**UNITED
        STATES**
 **SECURITIES
        AND EXCHANGE COMMISSION**
 **WASHINGTON,
        D.C. 20549**
 
 **FORM
        10-Q**
 
 (Mark
        One)
 **x**
              QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                  EXCHANGE ACT OF 1934
 For
        the quarterly
        period ended September 30, 2007
 
 OR
 
 o
              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**
 **(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**
 **(Address
        of principal executive offices)**
 
 **76131-2830**
 **(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 a large accelerated filer, an
        accelerated filer, or a non-accelerated filer. See definition of “accelerated
        filer and large accelerated filer” in Rule 12b-2 of the Exchange
        Act.
 **Large accelerated filer  [  ]  Accelerated
        filer  [  ]   Non-accelerated
        filer  [x]**
 
 Indicate
        by check mark whether the registrant is a shell company (as defined in Rule
        12b-2 of the Exchange Act).
 **Yes  [  ]  No****[x]**
 
 Indicate
        the number of shares outstanding of each of the issuer’s classes of common
        stock, as of the latest practicable date.
 **Class**
              
              **Shares**
                **Outstanding
                  at**
                **October 16, 2007**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**
   ***PART
                  I***
              ***FINANCIAL
                  INFORMATION***
              ***PAGE***Item
                  1.
              Financial
                  Statements.
              3Item
                  2.
              Management’s
                  Narrative Analysis of Results of
                  Operations.
              26Item
                  4T.
              Controls
                  and Procedures.
              30***PART
                  II***
              ***OTHER
                  INFORMATION***Item
                  6.
              Exhibits.
              31Signatures
              
              S-1Exhibits
              
              E-1
 
 
 
 
  2
 Table
            of Contents
  **PART
        I**
 **FINANCIAL
        INFORMATION**
 
 **Item
        1.    Financial Statements.**
 
 **BNSF
        RAILWAY COMPANY and SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENTS OF INCOME**
 **(In
        millions)**
 **(Unaudited)**
 
 **Three
                  Months Ended**
              
              
              **Nine Months
                  Ended****September 30,**
              
              
              **September 30,****2007**
              
              
              **2006**
              
              
              **2007**
              
              
              **2006****(As Adjusted)a**
              
              
              
              
              
              **(As Adjusted)a**Revenues
              
              $
              4,015
              
              
              $
              3,887
              
              
              $
              11,411
              
              
              $
              10,970Operating
                  expenses:Compensation
                  and benefits
              
              
              932
              
              
              
              971
              
              
              
              2,778
              
              
              
              2,810Fuel
              
              
              814
              
              
              
              792
              
              
              
              2,237
              
              
              
              2,031Purchased
                  services
              
              
              487
              
              
              
              490
              
              
              
              1,489
              
              
              
              1,431Depreciation
                  and amortization
              
              
              323
              
              
              
              296
              
              
              
              951
              
              
              
              874Equipment
                  rents
              
              
              235
              
              
              
              232
              
              
              
              704
              
              
              
              695Materials
                  and other
              
              
              214
              
              
              
              187
              
              
              
              693
              
              
              
              537Total
                  operating expenses
              
              
              3,005
              
              
              
              2,968
              
              
              
              8,852
              
              
              
              8,378Operating
                  income
              
              
              1,010
              
              
              
              919
              
              
              
              2,559
              
              
              
              2,592Interest
                  expense
              
              
              23
              
              
              
              31
              
              
              
              68
              
              
              
              91Interest
                  income, related parties
              
              
              (53
              )
              
              
              (45
              )
              
              
              (150
              )
              
              
              (115
              )Other
                  expense, net
              
              
              11
              
              
              
              9
              
              
              
              28
              
              
              
              28Income
                  before income taxes
              
              
              1,029
              
              
              
              924
              
              
              
              2,613
              
              
              
              2,588Income
                  tax expense
              
              
              396
              
              
              
              351
              
              
              
              1,006
              
              
              
              969Net
                  income
              
              $
              633
              
              
              $
              573
              
              
              $
              1,607
              
              
              $
              1,619
  a Prior
                  year numbers have been adjusted for the retrospective adoption
                  of
                  Financial Accounting Standards Board (FASB) Staff Position (FSP)
                  AUG
                  AIR-1, *Accounting for Planned Major Maintenance Activities*. See
                  Note 1 of the Consolidated Financial Statements for additional
                  information.
 
 See
        accompanying Notes to Consolidated Financial Statements.
  3
 Table
            of Contents
 
  **BNSF
        RAILWAY COMPANY and SUBSIDIARIES**
 **CONSOLIDATED
        BALANCE SHEETS**
 **(Dollars
        in millions)**
 **(Unaudited)**
 
 ****
              
              **September 30,**
              
              
              **December 31,****2007**
              
              
              **2006****(As
                  Adjusted)a****ASSETS**Current
                  assets:Cash
                  and cash equivalents
              
              $
              11
              
              
              $
              20Accounts
                  receivable, net
              
              
              1,151
              
              
              
              871Materials
                  and supplies
              
              
              517
              
              
              
              488Current
                  portion of deferred income taxes
              
              
              349
              
              
              
              337Other
                  current assets
              
              
              392
              
              
              
              285Total
                  current assets
              
              
              2,420
              
              
              
              2,001Property
                  and equipment, net
              
              
              28,996
              
              
              
              27,871Other
                  assets
              
              
              2,100
              
              
              
              1,815Intercompany
                  notes receivable
              
              
              3,554
              
              
              
              3,317Total
                  assets
              
              $
              37,070
              
              
              $
              35,004**LIABILITIES
                  AND STOCKHOLDER’S EQUITY**Current
                  liabilities:Accounts
                  payable and other current liabilities
              
              $
              2,948
              
              
              $
              2,920Long-term
                  debt due within one year
              
              
              203
              
              
              
              173Total
                  current liabilities
              
              
              3,151
              
              
              
              3,093Long-term
                  debt and commercial paper
              
              
              1,221
              
              
              
              1,215Deferred
                  income taxes
              
              
              8,469
              
              
              
              8,293Casualty
                  and environmental liabilities
              
              
              842
              
              
              
              830Pension
                  and retiree health and welfare liability
              
              
              608
              
              
              
              604Employee
                  separation costs
              
              
              80
              
              
              
              86Other
                  liabilities
              
              
              1,374
              
              
              
              1,171Intercompany
                  notes payable
              
              
              36
              
              
              
              35Total
                  liabilities
              
              
              15,781
              
              
              
              15,327Commitments
                  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
              
              
              
              6,286Retained
                  earnings
              
              
              15,271
              
              
              
              13,677Accumulated
                  other comprehensive loss
              
              
              (268
              )
              
              
              (286
              )Total
                  stockholder’s equity
              
              
              21,289
              
              
              
              19,677Total
                  liabilities and stockholder’s equity
              
              $
              37,070
              
              
              $
              35,004
  a Prior
                  year numbers have been adjusted for the retrospective adoption
                  of FSP AUG
                  AIR-1, *Accounting for Planned Major Maintenance Activities*. See
                  Note 1 of the Consolidated Financial Statements for additional
                  information.
 
 See
        accompanying Notes to Consolidated Financial Statements.
  4
 Table
            of Contents
 
 **BNSF
          RAILWAY COMPANY and SUBSIDIARIES**
 **CONSOLIDATED
          STATEMENTS OF CASH FLOWS**
 **(In
          millions)**
 **(Unaudited)**
 
 **Nine Months
                    Ended September 30,**
                
                **2007**
                
                
                **2006****(As
                    Adjusted)a****OPERATING
                    ACTIVITIES**Net
                    income
                
                $
                1,607
                
                
                $
                1,619Adjustments
                    to reconcile net income to net cash provided by operating
                    activities:Depreciation
                    and amortization
                
                
                951
                
                
                
                874Deferred
                    income taxes
                
                
                264
                
                
                
                191Employee
                    separation costs paid
                
                
                (16
                )
                
                
                (23
                )Long-term
                    casualty and environmental liabilities, net
                
                
                26
                
                
                
                (40
                )Other,
                    net
                
                
                77
                
                
                
                (58
                )Changes
                    in current assets and liabilities:Accounts
                    receivable, net
                
                
                (280
                )
                
                
                (300
                )Change
                  in
                  accounts receivable sales program
                
                
                (100
                )
                
                
                –Materials
                    and supplies
                
                
                (29
                )
                
                
                (68
                )Other
                    current assets
                
                
                (108
                )
                
                
                (7
                )Accounts
                    payable and other current liabilities
                
                
                73
                
                
                
                100Net
                    cash provided by operating activities
                
                
                2,465
                
                
                
                2,288**INVESTING
                    ACTIVITIES**Capital
                    expenditures
                
                
                (1,775
                )
                
                
                (1,549
                )Net increase
                    in intercompany notes receivable
                
                
                (237
                )
                
                
                (65
                )Other,
                    net
                
                
                (324
                )
                
                
                (296
                )Net
                    cash used for investing activities
                
                
                (2,336
                )
                
                
                (1,910
                )**FINANCING
                    ACTIVITIES**Payments
                    on long-term debt
                
                
                (139
                )
                
                
                (153
                )Net
                    increase (decrease) in intercompany notes payable
                
                
                1
                
                
                
                (225
                )Net
                    cash used for financing activities
                
                
                (138
                )
                
                
                (378
                )Decrease in
                    cash and cash equivalents
                
                
                (9
                )
                
                
                –Cash
                    and cash equivalents:Beginning
                    of period
                
                
                20
                
                
                
                24End
                    of period
                
                $
                11
                
                
                $
                24**SUPPLEMENTAL
                    CASH FLOW INFORMATION**Interest
                    paid, net of amounts capitalized
                
                $
                61
                
                
                $
                80Income
                    taxes paid, net of refunds
                
                $
                667
                
                
                $
                746Non-cash
                    asset financing
                
                $
                167
                
                
                $
                78
  a Prior
                    year numbers have been adjusted for the retrospective adoption
                    of FSP AUG
                    AIR-1, *Accounting for Planned Major Maintenance Activities*. See
                    Note 1 of the Consolidated Financial Statements for additional
                    information.
 
