financial Condition And Results Of Operations

Management’s discussion and analysis relates to thefinancial condition and results of operations of BurlingtonNorthern Santa Fe Corporation and its majority-ownedsubsidiaries (collectively, BNSF or Company). The prin-cipal subsidiary of BNSF is The Burlington Northern andSanta Fe Railway Company (BNSF Railway). All earningsper share information is stated on a diluted basis.

Results Of OperationsYear Ended December 31, 2000 Compared With Year Ended December 31, 1999Net income in 2000 was $980 million ($2.36 per share)compared with $1,137 million ($2.44 per share) for 1999.The decrease in earnings per share is primarily due to theeffect on net income of a $232 million increase in fuelexpenses and recognition in 1999 of a gain of $50 million(pre-tax) in connection with prior period line sales, lesscosts of $13 million (pre-tax) related to those sales, partiallyoffset by the favorable effect of the common stock repur-chase program (see Liquidity and Capital Resources:Common Stock Repurchase Program).

RevenuesTotal revenues for 2000 were $9,205 million or $16 million higher than 1999 revenues of $9,189 million. The $16 million increase primarily reflects increases

in the intermodal, carload and automotive sectors, par-tially offset by lower coal and agricultural revenues.Average revenue per car/unit decreased in 2000 to $1,116from $1,125 in 1999. Volumes increased for the year but experienced a general slowing late in 2000 based oneconomic conditions which have continued in January2001. During 2000, based on reporting to the Associationof American Railroads (AAR), BNSF’s share of thewestern United States rail traffic market decreased 0.4points to 43.1 percent.

Intermodal revenues of $2,654 million improved $147million, or 6 percent, compared with 1999 reflectingincreases in the international and truckload sectors,partially offset by decreases in the intermodal market-ing companies (IMC) and direct marketing sectors.International revenues were up due to high levels ofTrans-Pacific trade as well as market share gains withMitsui, Yang Ming and Hapag Lloyd. Truckload revenuesbenefited from strong Schneider National loadings.These revenue increases were partially offset by decreases in the direct marketing sector due to decreased loadingswithin the less than truckload segment and in the IMC sector due to pricing pressures, and strong over the road competition.

Carload revenues, which include revenues from the chem-icals, forest products, metals, minerals and machinery,perishable and dry boxcar sectors, of $2,577 million for2000 were $16 million, or 1 percent, higher than 1999

due to increases from the metals, perishables, and mineralssectors, partially offset by decreased chemicals, forestproducts, and machinery revenues. The metals increaseswere a result of a strong market for steel; the growth inperishables was from the success of new service offeringsand a partial recapture of the truck market; and increases in minerals were due to higher demand for clay and sandused in domestic oil production. These increases werepartially offset by decreased shipments of industrialchemicals, softness in the forest products sector, andlower shipments of heavy machinery.

Coal revenues of $2,131 million for 2000 decreased $95million, or 4 percent, as a result of volume decreases due to a decrease in demand as a result of milder weather andhigh customer inventories that affected shipments for mostof the year, while 1999 benefited from an inventory buildup in preparation for possible Year 2000 outages.

Agricultural commodities revenues of $1,257 million for2000 were $80 million, or 6 percent, lower than 1999due primarily to weaker corn export shipments to thePacific Northwest and Mexico, and decreased shipmentsof Gulf and Pacific Northwest wheat, both caused byworldwide crop competition. Revenues were also lower as a result of decreased shipments of bulk foods due to an oversupply of sugar and supplier price competition in the syrup market which resulted in less traffic.

Automotive revenues of $493 million for 2000 were $50 million, or 11 percent, higher than 1999 reflectingincreased industry-wide automobile production for most of the year and more profitable longer haul trafficdespite essentially flat volumes year-over-year.

ExpensesTotal operating expenses for 2000 were $7,097 million, an increase of $113 million, or 2 percent, compared withoperating expenses for 1999 of $6,984 million, despite a$232 million increase in fuel expenses.

Compensation and benefits expenses of $2,729 millionwere $43 million, or 2 percent, lower than 1999 primarilydue to lower employment levels and reduced incentiveexpense, partially offset by increased base wages.

Purchased services of $1,022 million for 2000 were $23million, or 2 percent, lower than 1999 primarily as aresult of decreased joint facility and contract switchingcharges as well as recoveries related to prior periods.This decrease was partially offset by increased contractequipment maintenance costs due to an increase in thenumber of locomotives under maintenance contracts and volume-related increases in ramping expenses.

Equipment rents expenses of $742 million were $10 mil-lion, or 1 percent, lower than 1999 as a result of lowerlease rates on rail cars as well as a decrease in the numberof leased agricultural commodity and coal cars, partiallyoffset by increased locomotive rental expense.

Fuel expenses of $932 million for 2000 were $232 million,or 33 percent, higher than 1999, as a result of a 20 cent, or 35 percent, increase in the average all-in cost per gallonof diesel fuel, partially offset by a 1 percent decrease inconsumption from 1,187 million gallons to 1,173 milliongallons. The increase in the average all-in cost per gallon of diesel fuel includes a 34 cent increase in the averagepurchase price, partially offset by the favorable impact in2000 from the Company’s fuel hedging program of 13cents per gallon compared with additional expense fromhedging of 1 cent per gallon in 1999.

Materials and other expenses of $777 million for 2000were $41 million, or 5 percent, lower than 1999 princi-pally reflecting: (i) reorganization costs of $48 millionincurred in the second quarter of 1999 for severance,pension, medical and other benefit costs for approx-imately 325 involuntarily terminated salaried employees (see Other Matters: Employee Merger and SeparationCosts); (ii) lower current year environmental expensesand other materials costs compared with 1999; and (iii) higher current year gains from easement sales. Off-setting these decreases were: (i) $22 million of employee-related severance, medical and other benefit costsrecorded in the second quarter of 2000 (see OtherMatters: Employee Merger and Separation Costs) forapproximately 150 involuntarily terminated employees,primarily material handlers in mechanical shops andtrainmen reserve boards; (ii) $54 million credit for the reversal of certain liabilities associated with theconsolidation of clerical functions in the second quarter1999 (see Other Matters: Employee Merger andSeparation Costs); (iii) the loss of previously earned state tax incentives in the second quarter 2000; and (iv) higher costs in 2000 related to the maintenance of leased equipment.

Interest expense for 2000 of $453 million increased $66million, or 17 percent, principally reflecting higher debtlevels resulting from the Company’s share repurchaseprogram and higher interest rates. Total debt increased to $6,846 million at December 31, 2000, from $5,813million at December 31, 1999.

Other income (expense), net was unfavorable by $71 million compared with 1999 primarily due to a $50 million (pre-tax) deferred gain recognized during 1999 in connection with the sale of rail lines in Southern California in 1992 and 1993, and therecognition in 2000 of $20 million (pre-tax) of expenses related to the termination of the proposedcombination with Canadian National Railway Company (see Note 3 to the Company’s consolidatedfinancial statements).

Year Ended December 31, 1999 Compared With Year Ended December 31, 1998Earnings per share increased to $2.44 per share for 1999from $2.43 per share for 1998 although net income wasslightly lower for 1999 at $1,137 million compared with

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1998 net income of $1,155 million. The slight decrease in net income is primarily due to a 1998 gain of $67million on the sale of substantially all of the Company’sinterest in Santa Fe Pacific Pipeline Partners, L.P., alongwith 1998 gains on real estate portfolio sales and higherinterest expense in 1999 incurred on borrowings to fundthe share repurchase program (see Liquidity and CapitalResources: Common Stock Repurchase Program), andincreased 1999 environmental expenses. These decreases in net income were partially offset by increased operatingrevenues in 1999 due to volume gains in most sectors.

RevenuesTotal revenues for 1999 were $9,189 million, or 1 percent, higher compared with revenues of $9,054 million for 1998. The $135 million increase primarilyreflects increases in the intermodal, agriculturalcommodities and automotive sectors, partially offset by lower carload and coal revenues. Average revenue per car/unit decreased slightly in 1999 to $1,125 from$1,135 in 1998. During 1999, BNSF’s share of thewestern United States rail traffic market, based onreporting to the AAR, decreased 0.8 points to 43.5percent. This decrease in market share was primarily due to Union Pacific regaining market share as a result of its recovery from operating difficulties experienced in the prior year.

Carload revenues of $2,561 million for 1999 were $32million, or 1 percent, lower than 1998 due to decreases in the chemicals, minerals and machinery, and metalssectors, partially offset by increased forest product revenues.The decreases were a result of weaknesses in the chemicalssector due to soft fertilizer markets, weaknesses in themetals sector due to increased steel imports, and a decreasein dedicated train movements of heavy machinery. Thesedecreases were partially offset by increased inland shipmentsof forest products.

Intermodal revenues of $2,507 million improved $56 mil-lion, or 2 percent, compared with 1998 reflecting increases in the direct marketing, international and truckloadsectors, partially offset by decreases in the intermodalmarketing companies (IMC) sector. Direct marketingrevenues benefited from year-over-year growth of unitsshipped for UPS and Roadway Express. Internationalrevenues were up due to market share gains and newbusiness with Sealand, NYK, Maersk and K-Line. Truck-load revenues were driven primarily by year-over-yeargrowth in J.B. Hunt, Swift and Triple Crown loadings.These revenue increases were partially offset by decreases in the IMC sector due to competitive pricing pressures, an overall softening in the IMC market, and increasedtrucking capacity.

Coal revenues of $2,226 million for 1999 decreased $13million, or 1 percent, as a result of a decrease in averagerevenue per car due to a decline in coal shipping rates on contracts renewed beginning in late 1998 at the lower1998 and 1999 market based rates. Operating difficulties

early in the year at the Powder River Basin mines, and a decrease in the demand for coal due to milder weatherfor most of the year, contributed to the year-over-yeardecrease, which was partially offset by an inventory build-up in 1999 to prepare for possible Year 2000 outages. Thetotal number of rail cars shipped increased by 45,000, or 2 percent, over 1998 volumes.

Agricultural commodities revenues of $1,337 million for1999 were $57 million, or 4 percent, higher than 1998due primarily to increased demand for soybean exportsand Pacific Northwest corn. The increase in soybean rev-enue was fueled by favorable pricing and an increasedsupply of soybeans that was sufficient to meet the higherdemand. Increases in revenue were slightly offset by lowerwheat revenue per car and fewer soybean oil shipments in 1999 compared with 1998.

Automotive revenues of $443 million for 1999 were $55 million, or 14 percent, higher than 1998 reflecting growth in vehicle shipments due to both a record year of new vehicle production coupled with an increase inrevenue per unit as a result of a favorable change in the mix of vehicles transported.

ExpensesTotal operating expenses for 1999 were $6,984 million, an increase of $88 million, or 1 percent, compared withoperating expenses for 1998 of $6,896 million.

Compensation and benefits expenses of $2,772 millionwere $40 million, or 1 percent, lower than 1998 primarilydue to lower employment levels resulting from the secondquarter 1999 reorganization discussed in Other Matters:Employee Merger and Separation Costs, partially offset byincreased base wage rates.

Purchased services of $1,045 million for 1999 were $25million, or 2 percent, higher than 1998 due primarily toincreased contract equipment maintenance costs as well as ramping and other transportation service contracts,partially offset by lower haulage expenses.

Equipment rents expenses of $752 million were $52 mil-lion, or 6 percent, lower than 1998 as a result of lowerintermodal equipment costs due to a reduction in timeand mileage, and trailer and container expenses. Loweragricultural leased car expense due to improved cycle times also contributed to the decrease.

Fuel expenses of $700 million for 1999 were $21 million,or 3 percent, lower than 1998, as a result of a 3 cent, or 6 percent, decrease in the average all-in cost per gallon ofdiesel fuel, partially offset by a 3 percent volume-drivenincrease in consumption from 1,155 million gallons to1,187 million gallons. The average all-in cost per gallon of diesel fuel decreased year-over-year due to current year fuel hedge losses of 1 cent per gallon compared to 7 cents per gallon in the prior year, which were partiallyoffset by a 3 cent increase in the average purchase price.

Materials and other expenses of $818 million for 1999 were $111 million, or 16 percent, higher than 1998principally reflecting higher environmental, personal injury, property and other tax expenses. As discussed inOther Matters: Employee Merger and Separation Costs,reorganization costs of $45 million were incurred duringthe second quarter of 1999 for severance, pension, medicaland other benefit costs for approximately 325 involun-tarily terminated salaried employees that were part of areorganization program announced in May 1999 toreduce operating expenses and an additional $3 million of costs incurred for relocating approximately 60 non-union employees as a result of the reorganization. Inaddition, the Company also reversed during the secondquarter certain merger severance liabilities of $54 millionassociated with the Company’s clerical consolidation plan. These liabilities related to planned work-forcereductions which were no longer needed due to theCompany’s ability to utilize a series of job swaps betweencertain locations to achieve the advantages of functionalwork consolidation.

Interest expense for 1999 of $387 million increased $33 million, or 9 percent, principally reflecting higherdebt levels resulting from the Company’s share repur-chase program. Total debt increased to $5,813 mil-lion at December 31, 1999, from $5,456 million at December 31, 1998.

