##### 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 March 31, 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 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 April 22, 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 |  | 27  
|Item 4.
Controls and Procedures                                  |  | 31  
|                                                                 | 
|PART II                                                          |  |     
|                                                                 | 
|Item 6.
Exhibits                                                 |  | 32  
|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 Ended March 31,     |  | 2005 |       |   | 2004 |  
|Revenues                         |  | $    | 2,953 |   |      | $ | 2,476 |  
|                                 |  |      |       |   |      |   |       |  
|Operating expenses:              |  |      |       |   |      |   |       |  
|Compensation and benefits        |  |      | 849   |   |      |   | 786   |  
|Purchased services               |  |      | 396   |   |      |   | 330   |  
|Depreciation and amortization    |  |      | 263   |   |      |   | 249   |  
|Equipment rents                  |  |      | 213   |   |      |   | 187   |  
|Fuel                             |  |      | 392   |   |      |   | 280   |  
|Materials and other              |  |      | 203   |   |      |   | 230   |  
|                                 |  |      |       |   |      |   |       |  
|Total operating expenses         |  |      | 2,316 |   |      |   | 2,062 |  
|                                 |  |      |       |   |      |   |       |  
|Operating income                 |  |      | 637   |   |      |   | 414   |  
|Interest expense                 |  |      | 34    |   |      |   | 32    |  
|Interest income, related parties |  |      | (14   | ) |      |   | (6    | )
|Other expense (income), net      |  |      | 6     |   |      |   | (4    | )
|                                 |  |      |       |   |      |   |       |  
|Income before income taxes       |  |      | 611   |   |      |   | 392   |  
|Income tax expense               |  |      | 232   |   |      |   | 149   |  
|                                 |  |      |       |   |      |   |       |  
|Net income                       |  | $    | 379   |   |      | $ | 243   |  
|                                 |  |      |       |   |      |   |       |  



See accompanying Notes
to Consolidated Financial Statements.



3



---

##### Table of Contents

BNSF RAILWAY COMPANY and SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollars in millions)

(Unaudited)



|                                                                                                |  |               |        |                  |   |       
|----------------------------------------------------------------------------------------------- |  | ------------- | ------ | ---------------- | - | ------
|                                                                                                |  | March 31,2005 |        | December 31,2004
|ASSETS                                                                                          |  |               |        |                  |   |       
|Current assets:                                                                                 |  |               |        |                  |   |       
|Cash and cash equivalents                                                                       |  | $             | 53     |                  | $ | 321   
|Accounts receivable, net                                                                        |  |               | 257    |                  |   | 165   
|Materials and supplies                                                                          |  |               | 414    |                  |   | 339   
|Current portion of deferred income taxes                                                        |  |               | 84     |                  |   | 293   
|Other current assets                                                                            |  |               | 844    |                  |   | 554   
|                                                                                                |  |               |        |                  |   |       
|Total current assets                                                                            |  |               | 1,652  |                  |   | 1,672 
|                                                                                                |  |              
|Property and equipment, net                                                                     |  |               | 25,863 |                  |   | 25,762
|Other assets                                                                                    |  |               | 2,016  |                  |   | 1,637 
|Intercompany notes receivable, net                                                              |  |               | 1,710  |                  |   | 1,859 
|                                                                                                |  |               |        |                  |   |       
|Total assets                                                                                    |  | $             | 31,241 |                  | $ | 30,930
|                                                                                                |  |               |        |                  |   |       
|LIABILITIES AND STOCKHOLDERS EQUITY                                                            |  |               |        |                  |   |       
|Current liabilities:                                                                            |  |               |        |                  |   |       
|Accounts payable and other current liabilities                                                  |  | $             | 2,217  |                  | $ | 2,346 
|Long-term debt due within one year                                                              |  |               | 173    |                  |   | 160   
|                                                                                                |  |               |        |                  |   |       
|Total current liabilities                                                                       |  |               | 2,390  |                  |   | 2,506 
|                                                                                                |  |              
|Long-term debt                                                                                  |  |               | 1,639  |                  |   | 1,669 
|Deferred income taxes                                                                           |  |               | 7,789  |                  |   | 7,813 
|Casualty and environmental liabilities                                                          |  |               | 920    |                  |   | 941   
|Minimum pension liability                                                                       |  |               | 353    |                  |   | 353   
|Employee separation costs                                                                       |  |               | 121    |                  |   | 124   
|Other liabilities                                                                               |  |               | 1,664  |                  |   | 1,698 
|                                                                                                |  |               |        |                  |   |       
|Total liabilities                                                                               |  |               | 14,876 |                  |   | 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                                                                               |  |               | 9,912  |                  |   | 9,533 
|Accumulated other comprehensive income                                                          |  |               | 167    |                  |   | 7     
|                                                                                                |  |               |        |                  |   |       
|Total stockholders equity                                                                      |  |               | 16,365 |                  |   | 15,826
|                                                                                                |  |               |        |                  |   |       
|Total liabilities and stockholders equity                                                      |  | $             | 31,241 |                  | $ | 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)