 See
          accompanying Notes to Consolidated Financial Statements.
  5
 Table
              of Contents
 **BNSF
        RAILWAY COMPANY and SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENT OF CHANGES IN STOCKHOLDER’S EQUITY**
 **(In
        millions)**
 **(Unaudited)**
 
 **Common
                  Stock and Paid-in Capital**
              
              
              **Retained
                  Earnings**
              
              
              **Accumulated
                  Other Comprehensive Loss**
              
              
              **Total
                  Stockholder’s**
                **Equity**Balance
                  at December 31, 2006, as adjusted
              
              $
              6,286
              
              
              $
              13,677
              a
              
              $
              (286
              )
              
              $
              19,677
              aAdjustment
                  for the adoption of FASB Interpretation No. (FIN) 48
              
              **
              *–*
              
              
              
              (13
              )
              
              **
              *–*
              
              
              
              (13
              )Comprehensive
                  income:Net
                  income
              
              **
              *–*
              
              
              
              1,607
              
              
              **
              *–*
              
              
              
              1,607Amortization
                  of prior service costs and actuarial losses, net of tax expense
                  of
                  $10
              
              **
              *–*
              
              
              **
              *–*
              
              
              
              15
              
              
              
              15Gain
                  on derivative instruments and other items, net of tax expense of
                  $2
              
              **
              *–*
              
              
              **
              *–*
              
              
              **
              3
              
              
              **
              3Total
                  comprehensive income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              1,625Balance
                  at September 30, 2007
              
              $
              6,286
              
              
              $
              15,271
              
              
              $
              (268
              )
              
              $
              21,289a
                  Prior year numbers have been adjusted for the retrospective adoption
                  of
                  FSP AUG AIR-1, *Accounting for Planned Major Maintenance
                  Activities*. See Note 1 of the Consolidated Financial Statements for
                  additional information.
  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 Current Report on Form 8-K dated May 25, 2007, including the
          financial statements and notes thereto and BNSF Railway Company’s Annual Report
          on Form 10-K for the year ended December 31, 2006. The Consolidated Financial
          Statements include the accounts of BNSF Railway Company and its majority-owned
          subsidiaries (collectively BNSF Railway or the Company). BNSF Railway is
          a
          wholly-owned subsidiary of Burlington Northern Santa Fe Corporation (BNSF),
          and
          is the principal operating subsidiary of BNSF. All significant intercompany
          accounts and transactions have been eliminated.
 
 The
          results of operations for any interim period are not necessarily indicative
          of
          the results of operations to be expected for the entire year. In the opinion
          of
          management, the unaudited financial statements reflect all adjustments
          (consisting of only normal recurring adjustments, except as disclosed)
          necessary
          for a fair statement of BNSF Railway’s consolidated financial position as of
          September 30, 2007, and the results of operations for the three and nine
          month
          periods ended September 30, 2007 and 2006.
 
 Certain
          comparative prior period amounts in the Consolidated Financial Statements
          have
          been reclassified to conform to the current period presentation. These
          reclassifications had no effect on previously reported operating income
          or net
          income except as discussed below.
 
 **Adoption
          of New Accounting Pronouncements**
 
 *Planned
          Major Maintenance Activities*
 
 Effective
          January 1, 2007, the Company transitioned to the deferral method of accounting
          for leased locomotive overhauls, which includes the refurbishment of the
          engine
          and related components. Previously, the Company used the accrue-in-advance
          method of accounting for these planned major maintenance activities; however,
          under FSP AUG AIR-1, *Accounting for Planned Major Maintenance
          Activities*, issued in September 2006, this method is no longer allowed.
          This change was applied retrospectively for all periods presented. Accordingly,
          BNSF Railway has eliminated the asset and liability recorded from the
          accrue-in-advance methodology and established an asset for overhauls that
          have
          been performed. This asset will be amortized to expense using the straight-line
          method until the next overhaul is performed or the end of the lease, whichever
          comes first, typically between six and eight years. The effects of these
          adjustments were as follows (in millions):
 **Consolidated
                  Statement of Income**
                **Three
                  Months Ended September 30, 2006**
              
              **As
                  Reported**
              
              
              **Impact
                  of Adjustment**
              
              
              **As
                  Adjusted**Depreciation
                  and amortization
              
              $
              284
              
              
              $
              12
              
              
              $
              296Materials
                  and other
              
              
              200
              a
              
              
              (13
              )
              
              
              187Total
                  operating expenses
              
              
              2,969
              
              
              
              (1
              )
              
              
              2,968Operating
                  income
              
              
              918
              
              
              
              1
              
              
              
              919Income
                  before income taxes
              
              
              923
              
              
              
              1
              
              
              
              924Income
                  tax expense
              
              
              351
              
              
              **
              –
              
              
              
              351Net
                  income
              
              $
              572
              
              
              $
              1
              
              
              $
              573aComparative
                  prior period amounts
                  have been reclassified to conform to the current
                  presentation.
 
  7
 Table
            of Contents
 **BNSF
          RAILWAY COMPANY and
          SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) -
        (Continued)**
  
 **Consolidated
                  Statement of Income**
                **Nine Months
                  Ended September 30, 2006**
              
              **As
                  Reported**
              
              
              **Impact
                  of Adjustment**
              
              
              **As
                  Adjusted**Depreciation
                  and amortization
              
              $
              839
              
              
              $
              35
              
              
              $
              874Materials
                  and other
              
              
              575
              a
              
              
              (38
              )
              
              
              537Total
                  operating expenses
              
              
              8,381
              
              
              
              (3
              )
              
              
              8,378Operating
                  income
              
              
              2,589
              
              
              
              3
              
              
              
              2,592Income
                  before income taxes
              
              
              2,585
              
              
              
              3
              
              
              
              2,588Income
                  tax expense
              
              
              968
              
              
              
              1
              
              
              
              969Net
                  income
              
              $
              1,617
              
              
              $
              2
              
              
              $
              1,619
 
 **Consolidated
                  Balance Sheet**
                **December
                  31, 2006**
              
              **As
                  Reported**
              
              
              **Impact
                  of Adjustment**
              
              
              **As
                  Adjusted**Property
                  and equipment, net
              
              $
              27,626
              
              
              $
              245
              
              
              $
              27,871Other
                  assets
              
              
              1,906
              
              
              
              (91
              )
              
              
              1,815Total
                  assets
              
              
              34,850
              a
              
              
              154
              
              
              
              35,004Deferred
                  income taxes
              
              
              8,211
              
              
              
              82
              
              
              
              8,293Other
                  liabilities
              
              
              1,231
              
              
              
              (60
              )
              
              
              1,171Total
                  liabilities
              
              
              15,305
              a
              
              
              22
              
              
              
              15,327Retained
                  earnings
              
              
              13,545
              
              
              
              132
              
              
              
              13,677Total
                  stockholder’s equity
              
              
              19,545
              
              
              
              132
              
              
              
              19,677Total
                  liabilities and stockholder’s equity
              
              $
              34,850
              a
              
              $
              154
              
              
              $
              35,004
 
 **Consolidated
                  Statement of Cash Flows**
                **Nine Months
                  Ended September 30, 2006**
              
              **As
                  Reported**
              
              
              **Impact
                  of Adjustment**
              
              
              **As
                  Adjusted**Net
                  income
              
              $
              1,617
              
              
              $
              2
              
              
              $
              1,619Depreciation
                  and amortization
              
              
              839
              
              
              
              35
              
              
              
              874Deferred
                  income taxes
              
              
              190
              
              
              
              1
              
              
              
              191Operating
                  activities other, net
              
              
              (75
              )
              
              
              17
              
              
              
              (58
              )Net
                  cash provided by operating activities
              
              
              2,233
              
              
              
              55
              
              
              
              2,288Investing
                  activities other, net
              
              
              (241
              )
              
              
              (55
              )
              
              
              (296
              )Net
                  cash used for investing activities
              
              $
              (1,855
              )a
              
              $
              (55
              )
              
              $
              (1,910
              )aComparative
                  prior period amounts
                  have been reclassified to conform to the current
                  presentation.
 
