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Filing under Rule 425 of the Securities Act of 1933
- ---------------------------------------------------
Filer: Burlington Northern Santa Fe Corporation
Companies that are the subject of the filing:
Canadian National Railway Company
North American Railways, Inc.
Registration Statement No. 333-94397
February 11, 2000
Dear Fellow Shareholder:
About two weeks ago, we announced our fourth-quarter results. I want to share
with you our solid 1999 performance and review the significant strides we have
made since 1994 to position Burlington Northern Santa Fe for even stronger
growth and profitability in the future. A copy of the news release is attached
for your information, but let me cite significant accomplishments for 1999.
BNSF's operating ratio, the key measure of efficiency, improved to 75.4 percent.
We continue to focus on improving service levels - and in 1999 BNSF achieved a
record 91 percent system-wide on-time performance, the best in the industry, and
a dramatic improvement from 82 percent in 1998. We generated free cash flow
after dividends paid for the first time as a combined company. Throughout the
year, BNSF repurchased 22.1 million shares for a total of 27 million shares
repurchased since the initial 30 million-share program, was authorized in 1997.
The Board of Directors subsequently approved an additional 30 million shares for
repurchase.
The successes of 1999 reflect a five-year journey of successful customer focus,
effective integration, revenue growth and earnings performance for BNSF. Since
the merger of Burlington Northern Inc. and Santa Fe Pacific Corp. was announced
in 1994, we have accomplished a great deal, including:
. Improving our operating ratio from 84.4 to 75.4 percent, adding about $800
million to operating income on $9.1 billion in 1999 revenues
. Increasing revenues by over $1 billion -- triple the growth rate of other
United States railroad competitors
. Lowering operating expense per gross ton mile by about 20 percent
. Reducing the ratio of freight loss and damage to freight revenue by 30
percent
. Growing earnings per share at a 20 percent compounded rate, reaching a
record $2.43 in 1999.
We are proud of our achievements over the past five years. Our next great
challenge is to continue to grow revenues and to meet the increasing demands
from shippers for single-line service and connections to major markets in North
America.
In December 1999, we announced plans to combine BNSF and Canadian National (CN),
North America's two most efficient and financially strong railroads. The end-
to-end combination we envision will create an efficient, integrated network with
new single-line traffic routes offering shippers expanded capabilities and even
better service. We are convinced this is the right strategic move for BNSF and
CN - as well as for our customers and employees - because we anticipate that it
would:
. Create the clear leader in the railroad industry in North America
. Join two compatible companies, each with a proven record of successfully
implementing previous consolidations
. Cut transit times by establishing a single-line network between Eastern
Canada and the entire Pacific Coast through Detroit and to the ports along
the Gulf of Mexico
. Create new rail and intermodal alternatives to trucking for many customers
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. Increase operating efficiencies through improved asset utilization and
service scheduling
. Generate annual revenue and cost synergies of $500 million to $600 million
in operating income to be realized about evenly over the first three years
after closing.
If approved, the combination would create a truly North American railroad for
the new millennium. If you have any questions, I encourage you to call our
shareholder hotline at Georgeson Shareholder Communications at 1-800-223-2064
from 8:30 a.m. to 8:00 p.m. Eastern Time, Monday through Friday.
I am enthusiastic about the future of your company and the steps we are taking
to create new opportunities for shippers, customers, employees and greater value
for our shareholders.
Sincerely,
Robert D. Krebs
Chairman and Chief Executive Officer
Any statements in this letter concerning future economic performance or business
outlook, predictions or expectations of financial or operational results or
synergies, and other expressions as to matters which are not historical facts,
are "forward-looking statements" within the meaning of the federal securities
laws. Forward-looking statements involve a number of risks and uncertainties
that could cause actual results to differ materially from those projected in
those statements. Important factors that could cause such differences include,
but are not limited to, general economic downturns, which may limit demand and
pricing; changes in fuel prices; labor matters and stoppages, which may affect
the costs and feasibility of operations; competition and commodity
concentrations, which may affect traffic and pricing levels; severe weather
conditions and natural occurrences such as floods and earthquakes; regulatory
and political developments, including the process of, or conditions imposed in
connection with, obtaining regulatory and Canadian court approvals for the
proposed combination with Canadian National Railway Company (CN); and the
ability of the combined companies to realize the synergies expected as a result
of the proposed combination. The Company assumes no obligation to update
forward-looking information to reflect actual results or changed assumptions or
other factors. We refer you to the documents that BNSF files from time to time
with the U.S. Securities and Exchange Commission (SEC), such as reports on Form
10-K, Form 10-Q, and Form 8-K, and the registration statement for the securities
to be issued in the proposed combination that has been filed by North American
Railways, Inc. and CN referred to in the following paragraph (and in particular
to "Cautionary Statement Concerning Forward-Looking Statements" and "Risk
Factors" in the registration statement), which contain additional important
factors that could cause results to differ from current expectations and the
forward-looking statements contained in this letter.
