Talk:Burlington Northern Railroad/temp

1970 Overview

While the volume of freight traffic handled by BN in 1970 was down from 1969, freight revenues were up due mainly to freight rate increases granted in 1960 and 1970. The concept of six regional offices has contributed materially to company-wide performance and improved customer and employee relations. Regional offices are located at Chicago, Minneapolis, Omaha, Billings, Portland and Seattle. Grain revenue the past year was the highest in history. This was due, in part, to major domestic and export movements of grain and our improved capability as a merged company to better control the routing and return of cars, allocating them more expeditiously to various areas during the harvest season. Coal shipments rose dramatically, producing a revenue increase of about 51 percent over 1969. Coal mined from company lands in 1970 totaled 3,200,000 tons compared with 850,000 tons in 1969 as the demand for low sulfur coal continued to increase.
John M. Budd, chairman, Louis W. Menk, president
pp. 2-3

Effective M-Day, March 2, 1970, certain westbound trains from Chicago were able to bypass terminals in the Twin Cities and proceed with a minimum of delay towards their western destinations.

The company experienced a severe car shortage during the second quarter of 1970 because its cars were being used by other railroads. The situation was greatly alleviated when the Interstate Commerce Commission ordered return of empty cars to BN.
pp. 7

BN freight revenue was up $55,963,000 over 1969, due largely to freight rate increases, but the total volume of traffic was down due to the sluggish economy, particularly in housing and motor vehicles. [Grain revenues in 1970] were the highest in history, up $26 million over 1969.

Freight revenue for 1971 is expected to increase due, in part, to mid-1970 freight rate increased which will be in effect for the entire year of 1971. Also, final determination by the ICC of the latest request for a rate increase could be forthcoming by mid-1971, and thus would provide additional revenue.

In October 1970, a new coal and ore department was established within the marketing department responsible for maximizing profits in this promising area.
pp. 9

Transportation income of $874 million in 1970. Net transportation income of $40.3 million in 1970.
pp. 20

1970 News

April 30, Lou Menk signs an affidavit from U.S. District Court of Western Washington swearing "the merged company will not shift Auburn yard operations . . . will instead construct facilities for handling additional traffic; that locomotive facilities at Auburn will be used . . that employment at Auburn will not be reduced as a result of the merger."

"Menk can't bind the BN into the future to something illogical," says Kim Foreman, spokesman for the octopus. "The economy has changed. We don't need a huge shop in Auburn. All railroads are trimming back. We've gone from 56,000 employees to 40,00 in two years."

Rodger Campbell and an assistant man the Auburn yard's dispatch office where once 47 clerks worked around the clock, seven days a week. "You got to have 15 years to have regular work here and that would be on the midnight shift. Morale is so low you need a shovel to dig it up." -Shelby Scates, Town Gets Derailed, Seattle Post-Intelligencer, March 1, 1984

March 16, William J. Quinn, Vice Chairman, leaves BN to become Chairman of the Board of the Milwaukee Road. Quinn was president of the CB&Q through merger. -BN News, March 1970, pp. 1

August, Libby, Montana, line change nears completion.

September 1, dynamite bomb on timer blasts General Office Building in St. Paul at 7:40 A.M. Explodes in northeast corner of elevator shaft, injures carpenter Donald Miller, damages elevator shaft, stairwell, Personnel Department training room, and 70 windows. Only ten percent of normal staff were in building. -BN News, October 1970, pp. 1

1971 Overview

At the close of 1971, the company was operating more than 40 unit trains, moving in excess of 300,000 tons of coal per week, from western mines. It was long-haul traffic, averaging a 1,200 mile run.
pp. 7

Reduced rates averaging 18 percent on grain westbound form eastern Montana were made effective July 1. Rates were also reduced an average of 25 percent effective December 11 on wheat and wheat flour from Minnesota, North Dakota and Montana to Minneapolis and Duluth. Reductions were made possible by new rail operating procedures which improve car utilization. The new rates have recaptured much grain traffic previously moved by trucks. TOFC/COFC revenues were up eighteen percent over 1970.
pp. 8

Four million tons of coal were moved in 1970, increasing to 7.2 million tons in 1971. BN expected the demand for the low-sulfur coal would grow at an annual rate of 5.5 percent.
pp. 11

The company’s low-sulfur, mineable coal reserves in Montana and North Dakota total about ten billion tons. Using U.S. Geological Survey classifications of coal, BN has a total coal resource of 62 billion tons in these two states. By 1973, shipments from two new mines in Montana and Wyoming was expected to produce annual revenues of over $20 million.
pp. 8

Transportation income of $1.028 billion in 1971. Net transportation income of $55 million in 1971.
pp. 18

1971 News

January, BN, Union Pacific and Milwaukee announce the formation of the Longview Switching Co., at Longview, Washington. The line assumes the operations of the Longview, Portland & Northern, and services more than 50 customers. BN News, March 1971, pp. 1

January 30, Joe Rosati, age 74, retires after 60 years, nine months and 25 days of railroad work. Born May 24, 1897, in Loseto, Bari Province, Italy. Emigrated at the age of twelve-and-a-half, joining the section gang at Old Stampede at age thirteen. Later joined an extra gang, promoted to section foreman at Stampede Tunnel on Washington's Stampede Pass in 1918, where he stayed until promoted to track supervisor twenty years later. He was not able to bring his wife Rose to the U.S. until 1931. They were married ten years earlier. Became section foreman for Auburn Yard in 1944, a job he held until retirement. He supervised up to 60 men working on the car cleaning tracks, ice dock, and rail yard. The rail yard classified and stockpiled 180,000 feet of rail, the largest of eleven such facilities on BN. -BN News, March 1971, pp. 4

February 28, stewardess service on the North Coast Limited ends. BN tries to find new jobs for eleven stewardesses effected by the moves. Service became June 1, 1955, and consisted of ten nurses. -BN News, March 1971, pp. 1

March, BN awards contract for Spokane's Latah Creek Viaduct substructure to Hensel Phelps of Greeley, Colorado. The bridge will cost more than $5 million, be nearly 4,000 feet long and 190 feet high at its highest point. Hensel Phelps bid was $1,875,000, the lowest from fourteen firms. The bridge is slated to open in 1973. -BN News, March 1971, pp. 1

March, $1 million running repair shop opens at Interbay in Seattle, Washington. Capable or repairing four units at a time. -BN News, March 1971, pp. 1

May 1, John M. Budd, 63, steps down as Chairman of the Board. Louis W. Menk, 53, becomes Chairman of the Board. Robert W. Downing, 58, becomes President and COO. Norman M. Lorentzsen becomes Executive Vice President. Ivan C. Ethington becomes Operating Vice President. -BN News, May 1971, pp. 1

May 13, Robert Stetson Macfarlane retires as director and chairman emeritus. Robert W. Downing elected to Board of Directors. -BN News, May 1971, pp. 3

May, BN spent $5 million and two years to completely computerize the classification yard at Pasco, Washington. It opened a month ahead of schedule. Terminal Manager Larry Carter oversaw 750 employees. "This computer, a General Electric 4020 Digital Yard Storage Computer, we're using here in Pasco," explains Carter, "is the third such installation in the country and is by far the largest in its class." The other two are operated by the Penn Central in Ohio and New York.

September, Board of Directors authorizes as study to report on the advisability of forming a holding company. -BN News, September 1971, pp. 23

December, BN's directors reject the formation of a holding company. "Our studies have convinced us that avenues are open to continued development of both our transportation and non-transportation assets without changing BN's basic organization," Louis W. Menk said. -BN News, December 1971, pp. 3

The computer identified inbound cars and compares them to a consist sent in advance of arriving trains; tracks the exact location of ever car reported within the yard limits, determines the amount of retardation required so the cars coupled at no more than 4.5 miles per hour (a computation which requires the car's gross weight, weather conditions, curvature of the track assigned, and the distance to the joint), produces lists of trains ready for departure, computes total tonnage available for departure to specific destinations, scans ACI tags. Any errors are reported and sorted out manually. Initial results showed it took the average car twelve hours to move through the yard, versus seventeen hours before the computer was installed. -BN News, May 1971, pp. 10

1972 Overview

Consolidated income was increased 38 percent in 1972, giving your company a total improvement in earnings of 84 percent in two years. This performance was helped by a 6.8 percent rise in freight ton-miles, together with slightly higher freight rates, produced a $77.5 million gain in freight revenues. Coal, which now ranks behind lumber and grain in dollar contributions to BN, is expected to become the railroad's largest commodity before this decade ends.
Louis W. Menk, chairman, and Robert W. Downing, president
pp. 2

During the year of 1972, BN loaded 319,000 carloads of grain. In the peak month of August a record 34,000 cars were loaded. This tremendous and unprecedented demand for grain, principally to supply the export market, has placed a heavy burden on the entire transportation infrastructure from the point of harvest to the point of ultimate utilization. Railroads are not an isolated link in the grain marketing process. Water transport capacity is being tested, port handling facilities are being overworked, grain terminal delays are common due to a shortage of storage space and the nations railroads have had to stretch to serve the shipping public. A unit train movement between a new mine at Decker, Montana and Havana, Illinois was started during the year and will handle four million tons annual beginning in 1973. Another, between a new mine at Gillette, Wyoming and a power plant near Pueblo, Colorado will begin in 1973.
pp. 6

TOFC/COFC revenues increased twelve percent over 1971. Coal traffic produced $77 million of revenues in 1972.
pp. 8

Transportation income of $1.097 billion in 1972. Net transportation income of $54 million in 1972.
pp. 20

1972 News

January, Northtown Yard reconstruction continues in Minneapolis.