 The
        effects of the adjustments on years prior to fiscal 2006 resulted in an
        adjustment to increase stockholder’s equity as of January 1, 2006 by $130
        million.
  8
 **BNSF
              RAILWAY COMPANY and
              SUBSIDIARIES**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) -
            (Continued)**
 Table
            of Contents
  *Uncertain
        Tax Positions*
 
 In
          June
          2006, the FASB issued FIN 48, *Accounting for Uncertainty in Income Taxes—an
          interpretation of FASB Statement No. 109, Accounting for Income Taxes*. This
          interpretation addresses the determination of whether tax benefits claimed
          or
          expected to be claimed on a tax return should be recorded in the financial
          statements. Under FIN 48, the Company may recognize the tax benefit from
          an
          uncertain tax position only if it is more likely than not that the tax
          position
          will be sustained on examination by the taxing authorities, based on the
          technical merits of the position. The tax benefits recognized in the financial
          statements from such a position should be measured based on the largest
          benefit
          that has a greater than fifty percent likelihood of being realized upon
          ultimate
          settlement. FIN 48 also provides guidance on derecognition, classification,
          interest and penalties on income taxes, accounting in interim periods and
          requires increased disclosures. The Company adopted the provisions of FIN
          48 on
          January 1, 2007. As a result of the implementation of FIN 48, the Company
          recorded an $83 million increase in the liability for unrecognized tax
          benefits,
          which is offset by a reduction of the deferred tax liability of $70 million,
          resulting in a decrease to the January 1, 2007, retained earnings balance
          of $13
          million (for additional information see Note 8 to the Consolidated Financial
          Statements).
 
 **2.    Hedging
          Activities**
 
 The
          Company uses derivative financial instruments to hedge against increases
          in
          diesel fuel prices and interest rates. The Company does not hold or issue
          derivative financial instruments for trading or speculative purposes. 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 cash flow hedges to specific assets
          or
          liabilities on the balance sheet, commitments or forecasted transactions.
          The
          Company assesses at the time a derivative contract is entered into, and
          at least
          quarterly thereafter, whether the derivative item is effective in offsetting
          the
          changes in 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
          loss (AOCL) as a separate component of stockholder’s equity and reclassified
          into earnings in the period during which the hedge transaction affects
          earnings.
          Cash flows related to fuel and interest rate hedges are classified as operating
          activities in the Consolidated Statements of Cash Flows.
 
 BNSF
          monitors its hedging positions and credit ratings of its counterparties
          and does
          not anticipate any losses due to counterparty nonperformance.
 
 **Fuel**
 
 Fuel
          costs represented 25 percent and 24 percent of total operating expenses
          during
          the nine month periods ended September 30, 2007 and 2006, respectively.
          Due to
          the significance of diesel fuel expenses to the operations of BNSF Railway
          and
          the historical volatility of fuel prices, the Company has entered into
          hedges to
          partially mitigate the risk of fluctuations in the price of its diesel
          fuel
          purchases. The fuel hedges include the use of derivatives that are accounted
          for
          as cash flow hedges. The hedging is intended to protect the Company’s operating
          margins and overall profitability from adverse fuel price changes by entering
          into fuel-hedge instruments based on management’s evaluation of current and
          expected diesel fuel price trends. However, to the extent the Company hedges
          portions of its fuel purchases, it may not realize the impact of decreases
          in
          fuel prices. Conversely, to the extent the Company does not hedge portions
          of
          its fuel purchases, it may be adversely affected by increases in fuel prices.
          Based on fuel consumption during the third quarter of 2007 and excluding
          the
          impact of the hedges, each one-cent increase in the price of fuel would
          result
          in approximately $14 million of additional fuel expense on an annual basis.
          However, any fuel price increase would be substantially offset by the Company’s
          fuel surcharge program.
 
 ***Total
          Fuel-Hedging Activities***
 
 As
          of
          September 30, 2007, BNSF’s total fuel-hedging positions covered approximately 5
          percent, 3 percent, 1 percent and less than 1 percent of estimated fuel
          purchases for the remainder of 2007, 2008, 2009 and 2010, respectively.
          Hedge
          positions are closely monitored to ensure that they will not exceed actual
          fuel
          requirements in any period.  9
 Table
                of Contents
 **BNSF
              RAILWAY COMPANY and
              SUBSIDIARIES**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) -
            (Continued)**
 The
        amounts recorded in the Consolidated Statements of Income for fuel-hedge
        transactions were as follows (in millions):
  **Three
                  Months Ended**
                **September 30,**
              
              
              **Nine
                  Months Ended**
                **September 30,****2007**
              
              
              **2006**
              
              
              **2007**
              
              
              **2006**Hedge
                  benefit
              
              $
              –
              
              
              $
              77
              
              
              $
              24
              
              
              $
              304Ineffective
                  portion of open hedges
              
              
              1
              
              
              **
              (1
              )
              
              **
              1
              
              
              **
              (1
              )Tax
                  effect
              
              **
              –
              
              
              
              (29
              )
              
              
              (9
              )
              
              
              (116
              )Hedge
                  benefit, net of tax
              
              $
              1
              
              
              $
              47
              
              
              $
              16
              
              
              $
              187
 
 The
        amounts recorded in the Consolidated Balance Sheets for fuel-hedge transactions
        were as follows (in millions):
 
 **September 30,**
              
              
              **December
                  31,****2007**
              
              
              **2006**Short-term
                  fuel-hedging asset
              
              $
              11
              
              
              $
              13Long-term
                  fuel-hedging asset
              
              
              6
              
              
              
              –Short-term
                  fuel-hedging liability
              
              
              –
              
              
              
              (2
              )Ineffective
                  portion of open hedges
              
              **
              –
              
              
              
              1Tax
                  effect
              
              
              (6
              )
              
              
              (4
              )Amount
                  included in AOCL, net of tax
              
              $
              11
              
              
              $
              8Settled
                  fuel-hedging contracts receivable
              
              $
              –
              
              
              $
              37
 
 BNSF
          Railway measures the fair value of hedges based upon data provided by various
          external counterparties. To value a swap, the Company uses the forward
          commodity
          price for the period hedged.
 
 ***New
          YorkMercantile Exchange(NYMEX) #2 Heating Oil (HO)
          Hedges***
 
 As
          of
          September 30, 2007, BNSF Railway had entered into fuel swap agreements
          utilizing
          NYMEX #2 HO. The hedge prices do not include taxes, transportation costs,
          certain other fuel handling costs and any differences that may occur between
          the
          prices of HO and the purchase price of BNSF Railway’s diesel fuel. Over the
          twelve months ended September 30, 2007, the sum of all such costs averaged
          approximately 26 cents per gallon.
 
 No
          additional HO hedges were entered into during the first nine months of
          2007. The
          following tables provide fuel-hedge data based on the quarter being hedged
          for
          all HO fuel hedges outstanding as of September 30, 2007. As of September
          30,
          2007, there were no HO hedge positions beyond the fourth quarter of
          2007.
 **Quarter
                    Ending****2007**
                
                
                
                
                **December
                    31,****HO
                    Swaps**Gallons
                    hedged (in millions)
                
                
                
                
                
                18.90Average
                    swap price (per gallon)
                
                
                
                
                $
                2.17Fair
                    value (in millions)
                
                
                
                
                $
                1
 ***West
        TexasIntermediate (WTI)Crude Oil
        Hedges***
 
 In
          addition, BNSF Railway enters into fuel swap agreements utilizing WTI crude
          oil.
          The hedge prices do not include taxes, transportation costs, certain other
          fuel
          handling costs and any differences which may occur between the prices of
          WTI and
          the purchase price of BNSF Railway’s diesel fuel, including refining costs. Over
          the twelve months ended September 30, 2007, the sum of all such costs averaged
          approximately 56 cents per gallon.
 10
 **BNSF
              RAILWAY COMPANY and
              SUBSIDIARIES**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) -
            (Continued)**
 Table
            of Contents
  During
          the first nine months of 2007, the Company entered into fuel swap agreements
          utilizing WTI to hedge the equivalent of approximately 1.5 million barrels
          of
          fuel with an average swap price of $64.24 per barrel. The following tables
          provide fuel-hedge data based on the quarter being hedged for all WTI fuel
          hedges outstanding as of September 30, 2007.
 **Quarter
                  Ending****2008**
              
              **March
                  31,**
              
              
              **June
                  30,**
              
              
              **September
                  30,**
              
              
              **December
                  31,**
              
              
              **Total****WTI
                  Swaps**Barrels
                  hedged (in thousands)
              
              
              290
              
              
              
              260
              
              
              
              230
              
              
              
              230
              
              
              
              1,010Equivalent
                  gallons hedged (in millions)
              
              
              12.18
              
              
              
              10.92
              
              
              
              9.66
              
              
              
              9.66
              
              
              
              42.42Average
                  swap price (per barrel)
              
              $
              63.69
              
              
              $
              63.77
              
              
              $
              63.70
              
              
              $
              63.70
              
              
              $
              63.72Fair
                  value (in millions)
              
              $
              4
              
              
              $
              3
              
              
              $
              3
              
              
              $
              3
              
              
              $
              13
 
 **Quarter
                  Ending****2009**
              
              **March
                  31,**
              
              
              **June
                  30,**
              
              
              **September
                  30,**
              
              
              **December
                  31,**
              
              
              **Total****WTI
                  Swaps**Barrels
                  hedged (in thousands)
              
              
              100
              
              
              