|                                                                                  |  |      |      |   |      |   |      |  
|--------------------------------------------------------------------------------- |  | ---- | ---- | - | ---- | - | ---- | -
|Three Months Ended March 31,                                                      |  | 2005 |      |   | 2004 |  
|OPERATING ACTIVITIES                                                              |  |      |      |   |      |   |      |  
|Net income                                                                        |  | $    | 379  |   |      | $ | 243  |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |      |      |   |      |   |      |  
|Depreciation and amortization                                                     |  |      | 263  |   |      |   | 249  |  
|Deferred income taxes                                                             |  |      | 85   |   |      |   | 103  |  
|Employee separation costs paid                                                    |  |      | (8   | ) |      |   | (8   | )
|Long-term casualty and environmental liabilities, net                             |  |      | (34  | ) |      |   | 9    |  
|Other, net                                                                        |  |      | (147 | ) |      |   | (42  | )
|Changes in current assets and liabilities:                                        |  |      |      |   |      |   |      |  
|Accounts receivable, net                                                          |  |      | (92  | ) |      |   | (57  | )
|Materials and supplies                                                            |  |      | (49  | ) |      |   | (16  | )
|Other current assets                                                              |  |      | (61  | ) |      |   | (126 | )
|Accounts payable and other current liabilities                                    |  |      | (150 | ) |      |   | (264 | )
|                                                                                  |  |      |      |   |      |   |      |  
|Net cash provided by operating activities                                         |  |      | 186  |   |      |   | 91   |  
|                                                                                  |  |      |      |   |      |   |      |  
|INVESTING ACTIVITIES                                                              |  |      |      |   |      |   |      |  
|Capital expenditures                                                              |  |      | (326 | ) |      |   | (392 | )
|Other, net                                                                        |  |      | (239 | ) |      |   | (105 | )
|                                                                                  |  |      |      |   |      |   |      |  
|Net cash used for investing activities                                            |  |      | (565 | ) |      |   | (497 | )
|                                                                                  |  |      |      |   |      |   |      |  
|FINANCING ACTIVITIES                                                              |  |      |      |   |      |   |      |  
|Payments on long-term debt                                                        |  |      | (38  | ) |      |   | (33  | )
|Net decrease in intercompany notes receivable                                     |  |      | 149  |   |      |   | 493  |  
|Other, net                                                                        |  |      |     |   |      |   | 1    |  
|                                                                                  |  |      |      |   |      |   |      |  
|Net cash provided by financing activities                                         |  |      | 111  |   |      |   | 461  |  
|                                                                                  |  |      |      |   |      |   |      |  
|(Decrease) increase in cash and cash equivalents                                  |  |      | (268 | ) |      |   | 55   |  
|Cash and cash equivalents:                                                        |  |      |      |   |      |   |      |  
|Beginning of period                                                               |  |      | 321  |   |      |   | 18   |  
|                                                                                  |  |      |      |   |      |   |      |  
|End of period                                                                     |  | $    | 53   |   |      | $ | 73   |  
|                                                                                  |  |      |      |   |      |   |      |  
|SUPPLEMENTAL CASH FLOW INFORMATION                                                |  |      |      |   |      |   |      |  
|Interest paid, net of amounts capitalized                                         |  | $    | 30   |   |      | $ | 33   |  
|Income taxes paid, net                                                            |  | $    | 210  |   |      | $ | 114  |  
|Non-cash asset financing                                                          |  | $    | 19   |   |      | $ | 2    |  
|                                                                                  |  |      |      |   |      |   |      |  



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 |   | Accumulated OtherComprehensiveIncome |  | TotalStockholdersEquity
|Balance at December 31, 2004                               |  | $                              | 6,286 |                  | $ | 9,533                                |  | $                        | 7   |  | $ | 15,826
|Comprehensive income:                                      |  |                                |       |                  |   |                                      |  |                          |     |  |   |       
|Net income                                                 |  |                                |      |                  |   | 379                                  |  |                          |    |  |   | 379   
|Gain on derivative instruments, net of tax expense of $100 |  |                                |      |                  |   |                                     |  |                          | 160 |  |   | 160   
|                                                           |  |                                |       |                  |   |                                      |  |                          |     |  |   |       
|Total comprehensive income                                 |  |                                |       |                  |   |                                      |  |                          |     |  |   | 539   
|                                                           |  |                                |       |                  |   |                                      |  |                          |     |  |   |       
|Balance at March 31, 2005                                  |  | $                              | 6,286 |                  | $ | 9,912                                |  | $                        | 167 |  | $ | 16,365
|                                                           |  |                                |       |                  |   |                                      |  |                          |     |  |   |       



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 (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 March 31, 2005, and the results of operations for the three month periods ended March 31, 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 17 percent and 14 percent of total operating expenses
during the three month periods ended March 31, 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 maintains a program to hedge
against fluctuations in the price of its diesel fuel purchases. The fuel-hedging program includes the use of derivatives that are accounted for as cash flow hedges. The intent of the program is 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 quarter of 2005 and excluding the impact of the hedging program, each one-cent increase in the price of fuel would result in approximately $14 million of additional fuel expense on an annual basis.



7



---

##### Table of Contents

BNSF RAILWAY COMPANY and SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)



Total Fuel-Hedging Program



As of March 31, 2005, BNSF Railways total fuel-hedging program covered 50 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.