Other income (expense), net was unfavorable by $44 millioncompared with 1998 primarily due to the $67 million gain(pre-tax) on the sale of substantially all of the Company’sinterest in Santa Fe Pacific Pipeline Partners, L.P. in 1998and gains of $26 million (pre-tax) from the sale of a realestate portfolio in 1998. This was partially offset by therecognition in 1999 of a $50 million (pre-tax) deferredgain in connection with the sale of rail lines in SouthernCalifornia in 1992 and 1993.

Liquidity And Capital ResourcesCash generated from operations is BNSF’s principalsource of liquidity. BNSF generally funds any additionalliquidity requirements through debt issuance, includingcommercial paper or leasing of assets.

During 2000, BNSF generated free cash flow after dividends paid (calculated as cash flow from operations less capital expenditures, other investing activities and dividends paid) of $431 million, an improvement of $171 million from free cash flow of $260 million in 1999. This increase was due primarily to reducedcapital spending partially offset by reduced cash flowfrom operating activities.

Operating ActivitiesNet cash provided by operating activities was $2,317million during 2000 compared with $2,424 millionduring 1999. The decrease in cash from operations was primarily due to a decrease in net income and lower deferred taxes, partially offset by the receipt of

a $43 million dividend from the Company’s equityinvestment in TTX Company in March 2000 as well as lower merger, separation and environmental clean-up payments.

Investing ActivitiesNet cash used for investing activities during 2000 was$1,680 million consisting of $1,399 million in capitalexpenditures as described below, and $281 million ofother investing activities which primarily include retiredtrack structure removal costs, participation in jointinvestment projects and advances for future investmenttransactions. The increase in other investing activitiescompared to 1999 was principally due to an increase in joint investment projects and advances for futureinvestment transactions.

A breakdown of cash capital expenditures is set forth in thefollowing table (in millions):

Year ended December 31, 2000 1999 1998

Maintenance of way $ 835 $ 810 $ 799Mechanical 221 240 243Information services 66 74 76Other 144 151 185Total maintenance of business 1,266 1,275 1,303New locomotives and freight cars – 261 340Expansion and other 133 252 504Total $1,399 $1,788 $2,147

BNSF reduced 2000 cash capital expenditures comparedwith 1999 by approximately $389 million to $1,399million. Cash used for new locomotives was lower in 2000 reflecting a decrease in the number of locomotivespurchased. In 2000, 246 new locomotives were deliveredto BNSF under long-term operating leases compared with476 locomotives in 1999. Expansion projects, principallymain line track and major facility construction, decreaseddue to a reduced capital program in 2000.

BNSF has entered into commitments to acquire 100locomotives in 2001. The locomotives will be financedfrom one or a combination of sources including, but notlimited to, cash from operations, capital or operatingleases, and debt issuances. The decision on the methodused will depend upon then current market conditionsand other factors.

Financing ActivitiesNet cash used for financing activities during 2000 was $648 million, principally consisting of share repur-chases of $1,496 million and dividend payments of $206 million, partially offset by net debt borrowings of $1,034 million.

In February 2000, a put option on $100 million ofmedium-term notes paying a coupon of 6.10 percent was exercised by the holders and the Company repaid the holders primarily with proceeds from the issuance of commercial paper.

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In April 2000, BNSF issued $300 million of 7.875 per-cent notes due April 2007 and $200 million of 8.125percent debentures due April 2020. The net proceeds of the debt issuance were used for general corporatepurposes including the repayment of outstanding com-mercial paper which increased primarily as a result of higher share repurchases. At the time of issuing the$300 million of 7.875 percent notes and the $200million of 8.125 percent debentures discussed above, the Company closed out two treasury lock transactions,each in an amount of $100 million, at gains of approx-imately $9 million and $13 million, respectively, whichhave been deferred and are being amortized to interestexpense over the lives of the notes and the debentures,respectively. Subsequent to this debt issuance, the Companyhad no remaining capacity under the February 1999 shelfregistration statement.

In April 2000, BNSF Railway issued $50 million ofprivately placed debt collateralized by locomotives thatwere acquired in 1999. This debt carries an interest rate of 7.77 percent and matures from April 2001 to 2015.

In May 2000, the Company filed a new shelf registrationstatement that became effective during May 2000 for the issuance of debt securities which may be issued in one or more series at an aggregate offering price not toexceed $1 billion.

In August 2000, BNSF issued $275 million of 7.95 per-cent debentures due August 2030 under the May 2000shelf registration statement. The net proceeds were usedfor general corporate purposes including the repayment of outstanding commercial paper which increased prima-rily as a result of higher share repurchases. At the time of issuing these debentures, the Company closed out atreasury lock transaction in the amount of $100 million at a gain of approximately $8 million which has beendeferred and is being amortized to interest expense overthe 30-year life of the debentures. Subsequent to thisissuance, the Company had $725 million available forborrowing under the May 2000 registration statement.

In December 2000, BNSF issued $300 million of 7.125percent notes due December 2010 under the May 2000shelf registration statement. The net proceeds were usedfor general corporate purposes including the repayment of outstanding commercial paper which increased prima-rily as a result of higher share repurchases. At the time of issuing these debentures, the Company closed out atreasury lock transaction in the amount of $100 million at a gain of approximately $5 million which has beendeferred and is being amortized to interest expense overthe 10-year life of the notes. Subsequent to this issuance,the Company had $425 million available for borrowingunder the May 2000 registration statement.

In March 1999, BNSF issued $200 million of 6.125percent notes due March 2009 and $200 million of 6.750 percent debentures due March 2029 under the

February 1999 shelf registration statement. The netproceeds were used for general corporate purposesincluding the repayment of commercial paper. At the time of issuing the $200 million of 6.125 percent notesdiscussed above, the Company closed out a $100 mil-lion treasury lock transaction at a gain of approximately $8 million which has been deferred and is being amortizedto interest expense over the 10-year life of the notes.

In April 1999, the holder of a call option on $200 mil-lion of the Company’s puttable reset debentures due 2029 exercised the call option. As a result, on May 13,1999, the holder repurchased the debentures which weresubsequently resold to investors. The interest rate on the debentures was reset to a fixed interest rate of 7.082percent. The Company did not receive any proceeds from the resale of these debentures.

Aggregate long-term debt scheduled to mature in 2001 is $232 million. BNSF’s ratio of total debt to total capital was 47.8 percent at the end of 2000, 41.6 percent at the end of 1999, and 41.2 percent at the end of 1998. The increase in 2000 over the prior year is attributable to the increase in debt and lower equity due primarily to higher share repurchases, asdiscussed below.

Credit AgreementsBNSF issues commercial paper from time to time which is supported by bank revolving credit agree-ments. Outstanding commercial paper balances areconsidered as reducing the amount of borrowingsavailable under these agreements. The bank revolvingcredit agreements, which were renewed and extendedeffective June 21, 2000, allow borrowings of up to $1.0 billion on a short-term basis (an increase of $250 million over the prior agreement) and $750 mil-lion on a long-term basis. Annual facility fees arecurrently 0.1 percent and 0.125 percent, respectively, and are subject to change based upon changes in BNSF’s senior unsecured debt ratings. Borrowing rates are based upon i) LIBOR plus a spread deter-mined by BNSF’s senior unsecured debt ratings, ii)money market rates offered at the option of the lenders, or iii) an alternate base rate. The Company generallyclassifies commercial paper as long-term to the extent of its commitments available under the revolving credit agreements. The commitments of the lenders under the short-term agreement are scheduled to expire in June 2001, with the ability for any amounts then outstanding to mature as late as June 2002. Thecommitments of the lenders under the long-termagreement are scheduled to expire in June 2005.

BNSF also had outstanding bank borrowings at December 31,2000, with maturity values of $75 million and interestrates similar to commercial paper which, upon maturity,may be replaced with commercial paper or other bankborrowings. There were no bank borrowings outstanding at December 31, 1999.

At December 31, 2000 there were no borrowings againstthe revolving credit agreements and the maturity value of commercial paper outstanding was $573 million,leaving a total capacity of $1,177 million available underthe revolving credit agreements. BNSF must maintaincompliance with certain financial covenants under itsrevolving credit agreements and at December 31, 2000,the Company was in compliance.

Common Stock Repurchase ProgramIn July 1997, the Board of Directors of BNSF author-ized the repurchase of up to 30 million shares of theCompany’s common stock from time to time in the open market. In December 1999, April 2000 andSeptember 2000, the Board of Directors authorizedextensions of the BNSF share repurchase program,adding 30 million shares at each date to the total shares previously authorized. During 2000, 1999and 1998, the Company repurchased approximately 65 million, 22 million, and 5 million shares, respec-tively, of its common stock at average prices of $23.16 per share, $31.08 per share, and $30.75 pershare, respectively. There were no repurchases under this program in 1997. Total repurchases through January 31, 2001, were 92 million shares at a totalaverage cost of $25.51 per share, leaving 28 millionshares available for repurchase out of the 120 millionshares authorized.

In connection with its share repurchase program, in April1999, BNSF sold equity put options for 0.1 millionshares of common stock to an independent third partyand received cash proceeds of $0.1 million. The thirdparty exercised the options on October 12, 1999, whichresulted in the Company purchasing 0.1 million shares of its common stock at $29 per share. The Companyaccounts for the effects of equity put option transactionswithin stockholders’ equity. During 2000, there were nosales of equity put options.

An equity put option is a financial instrument wherebyBNSF receives an upfront cash premium for grantinganother party the option to sell a defined number of BNSF shares to the Company at a fixed price on a specified future date. The Company considers the sale of equity put options as a method to acquire itscommon stock at a share price consistent with its sharerepurchase strategy and potentially reduce the all-in cost of the program. The Company’s risk is that it may be required to purchase shares at a specified pricethat is higher than the common stock price at theexercise date of the equity put option. The Company has the ability to settle its equity put option transac-tions on a net share or net cash basis and accounts forthe effects of these transactions within stockholders’equity. The number of shares subject to outstanding put options sold by the Company cannot exceed theamount of remaining shares the Board of Directors has authorized for repurchase. As of January 31, 2001,there were no equity put options outstanding.

Common Stock SplitOn July 16, 1998, the Board of Directors approved athree-for-one common stock split, which was effected in the form of a stock dividend of two additional sharesof BNSF common stock payable for each share out-standing or held in treasury on September 1, 1998, tostockholders of record on August 17, 1998. All equity-based benefit plans reflect the issuance of additionalshares or options due to the declaration of the stock split. All share and per share data were restated to reflectthe stock split.

DividendsCommon stock dividends declared were $0.48 per share annually for 2000 and 1999 and $0.44 per shareannually in 1998. Dividends paid on common stock were $206 million, $224 million and $197 millionduring 2000, 1999 and 1998, respectively. On January 18,2001, the Board of Directors declared a quarterly dividend of 12 cents per share upon outstanding shares of commonstock, $.01 par value, payable April 2, 2001, to stock-holders of record on March 12, 2001.

Other MattersCasualty And EnvironmentalPersonal injury claims, including work-related injuries to employees, are a significant expense for the railroadindustry. Employees of BNSF are compensated for work-related injuries according to the provisions of the FederalEmployers’ Liability Act (FELA). FELA’s system ofrequiring the finding of fault, coupled with unscheduledawards and reliance on the jury system, contributed tosignificant increases in expense in past years. BNSF hasimplemented a number of safety programs to reduce the number of personal injuries as well as the associatedclaims and personal injury expense. BNSF made paymentsfor personal injuries of approximately $178 million, $179 million, and $193 million in 2000, 1999 and 1998,respectively. At December 31, 2000 and 1999, theCompany had recorded liabilities related to both assertedand unasserted personal injury claims of $436 millionand $446 million, respectively.

As discussed in more detail in Note 11 to the Company’sconsolidated financial statements, the Company’s oper-ations, as well as those of its competitors, are subject toextensive federal, state and local environmental regu-lation. BNSF’s operating procedures include practices to protect the environment from the risks inherent inrailroad operations, which frequently involve transportingchemicals and other hazardous materials. Additionally,many of BNSF’s land holdings are and have been used for industrial or transportation-related purposes or leasedto commercial or industrial companies whose activitiesmay have resulted in discharges onto the property. As aresult, BNSF is subject to environmental clean-up andenforcement actions. In particular, the Federal Compre-hensive Environmental Response, Compensation andLiability Act of 1980 (CERCLA), also known as the“Superfund” law, as well as similar state laws generally

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impose joint and several liability for clean-up andenforcement costs on current and former owners andoperators of a site without regard to fault or the legality of the original conduct. BNSF has been notified that it is a potentially responsible party (PRP) for study andclean-up costs at approximately 31 Superfund sites forwhich investigation and remediation payments are or will be made or are yet to be determined (the Superfundsites) and, in many instances, is one of several PRPs. Inaddition, BNSF may be considered a PRP under certainother laws. Accordingly, under CERCLA and otherfederal and state statutes, BNSF may be held jointly andseverally liable for all environmental costs associated with a particular site. If there are other PRPs, BNSF generallyparticipates in the clean-up of these sites through cost-sharing agreements with terms that vary from site to site.Costs are typically allocated based on relative volumetriccontribution of material, the amount of time the site wasowned or operated, and/or the portion of the total siteowned or operated by each PRP.

