##### Table of Contents

---

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



---



FORM 10-Q



---



(Mark One)

|x | QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------



For the quarterly period ended September 30, 2005



OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------



For the transition period
from             to



Commission file number 1-6324



---



BNSF Railway Company

(Formerly known as The Burlington Northern and Santa Fe Railway Company)

(Exact name of registrant as specified in its charter)



---



|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 41-6034000                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)
|                                                               | 
|2650 Lou Menk Drive Fort Worth, Texas                          |  | 76131                               
|(Address of principal executive offices)                       |  | (Zip Code)                          



(800) 795-2673

(Registrants telephone number, including area code)



---



Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No ̈



Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange
Act).    Yes ̈No  x



Indicate by check mark whether the registrant is a shell
company (as defined in Rule 12b-2 of the Exchange Act).    Yes ̈No  x



Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date.



|                              |  |                                       
|----------------------------- |  | --------------------------------------
|Class                         |  | Shares Outstanding at October 17, 2005
|Common stock, $1.00 par value |  | 1,000 shares                          



Registrant meets the
conditions set forth in General Instruction H (1) (a) and (b) of Form 10-Q and is therefore filing this Form 10-Q with the reduced disclosure format permitted by General Instruction H (2).



---



---

##### Table of Contents

Table of Contents



|                                                                 |  |     
|---------------------------------------------------------------- |  | ----
|                                                                 |  | PAGE
|PART I                                                           |  |     
|                                                                 | 
|Item 1.
Financial Statements                                     |  | 3   
|Item 2.
Managements Narrative Analysis of Results of Operations |  | 24  
|Item 4.
Controls and Procedures                                  |  | 28  
|                                                                 | 
|PART II                                                          |  |     
|                                                                 | 
|Item 1.
Legal Proceedings                                        |  | 29  
|Item 6.
Exhibits                                                 |  | 29  
|Signatures                                                       |  | S-1 
|Exhibits                                                         |  | E-1 



2



---

##### Table of Contents

PART I

FINANCIAL INFORMATION



Item 1. Financial Statements



BNSF
RAILWAY COMPANY and SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Dollars in millions)

(Unaudited)



|                                 |  |                                 |       |   |                                |   |       |      |  |   |       |   |  |   |       |  
|-------------------------------- |  | ------------------------------- | ----- | - | ------------------------------ | - | ----- | ---- |  | - | ----- | - |  | - | ----- | -
|                                 |  | Three Months EndedSeptember 30, |       |   | Nine Months EndedSeptember 30, |  
|                                 |  | 2005                            |       |   | 2004                           |   |       | 2005 |  |   | 2004  |  
|Revenues                         |  | $                               | 3,280 |   |                                | $ | 2,769 |      |  | $ | 9,339 |   |  | $ | 7,909 |  
|                                 |  |                                 |       |   |                                |   |       |      |  |   |       |   |  |   |       |  
|Operating expenses:              |  |                                 |       |   |                                |   |       |      |  |   |       |   |  |   |       |  
|Compensation and benefits        |  |                                 | 897   |   |                                |   | 850   |      |  |   | 2,592 |   |  |   | 2,452 |  
|Fuel                             |  |                                 | 499   |   |                                |   | 332   |      |  |   | 1,352 |   |  |   | 938   |  
|Purchased services               |  |                                 | 402   |   |                                |   | 339   |      |  |   | 1,197 |   |  |   | 1,003 |  
|Depreciation and amortization    |  |                                 | 271   |   |                                |   | 254   |      |  |   | 802   |   |  |   | 754   |  
|Equipment rents                  |  |                                 | 223   |   |                                |   | 210   |      |  |   | 654   |   |  |   | 594   |  
|Materials and other              |  |                                 | 211   |   |                                |   | 669   |      |  |   | 615   |   |  |   | 1,127 |  
|                                 |  |                                 |       |   |                                |   |       |      |  |   |       |   |  |   |       |  
|Total operating expenses         |  |                                 | 2,503 |   |                                |   | 2,654 |      |  |   | 7,212 |   |  |   | 6,868 |  
|                                 |  |                                 |       |   |                                |   |       |      |  |   |       |   |  |   |       |  
|Operating income                 |  |                                 | 777   |   |                                |   | 115   |      |  |   | 2,127 |   |  |   | 1,041 |  
|Interest expense                 |  |                                 | 28    |   |                                |   | 33    |      |  |   | 96    |   |  |   | 99    |  
|Interest income, related parties |  |                                 | (22   | ) |                                |   | (8    | )    |  |   | (54   | ) |  |   | (20   | )
|Other expense (income), net      |  |                                 | 14    |   |                                |   | (6    | )    |  |   | 28    |   |  |   | (5    | )
|                                 |  |                                 |       |   |                                |   |       |      |  |   |       |   |  |   |       |  
|Income before income taxes       |  |                                 | 757   |   |                                |   | 96    |      |  |   | 2,057 |   |  |   | 967   |  
|Income tax expense               |  |                                 | 281   |   |                                |   | 36    |      |  |   | 775   |   |  |   | 367   |  
|                                 |  |                                 |       |   |                                |   |       |      |  |   |       |   |  |   |       |  
|Net income                       |  | $                               | 476   |   |                                | $ | 60    |      |  | $ | 1,282 |   |  | $ | 600   |  
|                                 |  |                                 |       |   |                                |   |       |      |  |   |       |   |  |   |       |  



See accompanying Notes
to Consolidated Financial Statements.



3



---

##### Table of Contents

BNSF RAILWAY COMPANY and SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollars in millions)

(Unaudited)



|                                                                                                 |  |                   |        |                  |   |       
|------------------------------------------------------------------------------------------------ |  | ----------------- | ------ | ---------------- | - | ------
|                                                                                                 |  | September 30,2005 |        | December 31,2004
|ASSETS                                                                                           |  |                   |        |                  |   |       
|Current assets:                                                                                  |  |                   |        |                  |   |       
|Cash and cash equivalents                                                                        |  | $                 | 225    |                  | $ | 321   
|Accounts receivable, net                                                                         |  |                   | 266    |                  |   | 165   
|Materials and supplies                                                                           |  |                   | 395    |                  |   | 339   
|Current portion of deferred income taxes                                                         |  |                   | 141    |                  |   | 293   
|Current portion of fuel-hedging asset                                                            |  |                   | 493    |                  |   | 264   
|Other current assets                                                                             |  |                   | 395    |                  |   | 290   
|                                                                                                 |  |                   |        |                  |   |       
|Total current assets                                                                             |  |                   | 1,915  |                  |   | 1,672 
|                                                                                                 |  |                  
|Property and equipment, net                                                                      |  |                   | 26,250 |                  |   | 25,762
|Other assets                                                                                     |  |                   | 1,942  |                  |   | 1,637 
|Intercompany notes receivable, net                                                               |  |                   | 2,420  |                  |   | 1,859 
|                                                                                                 |  |                   |        |                  |   |       
|Total assets                                                                                     |  | $                 | 32,527 |                  | $ | 30,930
|                                                                                                 |  |                   |        |                  |   |       
|LIABILITIES AND STOCKHOLDERS EQUITY                                                             |  |                   |        |                  |   |       
|Current liabilities:                                                                             |  |                   |        |                  |   |       
|Accounts payable and other current liabilities                                                   |  | $                 | 2,549  |                  | $ | 2,346 
|Long-term debt due within one year                                                               |  |                   | 172    |                  |   | 160   
|                                                                                                 |  |                   |        |                  |   |       
|Total current liabilities                                                                        |  |                   | 2,721  |                  |   | 2,506 
|                                                                                                 |  |                  
|Long-term debt                                                                                   |  |                   | 1,570  |                  |   | 1,669 
|Deferred income taxes                                                                            |  |                   | 7,984  |                  |   | 7,813 
|Casualty and environmental liabilities                                                           |  |                   | 909    |                  |   | 941   
|Minimum pension liability                                                                        |  |                   | 353    |                  |   | 353   
|Employee separation costs                                                                        |  |                   | 108    |                  |   | 124   
|Other liabilities                                                                                |  |                   | 1,644  |                  |   | 1,698 
|                                                                                                 |  |                   |        |                  |   |       
|Total liabilities                                                                                |  |                   | 15,289 |                  |   | 15,104
|                                                                                                 |  |                   |        |                  |   |       
|Commitments and contingencies (see Notes 2, 4 and 5)                                             |  |                   |        |                  |   |       
|Stockholders equity:                                                                            |  |                   |        |                  |   |       
|Common stock ($1 par value, 1,000 shares authorized, issued and outstanding) and paid-in capital |  |                   | 6,286  |                  |   | 6,286 
|Retained earnings                                                                                |  |                   | 10,815 |                  |   | 9,533 
|Accumulated other comprehensive income                                                           |  |                   | 137    |                  |   | 7     
|                                                                                                 |  |                   |        |                  |   |       
|Total stockholders equity                                                                       |  |                   | 17,238 |                  |   | 15,826
|                                                                                                 |  |                   |        |                  |   |       
|Total liabilities and stockholders equity                                                       |  | $                 | 32,527 |                  | $ | 30,930
|                                                                                                 |  |                   |        |                  |   |       



See accompanying Notes
to Consolidated Financial Statements.



4



---

##### Table of Contents

BNSF RAILWAY COMPANY and SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in millions)

(Unaudited)



|                                                                                  |  |      |        |   |      |   |        |  
|--------------------------------------------------------------------------------- |  | ---- | ------ | - | ---- | - | ------ | -
|Nine Months Ended September 30,                                                   |  | 2005 |        |   | 2004 |  
|OPERATING ACTIVITIES                                                              |  |      |        |   |      |   |        |  
|Net income                                                                        |  | $    | 1,282  |   |      | $ | 600    |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |      |        |   |      |   |        |  
|Depreciation and amortization                                                     |  |      | 802    |   |      |   | 754    |  
|Deferred income taxes                                                             |  |      | 243    |   |      |   | 203    |  
|Employee separation costs paid                                                    |  |      | (27    | ) |      |   | (29    | )
|Long-term casualty and environmental liabilities, net                             |  |      | (40    | ) |      |   | 484    |  
|Other, net                                                                        |  |      | (196   | ) |      |   | (130   | )
|Changes in current assets and liabilities:                                        |  |      |        |   |      |   |        |  
|Accounts receivable, net                                                          |  |      | (101   | ) |      |   | (115   | )
|Materials and supplies                                                            |  |      | (56    | ) |      |   | (54    | )
|Other current assets                                                              |  |      | (68    | ) |      |   | (113   | )
|Accounts payable and other current liabilities                                    |  |      | 191    |   |      |   | 127    |  
|                                                                                  |  |      |        |   |      |   |        |  
|Net cash provided by operating activities                                         |  |      | 2,030  |   |      |   | 1,727  |  
|                                                                                  |  |      |        |   |      |   |        |  
|INVESTING ACTIVITIES                                                              |  |      |        |   |      |   |        |  
|Capital expenditures                                                              |  |      | (1,245 | ) |      |   | (1,163 | )
|Other, net                                                                        |  |      | (181   | ) |      |   | (231   | )
|                                                                                  |  |      |        |   |      |   |        |  
|Net cash used for investing activities                                            |  |      | (1,426 | ) |      |   | (1,394 | )
|                                                                                  |  |      |        |   |      |   |        |  
|FINANCING ACTIVITIES                                                              |  |      |        |   |      |   |        |  
|Payments on long-term debt                                                        |  |      | (139   | ) |      |   | (126   | )
|Net increase in intercompany notes receivable                                     |  |      | (561   | ) |      |   | (168   | )
|Other, net                                                                        |  |      |       |   |      |   | 1      |  
|                                                                                  |  |      |        |   |      |   |        |  
|Net cash used for financing activities                                            |  |      | (700   | ) |      |   | (293   | )
|                                                                                  |  |      |        |   |      |   |        |  
|(Decrease) increase in cash and cash equivalents                                  |  |      | (96    | ) |      |   | 40     |  
|Cash and cash equivalents:                                                        |  |      |        |   |      |   |        |  
|Beginning of period                                                               |  |      | 321    |   |      |   | 18     |  
|                                                                                  |  |      |        |   |      |   |        |  
|End of period                                                                     |  | $    | 225    |   |      | $ | 58     |  
|                                                                                  |  |      |        |   |      |   |        |  
|SUPPLEMENTAL CASH FLOW INFORMATION                                                |  |      |        |   |      |   |        |  
|Interest paid, net of amounts capitalized                                         |  | $    | 90     |   |      | $ | 101    |  
|Income taxes paid, net of refunds                                                 |  | $    | 509    |   |      | $ | 204    |  
|Non-cash asset financing                                                          |  | $    | 49     |   |      | $ | 74     |  



See accompanying Notes
to Consolidated Financial Statements.