North American Railways, Inc. and CN have filed a registration statement on
Form F-4/S-4 with the SEC in connection with the securities to be issued in the
combination. The registration statement has not been declared effective. This
filing also includes the preliminary proxy statement for the shareholders
meetings to be held for approval of the combination. Investors should read this
document, and other documents filed with the SEC by BNSF, CN and North American
Railways, Inc. about the combination, because they contain important
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information. These documents may be obtained for free at the SEC's Web site,
www.sec.gov. Other filings made by BNSF on Forms 10-K, 10-Q and 8-K may be
obtained for free from the BNSF Corporate Secretary's office at (817) 352-6856.
Other filings made by CN on Forms 40-F and 6-K may be obtained for free from the
CN Corporate Secretary's office at (514) 399-6569. For information concerning
participants in BNSF's solicitation of proxies for approval of the combination,
see "Certain Information Concerning Participants" filed by BNSF on Schedule 14A
under SEC Rule 14a-12.
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[BNSF LOGO APPEARS HERE] NEWS
Contact: Richard Russack FOR IMMEDIATE RELEASE
(817) 352-6425
Burlington Northern Santa Fe Reports
Record Fourth Quarter Results
* Earnings of $0.69 per diluted share -- up 10 percent from fourth
quarter 1998 earnings of $0.63 per diluted share.
* Revenues of $2.37 billion, an increase of $76 million or 3 percent over
fourth quarter 1998 revenues of $2.29 billion.
* Fourth quarter operating income of $603 million -- $35 million or 6
percent higher than fourth quarter 1998 operating income of $568
million.
* Operating ratio for the fourth quarter 1999 improved to 74.6 percent
compared with 75.2 percent in 1998.
* Full-year adjusted earnings of $2.43 per diluted share -- an increase
of 3 percent over full year 1998 adjusted earnings of $2.36 per diluted
share.
* Revenues of $9.1 billion, an increase of $159 million or 2 percent from
full-year 1998 revenues of $8.94 billion.
* Full-year adjusted operating income of $2.24 billion improved 4 percent
over 1998 operating income of $2.16 billion.
* Full-year adjusted operating ratio lowered to 75.4 percent compared
with 75.9 percent in 1998.
FORT WORTH, Texas, January 25, 2000 - - Burlington Northern Santa Fe
Corporation (BNSF) (NYSE: BNI) today reported record fourth quarter 1999
earnings of $0.69 per share on a diluted basis, a 10 percent increase from
fourth quarter 1998 earnings of $0.63 per share. Net income increased $19
million to $315 million from fourth quarter 1998 net income of $296 million.
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BNSF 4Q Earnings / Page Two
"Increases in our intermodal, carload, automotive and agricultural business
units contributed to our record fourth quarter revenues, and the continued
impact of efficiency initiatives implemented earlier in the year kept our
expenses in line and strengthened our performance compared with the fourth
quarter of 1998," said Robert D. Krebs, BNSF Chairman and Chief Executive
Officer.
Revenues of $2.37 billion for the 1999 fourth quarter were $76 million
higher than the 1998 fourth quarter. Intermodal revenues increased $42 million,
or 7 percent, to $679 million. Carload revenues reached $645 million, an
increase of $17 million, or 3 percent, from last year. Automotive revenues
improved $13 million, or 12 percent, to $124 million, primarily due to growth in
vehicle shipments. Agricultural commodity revenues increased $7 million, or 2
percent, to $361 million, primarily due to stronger Mexico and Pacific Northwest
soybean exports. Coal revenues declined $6 million, or 1 percent, to $554
million.
Operating expenses of $1.77 billion were $41 million, or 2 percent, higher
than 1998 despite an increase in volume of 4 percent. Higher purchased
services, depreciation, fuel, and other expenses were partially offset by lower
compensation and benefits and equipment rents expenses.
Operating income was $603 million for the fourth quarter 1999 compared with
$568 million for the same period in 1998. The operating ratio improved to 74.6
percent for the fourth quarter 1999 compared with an operating ratio of 75.2
percent for 1998.
Common Stock Repurchases
During the fourth quarter, BNSF repurchased 4.4 million shares at an
average price of $28.66 per share, bringing total repurchases under BNSF's 30
million share-repurchase program to 27.1 million shares through 1999 at an
average price of $31.02 per share since the program was approved in July 1997.