February, It takes 48 gallons of paint and primer to transform a locomotive from its previous colors to BN Cascade Green. More than one-third of BN's locomotive fleet sports the green color scheme. -BN News, February 1972, pp. 15

March, BN announced $30 million electronic freight classification yard at Hauser, Idaho. Construction to begin in 1972, which completion scheduled for 1975. The yard is expected to have 76 classification tracks in a 1,100 acre complex approximately 4.5 miles long and 2,000 feet wide, making it BN's largest in acreage. -BN News, March 1972, pp. 5

May, BN to spend $2.7 million on connecting track and bridge across Sand Creek at Sand Point, Idaho. The two-mile line will connect the ex-GN and NP mains at Sand Point. Willamette-Western Corp. of Portland, Oregon, is awarded a $540,000 contract for construction of the bridge and substructure. The bridge will be 997 feet long and have 10 piers, and be 50 feet above the creek bed at its highest point. Completion is targeted for July 1, 1973. -BN News, May 1972, pp. 15

July, BN Air Freight starts operations.

July 15, Worthington C. Smith, Vice President Market Development, named president of the Milwaukee Road. Smith joined the Great Northern Railway in 1954 as assistant to trainmaster, Superior, Wisconsin. Appointed to regional vice president Seattle at merger. Promoted to vice president, Market Development, March 1971. -BN Seattle Region News, August 1972, n.p., BN News, September 1972, pp. 5

September, BN expands South Seattle piggyback facility. A third 100-car capacity loading track, along with additional parking spaces, new lighting, and a security building will be built at a cost of $250,000. -BN News, September 1972, pp. 23

September, Rail carriers and the United Transportation Union settle a sixteen-year dispute over firemen employment. Railroads are required to fill engineer vacancies from the firemen's ranks. -BN News, September 1972, pp. 23

November, BN announces new Orin Line in Wyoming. More than 100 miles long, it is expected to cost $35 million.

November 30, John M. Budd steps down as Chairman of the Finance Committee. -BN News, December 1979, pp. 4

1973 Overview

To achieve increased development of the various assets involved, in July the company was restructured into two major divisions. The Transportation Division is headed by President Norman M. Lorentzsen, the Resources Division by President C. Robert Binger.

Last year's 13.3 percent increase in revenue ton-miles experienced by BN (a nine percent increase for the U.S. rail industry as a whole), is evidence of the validity of the forecasts that the 1970s would be years of traffic growth for the railroads.

Coal transportation, which last year grew another 21 percent in revenues, should help to keep total rail volume increase at a higher rate than the industry average for at least the next decade. Freight volume has increased 30 percent since 1970.

We would be less than candid, however, if we did not express our disappointment over the lack of growth in net transportation operating income, which, it will be observed, has remained static over the past three years. This, in our opinion, is due largely to the failure to obtain freight rate increased on a timely basis in a period of escalating labor and material cost, and frankly is a matter that should receive priority attention by the regulatory agencies.
Louis W. Menk, chairman and chief executive officer, Robert W. Downing, vice-chairman and chief operating officer
pp. 2

Rail operations were at a record high in 1973. The company had a total of 171.3 billion ton-miles of freight traffic, an increase of 9.8 percent above 1972.

The all-time movement of 906.7 million bushels of grain was more than sixteen percent greater than the volume of 778.5 million bushels carried in 1972.

A 13.3 percent increase in freight volume was accomplished despite a five percent decrease in the average number of cars on line. Efforts to improve utilization of cars together with heavier loadings produced a 15.3 percent increase in net ton miles per car day. BN averaged only an 80 percent ownership ratio on line, the lowest since 1970.

Revenues from coal hauling were approximately $90 million in 1973, up from $75 million in the previous year. A 28 percent increase, to about $115 million, is expected in 1974, with volume expected to rise to approximately $200 million in 1976.
Norman M. Lorentzsen, president, Transportation Division
pp. 7

Transportation income of 1.222 billion in 1973. Net transportation income of $54.9 million in 1973.
pp. 18

1973 News

March, Milwaukee Road under William J. Quinn petitions the Interstate Commerce Commission for inclusion into BN. -BN Seattle Region News, March 1973, n.p.

August, BN opens new $2.7 million bridge and line change at Sand Point, Idaho, connection former GN and NP lines and saving about 25 minutes for the more than twenty trains a day that use it. -BN News, August 1973, pp. 19

August, Lou Menk charges in a speech in Seattle before the ICC Practitioners Association that, "Unworkable" policies "have made a shambles of our national railroad system."

"The record shows that this industry has lost revenues of more than $1 billion since 1967 because we were unable to get immediate approval for freight rates that eventually were put into effect."

"Menk said the government regulatory system amounted to a 'dangerous game of Russian roulette,' warning that the 'bullet has gone off for six railroads in the Northeast, and someone had better grab the gun.'"

"Menk said BN alone has lost nearly $400 million in the last ten years through government delays in approving rate increases, discontinuance's of unprofitable passenger trains, and closings of unprofitable branch lines."

[Addressing $200 million Menk charges BN lost through government policies] "That money would have bought equipment and facilities at the lower prices of those years. Now shippers--the public--are meeting those costs at today's higher prices."

"Menk said the rail industry has been telling the Executive Branch and Congress 'for decades to let us operate as a business while there's still a business to run. Year after year we warned the government of the certainty of disaster if the railroads were not given regulatory relief." -BN News, August 1973, pp. 5

September 1, ICC allows railroads to terminate icing service for bunker-style cars. BN, Milwaukee Road, and Ft. Worth & Denver elect to continue icing for an indefinite period. In 1947, Wenatchee, Washington iced 22,000 cars. BN had 5,257 ice bunker cars, 3,222 mechanical refrigerators and 793 reefer trucks in 1972. -BN Seattle Region News, September-October 1973, n.p.

1974 Overview

[The year of] 1974 [was] the fourth consecutive year of growth in both revenues and earnings.

We cannot ignore the fact that our immediate prospects for further growth are diminished by the recession currently gripping the domestic economy and the general economic decline of our country's principal trading partners. Accordingly, management is proceeding cautiously with 1975 spending programs.

The Interstate Commerce Commission in late January suspended for seven moths the railroads' applications for a sevent percent increase in freight rates, giving the industry new proof that the decisions of government regulators are not always based on hard, economic realities. BN's non-transportation business, primarily the operations under the Resources Division, have generated gross revenues of $450 million in the last five years. Their net operating income has been raised from $21.6 million in 1970 to $56.8 million last year.
Louis W. Menk, chairman and chief executive officer, Robert W. Downing, vice-chariman and chief operating officer
pp. 2

Revenue ton miles rose four percent to 81.3 billion. The increase in revenue ton miles and freight rate increase pushed transportation revenues up seventeen percent to $1.4 billion. Net transportation operating income increase 69 percent to $92.7 million.

The Transportation Division lowered its operating ration from 83 to 80.8. The operating ratio of Burlington Northern Railroad dropped from 82.3 to 79.4.

Beginning in August 1973, the ICC approved a series of five rate increases, equal to a 23.1 percent advance in overall rates. Thus, of the $193 million gain in rail revenues, some $165 million was due to higher rates and $28 million to traffic gains.

Coal led the gainers as volume rose for 26.7 million tons carried in 1973 to an estimated 31.4 million tons. Coal hauling revenues escalated from $91 million to $143 million, an increase of 57 percent.

However, grain remained the railroad's top revenue producer. The amount carried receded to 27.9 million tons, from the record 32.1 million tons of 1973, but grain revenues went up 4 percent to $231 million.

When grain is included in summaries of BN's farm-related freight business, the total rises to $460 million, or 34 percent of revenues. Piggyback, showed a 25 percent gain in revenues on top of the nineteen percent increase achieved the previous year.
Norman M. Lorentzsen
pp. 9-10

Transportation income of $1.431 billion in 1974. Net transportation income of $92.6 million in 1974. pp. 20

1974 News

March, BN "is planning to convert its 125-acre shops in South Tacoma, Washington, into an industrial park, the 'Tacoma Industrial Center.' BN hopes to attract $15 million to $18 million in new investment for warehousing, manufacturing, distribution and office facilities. The 150 BN employees at the shops will be offered new assignments as present operations are phased out over the next five months." -BN News, March 1974, pp. 19

August, Sarpy Creek line change opens.

1975 Overview

The Transportation Division, including transportation and industrial land management, experienced a seventeen percent drop in net operating income.