5



---

##### Table of Contents

BNSF RAILWAY COMPANY and SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY

(Dollars in
millions)

(Unaudited)



|                                                          |  |                                |       |                  |   |                                     |  |                          |     |  |   |       
|--------------------------------------------------------- |  | ------------------------------ | ----- | ---------------- | - | ----------------------------------- |  | ------------------------ | --- |  | - | ------
|                                                          |  | Common Stockand Paid-inCapital |       | RetainedEarnings |   | AccumulatedOtherComprehensiveIncome |  | TotalStockholdersEquity
|Balance at December 31, 2004                              |  | $                              | 6,286 |                  | $ | 9,533                               |  | $                        | 7   |  | $ | 15,826
|Comprehensive income:                                     |  |                                |       |                  |   |                                     |  |                          |     |  |   |       
|Net income                                                |  |                                |      |                  |   | 1,282                               |  |                          |    |  |   | 1,282 
|Gain on derivative instruments, net of tax expense of $80 |  |                                |      |                  |   |                                    |  |                          | 130 |  |   | 130   
|                                                          |  |                                |       |                  |   |                                     |  |                          |     |  |   |       
|Total comprehensive income                                |  |                                |       |                  |   |                                     |  |                          |     |  |   | 1,412 
|                                                          |  |                                |       |                  |   |                                     |  |                          |     |  |   |       
|Balance at September 30, 2005                             |  | $                              | 6,286 |                  | $ | 10,815                              |  | $                        | 137 |  | $ | 17,238
|                                                          |  |                                |       |                  |   |                                     |  |                          |     |  |   |       



See accompanying Notes
to Consolidated Financial Statements.



6



---

##### Table of Contents

BNSF RAILWAY COMPANY and SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)



1. Accounting Policies and Interim Results



The Consolidated Financial Statements should be read in conjunction with BNSF Railway Companys Annual Report on Form
10-K for the year ended December 31, 2004, including the financial statements and notes thereto. The Consolidated Financial Statements include the accounts of BNSF Railway Company and its majority-owned subsidiaries, all of which are separate
legal entities (collectively, BNSF Railway or Company). BNSF Railway is a wholly-owned subsidiary of Burlington Northern Santa Fe Corporation (BNSF), and is the principal operating subsidiary of BNSF. All significant intercompany accounts and
transactions have been eliminated.



The results of operations
for any interim period are not necessarily indicative of the results of operations to be expected for the entire year. In the opinion of management, the unaudited financial statements reflect all adjustments (consisting of only normal recurring
adjustments except as disclosed) necessary for a fair statement of BNSF Railways consolidated financial position as of September 30, 2005, and the results of operations for the three and nine month periods ended September 30, 2005
and 2004.



Certain comparative prior year amounts in the
Consolidated Financial Statements have been reclassified to conform to the current year presentation.



2. Hedging Activities



The Company uses derivatives to hedge against increases in diesel fuel prices and interest rates as well as to convert a portion of its fixed-rate long-term debt to floating-rate debt. The Company formally documents the relationship between
the hedging instrument and the hedged item, as well as the risk management objective and strategy for the use of the hedging instrument. This documentation includes linking the derivatives that are designated as fair value or cash flow hedges to
specific assets or liabilities on the balance sheets, commitments or forecasted transactions. The Company assesses at the time a derivative contract is entered into, and at least quarterly, whether the derivative item is effective in offsetting the
changes in fair value or cash flows. Any change in fair value resulting from ineffectiveness, as defined by Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities, as
amended, is recognized in current period earnings. For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the gain or loss on the derivative instrument is recorded in accumulated other comprehensive
income (AOCI) as a separate component of stockholders equity and reclassified into earnings in the period during which the hedge transaction affects earnings.



BNSF Railway monitors its hedging positions and credit ratings of its counterparties and does not anticipate losses due to
counterparty nonperformance.



Fuel



Fuel costs represented 19 percent and 14 percent of total operating expenses
during the nine month periods ended September 30, 2005 and 2004, respectively. Due to the significance of diesel fuel expenses to the operations of BNSF Railway and the historical volatility of fuel prices, the Company has entered into hedges
to partially mitigate the risk of fluctuations in the price of its diesel fuel purchases. The fuel-hedges include the use of derivatives that are accounted for as cash flow hedges. The hedging is intended to protect the Companys operating
margins and overall profitability from adverse fuel price changes by entering into fuel-hedge instruments based on managements evaluation of current and expected diesel fuel price trends. However, to the extent the Company hedges portions of
its fuel purchases, it may not realize the impact of decreases in fuel prices. Conversely, to the extent the Company does not hedge portions of its fuel purchases, it may be adversely affected by increases in fuel prices. Based on fuel consumption
during the first nine months of 2005 and excluding the impact of the hedges, each one-cent increase in the price of fuel would result in approximately $14 million of additional fuel expense on an annual basis.



Total Fuel-Hedging Activities



As of September 30, 2005, BNSF Railways total fuel hedging
activities covered 45 percent, 27 percent, and 3 percent of estimated fuel purchases for the remainder of 2005, 2006 and 2007, respectively. Hedge positions are closely monitored to ensure that they will not exceed actual fuel requirements in any
period.



7



---

##### Table of Contents

BNSF RAILWAY COMPANY and SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)  (Continued)



The amounts recorded in the Consolidated Statements of Income for fuel-hedge
transactions were as follows (in millions):



|                                        |  |                                 |     |   |                                |   |     |      |  |   |      |   |  |   |     |  
|--------------------------------------- |  | ------------------------------- | --- | - | ------------------------------ | - | --- | ---- |  | - | ---- | - |  | - | --- | -
|                                        |  | Three Months EndedSeptember 30, |     |   | Nine Months EndedSeptember 30, |  
|                                        |  | 2005                            |     |   | 2004                           |   |     | 2005 |  |   | 2004 |  
|Hedge benefit                           |  | $                               | 161 |   |                                | $ | 92  |      |  | $ | 392  |   |  | $ | 206 |  
|Ineffective portion of unexpired hedges |  |                                 |    |   |                                |   | 3   |      |  |   | (2   | ) |  |   | 6   |  
|Tax effect                              |  |                                 | (61 | ) |                                |   | (37 | )    |  |   | (149 | ) |  |   | (81 | )
|                                        |  |                                 |     |   |                                |   |     |      |  |   |      |   |  |   |     |  
|Hedge benefit, net of tax               |  | $                               | 100 |   |                                | $ | 58  |      |  | $ | 241  |   |  | $ | 131 |  
|                                        |  |                                 |     |   |                                |   |     |      |  |   |      |   |  |   |     |  



The amounts recorded
in the Consolidated Balance Sheets for fuel-hedge transactions are as follows (in millions):



|                                          |  |                   |      |   |                  |   |      |  
|----------------------------------------- |  | ----------------- | ---- | - | ---------------- | - | ---- | -
|                                          |  | September 30,2005 |      |   | December 31,2004 |  
|Short-term fuel-hedging asset             |  | $                 | 493  |   |                  | $ | 264  |  
|Long-term fuel-hedging asset              |  |                   | 84   |   |                  |   | 105  |  
|Ineffective portion of unexpired hedges   |  |                   | (2   | ) |                  |   | (4   | )
|Tax effect                                |  |                   | (220 | ) |                  |   | (140 | )
|                                          |  |                   |      |   |                  |   |      |  
|Amount included in AOCI, net of tax       |  | $                 | 355  |   |                  | $ | 225  |  
|                                          |  |                   |      |   |                  |   |      |  
|Settled fuel-hedging contracts receivable |  | $                 | 161  |   |                  | $ | 131  |  



BNSF Railway measures
the fair value of hedges from data provided by various external counterparties. To value a swap, the Company uses the forward commodity price for the period hedged. The fair values of costless collars are calculated and provided by the corresponding
counterparties.



NYMEX #2 Heating Oil Hedges



As of September 30, 2005, BNSF Railway had
entered into fuel swap and costless collar agreements utilizing New York Mercantile Exchange (NYMEX) #2 heating oil (HO). The hedge prices do not include taxes, transportation costs, certain other fuel handling costs and any differences which may
occur between the prices of HO and the purchase price of BNSF Railways diesel fuel. Over the twelve months ended September 30, 2005, the sum of all such costs averaged approximately 12 cents per gallon.



During the first nine months of 2005, the Company converted approximately
64 million gallons of West Texas Intermediate (WTI) collars into HO swaps at an average price of $0.88 per gallon. The following tables provide fuel-hedge data based on the quarter being hedged for all HO fuel hedges outstanding as of
September 30, 2005:



|                                 |  |               |      
|-------------------------------- |  | ------------- | -----
|                                 |  | QuarterEnding
|2005                             |  | December 31, 
|HO Swaps                         |  |               |      
|Gallons hedged (in millions)     |  |               | 53.55
|Average swap price (per gallon)  |  | $             | 0.92 
|Fair value (in millions)         |  | $             | 65   
|                                 | 
|HO Collars                       |  |               |      
|Gallons hedged (in millions)     |  |               | 22.05
|Average cap price (per gallon)   |  | $             | 0.98 
|Average floor price (per gallon) |  | $             | 0.90 
|Fair value (in millions)         |  | $             | 26   



8



---

##### Table of Contents

BNSF RAILWAY COMPANY and SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)  (Continued)



|                                 |  |                |       |          |   |               |  |              |       |        |   |       |  |   |      
|-------------------------------- |  | -------------- | ----- | -------- | - | ------------- |  | ------------ | ----- | ------ | - | ----- |  | - | -----
|                                 |  | Quarter Ending |       |         
|2006                             |  | March 31,      |       | June 30, |   | September 30, |  | December 31, |       | Annual
|HO Collars                       |  |                |       |          |   |               |  |              |       |        |   |       |  |   |      
|Gallons hedged (in millions)     |  |                | 15.75 |          |   | 22.05         |  |              | 28.35 |        |   | 31.50 |  |   | 97.65
|Average cap price (per gallon)   |  | $              | 0.97  |          | $ | 0.92          |  | $            | 0.91  |        | $ | 0.94  |  | $ | 0.93 
|Average floor price (per gallon) |  | $              | 0.90  |          | $ | 0.84          |  | $            | 0.84  |        | $ | 0.87  |  | $ | 0.86 
|Fair value (in millions)         |  | $              | 18    |          | $ | 22            |  | $            | 28    |        | $ | 32    |  | $ | 100  
|                                 |  |               
|                                 |  | Quarter Ending |       |         
|2007                             |  | March 31,      |       | June 30, |   | September 30, |  | December 31, |       | Annual
|HO Collars                       |  |                |       |          |   |               |  |              |       |        |   |       |  |   |      
|Gallons hedged (in millions)     |  |                | 31.50 |          |   |              |  |              |      |        |   |      |  |   | 31.50
|Average cap price (per gallon)   |  | $              | 0.93  |          | $ |              |  | $            |      |        | $ |      |  | $ | 0.93 
|Average floor price (per gallon) |  | $              | 0.86  |          | $ |              |  | $            |      |        | $ |      |  | $ | 0.86 
|Fair value (in millions)         |  | $              | 31    |          | $ |              |  | $            |      |        | $ |      |  | $ | 31   



WTI Crude Oil
Hedges



In addition, BNSF Railway enters into fuel
swap and costless collar agreements utilizing WTI crude oil (WTI). The hedge prices do not include taxes, transportation costs, certain other fuel handling costs, and any differences which may occur between the prices of WTI and the purchase price
of BNSF Railways diesel fuel, including refining costs. Over the twelve months ended September 30, 2005, the sum of all such costs averaged approximately 38 cents per gallon.