              100
              
              
              
              100
              
              
              
              70
              
              
              
              370Equivalent
                  gallons hedged (in millions)
              
              
              4.20
              
              
              
              4.20
              
              
              
              4.20
              
              
              
              2.94
              
              
              
              15.54Average
                  swap price (per barrel)
              
              $
              65.10
              
              
              $
              65.10
              
              
              $
              65.10
              
              
              $
              65.00
              
              
              $
              65.08Fair
                  value (in millions)
              
              $
              1
              
              
              $
              1
              
              
              $
              1
              
              
              $
              <1
              
              
              $
              3
 
 **Quarter
                  Ending****2010**
              
              **March
                  31,**
              
              
              **June
                  30,**
              
              
              **September
                  30,**
              
              
              **December
                  31,**
              
              
              **Total****WTI
                  Swaps**Barrels
                  hedged (in thousands)
              
              
              70
              
              
              
              –
              
              
              
              –
              
              
              
              –
              
              
              
              70Equivalent
                  gallons hedged (in millions)
              
              
              2.94
              
              
              
              –
              
              
              
              –
              
              
              
              –
              
              
              
              2.94Average
                  swap price (per barrel)
              
              $
              64.80
              
              
              $
              –
              
              
              $
              –
              
              
              $
              –
              
              
              $
              64.80Fair
                  value (in millions)
              
              $
              <1
              
              
              $
              –
              
              
              $
              –
              
              
              $
              –
              
              
              $
              <1
  **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 by
        establishing rates in anticipation of both future debt issuances and the
        refinancing of leveraged leases. The Company uses treasury locks as part
        of its
        interest rate risk management strategy.  As of September 30, 2007, no
        cash flow hedges including treasury lock transactions were
        outstanding. 
 **Total
          Interest Rate Hedging Program**
 
 ***Cash
          Flow Interest Rate Hedges***
 
 In
          anticipation of a future refinancing of several leveraged leases, the Company
          had entered into six treasury locks having an aggregate notional amount
          of $147
          million to fix the interest rate inherent in the operating lease payments.
          The
          treasury locks were terminated in May 2007 in connection with the refinancing
          of
          the leveraged leases, and the resulting $0.5 million gain on these hedges
          will
          be amortized to equipment rents over the remaining life of the leases.
          These
          transactions are accounted for as cash flow hedges.
 11
 **BNSF
              RAILWAY COMPANY and
              SUBSIDIARIES**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) -
            (Continued)**
 Table
            of Contents
  The
          amounts recorded in the Consolidated Balance Sheets for interest rate cash
          flow
          hedge transactions, which represent the fair value of closed hedges, were
          as
          follows (in millions):
 
 **September 30,**
                
                
                **December
                    31,****2007**
                
                
                **2006**Unrecognized
                    gain on closed hedges
                
                $
                1
                
                
                $
                1Tax
                    effect
                
                
                –
                
                
                
                –Unrecognized
                    gain in AOCL, net of tax
                
                $
                1
                
                
                $
                1
  **3.    Accounts
        Receivable, Net**
 
 BNSF
          Railway transfers a portion 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.
  BNSF
          Railway’s total capacity to sell undivided interests to investors under the A/R
          sales program was $700 million at September 30, 2007, which was comprised
          of two
          $350 million, 364-day accounts receivable facilities that mature in November
          2007. The facilities are expected to be extended at least 364 days in November
          2007.  Outstanding undivided interests held by investors under the A/R
          sales program were $200 million and $300 million at September 30, 2007
          and
          December 31, 2006, respectively. These receivables are excluded from accounts
          receivable by BNSF Railway in connection with the sale of undivided interests
          under the A/R sales program. The undivided interests were supported by
          $1,149
          million and $1,030 million at September 30, 2007 and December 31, 2006,
          respectively, of receivables transferred by SFRC to the master trust. When
          SFRC
          transfers these receivables to the master trust, it retains an undivided
          interest in the receivables sold, which is included in accounts receivable
          in
          the Company’s Consolidated Financial Statements. The interest that continues to
          be held by SFRC of $949 million and $730 million at September 30, 2007
          and
          December 31, 2006, respectively, less an allowance for uncollectible accounts,
          reflected the total accounts receivable transferred by SFRC to the master
          trust
          less $200 million and $300 million at September 30, 2007 and December 31,
          2006,
          respectively, 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.
 
 BNSF
          Railway retains the collection responsibility with respect to the accounts
          receivable. Proceeds from collections reinvested in the A/R sales program
          were
          approximately $12 billion for both the nine months ended September 30,
          2007 and
          2006, respectively. No servicing asset or liability has been recorded because
          the fees BNSF Railway receives for servicing the receivables approximate
          the
          related costs. SFRC’s costs of the sale of receivables are included in other
          expense, net and were $15 million and $17 million for the nine months ended
          September 30, 2007 and 2006, respectively. These costs fluctuate monthly
          with
          changes in prevailing interest rates and were based on weighted average
          interest
          rates of 5.6 percent and 5.2 percent in the nine months ended September
          30, 2007
          and 2006, respectively. These costs include interest, discounts associated
          with
          transferring the receivables under the A/R sales program to SFRC, program
          fees
          paid to banks, incidental commercial paper issuing costs and fees for unused
          commitment availability.
 
 The
          amount of accounts receivable transferred by BNSF Railway to SFRC fluctuates
          based upon the availability of receivables and is directly affected by
          changing
          business volumes and credit risks, including dilution and delinquencies.
          In
          order for there to be an impact on the amount of receivables BNSF Railway
          could
          sell, the combined dilution and delinquency percentages would have to exceed
          an
          established threshold for the combined dilution and delinquency percentages.
          BNSF Railway has historically experienced very low levels of default or
          dilution
          and was well below the established rate at September 30, 2007. Based on
          the
          current levels, if dilution or delinquency percentages were to increase
          by one
          percentage point, there would be no impact to the amount of receivables
          BNSF
          Railway could sell.
 
 Receivables
          funded under the A/R sales program may not include amounts over 90 days
          past due
          or concentrations over certain limits with any one customer and certain
          other
          receivables. At September 30, 2007 and December 31, 2006, $13 million and
          $26
          million, respectively, of accounts receivable were greater than 90 days
          old.
 
 BNSF
          Railway maintains an allowance for bill adjustments and uncollectible accounts
          based upon the expected collectibility of accounts receivable, including
          receivables transferred to the master trust. Credit losses are based on
          specific
          identification of uncollectible accounts and application of historical
          collection percentages by aging category. At September 30, 2007, and December
          31, 2006, $29 million and $36 million, respectively of such allowances
          had been
          recorded, of which $29 million and $34 million, respectively, had been
          recorded
          as a reduction to accounts receivable, net. The remaining $2 million at
          December
          31, 2006, had been recorded in accounts payable and other current liabilities
          because it relates to the outstanding undivided interests held by investors.
          During the nine months ended September 30, 2007 and 2006, $3 million and
          $6
          million, respectively, of accounts receivable were written
          off.
 12
 **BNSF
              RAILWAY COMPANY and
              SUBSIDIARIES**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) -
            (Continued)**
 Table
            of Contents
  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 September 30,
          2007,
          BNSF Railway was in compliance with these provisions.
 
 **4.**
                **Debt**
 
 **Guarantees**
  Debt
        and other
        obligations of non-consolidated entities guaranteed by the Company as of
        September 30, 2007, were as follows (dollars in millions):
 
 **Guarantees****BNSF
                  Railway Ownership Percentage**
              
              **Principal**
                **Amount
                  Guaranteed**
              
              **Maximum**
                **Future
                  Payments**
              
              **Maximum**
                **Recourse**
                **Amounta**
              
              **Remaining
                  Term**
                **(in
                  years)**
              
              **Capitalized
                  Obligations**Kinder
                  Morgan Energy Partners, L.P.
              
              0.5%
              
              $
              190
              
              $
              190
              
              $
              *–*
              
              Termination
                  of Ownership
              
              $
              –Kansas
                  City Terminal Intermodal Transportation Corporation
              
              0.0%
              
              $
              56
              
              $
              81
              
              $
              81
              
              11
              
              $
              31
              bWestside
                  Intermodal Transportation Corporation
              
              0.0%
              
              $
              40
              
              $
              63
              
              $
              –
              
              16
              
              $
              34
              bThe
                  Unified Government of Wyandotte County/Kansas City, Kansas
              
              0.0%
              
              $
              13
              
              $
              19
              
              $
              –
              
              16
              
              $
              11
              bChevron
                  Phillips
                Chemical Company, LP
              
              0.0%
              
              
              N/A
              d
              
              N/A
              d
              
              N/A
              d
              10
              
              $
              14
              cVarious
                  lessors
                (Residual
                  value guarantees)
              
              0.0%
              
              
              N/A
              
              $
              271
              
              $
              271
              
              Various
              
              $
              68
              cAll
                  other
              
              0.0%
              
              $
              6
              
              $
              7
              
              $
              3
              
              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.
                cReflects FIN 45,*Guarantor’s Accounting
                  and
                  Disclosure Requirements for Guarantees*, asset
                  and corresponding
                  liability for the fair value of these guarantees.
                d There
                  is no cap to the liability that can be sought from BNSF for BNSF's
                  negligence or the negligence of the indemnified party.  However, BNSF
                  could receive reimbursement from certain insurance policies if
                  the
                  liability exceeds a certain amount.
 