What made 1975 a better year that it would have been otherwise was the continued improvement in coal traffic. Last year revenues from coal -- up 48 percent from 1974, a four-fold increase since 1970 -- plus $72.8 million realized from three general commodity rate increases were essential to the company's profit performance.

The $284 million generated by coal traffic and freight rate increases offset a number of disappointments.

Although consolidated revenues and transportation revenues both reached new highs of $1.6 billion and $1.47 billion, respectively, both the Transportation Division and the Resources Division experienced a difficult year.

The ability to maintain revenues in a poor year assisted management in continuing railroad maintenance and capital improvement projects at desired levels. The cost of these programs, coupled with severe recessionary impacts, put pressure on the company's cash position, contributing to the Board's decision to omit the third and fourth quarter dividends.

Revenue projections for 1976-80 were raised as the result of studies of the predicted growth of the western coal industry. These indicate that coal activity in the West is in its early stages . . . . the use of coal for electricity generation is rising and could increase by more than 70 percent in the next decade.

In 1970 we handled only three million tons of coal from the West and operated an average of one unit train weekly. Last year, volume increased to 41 million tons, and the number of unit trains loaded averaged eleven daily by year end. This increase was accomplished by the investment of $213 million in coal routes, cars and locomotives.
Louis W. Menk and Robert W. Downing
pp. 2-3

The Transportation Division operating ratio was 81.6 percent, compared to 80.8 percent in 1974. The operation ration of BNRR alone was 80.7 percent, compared to 79.4 percent in 1974. While revenue ton miles declined 2.3 percent in 1975, indications of operating efficiency showed improvement. Gross ton miles per train rose 6.9 percent, average length of haul increased 4.7 percent, to 510 miles, and gross tons per train were up fourteen percent, to 4,494, contributing to efficiency. Hauling 40.7 million tons of coal . . . last year provided the major growth in rail freight traffic. Grain, traditionally our principal commodity carried, produced 12.6 percent fewer revenue tons despite successive carloading records set in August, September and October. The extend of the recession's effect on non-coal traffic is reflected in the overall 2.3 percent decline in revenue ton miles. Carloadings fell ten percent, and the number of cars received from other railroads also declined.

Three rate increases added $72.8 million to transportation revenues, which gained three percent to $1.47 billion, from $1.43 billion in 1974.

Coal traffic volume was up by 7.5 million tons, or 22.6 percent. Coal revenues increased to $211 from $143 million in 1974, or 47.6 percent. The average daily number of unit trains loaded rose to eleven, from eight the previous year. First coal shipments to the Southwest began in October, from Wyoming to Amarillo, Texas, 947 miles, at an anticipated rate of 900,000 tons annually.

Grain continued to be the largest single revenue producer although declining to $222 million from $231 million in 1974, or by 3.9 percent. Coal traffic promises to provide not only our biggest revenue gains in 1976, but, with a projected 40 percent revenue increase, will become our largest revenue producer as well.

Revenues form TOFC and COFC traffic decline by 9.2 percent to $63.1 million, although average length of haul rose 1.9 percent and average revenue per unit increased 10.4 percent.

Results for 1975 indicate there has been no significant shift of freight from highway to rail in the wake of the 1973 energy crisis, although it had been widely expected by government and private industry. Government actions in raising truck axle weight limitations and extending vehicle lengths appear to have placed the trucking industry in a stronger competitive position than it was before the Mideast oil embargo.
Norman M. Lorentzsen
pp. 4-6

Transportation income of $1.474 billion in 1975. Net transportation income of $70.1 billion in 1975.
pp. 20

1975 News

January, BN completes microwave system.

May, "Remove The Cancer Of Regulation..." by Dr. Albro Martin appears in BN News. "Since trucks came under regulation in 1935, the ICC, with few exceptions, has stubbornly refused to permit the railroads to cut their rates in an effort to take this high-class business back from the trucks. How many people know that the ICC can keep a railroad or a trucker from lowering rates?" -BN News, May 1975, pp. 16

November, "We foresee no more than four rail systems in the West and three in the East," Louis W. Menk, Burlington Northern chairman, predicted in a forecast of conditions in the year 2000.

His forecast is one of fourteen sealed in a time capsule in the lobby of the North Central home office of Prudential Insurance Company in Minneapolis.

Menk added, "To return the rails to their rightful place in society will necessitate massive changes in transport policy concurrent with a more reasoned attitude by regulatory bodies. The system will not be nationalized, but instead will play an increasingly important role in the movement of the nation's goods." He also predicted continuation of Amtrak operations in corridor areas between large cities and said there will be electrification of heavy density lines and a dramatic change in methods of pricing. -BN News, November 1975, pp. 5

1976 Overview

As a result of the greater demand for western coal, the railroad’s coal hauling revenues increased $63 million . . . . lumber transportation revenues rose $44 million. Demand for grain was down, off sharply in the fourth quarter, so less grain moved to the ports, more was put into storage, and our revenue ton mile total for that commodity was reflected in shorter hauls.

For the year, rail revenues topped $1.6 billion, rail net operating income was $73 million.

Management expects that these assets will produce steadily higher revenues and that the trend line of earnings will continue upward through the remainder of the 1970s and in the early 1980s. We are not, however, satisfied with our company’s return on equity, which improved to 4.2 percent in 1976 from 3.2 percent in 1975 and 2.3 in 1971, our company’s first full year of operations.

Last year our company spent $255.6 million on capital improvements, including leased equipment, which brought BN's total for seven years to $1.4 billion.

On June 30, Robert W. Downing, vice-chairman and chief operating officer of our company, retired after 38 years of dedicated service. He continues as a director. On January 1 of this year, Norman M. Lorentzsen, who had been president of the Transportation Division, was elected president of our corporation. Thomas J. Lamphier, who had been executive vice-president, was elected to succeed him as head of the Transportation Division.
Louis W. Menk, chairman, and Norman M. Lorentzsen, president
pp. 3-5

Once again, thanks to another substantial increase in our coal traffic, BN outperformed the rail industry in increasing volume, recording a thirteen percent improvement in total revenue ton-miles. The industry as a whole managed about a five percent gain.

The revenue ton-mile total for coal increased 23 percent to 32.1 billion form 26.2 billion in 1975. Our coal hauling business also showed the largest revenue gain, climbing $63 million, or 30 percent, to $274 million from $211 million in 1975. This pushed coal ahead of grain as the railroad’s largest single revenue producing commodity.

Grain was the major disappointment of 1976. Carloadings dropped sharply in the fourth quarter from the year earlier level and 1976 grain hauling revenues of $240 million topped the $222 million of 1975 mainly because of freight rate increased. For the full year, our company registered a two percent gain in grain carloadings, although revenue ton miles declined slightly.

Freight rate increases also improved the revenues of every other major commodity group in our traffic mix, producing an additional $88 million as BN experienced the full year effects of three increases granted during 1975 and -- for part of last year -- the favorable impact of further adjustments won in the spring and in October 1976, which had an effective annual yield of four percent. The remaining $135 million of the $223 million increase in rail freight revenues over 1975 was produced by increased traffic volumes.

The railroad last year on a typical day operated an average of 314 through trains including unit coal trains, and 410 trains in local service. The average train in 1976 was shorter by two cars, but the average car carried three percent more revenue tons than in 1975. Another indication of increased efficiency in rail freight operations was the eleven percent improvement in net ton-miles per freight car day, which rose to 2,097 from 1,893. These results enabled the railroad to handle a seven percent greater number of carloads than the previous year, with a freight car fleet that was 3.7 percent smaller. The consolidated rail operation ratio for 1976 increased slightly to 81.42 from 81.04 in 1975, principally because the maintenance-of-way ratio rose.

BN coal traffic last year continued to grow faster than any other area of our rail fright business, with the mines of Montana and Wyoming generating most of the increase. At the year’s end, our company was originating an average of fifteen unit trains daily compared to eleven per day at the end of 1975 and eight at the close of 1974.

Revenues from TOFC and COFC traffic rebounded 30 percent last year, climbing to $82.2 million from the $63.1 million of recessionary 1975, surpassing even the $69.5 million achieved in the previous peak year of 1974. The average length of haul also continued to climb, increasing thirteen percent to 977 miles from the 867 miles of 1975. The 1976 average also was 26 percent about the 777 miles per average unit of 1971. More than 90 percent of BN’s TOFC/COFC volume was carried on the most time-sensitive trains last year.
Thomas J. Lamphier, president
pp. 6-10

Of the 42.9 million tons of coal originated by BN in 1976, 33.4 million tons, or 78 percent, were produced by western mines. This was up from only three million tons of Wyoming and Montana coal in 1970. Approximately 94 percent of all coal from Montana and Wyoming is being handled by unit coal trains, a rail transportation concept in which our company has introduced a number of innovations.

By the end of 1976, BN’s coal service had grown to 67 train sets. These trains were starting an average of eleven runs daily over the four primary coal routes that fan out from Montana and Wyoming. The busiest coal line in 1976 was the central route through Lincoln, Nebraska, over which fuel moves inland to customers in Iowa, Illinois, Indiana, Kansas, Oklahoma and Northeast Texas, and to barge connections in Illinois and Missouri.