No additional WTI hedges were entered into during the first nine months of 2005. However, during the first nine months of
2005, the Company converted approximately 64 million gallons of WTI collars into HO swaps as stated in the NYMEX #2 Heating Oil Hedges section. The following tables provide fuel-hedge data based on the quarter being hedged for all WTI fuel
hedges outstanding as of September 30, 2005:



|                                        |  |               |      
|--------------------------------------- |  | ------------- | -----
|                                        |  | QuarterEnding
|2005                                    |  | December 31, 
|WTI Swaps                               |  |               |      
|Barrels hedged (in thousands)           |  |               | 1,350
|Equivalent gallons hedged (in millions) |  |               | 56.70
|Average swap price (per barrel)         |  | $             | 24.54
|Fair value (in millions)                |  | $             | 56   
|                                        | 
|WTI Collars                             |  |               |      
|Barrels hedged (in thousands)           |  |               | 750  
|Equivalent gallons hedged (in millions) |  |               | 31.50
|Average cap price (per barrel)          |  | $             | 28.49
|Average floor price (per barrel)        |  | $             | 24.05
|Fair value (in millions)                |  | $             | 28   



9



---

##### Table of Contents

BNSF RAILWAY COMPANY and SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)  (Continued)



|                                        |  |                |       |          |   |               |  |              |       |        |   |       |  |   |       
|--------------------------------------- |  | -------------- | ----- | -------- | - | ------------- |  | ------------ | ----- | ------ | - | ----- |  | - | ------
|                                        |  | Quarter Ending |       |         
|2006                                    |  | March 31,      |       | June 30, |   | September 30, |  | December 31, |       | Annual
|WTI Swaps                               |  |                |       |          |   |               |  |              |       |        |   |       |  |   |       
|Barrels hedged (in thousands)           |  |                | 1,350 |          |   | 675           |  |              | 375   |        |   |      |  |   | 2,400 
|Equivalent gallons hedged (in millions) |  |                | 56.70 |          |   | 28.35         |  |              | 15.75 |        |   |      |  |   | 100.80
|Average swap price (per barrel)         |  | $              | 24.43 |          | $ | 25.16         |  | $            | 25.69 |        | $ |      |  | $ | 24.83 
|Fair value (in millions)                |  | $              | 56    |          | $ | 27            |  | $            | 15    |        | $ |      |  | $ | 98    
|                                        |  |                |       |          |  
|WTI Collars                             |  |                |       |          |   |               |  |              |       |        |   |       |  |   |       
|Barrels hedged (in thousands)           |  |                | 1,500 |          |   | 1,500         |  |              | 825   |        |   | 525   |  |   | 4,350 
|Equivalent gallons hedged (in millions) |  |                | 63.00 |          |   | 63.00         |  |              | 34.65 |        |   | 22.05 |  |   | 182.70
|Average cap price (per barrel)          |  | $              | 30.05 |          | $ | 30.20         |  | $            | 30.81 |        | $ | 31.93 |  | $ | 30.47 
|Average floor price (per barrel)        |  | $              | 25.66 |          | $ | 25.79         |  | $            | 26.32 |        | $ | 27.42 |  | $ | 26.04 
|Fair value (in millions)                |  | $              | 54    |          | $ | 53            |  | $            | 29    |        | $ | 17    |  | $ | 153   
|                                        |  |               
|                                        |  | Quarter Ending |       |         
|2007                                    |  | March 31,      |       | June 30, |   | September 30, |  | December 31, |       | Annual
|WTI Collars                             |  |                |       |          |   |               |  |              |       |        |   |       |  |   |       
|Barrels hedged (in thousands)           |  |                | 150   |          |   |              |  |              |      |        |   |      |  |   | 150   
|Equivalent gallons hedged (in millions) |  |                | 6.30  |          |   |              |  |              |      |        |   |      |  |   | 6.30  
|Average cap price (per barrel)          |  | $              | 33.00 |          | $ |              |  | $            |      |        | $ |      |  | $ | 33.00 
|Average floor price (per barrel)        |  | $              | 29.00 |          | $ |              |  | $            |      |        | $ |      |  | $ | 29.00 
|Fair value (in millions)                |  | $              | 4     |          | $ |              |  | $            |      |        | $ |      |  | $ | 4     



NYMEX #2
Heating Oil Refining Spread Hedges



During the
nine months ended September 30, 2005, the Company entered into fuel swap agreements utilizing the HO refining spread (HO-WTI) to hedge the equivalent of approximately 57 million gallons of fuel with an average swap price of $11.79 per
barrel. HO-WTI is the difference in price between HO and WTI; therefore, a HO-WTI swap in combination with a WTI swap is equivalent to a HO swap. The following table provides fuel hedge data based upon the quarter being hedged for all HO-WTI fuel
hedges outstanding as of September 30, 2005:



|                                        |  |               |      
|--------------------------------------- |  | ------------- | -----
|                                        |  | QuarterEnding
|2005                                    |  | December 31, 
|HO-WTI Swaps                            |  |               |      
|Barrels hedged (in thousands)           |  |               | 1,350
|Equivalent gallons hedged (in millions) |  |               | 56.70
|Average swap price (per barrel)         |  | $             | 11.79
|Fair value (in millions)                |  | $             | 16   



Interest Rate



From time to time, the Company enters into various
interest rate hedging transactions for the purpose of managing exposure to fluctuations in interest rates, establishing rates in anticipation of future debt issuances and converting a portion of its fixed-rate long-term debt to floating-rate debt.
The Company uses interest rate swaps and treasury locks as part of its interest rate risk management strategy.



10



---

##### Table of Contents

BNSF RAILWAY COMPANY and SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)  (Continued)



3. Accounts Receivable, Net



BNSF Railway transfers most of its accounts receivable to Santa Fe
Receivables Corporation (SFRC), a special purpose subsidiary. SFRC transfers an undivided interest in such receivables, with limited exceptions, to a master trust, and causes the trust to issue an undivided interest in the receivables to investors
(the A/R sales program). The undivided interests in the master trust may be in the form of certificates or purchased interests.



The Companys total capacity to sell undivided interests to investors under the A/R sales program was $700 million at September 30, 2005, which
was comprised of a $350 million, 364-day accounts receivable facility and a $350 million, five-year accounts receivable facility. The Company amended these facilities on October 14, 2005, modifying their maturities to October 2006. Outstanding
undivided interests held by investors under the A/R sales program were $650 million at September 30, 2005 and December 31, 2004. These receivables are derecognized by BNSF Railway in connection with the sale of undivided interests under
the A/R sales program. The undivided interests were supported by $994 million and $864 million of receivables transferred by SFRC to the master trust at September 30, 2005 and December 31, 2004, respectively. When SFRC transfers these
receivables to the master trust, it retains an undivided interest in the receivables sold. This retained interest is included in accounts receivable in the Companys financial statements. SFRCs retained interest in these receivables of
$344 million and $214 million at September 30, 2005 and December 31, 2004, respectively, less an allowance for uncollectible accounts, reflected the total accounts receivable transferred by SFRC to the master trust less $650 million at
September 30, 2005 and December 31, 2004, of outstanding undivided interests held by investors. Due to a relatively short collection cycle, the fair value of the undivided interest transferred to investors in the A/R sales program
approximated book value, and there was no gain or loss from the transaction.



The Company retains the collection responsibility with respect to the accounts receivable. Proceeds from collections reinvested in the A/R sales program were approximately $10 billion and $8 billion for the nine
months ended September 30, 2005 and 2004, respectively. No servicing asset or liability has been recorded because the fees the Company receives for servicing the receivables approximate the related costs. SFRCs costs of the sale of
receivables are included in other expense, net and were $11 million and $8 million for the nine months ended September 30, 2005 and 2004, respectively. These costs fluctuate monthly with changes in prevailing interest rates and were based on
weighted average interest rates of 3.1 percent and 1.3 percent in the nine months ended September 30, 2005 and 2004, respectively. These costs include interest, discounts associated with transferring the receivables under the A/R sales program
to SFRC, program fees paid to banks, incidental commercial paper issuing costs, and fees for unused commitment availability.



The amount of accounts receivable transferred by BNSF Railway to SFRC fluctuates based upon the availability of receivables and is directly affected by
changing business volumes and credit risks, including dilution and delinquencies. BNSF Railway has historically experienced very low levels of default or dilution. If dilution or delinquency percentages were to increase by one percentage point,
there would be no impact to the amount of receivables BNSF Railway could sell.



Receivables funded under the A/R sales program may not include amounts over 90 days past due or concentrations over certain limits with any one customer and certain other receivables. At September 30, 2005 and
December 31, 2004, $46 million and $47 million, respectively, of accounts receivable were greater than 90 days old. The Company maintains an allowance for bill adjustments and uncollectible accounts based upon the expected collectibility of
accounts receivable, including receivables transferred to the master trust. Credit losses are based on specific identification of uncollectible accounts and application of historical collection percentages by aging category. At September 30,
2005 and December 31, 2004, $47 million and $59 million, respectively, of such allowances had been recorded of which $40 million and $52 million, respectively, had been recorded as a reduction to accounts receivable, net. Additionally, at
September 30, 2005 and December 31, 2004, approximately $7 million had been recorded as an allowance for bill adjustments and uncollectible accounts in accounts payable and other current liabilities because they relate to the $650 million
of outstanding undivided interests held by investors. During the nine months ended September 30, 2005 and 2004, $6 million of accounts receivable were written off.



The investors in the master trust have no recourse against BNSF Railways other assets except for customary warranty
and indemnity claims. Creditors of BNSF Railway have no recourse to the assets of the master trust or SFRC unless and until all claims of their respective creditors have been paid. The A/R sales program includes provisions that, if triggered, allow
the investors participating in this program, at their option, to cancel the program. At September 30, 2005, BNSF Railway is in compliance with these provisions.