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



|                                        |  |      |     |   |      |   |     |  
|--------------------------------------- |  | ---- | --- | - | ---- | - | --- | -
|Three Months Ended March 31,            |  | 2005 |     |   | 2004 |  
|Hedge benefit                           |  | $    | 107 |   |      | $ | 50  |  
|Ineffective portion of unexpired hedges |  |      | (2  | ) |      |   | 4   |  
|Tax effect                              |  |      | (40 | ) |      |   | (21 | )
|                                        |  |      |     |   |      |   |     |  
|Hedge benefit, net of tax               |  | $    | 65  |   |      | $ | 33  |  
|                                        |  |      |     |   |      |   |     |  



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



|                                          |  |               |      |   |                  |   |      |  
|----------------------------------------- |  | ------------- | ---- | - | ---------------- | - | ---- | -
|                                          |  | March 31,2005 |      |   | December 31,2004 |  
|Short-term fuel-hedging asset             |  | $             | 467  |   |                  | $ | 264  |  
|Long-term fuel-hedging asset              |  |               | 160  |   |                  |   | 105  |  
|Ineffective portion of unexpired hedges   |  |               | (2   | ) |                  |   | (4   | )
|Tax effect                                |  |               | (240 | ) |                  |   | (140 | )
|                                          |  |               |      |   |                  |   |      |  
|Amount included in AOCI, net of tax       |  | $             | 385  |   |                  | $ | 225  |  
|                                          |  |               |      |   |                  |   |      |  
|Settled fuel-hedging contracts receivable |  | $             | 107  |   |                  | $ | 131  |  
|                                          |  |               |      |   |                  |   |      |  



Amounts recorded in
AOCI represent the fair value less the ineffective portion of unexpired hedges.



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 March 31, 2005, BNSF Railway had entered into fuel swap and costless collar agreements utilizing 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. The sum of all such costs typically ranges between 7 and 17 cents per gallon.



8



---

##### Table of Contents

BNSF RAILWAY COMPANY and SUBSIDIARIES



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



No additional HO hedges were entered into during the first three months of
2005. The following tables provide fuel hedge data based on the quarter being hedged for all HO fuel hedges outstanding as of March 31, 2005.



|                                 |  |                |       |               |   |              |  |   |       |  |   |      
|-------------------------------- |  | -------------- | ----- | ------------- | - | ------------ |  | - | ----- |  | - | -----
|                                 |  | Quarter Ending |       | Total        
|2005                             |  | June 30,       |       | September 30, |   | December 31, | 
|HO Swaps                         |  |                |       |               |   |              |  |   |       |  |   |      
|Gallons hedged (in millions)     |  |                | 25.20 |               |   | 18.90        |  |   | 15.75 |  |   | 59.85
|                                 |  |                |       |              
|Average swap price (per gallon)  |  | $              | 0.92  |               | $ | 0.91         |  | $ | 0.93  |  | $ | 0.92 
|Fair value (in millions)         |  | $              | 17    |               | $ | 13           |  | $ | 11    |  | $ | 41   
|                                 |  |                |       |              
|HO Collars                       |  |                |       |               |   |              |  |   |       |  |   |      
|Gallons hedged (in millions)     |  |                | 6.30  |               |   | 12.60        |  |   | 22.05 |  |   | 40.95
|                                 |  |                |       |              
|Average cap price (per gallon)   |  | $              | 0.97  |               | $ | 0.96         |  | $ | 0.98  |  | $ | 0.97 
|                                 |  |                |       |              
|Average floor price (per gallon) |  | $              | 0.89  |               | $ | 0.88         |  | $ | 0.90  |  | $ | 0.89 
|Fair value (in millions)         |  | $              | 4     |               | $ | 8            |  | $ | 15    |  | $ | 27   



|                                 |  |                |       |          |   |               |  |              |       |  |   |       |  |   |      
|-------------------------------- |  | -------------- | ----- | -------- | - | ------------- |  | ------------ | ----- |  | - | ----- |  | - | -----
|                                 |  | Quarter Ending |       | Annual  
|2006                             |  | March 31,      |       | June 30, |   | September 30, |  | December 31, |      
|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)         |  | $              | 10    |          | $ | 13            |  | $            | 16    |  | $ | 17    |  | $ | 56   



|                                 |  |                |       |          |   |               |  |              |   |  |   |   |  |   |      
|-------------------------------- |  | -------------- | ----- | -------- | - | ------------- |  | ------------ | - |  | - | - |  | - | -----
|                                 |  | Quarter Ending |       | Annual  
|2007                             |  | March 31,      |       | June 30, |   | September 30, |  | December 31, |  
|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)         |  | $              | 17    |          | $ |              |  | $            |  |  | $ |  |  | $ | 17   



9



---

##### Table of Contents

BNSF RAILWAY COMPANY and SUBSIDIARIES



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



West Texas Intermediate Crude Oil Hedges



In addition, BNSF Railway enters into fuel swap and costless collar
agreements utilizing West Texas Intermediate 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. The sum of all such costs typically ranges between 12 and 32 cents per gallon. Due to recent increases in refining costs, the difference between WTI prices and the purchase price of BNSF
Railway diesel fuel is currently outside of this typical range.



10



---

##### Table of Contents

BNSF RAILWAY COMPANY and SUBSIDIARIES



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



No additional WTI hedges were entered into during the first three months of
2005. The following tables provide fuel-hedge data based on the quarter being hedged for all WTI fuel hedges outstanding as of March 31, 2005.