The northeast route serves customers in Minnesota, Wisconsin, and Illinois and makes river and Great Lakes connections delivering to customers farther east and south. Over the southern route coal flows to power plants and industrial facilities in Colorado and Texas while the northwestern route will serve customers as far west as Oregon beginning in 1979.

Burlington Northern has announced no coal traffic forecasts beyond 1980, by which time the company expects to be hauling 125 to 150 million tons annually.
pp. 14

Transportation income of $1.7 billion in 1976. Net transportation income of $77 million in 1976.
pp. 25

1976 News

January, Northtown shops open.

June 17, the U.S. Supreme Court said in effect that when the ICC approves rate increases for railroads it can also have a say in how the carriers spend their money. The court, in a six-to-two decision, reversed a ruling by a three-judge Federal court in Richmond, Virginia. The effect of the order is to grant a ten percent hike in freight rates provided the increased revenue is spent of "deferred maintenance or delayed capital improvements" as defined by the Commission. Railways with no projects pending were granted permission to spend funds from the increase for new and additional capital improvements. -BN News, June 1976, pp. 19

June 30, Robert W. Downing steps down as vice chairman. Born September 18, 1913, at Sewickley, Pennsylvania, graduated with a bachelor's of science in civil engineering from Yale in 1935. -BN News, July 1976, pp. 4

September, BN to Study Tongue River Coal Activity.

"Norman M. Lorentzsen, Transportation Division president, said, 'A number of firms are engaged in plans to mine low sulphur coal in the area. Our preliminary observations are that surface mining of the coal is practical. We will continue to monitor the mining related activity in the Basin to determine what rail transportation needs will be required.'"

"BN, several other firms, the Cheyenne Indian Nation, and the Federal government own coal deposits in the Basin." -BN News, September 1976, pp. 4

1977 Overview

Consolidated operating revenues and sales rose eleven percent to $2.1 billion from the $1.9 billion of 1976. The Transportation Division contributed most of the increase, raising revenues by some $197 million to $1.936 billion.

However, transportation expenses were up even more sharply at a record $1.869 billion versus the $1.658 billion of 1976. Accordingly, net operating income of the Transportation Division’s three components, rail, truck line and air freight forwarding subsidiary, decreased seventeen percent to $67 million from the $81.2 million of 1976.

The dominant role of non-railroad activities in this period of company development never has been more evident than in 1977 when the railroad had a pre-tax loss of $10.7 million. In 1976, when BN achieved a pre-tax net of $87.8 million, non-railroad activities contributed $75.9 million and the railroad $11.9 million. A substantial increase in the ongoing roadway maintenance and improvement program contributed materially to the 1977 loss.

This is a time to assess these strengths and opportunities that belong to the people who own and work for Burlington Northern. The railroad is our largest asset and has the greatest potential for growth of any of our businesses. A government study has projected that overall rail freight traffic will grow about 35 percent in the next decade.

Management's confidence in this is based on the tonnage increases projected by western coal mines and the knowledge that, in the last ten years, BN’s revenue ton-mile total has grown six times faster than the industry average.

BN now has embarked on a five-year capital improvement campaign totaling more than $2 billion. Approximately $1.8 billion is planned for improvements to the railroad, with more than 50 percent of this sum allocated for coal-related projects. Almost all the remaining $200 million will be invested in our natural resources businesses. We feel compelled to comment on what has become known as the Midwest Rail Problem. Bankruptcies of two major carriers have brought into focus the sever effects of years of over-regulation, regulatory delay, subsidized competition and excess rail capacity. There are those who believe that the answers to the region's rail problem lie in a massive infusion of federal funds into systems that, in the final analysis, cannot be made viable and profitable under any circumstances. However, we believe that there is no need for a "Conrail West." And we share the view of U.S. Secretary of Transportation Brock Adams that using federal funds to temporarily shore up bankrupt properties would result only in weakening viable carriers. This management believes firmly that the wisest course -- the course that would produce the best national transportation system without unnecessary government expense -- would be for government to take two parallel steps. These are, first, to actively pursue and carry out the provisions of the Railroad Revitalization and Regulatory Reform Act of 1976, which Congress intended would promote the increased use of railroads and foster competition among all carriers. And, second, those in government must recognize that our competitors should be required to pay to use public highways and waterways, because equality of competition cannot be achieved when the competitors of railroads enjoy substantial subsidies at public expense.
Louis W. Menk, Norman M. Lorentzsen
pp. 3-5

Although rail revenues were ten percent higher at $1.8 billion and our revenue ton-mile growth trend continued to be the highest of any major rail carrier, the railroad had a pre-tax loss of $10.7 million.

Rail revenue ton-miles rose ten percent over 1976, to 98.5 billion from 89.4 billion, while the rail industry as a whole increased around four percent. Coal once again led all commodities that registered volume gains, with revenue ton-miles going up a fraction under 33 percent to 42.6 billion from 32.1 billion. Coal dollar volume climbed 36 percent to $373 million from $274 million to account for 21 percent of the total gross rail freight revenues in 1977.

For the second straight year, grain was a major disappointment, although there was a late-year surge in demand on the world market that turned the car surplus situation to shortage during the fourth quarter of 1977 and early 1978. Revenues from miscellaneous farm products also showed a decline, to $42 million from $47 million, while all nine other categories on BN’s list of eleven principal revenue-producing commodities registered gains. Two general freight rate increases during the year produced an additional $45 million in revenues.

The consolidated rail operating ratio for 1977 rose to 82.7 because more money was expended for both maintenance of roadway and maintenance of equipment.

Thus in 1977 BN spent 37.7 cents from each rail operating revenue dollar to maintain and improve its roadway, physical facilities and equipment.

Coal revenues rose 36 percent to $373 million from the $274 million of 1976, and the $99 million increase was the largest ever registered by a single commodity in the history of BN and its predecessor companies. Total coal tonnage originated rose from 42.9 million to 50.6 million tons.

Ten major mines [are] already in operation in the Fort Union Formation of Wyoming and Montana as 1977 opened, and two new mines [are being] opened during the year.

The largest dollar-volume changes were experienced in grain, which dropped $26 million in revenues because of the sluggish market and by lumber and foodstuffs, which generated an additional $15 million each. Reaching out for new business, the railroad shifted the schedules of high-speed piggyback trains from Chicago to the Pacific Northwest, offering shippers a departure every twelve hours. A similar adjustment was made in the schedules of North Coast-bound merchandise trains from Chicago.

During the year, the railroad participated in two industry-wide freight rate increases. The first adjustment, four percent, became effective January 7, 1977. The second, for five percent, went into effect November 30. Also, in October, lumber rates from eastern Washington, Idaho, and Montana to Midwest destinations were reduced below the rate level of regulated truck competitors, in a move to increase market share in this business.

Revenue from [TOFC/COFC] traffic in 1977 was $110.5 million, up 34 percent from 1976. This gain continued a record of annual increases that has been unbroken since 1970, with the exception of recessionary 1975.

The other major segment of BN intermodal traffic is shipments of imported automobiles and trucks. Revenue from this water-to-rail business last year was $19.9 million, an increase of eighteen percent over 1976 revenue. This is a relatively new market for BN and growth has been continuous since 1972, when this traffic produced revenue o $3.6 million.

BN’s success in increasing its length of piggyback haul has exceeded the goals of the five-year plan. BN's average length of trailer and container haul for 1977 was 1,099 miles, compared with 975 miles the year before. The increase was an impressive thirteen percent, but what made it extraordinary was that the 1976 figure also had been fourteen percent higher than the year before. In 1977 each move returned, on the average, $559 -- up from $451 in 1976.

The 1,099 mile average trailer and container unit haul achieved by BN stands out against the railroad industry's estimated average length of haul for all kinds of freight in 1976 -- 535 miles. BN’s own average length of haul for all freight in 1976 was 526 miles and 558 miles in 1977.
Thomas J. Lamphier
pp. 6-12

Average length of container unit haul (miles)
1977--1,099
1976--975
1975--852
1974--828
1973--829
pp. 12

The chief executives of your company and the St. Louis-San Francisco Railway (Frisco) executed an Agreement of Merger and Plan of Reorganization, dated November 15, 1977, which contemplates the merger of Frisco into BN. The agreement provides that upon approval by the stockholders of BN and Frisco and by the Interstate Commerce Commission each share of Frisco common stock will be converted into 95/100ths share of common stock and 1/2 share of $2.125 No Par Value Preferred Stock, $25 Redemption Value, of BN.

BN and Frisco filed a joint application before the ICC on December 28, 1977, for authority to consummate the merger. The application has been accepted by the ICC as being in full compliance with its regulations and the commission has approximately 30 months from the date of acceptance to act on the application.