Environmental costs include initial site surveys and envi-ronmental studies of potentially contaminated sites as well as costs for remediation and restoration of sitesdetermined to be contaminated. Liabilities for environ-mental clean-up costs are initially recorded when BNSF’sliability for environmental clean-up is both probable and a reasonable estimate of associated costs can be made. Adjustments to initial estimates are recorded asnecessary based upon additional information developed in subsequent periods. BNSF conducts an ongoingenvironmental contingency analysis, which considers acombination of factors including independent consultingreports, site visits, legal reviews, analysis of the likelihood of participation in and the ability of other PRPs to pay for clean-up, and historical trend analyses.

BNSF is involved in a number of administrative andjudicial proceedings and other mandatory clean-up efforts at approximately 385 sites, including theSuperfund sites, at which it is participating in the study or clean-up, or both, of alleged environmentalcontamination. BNSF paid approximately $49 million,$67 million and $64 million during 2000, 1999 and1998, respectively, for mandatory and unasserted clean-up efforts, including amounts expended under federaland state voluntary clean-up programs. The Companyhad recorded liabilities for remediation and restoration of all known sites of approximately $223 million atDecember 31, 2000, compared with $232 million atDecember 31, 1999. BNSF anticipates that the majority of the accrued costs at December 31, 2000, will be paid over the next five years. No individual site is considered to be material.

Liabilities recorded for environmental costs representBNSF’s best estimates for remediation and restoration of these sites and include both asserted and unassertedclaims. Unasserted claims are not considered to be amaterial component of the liability. Although recorded

liabilities include BNSF’s best estimates of all costs,without reduction for anticipated recoveries from thirdparties, BNSF’s total clean-up costs at these sites cannot be predicted with certainty due to various factors such as the extent of corrective actions that may be required,evolving environmental laws and regulations, advances in environmental technology, the extent of other parties’participation in clean-up efforts, developments in ongoingenvironmental analyses related to sites determined to be contaminated, and developments in environmentalsurveys and studies of potentially contaminated sites. As a result, future charges to income for environmentalliabilities could have a significant effect on results ofoperations in a particular quarter or fiscal year asindividual site studies and remediation and restorationefforts proceed or as new sites arise. However, manage-ment believes that it is unlikely that any identifiedmatters, either individually or in the aggregate, will have a material adverse effect on BNSF’s consolidatedresults of operations, financial position or liquidity.

Other Claims And LitigationBNSF and its subsidiaries are parties to a number of legal actions and claims, various governmental proceedingsand private civil suits arising in the ordinary course ofbusiness, including those related to environmental mattersand personal injury claims. While the final outcome ofthese items cannot be predicted with certainty, consideringamong other things the meritorious legal defenses available,it is the opinion of management that none of these items,when finally resolved, will have a material adverse effecton the results of operations, financial position or liquidityof BNSF, although an adverse resolution of a number ofthese items could have a material adverse effect on theresults of operations in a particular quarter or fiscal year.

Employee Merger And Separation CostsEmployee merger and separation liabilities of $310 millionand $356 million are included in the consolidated balancesheet at December 31, 2000 and 1999, respectively, andprincipally represent: (i) employee-related severance costsfor the consolidation of clerical functions; (ii) deferredbenefits payable upon separation or retirement to certainactive conductors, trainmen and locomotive engineers; and (iii) certain non-union employee severance costs.Employee merger and separation expenses are recorded to Materials and Other in the Company’s consolidatedincome statement.

Consolidation Of Clerical FunctionsLiabilities related to the consolidation of clerical functionswere $96 million and $119 million at December 31, 2000and 1999, respectively, and primarily provide for severancecosts associated with the clerical consolidation plan adoptedin 1995 upon consummation of the business combinationof BNSF’s predecessor companies Burlington Northern, Inc. and Santa Fe Pacific Corporation (the Merger). Theconsolidation plan resulted in the elimination of approx-imately 1,500 permanent positions and was substantiallycompleted during 1999.

In the fourth quarter of 2000 and the second quarter of1999, the Company recorded a $10 million and $54 mil-lion, respectively, reversal of certain liabilities associatedwith the consolidation plan. These liabilities related toplanned work force reductions that are no longer requireddue to the Company’s ability to place certain identifiedemployees in alternate positions. The remaining liabilitybalance at December 31, 2000 represents benefits to bepaid to affected employees who did not receive lump-sumpayments, but instead will be paid over five to ten years or in some cases through retirement.

In the second quarter of 2000, the Company recorded a charge of $17 million for severance, medical and other benefit costs related to approximately 140 materialhandlers in mechanical shops. Liabilities remaining at December 31, 2000 related to this program reflectelections to receive payments over the next several yearsrather than lump sum payments.

Conductors, Trainmen And Locomotive EngineersLiabilities related to deferred benefits payable upon sepa-ration or retirement to certain active conductors, trainmenand locomotive engineers were $183 million and $193million at December 31, 2000 and 1999, respectively.These costs were primarily incurred in connection withlabor agreements reached prior to the Merger which,among other things, reduced train crew sizes and allowedfor more flexible work rules.

In the second quarter of 2000, the Company incurred $3 million of costs for severance, medical and otherbenefit costs for approximately 50 trainmen on reserveboards. The remaining reserve of less than $1 million at December 31, 2000 will be paid over the next twoyears to severed employees who elected to receive theirpayments over time.

Non-Union Employee SeveranceLiabilities principally related to certain remaining non-union employee severances resulting from the May 1999 reorganization and from the Merger were $30 million and $44 million at December 31, 2000 and 1999, respectively. These costs will be paid over the next several years based on deferral elections made by the employees.

In the second quarter of 2000, the Company incurred $2 million of costs for severance, medical and otherbenefit costs for ten involuntarily terminated non-unionpositions. All of these planned reductions were completedat December 31, 2000.

In the second quarter of 1999, the Company incurred $45 million of reorganization costs for severance,pension, medical and other benefit costs for approx-imately 325 involuntarily terminated non-unionemployees that were part of the program announced in May 1999 that sought to reduce operating expenses by eliminating approximately 400 non-union and

1,000 scheduled (union) positions through severances,normal attrition and the elimination of contractors.Components of the charge include approximately $29 million relating to severance costs for non-unionemployees, and approximately $16 million for specialtermination benefits to be received under the Company’sretirement and medical plans. Substantially all of theplanned reductions were made by September 30, 1999.No significant costs were incurred as a result of elim-inating the 1,000 scheduled positions.

During 2000, 1999 and 1998, BNSF made employeemerger and separation payments of $58 million, $93million and $77 million, respectively. At December 31,2000, $49 million of the remaining liabilities areincluded within current liabilities for anticipated costs to be paid in 2001.

Hedging ActivitiesFuelHistorically, fuel expenses have approximated 10 percentof total operating expenses; however, fuel costs during2000 represented 13 percent of total operating expensesdue to significantly higher than historical fuel priceswhich have continued to date into 2001. Due to thesignificance of diesel fuel expenses to the operations of BNSF and the historical volatility of fuel prices, the Company maintains a program to hedge againstfluctuations in the price of its diesel fuel purchases. The intent of the program is to protect the Company’soperating margins and overall profitability from adversefuel price changes by entering into fuel hedge instru-ments based on management’s evaluation of current and expected diesel fuel price trends. However, to theextent the Company hedges portions of its fuel pur-chases, it may not realize the impact of decreases in fuel prices. Conversely, to the extent the Company does not hedge portions of its fuel purchases, it may beadversely affected by increases in fuel prices. The fuel-hedging program includes the use of commodity swaptransactions that are accounted for as hedges. Any gains or losses associated with changes in the marketvalue of the fuel swaps are deferred and recognized as a component of fuel expense in the period in whichthe fuel is purchased and used. Based on 2000 fuelconsumption and excluding the impact of the hedgingprogram, each one-cent increase in the price of fuelwould result in approximately $12 million of additionalfuel expense on an annual basis.

As of January 31, 2001, BNSF had entered into fuelswaps for approximately 378 million gallons at an average price of approximately 50 cents per gallon. The above price does not include taxes, transportationcosts, certain other fuel handling costs, and any differ-ences which may occur from time to time between theprices of commodities hedged and the purchase price of BNSF’s diesel fuel. Currently, BNSF’s fuel hedgingprogram covers approximately 24 percent and 8 percent of estimated annual fuel purchases for 2001 and 2002,

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respectively. Hedge positions are closely monitored toensure that they will not exceed actual fuel requirements in any period. Unrecognized gains from BNSF’s fuel swap transactions were approximately $74 million as ofDecember 31, 2000, of which $60 million relates to swaptransactions that will expire in 2001. BNSF also monitorsits hedging positions and credit ratings of its counterpartiesand does not anticipate losses due to counterparty nonper-formance. Receivables from fuel hedging activities of $50million and $29 million at December 31, 2000 and 1999respectively, are recorded in the Company’s consolidatedbalance sheet as part of Other Current Assets and representsettled fuel hedging contracts.

Interest RateFrom time to time, the Company enters into variousinterest rate hedging transactions for the purpose ofmanaging exposure to fluctuations in interest rates andestablishing rates in anticipation of future debt issuances.Swaps totaling $125 million which were used to fix theinterest rate on commercial paper debt expired in December1999. While the swaps were outstanding, BNSF recognized,on an accrual basis, a fixed rate of interest on the principalamount of commercial paper hedged over the term of theswap agreements. As of January 31, 2001, BNSF had nointerest rate swap instruments in place.

At the time of issuing the $300 million of 7.875 percentnotes and the $200 million of 8.125 percent debentures in April 2000, the Company closed out two treasury locktransactions with expiration dates in 2000, each in anamount of $100 million (one based on the 10-year andone based on the 30-year rates), at gains of approximately$9 million and $13 million, respectively, which have beendeferred and are being amortized to interest expense over the 30-year and 10-year lives of the notes and thedebentures, respectively.

At the time of issuing the $275 million of 7.95 percentdebentures in August 2000 and the $300 million of 7.125 percent notes in December 2000, the Companyclosed out two treasury lock transactions, each in anamount of $100 million (one based on the 30-year andone based on the 10-year rates and both with expirationdates in June 2001) at gains of $8 million and $5 million,respectively, which have been deferred and are beingamortized to interest expense over the 30-year and 10-yearlives of the debentures and notes, respectively.

In 1999, at the time of issuing $200 million of debt, theCompany closed out $100 million of treasury lock trans-actions at a gain of $8 million. During 1998, at the timeof issuing $400 million of debt, the Company closed out$400 million of treasury lock transactions at a loss ofapproximately $18 million. In each case, the gain or losshas been deferred and is being amortized to interestexpense over the life of the debt.

As of December 31, 2000, the Company had no outstand-ing treasury lock transactions.

LaborLabor unions represent approximately 89 percent of BNSF Railway’s employees under collective bargainingagreements with 13 different labor organizations. Thenegotiating process for new, major collective bargainingagreements covering all of BNSF Railway’s union employ-ees has been underway since the bargaining round wasinitiated November 1, 1999. Wages, health and welfarebenefits, work rules, and other issues have traditionallybeen addressed through industry-wide negotiations. These negotiations have generally taken place over anumber of months and have previously not resulted in any extended work stoppages. The existing agreementsremained in effect through the end of the year, and willcontinue to remain in effect until new agreements arereached or the Railway Labor Act’s procedures (whichinclude mediation, cooling-off periods, and the possibilityof Presidential intervention) are exhausted. The currentagreements provide for periodic wage increases until new agreements are reached. The National Carriers’ Con-ference Committee, BNSF’s multi-employer collectivebargaining representative, during the third quarter of 2000reached a tentative agreement with the United Transpor-tation Union (UTU) covering wage and work rule issuesthrough the year 2004 for conductors, brakemen, yardmen,yardmasters and firemen (approximately one third ofBNSF’s unionized workforce). The agreement is subject toratification by the UTU’s membership. Health and welfarebenefit issues were not resolved by this agreement, and will remain the subject of continuing negotiations.

InflationDue to the capital intensive nature of BNSF’s business, the full effect of inflation is not reflected in operatingexpenses because depreciation is based on historical cost.An assumption that all operating assets were depreciated at current price levels would result in substantially greaterexpense than historically reported amounts.

Accounting PronouncementsBNSF adopted Statement of Financial Accounting Standards(SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended by SFAS No. 138,beginning January 1, 2001. SFAS No. 133, as amended,requires that all derivative instruments be recorded on thebalance sheet at their fair value. Changes in fair value ofderivatives are recorded each period in current earnings or other comprehensive income, depending on whether aderivative is designated and qualifies for hedge accountingand, if it does, the type of hedge transaction.

For qualifying cash-flow hedge transactions in which the Company is hedging the variability of cash flowsrelated to a variable rate asset, liability, or a forecastedtransaction, changes in the fair value of the derivativeinstrument will be reported in other comprehensiveincome to the extent it offsets changes in the cash flowsrelated to the variable rate asset, liability or forecastedtransaction, with the difference reported in current period earnings. The gains and losses on the derivative

instrument that are reported in other comprehensiveincome will be reclassified in earnings in the periods inwhich earnings are impacted by the variability of the cash flows of the hedged item. The ineffective portion ofall hedges will be recognized in current-period earnings.