|                                        |  |                |        |               |   |              |  |   |       |  |   |       
|--------------------------------------- |  | -------------- | ------ | ------------- | - | ------------ |  | - | ----- |  | - | ------
|                                        |  | Quarter Ending |        | Total        
|2005                                    |  | June 30,       |        | September 30, |   | December 31, | 
|WTI Swaps                               |  |                |        |               |   |              |  |   |       |  |   |       
|Barrels hedged (in thousands)           |  |                | 675    |               |   | 1,125        |  |   | 1,350 |  |   | 3,150 
|Equivalent gallons hedged (in millions) |  |                | 28.35  |               |   | 47.25        |  |   | 56.70 |  |   | 132.30
|                                        |  |                |        |              
|Average swap price (per barrel)         |  | $              | 24.67  |               | $ | 24.55        |  | $ | 24.54 |  | $ | 24.52 
|Fair value (in millions)                |  | $              | 21     |               | $ | 36           |  | $ | 42    |  | $ | 99    
|                                        |  |                |        |              
|WTI Collars                             |  |                |        |               |   |              |  |   |       |  |   |       
|Barrels hedged (in thousands)           |  |                | 3,225  |               |   | 2,325        |  |   | 1,650 |  |   | 7,200 
|Equivalent gallons hedged (in millions) |  |                | 135.45 |               |   | 97.65        |  |   | 69.30 |  |   | 302.40
|                                        |  |                |        |              
|Average cap price (per barrel)          |  | $              | 26.47  |               | $ | 26.66        |  | $ | 27.11 |  | $ | 26.68 
|                                        |  |                |        |              
|Average floor price (per barrel)        |  | $              | 21.89  |               | $ | 22.07        |  | $ | 22.57 |  | $ | 22.10 
|Fair value (in millions)                |  | $              | 96     |               | $ | 69           |  | $ | 47    |  | $ | 212   



|                                        |  |                |       |          |   |               |  |              |       |  |   |       |  |   |       
|--------------------------------------- |  | -------------- | ----- | -------- | - | ------------- |  | ------------ | ----- |  | - | ----- |  | - | ------
|                                        |  | Quarter Ending |       | Annual  
|2006                                    |  | March 31,      |       | June 30, |   | September 30, |  | December 31, |      
|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)                |  | $              | 41    |          | $ | 19            |  | $            | 10    |  | $ |      |  | $ | 70    
|                                        |  |                |       |          |  
|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)                |  | $              | 37    |          | $ | 36            |  | $            | 18    |  | $ | 11    |  | $ | 102   



11



---

##### Table of Contents

BNSF RAILWAY COMPANY and SUBSIDIARIES



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



|                                        |  |                |       |          |   |               |  |              |   |  |   |   |  |   |      
|--------------------------------------- |  | -------------- | ----- | -------- | - | ------------- |  | ------------ | - |  | - | - |  | - | -----
|                                        |  | Quarter Ending |       | Annual  
|2007                                    |  | March 31,      |       | June 30, |   | September 30, |  | December 31, |  
|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)                |  | $              | 3     |          | $ |              |  | $            |  |  | $ |  |  | $ | 3    



12



---

##### Table of Contents

BNSF RAILWAY COMPANY and SUBSIDIARIES



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



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.



As of March 31, 2005,
the Company had no interest hedging transactions outstanding. As of March 31, 2004, the Company had one swap transaction outstanding with an interest rate component and recorded a de minimis hedge benefit in the Consolidated Statement of Income for
the quarter then ended.



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.



SFRC renewed $350 million of its $700 million accounts receivable facilities, effective June 2004, for an additional 364 days. In addition, SFRC entered
into a separate $350 million accounts receivable facility with a five-year term in June 2003. The Companys total capacity to sell undivided interests to investors under the A/R sales program was $700 million at March 31, 2005. Outstanding
undivided interests held by investors under the A/R sales program were $650 million at March 31, 2005 and December 31, 2004. These receivables were derecognized by BNSF Railway in connection with the sale of undivided interests under the A/R sales
program. The undivided interests were supported by $977 million and $894 million of receivables transferred by SFRC to the master trust at March 31, 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 $327 million and $244 million at
March 31, 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 March 31, 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 $3.1 billion and $2.7 billion for the three months ended March 31, 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 (income), net and were $3 million and $2 million for the
three months ended March 31, 2005 and 2004, respectively. These costs fluctuate monthly with changes in prevailing interest rates, and were based on weighted average interest rates of 2.6 percent and 1.1 percent in the three months ended March 31,
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.



13



---

##### Table of Contents

BNSF RAILWAY COMPANY and SUBSIDIARIES



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



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, the amount of receivables BNSF Railway could sell would decrease by approximately $9 million.



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 March 31, 2005 and December 31, 2004, $95 million and $77 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 March 31, 2005 and December 31, 2004, $58 million and $59 million, respectively, of such allowances had been recorded of which $51 million and $52 million, respectively, had been recorded as
a reduction to accounts receivable, net. Additionally, at March 31, 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 three months ended March 31, 2005 and 2004, $2 million of accounts receivable were written off.



The investors in the master trust have no recourse to 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 March 31, 2005, BNSF Railway was in compliance with these provisions.



14



---

##### 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 March 31, 2005, are as follows (dollars in millions):



|                                                               |  |                                |   |                        |                           |     |                       |   |                         |  |                          |     |  |                         |  |   |    
|-------------------------------------------------------------- |  | ------------------------------ | - | ---------------------- | ------------------------- | --- | --------------------- | - | ----------------------- |  | ------------------------ | --- |  | ----------------------- |  | - | ---
|                                                               |  | Guarantees                     |   | CapitalizedObligations
|                                                               |  | BNSFRailwayOwnershipPercentage |   |                        | PrincipalAmountGuaranteed |     | MaximumFuturePayments |   | MaximumRecourseAmount a |  | RemainingTerm (in years) |    
|Kinder Morgan Energy Partners, L.P.                            |  | 0.5                            | % |                        | $                         | 190 |                       | $ | 190                     |  | $                        |    |  | Terminationof Ownership |  | $ |   
|Kansas City Terminal Intermodal Transportation Corporation     |  | 0.0                            | % |                        | $                         | 65  |                       | $ | 101                     |  | $                        | 101 |  | 14                      |  | $ | 36b
|Westside Intermodal Transportation Corporation                 |  | 0.0                            | % |                        | $                         | 45  |                       | $ | 73                      |  | $                        |    |  | 18                      |  | $ | 39b
|The Unified Government of Wyandotte County/Kansas City, Kansas |  | 0.0                            | % |                        | $                         | 14  |                       | $ | 23                      |  | $                        |    |  | 18                      |  | $ | 12b
|Various lessors (Residual value guarantees)                    |  | 0.0                            | % |                        |                           | N/A |                       | $ | 298                     |  | $                        | 298 |  | Various                 |  | $ | 68c
|All other                                                      |  | 0.0                            | % |                        | $                         | 9   |                       | $ | 11                      |  | $                        | 5   |  | 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 Sheets.
|- | ------------------------------------------------------------------------------------------------