 ***Kinder
        Morgan Energy Partners, L.P.***
 
 Santa
          Fe
          Pacific Pipelines, Inc., an indirect, wholly-owned subsidiary of BNSF Railway,
          has a guarantee in connection with its remaining special limited partnership
          interest in Santa Fe Pacific Pipelines Partners, L.P. (SFPP), 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.
 13
 **BNSF
                  RAILWAY COMPANY and
                  SUBSIDIARIES**
 **NOTES
                TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) -
                (Continued)**
 Table
                of Contents
 ***Kansas
          City Terminal Intermodal Transportation Corporation***
 
 BNSF
          Railway and another major railroad jointly and severally guarantee $56
          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
          would be required to fund a portion of the remaining obligation upon default
          by
          the original debtor.
  ***Westside
        Intermodal Transportation Corporation and The Unified Government
        of***
 ***Wyandotte
        County/Kansas City, Kansas***
  BNSF
        Railway
        has outstanding guarantees of $53 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 would only be called for upon default by
        the original debtor.
 ***Chevron
          Phillips Chemical Company, LP***
 
 In
          the third
          quarter of 2007, BNSF Railway entered into an indemnity agreement with
          Chevron
          Phillips Chemical Company, LP (Chevron Phillips), granting certain rights
          of
          indemnity from BNSF Railway, in order to facilitate access to a new storage
          facility. Under certain circumstances, payment under this obligation may
          be
          required in the event Chevron Phillips were to incur certain liabilities
          or
          other incremental costs resulting from trackage access.
 
 ***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 if the actual residual value of the leased equipment is over the
          RVG.
          These guarantees will expire between 2007 and 2011.
 
 The maximum future payments, as disclosed in the Guarantees table above,
          represent the undiscounted maximum amount that the Company could be required
          to
          pay in the event the Company did not exercise its renewal option and the
          fair
          market value of the equipment had significantly declined. BNSF Railway
          does not
          anticipate such a large reduction in the fair market value of the leased
          equipment. As of September 30, 2007, the Company had recorded a $68 million
          asset and corresponding liability for the fair value of the RVG.
 
 ***All
          Other***
 
 As
          of September 30, 2007, BNSF Railway guaranteed $6 million of other debt
          and
          leases. BNSF Railway holds a performance bond and has the option to sub-lease
          property to recover up to $3 million of the $6 million of guarantees. These
          guarantees expire between 2007 and 2013.
 
 Other than as discussed above, there is no collateral held by a third party
          that
          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 Consolidated Financial
          Statements. Agreements that contain unique circumstances, particularly
          agreements that contain guarantees that indemnify another party’s acts are
          disclosed separately if appropriate.  Unless separately disclosed
          above, no fair value liability related to indemnities has been recorded
          in the
          Consolidated Financial Statements.
 14
 **BNSF
              RAILWAY COMPANY and
              SUBSIDIARIES**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) -
            (Continued)**
 Table
            of Contents
 **Capital
          Lease**
 
 In
          October 2007, BNSF entered into a 20-year capital lease to finance approximately
          $225 million of locomotives and freight cars.
 ****
 **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 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. Expense accruals
          and any
          required adjustments are classified as materials and other in the Consolidated
          Statements of Income.  BNSF Railway has obtained insurance coverage
          for certain claims, as discussed under the heading “BNSF Insurance
          Company.”
 
 ***Asbestos***
 
 The
          Company is party to a number of personal injury claims by employees and
          non-employees who may have been exposed to asbestos. The heaviest exposure
          for
          BNSF Railway employees was due to work conducted in and around the use
          of steam
          locomotive engines that were phased out between the years of 1950 and 1967.
          However, other types of exposures, including exposure from locomotive component
          parts and building materials, continued after 1967 until they were substantially
          eliminated at BNSF Railway by 1985.
  BNSF
          Railway uses a third party with extensive experience in performing asbestos
          studies to assist in assessing its unasserted liability exposure on an
          annual
          basis.  These studies are conducted during the third quarter. BNSF
          Railway determines its asbestos liability by estimating its exposed population,
          the number of claims likely to be filed, the number of claims that will
          likely
          require payment, and the estimated cost per claim.  Estimated filing
          and dismissal rates and average cost per claim are determined utilizing
          recent
          claim data and trends.
  During
          the third quarter of 2007 and 2006, the Company analyzed recent filing
          and
          payment trends to ensure the assumptions used by BNSF Railway to estimate
          its
          future asbestos liability were reasonable.  In 2006, management
          recorded no additional expense.  In 2007, management recorded a
          decrease in expense of $17 million due to a statistically significant reduction
          in filing rate experience for non-malignant claims.  The Company plans
          to update its study again in the third quarter of 2008.
 15
 **BNSF
                  RAILWAY COMPANY and
                  SUBSIDIARIES**
 **NOTES
                TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) -
                (Continued)**
 Table
                of Contents
 Throughout
          the year, BNSF Railway monitors actual
          experience against the number of forecasted claims and expected claim payments
          and will record adjustments to the Company's estimates as
          necessary.
 The
        following table summarizes the activity in the Company’s accrued obligations for
        both asserted and unasserted asbestos matters (in millions):
 
 **Three
                  Months Ended**
                **September 30,**
              
              
              **Nine Months
                  Ended**
                **September 30,****2007**
              
              
              **2006**
              
              
              **2007**
              
              
              **2006**Beginning
                  balance
              
              $
              297
              
              
              $
              318
              
              
              $
              306
              
              
              $
              326Accruals
              
              
              (17
              )
              
              
              –
              
              
              
              (17
              )
              
              
              –Payments
              
              
              (5
              )
              
              
              (4
              )
              
              
              (14
              )
              
              
              (12
              )Ending
                  balance at September 30,
              
              $
              275
              
              
              $
              314
              
              
              $
              275
              
              
              $
              314
 
 Of
          the
          September 30, 2007 obligation, $227 million was related to unasserted claims
          while $48 million was related to asserted claims. At September 30, 2007,
          $17
          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, were not included in the recorded liability. BNSF Railway
          has
          obtained insurance coverage for certain claims as discussed under the heading
          “BNSF Insurance Company.”
  The
        following table summarizes information regarding the number of asserted asbestos
        claims filed against BNSF Railway:
 
 **Three
                  Months Ended**
                **September 30,**
              
              
              **Nine Months
                  Ended**
                **September 30,****2007**
              
              
              **2006**
              
              
              **2007**
              
              
              **2006**Claims
                  unresolved at beginning of period
              
              
              1,930
              
              
              
              2,153
              
              
              
              1,975
              
              
              
              2,121Claims
                  filed
              
              
              107
              
              
              
              88
              
              
              
              339
              
              
              
              449Claims
                  settled, dismissed or otherwise resolved
              
              
              (134
              )
              
              
              (103
              )
              
              
              (411
              )
              
              
              (432
              )Ending
                  balance at September 30,
              
              
              1,903
              
              
              
              2,138
              
              
              
              1,903
              
              
              
              2,138
  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 specific data that was the basis for the study. BNSF projects that
        approximately 55, 75 and 95 percent of the future unasserted asbestos claims
        will be filed 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 $300 million. However, BNSF Railway believes
          that
          the $275 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, the occurrence of a
          number of these items in the same period could have a material adverse
          effect on
          the results of operations in a particular quarter or fiscal
          year.
 16
 **BNSF
                  RAILWAY COMPANY and
                  SUBSIDIARIES**
 **NOTES
                TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) -
                (Continued)**
 Table
                of Contents
  ***Other Personal Injury***
 
 BNSF
          Railway uses a third-party actuary****to assist the Company
          in estimating its other personal injury liability claims and expense. Estimates
          are based on the covered population, activity levels and trends in frequency
          and
          the costs of covered injuries. 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 Loss*, is
          immaterial for these repetitive stress and other occupational trauma
          claims.
 
 BNSF
          Railway monitors quarterly 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**
                **September 30,**
              
              
              **Nine Months
                  Ended**
                **September 30,****2007**
              
              
              **2006**
              
              
              **2007**
              
              
              **2006**Beginning
                  balance
              
              $
              437
              
              
              $
              426
              
              
              $
              439
              
              
              $
              422Accruals
              
              
              46
              
              
              
              44
              
              
              
              139
              
              
              
              140Payments
              
              
              (48
              )
              
              
              (40
              )
              
              
              (143
              )
              
              
              (132
              )Ending
                  balance at September 30,
              
              $
              435
              
              
              $
              430
              
              
              $
              435
              
              
              $
              430
 
 At
          September 30, 2007, $168 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, were not included in the recorded liability. BNSF Railway has obtained
          insurance coverage for certain claims, as discussed under the heading,
“BNSF
          Insurance Company.”  The Company is substantially self-insured for
          remaining claims not subject to insurance through BNSF Insurance
          Company.
  The
        following
        table summarizes information regarding the number of personal injury claims,
        other than asbestos, filed against BNSF Railway:
 
 **Three
                  Months Ended**
                **September 30,**
              
              
              **Nine Months
                  Ended**
                **September 30,****2007**
              
              
              **2006**
              
              
              **2007**
              
              
              **2006**Claims
                  unresolved at beginning of period
              
              
              3,131
              
              
              
              3,388
              
              
              
              3,130
              
              
              
              3,617Claims
                  filed
              
              
              1,033
              
              
              
              865
              
              
              
              2,899
              
              
              
              2,642Claims
                  settled, dismissed or otherwise resolved
              
              
              (918
              )
              
              
              (1,020
              )
              
              
              (2,783
              )
              
              
              (3,026
              )Ending
                  balance at September 30,
              
              
              3,246
              
              
              
              3,233
              
              
              
              3,246
              
              
              
              3,233
 
 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 $375 million to $525 million.
          However, BNSF Railway believes that the $435 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.
 17
 **BNSF
                  RAILWAY COMPANY and
                  SUBSIDIARIES**
 **NOTES
                TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) -
                (Continued)**
 Table
                of Contents
 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, the
          occurrence of a number of these items in the same period could have a material
          adverse effect on the results of operations in a particular quarter or
          fiscal
          year.
 