11



---

##### Table of Contents

BNSF RAILWAY COMPANY and SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)  (Continued)



4. Debt



Guarantees



Debt and other obligations of non-consolidated entities guaranteed by the Company as of September 30, 2005, are as follows (dollars in millions):



|                                                               |  |                                   |   |  |                             |     |                         |   |                           |  |                           |     |                         |                         |  |   |    
|-------------------------------------------------------------- |  | --------------------------------- | - |  | --------------------------- | --- | ----------------------- | - | ------------------------- |  | ------------------------- | --- | ----------------------- | ----------------------- |  | - | ---
|                                                               |  | Guarantees                        |   | 
|                                                               |  | BNSF Railway Ownership Percentage |   |  | Principal Amount Guaranteed |     | Maximum Future Payments |   | Maximum Recourse Amount a |  | Remaining Term (in years) |     | Capitalized Obligations
|Kinder Morgan Energy Partners, L.P.                            |  | 0.5                               | % |  | $                           | 190 |                         | $ | 190                       |  | $                         |    |                         | Terminationof Ownership |  | $ |   
|Kansas City Terminal Intermodal Transportation Corporation     |  | 0.0                               | % |  | $                           | 62  |                         | $ | 96                        |  | $                         | 96  |                         | 13                      |  | $ | 35b
|Westside Intermodal Transportation Corporation                 |  | 0.0                               | % |  | $                           | 43  |                         | $ | 70                        |  | $                         |    |                         | 18                      |  | $ | 35b
|The Unified Government of Wyandotte County/Kansas City, Kansas |  | 0.0                               | % |  | $                           | 14  |                         | $ | 22                        |  | $                         |    |                         | 18                      |  | $ | 11b
|Various lessors (Residual value guarantees)                    |  | 0.0                               | % |  |                             | N/A |                         | $ | 298                       |  | $                         | 298 |                         | Various                 |  | $ | 68c
|All other                                                      |  | 0.0                               | % |  | $                           | 9   |                         | $ | 10                        |  | $                         | 4   |                         | Various                 |  | $ |   

---

|a | Reflects the maximum amount the Company could recover from a third party other than the counterparty.
|- | -----------------------------------------------------------------------------------------------------

|b | Reflects capitalized obligations that are recorded on the Companys Consolidated Balance Sheet.
|- | -----------------------------------------------------------------------------------------------

|c | Reflects the FIN 45 asset and corresponding liability for the fair value of the residual value guarantees on the Companys Consolidated Balance Sheet.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------



Kinder Morgan Energy Partners, L.P.



Santa Fe Pacific Pipelines, Inc. (SFPP), an indirect, wholly owned
subsidiary of BNSF Railway, has a guarantee in connection with its remaining special limited partnership interest in SFPP, L.P., a subsidiary of Kinder Morgan Energy Partners, L.P. to be paid only upon default by the partnership. All obligations
with respect to the guarantee will cease upon termination of ownership rights which would occur upon a put notice issued by BNSF Railway or the exercise of the call rights by the general partners of SFPP, L.P.



Kansas City Terminal Intermodal Transportation Corporation



BNSF Railway and another major railroad jointly and
severally guarantee $62 million of debt of Kansas City Terminal Intermodal Transportation Corporation, the proceeds of which were used to finance construction of a double track grade separation bridge in Kansas City, Missouri, which is operated and
used by Kansas City Terminal Railway Company (KCTRC). BNSF Railway has a 25 percent ownership in KCTRC, accounts for its interest using the equity method of accounting, and will be required to fund a portion of the remaining obligation upon default
by the original debtor.



Westside Intermodal
Transportation Corporation and The Unified Government of Wyandotte County/Kansas City, Kansas



BNSF Railway has guaranteed $57 million of debt, the proceeds of which were used to finance construction of a bridge that connects BNSF Railways
Argentine Yard in Kansas City, Kansas, with the KCTRC mainline tracks in Kansas City, Missouri. The bridge is operated by KCTRC, and payments related to BNSF Railways guarantee of this obligation will only be called for upon default by the
original debtor.



12



---

##### Table of Contents

BNSF RAILWAY COMPANY and SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)  (Continued)



Residual value guarantees (RVG)



In the normal course of business, the Company enters into leases in which it
guarantees the residual value of certain leased equipment. Some of these leases have renewal or purchase options, or both, that the Company may exercise at the end of the lease term. If the Company elects not to exercise these options it may be
required to pay the lessor an amount not exceeding the RVG. The amount of any payment is contingent upon the actual residual value of the leased equipment. Some of these leases also require the lessor to pay the Company any surplus in the actual
residual value of the leased equipment over the RVG. These guarantees will expire between 2005 and 2011.



The maximum future payments, as disclosed in the Guarantees table above, represent the undiscounted maximum amount that BNSF Railway could be required to
pay in the event the Company did not exercise its renewal option and the fair market value of the equipment had significantly declined. BNSF Railway does not anticipate such a large reduction in the fair market value of the leased equipment. As of
September 30, 2005, the Company has recorded a $68 million asset and corresponding liability for the fair value of the RVG.



All other



BNSF Railway guarantees $9 million of other debt. BNSF Railway holds a performance bond and has the option to sub-lease property to recover up to $4
million of the $9 million of guarantees. These guarantees expire between 2005 and 2014.



Other than as discussed above, there is no collateral held by a third party which the Company could obtain and liquidate to recover any amounts paid under the above guarantees.



Other than as discussed above, none of the guarantees are recorded in the
Consolidated Financial Statements of the Company. The Company does not expect performance under these guarantees to have a material effect on the Company in the foreseeable future.



Indemnities



In the ordinary course of business, BNSF Railway enters into agreements with third parties that include indemnification clauses. In general, these clauses
are customary for the types of agreements in which they are included. At times, these clauses may involve indemnification for the acts of the Company, its employees and agents, indemnification for another partys acts, indemnification for
future events, indemnification based upon a certain standard of performance, indemnification for liabilities arising out of the Companys use of leased equipment or other property, or other types of indemnification. Due to the uncertainty of
whether events which would trigger the indemnification obligations would ever occur, the Company does not believe that these indemnity agreements will have a material adverse effect on the Companys results of operations, financial position or
liquidity.



Additionally, the Company believes that, due to
lack of historical payment experience, the fair value of indemnities cannot be estimated with any amount of certainty and that the fair value of any such amount would be immaterial to the financial statements. Accordingly, no fair value liability
related to indemnities has been recorded in the financial statements.



5. Commitments and Contingencies



Personal Injury



Personal injury claims, including asbestos claims and
employee work-related injuries and third party injuries (collectively, other personal injury), are a significant expense for the railroad industry. Personal injury claims by BNSF Railway employees are subject to the provisions of the Federal
Employers Liability Act (FELA) rather than state workers compensation laws. FELAs system of requiring the finding of fault, coupled with unscheduled awards and reliance on the jury system, contributed to increased expenses in past
years. Other proceedings include claims by non-employees for punitive as well as compensatory damages. A few proceedings purport to be class actions. The variability present in settling these



13



---

##### Table of Contents

BNSF RAILWAY COMPANY and SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)  (Continued)



claims, including non-employee personal injury and matters in which punitive damages are
alleged, could result in increased expenses in future years. BNSF Railway has implemented a number of safety programs designed to reduce the number of personal injuries as well as the associated claims and personal injury expense.



BNSF Railway records a liability for personal injury claims when the expected
loss is both probable and reasonably estimable. The liability and ultimate expense projections are estimated using standard actuarial methodologies. Liabilities recorded for unasserted personal injury claims are based on information currently
available. Due to the inherent uncertainty involved in projecting future events such as the number of claims filed each year, developments in judicial and legislative standards, and the average costs to settle projected claims, actual costs may
differ from amounts recorded.



Asbestos



The Company is party to a number of personal injury
claims by employees and non-employees who may have been exposed to asbestos. The heaviest exposure for BNSF Railway employees was due to work conducted in and around the use of steam locomotive engines that were phased out between the years of 1950
and 1967. However, other types of exposures, including exposure from locomotive component parts and building materials, continued after 1967, until it was substantially eliminated by 1985.



Prior to 2000, claim filings against the Company for asbestos were not
numerous and were sporadic. Accordingly, while the Company had concluded that a probable loss had occurred, it did not believe it could estimate the range of reasonably possible loss because of the lack of experience with such claims and the lack of
detailed employment records for the population of exposed employees. The Company believed, however, that the low end of the range of reasonably possible loss, as that term is used in Financial Accounting Standards Board (FASB) Interpretation
No. 14 (FIN 14),Reasonable Estimation of the Amount of a Loss, was immaterial. Subsequent to this period, claim filings increased and, when they continued into 2004, the Company concluded that the low end of the range of reasonably
possible loss would be material and that an estimate for unasserted asbestos exposure liability needed to be recorded. BNSF Railway then engaged a third party, with extensive experience in performing asbestos studies, to assist in assessing the
unasserted liability exposure. The objective of the assessment was to determine the number of estimated unasserted asbestos claims and the estimated average cost per claim. The Company, with the assistance of the third party, first determined its
exposed population from which it was able to derive the estimated number of unasserted claims. The estimated average cost per claim was then determined utilizing recent actual average cost per claim data.



Based on the assessment, the Company recorded an undiscounted $293 million
pre-tax charge for unasserted asbestos claims in the third quarter of 2004. The $293 million pre-tax charge was recorded in materials and other expense and reduced net income by $182 million for the three and nine months ended September 30,
2004, respectively.



During the third quarter of 2005, the
Company obtained an update of this study which concluded that the original September 2004 study continues to represent a reasonable estimate of BNSF Railways future asbestos exposure. Therefore, management recorded no additional expense as a
result of this update. The Company plans to update the study in the third quarter of 2006. On a quarterly basis, BNSF Railway monitors actual experience against the number of forecasted claims and expected claim payments. Adjustments to the
Companys estimates will be recorded when necessary.



14



---

##### Table of Contents

BNSF RAILWAY COMPANY and SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)  (Continued)



The following table summarizes the activity in the Companys accrued
obligations for both asserted and unasserted asbestos matters (in millions):



|                                |  |                                 |     |   |                                |   |     |      |  |   |      |   |  |   |     |  
|------------------------------- |  | ------------------------------- | --- | - | ------------------------------ | - | --- | ---- |  | - | ---- | - |  | - | --- | -
|                                |  | Three Months EndedSeptember 30, |     |   | Nine Months EndedSeptember 30, |  
|                                |  | 2005                            |     |   | 2004                           |   |     | 2005 |  |   | 2004 |  
|Beginning balance               |  | $                               | 336 |   |                                | $ | 63  |      |  | $ | 345  |   |  | $ | 60  |  
|Accruals                        |  |                                 |    |   |                                |   | 293 |      |  |   |     |   |  |   | 308 |  
|Payments                        |  |                                 | (4  | ) |                                |   | (5  | )    |  |   | (13  | ) |  |   | (17 | )
|                                |  |                                 |     |   |                                |   |     |      |  |   |      |   |  |   |     |  
|Ending balance at September 30, |  | $                               | 332 |   |                                | $ | 351 |      |  | $ | 332  |   |  | $ | 351 |  
|                                |  |                                 |     |   |                                |   |     |      |  |   |      |   |  |   |     |  



Of the
September 30, 2005 obligation, $270 million is related to unasserted claims while $62 million is related to asserted claims. At September 30, 2005, $20 million is included in current liabilities. The recorded liability is not discounted.
In addition, defense and processing costs, which are recorded on an as-reported basis, are not included in the recorded liability. The Company is presently self-insured for asbestos-related claims.