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



Kinder Morgan Energy Partners,
L.P.



Santa Fe Pacific Pipelines, Inc.
(SFPP), an indirect, wholly owned subsidiary of BNSF, 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 $65 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.



15



---

##### Table of Contents

BNSF RAILWAY COMPANY and SUBSIDIARIES



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



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



BNSF Railway has guaranteed $59 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.



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 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 March 31, 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 $5 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.



16



---

##### Table of Contents

BNSF RAILWAY COMPANY and SUBSIDIARIES



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



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 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 who worked around 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 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.



BNSF Railway anticipates obtaining annual updates of the study. On a quarterly basis, BNSF Railway will monitor actual experience against the number of
forecasted claims to be received and expected claim payments. Adjustments to the Companys estimates will be recorded quarterly if necessary. More periodic updates to the study will occur if trends necessitate a change.



17



---

##### 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 Ended March 31, |  | 2005 |     |   | 2004 |  
|Beginning balance            |  | $    | 345 |   |      | $ | 60 |  
|Accruals                     |  |      |    |   |      |   | 8  |  
|Payments                     |  |      | (5  | ) |      |   | (8 | )
|                             |  |      |     |   |      |   |    |  
|Ending balance at March 31,  |  | $    | 340 |   |      | $ | 60 |  
|                             |  |      |     |   |      |   |    |  



Of the March 31, 2005
obligation, $286 million is related to unasserted claims while $54 million is related to asserted claims. At March 31, 2005, $20 million was included in current liabilities. The recorded liability was 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 only asserted asbestos claims filed against BNSF Railway:



|                                                |  |       |   |  |       |  
|----------------------------------------------- |  | ----- | - |  | ----- | -
|                                                |  | 2005  |   |  | 2004  |  
|Claims unresolved at January 1,                 |  | 1,926 |   |  | 1,985 |  
|Claims filed                                    |  | 173   |   |  | 240   |  
|Claims settled, dismissed or otherwise resolved |  | (180  | ) |  | (252  | )
|                                                |  |       |   |  |       |  
|Claims unresolved at March 31,                  |  | 1,919 |   |  | 1,973 |  
|                                                |  |       |   |  |       |  



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 $250 million to $450 million. However, BNSF Railway believes that the $340 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.



18



---

##### 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, Reasonable Estimation of the Amount of a Loss, 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 Ended March 31, |  | 2005 |     |   | 2004 |  
|Beginning balance            |  | $    | 459 |   |      | $ | 453 |  
|Accruals                     |  |      | 45  |   |      |   | 42  |  
|Payments                     |  |      | (65 | ) |      |   | (48 | )
|                             |  |      |     |   |      |   |     |  
|Ending balance at March 31,  |  | $    | 439 |   |      | $ | 447 |  
|                             |  |      |     |   |      |   |     |  



At March 31, 2005,
$155 million was 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 personal injury claims, other than asbestos, filed against BNSF Railway:



|                                                |  |        |   |  |       |  
|----------------------------------------------- |  | ------ | - |  | ----- | -
|                                                |  | 2005   |   |  | 2004  |  
|Claims unresolved at January 1,                 |  | 4,116  |   |  | 4,393 |  
|Claims filed                                    |  | 912    |   |  | 940   |  
|Claims settled, dismissed or otherwise resolved |  | (1,144 | ) |  | (845  | )
|                                                |  |        |   |  |       |  
|Claims unresolved at March 31,                  |  | 3,884  |   |  | 4,488 |  
|                                                |  |        |   |  |       |  



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 $439 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.



19



---

##### 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.



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 a reasonable estimate of associated loss can be made. 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 in recent periods, the Company performed an assessment 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.
The estimate did not include (i) contaminated sites of which the Company is not aware, and (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 a reasonable estimate of associated loss can be made. BNSF Railways recorded liability for third party
claims as of March 31, 2005 is approximately $25 million.



20



---

##### Table of Contents

BNSF RAILWAY COMPANY and SUBSIDIARIES



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



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.



BNSF Railway anticipates obtaining annual updates of the study. On a quarterly basis, BNSF Railway will also monitor actual experience against the forecasted remediation and related payments made on existing sites. Additionally, BNSF
Railway will continue its existing, quarterly process to monitor developments to further benchmark actuarial results. Adjustments to the Companys estimates will continue to be recorded quarterly if necessary based upon developments in
subsequent periods. More periodic updates to the study will occur if trends necessitate a change.