Based on fuel hedging instruments outstanding at January 1,2001 and previously deferred net gains from past interestrate hedging transactions, all of which are cash-flow hedgetransactions, the Company will record a net-of-taxcumulative-effect benefit to accumulated other comprehen-sive deficit in the Company’s consolidated balance sheetof approximately $58 million on adoption in the firstquarter 2001. Because the Company’s derivative instrumentshistorically have been highly effective in hedging the expo-sure to changes in cash flows associated with forecastedpurchases of diesel fuel and changes in the risk-free rateof interest on anticipated issuances of long-term debt, wedo not expect the adoption of SFAS 133, as amended, tohave a material impact on our future results of operations.

Although BNSF expects the derivative instruments itcurrently uses to hedge to continue to be highly effective, if they are determined not to be highly effective in thefuture, or if the Company uses derivative instrumentsthat do not meet the stringent requirements for hedgeaccounting under SFAS 133, as amended, then futureearnings could reflect greater volatility. Additionally, if a cash flow hedge is discontinued because the forecastedtransaction is no longer expected to occur, any gain orloss in accumulated comprehensive income associated

with the hedged transaction will be immediately recog-nized in net income.

Forward-Looking InformationTo the extent that the statements made by the Companyin this annual report or otherwise relate to the Company’sfuture economic performance or business outlook, predic-tions or expectations of financial or operational results,or refer to matters which are not historical facts, suchstatements are “forward-looking” statements within themeaning of the federal securities laws. These forward-looking statements involve a number of risks and uncertain-ties, and actual results may differ materially. Factors thatcould cause actual results to differ materially include, butare not limited to, economic and industry conditions: materialadverse changes in economic or industry conditions,customer demand, effects of adverse economic conditionsaffecting shippers, adverse economic conditions in theindustries and geographic areas that produce and consumefreight, changes in fuel prices, and labor difficultiesincluding strikes; legal and regulatory factors: change inlaws and regulations and the ultimate outcome of shipperclaims, environmental investigations or proceedings andother types of claims and litigation; and operating factors:technical difficulties, changes in operating conditions andcosts, competition and commodity concentrations as wellas natural events such as severe weather, floods and earth-quakes. The factors noted, individually or in combinationcould, among other things, limit demand and pricing,affect costs and the feasibility of certain operations, oraffect traffic and pricing levels.

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Report Of Management

To The Shareholders Of Burlington Northern Santa Fe CorporationThe accompanying consolidated financial statements ofBurlington Northern Santa Fe Corporation and subsidiarycompanies were prepared by management, who are respon-sible for their integrity and objectivity. They were prepared in accordance with generally accepted accounting principlesand properly include amounts that are based on manage-ment’s best judgments and estimates. Other financialinformation included in this annual report is consistentwith that in the consolidated financial statements.

The Company maintains a system of internal accountingcontrols to provide reasonable assurance that assets aresafeguarded and that the books and records reflect theauthorized transactions of the Company. Limitations existin any system of internal accounting controls based uponthe recognition that the cost of the system should notexceed the benefits derived. The Company believes itssystem of internal accounting controls, augmented by itsinternal auditing function, appropriately balances thecost/benefit relationship.

Independent accountants provide an objective assessment of the degree to which management meets its responsibilityfor fairness of financial reporting. They regularly evaluatethe system of internal accounting controls and perform such tests and other procedures as they deem necessary toexpress an opinion on the fairness of the consolidatedfinancial statements.

The Board of Directors pursues its responsibility for theCompany’s financial statements through its Audit Committeewhich is composed solely of directors who are not officersor employees of the Company. The Audit Committee meetsregularly with the independent accountants, managementand internal auditors. The independent accountants and theCompany’s internal auditors have direct access to the AuditCommittee, with and without the presence of managementrepresentatives, to discuss the scope and results of theirwork and their comments on the adequacy of internalaccounting controls and the quality of financial reporting.

Matthew K. Rose President and Chief Executive Officer

Thomas N. HundExecutive Vice President and Chief Financial Officer

Dennis R. JohnsonVice President and Controller

Report Of Independent Accountants

To The Shareholders And Board Of Directors OfBurlington Northern Santa Fe Corporation And SubsidiariesIn our opinion, the accompanying consolidated balance sheetand the related consolidated statements of income, of cashflows and of changes in stockholders’ equity present fairly,in all material respects, the financial position of BurlingtonNorthern Santa Fe Corporation and subsidiary companiesat December 31, 2000 and 1999, and the results of theiroperations and their cash flows for each of the three years inthe period ended December 31, 2000, in conformity withaccounting principles generally accepted in the United Statesof America. These financial statements are the responsibilityof the Company’s management; our responsibility is to expressan opinion on these financial statements based on our audits.We conducted our audits of these statements in accordancewith auditing standards generally accepted in the UnitedStates of America, which require that we plan and performthe audit to obtain reasonable assurance about whether thefinancial statements are free of material misstatement. Anaudit includes examining, on a test basis, evidence supportingthe amounts and disclosures in the financial statements,assessing the accounting principles used and significantestimates made by management, and evaluating the overallfinancial statement presentation. We believe that our auditsprovide a reasonable basis for our opinion.

PricewaterhouseCoopers LLPFort Worth, TexasFebruary 2, 2001

Consolidated Statement Of Income


(Dollars in millions, except per share data)


Revenues $9,205 $9,189 $9,054

Operating expenses:

Compensation and benefits 2,729 2,772 2,812

Purchased services 1,022 1,045 1,020

Depreciation and amortization 895 897 832

Equipment rents 742 752 804

Fuel 932 700 721

Materials and other 777 818 707

Total operating expenses 7,097 6,984 6,896

Operating income 2,108 2,205 2,158

Interest expense 453 387 354

Other income (expense), net (70) 1 45

Income before income taxes 1,585 1,819 1,849

Income tax expense 605 682 694

Net income $ 980 $1,137 $1,155

Earnings per share:

Basic $ 2.38 $ 2.46 $ 2.45

Diluted $ 2.36 $ 2.44 $ 2.43

Average shares (in millions):

Basic 412.1 463.2 470.5

Dilutive effect of stock awards 3.1 3.6 5.7

Diluted 415.2 466.8 476.2

See accompanying notes to consolidated financial statements.

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Consolidated Balance Sheet


(Shares in thousands, Dollars in millions)

December 31, 2000 1999

Assets

Current assets:

Cash and cash equivalents $ 11 $ 22

Accounts receivable, net 314 397

Materials and supplies 220 255

Current portion of deferred income taxes 299 326

Other current assets 132 66

Total current assets 976 1,066

Property and equipment, net 22,369 21,681

Other assets 1,030 953

Total assets $24,375 $23,700

Liabilities And Stockholders’ Equity

Current liabilities:

Accounts payable and other current liabilities $ 1,954 $ 1,917

Long-term debt due within one year 232 158

Total current liabilities 2,186 2,075

Long-term debt and commercial paper 6,614 5,655

Deferred income taxes 6,422 6,097

Casualty and environmental liabilities 430 423

Employee merger and separation costs 262 302

Other liabilities 981 976

Total liabilities 16,895 15,528

Commitments and contingencies (see Notes 8, 10 and 11)

Stockholders’equity:

Common stock, $.01 par value 600,000 shares authorized;

486,637 shares and 484,572 shares issued, respectively 5 5

Additional paid-in-capital 5,428 5,390

Retained earnings 4,505 3,726

Treasury stock, at cost, 95,045 shares and 30,013 shares, respectively (2,413) (913)

Unearned compensation (35) (29)

Accumulated other comprehensive deficit (10) (7)

Total stockholders’ equity 7,480 8,172

Total liabilities and stockholders’ equity $24,375 $23,700


Consolidated Statements Of Cash Flows


(Dollars in millions)


Operating Activities

Net income $ 980 $ 1,137 $ 1,155

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 895 897 832

Deferred income taxes 353 444 489

Employee merger and separation costs paid (58) (93) (77)

Other, net 33 (112) (243)

Changes in current assets and liabilities:

Accounts receivable:

Sale of accounts receivable – – 19

Other changes 83 127 20

Materials and supplies 35 (11) (39)

Other current assets (66) (32) (4)

Accounts payable and other current liabilities 62 67 66

Net cash provided by operating activities 2,317 2,424 2,218

Investing Activities

Capital expenditures (1,399) (1,788) (2,147)

Other, net (281) (152) (271)

Net cash used for investing activities (1,680) (1,940) (2,418)

Financing Activities

Net increase (decrease) in commercial paper and bank borrowings 169 (23) (242)

Proceeds from issuance of long-term debt 1,125 679 794

Payments on long-term debt (260) (293) (112)

Dividends paid (206) (224) (197)

Proceeds from stock options exercised 13 121 111

Purchase of BNSF common stock (1,496) (688) (153)

Other, net 7 (59) (7)

Net cash provided by (used for) financing activities (648) (487) 194

Decrease in cash and cash equivalents (11) (3) (6)

Cash and cash equivalents:

Beginning of year 22 25 31

End of year $ 11 $ 22 $ 25

Supplemental Cash Flow Information

Interest paid, net of amounts capitalized $ 437 $ 382 $ 354

Income taxes paid, net of refunds $ 296 $ 142 $ 220


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Consolidated Statement Of Changes In Stockholders’ Equity


(Shares in thousands, Dollars in millions, except per share data)

Common Shares of Stock and AccumulatedCommon Shares of Additional Other Com-

Stock Treasury Paid-in Retained Treasury Unearned prehensiveIssued Stock Capital Earnings Stock Compensation Deficit Total

Balance at December 31, 1997 470,240 (1,329) $5,033 $ 1,863 $ (36) $(31) $ (7) $ 6,822Comprehensive income:

Net income 1,155 1,155Minimum pension liability

adjustment (net of tax benefit of $0.5) (1) (1)

Total comprehensive income 1,154Common stock dividends,

$0.44 per share (207) (207)Adjustments associated with

unearned compensation, restricted stock 527 (132) 15 2 17

Exercise of stock options and related tax benefit 6,669 (537) 167 (17) 150

Purchase of BNSF common stock (4,963) (153) (153)Other 3 (2) 1Balance at December 31, 1998 477,436 (6,961) 5,218 2,811 (206) (31) (8) 7,784Comprehensive income:

Net income 1,137 1,137Minimum pension liability

adjustment (net of taxexpense of $0.5) 1 1

Total comprehensive income 1,138Common stock dividends,


unearned compensation, restricted stock 811 (332) 14 2 16


Purchase of BNSF common stock (22,120) (688) (688)Balance at December 31, 1999 484,572 (30,013) 5,395 3,726 (913) (29) (7) 8,172Comprehensive income:

Net income 980 980Minimum pension liability

adjustment (net of tax benefit of $1.5) (3) (3)

Total comprehensive income 977Common stock dividends,


unearned compensation, restricted stock 808 (297) 14 (6) 8


Shares issued from treasury 2Shareholder rights redemption (4) (4)Purchase of BNSF common stock (64,583) (1,496) (1,496)Balance at December 31, 2000 486,637 (95,045) $5,433 $4,505 $(2,413) $(35) $(10) $ 7,480


Notes To Consolidated Financial Statements Burlington Northern Santa Fe Corporation And Subsidiaries

1. The CompanyBurlington Northern Santa Fe Corporation including itsmajority-owned subsidiaries (collectively, BNSF or Company)is engaged primarily in railroad transportation through itsprincipal subsidiary, The Burlington Northern and Santa FeRailway Company (BNSF Railway), which operates one ofthe largest railroad networks in North America with approxi-mately 33,500 route miles covering 28 states and two Canadianprovinces. Through one operating transportation servicessegment, BNSF Railway transports a wide range of productsand commodities including the transportation of containersand trailers (intermodal), coal and agricultural commoditieswhich constituted 29 percent, 23 percent and 14 percent,respectively, of total revenues for the year ended December 31,2000. Other significant aspects of BNSF’s business includethe transportation of chemicals, forest products, consumergoods, metals, minerals, automobiles and automobile parts.Revenues derived from other sources are not significant.

2. Accounting PoliciesPrinciples Of ConsolidationThe consolidated financial statements include the accounts of Burlington Northern Santa Fe Corporation and itsmajority-owned subsidiaries, including its principal subsidiaryBNSF Railway, all of which are separate legal entities. Allsignificant intercompany accounts and transactions have been eliminated.

Use Of EstimatesThe preparation of financial statements in accordance withgenerally accepted accounting principles (GAAP) requiresmanagement to make estimates and assumptions thataffect the reported amounts of assets and liabilities anddisclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts ofrevenues and expenses during the periods presented. Actualresults could differ from those estimates.

Reclassifications Certain comparative prior year amounts in the consolidatedfinancial statements and accompanying notes have beenreclassified to conform with the current year presentation.These reclassifications had no effect on previously reportedoperating income and net income.

Cash And Cash EquivalentsAll short-term investments with original maturities of lessthan 90 days are considered cash equivalents. Cash equiv-alents are stated at cost, which approximates market valuebecause of the short maturity of these instruments.

Materials And SuppliesMaterials and supplies, which consist mainly of rail, tiesand other items for construction and maintenance ofproperty and equipment, as well as diesel fuel, are valued at the lower of average cost or market.