The following table summarizes information regarding the number of asserted
asbestos claims filed against BNSF Railway:



|                                                |  |                                 |   |  |                                |   |  |       |   |  |       |  
|----------------------------------------------- |  | ------------------------------- | - |  | ------------------------------ | - |  | ----- | - |  | ----- | -
|                                                |  | Three Months EndedSeptember 30, |   |  | Nine Months EndedSeptember 30, |  
|                                                |  | 2005                            |   |  | 2004                           |   |  | 2005  |   |  | 2004  |  
|Claims unresolved at beginning of period        |  | 2,120                           |   |  | 1,976                          |   |  | 1,926 |   |  | 1,985 |  
|Claims filed                                    |  | 234                             |   |  | 155                            |   |  | 719   |   |  | 587   |  
|Claims settled, dismissed or otherwise resolved |  | (150                            | ) |  | (132                           | ) |  | (441  | ) |  | (573  | )
|                                                |  |                                 |   |  |                                |   |  |       |   |  |       |  
|Ending balance at September 30,                 |  | 2,204                           |   |  | 1,999                          |   |  | 2,204 |   |  | 1,999 |  
|                                                |  |                                 |   |  |                                |   |  |       |   |  |       |  



Based on BNSF
Railways estimate of the potentially exposed employees and related mortality assumptions, it is anticipated that unasserted claims will continue to be filed through the year 2050. The Company recorded an amount for the full estimated filing
period through 2050 because it had a relatively finite exposed population (former and current employees hired prior to 1985) which it was able to identify and reasonably estimate and about which it had obtained reliable demographic data (including
age, hire date and occupation) derived from industry or BNSF Railway specific data that was the basis for the study. BNSF Railway projects that approximately 50, 70, and 90 percent of the future unasserted asbestos claims will be incurred within the
next 10, 15, and 25 years, respectively.



Because of the
uncertainty surrounding the factors used in the study, it is reasonably possible that future costs to settle asbestos claims may range from approximately $225 million to $425 million. However, BNSF Railway believes that the $332 million recorded is
the best estimate of the Companys future obligation for the settlement of asbestos claims.



The amounts recorded by BNSF Railway for the asbestos-related liability were based upon currently known facts. Future events, such as the number of new
claims to be filed each year, the average cost of disposing of claims, as well as the numerous uncertainties surrounding asbestos litigation in the United States, could cause the actual costs to be higher or lower than projected.



While the final outcome of asbestos-related matters cannot be predicted with
certainty, considering among other things the meritorious legal defenses available and liabilities that have been recorded, it is the opinion of BNSF Railway that none of these items, when finally resolved, will have a material adverse effect on the
Companys financial position or liquidity. However, should a number of these items occur in the same period, it could have a material adverse effect on the results of operations in a particular quarter or fiscal year.



15



---

##### Table of Contents

BNSF RAILWAY COMPANY and SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)  (Continued)



Other Personal Injury



BNSF Railway uses a third party actuary to assist the Company in estimating
its other personal injury liability claims and expense. These estimates are based on the covered population, activity levels and trends in frequency, and the costs of covered injuries. These actuarial estimates include unasserted claims except for
certain repetitive stress and other occupational trauma claims that result from prolonged repeated events or exposure. Such claims are estimated on an as-reported basis because, while the Company has concluded that a probable loss has occurred, it
cannot estimate the range of reasonably possible loss due to other contributing causes of such injuries and the fact that continued exposure is required for the potential injury to manifest itself as a claim. The Company believes that the low end of
the range of reasonably possible loss, as that term is used in FIN 14, is immaterial.



BNSF Railway obtains quarterly actuarial updates for other personal injury liabilities and monitors actual experience against the number of forecasted claims to be received, the forecasted number of claims closing
with payment and expected claims payments. Adjustments to the Companys estimates are recorded quarterly as necessary or more frequently as new events or revised estimates develop.



The following table summarizes the activity in the Companys accrued obligations for other personal injury matters (in
millions):



|                                |  |                                 |     |   |                                |   |     |      |  |   |      |   |  |   |      |  
|------------------------------- |  | ------------------------------- | --- | - | ------------------------------ | - | --- | ---- |  | - | ---- | - |  | - | ---- | -
|                                |  | Three Months EndedSeptember 30, |     |   | Nine Months EndedSeptember 30, |  
|                                |  | 2005                            |     |   | 2004                           |   |     | 2005 |  |   | 2004 |  
|Beginning balance               |  | $                               | 449 |   |                                | $ | 439 |      |  | $ | 459  |   |  | $ | 453  |  
|Accruals                        |  |                                 | 46  |   |                                |   | 57  |      |  |   | 136  |   |  |   | 150  |  
|Payments                        |  |                                 | (59 | ) |                                |   | (41 | )    |  |   | (159 | ) |  |   | (148 | )
|                                |  |                                 |     |   |                                |   |     |      |  |   |      |   |  |   |      |  
|Ending balance at September 30, |  | $                               | 436 |   |                                | $ | 455 |      |  | $ | 436  |   |  | $ | 455  |  
|                                |  |                                 |     |   |                                |   |     |      |  |   |      |   |  |   |      |  



At September 30,
2005, $165 million is included in current liabilities. BNSF Railways liabilities for other personal injury claims are undiscounted. In addition, defense and processing costs, which are recorded on an as-reported basis, are not included in the
recorded liability. The Company is substantially self-insured for other personal injury claims.



The following table summarizes information regarding the number of personal injury claims, other than asbestos, filed against BNSF Railway:



|                                                |  |                                 |   |  |                                |   |  |        |   |  |        |  
|----------------------------------------------- |  | ------------------------------- | - |  | ------------------------------ | - |  | ------ | - |  | ------ | -
|                                                |  | Three Months EndedSeptember 30, |   |  | Nine Months EndedSeptember 30, |  
|                                                |  | 2005                            |   |  | 2004                           |   |  | 2005   |   |  | 2004   |  
|Claims unresolved at beginning of period        |  | 3,715                           |   |  | 4,351                          |   |  | 4,116  |   |  | 4,393  |  
|Claims filed                                    |  | 922                             |   |  | 945                            |   |  | 2,859  |   |  | 2,722  |  
|Claims settled, dismissed or otherwise resolved |  | (986                            | ) |  | (1,083                         | ) |  | (3,324 | ) |  | (2,902 | )
|                                                |  |                                 |   |  |                                |   |  |        |   |  |        |  
|Ending balance at September 30,                 |  | 3,651                           |   |  | 4,213                          |   |  | 3,651  |   |  | 4,213  |  
|                                                |  |                                 |   |  |                                |   |  |        |   |  |        |  



Because of the
uncertainty surrounding the ultimate outcome of other personal injury claims, it is reasonably possible that future costs to settle other personal injury claims may range from approximately $400 million to $550 million. However, BNSF Railway
believes that the $436 million recorded is the best estimate of the Companys future obligation for the settlement of other personal injury claims.



The amounts recorded by BNSF Railway for other personal injury claims were based upon currently known facts. Future events, such as the number of new
claims to be filed each year, the average cost of disposing of claims, as well as the numerous uncertainties surrounding personal injury litigation in the United States, could cause the actual costs to be higher or lower than projected.



16



---

##### Table of Contents

BNSF RAILWAY COMPANY and SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)  (Continued)



While the final outcome of these other personal injury matters cannot be
predicted with certainty, considering among other things the meritorious legal defenses available and liabilities that have been recorded, it is the opinion of BNSF Railway that none of these items, when finally resolved, will have a material
adverse effect on the Companys financial position or liquidity. However, should a number of these items occur in the same period, it could have a material adverse effect on the results of operations in a particular quarter or fiscal year.



BNSF Insurance Company



Burlington Northern Santa Fe Insurance Company, Ltd. (BNSF IC), a wholly
owned subsidiary of BNSF, provides insurance coverage for FELA claims; certain risks incurred after April 1, 1998; railroad protective and force account insurance claims incurred after January 1, 2002; and certain other claims which are
subject to reinsurance. During the nine months ended September 30, 2005 and 2004, BNSF Railway paid $140 million in premiums to BNSF IC for such coverage and recognized $105 million in expense related to those premiums. At September 30,
2005, unamortized premiums of $35 million remain on the Consolidated Balance Sheets. During the first nine months of 2005 and 2004, BNSF IC made claim payments to BNSF Railway totaling $94 million and $59 million, respectively, for settlement of
covered claims.



Environmental



The Companys operations, as well as those of its competitors, are
subject to extensive federal, state and local environmental regulation. BNSF Railways operating procedures include practices to protect the environment from the risks inherent in railroad operations, which frequently involve transporting
chemicals and other hazardous materials. Additionally, many of BNSF Railways land holdings are and have been used for industrial or transportation-related purposes or leased to commercial or industrial companies whose activities may have
resulted in discharges onto the property. As a result, BNSF Railway is subject to environmental cleanup and enforcement actions. In particular, the Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA), also
known as the Superfund law, as well as similar state laws, generally impose joint and several liability for cleanup and enforcement costs on current and former owners and operators of a site without regard to fault or the legality of the original
conduct. BNSF Railway has been notified that it is a potentially responsible party (PRP) for study and cleanup costs at Superfund sites for which investigation and remediation payments are or will be made or are yet to be determined (the Superfund
sites) and, in many instances, is one of several PRPs. In addition, BNSF Railway may be considered a PRP under certain other laws. Accordingly, under CERCLA and other federal and state statutes, BNSF Railway may be held jointly and severally liable
for all environmental costs associated with a particular site. If there are other PRPs, BNSF Railway generally participates in the cleanup of these sites through cost-sharing agreements with terms that vary from site to site. Costs are typically
allocated based on such factors as relative volumetric contribution of material, the amount of time the site was owned or operated, and/or the portion of the total site owned or operated by each PRP.



Liabilities for environmental cleanup costs are recorded when BNSF
Railways liability for environmental cleanup is probable and reasonably estimable. Subsequent adjustments to initial estimates are recorded as necessary based upon additional information developed in subsequent periods. Environmental costs
include initial site surveys and environmental studies as well as costs for remediation of sites determined to be contaminated.



During the first half of 2004, the Company experienced a significant increase in expense relating to environmental remediation developments at known sites
for which the majority of the contamination occurred decades ago. Because of these and other developments, the Company performed an assessment in 2004 to determine if it was feasible to better estimate developments at its known sites. The Company
determined that a third party actuary had proprietary data that included information from the EPA and other governmental agencies as well as information accumulated from public sources and work performed for other clients. Because of its
determination that a better estimate of future development could be made with this data, BNSF Railway engaged this third party actuary, which has an extensive background in performing various studies for large companies, including environmental
matters, to assist BNSF Railway in determining the Companys potential future environmental exposure at known sites. As a result of this study, the Company revised its estimate of its probable environmental losses and its accrued liabilities.



Consequently, during the third quarter of 2004, BNSF Railway
recorded an undiscounted $172 million pre-tax charge related to its change in estimated environmental liabilities on a site by site basis. The $172 million pre-tax charge was recorded in materials and other expense and reduced net income by $106
million for the three and nine months ended



17



---

##### Table of Contents

BNSF RAILWAY COMPANY and SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)  (Continued)



September 30, 2004. The charge did not include (i) contaminated sites of which the
Company is not aware, or (ii) additional amounts for third party claims, which arise out of contaminants allegedly migrating from BNSF Railway property, due to a limited number of sites. BNSF Railway continues to estimate third party claims on
a site by site basis when the liability for such claims is probable and reasonably estimable. BNSF Railways recorded liability for third party claims as of September 30, 2005 is approximately $26 million.



The Companys estimate of ultimate cost for clean up efforts at its
known environmental sites utilizes BNSF Railways historical payment patterns, its current estimated percentage to closure ratios, and the actuarys proprietary benchmark patterns developed from data accumulated from public sources and
work performed by it for other clients, including the EPA and other governmental agencies. These factors incorporate experience gained from clean up efforts at other similar sites into the estimates for which remediation and restoration efforts are
still in progress. BNSF Railway also conducts an ongoing environmental contingency analysis, which considers a combination of factors including independent consulting reports, site visits, legal reviews and analysis of the likelihood of
participation in, and the ability to pay for, cleanup of other PRPs.