In 1999, BNSF repurchased a total of 22.1 million shares. In December 1999, the
Board of Directors authorized the Company to repurchase an additional 30 million
shares.
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BNSF 4Q Earnings / Page Three
Full Year 1999 Record Results
"Continued growth in revenue and cost containment led to ongoing
improvements in our 1999 earnings on an adjusted basis. During 1999, we reduced
cash capital expenditures $359 million from 1998 spending levels to $1.79
billion, and for the first time as a combined company, we generated free cash
flow (cash from operations less capital expenditures, other investments and
dividends paid) of approximately $260 million for full year 1999," said Krebs.
"We expect free cash flow to rise considerably in 2000," Krebs pointed out.
BNSF's adjusted earnings for the year ended December 31, 1999, were $2.43
per diluted share, a 3 percent increase from 1998 adjusted earnings of $2.36 per
diluted share. Adjusted net income increased $10 million to $1.13 billion from
1998 adjusted net income of $1.12 billion. Including second and third quarter
special items, BNSF reported earnings of $2.44 per diluted share for the year
ended December 31, 1999.
Revenues for the year were $9.1 billion, up $159 million or 2 percent over
1998 revenues. Adjusted operating expenses of $6.86 billion for 1999 increased
by $81 million or 1 percent. Adjusted operating income was $2.24 billion for
1999 compared with operating income of $2.16 billion for 1998. The adjusted
operating ratio improved to 75.4 percent for 1999 compared with an operating
ratio of 75.9 percent a year earlier.
Proposed Combination with Canadian National Railway Company (CN)
On December 20, 1999, BNSF and CN announced that their boards of directors
had approved a definitive agreement to combine the businesses. On January 11,
2000, a registration statement was filed with the United States Securities and
Exchange Commission related to securities that will be issued in connection with
the proposed business combination.
The BNSF/CN combination will create an end-to-end North American railroad
that will offer shippers substantially expanded single-line service over a
50,000 route-mile network across Canada and the central and western United
States. Combined, BNSF and CN would employ approximately 67,000 people and have
combined annual revenues of approximately $12.5 billion. Benefits of the
combination include new single-line traffic routes, high-quality, efficient and
reliable service, and low integration risk.
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BNSF 4Q Earnings / Page Four
"Canadian National and Burlington Northern Santa Fe are two of the most
efficient and financially-strong railroads in North America today, each with
industry-leading service plans and a proven track record of implementing
previous consolidations. The combination is expected to push the frontier of
efficiency in the industry even further. We anticipate service and transit-time
improvements, asset utilization efficiencies, and cost savings in information
technology, purchasing and other shared services. The prospect of `best
practices' transfer between the two railroads is significant," said Krebs.
The combination is subject to, among other things, approval by the
shareholders of both companies, as well as approvals by the Quebec Superior
Court and the United States Surface Transportation Board. The companies expect
that all required regulatory approvals can be obtained and the transaction
completed by mid-2001.
Through The Burlington Northern and Santa Fe Railway Company, BNSF owns one
of the largest railroad networks in the North America, with approximately 33,500
route miles covering 28 states and two Canadian provinces.
Consolidated financial statements follow.
Any statements in this press release concerning the Company's future
economic performance or business outlook, predictions or expectations of
financial or operational results, and other expressions as to matters which are
not historical facts, are "forward-looking statements" within the meaning of the
federal securities laws. Forward-looking statements involve a number of risks
and uncertainties that could cause actual results to differ materially from
those projected in those statements. Important factors that could cause such
differences include, but are not limited to, general economic downturns, which
may limit demand and pricing; labor matters and stoppages, which may affect the
costs and feasibility of operations; competition and commodity concentrations,
which may affect traffic and pricing levels; severe weather conditions and
natural occurrences such as floods and earthquakes; regulatory and political
developments, including the process of, or conditions imposed in connection
with, obtaining regulatory approvals for the proposed combination; and the
Company's ability to realize the synergies expected as a result of the proposed
combination. The Company assumes no obligation to update forward-looking
information to reflect actual results or changed assumptions or other factors.