The application followed a joint study which indicated that the proposed merger would improve the quality and efficiency of the rail service offered by Frisco and BN and result in estimated financial benefits of $32.9 million before income taxes commencing in the third year following merger.
pp. 19

Railroad operating revenues of $1.801 billion in 1977. Rail operating income of $60.231 million in 1977.
pp. 25

1977 News

January, Louis W. Menk steps down as President and COO. Norman M. Lorentzsen becomes President and COO, succeeding Louis W. Menk.

January, BN and SLSF announce they are commencing a joint study into the feasibility of unification.

The St. Louis-based Frisco's principal business is the operation of a 4,741-mile rail system serving nine central, southeastern and southwestern states. For 1976, Frisco reported revenues of $321.5 million and earning of $12 million, or 44.61 per share. BN reported consolidated revenues of $1.9 billion and earnings of $73 million, or $5.69 per share, for last year. -BN News, January-February 1977, pp. 5

February 1, 1977, A merger study committee, headed by Michael M. Donahue of BN and James H. Brown of the Frisco, is established. William W. Francis, Frisco co-chairman of the Operating Study Committee with BN's Charles E. Able. Consists of 14 committees and 55 subcommittees.

June, Laurel, Montana Car Shop opens.

August, Merger study concludes BN-SLSF should apply to seek merger.

October, $50 million expansion for the terminal at Alliance, Nebraska.

October 1, Coal Division established. Headed by Michael M. Donahue, Vice President, Coal.

November, BN 4064 becomes the last of 1,709 Cascade Green re-paints. Ex-SP&S RS-3 painted at Spokane, Washington.

November 1, John H. Hertog becomes Senior Vice President Operations.

December 28, Merger application, filling seven volumes, filed with ICC. The merger application leads to 40 days of hearings with 70 witnesses and nearly 100 verified statements.

December 31, John M. Budd retires from Board of Directors. -BN News, December 1979, pp. 4

"In early 1977, Louis W. Menk, BN chairman and architect of the merger, drew the initial sketch of his plans in a meeting with Richard C. Grayson, chairman and president of the Frisco. Although that was the first step, Menk acknowledges, "I think I sort of had it in my subconscious mind for a long time before that."

Grayson, an old friend who had started his Frisco career in 1941, agreed that a merger study was advisable. "With the merger movement gaining momentum in this country, the Frisco felt its strategic location and strong financial condition put it in a good position to go with some larger carrier."

1978 Overview

Total corporate earnings rose 49 percent to $114,5 million or $8.52 a share on a twenty percent increase in revenues to $2.5 billion. Last year, return on stockholders’ equity was only six percent. This is an improvement on 1977’s 4.2 percent hut it falls far short of our objectives.

Transportation Division revenue in 1978, including rail, truck and air freight, continued a steady climb to $2.3 billion, up nineteen percent over 1977. Railroad revenue broke the $2 billion mark for the first time in history. But rail pre-tax income of only $9.1 million was a disappointment, attributable in part to Interstate Commerce Commission prescribed accounting procedure for roadway expense.

Coal has nearly tripled in terms of revenue ton-miles on BN since 1974. Piggyback freight is the second fastest growing traffic source on the railroad. Demand for grain has increased and lumber and wood products continue strong, buoyed during the past few years by an upturn in the construction industry.

The BN-Frisco merger moved a step farther as ICC hearings progressed on schedule. Through agreements we have reduced opposition to eight railroads from fifteen at the outset of hearings. In the new regulatory climate, we expect the BN-Frisco merger to progress more quickly than the BN merger, which took fourteen years. By law, the ICC must reach a decision no later than July 23, 1980.

We are encouraged by the present climate in Congress which we feel will result in fewer regulatory restrains on the rail industry’s ability to do business.
Louis W. Menk, Norman L. Lorentzsen
pp. 2-3

Rail revenues rose for the eighth consecutive year, surpassing another billion dollar threshold with a total of $2.1 billion, seventeen percent above the $1.8 billion reported in 1977. Rail operating expenses totaled $2 billion, versus $1.7 million in 1977. The result was an operating income of $83.5 million, 39 percent above the year earlier. Both operating income and rail pre-tax income of $9.1 million were unsatisfactory, largely due to the costs of BN’s rebuilding program.

Coal has been BN's largest revenue producer since 1976 and last year brought in $499.2 million, or 24 percent of BN’s total gross rail freight revenues. This was 34 percent higher than the $372.9 million reported a year earlier. Coal traffic originated on our system in 1978 totaled 63.1 million tons, 25 percent greater than the 50.6 million of 1977.

Coal accounted for 52.7 billion ton-miles, or nearly half the system total, increasing 24 percent above 1977. Coal carloadings increased seventeen percent to 655,000 or 30 percent of the company’s total rail traffic. Tonnage carried by unit trains increased from 47.2 million tons in 1977, to 57.21 million tons last year, or 21 percent. Of last year’s tonnage, 87 percent traveled in unit trains. At the end of 1978, BN was operating 118 sets of unit train equipment, including 73 with shipper-owned cars. Of the 14,329 cars in unit coal train service, 9,225 or 64 percent are shipper owned.

Some of the growth was produced by nine unit coal train movements that were inaugurated in 1978 between mines in the Powder River Basin and utilities in Arkansas, Iowa, Missouri, Nebraska, Texas and Wisconsin. Eight additional movements are scheduled to begin in 1979 to destinations in Iowa, Kansas, Missouri, Oklahoma, Texas, Wisconsin and Wyoming.

The rapid growth of coal traffic, in some instances, has outpaced construction of new and longer segments of double track and servicing facilities. Consequently, some unit coal train movements have been experiencing delays due to traffic congestion and interference from actual construction and maintenance activities. These delays, which are expected to continue until new track and facilities are completed in 1980, are also resulting in increased equipment expenses -- primarily for equipment, wages and fuel.

Three new coal mines were opened on BN lines last year -- two in Wyoming and one in Montana. Another mine is scheduled to open in Wyoming this spring, bringing the total number of BN-served mines in the West to fifteen. Included in this is the AMAX Belle Ayr mine, near Gillette, Wyoming, which is the largest in the U.S. and last year produced 18.1 million tons of coal.

In 1978, the company continued its program to raise depressed coal rates to compensatory levels. The ICC approved a 30 percent increase in coal rates to San Antonio, Texas, effective December 1. BN also filed applications in 1978 to raise rates on coal moving to power plants in the Twin Cities and Becker, Minnesota. Other coal cases pending before the ICC involve moves to Redfield, and Flint Creek, Arkansas; Council Bluffs and Sergeant Bluff, Iowa.

In the first quarter of 1979, additional rate increases ranging from 10 to 56 percent were requested on the coal moving to Superior, Wis., and Cohasset, Minnesota. The ICC has permitted these increases to go into effect, subject to investigation and a possible refund should a lower rate be ordered later.

BN’s grain revenues rose 28 percent in 1978 to $275 million as we stretched to keep pace with the strong export market for corn, wheat and soybeans. Foreign sales picked up in late 1977 putting an abrupt end to nearly two years of very low grain prices when farmers stored their harvest rather than sell at a loss. The resulting heavy demand for equipment to move grain triggered a nationwide shortage. Moreover, in 1977, BN had retired more than 2,200 40-foot, narrow-door boxcars that were worn beyond the point of economical repair.

Although the company had acquired 400 additional large capacity covered hoppers that year to offset its retirements, the net effect was a four percent reduction in bushel capacity at the start of 1978. This loss hurt our grain carrying capabilities in the early part of last year but with the help of 975 new covered hopper cars delivered between April and August, BN handled 775 million bushels of grain in 1978, up five percent from 1977. Longer hauls to ports in the Pacific Northwest brought in greater revenues.

Since late 1978, BN has been operating a series of unit grain trains, gathering wheat and corn in from outlying points in farm sates and delivering it to terminal elevators at major ports. The trains improve car utilization through faster turnaround of equipment. Although this program has been most successful in regions where sufficient volume exists to load from relatively few origins to a single destination, the net result is greater supply of equipment for all grain shippers. Grain revenues last year accounted for thirteen percent of the company’s gross rail freight revenues, or slightly less than lumber.

However, agriculture -- grain, food and kindred products -- continued to be a major source of revenue for the railroad, last year contributing $524.9 million or 25 percent of the company’s total. Lumber traffic in 1978, sustained by a high level of housing starts for the third successive year, generated record revenues of $278 million, nine percent above 1977. Revenue from pulp, paper and allied products increased eight percent over 1977 to $90.5 million. All together, forest products accounted for eighteen percent of BN's total gross rail freight revenues last year.

BN’s trailer and container revenues have increased an average of twenty percent each year since 1975 with 1978 revenues rising to $112.6 million.

Autos and auto parts revenues increased seven percent in 1978 to $57.2 million, as motor vehicle imports handled through Seattle and Portland grew.

Carloadings for the year increased seven percent to 2.2 million. Coal was responsible for slightly less than one-third of this total. Grain was number two in carloadings followed by metallic ores and lumber and wood products.

In 1978, BN participated in two general freight rate increases. The first, effective June 18, amounted to four percent. The second, effective December 5, was approximately a seven percent increase. However, there were many exceptions with adjustments ranging from nineteen to three percent. Grain and some coal that is not subject to annual adjustments were both increased nine percent, for example. This latest increase is expected to produce $98 million in additional revenues annually.

