To our shareholders, customers and employees:

We are in a time of great change and uncertainty, and despite substantial economic and weather challenges, 2008 was a very good year for BNSF. The diversity and strength of BNSF’s franchise and resourcefulness of our people allowed us success in the face of a declining economy. That success is necessary to ensure we achieve the returns our business requires for strong and continued investment in our physical plant.

Safety has always been the highest priority at BNSF, regardless of the economic or operating environment in which we find ourselves. Sadly, last year, we lost two of our co-workers in separate incidents. These losses are unacceptable and underscore our need to drive safety improvement. Despite these tragedies, we reduced our other most severe incidents and rail equipment and crossing accidents. By focusing on safety action plans and encouraging all employees to be their “brother’s keeper,” I believe we will make progress toward our vision of an injury-free work environment.

Reviewing our 2008 financial results, our earnings per share increased 19 percent to $6.08. This was achieved as a result of record revenues of $18 billion, a 14 percent increase over 2007.

All four of our business units performed well. All-time records in revenue and volume were set for Agricultural Products. At year end, revenues hit $3.4 billion, and volume grew 2.8 percent. Growth in Agricultural Products units was attributed to higher demand for ethanol, corn and soybeans.

We also experienced record revenues in our coal business segment at $4 billion for the year. Coal unit volume was up 1.8 percent over 2007. BNSF loaded an annual record 274.7 million tons of coal in the Powder River Basin, including Wyoming and Montana mines, breaking the previous record set in 2007 by 5.9 million tons, or 2.2 percent.

Although Industrial Products volumes for the year decreased 4 percent due to soft economic conditions and continued weakness in the housing market, improved yields and fuel surcharges allowed us to reach a revenue record of $4 billion.

Consumer Products revenues increased to $6.1 billion, also as a result of improved yields and fuel surcharges; however, lower consumer demand resulted in a 6.4 percent decline in units.

From a service standpoint, we had our best on-time performance in more than five years despite significant weather disruptions. We ended the year with 85 percent on-time performance and increased on-time performance in three of our four business segments compared to last year, and on-time performance for the fourth segment was already very high.

I attribute the increase in on-time performance to companywide focus on velocity. This initiative, which began in 2005, focuses on the number of times that equipment is handled and the throughput of our assets.

We saw year-over-year improvements in all velocity measurements except for the locomotives measurement, which was adversely affected by a drop in intermodal volumes. We will continue to stress this initiative through 2009 to achieve the dual benefits of improved service for our customers and increased efficiency throughout our operations.

I am particularly proud of the way our team responded to serve customers amid the massive flooding on the Mississippi River in the central United States and damage from Hurricane Ike. Last summer, the impacts of the Midwest flooding closed parts of six different BNSF Subdivisions. At one point, approximately 166 miles of our track was under water. Just a few months later, Hurricane Ike devastated the Galveston area causing heavy damage to our Galveston Island causeway, which was out of service for 14 days. Despite challenging conditions, our team responded quickly and effectively, and was able to restore operations before many of our customers in the affected areas were even able to reopen for business.

We ended the year at 10.7 percent return on invested capital, up from the previous year’s 10 percent. The improved yields we have secured over the past several years are important in ensuring an attractive return on investment for you, our shareholders.

In 2008, we continued to ensure our infrastructure remained strong and improved the efficiency of our operations, investing $2.85 billion back into our network. The majority of capital expenditures were dedicated to our robust maintenance program, which is necessary to refresh operations. We also increased capacity by completing

quadruple tracks in the Powder River Basin to better respond to the growing coal market, completed expansion at Cajon Pass in California and began expansion work at Abo Canyon in New Mexico. Following completion of the Abo Canyon project scheduled in 2011, our 2,200.mile Transcontinental Corridor between Southern California and Chicago will have only about 30 miles of single track.

We continue to invest in more fuel-efficient locomotives, both for their operating-cost advantages and to solidify our position as the environmentally preferred mode of freight transportation. In 2008, we acquired another 352 high-horsepower, high-efficiency locomotives, which are approximately 15 percent more fuel efficient than the units they replaced.

Our nation has faced a tough year, including wide swings in energy costs and unprecedented high fuel prices. The volatility of fuel prices affected virtually all segments of the economy. Year over year, our total fuel expense increased by $1.3 billion, to a total of $4.6 billion. However, we were able to achieve record fuel efficiency with a nearly 2 percent improvement over 2007. We have been able to mitigate most of the rise in fuel costs through our fuel surcharges.

The political landscape changed dramatically with the 2008 election and brings policy opportunity, and some risk. As the new Administration begins to work with Congress on transportation policy, freight rail is well positioned. Freight rail can help reduce our dependence on foreign oil, because trains transport on average a ton of freight nearly three times as far as a truck on the same amount of fuel.