During the third quarter of 2005, the Company obtained an update of this study. Based on the results of the study, management recorded additional expense of approximately $12 million. The Company plans to update the study in the third
quarter of 2006. On a quarterly basis, BNSF Railway monitors actual experience against the forecasted remediation and related payments made on existing sites. Adjustments to the Companys estimates will continue to be recorded when necessary
based on developments in subsequent periods. Additionally, environmental accruals include amounts for newly identified sites or contaminants, third-party claims, and legal fees incurred for defense of third-party claims and recovery efforts.



BNSF Railway is involved in a number of administrative and
judicial proceedings and other mandatory cleanup efforts for 377 sites, including Superfund sites, at which it is participating in the study or cleanup, or both, of alleged environmental contamination.



The following table summarizes the activity in the Companys accrued
obligations for environmental matters (in millions):



|                                |  |                                 |     |   |                                |   |     |      |  |   |      |   |  |   |     |  
|------------------------------- |  | ------------------------------- | --- | - | ------------------------------ | - | --- | ---- |  | - | ---- | - |  | - | --- | -
|                                |  | Three Months EndedSeptember 30, |     |   | Nine Months EndedSeptember 30, |  
|                                |  | 2005                            |     |   | 2004                           |   |     | 2005 |  |   | 2004 |  
|Beginning balance               |  | $                               | 371 |   |                                | $ | 242 |      |  | $ | 385  |   |  | $ | 199 |  
|Accruals                        |  |                                 | 24  |   |                                |   | 186 |      |  |   | 32   |   |  |   | 250 |  
|Payments                        |  |                                 | (14 | ) |                                |   | (38 | )    |  |   | (36  | ) |  |   | (59 | )
|                                |  |                                 |     |   |                                |   |     |      |  |   |      |   |  |   |     |  
|Ending balance at September 30, |  | $                               | 381 |   |                                | $ | 390 |      |  | $ | 381  |   |  | $ | 390 |  
|                                |  |                                 |     |   |                                |   |     |      |  |   |      |   |  |   |     |  



At September 30,
2005, $55 million is included in current liabilities. BNSF Railways environmental liabilities are not discounted. BNSF Railway anticipates that the majority of the accrued costs at September 30, 2005 will be paid over the next ten years,
and no individual site is considered to be material.



The
following table summarizes the environmental sites:



|                                       |  |                                 |   |                                |      |  |      |   |  |      |  
|-------------------------------------- |  | ------------------------------- | - | ------------------------------ | ---- |  | ---- | - |  | ---- | -
|                                       |  | Three Months EndedSeptember 30, |   | Nine Months EndedSeptember 30, |     
|                                       |  | 2005                            |   |                                | 2004 |  | 2005 |   |  | 2004 |  
|BNSF Railway Sites                     |  |                                 |   |                                |      |  |      |   |  |      |  
|Number of sites at beginning of period |  | 379                             |   |                                | 380  |  | 384  |   |  | 402  |  
|Sites added during the period          |  | 13                              |   |                                | 4    |  | 19   |   |  | 26   |  
|Sites closed during the period         |  | (15                             | ) |                                |     |  | (26  | ) |  | (44  | )
|                                       |  |                                 |   |                                |      |  |      |   |  |      |  
|Number of sites at September 30,       |  | 377                             |   |                                | 384  |  | 377  |   |  | 384  |  
|                                       |  |                                 |   |                                |      |  |      |   |  |      |  



18



---

##### Table of Contents

BNSF RAILWAY COMPANY and SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)  (Continued)



|                                       |  |                                 |   |                                |      |  |      |   |  |      |  
|-------------------------------------- |  | ------------------------------- | - | ------------------------------ | ---- |  | ---- | - |  | ---- | -
|                                       |  | Three Months EndedSeptember 30, |   | Nine Months EndedSeptember 30, |     
|                                       |  | 2005                            |   |                                | 2004 |  | 2005 |   |  | 2004 |  
|Superfund Sites                        |  |                                 |   |                                |      |  |      |   |  |      |  
|Number of sites at beginning of period |  | 23                              |   |                                | 21   |  | 24   |   |  | 22   |  
|Sites added during the period          |  |                                |   |                                | 2    |  |     |   |  | 4    |  
|Sites closed during the period         |  | (3                              | ) |                                |     |  | (4   | ) |  | (3   | )
|                                       |  |                                 |   |                                |      |  |      |   |  |      |  
|Number of sites at September 30,       |  | 20                              |   |                                | 23   |  | 20   |   |  | 23   |  
|                                       |  |                                 |   |                                |      |  |      |   |  |      |  



Liabilities recorded
for environmental costs represent BNSF Railways best estimate of its probable future obligation for the remediation and settlement of these sites and include both asserted and unasserted claims. Unasserted claims are not a material component
of the liability. Although recorded liabilities include BNSF Railways best estimate of all probable costs, without reduction for anticipated recoveries from third parties, BNSF Railways total cleanup costs at these sites cannot be
predicted with certainty due to various factors such as the extent of corrective actions that may be required, evolving environmental laws and regulations, advances in environmental technology, the extent of other parties participation in
cleanup efforts, developments in ongoing environmental analyses related to sites determined to be contaminated, and developments in environmental surveys and studies of contaminated sites.



Because of the uncertainty surrounding these factors, it is reasonably
possible that future costs for environmental liabilities may range from approximately $300 million to $600 million. However, BNSF Railway believes that the $381 million recorded is the best estimate of the Companys future obligation for
environmental costs.



While the final outcome of these
environmental matters cannot be predicted with certainty, it is the opinion of BNSF Railway that none of these items, when finally resolved, will have a material adverse effect on the Companys financial position or liquidity. However, an
unexpected adverse resolution of one or more of these items could have a material adverse effect on the results of operations in a particular quarter or fiscal year.



Other Claims and Litigation



In addition to asbestos, other personal injury, and environmental matters discussed above, BNSF Railway and its subsidiaries are also parties to a number
of other legal actions and claims, various governmental proceedings and private civil suits arising in the ordinary course of business, including those related to disputes and complaints involving certain transportation rates and charges (including
complaints seeking refunds of prior charges paid for coal transportation and the prescription of future rates for such movements). Some of the legal proceedings include claims for punitive as well as compensatory damages, and a few proceedings
purport to be class actions.



While the final outcome of these
matters cannot be predicted with certainty, considering among other things the meritorious legal defenses available and liabilities that have been recorded along with applicable insurance, it is the opinion of BNSF Railway that none of these items,
when finally resolved, will have a material adverse effect on the Companys financial position or liquidity. However, an unexpected adverse resolution of one or more of these items could have a material adverse effect on the results of
operations in a particular quarter or fiscal year.



6. Employee
Separation Costs



Employee separation costs activity was
as follows (in millions):



|                                |  |      |     |   |      |   |     |  
|------------------------------- |  | ---- | --- | - | ---- | - | --- | -
|Nine Months Ended September 30, |  | 2005 |     |   | 2004 |  
|Beginning balance at January 1, |  | $    | 154 |   |      | $ | 179 |  
|Accruals                        |  |      | 9   |   |      |   | 7   |  
|Payments                        |  |      | (27 | ) |      |   | (29 | )
|                                |  |      |     |   |      |   |     |  
|Ending balance at September 30, |  | $    | 136 |   |      | $ | 157 |  
|                                |  |      |     |   |      |   |     |  



Employee separation
liabilities of $136 million are included in the Consolidated Balance Sheet at September 30, 2005, and principally represent the following: (i) deferred benefits payable upon separation or retirement to certain active conductors, trainmen
and locomotive engineers; (ii) employee-related severance costs for the consolidation of clerical



19



---

##### Table of Contents

BNSF RAILWAY COMPANY and SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)  (Continued)



functions, material handlers in mechanical shops and trainmen on reserve boards; and
(iii) certain non-union employee severance costs. Employee separation expenses are recorded in materials and other in the Consolidated Statements of Income. At September 30, 2005, $28 million of the remaining liabilities are included in
current liabilities for anticipated costs to be paid over the next twelve months.



Conductors, Trainmen and Locomotive Engineers



Liabilities related to deferred benefits payable upon separation or retirement to certain active conductors, trainmen and locomotive engineers are $117 million at September 30, 2005. These costs were primarily incurred in connection
with labor agreements reached prior to the consummation of the business combination of BNSFs predecessor companies Burlington Northern, Inc. and Santa Fe Pacific Corporation (the Merger) which, among other things, reduced train crew sizes and
allowed for more flexible work rules. The remaining costs will be paid through approximately 2024. In 2005 and 2004, the Company updated its estimates and recorded an additional liability of $2 million each year related to deferred benefits.



Consolidation of Clerical Functions



Liabilities related to the consolidation of clerical functions are $13
million at September 30, 2005, and primarily provide for separation programs announced in 2003, 2004 and 2005 and severance costs associated with the clerical consolidation plan adopted in 1995 upon the Merger. The July 2004 separation program
affected approximately 40 employees and resulted in accrued severance costs of approximately $4 million. Reductions related to the July 2004 separation program were substantially completed by December 31, 2004. The July 2003 separation program
resulted in accrued severance costs of approximately $12 million, affected approximately 150 employees and was substantially completed in 2003. The 1995 consolidation plan resulted in the elimination of approximately 1,500 permanent positions and
was substantially completed during 1999. The liability also includes costs related to the reduction of approximately 40 and 140 material handlers in 2001 and 2000, respectively. In the first nine months of 2005, BNSF Railway recorded other
liabilities of approximately $6 million primarily related to a voluntary severance program for certain union employees.



Other Employee Separation Costs



Other employee separation cost liabilities are $6 million at September 30, 2005, and principally relate to certain remaining non-union employee
severances resulting from the fourth quarter 2001 workforce reduction and the Merger. These costs will be paid over the next several years based on deferral elections made by the affected employees. Also included in the other employee separation
costs accrual is an estimate for the remaining payments to be made to other union employees as a result of a $1 million relocation program initiated in the first quarter of 2005. This program is expected to be substantially complete by the end of
2005.