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Burlington Northern Santa Fe Corporation
Consolidated Statement of Income
(Unaudited. In millions, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Year Ended
December 31, December 31,
------------------------- ---------------------------
Adjusted (a) 1999 1998 1999 1998
- ------------ --------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues $ 2,370 $ 2,294 $ 9,100 $ 8,941
--------- --------- ---------- ----------
Operating Expenses
Compensation and benefits 702 725 2,772 2,812
Purchased services 242 228 946 894
Depreciation and amortization 229 214 897 832
Equipment rents 188 207 752 804
Fuel 196 182 700 721
Materials and other 210 170 797 720
--------- --------- ---------- ----------
Total Operating Expenses 1,767 1,726 6,864 6,783
--------- --------- ---------- ----------
Operating Income 603 568 2,236 2,158
Interest Expense 96 90 387 354
Other Income (Expense) - Net (3) (9) (36) (22)
--------- --------- ---------- ----------
Income Before Income Taxes 504 469 1,813 1,782
Income Tax Expense 189 173 680 659
--------- --------- ---------- ----------
Net Income $ 315 $ 296 $ 1,133 $ 1,123
========= ========= ========== ==========
Basic Earnings Per Share $ 0.69 $ 0.63 $ 2.45 $ 2.39
========= ========= ========== ==========
Diluted Earnings Per Share $ 0.69 $ 0.63 $ 2.43 $ 2.36
========= ========= ========== ==========
Unadjusted Reported Earnings
- ----------------------------
Net Income $ 315 $ 296 $ 1,137 $ 1,155
========= ========= ========== ==========
Basic Earnings Per Share $ 0.69 $ 0.63 $ 2.46 $ 2.45
========= ========= ========== ==========
Diluted Earnings Per Share $ 0.69 $ 0.63 $ 2.44 $ 2.43
========= ========= ========== ==========
Average Shares Outstanding
Basic 455.2 469.3 463.2 470.5
========= ========= ========== ==========
Diluted 456.8 474.2 466.8 476.2
========= ========= ========== ==========
</TABLE>
(a) Year ended December 31, 1999 adjusted to exclude second quarter special
items consisting of adjustments for reorganization costs and environmental
expenses, partially offset by a credit for the reversal of liabilities
associated with the consolidation of certain clerical work-forces and
adjusted to exclude a third quarter gain in connection with prior period
line sales that was partially offset by costs related to those line sales.
Year ended December 31, 1998 adjusted to exclude other income attributable
to the gain on pipeline partnership sale.
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Burlington Northern Santa Fe Corporation
(Unaudited. In millions)
Condensed Consolidated Balance Sheet
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
-------------- --------------
<S> <C> <C>
Assets
Cash and cash equivalents $ 22 $ 25
Other current assets 1,044 1,137
-------------- --------------
Total current assets 1,066 1,162
Properties and other assets 22,634 21,484
-------------- --------------
Total Assets $ 23,700 $ 22,646
============== ==============
Liabilities and Stockholders' Equity
Long-term debt and commercial paper due within one year $ 158 $ 268
Other current liabilities 1,917 1,885
Long-term debt and commercial paper 5,655 5,188
Deferred income taxes 6,097 5,662
Other liabilities 1,701 1,859
Stockholders' equity 8,172 7,784
-------------- --------------
Total Liabilities and Stockholders' Equity $ 23,700 $ 22,646
============== ==============
</TABLE>
Condensed Consolidated Cash Flow Information
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, December 31,
1999 1998
------------ ------------
<S> <C> <C>
Cash provided by operating activities $ 2,424 $ 2,218
Cash used for capital expenditures (1,788) (2,147)
Other investing activities (152) (271)
Dividends paid (224) (197)
----------- -----------
Free Cash Flow after Dividends Paid 260 (397)
Purchase of BNSF common stock (688) (153)
Other financing activities 62 104
------------ -----------
Net Debt Incurred $ (366) $ (446)
============ ===========
</TABLE>
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Burlington Northern Santa Fe Corporation
Supplemental Data
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Year Ended
December 31, December 31,
------------------------------ ------------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues (In millions)
Carload $ 645 $ 628 $ 2,553 $ 2,588
Intermodal 679 637 2,518 2,437
Coal 554 560 2,227 2,239
Agricultural Commodities 361 354 1,329 1,271
Automotive 124 111 443 390
------------ ------------ ------------ ------------
Total Freight Revenues 2,363 2,290 9,070 8,925
Other Revenues 7 4 30 16
------------ ------------ ------------ ------------
Total Revenues $ 2,370 $ 2,294 $ 9,100 $ 8,941
============ ============ ============ ============
Adjusted operating ratio 74.6% 75.2% 75.4% 75.9%
Revenue ton miles (billions) 128.9 121.7 487.8 469.0
Freight revenue per thousand revenue ton miles $ 18.33 $ 18.82 $ 18.59 $ 19.03
Cars/Units (thousands) 2,116 2,033 8,064 7,884
Average freight revenue per car/unit $ 1,117 $ 1,126 $ 1,125 $ 1,132
Employees (average) 41,935 43,555 42,654 44,349
</TABLE>