Property And EquipmentProperty and equipment are depreciated and amortized on a straight-line basis over their estimated useful lives. Uponnormal sale or retirement of depreciable railroad property,cost less net salvage is charged to accumulated depreciationand no gain or loss is recognized. Significant prematureretirements and the disposal of land and nonrail property arerecorded as gains or losses at the time of their occurrence.Expenditures which significantly increase asset values orextend useful lives are capitalized. Repair and maintenanceexpenditures are charged to operating expense when the workis performed. Property and equipment are stated at cost.

The Company incurs certain direct labor, contract serv-ice and other costs associated with the development andinstallation of internal-use computer software. Costs fornewly developed software or significant enhancements to existing software are typically capitalized. Research,preliminary project, operations, maintenance and trainingcosts are charged to operating expense when the work is performed.

Revenue Recognition Transportation revenues are recognized based upon theproportion of service provided as of the balance sheet date.Revenues from ancillary services are recognized when performed.

The Company adopted Emerging Issues Task Force Issue No.99-19, Reporting Revenue Gross as a Principal Versus Net as anAgent, beginning in the fourth quarter of 2000. Accordingly,reclassifications were made between revenue and operatingexpense for all periods presented. These reclassifications had noeffect on previously reported operating income and net income.

3. Other Income (Expense), Net Other income (expense), net includes the following (in millions):


Gain on property dispositions $ 29 $ 26 $ 48Deferred gain on prior

period line sale – 50 –Gain on sale of Pipeline Partnership – – 67Equity in earnings of

Pipeline Partnership – – 4Accounts receivable sale fees (40) (33) (34)Merger costs (20) – –Miscellaneous, net (39) (42) (40)Total $(70) $ 1 $ 45

On December 18, 1999, BNSF and Canadian NationalRailway Company (CN) entered into an agreement tocombine the two companies. On July 20, 2000, BNSF andCN announced their mutual termination of the combinationagreement with neither party paying any break-up fees. Dueto the termination, the Company recorded to Other Income(Expense), Net $20 million (pre-tax) in costs related to thecombination during the third quarter. These costs wouldhave been included as part of the purchase price had thecombination been consummated.

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BNSF recognized a $50 million deferred gain in the thirdquarter of 1999 in connection with the sale of rail lines inSouthern California in 1992 and 1993 that was partiallyoffset by $13 million of costs related to those sales.

Santa Fe Pacific Pipelines, Inc. (SFP Pipelines), an indirect,wholly-owned subsidiary of BNSF, served as the generalpartner of Santa Fe Pacific Pipeline Partners, L.P. (PipelinePartnership) and of its operating partnership subsidiary,SFPP, L.P. SFP Pipelines owned a two percent interest as thePipeline Partnership’s and SFPP, L.P.’s general partner andan approximate 42 percent interest in partnership units ofthe Pipeline Partnership. SFP Pipeline Holdings, Inc., anindirect, wholly-owned subsidiary of BNSF (SFP Holdings),had outstanding $219 million principal amount of VariableRate Exchangeable Debentures due 2010 (VREDs) atDecember 31, 1997.

On March 6, 1998, Kinder Morgan Energy Partners, L.P.(Kinder Morgan) acquired substantially all of SFP Pipelines’interest in the Pipeline Partnership and SFPP, L.P. for approx-imately $84 million in cash. The Pipeline Partnership wasliquidated as part of the transaction and SFP Pipelines’ part-nership units were converted into the right to receive KinderMorgan common units. Consummation of the transactioncaused an “Exchange Event” under the VRED agreement andin June 1998 all VRED holders received either partnershipunits of Kinder Morgan or cash equal to the par value of theVREDs. In addition, the agreement called for SFP Pipelines’interest in SFPP, L.P. to be partially redeemed for a cash distri-bution of $5.8 million, with SFP Pipelines retaining only a0.5 percent special limited partnership interest in SFPP, L.P.As a result of the transaction, the Company recognized a $67 million gain and substantially all of the Company’sinvestment in the Pipeline Partnership and SFPP, L.P. and theVREDs were removed from the consolidated balance sheet.

4. Income TaxesIncome tax expense was as follows (in millions):


Current:Federal $225 $213 $191State 27 25 14

252 238 205Deferred:

Federal 303 376 410State 50 68 79

353 444 489Total $605 $682 $694

Reconciliation of the federal statutory income tax rate tothe effective tax rate was as follows:


Federal statutory income tax rate 35.0% 35.0% 35.0%State income taxes,

net of federal tax benefit 3.2 3.3 3.3Other, net – (0.8) (0.7)

Effective tax rate 38.2% 37.5% 37.6%

The components of deferred tax assets and liabilities were as follows (in millions):

December 31, 2000 1999

Deferred tax liabilities:Depreciation and amortization $(6,382) $(6,106)Other (477) (441)

Total deferred tax liabilities (6,859) (6,547)Deferred tax assets:

Casualty and environmental 273 272Employee merger and separation costs 119 137Postretirement benefits 95 93Other 249 274

Total deferred tax assets 736 776Net deferred tax liability $(6,123) $(5,771)

Noncurrent deferred income tax liability $(6,422) $(6,097)Current deferred income tax asset 299 326

Net deferred tax liability $(6,123) $(5,771)

The federal income tax returns of BNSF’s predecessorcompanies, Burlington Northern Inc. (BNI) and Santa FePacific Corporation (SFP) have been examined through1994 and merger date September 1995, respectively. All years prior to 1992 for BNI and 1993 for SFP areclosed. Issues relating to the years 1992-1994 for BNIand for years 1993 through merger date September 1995 for SFP are being contested through various stages of administrative appeal. BNSF is currently under IRSexamination for years 1995-1997. In addition, BNSF and its subsidiaries have various state income tax returnsin the process of examination, administrative appeal orlitigation. Management believes that adequate provisionhas been made for any adjustment that might be assessedfor open years through 2000.

5. Accounts Receivable, Net BNSF Railway, through a special purpose subsidiary, has anaccount receivable sales agreement which allows it to sell up to$600 million of variable rate certificates that mature in 2002and evidence undivided interests in an accounts receivablemaster trust. The master trust’s assets include an ownershipinterest in a revolving portfolio of BNSF Railway’s accountsreceivable which are used to support the certificates.

At both December 31, 2000 and 1999, $600 million of cer-tificates were outstanding. These certificates were supported by $882 million of receivables at December 31, 2000 and$972 million of receivables at December 31, 1999. WhenBNSF sells these receivables to the master trust it retains anundivided interest in the receivables sold. Due to a relativelyshort collection cycle, the fair value of this undivided interestis calculated as the gross amount receivable less an allowancefor uncollectible accounts. At December 31, 2000 and 1999,BNSF’s retained interest in these receivables totaled $282 mil-lion and $372 million, respectively, less the normal allowancesfor uncollectible accounts. The retained interest in both yearsreflects the total receivables sold less $600 million of receiv-ables derecognized in connection with the sale of the certifi-cates. The investors in the master trust have no recourse toBNSF Railway’s other assets.

BNSF Railway has retained the collection responsibilitywith respect to the accounts receivable. The costs of thesales of receivables to the master trust vary monthlyrelative to certain interest rates. These costs are includedin Other Income (Expense), Net. The costs of these sales in 2000 and 1999 were $40 million and $33 million,respectively. These costs were based on weighted averageinterest rates of 6.7% in 2000 and 5.5% in 1999. Proceedsfrom collections reinvested in the securitization wereapproximately $10 million in 2000 and 1999.

BNSF maintains an allowance for uncollectible accountsreceivable. At December 31, 2000 and 1999, $45 mil-lion and $50 million, respectively, of such allowances had been recorded.

6. Property And Equipment, NetProperty and equipment, net (in millions), and the weightedaverage annual depreciation rate (%) were as follows:

2000Depreciation

December 31, 2000 1999 Rate

Land $ 1,420 $ 1,430 –%Track structure 11,900 11,322 4.0%Other roadway 9,137 8,884 2.5%Locomotives 2,799 2,602 5.0%Freight cars and other

equipment 1,821 1,838 3.8%Computer hardware

and software 362 448 14.7%Total cost 27,439 26,524Less accumulated depre-

ciation and amortization (5,070) (4,843)Property and equipment, net $22,369 $21,681

The consolidated balance sheet at December 31, 2000and 1999 included $1,195 million and $1,218 million,respectively, for property and equipment under capital leases.

7. Accounts Payable And Other Current LiabilitiesAccounts payable and other current liabilities consisted ofthe following (in millions):

December 31, 2000 1999

Compensation and benefits payable $ 352 $ 376Casualty and environmental liabilities 229 255Accounts payable 212 161Tax liabilities 143 201Rents and leases 142 160Accrued interest 114 98Contract allowances 109 96Employee merger and separation costs 49 54Other 604 516Total $1,954 $1,917

8. DebtDebt outstanding was as follows (in millions):

December 31, 2000 1999

Notes and debentures, weighted average rate of 7.2%, due 2001 to 2097 $4,294 $3,321

Capitalized lease obligations, weighted average rate of 6.6%, due 2001 to 2016 736 791

Equipment obligations, weighted average rate of 7.3%, due 2001 to 2016 742 755

Mortgage bonds, weighted average rate of 7.9%, due 2001 to 2047 467 503

Commercial paper, 7.0% (variable) 567 473Bank borrowings, 6.9% 74 –Unamortized discount and other, net (34) (30)

Total 6,846 5,813Less: current portion of long-term debt (232) (158)

Long-term debt $6,614 $5,655

BNSF issues commercial paper from time to time which issupported by bank revolving credit agreements. Outstandingcommercial paper balances are considered as reducing theamount of borrowings available under these agreements. Thebank revolving credit agreements, which were renewed andextended effective June 21, 2000, allow borrowings of up to$1.0 billion on a short-term basis (an increase of $250 mil-lion over the prior agreement) and $750 million on a long-term basis. Annual facility fees are currently 0.1 percent and0.125 percent, respectively, and are subject to change basedupon changes in BNSF’s senior unsecured debt ratings.Borrowing rates are based upon i) LIBOR plus a spreaddetermined by BNSF’s senior unsecured debt ratings, ii)money market rates offered at the option of the lenders, oriii) an alternate base rate. The Company generally classifiescommercial paper as long-term to the extent of its commit-ments available under the revolving credit agreements. Thecommitments of the lenders under the short-term agreementare scheduled to expire in June 2001 with the ability for anyamounts then outstanding to mature as late as June 2002.The commitments of the lenders under the long-term agree-ment are scheduled to expire in June 2005.

At December 31, 2000, there were no borrowings againstthe revolving credit agreements and the maturity value ofcommercial paper outstanding was $573 million, leaving atotal remaining capacity of $1,177 million available underthe revolving credit agreements. BNSF must maintain com-pliance with certain financial covenants under its revolvingcredit agreements and at December 31, 2000, the Companywas in compliance.

In February 2000, a put option on $100 million of medium-term notes paying a coupon of 6.10 percent was exercisedby the holders and the Company repaid the holders primarilywith proceeds from the issuance of commercial paper.

In April 2000, BNSF issued $300 million of 7.875 percentnotes due April 2007 and $200 million of 8.125 percentdebentures due April 2020. The net proceeds of the debtissuance were used for general corporate purposes including

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the repayment of outstanding commercial paper whichincreased primarily as a result of higher share repurchases.At the time of issuing the $300 million of 7.875 percentnotes and the $200 million of 8.125 percent debenturesdiscussed above, the Company closed out two treasury lock transactions, each in an amount of $100 million, at gains of approximately $9 million and $13 million,respectively, which have been deferred and are beingamortized to interest expense over the lives of the notesand the debentures, respectively. Subsequent to this debtissuance, the Company had no remaining capacity underthe February 1999 shelf registration statement.

In April 2000, BNSF Railway issued $50 million of privatelyplaced debt collateralized by locomotives that were acquiredin 1999. This debt carries an interest rate of 7.77 percentand matures from April 2001 to 2015.

In May 2000, the Company filed a new shelf registrationstatement that became effective during May 2000 for the issuance of debt securities which may be issued in one or more series at an aggregate offering price not toexceed $1 billion.

In August 2000, BNSF issued $275 million of 7.950 per-cent debentures due August 2030 under the May 2000 shelf registration statement. The net proceeds were used for general corporate purposes including the repayment ofoutstanding commercial paper which increased primarily asa result of higher share repurchases. At the time of issuingthese debentures, the Company closed out a treasury locktransaction in the amount of $100 million at a gain ofapproximately $8 million which has been deferred and isbeing amortized to interest expense over the 30-year life ofthe debentures. Subsequent to this issuance, the Companyhad $725 million available for borrowing under the May2000 registration statement.

In December 2000, BNSF issued $300 million of 7.125percent notes due December 2010 under the May 2000shelf registration statement. The net proceeds were usedfor general corporate purposes including the repayment of outstanding commercial paper which increased prima-rily as a result of higher share repurchases. At the time of issuing these debentures, the Company closed out atreasury lock transaction in the amount of $100 million at a gain of approximately $5 million which has beendeferred and is being amortized to interest expense overthe 10-year life of the notes. Subsequent to this issuance,the Company had $425 million available for borrowingunder the May 2000 registration statement.