 ***BNSF
          Insurance Company***
 
 Burlington
          Northern Santa Fe Insurance Company, Ltd. (BNSF IC), a wholly owned subsidiary
          of BNSF, provides insurance coverage for certain risks incurred after April
          1,
          1998, FELA claims, railroad protective, force account insurance claims
          and
          certain excess general liability coverage incurred after January 1, 2002,
          and
          certain other claims which are subject to reinsurance. During the nine
          months
          ended September 30, 2007 and 2006, BNSF Railway paid premiums of $164 million
          and $161 million, respectively, to BNSF IC for such coverage, net of
          reimbursements from third parties and recognized $124 million and $121
          million,
          respectively, in expense related to those premiums, which is classified
          as
          purchased services in the Consolidated Statements of Income. At September
          30,
          2007, unamortized premiums remaining on the Consolidated Balance Sheet
          were $45
          million. During the nine months ended September 30, 2007 and 2006, BNSF
          IC made
          claim payments totaling $114 million and $98 million, respectively, for
          settlement of covered claims.
  **Environmental**
 
 The
          Company’s operations, as well as those of its competitors, are subject to
          extensive federal, state and local environmental regulation. BNSF Railway’s
          operating procedures include practices to protect the environment from
          the risks
          inherent in railroad operations, which frequently involve transporting
          chemicals
          and other hazardous materials. Additionally, many of BNSF Railway’s land
          holdings are and have been used for industrial or transportation-related
          purposes or leased to commercial or industrial companies whose activities
          may
          have resulted in discharges onto the property. As a result, BNSF Railway
          is
          subject to environmental cleanup and enforcement actions. In particular,
          the
          federal Comprehensive Environmental Response, Compensation and Liability
          Act of
          1980 (CERCLA), also known as the Superfund law, as well as similar state
          laws,
          generally impose joint and several liability for cleanup and enforcement
          costs
          on current and former owners and operators of a site without regard to
          fault or
          the legality of the original conduct. BNSF Railway has been notified that
          it is
          a potentially responsible party (PRP) for study and cleanup costs at Superfund
          sites for which investigation and remediation payments are or will be made
          or
          are yet to be determined (the Superfund sites) and, in many instances,
          is one of
          several PRPs. In addition, BNSF Railway may be considered a PRP under certain
          other laws. Accordingly, under CERCLA and other federal and state statutes,
          BNSF
          Railway may be held jointly and severally liable for all environmental
          costs
          associated with a particular site. If there are other PRPs, BNSF Railway
          generally participates in the cleanup of these sites through cost-sharing
          agreements with terms that vary from site to site. Costs are typically
          allocated
          based on such factors as relative volumetric contribution of material,
          the
          amount of time the site was owned or operated and/or the portion of the
          total
          site owned or operated by each PRP.
 
 Liabilities
          for environmental cleanup costs are recorded when BNSF Railway’s liability for
          environmental cleanup is probable and reasonably estimable. Subsequent
          adjustments to initial estimates are recorded as necessary based upon additional
          information developed in subsequent periods. Environmental costs include
          initial
          site surveys and environmental studies as well as costs for remediation
          of sites
          determined to be contaminated.
 
 BNSF
          Railway uses a third-party actuary to assist the Company in estimating
          the
          ultimate cost of cleanup efforts at its known environmental sites on an
          annual
          basis.  These studies are conducted during the third quarter. Ultimate
          cost estimates for environmental sites utilize 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 Environmental
          Protection Agency and other governmental agencies. These factors incorporate
          experience gained from cleanup efforts at other similar sites into the
          estimates
          for which remediation and restoration efforts are still in
          progress.
 
 During
          the third quarter of 2007 and 2006, the Company analyzed recent data and
          trends
          to ensure the assumptions used by BNSF Railway to estimate its future
          environmental liability were reasonable.  As a result of this study,
          in the third quarter of 2007 and 2006, management recorded additional expense
          of
          approximately $20 million and $5 million as of the June 30 measurement
          date,
          respectively.  The Company plans to update its study again in the
          third quarter of 2008.
 18
 **BNSF
                  RAILWAY COMPANY and
                  SUBSIDIARIES**
 **NOTES
                TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) -
                (Continued)**
 Table
                of Contents
 On
          a
          quarterly basis, BNSF Railway monitors actual experience against the forecasted
          remediation and related payments made on existing sites and conducts ongoing
          environmental contingency analyses, which consider 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. Adjustments to the Company’s estimates will continue to
          be recorded as necessary based on developments in subsequent periods.
          Additionally, environmental accruals, which are classified as materials
          and
          other in the Consolidated Statements of Income, include amounts for newly
          identified sites or contaminants, third-party claims and legal fees incurred
          for
          defense of third-party claims and recovery efforts.
 
 Annual
          studies do not include (i) contaminated sites of which the Company is not
          aware,
          (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, or (iii) natural resource damage claims. BNSF Railway continues
          to
          estimate third-party claims on a site by site basis when the liability
          for such
          claims is probable and reasonably estimable. BNSF Railway’s recorded liability
          for third-party claims as of September 30, 2007, is approximately $21
          million.
 
 BNSF
          Railway is involved in a number of administrative and judicial proceedings
          and
          other mandatory cleanup efforts for 345 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**
                **September 30,**
              
              
              **Nine Months
                  Ended**
                **September 30,****2007**
              
              
              **2006**
              
              
              **2007**
              
              
              **2006**Beginning
                  balance
              
              $
              362
              
              
              $
              335
              
              
              $
              318
              
              
              $
              370Accruals
              
              
              32
              
              
              
              16
              
              
              
              106
              
              
              
              14Payments
              
              
              (15
              )
              
              
              (17
              )
              
              
              (45
              )
              
              
              (50
              )Ending
                  balance at September 30,
              
              $
              379
              
              
              $
              334
              
              
              $
              379
              
              
              $
              334
 
 At
          September 30, 2007, $62 million was included in current liabilities. In
          the
          first quarter of 2007, the Company recorded a $65 million pre-tax charge,
          due to
          an increase in environmental costs primarily related to a final resolution
          with
          the State of Washington and its Department of Ecology on clean-up of an
          existing
          environmental site at Skykomish and an adverse reversal of a trial court
          decision on appeal regarding a site at Arvin, California.
 
 BNSF
          Railway’s environmental liabilities are not discounted. BNSF Railway anticipates
          that the majority of the accrued costs at September 30, 2007, will be paid
          over
          the next ten years, and no individual site is considered to be
          material.
 19
 **BNSF
                RAILWAY COMPANY and
                SUBSIDIARIES**
 **NOTES
              TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) -
              (Continued)**
 Table
              of Contents
  The
            following
            table summarizes the environmental sites:
  **Three
                    Months Ended**
                  **September 30,**
                
                **Nine Months
                    Ended**
                  **September 30,****BNSF
                    Railway Sites**
                
                **2007**
                
                
                **2006**
                
                
                **2007**
                
                
                **2006**Number
                    of sites at beginning of period
                
                
                347
                
                
                
                374
                
                
                
                375
                
                
                
                369Sites
                    added during the period
                
                
                2
                
                
                
                1
                
                
                
                14
                
                
                
                17Sites
                    closed during the period
                
                
                (4
                )
                
                
                (5
                )
                
                
                (44
                )
                
                
                (16
                )Number
                    of sites at September 30,
                
                
                345
                
                
                
                370
                
                
                
                345
                
                
                
                370**Three
                    Months Ended**
                  **September 30,**
                
                **Nine Months
                    Ended**
                  **September 30,****Superfund
                    Sites**
                
                **2007**
                
                
                **2006**
                
                
                **2007**
                
                
                **2006**Number
                    of sites at beginning of period
                
                
                20
                
                
                
                20
                
                
                
                20
                
                
                
                20Sites
                    added during the period
                
                
                –
                
                
                
                –
                
                
                
                –
                
                
                
                –Sites
                    closed during the period
                
                
                –
                
                
                
                –
                
                
                
                –
                
                
                
                –Number
                    of sites at September 30,
                
                
                20
                
                
                
                20
                
                
                
                20
                
                
                