BNSF Railway is involved in a number of administrative and judicial proceedings and other mandatory cleanup efforts for 378 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 Ended March 31, |  | 2005 |     |   | 2004 |  
|Beginning balance            |  | $    | 385 |   |      | $ | 199 |  
|Accruals                     |  |      |    |   |      |   | 26  |  
|Payments                     |  |      | (9  | ) |      |   | (11 | )
|                             |  |      |     |   |      |   |     |  
|Ending balance at March 31,  |  | $    | 376 |   |      | $ | 214 |  
|                             |  |      |     |   |      |   |     |  



At March 31, 2005, $60
million was included in current liabilities. BNSF Railways environmental liabilities are not discounted. BNSF Railway anticipates that the majority of the accrued costs at March 31, 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:



|                               |  |                   |   |  |                 |   |  |      |   |  |      |  
|------------------------------ |  | ----------------- | - |  | --------------- | - |  | ---- | - |  | ---- | -
|                               |  | BNSF Railwaysites |   |  | Superfund sites |  
|                               |  | 2005              |   |  | 2004            |   |  | 2005 |   |  | 2004 |  
|Number of sites at January 1,  |  | 384               |   |  | 402             |   |  | 24   |   |  | 22   |  
|Sites added during the period  |  | 5                 |   |  | 11              |   |  |     |   |  | 1    |  
|Sites closed during the period |  | (11               | ) |  | (43             | ) |  | (1   | ) |  | (3   | )
|                               |  |                   |   |  |                 |   |  |      |   |  |      |  
|Number of sites at March 31,   |  | 378               |   |  | 370             |   |  | 23   |   |  | 20   |  
|                               |  |                   |   |  |                 |   |  |      |   |  |      |  



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



21



---

##### Table of Contents

BNSF RAILWAY COMPANY and SUBSIDIARIES



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



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 $376 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):



|                                |  |      |     |   |      |   |     |  
|------------------------------- |  | ---- | --- | - | ---- | - | --- | -
|Three Months Ended March 31,    |  | 2005 |     |   | 2004 |  
|Beginning balance at January 1, |  | $    | 154 |   |      | $ | 179 |  
|Accruals                        |  |      | 5   |   |      |   |    |  
|Payments                        |  |      | (8  | ) |      |   | (8  | )
|Other                           |  |      |    |   |      |   |    |  
|                                |  |      |     |   |      |   |     |  
|Ending balance at March 31,     |  | $    | 151 |   |      | $ | 171 |  
|                                |  |      |     |   |      |   |     |  



Employee separation
liabilities of $151 million were included in the Consolidated Balance Sheets at March 31, 2005, and principally represent: (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 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 March 31, 2005, $30 million of the remaining liabilities are included in current liabilities for anticipated costs to be paid over the next twelve months.





22



---

##### Table of Contents

BNSF RAILWAY COMPANY and SUBSIDIARIES



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



Conductors, Trainmen and Locomotive Engineers



Liabilities related to deferred benefits payable upon separation or
retirement to certain active conductors, trainmen and locomotive engineers were $127 million at March 31, 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 between 2005 and
approximately 2024.



Consolidation of Clerical Functions



Liabilities related to the consolidation of clerical
functions were $18 million at March 31, 2005, and primarily provide for separation programs announced in July 2003 and July 2004 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 cost 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 three months of 2005, BNSF Railway
recorded other liabilities of approximately $4 million primarily related to a voluntary severance program for certain union employees.



Other Employee Separation Costs



Liabilities principally related to certain remaining non-union employee severances resulting from the fourth quarter 2001 workforce reduction and the
Merger were $5 million at March 31, 2005. These costs will be paid over the next several years based on deferral elections made by the affected employees. Additionally, in the first three months of 2005, BNSF Railway recorded approximately $1
million related to other union employees. 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 months ended March 31 were as follows (in millions):



|                                    |  |                  |     |   |                            |   |     |      |  |   |      |   |  |   |    |  
|----------------------------------- |  | ---------------- | --- | - | -------------------------- | - | --- | ---- |  | - | ---- | - |  | - | -- | -
|                                    |  | Pension Benefits |     |   | Health and WelfareBenefits |  
|Net Periodic Cost                   |  | 2005             |     |   | 2004                       |   |     | 2005 |  |   | 2004 |  
|Service cost                        |  | $                | 5   |   |                            | $ | 5   |      |  | $ | 1    |   |  | $ | 1  |  
|Interest cost                       |  |                  | 22  |   |                            |   | 24  |      |  |   | 4    |   |  |   | 5  |  
|Expected return on plan assets      |  |                  | (25 | ) |                            |   | (28 | )    |  |   |     |   |  |   |   |  
|Amortization of net loss            |  |                  | 6   |   |                            |   | 3   |      |  |   | 1    |   |  |   | 2  |  
|Amortization of prior service costs |  |                  |    |   |                            |   |    |      |  |   | (2   | ) |  |   | (1 | )
|                                    |  |                  |     |   |                            |   |     |      |  |   |      |   |  |   |    |  
|Net cost recognized                 |  | $                | 8   |   |                            | $ | 4   |      |  | $ | 4    |   |  | $ | 7  |  
|                                    |  |                  |     |   |                            |   |     |      |  |   |      |   |  |   |    |  



BNSF sponsors a
postretirement health care benefit plan that provides prescription drug coverage. The recent Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (Act) provides for a federal subsidy for plans that provide prescription drug
benefits that are actuarially equivalent to Medicare Part D.



23



---

##### Table of Contents

BNSF RAILWAY COMPANY and SUBSIDIARIES



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



BNSF adopted guidance pursuant to FASB Staff Position 106-2 Accounting and
Disclosure Requirements Related to the Drug, Improvement and Modernization Act of 2003 as of April 1, 2004. The Company and its actuarial advisors have determined that the prescription drug coverage provided by BNSFs post-retirement health
care benefit plan is actuarially equivalent to Medicare Part D, and accordingly, the subsidy will provide some relief for BNSFs ongoing retiree medical costs.