In March 1999, BNSF issued $200 million of 6.125percent notes due March 2009 and $200 million of 6.750percent debentures due March 2029 under the February1999 shelf registration statement. The net proceeds wereused for general corporate purposes including the repay-ment of commercial paper. At the time of issuing the $200 million of 6.125 percent notes discussed above, the Company closed out a $100 million treasury lock

transaction at a gain of approximately $8 million whichhas been deferred and is being amortized to interestexpense over the 10-year life of the notes.

In April 1999, the holder of a call option on $200 million of the Company’s puttable reset debentures due 2029exercised the call option. As a result, on May 13, 1999, the holder repurchased the debentures which were sub-sequently resold to investors. The interest rate on thedebentures was reset to a fixed interest rate of 7.082percent. The Company did not receive any proceeds from the resale of these debentures.

Most BNSF Railway properties and certain other assets arepledged as collateral to, or are otherwise restricted under,the various BNSF Railway long-term debt agreements.Equipment obligations and capital leases are collateralizedby the underlying equipment.

SFP Pipelines, Inc., in connection with its remaining 0.5percent special limited partner interest in SFPP, L.P., iscontingently liable for $190 million of certain KinderMorgan debt pursuant to the sale discussed in Note 3:Other Income (Expense), Net. In addition, BNSF andanother major railroad jointly and severally guarantee $75 million of debt of KCT Intermodal TransportationCorporation, the proceeds of which were used to finance the construction of a double track grade separation bridge in Kansas City, Missouri, to be operated and used by Kansas City Terminal Railway Company.

Aggregate long-term debt scheduled maturities are $232 mil-lion, $288 million, $145 million, $244 million and $1,081million for 2001 through 2005, respectively. Maturities in2001 exclude $100 million of 6.050 percent notes due2031, which will either be remarketed by the holder of a calloption on the debt and mature in 2031 or will otherwise be repurchased by the Company in March 2001. Maturities in 2003 exclude $175 million of 6.530 percent notes due2037, which may be redeemed in 2003 at the option of theholder. In addition, commercial paper and bank borrowingsof $641 million are included in maturities for 2005. BNSFhad bank borrowings outstanding at December 31, 2000,with maturity values of $75 million, and interest ratessimilar to commercial paper which, upon maturity, may be replaced with commercial paper or other bank borrow-ings. There were no bank borrowings outstanding atDecember 31, 1999.

The carrying amounts of BNSF’s long-term debt andcommercial paper at December 31, 2000 and 1999 were$6,846 million and $5,813 million, respectively, while the estimated fair values at December 31, 2000 and 1999were $6,804 million and $5,632 million, respectively. Thefair value of BNSF’s long-term debt is primarily based onquoted market prices for the same or similar issues, or on the current rates that would be offered to BNSF for debt of the same remaining maturities. The carrying amount of commercial paper approximates fair value because of the short maturity of these instruments.

9. Employee Merger And Separation CostsEmployee merger and separation liabilities of $310 millionand $356 million are included in the consolidated balancesheet at December 31, 2000 and 1999, respectively, andprincipally represent: (i) employee-related severance costsfor the consolidation of clerical functions; (ii) deferredbenefits payable upon separation or retirement to certainactive conductors, trainmen and locomotive engineers; and (iii) certain non-union employee severance costs.Employee merger and separation expenses are recorded in Materials and Other in the Company’s consolidatedincome statement.

Consolidation Of Clerical FunctionsLiabilities related to the consolidation of clerical func-tions were $96 million and $119 million at December 31,2000 and 1999, respectively, and primarily provide forseverance costs associated with the clerical consolidationplan adopted in 1995 upon consummation of the businesscombination of BNSF’s predecessor companies BurlingtonNorthern, Inc. and Santa Fe Pacific Corporation (theMerger). The consolidation plan resulted in the elimina-tion of approximately 1,500 permanent positions and was substantially completed during 1999.

In the fourth quarter of 2000 and the second quarter of1999, the Company recorded a $10 million and $54million, respectively, reversal of certain liabilities associatedwith the consolidation plan. These liabilities related toplanned work-force reductions that are no longer requireddue to the Company’s ability to place certain identifiedemployees in alternate positions. The remaining liabilitybalance at December 31, 2000 represents benefits to be paid to affected employees who did not receive lump-sumpayments, but instead will be paid over five to ten years orin some cases through retirement.

In the second quarter of 2000, the Company recorded acharge of $17 million for severance, medical and otherbenefit costs related to approximately 140 materialhandlers in mechanical shops. Liabilities remaining atDecember 31, 2000 related to this program reflectelections to receive payments over the next several years,rather than lump sum payments.

Conductors, Trainmen And Locomotive EngineersLiabilities related to deferred benefits payable upon separationor retirement to certain active conductors, trainmen andlocomotive engineers were $183 million and $193 million atDecember 31, 2000 and 1999, respectively. These costs wereprimarily incurred in connection with labor agreements reachedprior to the Merger which, among other things, reduced traincrew sizes and allowed for more flexible work rules.

In the second quarter of 2000, the Company incurred $3 million of costs for severance, medical and other benefitcosts for approximately 50 trainmen on reserve boards. The remaining reserve of less than $1 million will be paidover the next two years to severed employees who elected toreceive their payments over time.

Non-Union Employee SeveranceLiabilities principally related to certain remaining non-union employee severances resulting from the May 1999reorganization and from the Merger were $30 million and$44 million at December 31, 2000 and 1999, respectively.These costs will be paid over the next several years basedon deferral elections made by the employees.

In the second quarter of 2000, the Company incurred $2million of costs for severance, medical and other benefitcosts for ten involuntarily terminated non-union posi-tions. All of these planned reductions were completed atDecember 31, 2000.

In the second quarter of 1999, the Company incurred $45 million of reorganization costs for severance, pension,medical and other benefit costs for approximately 325 invol-untarily terminated non-union employees that were part of the program announced in May 1999 that sought toreduce operating expenses by eliminating approximately 400non-union and 1,000 scheduled (union) positions throughseverances, normal attrition and the elimination of contrac-tors. Components of the charge include approximately $29million relating to severance costs for non-union employees,and approximately $16 million for special termination benefitsto be received under the Company’s retirement and medicalplans. Substantially all of the planned reductions were madeby September 30, 1999. No significant costs were incurredas a result of eliminating the 1,000 scheduled positions.

During 2000, 1999 and 1998, BNSF made employee mergerand separation payments of $58 million, $93 million and$77 million, respectively. At December 31, 2000, $49 mil-lion of the remaining liabilities are included within currentliabilities for anticipated costs to be paid in 2001.

10. Hedging ActivitiesFuelHistorically, fuel expenses have approximated 10 percent of total operating expenses; however, fuel costs during 2000represent 13 percent of total operating expenses due to signifi-cantly higher than historical fuel prices. Due to the signifi-cance of diesel fuel expenses to the operations of BNSF andthe historical volatility of fuel prices, the Company main-tains a program to hedge against fluctuations in the price ofits diesel fuel purchases. The intent of the program is to protectthe Company’s operating margins and overall profitabilityfrom adverse fuel price changes by entering into fuel hedgeinstruments based on management’s evaluation of currentand expected diesel fuel price trends. However, to the extentthe Company hedges portions of its fuel purchases, it maynot realize the impact of decreases in fuel prices. Conversely,to the extent the Company does not hedge portions of its fuel purchases, it may be adversely affected by increasesin fuel prices. The fuel-hedging program includes the useof commodity swap transactions that are accounted for ashedges. Any gains or losses associated with changes in themarket value of the fuel swaps are deferred and recognized as a component of fuel expense in the period in which thefuel is purchased and used. Based on 2000 fuel consumption

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and excluding the impact of the hedging program, each one-cent increase in the price of fuel would result inapproximately $12 million of additional fuel expense on an annual basis.

As of January 31, 2001, BNSF had entered into fuel swapsfor approximately 378 million gallons at an average price ofapproximately 50 cents per gallon. The above price does notinclude taxes, transportation costs, certain other fuel handlingcosts, and any differences which may occur from time totime between the prices of commodities hedged and thepurchase price of BNSF’s diesel fuel. Currently, BNSF’s fuelhedging program covers approximately 24 percent and 8 per-cent of estimated annual fuel purchases for 2001 and 2002,respectively. Hedge positions are closely monitored to ensurethat they will not exceed actual fuel requirements in anyperiod. Unrecognized gains from BNSF’s fuel swap trans-actions were approximately $74 million as of December 31,2000, of which $60 million relates to swap transactions thatwill expire in 2001. BNSF also monitors its hedging positionsand credit ratings of its counterparties and does not anticipatelosses due to counterparty nonperformance. Receivables fromfuel hedging activities of $50 million and $29 million atDecember 31, 2000 and 1999, respectively, are recorded inthe Company’s consolidated balance sheet as part of OtherCurrent Assets and represent settled fuel hedging contracts.

Interest RateFrom time to time, the Company enters into various interestrate hedging transactions for the purpose of managing expo-sure to fluctuations in interest rates and establishing ratesin anticipation of future debt issuances. Swaps totaling $125million which were used to fix the interest rate on commer-cial paper debt expired in December 1999. While the swapswere outstanding, BNSF recognized, on an accrual basis, afixed rate of interest on the principal amount of commercialpaper hedged over the term of the swap agreements. As of January 31, 2001, BNSF had no interest rate swapinstruments in place.

As discussed in Note 8 to these consolidated financial state-ments, at the time of issuing the $300 million of 7.875percent notes and the $200 million of 8.125 percent deben-tures in April 2000, the Company closed out two treasurylock transactions with expiration dates in 2000, each in an amount of $100 million (one based on the 10-year and one based on the 30-year rates), at gains of approximately $9 million and $13 million, respectively. These gains havebeen deferred and are being amortized to interest expenseover the 30-year and 10-year lives of the notes and thedebentures, respectively.

Also discussed in Note 8 to these consolidated financialstatements, at the time of issuing the $275 million of 7.95 percent debentures in August 2000 and the $300million of 7.125 percent notes in December 2000, theCompany closed out two treasury lock transactions each in an amount of $100 million (one based on the 30-yearand one based on the 10-year rates and both withexpiration dates in June 2001) at gains of $8 million

and $5 million, respectively. These gains have been deferredand are being amortized to interest expense over the 30-yearand 10-year lives of the debentures and notes, respectively.

In 1999, at the time of issuing $200 million of debt, theCompany closed out $100 million of treasury lock trans-actions at a gain of $8 million. During 1998, at the time of issuing $400 million of debt, the Company closed out $400 million of treasury lock transactions at a loss ofapproximately $18 million. In each case, the gain or loss has been deferred and is being amortized to interest expense over the life of the debt.

As of December 31, 2000, the Company had no outstand-ing treasury lock transactions.

11. Commitments And ContingenciesLease CommitmentsBNSF has substantial lease commitments for locomotives,freight cars, trailers, office buildings and other property, andmany of these leases provide the option to purchase the leaseditem at fair market value at the end of the lease. However,some provide fixed price purchase options. Future minimumlease payments (which reflect leases having non-cancelablelease terms in excess of one year) as of December 31, 2000are summarized as follows (in millions):

Capital OperatingYear ended December 31, Leases Leases

2001 $112 $ 3452002 106 3112003 106 2992004 106 2942005 97 275Thereafter 434 3,082Total 961 $4,606Less amount representing interest 225Present value of minimum lease payments $736

Lease rental expense for all operating leases was $424 mil-lion, $435 million and $466 million for the years endedDecember 31, 2000, 1999, and 1998, respectively. Contin-gent rentals and sublease rentals were not significant.

Other CommitmentsBNSF has entered into commitments to acquire 100 loco-motives in 2001. The locomotives will be financed fromone or a combination of sources including, but not limitedto, cash from operations, capital or operating leases, anddebt issuances. The decision on the method used will dependupon then current market conditions and other factors.

EnvironmentalBNSF’s operations, as well as those of its competitors, are subject to extensive federal, state and local environ-mental regulation. BNSF’s operating procedures includepractices to protect the environment from the risksinherent in railroad operations, which frequently involvetransporting chemicals and other hazardous materials.Additionally, many of BNSF’s land holdings are and

have been used for industrial or transportation-relatedpurposes or leased to commercial or industrial companieswhose activities may have resulted in discharges onto the property. As a result, BNSF is subject to environ-mental clean-up and enforcement actions. In particular, the Federal Comprehensive Environmental Response,Compensation and Liability Act of 1980 (CERCLA), also known as the “Superfund” law, as well as similar statelaws generally impose joint and several liability for clean-up and enforcement costs on current and former ownersand operators of a site without regard to fault or thelegality of the original conduct. BNSF has been notifiedthat it is a potentially responsible party (PRP) for studyand clean-up costs at approximately 31 Superfund sites forwhich investigation and remediation payments are or will be made or are yet to be determined (the Superfund sites)and, in many instances, is one of several PRPs. In addition,BNSF may be considered a PRP under certain other laws.Accordingly, under CERCLA and other federal and statestatutes, BNSF may be held jointly and severally liable for all environmental costs associated with a particularsite. If there are other PRPs, BNSF generally participates in the clean-up of these sites through cost-sharing agree-ments with terms that vary from site to site. Costs aretypically allocated based on relative volumetric contributionof material, the amount of time the site was owned oroperated, and/or the portion of the total site owned oroperated by each PRP.