The end-to-end merger of BN and the Frisco would create a 29,000 mile rail system serving 25 states, extending from Florida, Alabama and Texas in the South, to the upper Midwest and Pacific Northwest, including two Canadian provinces.

Potential some 183,000 cars annually are expected to be retained for longer hauls over the merged system. Other benefits include shorter routing of existing joint traffic, consolidations at common points, higher utilization and efficiency in the use of trains and tracks, and the consolidation of management functions.
Thomas J. Lamphier
pp. 4-9

Average length of container unit haul (miles)
1978--1,144
1977--1,099
1976--975
1975--852
1974--828
pp. 6

Under federal law the ICC has until late July of 1980 to act on the application.

Fifteen railroads initially intervened in the proceedings, either opposing the merger or seeking conditions to its approval. Settlements have been reached with seven railroads.

To date the ICC has held hearings in Washington, D.C., Chicago and Dallas, and will hold further hearings in Washington, DC, in the spring of this year. It is anticipated that the ICC will be able to render its decision by the statutory deadline.
pp. 19

Ratio of earnings to fixed charges
1978--2.09
1977--1.84
1976--2.04
1975--1.82
1974--2.41
pp. 27

Railroad operating revenues of $2.110 billion in 1978. Railroad net income of $83.475 million in 1978.
pp. 29

1978 10-K FILING The managements of both Burlington Northern and Frisco believe that the proposed merger will improve the quality, efficiency and reliability of rail transportation service offered to the shipping public, while producing substantial operating efficiencies and a more effective utilization of the merged company's human and physical resources. In the opinion of Burlington Northern and Frisco managements, the proposed merger will create a rail competitor whose financial strength will be greater than that attainable by either of the parties standing alone. The Boards of Directors of Burlington Northern and Frisco therefore firmly believe that the merger is in the best interests of both companies and their respective stockholders and of the public at large.
pp. 4

Burlington Northern calculates separately the rates of return for its railroad operations and for the total enterprise. The first, for railroad operations, represents net railroad operating income divided by the sum of average net investment in railroad transportation property plus average cash (excluding temporary cash investments) and average railroad materials and supplies. The second, for Burlington Northern as a total enterprise, is the quotient of net income after preferred stock dividends divided by average common stock equity. For the five years ended December 31, 1977, these ratios were as follows:

 1973--2.3  1974--3.6  1975--2.7  1976--2.7  1978--2.1  Railroad Operations
 1973--3.3  1974--5.3  1975--3.2  1976--4.3  1978--4.2  Total Enterprise

pp. 28

[Comparative numbers for SLSF]

 1973--3.4  1974--4.8  1975--3.4  1976--4.6  1978--5.4  Railroad Operations
 1973--3.9  1974--6.2  1975--4.0  1976--5.5  1978--7.3  Total Enterprise

pp. 33

Coal

1973--090.7 1974--142.8 1975--210.7 1976--273.6 1977--372.9 Transport Revenues (Millions) 1973--024.7 1974--029.5 1975--036.2 1976--042.9 1977--050.6 Tons Originated (Millions) 1973--012.9 1974--018.4 1975--026.2 1976--032.1 1977--042.6 Tons-Miles (Billions) 1973--006.0 1974--008.0 1975--010.0 1976--012.0 1977--014.0 Daily Unit Trains

Approximately 83 percent of the coal traffic originated by Burlington Northern in 1977 originated in Montana and Wyoming and was destined for electric generating stations in the Midwest, the Great Plains and Southwest. Most of the coal being mined or planned for mining in Montana and Wyoming lies in the Fort Union Formation.

The coal in the Fort Union Formation is subbituminous and relatively free from sulfur and generally can be burned in compliance with the sulfur emission limitations of most Federal, state and local environmental regulations. The bulk of such coal is suitable for surface mining. The heat content of the subbituminous coal on an as received basis ranges from approximately 8,000 to 9,700 Btu's per pound, which is somewhat lower than the heat content of bituminous coal.

During 1977, approximately 93 percent of the coal tonnage originated by Burlington Northern was carried in unit trains, which are entire trains handling a single commodity exclusively from origin to destination and returning empty to origin on a continuous basis.

Most western mines served by Burlington Northern are equipped to load moving trains, permitting the loading of a typical unit train is two to four hours.

At December 31, 1977 Burlington Northern had 91 unit train sets available for coal service.
pp. 38

1978 News

January 1, Norman M. Lorentzsen becomes President.

January, BN and SLSF Boards approve merger.

May 11, Louis W. Menk steps down as CEO, succeeded by Norman M. Lorentzsen. July 1, Norman M. Lorentzsen becomes CEO.

June, BN shareholders approve SLSF merger.

1979 Overview

Consolidated earnings in 1979 rose 53 percent to $175.6 million or $13.11 a share, compared with 1978 consolidated earnings of $114.5 million or $8.25 a share. Corporate revenues passed another billion dollar plateau last year, rising to $3.25 billion, up 28 percent from $2.53 billion in 1978.

In ten years, BN’s consolidated net income has grown at an average annual rate of 22 percent. Consolidated revenues have increased at an average rate of thirteen percent annually.

This improvement has been due chiefly to growth in resources activities, particularly forest products.

The challenge we face with our railroad becomes more clear when we consider return on equity. In 1969, corporate return on equity was 8.7 percent but the railroad's return on average net investment was only 3.8 percent. This represents an improvement on the corporations return of six percent and the railroad's return of 2.7 percent in 1978, but it is still substandard, reflecting the very narrow margin of profitability on rail operations.

Of all our assets, the railroad offers the best opportunity for growth, but it also provides the greatest test of BN’s ability to succeed as a company. We cannot be content with allowing the strength of other activities to bolster a weak earnings performance by the railroad.

Since 1970, the volume of traffic handled by the railroad has increased at an average rate of eight percent a year. More recently, the railroad recorded a sixteen percent increase in revenue ton miles during 1979, following an eighteen percent rise in traffic volume in 1978.
Louis W. Menk, Norman M. Lorentzsen
pp. 2

Although these results show improvement, the margin of profit on the rail operations continues to be less than satisfactory. In 1979, the railroad contributed 81 percent of consolidated corporate revenues of $3.25 billion, but only 23 percent of corporate pretax income of $175.4 million.

In 1979, rail operating expense rose 24 percent to $2.51 billion. In 1979, approximately 45 percent of the traffic we hauled originated and terminated on BN lines.

Last year, revenue ton miles at BN rose sixteen percent to 135 billion, making us once again the largest volume carrier in the U.S. rail industry. The 1979 volume increase follows a record eighteen percent rise in revenue ton miles during 1978 and compares with an estimated 5.2 percent increase in revenue ton miles for all Class I railroads during 1979.

As in the previous three years, coal was the volume leader during 1979. Last year coal traffic generated $721 million in gross freight revenues, an increase of 44 percent over 1978. BN's originated coal tonnage rose 27 percent to 80 million tons. Coal accounted for 66 billion revenue ton miles, 49 percent of the system total in 1979. In 1970 BN originated less than nineteen million tons of coal. To handle a 400 percent increase in coal traffic in ten years, we have invested nearly $1 billion in coal-related plant and equipment. We now serve sixteen operating mines in the Powder River Basin and most coal originating there travels by unit train to electric utilities. At year end 1979, we had 163 rain sets in coal unit train service compared with 118 train sets at the end of 1978. Approximately 90 percent of our total coal tonnage travels in this fuel efficient method of carriage.

We expect to originate 96 million tons of coal in 1980, an increase of twenty percent over 1979’s record levels.

In 1979 our railroad handled sixteen billion revenue ton miles of grain, a 37 percent increase over 1978. BN's grain carloadings last year totaled 264,356 or eleven percent of its system total and accounted for nineteen percent of the 1.5 million carloadings of grain handled by major U.S. railroads in 1979. Last year, grain generated gross freight revenues of $366 million, up 33 percent over 1978.

BN’s new grain train service applies the unit train concept of single origin single destination service to grain movement. We began this service in December 1978 on an experimental basis and by year end 1979 BN had 50 train sets in dedicated grain service.

Using this method of operation we were able to move more grain with fewer cars. About nineteen percent of our total grain volume last year moved in grain trains which accounted for approximately six percent of our equipment. Our improved service sometimes caused problems for receivers, however, and from time to time we were forced to embargo shipments to certain grain elevators because they were unable to handle our volume.

Gross freight revenues on lumber increased eight percent in 1979 to $300 million, on a 5.6 percent decrease in revenue ton miles to 11.6 billion. This decline in volume is linked to a slowdown in the U.S. construction industry. Housing starts dropped to 1.7 million in 1979, down from a record two million in 1978. Construction industry analysts have forecast a deeper decline in new home construction during 1980 and, as a result, we expect to see continued weakness in lumber volume this year.