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 $210 million and $114 million during the
first three 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 receivable balance of $29 million and a net intercompany payable balance of $2 million at March 31, 2005 and December
31, 2004, respectively. These balances are reflected in accounts receivable and accounts payable in the respective Consolidated Balance Sheet. Net intercompany receivable or payable balances are settled in the ordinary course of business.



At March 31, 2005 and December 31, 2004, BNSF Railway had $165
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 three months of 2005, BNSF Railway had
additional borrowings of $13 million of variable rate notes and made a de minimis amount 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 March 31, 2005 and December 31, 2004, BNSF Railway had $1,875 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 $136 million decrease in intercompany notes receivable is
due to $694 million of repayments from BNSF during the first quarter offset by additional borrowings of $558 million. 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 $1 million and less than $1 million for the three months ended March 31, 2005 and 2004, respectively, for transportation services provided to BNSF Logistics by BNSF Railway.
Additionally, BNSF Railway purchased truck transportation services for the Companys materials and supplies from BNSF Logistics of $7 million and $4 million for the three months ended March 31, 2005 and 2004.



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 other long-term incentive plans 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 $5 million
and $3 million for the three months ended March 31, 2005 and 2004, respectively.



24



---

##### Table of Contents

BNSF RAILWAY COMPANY and SUBSIDIARIES



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



9. Accounting Pronouncements



The Financial Accounting Standards Board (FASB) issued SFAS No. 123R,
Share-Based Payment, which originally required implementation for interim or annual reporting periods beginning after June 15, 2005. However, the Securities and Exchange Commission recently 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. As allowed by SFAS No. 123R, the Company can elect either Modified Prospective Application, which applies the Statement to new
awards and modified awards after the effective date, and to any unvested awards as service is rendered on or after the effective date, or Modified Retrospective Application which can apply the statement to either all prior years for which SFAS No.
123 was effective. BNSF Railway is currently evaluating which method of application will be used.



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.



25



---

##### 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 (BNSF Railway or the Company) as of March 31, 2005, and the related consolidated
statements of income and of cash flows for the three-month periods ended March 31, 2005 and 2004 and the consolidated statement of changes in stockholders equity for the three-month period ended March 31, 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

April 20, 2005





26



---

##### 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



Three Months Ended March
31, 2005 Compared with Three Months Ended March 31, 2004



Revenues



The following table presents BNSF Railways revenue information by commodity group for the three months ended March 31, 2005 and 2004:



|                         |  |               |       |                |   |                               |  |       |  |       |  |      |       |  |   |      
|------------------------ |  | ------------- | ----- | -------------- | - | ----------------------------- |  | ----- |  | ----- |  | ---- | ----- |  | - | -----
|                         |  | Revenues      |       | Cars / Units   |   | Average RevenuePer Car / Unit
|                         |  | 2005          |       | 2004           |   | 2005                          |  | 2004  |  | 2005  |  | 2004
|                         |  | (in millions) |       | (in thousands) |   |                               |  |      
|Consumer Products        |  | $             | 1,128 |                | $ | 925                           |  | 1,235 |  | 1,081 |  | $    | 913   |  | $ | 856  
|Industrial Products      |  |               | 647   |                |   | 563                           |  | 386   |  | 368   |  |      | 1,676 |  |   | 1,530
|Coal                     |  |               | 598   |                |   | 520                           |  | 554   |  | 521   |  |      | 1,079 |  |   | 998  
|Agricultural Products    |  |               | 524   |                |   | 438                           |  | 233   |  | 236   |  |      | 2,249 |  |   | 1,856
|                         |  |               |       |                |   |                               |  |       |  |       |  |      |       |  |   |      
|Total Freight Revenues   |  |               | 2,897 |                |   | 2,446                         |  | 2,408 |  | 2,206 |  | $    | 1,203 |  | $ | 1,109
|                         |  |               |       |                |   |                               |  |       |  |       |  |      |       |  |   |      
|Other Revenues           |  |               | 56    |                |   | 30                            |  |       |  |       |  |      |       |  |   |      
|                         |  |               |       |                |   |                               |  |       |  |       |  |      |       |  |   |      
|Total Operating Revenues |  | $             | 2,953 |                | $ | 2,476                         |  |       |  |       |  |      |       |  |   |      
|                         |  |               |       |                |   |                               |  |       |  |       |  |      |       |  |   |      



Freight revenues for
the first quarter of 2005 were $2,897 million, up 18 percent compared with the same 2004 period. Freight revenues included $180 million in fuel surcharges compared with $47 million in the prior year. The increase in freight revenues is due to a 9
percent increase in cars/units and an 8 percent increase in average revenue per car/unit.



Consumer Products



The
Consumer Products freight business includes a significant intermodal component and consists of the following business areas: international, direct marketing, truckload, intermodal marketing companies, automotive, and perishables and dry
boxcar.



Consumer Products revenues of $1,128
million for the first quarter of 2005 were $203 million, or 22 percent, greater than the first quarter of 2004. The increase in Consumer Products revenues is primarily due to a 14 percent increase in units, which is driven by increased volumes in
the international and truckload sectors. The 7 percent increase in revenue per unit is primarily due to price increases across all sectors and increased fuel surcharges, partially offset by increases in international intermodal business, which has
lower average revenue per unit.