Environmental costs include initial site surveys and envi-ronmental studies of potentially contaminated sites as wellas costs for remediation and restoration of sites determinedto be contaminated. Liabilities for environmental clean-upcosts are initially recorded when BNSF’s liability for environ-mental clean-up is both probable and a reasonable estimateof associated costs can be made. Adjustments to initialestimates are recorded as necessary based upon additionalinformation developed in subsequent periods. BNSF conductsan ongoing environmental contingency analysis, whichconsiders a combination of factors including independentconsulting reports, site visits, legal reviews, analysis of thelikelihood of participation in and the ability of other PRPsto pay for clean-up, and historical trend analyses.

BNSF is involved in a number of administrative andjudicial proceedings and other mandatory clean-up effortsat approximately 385 sites, including the Superfund sites,at which it is participating in the study or clean-up, orboth, of alleged environmental contamination. BNSFpaid approximately $49 million, $67 million and $64million during 2000, 1999 and 1998, respectively, formandatory and unasserted clean-up efforts, includingamounts expended under federal and state voluntaryclean-up programs. The Company had recorded liabilitiesfor remediation and restoration of all known sites ofapproximately $223 million at December 31, 2000compared to $232 million at December 31, 1999. BNSF anticipates that the majority of the accrued costs at December 31, 2000 will be paid over the next fiveyears. No individual site is considered to be material.

Liabilities recorded for environmental costs representBNSF’s best estimates for remediation and restoration ofthese sites and include both asserted and unasserted claims.Unasserted claims are not considered to be a material com-ponent of the liability. Although recorded liabilities includeBNSF’s best estimates of all costs, without reduction foranticipated recoveries from third parties, BNSF’s total clean-up costs at these sites cannot be predicted with certaintydue to various factors such as the extent of corrective actionsthat may be required, evolving environmental laws andregulations, advances in environmental technology, theextent of other parties’ participation in clean-up efforts,developments in ongoing environmental analyses related tosites determined to be contaminated, and developments inenvironmental surveys and studies of potentially contami-nated sites. As a result, future charges to income for environ-mental liabilities could have a significant effect on results ofoperations in a particular quarter or fiscal year as individualsite studies and remediation and restoration efforts proceed or as new sites arise. However, management believes that it is unlikely that any identified matters, either individuallyor in the aggregate, will have a material adverse effect on BNSF’s consolidated results of operations, financialposition or liquidity.

Other Claims And LitigationBNSF and its subsidiaries are parties to a number of legalactions and claims, various governmental proceedings andprivate civil suits arising in the ordinary course of business,including those related to environmental matters andpersonal injury claims. While the final outcome of theseitems cannot be predicted with certainty, consideringamong other things the meritorious legal defenses available,it is the opinion of management that none of these items,when finally resolved, will have a material adverse effect on the results of operations, financial position or liquidityof BNSF, although an adverse resolution of a number of these items could have a material adverse effect on theresults of operations in a particular quarter or fiscal year.

12. Retirement Plans And Other Postemployment Benefit PlansBNSF sponsors two significant defined benefit pensionplans: the noncontributory qualified BNSF RetirementPlan, which covers substantially all non-union employees,and the nonqualified BNSF Supplemental Retirement Plan,which covers certain officers and other employees. Thebenefits under BNSF’s plans are based on years of creditedservice and the highest five-year average compensationlevels. BNSF’s funding policy is to contribute annually notless than the regulatory minimum and not more than themaximum amount deductible for income tax purposes.

Certain salaried employees of BNSF that have met certainage and years of service requirements are eligible for medicalbenefits and life insurance coverage during retirement. Theretiree medical plan is contributory and provides benefits to retirees, their covered dependents and beneficiaries.Retiree contributions are adjusted annually. The plan alsocontains fixed deductibles, coinsurance and out-of-pocket

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limitations. The life insurance plan is noncontributory andcovers retirees only. BNSF’s policy is to fund benefits payableunder the medical and life insurance plans as they comedue. Employees beginning salaried employment withBNSF subsequent to September 22, 1995 are not eligiblefor benefits under these plans.

Components of the net benefit costs for these plans were asfollows (in millions):

Pension Medical andYear ended Benefits Life BenefitsDecember 31, 2000 1999 1998 2000 1999 1998

Service cost $ 13 $ 15 $ 15 $ 4 $ 5 $ 4Interest cost 100 100 101 18 17 16 Expected return

on plan assets (129) (126) (117) – – –Special termination

benefits – 10 – – 6 –Net amortization and

deferred amounts 3 3 4 1 1 –Net benefit cost $ (13) $ 2 $ 3 $23 $29 $20

The following tables show the change in benefit obligationand plan assets of the plans (in millions):

Pension Medical andBenefits Life Benefits

Change in benefit obligation 2000 1999 2000 1999

Benefit obligation at beginning of year $1,387 $1,487 $244 $249

Service cost 13 15 4 5Interest cost 100 100 18 17Plan participants’ contributions – – 3 4Amendments – – (7) –Actuarial (gain) loss 39 (115) 7 (17)Special termination benefits – 10 – 6Curtailment loss – 7 – –Benefits paid (120) (117) (22) (20)Benefit obligation at year end $1,419 $1,387 $247 $244


Change in plan assets 2000 1999 2000 1999

Fair value of plan assets at beginning of year $1,530 $1,469 $ – $ –

Actual return on plan assets 162 174 – –Employer contribution 5 4 19 16Plan participants’ contributions – – 3 4Benefits paid (120) (117) (22) (20)Fair value of plan assets

at year end $1,577 $1,530 $ – $ –

The following table shows the reconciliation of the fundedstatus of the plans with amounts recorded in the consolidatedbalance sheet (in millions):


December 31, 2000 1999 2000 1999

Funded status $ 158 $ 143 $(247) $(244)Unrecognized net (gain) loss (146) (151) (1) (7)Unrecognized prior service cost (6) (7) (1) 7Unamortized net

transition obligation 5 9 – – Net amount recognized $ 11 $ (6) $(249) $(244)


December 31, 2000 1999 2000 1999

Amounts recognized in the consolidated balance sheet consist of:

Prepaid benefit cost $ 45 $ 24 $ – $ –Accrued benefit liability (50) (44) (249) (244)Intangible asset – 2 – –Accumulated other

comprehensive deficit 16 12 – –Net amount recognized $ 11 $ (6) $(249) $(244)

BNSF uses a September 30 measurement date. The assump-tions used in accounting for the BNSF plans were as follows:


Assumptions 2000 1999 2000 1999

Discount rate 7.5% 7.5% 7.5% 7.5%Rate of increase in

compensation levels 4.0% 4.0% N/A N/AExpected return on plan assets 9.5% 9.5% N/A N/A

For purposes of the medical and life benefits calculations for 2000, the assumed health care cost trend rate for both managed care and non-managed care medical costs is 9.5 percent and is assumed to decrease gradually to five percent by 2006 and remain constant thereafter.Increasing the assumed health care cost trend rates byone percentage point would increase the accumulatedpostretirement benefit obligation by $19 million and the combined service and interest components of net postretirement benefit cost recognized in 2000 by $2million. Decreasing the assumed health care cost trendrates by one percentage point would decrease the accu-mulated postretirement benefit obligation by $16 millionand the combined service and interest components of net postretirement benefit cost recognized in 2000 by $2 million.

Other PlansUnder collective bargaining agreements, BNSF participates in multi-employer benefit plans which provide certainpostretirement health care and life insurance benefits foreligible union employees. Insurance premiums paidattributable to retirees, which are generally expensed as

incurred, were $15 million, $14 million and $18 million, in 2000, 1999 and 1998, respectively.

Defined Contribution PlansBNSF sponsors 401(k) thrift and profit sharing planswhich cover substantially all non-union employees and certain union employees. BNSF matches 50 per-cent of the first six percent of non-union employees’contributions, which are subject to certain percentagelimits of the employees’ earnings, at each pay period.Depending on BNSF’s performance, an additionalmatching contribution of up to 30 percent of the first six percent can be made at the end of the year. Employer contributions for all non-union employees are subject to a five year length of service vestingschedule. BNSF’s 401(k) matching expense was $16million, $18 million and $16 million in 2000, 1999 and 1998, respectively.

13. Stock Options And Other Incentive Plans On April 15, 1999, BNSF shareholders approved the BNSF1999 Stock Incentive Plan and authorized 20 millionshares of BNSF common stock to be issued in connectionwith stock options, restricted stock, restricted stock unitsand performance stock. Total shares authorized under 1999and 1996 stock incentive plans and the non-employeedirectors’ stock plan are up to 50 million and 0.9 millionshares of BNSF common stock, respectively. Approximatelyfive million common shares were available for future grantat December 31, 2000.

Stock OptionsUnder BNSF’s stock option plans, options may be grantedto officers and salaried employees at the fair market value of the Company’s common stock on the date of grant. All options generally vest in one year and expire within

10 years after the date of grant. Shares issued upon exercise of options may be issued from treasury shares or fromauthorized but unissued shares.

The Company applies Accounting Principles Board (APB)Opinion 25 and related interpretations in accounting for itsstock option plans. Accordingly, no compensation expensehas been recognized for its fixed stock option plans as theexercise price equals the stock price on the date of grant.Had compensation expense been determined for stockoptions granted in 2000, 1999 and 1998 based on the fairvalue at grant dates consistent with Statement of FinancialAccounting Standards (SFAS) No. 123 “Accounting forStock Based Compensation,” the Company’s pro forma netincome and earnings per share would have been as follows:

2000 1999 1998

Net income (in millions) $ 933 $1,092 $1,124Basic earnings per share $2.26 $ 2.36 $ 2.39Diluted earnings per share $2.25 $ 2.34 $ 2.36

The pro forma amounts were estimated using the Black-Scholes option pricing model with the following assumptions:

2000 1999 1998

Weighted average expected life (years) 3.0 3.0 3.0

Expected volatility 35% 30% 20%Annual dividend per share $0.48 $0.48 $0.48Risk free interest rate 5.36% 6.63% 5.11%Weighted average fair value

of options granted $6.70 $8.43 $5.13

A summary of the status of the stock option plans as ofDecember 31, 2000, 1999 and 1998, and changes duringthe years then ended, is presented below:

2000 1999 1998Weighted Average Weighted Average Weighted Average

Options Exercise Prices Options Exercise Prices Options Exercise Prices

Balance at beginning of year 29,808,157 $27.37 28,135,869 $24.27 25,761,369 $20.98 Granted 11,521,045 25.56 9,857,345 32.96 9,587,926 29.33Exercised (1,255,643) 12.73 (6,315,238) 21.24 (6,666,864) 18.66Cancelled (1,650,957) 29.95 (1,869,819) 30.94 (546,562) 26.25Balance at end of year 38,422,602 $27.22 29,808,157 $27.37 28,135,869 $24.27Options exercisable at year end 26,729,220 $27.90 20,710,679 $25.00 17,763,770 $21.45

The following table summarizes information regarding stock options outstanding at December 31, 2000:

Options Outstanding Options ExercisableNumber Weighted Average Weighted Average Number Weighted Average

Range of Exercise Prices Outstanding Remaining Life Exercise Prices Exercisable Exercise Prices

$4.23 to $24.83 7,000,483 4.5 Years $19.17 6,196,614 $18.50$25.66 to $28.73 11,227,022 8.7 Years $25.75 708,115 $27.15$28.76 to $30.97 11,577,288 6.6 Years $29.24 11,206,682 $29.26$31.17 to $36.73 8,617,809 7.9 Years $32.96 8,617,809 $32.96$4.23 to $36.73 38,422,602 7.1 Years $27.22 26,729,220 $27.90

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Weighted average stock options totaling 25.0 million, 35.6million, 35.3 million and 31.6 million for the first, second,third and fourth quarters of 2000, respectively, and 8.9million and 21.4 million for the third and fourth quartersof 1999, respectively, were not included in the computationof diluted earnings per share, because the options’ exerciseprice exceeded the average market price of the Company’sstock for those periods.

Other Incentive PlansBNSF has other long-term incentive programs in additionto stock options which are administered separately onbehalf of employees.

BNSF awarded a total of approximately 1.2 million shares of restricted stock subject to performance periods to eligible employees and directors during 1996. No cash payment is required by the individuals. The restric-tions will be lifted in thirds over three years beginning on the third anniversary of the grant date if certain stockprice-based performance goals are met. If, however, theperformance goals are not met, the restricted shares will be forfeited. All shares still subject to restrictions are gen-erally forfeited and returned to the plan if the employee’sor director’s relationship is terminated. Approximately 616 thousand restricted shares related to this award wereoutstanding as of December 31, 2000.