Otherwise, traffic results for 1979 were very positive. Revenue ton-miles increased in eight of twelve commodity groups. In addition to coal and grain, BN realized major volume gains in automotive traffic, up 28.6 percent; non-metallic minerals, up 16.5 percent; primary metal products, up nine percent; and chemical and allied products, up 8.3 percent.

During the year, the high rate of inflation made it difficult to keep pace with costs. As a result general rate increases of 12.5 percent were put into effect.

Interstate Commerce Commission proceedings on BN’s proposed merger with the Frisco made progress during 1979. According to a 1976 Federal law, the Commission had until July 23, 1980, or 31 months from the day we filed the merger application, to reach a decision on the case. But the Commission concluded the evidence gathering phase of its proceedings three months earlier than expected, on October 28, 1979. By law, this moved the final date for the Commission's decision to April 21, 1980. Initially, fourteen railroads opposed the merger. By year end 1979, BN was able to reach agreements with ten of the opposition. Four railroads still in opposition are the Rock Island, the Katy, the Soo Line and the Illinois Central Gulf. We have also reached agreements with several of our unions.
Thomas J. Lamphier
pp. 5-11

Recent developments indicate that significant rail system restructurings could occur in the future. In addition to the proceedings to merge the Frisco into our system, several other proposed combinations are now in prospect. Last spring the Chessie System and the Seaboard Coast Line filed a merger application with the ICC. More recently, Union Pacific has reached an agreement to merge with the Missouri Pacific and has made a tender offer for control of the Western Pacific. The contemplated liquidation of the Rock Island and various plans for reorganization of the Milwaukee Road, with certain lines of both roads being acquired by other railroads, may further reshape the Midwestern rail network.

Our company is closely monitoring this rapidly unfolding situation, since it could have long-range consequences both to the industry and to our railroad.
pp. 21

Total 1979 rail transportation revenues increased 25 percent over 1978. Farm, forest and mine products accounted for over 75 percent of the gross rail freight revenues. We originated 80.2 million tons of coal on our system in 1979. Coal revenue ton miles increased 26 percent in 1979, and coal transportation revenues rose 44 percent during the year, providing 42 percent of the increase in total rail transportation revenues. Coal rates not subject to general freight rate increases rose an average of seven percent during the year, contributing approximately ten percent of the increase in coal transportation revenues. Recent coal rate decisions by the ICC have allowed railroads a return of only 10.6 percent on their capital, while our after tax cost of capital is in the range of twelve to thirteen percent. Many of the coal rate increases instituted during the year are in various stages of hearings an appeals.

Grain traffic increased in revenue ton miles for this year by 37 percent over 1978. Grain transportation revenues rose 33 percent during the year, providing 17 percent of the increase in total rail transportation revenues. In 1979 we handled 800 million bushels of grain, compared with 775 million bushels for 1978.

Shipments of forest products including lumber, pulp and paper, produced sixteen percent of the 1979 gross freight revenue, with a four percent decrease in revenue ton miles. Intermodal traffic revenues increased 25 percent as more trailerloads were handled over longer distances. This year's revenue ton-miles for all commodities increased sixteen percent over 1978.

During 1979, the ICC authorized four separate fuel-related surcharges totaling 4.7 percent and a general rate increase of 7.8 percent effective October 15. While the increase is not applicable to most coal traffic and certain commodities were exempt from the increase, an average yield of 6.4 percent on the 7.8 percent increase was realized. Fuel related surcharges only partially offset the increased diesel fuel cost, with an estimated $45 million shortfall.

Diesel fuel costs of $299.6 million for 1979 were 83 percent over 1978. Diesel fuel consumption rose fifteen percent, while diesel fuel prices increased 108 percent to an average price of $0.82 per gallon by year end.
pp. 28

Railroad operating revenues of $2.635 billion in 1979. Railroad net income of $123.891 million in 1979.
pp. 29

1979 News

September, Floyd D. Larson and William W. Francis begin operation planning as co-chairs of Operations Implementation Committee between BN and SLSF.

October 6, Orin Line rails meet 71 miles south of Gillette, Wyoming. Cost is estimated at $1 million per mile. Includes 26 bridges, animal underpasses, 231 miles of fence. -BN News, December 1979, pp. 4

October 24, ICC record on the merger was closed. Oral arguments held three weeks later.

October 25, John M. Budd dies at age 71 in St. Paul. -BN News, December 1979, pp. 4

November, Alliance Maintenance Center opens.

November 1, SP&S fully merged with BN stocks and bonds.

November 6, first train over 116-mile Orin Line. -BN News, December 1979, pp. 4

Statistics

Ratio of Earnings to Fixed Charges, 1971-1980

1971--1.83
1972--1.91
1973--1.87
1974--2.41
1975--1.82
1976--2.04
1977--1.84
1978--2.09
1979--2.38
1980--2.86

Return on Common Shareholder's Equity, 1971-1980

1971--2.3
1972--3.2
1973--3.3
1974--5.3
1975--3.2
1976--4.3
1977--4.2
1978--6.0
1979--8.7
1980--9.7

"This compares poorly with the fifteen to sixteen percent return that is common among many businesses. Considered in the light of the twelve to fifteen percent cost of capital in today's market, BN's return on equity is inadequate."
– Louis W. Menk, 1980 BN Annual Report, pp. 3

Operating Revenue, 1974-1997

1974 railroad operating revenue--$1.431 billion
1975 railroad operating revenue--$1.474 billion
1976 railroad operating revenue--$1.642 billion
1977 railroad operating revenue--$1.801 billion
1978 railroad operating revenue--$2.110 billion
1979 railroad operating revenue--$2.635 billion
1980 railroad operating revenue--$3.253 billion
1984 railroad operating revenue--$4.490 billion
1984 railroad operating revenue--$4.490 billion
1985 railroad operating revenue--$4.048 billion
1986 railroad operating revenue--$3.740 billion
1987 railroad operating revenue--$4.038 billion
1988 railroad operating revenue--$4.541 billion
1989 railroad operating revenue--$4.606 billion
1990 railroad operating revenue--$4.674 billion
1991 railroad operating revenue--$4.559 billion
1992 railroad operating revenue--$4.630 billion
1993 railroad operating revenue--$4.699 billion
1994 railroad operating revenue--$4.995 billion
1995 railroad operating revenue--$6.117 billion
1996 railroad operating revenue--$8.141 billion
1997 railroad operating revenue--$8.413 billion

Revenue Ton-Miles, 1971-1980

1971 railroad revenue ton-miles--064.8 billion
1972 railroad revenue ton-miles--069.2 billion
1973 railroad revenue ton-miles--078.4 billion
1974 railroad revenue ton-miles--081.3 billion
1975 railroad revenue ton-miles--079.4 billion
1976 railroad revenue ton-miles--089.4 billion
1977 railroad revenue ton-miles--098.5 billion
1978 railroad revenue ton-miles--116.3 billion
1979 railroad revenue ton-miles--135.0 billion
1980 railroad revenue ton-miles--155.3 billion

Operating Ratios, 1973-1980

1973 operating ratio--82.7 (79.4--Class I Average)
1974 operating ratio--80.5 (79.0--Class I Average)
1975 operating ratio--81.4 (82.7--Class I Average)
1976 operating ratio--81.8 (82.8--Class I Average)

1977 operating ratio--82.7
1976 operating ratio--95.3
1977 operating ratio--96.7
1978 operating ratio--96.0
1979 operating ratio--95.3
1980 operating ratio--91.5

Average Tons per Carload, 1973-1993

1973 tons per carload--49
1974 tons per carload--50
1975 tons per carload--53
1976 tons per carload--55
1977 tons per carload--56
1985 tons per carload--71
1986 tons per carload--71
1987 tons per carload--73
1988 tons per carload--74
1989 tons per carload--75
1990 tons per carload--79
1991 tons per carload--82
1992 tons per carload--82
1993 tons per carload--83

Revenue Tons per Train, 1973-1993

1973 revenue tons per train--1,771
1974 revenue tons per train--1,776
1975 revenue tons per train--2,031
1976 revenue tons per train--2,057
1977 revenue tons per train--2,159
1985 revenue tons per train--3,018
1986 revenue tons per train--2,939
1987 revenue tons per train--2,981
1988 revenue tons per train--2,997
1989 revenue tons per train--3,032
1990 revenue tons per train--3,141
1991 revenue tons per train--3,188
1992 revenue tons per train--3,193
1993 revenue tons per train--3,315

Coal Ton-Miles, 1973-1993

1973--012.9
1974--018.4
1975--026.2
1976--032.1
1977--042.6
1989--111.0
1990--118.6
1991--119.0
1992--117.1
1993--122.8

Employement, 1971-1991

1971 employment--50,305
1972 employment--48,699
1973 employment--48,436
1974 employment--49,437
1975 employment--46,544
1976 employment--48,754
1978 employment--50,262
1979 employment--52,485
1980 employment--56,712
1982 employment--46,015
1983 employment--40,914
1984 employment--39,791
1985 employment--37,885
1986 employment--35,100
1987 employment--32,672
1988 employment--32,400
1990 employment--32,905
1991 employment--31,760