                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 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 $525 million. However, BNSF Railway believes that the $379 million
          recorded at September 30, 2007, 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, the occurrence of a number of these items
          in the
          same period 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
          and
          claims relating to service under contract provisions or otherwise). 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.
 20
 **BNSF
                  RAILWAY COMPANY and
                  SUBSIDIARIES**
 **NOTES
                TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) -
                (Continued)**
 Table
                of Contents
 **6.    Employee
        Separation Costs**
 
 Employee
        separation costs activity was as follows (in millions):
 
 **Nine
                  Months Ended September 30,**
              
              **2007**
              
              
              **2006**Beginning
                  balance at January 1,
              
              $
              107
              
              
              $
              132Accruals
              
              
              5
              
              
              
              –Payments
              
              
              (16
              )
              
              
              (23
              )Ending
                  balance at September 30,
              
              $
              96
              
              
              $
              109
 
 Employee
          separation liabilities of $96 million were included in the Consolidated
          Balance
          Sheet at September 30, 2007, and principally represent the following: (i)
          $91
          million for deferred benefits payable upon separation or retirement to
          certain
          active conductors, trainmen and locomotive engineers; (ii) $2 million for
          employee-related severance costs for the consolidation of clerical functions,
          material handlers in mechanical shops and trainmen on reserve boards; and
          (iii)
          $3 million for certain non-union employee severance costs. Employee separation
          expenses are recorded in materials and other in the Consolidated Statements
          of
          Income. At September 30, 2007, $16 million of the remaining liabilities
          were
          included in current liabilities.
 
 The
          deferred benefits payable upon separation or retirement to certain active
          conductors, trainmen and locomotive engineers were primarily incurred in
          connection with labor agreements reached prior to the business combination
          of
          BNSF’s predecessor companies, Burlington Northern Inc. and Santa Fe Pacific
          Corporation (the Merger). These agreements, among other things, reduced
          train
          crew sizes and allowed for more flexible work rules. The majority of the
          remaining costs will be paid between 2007 and 2020. During the first nine
          months
          of 2007, the Company updated its estimate and recorded an additional liability
          of $5 million related to deferred benefits. The remaining costs for (ii)
          above
          are expected to be paid out between 2007 and approximately 2011, and the
          costs
          for (iii) above will be paid over the next several years based on deferral
          elections made by the affected employees.
 
 **7.    Employment
          Benefit Plans**
 
 In
          September 2006, the FASB issued SFAS No. 158, *Employers' Accounting for
          Defined Benefit Pension and Other Postretirement Plans*–*an amendment of
          FASB Statements No. 87, 88, 106 and 132(R)*, which requires the recognition
          of the overfunded or underfunded status of a defined benefit postretirement
          plan
          in the Company's balance sheet. This portion of the new guidance was adopted
          by
          the Company on December 31, 2006. Additionally, the pronouncement eliminates
          the
          option for the Company to use a measurement date prior to the Company's
          fiscal
          year-end effective December 31, 2008. SFAS No. 158 provides two approaches
          to
          transition to a fiscal year-end measurement date, both of which are to
          be
          applied prospectively. BNSF Railway has elected to apply the transition
          option
          under which a 15-month measurement will be determined as of September 30,
          2007 that will cover the period until the fiscal year-end measurement is
          required on December 31, 2008.
 21
 **BNSF
                  RAILWAY COMPANY and
                  SUBSIDIARIES**
 **NOTES
                TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) -
                (Continued)**
 Table
                of Contents
  Components
        of the net periodic benefit cost for the three and nine months
        ended September 30, 2007 and 2006 were as follows (in
        millions):
 
 **Pension
                  Benefits****Three
                  Months Ended**
                **September
                  30,**
              
              
              **Nine Months
                  Ended**
                **September
                  30,****Net
                  Periodic Cost**
              
              **2007**
              
              
              **2006**
              
              
              **2007**
              
              
              **2006**Service
                  cost
              
              $
              7
              
              
              $
              7
              
              
              $
              19
              
              
              $
              19Interest
                  cost
              
              
              24
              
              
              
              24
              
              
              
              73
              
              
              
              71Expected
                  return on plan assets
              
              
              (26
              )
              
              
              (25
              )
              
              
              (79
              )
              
              
              (73
              )Amortization
                  of net loss
              
              
              8
              
              
              
              11
              
              
              
              26
              
              
              
              34Net
                  periodic benefit cost
              
              $
              13
              
              
              $
              17
              
              
              $
              39
              
              
              $
              51
 
 **Retiree
                  Health and Welfare Benefits****Three
                  Months Ended**
                **September
                  30,**
              
              
              **Nine Months
                  Ended**
                **September
                  30,****Net
                  Periodic Cost**
              
              **2007**
              
              
              **2006**
              
              
              **2007**
              
              
              **2006**Service
                  cost
              
              $
              –
              
              
              $
              1
              
              
              $
              2
              
              
              $
              3Interest
                  cost
              
              
              4
              
              
              
              4
              
              
              
              12
              
              
              
              11Amortization
                  of net loss
              
              
              1
              
              
              
              –
              
              
              
              4
              
              
              
              2Amortization
                  of prior service cost
              
              
              (1
              )
              
              
              (2
              )
              
              
              (5
              )
              
              
              (6
              )Net
                  periodic benefit cost
              
              $
              4
              
              
              $
              3
              
              
              $
              13
              
              
              $
              10
  **8.    Uncertain
        Tax Positions**
 
 The
          Company adopted the provisions of FIN 48 on January 1, 2007. As a result
          of the
          implementation of FIN 48, the Company recorded an $83 million increase
          in the
          liability for unrecognized tax benefits, which is offset by a reduction
          of the
          deferred tax liability of $70 million, resulting in a decrease to the January
          1,
          2007, retained earnings balance of $13 million. The amount of unrecognized
          tax
          benefits at January 1, 2007 was $87 million, of which $76 million would
          impact
          the Company’s effective tax rate if recognized. The amount of unrecognized tax
          benefits did not materially change as of September 30, 2007.
 
 It
          is
          expected that the amount of unrecognized tax benefits will change in the
          next
          twelve months; however, BNSF does not expect the change to have a significant
          impact on the results of operations or the financial position of the
          Company.
 
 The
          Company recognizes interest accrued related to unrecognized tax benefits
          in
          interest expense and penalties in income tax expense in the Consolidated
          Statements of Income, which is consistent with the recognition of these
          items in
          prior reporting periods. As of January 1, 2007, the Company had recorded
          a
          liability of approximately $37 million and $6 million for the payment of
          interest and penalties, respectively. The liability for the payment of
          interest
          and penalties did not materially change as of September 30, 2007.
 
 All
          federal income tax returns of BNSF’s predecessor companies, Burlington Northern
          Inc. and Santa Fe Pacific Corporation, are closed through 1994 and the
          business
          combination date of September 22, 1995, respectively. Internal Revenue
          Service
          (IRS) examination of the years 1995 through 1999 for BNSF is complete,
          and the
          un-agreed issues are pending before IRS Appeals. It is anticipated that
          a
          settlement with the IRS for the years 1995 through 1999 may be reached
          within
          the next twelve months. Examination of the years 2000 through 2002 for
          BNSF is
          complete and protests of the un-agreed issues have been filed with IRS
          Appeals.
          During the third quarter, the IRS completed the examination of the years
          2003
          through 2005 for BNSF and issued a Revenue Agents Report
          (RAR).  Protests of the un-agreed issues included in the RAR have been
          filed with IRS Appeals.  BNSF is currently under examination for the
          year 2006.
 
 State
          income
          tax returns are generally subject to examination for a period of three
          to five
          years after filing of the respective returns. The state impact of any federal
          changes remains subject to examination by various states for a period of
          up to
          one year after formal notification to the states. BNSF and its subsidiaries
          have
          various state income tax returns in the process of examination, administrative
          appeals or litigation.
 22
 **BNSF
                RAILWAY COMPANY and
                SUBSIDIARIES**
 **NOTES
              TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) -
              (Continued)**
 Table
              of Contents
 **9.    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 $667 million and $746 million during the first
          nine
          months of 2007 and 2006, respectively, which are reflected in changes in
          working
          capital in the Consolidated Statements of Cash Flows.
 
 BNSF
          Railway had a net intercompany receivable balance of $201 million and $87
          million at September 30, 2007 and December 31, 2006, respectively, which
          are
          reflected in accounts receivable in the respective Consolidated Balance
          Sheet.
          Net intercompany receivable balances are settled in the ordinary course
          of
          business.
 
 At
          September 30, 2007 and December 31, 2006, BNSF Railway had $36 million
          and $35
          million, respectively, of intercompany notes payable to BNSF at a variable
          interest rate of 1.0 percent above the monthly average of the daily effective
          Federal Funds rate. During the first nine months of 2007, BNSF Railway
          had $1
          million of additional borrowings and no additional repayments of variable
          rate
          notes. Borrowings and repayments on the intercompany notes payable are
          reflected
          as financing activities in the Consolidated Statements of Cash Flows. Interest
          is paid semi-annually on all intercompany notes payable. Interest expense
          on
          intercompany notes payable is reflected in interest income, related parties
          in
          the Consolidated Income Statements. The intercompany notes are due on
          demand.
 