Under the BNSF 1999 and 1996 Stock Incentive Planscertain eligible employees may defer through the BNSFIncentive Bonus Stock Program (IBSP) the cash paymentof their bonus paid under the Incentive CompensationPlan (ICP) and receive restricted stock for which restric-tions lapse in three years (or in two years if certainperformance goals are met). The number of restrictedshares awarded are based on the amount of bonusdeferred, plus incremental shares, using the market priceof BNSF common stock on the date of grant. Restrictedawards granted under this program totaled approximately350 thousand, 400 thousand and 380 thousand shares in 2000, 1999 and 1998, respectively. A total of approxi-mately 1.1 million shares were outstanding under this and prior programs of this type on December 31, 2000.

In addition, all regularly-assigned salaried employees noteligible to participate in the IBSP are eligible to participatein the BNSF Discounted Stock Purchase Program. Thisprogram allows employees to use their bonus earned underthe ICP to purchase BNSF common stock at a discountfrom the market price and requires that the stock berestricted for a three year period. During the years endedDecember 31, 2000, 1999 and 1998, approximately 45thousand, 65 thousand and 55 thousand shares, respectively,were purchased under this program.

Additionally, the Company periodically issues time vestingrestricted shares, which generally vest ratably over threeto five years. Restricted stock awards under these plans,net of forfeitures, were approximately 116 thousand, and 330 thousand for the years ended December 2000

and 1999, respectively. A total of 408 thousand restrictedshares related to these awards were outstanding onDecember 31, 2000.

On January 1, 2001, approximately 625 thousand restrictedshares were granted. These shares have a value of $28.49 per share which is equal to the fair market value of BNSFcommon stock on the date of grant and the restrictions willlapse at the end of three years. Total compensation expenseof $17.8 million will be recognized ratably over the threeyear vesting period.

Shares awarded under the plans may not be sold or used ascollateral, and are generally not transferable, by the holderuntil the shares awarded become free of restrictions.Compensation expense is recorded under the BNSF StockIncentive Plans in accordance with APB Opinion 25 andwas not material in 2000, 1999 or 1998.

14. Common Stock And Preferred Capital StockCommon StockBNSF is authorized to issue 600 million shares of commonstock, $.01 Par Value. At December 31, 2000, there were391.6 million shares of common stock outstanding. Eachholder of common stock is entitled to one vote per share in the election of directors and on all matters submitted to a vote of stockholders. Subject to the rights and pref-erences of any future issuances of preferred stock, each share of common stock is entitled to receive dividends asmay be declared by the Board of Directors out of fundslegally available and to share ratably in all assets available for distribution to stockholders upon dissolution orliquidation. No holder of common stock has any preemp-tive right to subscribe for any securities of BNSF.

Shareholder Rights PlanIn December 1999, BNSF’s Board of Directors (the Board)approved a shareholder rights plan (Rights Plan). In connec-tion with the Rights Plan, the Board declared a dividend of one Preferred Stock Purchase Right (Right or Rights) foreach outstanding share of BNSF common stock to share-holders of record on December 31, 1999. Shareholders were automatically entitled to the Rights corresponding to their shares owned. The distribution was not taxable to shareholders under current United States tax laws.Adoption of the Rights Plan was required by the terms ofthe proposed combination between BNSF and CanadianNational which was terminated on July 20, 2000.

Under the Rights Plan, Rights were redeemable for $0.01per Right, subject to adjustment, before the acquisition ofcontrol, by a person or group, of 15 percent or more ofBNSF common stock. On December 7, 2000, the Board of Directors voted to redeem all Rights under the RightsPlan. As a result of the redemption, the Rights may nolonger be exercised and shareholders are only entitled toreceive a redemption payment of $0.01 per Right. Theredemption payment will be distributed on April 2, 2001 to shareholders of record as of March 12, 2001. Each Rightwould have expired on December 18, 2009.

Preferred Capital StockAt December 31, 2000, BNSF had 50 million shares ofClass A Preferred Stock, $.01 Par Value and 25 millionshares of Preferred Stock, $.01 Par Value available forissuance. The Board of Directors has the authority to issuesuch stock in one or more series, to fix the number ofshares and to fix the designations and the powers, rights,and qualifications and restrictions of each series.

Share Repurchase ProgramIn July 1997, the Board of Directors of BNSF authorizedthe repurchase of up to 30 million shares of the Company’scommon stock from time to time in the open market. In December 1999, April 2000, and September 2000, the Board of Directors authorized extensions of the BNSFshare repurchase program, adding 30 million shares at each date to the total shares previously authorized. During2000, 1999, and 1998, the Company repurchased approx-imately 65 million, 22 million, and 5 million shares,respectively, of its common stock at average prices of$23.16 per share, $31.08 per share, and $30.75 per share,respectively. There were no repurchases under this program in 1997. Total repurchases through January 31, 2001, were92 million shares at a total average cost of $25.51 per share, leaving 28 million shares available for repurchaseunder the authorization.

During the second and third quarters of 1998, BNSF soldequity put options for 3 million shares of the Company’scommon stock to an independent third party and receivedcash proceeds of $2.2 million. The option contracts hadexercise prices ranging from $29.00 to $30.00 per share

with expiration dates ranging from November 1998 toFebruary 1999. The option contracts permitted a net-shareor net-cash settlement method at BNSF’s election. Theseoptions expired unexercised. In April 1999, BNSF soldequity put options for 0.1 million shares of BNSF com-mon stock to an independent third party and received cash proceeds of $0.1 million. The third party exercised the options on October 12, 1999, which resulted in theCompany purchasing 0.1 million shares of its commonstock at $29 per share. The Company accounts for theeffects of equity put option transactions withinstockholders’ equity.

An equity put option is a financial instrument wherebyBNSF receives an upfront cash premium for grantinganother party the option to sell a defined number of BNSFshares to the Company at a fixed price on a specifiedfuture date. The Company considers the sale of equity put options as a method to acquire its common stock ata share price consistent with its share repurchase strategyand potentially reduce the all-in cost of the program. TheCompany’s risk is that it may be required to purchaseshares at a specified price that is higher than the commonstock price at the exercise date of the equity put option. The Company has the ability to settle its equity put optiontransactions on a net share or net cash basis and accountsfor the effects of these transactions within stockholders’equity. The number of shares subject to outstanding putoptions sold by the Company cannot exceed the amount of remaining shares the Board of Directors has authorized for repurchase. As of January 31, 2001 there were noequity put options outstanding.

15. Quarterly Financial Data – Unaudited(Dollars in millions, except per share data) Fourth Third Second First

2000Revenues(1) $2,339 $2,342 $2,260 $2,264Operating income $ 544 $ 571 $ 483 $ 510Net income $ 255 $ 259 $ 223 $ 243Basic earnings per share $ 0.65 $ 0.65 $ 0.53 $ 0.55Diluted earnings per share $ 0.65 $ 0.64 $ 0.53 $ 0.55Dividends declared per share $ 0.12 $ 0.12 $ 0.12 $ 0.12Common stock price:

High $29.56 $27.44 $26.25 $27.50Low $20.88 $20.38 $21.63 $19.06

1999Revenues(1) $ 2,390 $ 2,367 $2,219 $2,213Operating income $ 603 $ 631 $ 491 $ 480Net income $ 315 $ 348 $ 238 $ 236Basic earnings per share $ 0.69 $ 0.76 $ 0.51 $ 0.50Diluted earnings per share $ 0.69 $ 0.75 $ 0.50 $ 0.50Dividends declared per share $ 0.12 $ 0.12 $ 0.12 $ 0.12Common stock price:

High $ 32.75 $ 33.38 $37.94 $36.44Low $ 22.88 $ 25.63 $29.75 $31.56

(1) All periods have been reclassified to conform with the current year presentation (see Note 2 to these consolidated financial statements).

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Robert D. Krebs*Chairman

Matthew K. Rose*President and

Chief Executive Officer

Thomas N. Hund*Executive Vice President and

Chief Financial Officer

Carl R. Ice*Executive Vice President and

Chief Operations Officer

Jeffrey R. Moreland*Executive Vice President-Law

and Chief of Staff

Charles L. Schultz*Executive Vice President

and Chief Marketing Officer

Gary L. CrosbyVice President-

Law and General Counsel

A. R. (Skip) Endres, Jr.Vice President-

Government Affairs

Bruce E. FreemanVice President and

Chief Information Officer

Dennis R. Johnson*Vice President and

Controller

Marsha K. MorganVice President-

Investor Relations and

Corporate Secretary

Richard A. RussackVice President-

Corporate Relations

Shelley J. VenickVice President and

General Tax Counsel

Richard E. WeicherVice President and

Senior Regulatory Counsel

*Executive Officer of

Burlington Northern

Santa Fe Corporation

Burlington Northern Santa Fe Corporation Officers

Burlington Northern Santa Fe Corporation Directors**

Joseph F. Alibrandi (1) (2)

Retired Chairman and

Chief Executive Officer,

Whittaker Corporation

(aerospace),

Los Angeles, California.

Board member since 1982.

John J. Burns, Jr (1) (2)

President and


Alleghany Corporation

(holding company with

reinsurance, industrial

minerals, steel fastener

operations, and an investment

position in BNSF),

New York, New York.


George Deukmejian (3) (4)

Retired Senior Counsel, Sidley

and Austin (law firm) and

former Governor of the

State of California,



Robert D. Krebs (1)

Chairman

Burlington Northern

Santa Fe Corporation,

Fort Worth, Texas.


Bill M. Lindig (2) (4)

Retired Chairman

SYSCO Corporation

(marketer and distributor

of foodservice products),

Houston, Texas.


Vilma S. Martinez (3) (4)

Partner, Munger, Tolles

and Olson LLP (law firm),



Roy S. Roberts (2) (4)

Retired Group Vice President,

North American Vehicle

Sales, Service and Marketing,

General Motors Corporation

(motor vehicle manufacturer),

Detroit, Michigan.


Matthew K. RosePresident and

Chief Executive Officer

Burlington Northern

Santa Fe Corporation,

Fort Worth, Texas.


Marc J. Shapiro (3) (4)

Vice Chairman for Finance, Risk

Management and Administration

J.P. Morgan Chase & Co.

(bank holding company),

New York, New York.


Arnold R. Weber (1) (2)

President Emeritus,

Northwestern University,

Evanston, Illinois.


Robert H. West (2) (3)

Retired Chairman of the Board,

Butler Manufacturing Company

(manufacturer of pre-engineered

building systems and specialty

components),

Kansas City, Missouri.


J. Steven Whisler (3) (4)

Chairman, President and


Phelps Dodge Corporation

(mining and manufacturing),

Phoenix, Arizona.


Edward E. Whitacre, Jr. (1) (4)

Chairman and


SBC Communications Inc.

(diversified communications

holding company),

San Antonio, Texas.


Ronald B. Woodard (2) (3)

President and


MagnaDrive, Inc.

(industrial equipment

manufacturer),

Seattle, Washington

Retired President, Boeing

Commercial Airplane

Group (aerospace),

Seattle, Washington.


Michael B. Yanney (1) (2)

Chairman and


America First Companies L.L.C.

(investments),

Omaha, Nebraska.


Committee Assignments:

(1) Executive Committee

(2) Compensation Committee

(3) Audit Committee

(4) Directors and Corporate

Governance Committee

**Years of Board service includes

service on Boards of Burlington

Northern Inc. and Santa Fe

Pacific Corporation and

predecessor corporations.

Shares ListedNew York StockExchange, ChicagoStock Exchange,Pacific Stock ExchangeTicker Symbol: BNI

PrincipalCorporate Office2650 Lou Menk Drive,Fort Worth, Texas76131-2830(817) 333-2000www.bnsf.com

Stock TransferAgent and RegistrarFirst Chicago TrustCompany of New York,a division of Equiserve,P.O. Box 2500,Jersey City, New Jersey07303-2500(800)526-5678

ShareholdersAs of January 31, 2001,there were approximately44,000 shareholders of record.

Shareholder ServicesYou are encouraged tocontact our Transfer Agentdirectly for the shareholderservices listed below:

Change in CertificateRegistration, DividendReinvestment Service,Change of MailingAddress, Lost or StolenCertificates, Replacementof Dividend Checks, DirectDeposit of Dividends,Consolidation of MultipleAccounts, Elimination ofDuplicate Report Mailings,Replacement of Form1099-DIV.

DividendReinvestment PlanA dividend reinvestmentplan is provided for regis-tered shareholders as aconvenient way to pur-chase more shares throughinvestment of dividends orvoluntary cash payments. A booklet describing theplan is available from theTransfer Agent.

Form 10-KA copy of the Company’sAnnual Report on Form10-K filed with theSecurities and ExchangeCommission is available to shareholders free ofcharge upon request to the Company’s InvestorRelations Department at2650 Lou Menk Drive,Fort Worth, Texas 76131-2830.

Institutional InvestorsInquiries from securityanalysts and investmentprofessionals should bedirected to the Company’sinvestor relations contact:Ms. Marsha K. Morgan,Vice President – InvestorRelations and CorporateSecretary (817)352-6452

Annual MeetingThe Annual Meeting ofShareholders will be held at the Fort Worth Club,306 West 7th Street, Fort Worth, Texas, onWednesday, April 18, 2001,at 2:00 p.m.

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Burlington Northern Santa Fe Corporation 2650 Lou Menk Drive

Fort Worth, Texas 76131-2830

BNSF 2000 annrpt

Economy & Finance

Transcript of BNSF 2000 annrpt