Directors and officers

1970 Directors

Royal D. Alworth, Oneida Realty
Charles H. Bell, General Mills (NP Board)
John M. Budd (GN)
John E. Corette, Montana Power (NP Board)
John S. Dalrymple, Dalrymple Farms
Donald C. Dayton, Dayton Hudson (NP Board)
Charles Devens, Retired, Putnam Investors Fund (NP Board
Cris Dobbins, Ideal Basic Industries
Ronald M. Hubbs, St. Paul Fired & Marine Insurance
Grant Keehn, Various companies
J. Howard Laeri, First National City Bank
William H. Lang, Foley Brothers
Robert S. Macfarlane, BN (NP Board)
W. Wallace McCallum, W.W. McCallum (Consultants)
Louis W. Menk, BN (NP Board)
John M. Meyer, J.P. Morgan (NP Board)
Philip H. Nason, First National Bank of St. Paul
James F. Oates, Sidley & Austin
William G. Reed, Simpson Timber (NP Board)
Norton Simon, Private investments (NP Board)
John F. Smith, Inland Steel (NP Board)
Robert B. Wilson, U.S. National Bank of Oregon

1970 Officers

Robert S. Macfarlane, Chairman Emeritus (NP 1934, Law)
John M. Budd, Chairman and CEO (GN 1926)
Louis W. Menk, President and COO (NP 1966, SLSF 1940, AMP, Operating)
Robert W. Downing, Executive VP (GN 1938, Operating)
Frank H. Coyne, VP, Finance (NP 1953, AMP, Accounting, VP Management)
Anthony Kane, VP, Law (GN 1935, Law)
C. Robert Binger, VP, Resources (NP 1968, VP Resources)
Richard M. O’Kelly, Secretary (GN NA)
Leo N. Assell, Treasurer (CBQ 1936, Accounting)
Wilbur K. Bush, VP, Executive Department (CBQ 1940, Accounting)
Clark A. Eckart, VP, Executive Department, Seattle (GN 1942, Law)
Wilbur R. Allen, VP, Trucking (CBQ NA, SLSF 1936, AMP, Operating, VPO)
George F. Defiel, President, Industrial and Economic Development (Q NA)
Albert M. Rung, VP, Public Relations (CBQ 1957, PR)
Thomas J. Lamphier, VP, Management Services and Planning (GN 1949, Data with Operating stints)
John L. Robson, VP, Merger Development (GN 1937, Mechanical, Operating, CMO, VPO)
Thomas C. DeButts, VP, Labor Relations (GN 1953, Law)
Guy M. deLambert, VP, Purchasing and Material (NP 1940, Engineering, Personnel)
Harold H. Holmquist, VP, Personnel (GN 1942, Operating)
Norman M. Lorentzsen, VP, Operations (NP 1935, Operating, VP Operating)
Malachy M. Scanlan, VP, Marketing (GN 1928, Tax, Traffic, VP Marketing)
Ivan C. Ethington, VP, Chicago (CBQ 1948, AMP, Engineering, Operating)
Donald H. King, VP, Minneapolis (NP 1939, Operating)
Richard A. Beulke, VP, Omaha (NP 1942, Claims, Personnel, Secretary)
John O. Davies, VP, Billings (NP 1941, Operating)
Worthington L. Smith, VP, Seattle (GN NA)
Nephi S. Westergard, VP, Portland (NA)
William N. Ernzen, VP and Controller (CBQ 1928, Accounting, Comptroller)
Frank S. Farrell, VP and General Counsel (NP 1949, Law, VP and General Counsel)
Roger J. Crosby, VP and Regional Counsel, Portland (NP 1952, Law)
Lloyd L. Duxbury, VP and Eastern Counsel, Washington, DC (NA)
John C. Ashton, VP, Washington, DC (NA)
Fred E. Deines, VP, Sales and Services (CBQ 1928, Traffic, VP Sales)
Clarence E. Larsen, VP, Pricing (CBQ 1937, Traffic, VP Marketing)
[CBQ--9; GN--11; NP--11; NA--2]

1975 Directors

Royal D. Alworth, Oneida Realty
Charles H. Bell, General Mills
John M. Budd, BN
Donad C. Dayton, Dayton Hudson
Charles Devens, Retired
Robert W. Downing, BN
W. John Driscoll, Green Valley Holding
Robert M. Hendrickson, Equitable Life
Pemberton Hutchinson, General Coal
J. Howard Laeri, St. Regis Paper
W. Wallace McCallum, W.W. McCallum (Consultants)
Louis W. Menk, BN
Philip H. Nason, First National Bank of St. Paul
William G. Reed, Simpson Reed
Bruce M. Rockwell, Colorado National Bank
John F. Smith, Inland Steel
Jackson T. Stephens, Stephens (Banking)
Robert B. Wilson (Personal Investments)

1975 Officers

Louis W. Menk, Chairman of the Board and CEO
Robert W. Downing, Vice Chairman and COO
Norman M. Lorentzsen, President, Transportation
C. Robert Binger, President, Resources
Thomas J. Lamphier, Executive VP
Frank H. Coyne, Executive VP, Finance
Frank S. Farrell, VP, Law
John C. Ashton, VP and Secretary
Leo N. Assell, Treasurer
Wilbur R. Allen, VP, Twin Cities
Richard A. Beulke, VP, Seattle
Wilbur K. Bush, VP, Executive Department
Roger J. Crosby, VP and Regional Counsel, Portland
John O. Davies, VP, Billings
Thomas C. DeButts, VP, Labor Relations
Fred E. Deines, VP, Sales and Service
Guy M. deLambert, VP, Purchasing and Material
Lloyd L. Duxbury, VP and Eastern Counsel, Washington, DC
William N. Ernzen, VP and Controller
Ivan C. Ethington, Sr. VP, Marketing
John H. Hertog, Sr. VP, Operations
Curtis J. Hockaday, VP, Market Development
James C. Kenady, VP, Industrial Development
Donald H. King, VP, Chicago
Thomas C. Kryzer, VP, Energy and Minerals, Billings
Clarence E. Larsen, VP, Western Region, San Francisco
Ralph L. Merklin, VP, Denver
Somers G. Merryman, VP, Timber and Land, Seattle
James D. Nankivell, VP, Intermodal
Albert M. Rung, VP, Public Relations
Robert H. Shober, VP, Portland
Taul Watanabe, VP, International Commerce
George F. Defiel, President, C&S
Edward L. McCormick, President, BN Transport
Robert P. Ortlip, President, BN Development
Lawrence L. Rodberg, President, BN Air Freight
Fred Winegar, President, Plum Creek Lumber

1979 Directors

Gerald C. Ryan, Ryan Potato
Daniel P. Davison, US Trust Co. of New York
Bruce M. Rockwell, Colorado National Bankshares
Robert B. Wilson, Weyerhaeuser
Louis W. Menk, BN
Norman M. Lorentzsen, BN
Pemberton Hutchinson, Westmoreland Coal
W. John Driscoll, Green Valley Holding
Royal D. Alworth, Oneida Realty
Charles Devens, Retired
Mary Garst, Garst (Cattle)
Warren J. Hayford, International Harvester
Robert M. Hendrickson, Equitable Life
Philip H. Nason, Retired
Paul L. Parker, General Mills

1979 Officers

Louis W. Menk, Chairman
Norman M. Lorentzsen, President and CEO
C. Robert Binger, President, Resources
Thomas J. Lamphier, President, Transportation
Frank H. Coyne, Executive VP, Finance and Administration
Frank S. Farrell, VP, Law
John C. Ashton, VP and Secretary
Raymond C. Burton, VP and Treasurer
Ivan C. Ethington, Sr. VP, Marketing
John H. Hertog, Sr. VP, Operating
Wayne L. Arntzen, VP, Denver
Richard A. Beulke, VP, Seattle-Portland
Otis W. Cobb, VP, Pricing
Eugene R. Craven, VP, Chicago
Roger J. Crosby, VP and Western Counsel
John O. Davies, VP, Billings
Thomas C. DeButts, VP, Portland
Guy M. deLambert, VP, Purchasing and Material
Michael M. Donahue, VP, Coal
Richard E. Duffy, VP, Public Relations
Lloyd L. Duxbury, VP and Eastern Counsel
Alvin E. Egbers, VP, Labor Relations
Robert F. Garland, VP and Controller
James C. Kenady, VP, Industrial Development
Somers G. Merryman, VP, Timber and Land
James D. Nankivell, VP, Market Development and Intermodal
John D. Rezner, VP, Sales and Service
Robert H. Shober, VP and General Manager, Twin Cities
H. Leighton Steward, VP, Energy and Minerals
George W. Thompson, VP, Maintenance and Engineering
Taul Watanabe, VP, International Commerce
David F. Yikanes, VP, Personnel
Alfred E. Michon, President and CEO, C&S, FW&D
Charles A. McGee, President and CEO, BN Transport
Robert P. Ortlip, President, BN Development
Lawrence L. Rodbert, President and CEO, BN Air Freight
Fred Winegar, President, Plum Creek Lumber