Freight rail can also provide tremendous value in reducing the country’s transportation carbon footprint, given its reduced emissions versus truck-only freight transportation. Our ongoing investments provide tremendous benefits to the overall efficiency of the supply chain. Public policy and regulatory decisions should place a premium on ensuring that freight railroads are willing and able to reinvest. Appropriate policy also can leverage that private investment by providing incentives for additional private investment and bringing public partnership to rail projects to maximize the public’s benefit. These public benefits go beyond fuel efficiency and sustainability.

They mean a more competitive U.S. workforce and economy as our goods reach all across the globe as efficiently as possible.

As we move into 2009, the year has begun where the last several months of 2008 ended. I can’t think of a single customer that hasn’t been impacted by the change in credit markets and overall loss of consumer confidence, resulting in lower GDP and generally lower shipment volumes. Although we are better positioned than many due to the diversity of our franchise, we have taken and will continue to take numerous actions throughout the year to match our assets with the current demand outlook. We have successfully added variability into our cost structure over the years, which benefits us in times of economic downturn.

Compensation and benefits expenses are typically the largest cost category in running a railroad. Consequently, we will take full advantage of retirements and other normal attrition. We have also taken a number of difficult but prudent actions, such as the furlough of employees and suspending merit increases in 2009 for most salaried employees. These actions were taken in combination with other significant expense-reduction measures, such as returning leased railcars and locomotives and storing less-efficient locomotives.

We believe that our approach to executive compensation is aligned with shareholder interests and responsible practices. Improvement in the long-term value of this company will be the benchmark for delivery of the majority of our senior executives’ compensation.

Compensation philosophy, goal setting and all other program details are explained in our proxy statement. We will balance our capital programs to maintain a strong and safe railroad but also to reduce expansion capital on certain routes, again due to the decline in the overall level of our business. However, as the economy recovers, we will be well positioned to take advantage of new opportunities.

We have been investing in the railroad over the years and ensuring that we adjust to the changing transportation and logistics landscape. We also continue to seek opportunities to diversify our financing sources to manage risk and cost. In short, we are keeping costs in line with business needs, while preparing to fulfill our customers’ needs when the economy improves.

Over the long term, I am very optimistic about the future of rail transportation in general and BNSF in particular. We provide an extremely reliable, fuel-efficient means of transporting products and resources that drive the American economy.

As I write this letter, the oldest man in America is a former BNSF employee. His name is Walter Breuning, and he is 112 years old. He dedicated a half century of his life to working for predecessors of BNSF. We are grateful for his years of service. Remarkably, BNSF companies were operating nearly a half century before he was born, and we have continued to operate another half century after his retirement. His story highlights the rich history of BNSF and the United States, as well as the enormous obligation that all of us feel toward protecting the strength, character and continued success of the company.

Thank you to our shareholders, customers and employees for your support of BNSF.
Matthew K. Rose
Chairman, President and Chief Executive Officer
February 13, 2009

Download Burlington Northern Santa Fe Corporation 2008 Annual Report

PDF format, 3.5MB, 111Pages.

Burlington Northern Santa Fe Corporation (BNSF, Registrant or Company) was incorporated in the State of Delaware on December 16, 1994.

On September 22, 1995, the shareholders of Burlington Northern Inc. (BNI) and Santa Fe Pacific Corporation (SFP) became the shareholders of BNSF pursuant to a business combination of the two companies.

On December 30, 1996, BNI merged with and into SFP. On December 31, 1996, The Atchison, Topeka and Santa Fe Railway Company merged with and into Burlington Northern Railroad Company (BNRR), and BNRR changed its name to The Burlington Northern and Santa Fe Railway Company. On January 2, 1998, SFP merged with and into The Burlington Northern and Santa Fe Railway Company. On January 20, 2005, The Burlington Northern and Santa Fe Railway Company changed its name to BNSF Railway Company (BNSF Railway).

BNSF is a holding company that conducts no operating activities and owns no significant assets other than through its interests in its subsidiaries. Through its subsidiaries, BNSF is engaged primarily in the freight rail transportation business. At December 31, 2008, BNSF and its subsidiaries had approximately 40,000 employees. The rail operations of BNSF Railway, BNSF’s principal operating subsidiary, comprise one of the largest railroad systems in North America.

BNSF’s internet address is www.bnsf.com. Through this internet Web site (under the “Investors” link), BNSF makes available, free of charge, its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, as well as all amendments to those reports, as soon as reasonably practicable after these reports are electronically filed with or furnished to the Securities and Exchange Commission (SEC). Filings on Forms 3, 4 and 5 are also available on this Web site as is BNSF’s annual proxy statement. BNSF’s annual CEO certification filed pursuant to the New York Stock Exchange’s corporate governance listing standards is filed as an exhibit to this Form 10-K.

Our future is riding on rail
Today, BNSF provides significant value to our economy and society in a variety of ways. And as our nation’s demand for transportation continues to increase, rail is an obvious solution to meet this challenge.

We are working to improve fuel efficiency, lower emissions throughout our operations and, in conjunction with trucking companies, move more long-haul freight over the rails. All of these efforts help minimize our impact on the planet, while enabling U.S. and global economies to thrive.

Comments (0)

Name

Email

Comment

smaller | bigger

Add Comment