7. Retirement Plans and Other Post-Employment Benefit Plans



Components of the net periodic cost for the three and
nine months ended September 30 were as follows (in millions):



|                               |  |                                 |     |   |                                |   |     |      |  |   |      |   |  |   |     |  
|------------------------------ |  | ------------------------------- | --- | - | ------------------------------ | - | --- | ---- |  | - | ---- | - |  | - | --- | -
|                               |  | Pension Benefits                |    
|                               |  | Three Months EndedSeptember 30, |     |   | Nine Months EndedSeptember 30, |  
|Net Periodic Cost              |  | 2005                            |     |   | 2004                           |   |     | 2005 |  |   | 2004 |  
|Service cost                   |  | $                               | 5   |   |                                | $ | 4   |      |  | $ | 15   |   |  | $ | 14  |  
|Interest cost                  |  |                                 | 24  |   |                                |   | 24  |      |  |   | 71   |   |  |   | 72  |  
|Expected return on plan assets |  |                                 | (25 | ) |                                |   | (28 | )    |  |   | (76  | ) |  |   | (84 | )
|Amortization of net loss       |  |                                 | 6   |   |                                |   | 3   |      |  |   | 19   |   |  |   | 9   |  
|                               |  |                                 |     |   |                                |   |     |      |  |   |      |   |  |   |     |  
|Net cost recognized            |  | $                               | 10  |   |                                | $ | 3   |      |  | $ | 29   |   |  | $ | 11  |  
|                               |  |                                 |     |   |                                |   |     |      |  |   |      |   |  |   |     |  



20



---

##### Table of Contents

BNSF RAILWAY COMPANY and SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)  (Continued)



|                                    |  |                                 |    |   |                                |   |    |      |  |   |      |   |  |   |    |  
|----------------------------------- |  | ------------------------------- | -- | - | ------------------------------ | - | -- | ---- |  | - | ---- | - |  | - | -- | -
|                                    |  | Health and Welfare Benefits     |   
|                                    |  | Three Months EndedSeptember 30, |    |   | Nine Months EndedSeptember 30, |  
|Net Periodic Cost                   |  | 2005                            |    |   | 2004                           |   |    | 2005 |  |   | 2004 |  
|Service cost                        |  | $                               |   |   |                                | $ | 1  |      |  | $ | 1    |   |  | $ | 3  |  
|Interest cost                       |  |                                 | 2  |   |                                |   | 5  |      |  |   | 9    |   |  |   | 15 |  
|Amortization of net loss            |  |                                 | 1  |   |                                |   | 1  |      |  |   | 3    |   |  |   | 4  |  
|Amortization of prior service costs |  |                                 | (1 | ) |                                |   | (1 | )    |  |   | (4   | ) |  |   | (3 | )
|                                    |  |                                 |    |   |                                |   |    |      |  |   |      |   |  |   |    |  
|Net cost recognized                 |  | $                               | 2  |   |                                | $ | 6  |      |  | $ | 9    |   |  | $ | 19 |  
|                                    |  |                                 |    |   |                                |   |    |      |  |   |      |   |  |   |    |  



8. Related Party Transactions



BNSF Railway is involved with BNSF and certain of its
subsidiaries in related party transactions in the ordinary course of business, which include payments made on each others behalf and performance of services. Under the terms of a tax allocation agreement with BNSF, BNSF Railway made federal
and state income tax payments, net of refunds, of $509 million and $204 million during the first nine months of 2005 and 2004, respectively, which are reflected in changes in working capital in the Consolidated Statement of Cash Flows.



BNSF Railway had a net intercompany payable balance of $20 million
and $40 million at September 30, 2005 and December 31, 2004, respectively. These balances are reflected in accounts payable in the respective Consolidated Balance Sheet. Net intercompany payable balances are settled in the ordinary
course of business.



At September 30, 2005 and
December 31, 2004, BNSF Railway had $194 million and $152 million, respectively, of intercompany notes payable to BNSF at a variable interest rate of 1.0 percent above the monthly average of the daily effective Federal Funds rate. During the
first nine months of 2005, BNSF Railway had additional borrowings of $43 million of variable rate notes and had $1 million of repayments. Proceeds from borrowings are primarily used to fund capital expenditures and other investing activities.
Interest is paid semi-annually on all intercompany notes payable. Interest expense on intercompany notes payable is reflected in interest income, related parties in the Consolidated Income Statements. The intercompany notes are due on demand.



At September 30, 2005 and December 31, 2004, BNSF
Railway had $2,614 million and $2,011 million, respectively, of intercompany notes receivable from BNSF with a variable interest rate of 1.0 percent above the monthly average of the daily effective Federal Funds rate. The $603 million increase in
intercompany notes receivable is due to $787 million of repayments from BNSF offset by additional borrowings of $1,390 million during the first nine months of 2005. Interest is collected semi-annually on all intercompany notes receivable. The
intercompany notes receivable are presented net of the intercompany notes payable discussed above in the Consolidated Balance Sheets. Interest income from intercompany notes receivable is presented in interest income, related parties in the
Consolidated Income Statements.



BNSF Logistics is a wholly
owned subsidiary of BNSF that specializes in providing third-party logistics services. BNSF Railway earned revenues of $15 million and $2 million for the nine months ended September 30, 2005 and 2004, respectively, for transportation services
provided to BNSF Logistics by BNSF Railway. Additionally, for the nine months ended September 30, 2005 and 2004, BNSF Railway purchased $19 million and $15 million, respectively, of trucking services from BNSF Logistics to transport the
Companys materials and supplies.



Under various stock
incentive plans, BNSF has granted options to employees to purchase its common stock at a price not less than the fair market value at the date of grant. Certain employees of BNSF Railway participate in these plans. In addition, under these plans
BNSF has provided other long-term incentives to certain BNSF Railway employees, including, among other things, restricted stock and a discounted stock purchase program. Compensation expense, net of tax, recorded for stock incentive plans in
accordance with Accounting Principles Board Opinion 25 was $17 million and $11 million for the nine months ended September 30, 2005 and 2004, respectively.



21



---

##### Table of Contents

BNSF RAILWAY COMPANY and SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)  (Continued)



9. Accounting Pronouncements



Stock-Based Compensation



The FASB issued SFAS No. 123R, Share-Based Payment, which
originally required implementation for interim or annual reporting periods beginning after June 15, 2005. However, in April 2005, the Securities and Exchange Commission adopted a new rule to amend the compliance date to the beginning of the
Companys next fiscal year (January 1, 2006, for the Company). SFAS No. 123R requires the Company to recognize the cost of employee services received in exchange for the Companys equity instruments. Currently, in accordance with APB
Opinion 25, the Company records the intrinsic value of stock based compensation as expense. Accordingly, no compensation expense is currently recognized for fixed stock option plans as the exercise price equals the stock price on the date of grant.
Under SFAS No. 123R, BNSF Railway will be required to measure compensation expense over the options vesting period based on the stock options fair value at the date the options are granted. SFAS No. 123R allows for the use of
the Black-Scholes or a lattice option-pricing model to value such options. The Company has determined that it will use the Black-Scholes option-pricing model to calculate the fair value of its options. Based on a study performed by the
Companys management, the fair values obtained from each of the two pricing models were not substantially different. Additionally, the Company has elected to adopt SFAS No. 123R on a modified prospective basis.



Conditional Asset Retirement Obligations



In March 2005, the FASB issued Interpretation No. 47, Accounting for
Conditional Asset Retirement Obligationsan interpretation of FASB Statement No. 143, Accounting for Asset Retirement Obligations. This Interpretation clarifies that the term conditional asset retirement obligation, as used in FASB
Statement No. 143, refers to a legal obligation to perform an asset retirement activity in which the timing or method of settlement, or both, are conditional on a future event that may or may not be within the control of the entity. An entity
is required to recognize a liability for the fair value of a conditional asset retirement obligation if the fair value of the liability can be reasonably estimated. The Company has assessed the impact of the interpretation and does not anticipate
that it will have any impact to its financial statements when the interpretation becomes effective on December 31, 2005.



10. Report of Independent Registered Public Accounting Firm



PricewaterhouseCoopers LLPs review report is included in this quarterly report; however, PricewaterhouseCoopers LLP does not express an opinion on
the unaudited financial information. Accordingly, such report is not a report or part of a registration statement within the meaning of Sections 7 and 11 of the Securities Act of 1933 and PricewaterhouseCoopers LLP is not
subject to the liability provisions of Section 11 of such Act with respect to the review report.



22



---

##### Table of Contents

Report of Independent Registered Public Accounting Firm



To the Shareholder and Board of Directors

of BNSF Railway Company:



We have reviewed the accompanying consolidated balance sheet of BNSF Railway Company and its subsidiaries (the Company) as of September 30, 2005, and the
related consolidated statements of income for each of the three-month and nine-month periods ended September 30, 2005 and 2004, the consolidated statements of cash flows for the nine-months ended September 30, 2005 and 2004 and the
consolidated statement of changes in stockholders equity for the nine-month period ended September 30, 2005. These interim financial statements are the responsibility of the Companys management.



We conducted our review in accordance with the standards of the Public Company Accounting
Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope
than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express
such an opinion.



Based on our review, we are not aware of any material
modifications that should be made to the accompanying consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.



We previously audited in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheet as of December 31, 2004, and the related consolidated statements of income, of changes in stockholders equity, and of cash flows for the year then ended (not presented
herein), and in our report dated February 10, 2005 we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet information as of
December 31, 2004, is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived.



/s/ PricewaterhouseCoopers LLP



Fort Worth, Texas

October 20, 2005



23



---

##### Table of Contents

Item 2. Managements Narrative Analysis of Results of Operations



Managements narrative analysis relates to the financial condition and results of operations of BNSF Railway Company and its majority-owned
subsidiaries (collectively BNSF Railway, Registrant or Company).



Results
of Operations



Nine Months Ended
September 30, 2005 Compared with Nine Months Ended September 30, 2004



Revenues



The following table presents BNSF Railways revenue information by commodity group for the nine months ended September 30, 2005 and 2004:



|                         |  |               |       |                |   |                               |  |       |  |       |  |      |       |  |   |      
|------------------------ |  | ------------- | ----- | -------------- | - | ----------------------------- |  | ----- |  | ----- |  | ---- | ----- |  | - | -----
|                         |  | Revenues      |       | Cars / Units   |   | Average RevenuePer Car / Unit
|                         |  | 2005          |       | 2004           |   | 2005                          |  | 2004  |  | 2005  |  | 2004
|                         |  | (in millions) |       | (in thousands) |   |                               |  |      
|Consumer Products        |  | $             | 3,698 |                | $ | 3,059                         |  | 3,919 |  | 3,563 |  | $    | 944   |  | $ | 859  
|Industrial Products      |  |               | 2,108 |                |   | 1,817                         |  | 1,182 |  | 1,164 |  |      | 1,783 |  |   | 1,561
|Coal                     |  |               | 1,811 |                |   | 1,662                         |  | 1,660 |  | 1,641 |  |      | 1,091 |  |   | 1,013
|Agricultural Products    |  |               | 1,539 |                |   | 1,280                         |  | 682   |  | 667   |  |      | 2,257 |  |   | 1,919
|                         |  |               |       |                |   |                               |  |       |  |       |  |      |       |  |   |      
|Total Freight Revenues   |  |               | 9,156 |                |   | 7,818                         |  | 7,443 |  | 7,035 |  | $    | 1,230 |  | $ | 1,111
|                         |  |               |       |                |   |                               |  |       |  |       |  |      |       |  |   |      
|Other Revenues           |  |               | 183   |                |   | 91                            |  |       |  |       |  |      |       |  |   |      
|                         |  |               |       |                |   |                               |  |       |  |       |  |      |       |  |   |      
|Total Operating Revenues |  | $             | 9,339 |                | $ | 7,909                         |  |       |  |       |  |      |       |  |   |      
|                         |  |               |       |                |   |                               |  |       |  |       |  |      |       |  |   |      



Freight revenues for
the first nine months of 2005 were $9,156 million, up 17 percent compared with the same 2004 period. This increase is due to a 6 percent increase in cars/units and an 11 percent increase in average revenue per car/unit, which includes $710 million
in fuel surcharges compared with $207 million in the prior year.



Consumer Products



The Consumer Products
freight business is principally composed of International and Intermodal business. Intermodal business is comprised of the Truckload, Intermodal Marketing Companies, and Direct Marketing sectors.



Consumer Products revenues of $3,698 million for the first nine months of
2005 were $639 million, or 21 percent, greater than the first nine months of 2004. The 10 percent increase in units was driven primarily by the international and truckload sectors. Rate increases and increases in fuel surcharges resulted in a 10
percent increase in revenue per unit.



Industrial Products



The Industrial Products freight business consists of four
business areas: building products, construction products, chemicals and plastics and petroleum products.



Industrial Products revenues increased $291 million, or 16 percent, to $2,108 million for the first nine months of 2005. The revenue increase was due to
strength in all four business areas, with especially strong gains in lumber, panel products, paper, petroleum and steel products. Rate increases, an increase in fuel surcharges and larger volume increases in higher-rated commodities contributed to a
14 percent increase in average revenue per car.