Industrial Products



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



Industrial Products revenues increased $84 million, or 15 percent, to $647 million for the first quarter of 2005. The Company experienced strong revenue
gains in all four business areas with especially strong gains in lumber, paper, panel products, manufactured products, clay and petroleum products. The 5 percent increase in cars was driven by continuing strength in the economy. Rate increases along
with fuel surcharges and volume increases in higher rated commodities contributed to a 10 percent increase in average revenue per car.



27



---

##### 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
originate from the Powder River Basin of Wyoming and Montana.



Coal revenues of $598 million for the first quarter of 2005 increased $78 million, or 15 percent, compared with the same period a year ago. The 6 percent increase in cars is a result of new customer business volumes and higher demand from
existing customers. Average revenue per car increased 8 percent, primarily driven by contractual rate escalations, fuel surcharges and increased length of haul.



Agricultural Products



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



Agricultural Products revenues of $524
million for the first quarter of 2005 were $86 million, or 20 percent, higher than revenues for the first quarter of 2004. This increase is primarily due to an increase of 21 percent in average revenue per car, which is related to a favorable mix
change driven by increased soybean exports to China, fuel surcharges and price increases.



Other Revenues



Other
Revenues increased $26 million to $56 million for the first quarter of 2005. The increase is primarily due to increases in storage and other credits due to a policy change which resulted in higher storage fees.



Expenses



Total operating expenses for the first quarter of 2005 were $2,316 million,
an increase of $254 million, or 12 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 of $849 million were $63 million, or 8 percent, higher than the first quarter of 2004. This increase is primarily related to significant volume increases, which led to an increase in both headcount and
wages earned. Additionally, an increase in wage rates incentive expenses and pension expenses contributed to this variance over the first quarter of 2004.



Purchased services



Purchased services expense includes 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.





28



---

##### Table of Contents

Purchased service expenses of $396 million for the first quarter of 2005 were $66 million, or 20 percent,
higher than the first quarter of 2004. This increase is primarily due to higher volume-related costs for intermodal ramp costs, locomotive contract maintenance expense and haulage payments for contracted transportation over other roads.



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 $263 million for the first quarter of 2005 were $14 million, or 6 percent, higher than the same period in 2004.
The increase in depreciation expense is due to ongoing capital expenditures.



Equipment rents



Equipment rents expense includes long-term and short-term payments primarily for locomotives, freight cars, containers and trailers. The expense is 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 of $213 million for the first quarter of 2005 were $26 million, or 14 percent, higher than the first quarter of 2004. The
increase is primarily due to strong volumes.



Fuel



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



Fuel expenses of $392 million for the first quarter of 2005 were $112 million, or 40 percent, higher than the first quarter of 2004. The increase in fuel expense is due to an increase in the average all-in cost per
gallon of diesel fuel, as well as an increase in consumption driven by higher volumes. The average all-in cost per gallon of diesel fuel increased by 27 cents to $1.13, resulting in a $92 million increase in expense. The all-in cost is comprised of
an increase in the average purchase price of 41 cents, or $143 million increase in fuel expense, partially offset by an increase in the hedge benefit of 14 cents, or $51 million (first quarter 2005 benefit of $105 million less first quarter 2004
benefit of $54 million). Consumption in the first three months of 2005 was 346 million gallons compared with 323 million gallons in the same 2004 period, resulting in a $20 million increase in fuel expense.



Materials and other



Material 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 $203 million for the first quarter of 2005 were $27 million, or 12 percent, lower than the first quarter of 2004. The
decrease is due to decreased casualty costs driven by two large derailments in the first quarter of 2004 as well as lower environmental expenses primarily as a result of the third quarter 2004 charge (see Note 10 of the Consolidated Financial
Statements in the Companys 2004 Form 10-K).





29



---

##### Table of Contents

Interest expense



Interest expense of $34 million for the first quarter of 2005 was $2 million, or 6 percent, higher than the first quarter of
2004. The increase is primarily due to higher average interest rates.



Other expense (income), net



Other expense was
$6 million in the first quarter of 2005 compared with other income of $4 million in the first quarter of 2004. This increase in expense is primarily due to an interest recovery recorded in the first quarter of 2004.



Other Matters



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 results may differ materially. Important factors that could cause actual 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, the ultimate outcome of shipper and rate claims subject to adjudication, 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, occupational disease, the release of
hazardous materials, 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, as well as natural events such as severe weather, 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.





30



---

##### 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 first fiscal quarter that have materially
affected, or are reasonably likely to materially affect, BNSF Railways internal control over financial reporting.



31



---

##### Table of Contents

BNSF RAILWAY COMPANY and SUBSIDIARIES



PART II OTHER INFORMATION



Item 6. Exhibits



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





32



---

##### 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: April 28, 2005





S-1



---

##### Table of Contents

BNSF RAILWAY COMPANY and SUBSIDIARIES



Exhibit Index



|     |  |                                                                                                                          
|---- |  | -------------------------------------------------------------------------------------------------------------------------
|12.1 |  | Computation of Ratio of Earnings to Fixed Charges                                                                        
|     | 
|31.1 |  | Principal Executive Officers Certifications Pursuant to 18 U.S.C. § 1350 (Section 302 of the Sarbanes-Oxley Act of 2002)
|     | 
|31.2 |  | Principal Financial Officers Certifications Pursuant to 18 U.S.C. § 1350 (Section 302 of the Sarbanes-Oxley Act of 2002)
|     | 
|32.1 |  | Certification Pursuant to 18 U.S.C. § 1350 (Section 906 of the Sarbanes-Oxley Act of 2002)                               





E-1