24



---

##### Table of Contents

Coal



BNSF Railway is one of the largest transporters of low-sulfur coal in the United States. Approximately 90 percent of all BNSF Railways coal tons
transported originate from the Powder River Basin of Wyoming and Montana (Powder River Basin).



Coal revenues of $1,811 million, for the first nine months of 2005, increased $149 million, or 9 percent, versus the same period a year ago. Coal carloads increased 1 percent as a result of new customer business
volumes and higher demand from existing customers partially offset by weather-related operational and maintenance disruptions in the Powder River Basin. Average revenue per car increased 8 percent, primarily driven by contractual rate escalations,
fuel surcharges and increased length of haul.



Agricultural
Products



Agricultural Products freight business is the
transportation of agricultural products including corn, wheat, soybeans, bulk foods, fertilizer, and other products.



Agricultural Products revenues of $1,539 million for the first nine months of 2005 were $259 million, or 20 percent, higher than revenues for the first
nine months of 2004. This increase was primarily due to an 18 percent increase in average revenue per car, which was partially driven by fuel surcharges and a favorable mix change as a result of increased corn and soybean exports to Asia.



Other Revenues



Other Revenues increased $92 million to $183 million for the first nine
months of 2005 compared with the same period in 2004. The increase is primarily attributable to increases in storage related revenues and volume growth.



Expenses



Total operating expenses for the first nine months of 2005 were $7,212 million, an increase of $344 million, or 5 percent, versus the same period in 2004.



Compensation and benefits



Compensation and benefits includes expenses for BNSF Railway employee
compensation and benefit programs. The primary factors influencing the expenses recorded are volume, headcount, utilization, wage rates, incentives earned during the period, benefit plan participation and pension expenses.



Compensation and benefits expenses for the first nine months of 2005 of
$2,592 million were $140 million, or 6 percent, higher than the same 2004 period. This increase in expense was primarily related to 6 percent higher volumes. Additionally, compared to the same 2004 period, pension expense was higher, while incentive
compensation expense was lower.



Fuel



Fuel expenses are driven by the level of locomotive consumption of diesel
fuel, market prices and the effects of hedging activities.



Fuel expenses of $1,352 million for the first nine months of 2005 were $414 million, or 44 percent, higher than the first nine months of 2004. The increase in fuel expenses was due to an increase in the average all-in cost per gallon of
diesel fuel. The average all-in cost per gallon of diesel fuel increased by 36 cents to $1.30 resulting in a $369 million increase in expense. The expense increase was comprised of an increase in the average purchase price of 52 cents, or $547
million, offset by an increase in the hedge benefit of approximately 16 cents, or $178 million (first nine months 2005 benefit of $390 million less first nine months of 2004 benefit of $212 million). Consumption in the first nine months of 2005 was
1,043 million gallons, up 5 percent, compared with consumption for the first nine months of 2004 of 996 million gallons, resulting in a $45 million increase in fuel expenses.



25



---

##### Table of Contents

Purchased services



Purchased services expenses include ramping and drayage, maintenance of locomotive and freight car equipment and technology
services outsourcing, and other services, such as vegetation control, provided to BNSF Railway. The expenses are driven by the rates established in the service contracts and the volume of services required.



Purchased services expenses of $1,197 million for the first nine months of
2005 were $194 million, or 19 percent, higher than the same 2004 period. This increase was primarily due to increases in the following volume-related costs: intermodal ramp costs, locomotive and freight car contract maintenance expense, and haulage
payments for contracted transportation over other railroads.



Depreciation and amortization



Depreciation
and amortization expenses for the period are determined by using the group method of depreciation, applying a single rate to the gross investment in a particular class of property. Due to the capital-intensive nature of BNSF Railways
operations, depreciation expense is a significant component of the Companys operating expense. The full effect of inflation is not reflected in operating expenses since depreciation is based on historical cost.



Depreciation and amortization expenses of $802 million for the first nine
months of 2005 were $48 million, or 6 percent, higher than the same period in 2004. The increase in depreciation expense was due to ongoing capital expenditures.



Equipment rents



Equipment rents expenses include long-term and short-term payments primarily for locomotives, freight cars, containers and trailers. The expenses are
driven primarily by volume, rental rates, the results of lease negotiations, utilization of owned equipment versus leased equipment, and changes in business mix resulting in equipment usage variances.



Equipment rents expenses for the first nine months of 2005 of $654 million
were $60 million, or 10 percent, higher than the first nine months of 2004. The variance represents expense increases for freight car equipment and locomotive leases which are predominantly related to volume and lease rate increases.



Materials and other



Materials expenses consist mainly of the costs involved to purchase
mechanical and engineering materials and other items for construction and maintenance of property and equipment. Other expenses include personal injury claims, environmental remediation, and derailments as well as employee separation costs,
utilities, and property and miscellaneous taxes. The total is offset by gains on land sales and insurance recoveries.



Materials and other expenses of $615 million for the first nine months of 2005 were $512 million, or 45 percent, lower than the first nine months of 2004.
The overall decrease was primarily the result of the $465 million pre-tax charge recorded in the third quarter of 2004 to reflect changes in the Companys estimates of unasserted asbestos liabilities and environmental liabilities (see Note 10
of the Consolidated Financial Statements in the Companys 2004 Form 10-K). Additionally, environmental expenses recorded in the first nine months of 2004 related to developments at two former fueling sites, higher casualty costs driven by two
large derailments that occurred in the first quarter of 2004, and overall lower environmental and personal injury expenses in the first nine months of 2005 primarily as a result of the aforementioned third quarter 2004 charge contributed to this
decrease. The overall decrease in materials and other was partially offset by higher material costs to maintain locomotives, freight cars and track structure.



26



---

##### Table of Contents

Interest expense



Interest expense of $96 million for the first nine months of 2005 was $3 million, or 3 percent, lower than the first nine
months of 2004. This decrease was primarily the result of lower average debt outstanding.



Other expense, net



Other expense, net was $28 million for the first nine months of 2005 compared with other income of $5 million in the same 2004 period. This increase is primarily due to the receipt of interest income from a settlement and an interest
recovery, both recorded in 2004 as well as additional losses on BNSF Railways participation in a synthetic fuel partnership recorded in 2005.



Forward-Looking Information



To the extent that statements made by the Company relate to the Companys future economic performance or business outlook, projections or
expectations of financial or operational results, or refer to matters that are not historical facts, such statements are forward-looking statements within the meaning of the federal securities laws. Forward-looking statements involve a
number of risks and uncertainties, and actual performance or results may differ materially. Important factors that could cause actual performance or results to differ materially include, but are not limited to:



Economic and industry conditions:
material adverse changes in economic or industry conditions, both in the United States and globally, changes in customer demand, effects of adverse economic conditions affecting shippers, adverse economic conditions in the industries and geographic
areas that produce and consume freight, adverse economic conditions in BNSF Railways supplier base, competition and consolidation within the transportation industry, the extent to which BNSF Railway is successful in gaining new long-term
relationships with customers or retaining existing ones, changes in fuel prices and other key materials, changes in the securities and capital markets, and changes in crew availability, labor costs and labor difficulties, including stoppages
affecting either BNSF Railways operations or our customers abilities to deliver goods to BNSF Railway for shipment;



Legal and regulatory factors: developments and changes in laws and regulations, including those affecting train
operations or the marketing of services, the ultimate outcome of shipper and rate claims subject to adjudication, economic re-regulation of the rail industry, developments in environmental investigations or proceedings with respect to rail
operations or current or past ownership or control of real property, and developments in other types of claims and litigation, including those relating to personal injuries, asbestos and other occupational disease, the release of hazardous
materials, environmental contamination and damage to property; and



Operating factors: technical difficulties, changes in operating conditions and costs, commodity concentrations, the availability of equipment and human resources to meet changes in demand, the extent of
the Companys ability to achieve its operational and financial initiatives and to contain costs, the effectiveness of steps taken to maintain and improve operations and network fluidity, including the management of the amount of traffic on the
system to meet demand and the ability to acquire sufficient resources to meet that demand, congestion on other railroads, disruptions to BNSF Railways technology network including computer systems and software, as well as natural events such
as severe weather, fires, floods and earthquakes or man-made or other disruptions of BNSF Railways operating systems, structures, or equipment including the effects of acts of terrorism on the Companys system or other railroads
systems.



The Company cautions against placing undue reliance
on forward-looking statements, which reflect its current beliefs and are based on information currently available to it as of the date a forward-looking statement is made. The Company undertakes no obligation to revise forward-looking statements to
reflect future events, changes in circumstances, or changes in beliefs. In the event the Company does update any forward-looking statement, no inference should be made that the Company will make additional updates with respect to that statement,
related matters, or any other forward-looking statements. Any corrections or revisions may appear in the Companys public filings with the Securities and Exchange Commission, which are accessible at www.sec.gov, and on the Companys
website at www.bnsf.com, and which investors are advised to consult.



27



---

##### Table of Contents

Item 4. Controls and Procedures



Based on their evaluation as of the end of the period covered by this quarterly report on Form 10-Q, BNSF Railways principal executive officer and principal financial officer have concluded that BNSF Railways disclosure controls
and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934) are effective to ensure that information required to be disclosed by BNSF Railway in the reports that it files or submits under the Securities
Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms and that such information is accumulated and communicated to BNSF Railways
management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Additionally, as of the end of the period covered by this report, BNSF Railways principal
executive officer and principal financial officer have concluded that there have been no changes in BNSF Railways internal control over financial reporting that occurred during BNSF Railways third fiscal quarter that have materially
affected, or are reasonably likely to materially affect, BNSF Railways internal control over financial reporting.



28



---

##### Table of Contents

BNSF RAILWAY COMPANY and SUBSIDIARIES



PART II OTHER INFORMATION



Item 1. Legal Proceedings



BNSF Railway was notified by the Minnesota Pollution Control Agency (MPCA) of a proposed Stipulation Agreement to resolve alleged environmental violations with respect to BNSF Railways Dilworth, Minnesota fueling facility. The MPCA
alleges violations involving BNSF Railways wastewater permit, tank regulations, and hazardous waste regulations. In October 2005, the MPCA presented BNSF Railway with proposed monetary sanctions proposed to be included in a settlement
agreement. Although the parties are negotiating a settlement, it is possible that resolution of this matter could result in monetary sanctions exceeding $100 thousand.



Item 6. Exhibits



See
Index to Exhibits on page E-1 for a description of the exhibits filed as part of this report.



29



---

##### Table of Contents

SIGNATURES



Pursuant to the
requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



BNSF RAILWAY COMPANY (Registrant)By:

/s/ Thomas N. HundThomas N. Hund Executive Vice President and Chief Financial Officer (On behalf of
the Registrant and as principal financial officer)




Dated: October 25, 2005



S-1



---

##### Table of Contents

BNSF RAILWAY COMPANY and SUBSIDIARIES



Exhibit Index



|     |  |                                                                                                                        
|---- |  | -----------------------------------------------------------------------------------------------------------------------
|3.1  |  | By-Laws of BNSF Railway Company, amended as of August 30, 2005.                                                        
|     | 
|12.1 |  | Computation of Ratio of Earnings to Fixed Charges                                                                      
|     | 
|31.1 |  | Principal Executive Officers Certifications Pursuant to Rule 13a-14(a) (Section 302 of the Sarbanes-Oxley Act of 2002)
|     | 
|31.2 |  | Principal Financial Officers Certifications Pursuant to Rule 13a-14(a) (Section 302 of the Sarbanes-Oxley Act of 2002)
|     | 
|32.1 |  | Certification Pursuant to Rule 13a-14(b) and 18 U.S.C. § 1350 (Section 906 of the Sarbanes-Oxley Act of 2002)          



E-1