 At
          September 30, 2007 and December 31, 2006, BNSF Railway had $3,554 million
          and
          $3,317 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 $237 million increase in intercompany
          notes
          receivable is due to $952 million of loans to BNSF offset by repayments
          from
          BNSF of $715 million during the first nine months of 2007. During the first
          quarter of 2007, the Company revised its classification of repayments and
          borrowings on the intercompany notes receivable from its parent in the
          Consolidated Statement of Cash Flows to an appropriate classification as
          investing activities rather than financing activities, as previously reported.
          For the nine months ended September 30, 2006, the revision of $65 million
          increased cash used for investing activities and decreased cash used for
          financing activities. 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 $21 million
          and
          $30 million for the nine months ended September 30, 2007 and 2006, 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 $24 million for the nine
          month periods ended September 30, 2007 and 2006.
 
 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.
 23
 **BNSF
                  RAILWAY COMPANY and
                  SUBSIDIARIES**
 **NOTES
                TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) -
                (Continued)**
 Table
                of Contents
 **10.** **Stock-Based
        Compensation** 
 **Stock
          Options**
 
 Under
          BNSF’s stock plans, options may be granted to directors, officers and salaried
          employees at the fair market value of BNSF’s common stock on the date of grant.
          Stock option grants generally vest ratably over three years and expire
          within
          ten years after the date of grant. BNSF granted approximately 1,477,000
          options
          on April 26, 2007, with a fair value of $23.19 using the Black-Scholes
          option-pricing model.
 
 **Other
          Incentive Programs**
  Performance-based
          awards are granted to senior managers within BNSF Railway to encourage
          ownership
          in BNSF and to align management’s interest with those of its shareholders.
          Performance-based awards generally vest over three years and are contingent
          on
          the achievement of certain predetermined corporate performance goals (e.g.,
          return on invested capital (ROIC)) and continued salaried employment. On
          April
          26, 2007, BNSF granted approximately 557,000 performance-based restricted
          stock
          units with a fair market value of $88.77.
  Additionally,
          related to the 2007 performance-based grant, eligible employees may also
          earn
          performance stock that will be granted in 2010 contingent upon achievement
          of
          higher ROIC goals and continued salaried employment. BNSF has committed
          to a
          maximum grant of approximately 279,000 shares if the performance goals
          are
          met.
 
 **11.    Comprehensive
          Income**
 
 Other
          comprehensive income (loss) refers to revenues, expenses, gains and losses
          that
          under generally accepted accounting principles are included in comprehensive
          income, a component of Stockholder’s Equity within the Consolidated Balance
          Sheets, rather than net income on the Consolidated Statements of Income.
          Under
          existing accounting standards, other comprehensive income (loss) may include
          unrecognized gains and losses and prior service cost related to pension
          and
          other postretirement benefit plans and accounting for derivative financial
          instruments, which qualify for cash flow hedge accounting.
 The
          following
          table provides a reconciliation of net income reported in the Consolidated
          Statements of Income to total comprehensive income (in millions):
 
 **Three
                    Months Ended September 30,**
                
                
                **Nine Months
                    Ended September 30,****2007**
                
                
                **2006**
                
                
                **2007**
                
                
                **2006**Net
                    income
                
                $
                633
                
                
                $
                573
                
                
                $
                1,607
                
                
                $
                1,619Other
                    comprehensive income (loss):Amortization of prior service costs and actuarial losses, net
                    of
                  tax (see
                    note 7)
                
                
                5
                
                
                
                –
                
                
                
                15
                
                
                
                –Gain
                    (loss) on derivative instruments and other items, net of tax
                    (see Note
                    2)
                
                
                3
                
                
                
                (79
                )
                
                **
                3
                
                
                
                (164
                )Total
                    comprehensive income
                
                $
                641
                
                
                $
                494
                
                
                $
                1,625
                
                
                $
                1,455
  **12.    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.
 24
 Table
            of Contents
  **Report
        of Independent Registered Public Accounting Firm**
  To
        the Shareholder and Board of Directors of
 BNSF
        Railway
        Company:
  We
          have
          reviewed the accompanying consolidated balance sheet of BNSF Railway Company
          and
          its subsidiaries (the “Company”) as of September 30, 2007, and the related
          consolidated statements of income for each of the three-month and nine-month
          periods ended September 30, 2007 and 2006, the consolidated statements
          of cash
          flows for each of the nine-month periods ended September 30, 2007 and 2006
          and
          the consolidated statement of changes in stockholder’s equity for the nine-month
          period ended September 30, 2007. 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 (United States),
          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, 2006, 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 13, 2007, except as described
          in Note
          2 as to which the date is May 22, 2007, we expressed an unqualified
          opinion on those consolidated financial statements. In our opinion, the
          information set forth in the accompanying consolidated balance sheet as
          of
          December 31, 2006, is fairly stated in all material respects in relation
          to the
          consolidated balance sheet from which it has been
          derived.
 
 /s/
        PricewaterhouseCoopers LLP
 
 Fort
        Worth, Texas
 October
        18, 2007
  25
 Table
            of Contents
  **Item
        2.    Management’sNarrative Analysis of
        Results of Operations.**
 
 Management’s
        narrative analysis relates to the results of operations of BNSF Railway Company
        and its majority-owned subsidiaries (collectively BNSF Railway, Registrant
        or
        Company). The following narrative analysis should be read in conjunction
        with
        the Consolidated Financial Statements and the accompanying notes.
 
 **Results
        of Operations**
 
 ***Nine Months
        Ended**September 30,**2007**,**Compared
        with Nine Months Ended**September 30,**2006***
 
 ***Revenues***
 
 The
        following table presents BNSF Railway’s revenue information by business group
        for the nine months ended September 30, 2007 and 2006. Certain
        comparative prior year revenue amounts have been reclassified between the
        business groups to conform to the current year presentation. There was no
        impact
        to total freight revenues as a result of these reclassifications.
 
 **Revenues**
                **(in
                  millions)**
              
              
              **Cars
                  / Units**
                **(in
                  thousands)**
              
              
              **Average
                  Revenue**
                **Per
                  Car / Unit****2007**
              
              
              **2006**
              
              
              **2007**
              
              
              **2006**
              
              
              **2007**
              
              
              **2006**Consumer
                  Products
              
              $
              4,167
              
              
              $
              4,150
              
              
              
              3,882
              
              
              
              4,128
              
              
              $
              1,073
              
              
              $
              1,005Industrial
                  Products
              
              
              2,756
              
              
              
              2,702
              
              
              
              1,252
              
              
              
              1,284
              
              
              
              2,201
              
              
              
              2,104Coal
              
              
              2,385
              
              
              
              2,141
              
              
              
              1,832
              
              
              
              1,822
              
              
              
              1,302
              
              
              
              1,175Agricultural
                  Products
              
              
              1,916
              
              
              
              1,779
              
              
              
              752
              
              
              
              726
              
              
              
              2,548
              
              
              
              2,450Total
                  Freight Revenues
              
              
              11,224
              
              
              
              10,772
              
              
              
              7,718
              
              
              
              7,960
              
              
              $
              1,454
              
              
              $
              1,353Other
                  Revenues
              
              
              187
              
              
              
              198Total
                  Operating Revenues
              
              $
              11,411
              
              
              $
              10,970
 
 Freight
          revenues for the first nine months of 2007 were $11,224 million, up 4 percent
          compared with the same 2006 period, while cars/units declined 3 percent
          during
          this same period. Freight revenues included an increase of approximately
          $30
          million in fuel surcharges compared with the same 2006 period. Average
          revenue
          per car/unit was up 7 percent in the first nine months of 2007 from the
          first
          nine months of 2006 primarily due to mix of business and improved
          pricing.
 
 *Consumer
          Products*
  Consumer
          Products revenues of $4,167 million for the first nine months of 2007 were
          relatively flat compared to the first nine months of 2006.
 
 *Industrial
          Products*
  Industrial
          Products revenues of $2,756 million for the first nine months of 2007 were
          $54
          million, or 2 percent, greater than the first nine months of 2006 despite
          a 2
          percent reduction in unit volumes, which were more than offset by improved
          yields. Continued strong demand for petroleum products, chemicals and plastics
          and construction products was offset by a decline in building and construction
          products as a result of weakness in the housing market.
 
 *Coal*
 
 Coal
          revenues of $2,385 million for the first nine months of 2007 increased
          $244
          million, or 11 percent, compared with the same period a year ago due to
          increased tons per unit, contractual inflation escalators and improved
          yields.  Coal unit volumes were relatively flat due to mine production
          and weather-related issues.
 26
 Table
            of Contents
  *Agricultural
        Products*
  Agricultural
        Products revenues of $1,916 million for the first nine months of 2007 were
        $137 million, or 8 percent, higher than revenues for the first nine months
        of 2006.  This increase was primarily due to revenue growth in wheat,
        ethanol, fertilizer and soybeans.
 *Other
          Revenues*
 
 Other
          revenues decreased $11 million, or 6 percent, to $187 million for the first
          nine
          months of 2007 due to a reduction in customer storage revenues for containers
          at
          BNSF intermodal hubs.
 
 ***Expenses***
 
 Total
          operating expenses for the first nine months of 2007 were $8,852 million,
          an
          increase of $474 million, or 6 percent, versus the same 2006
          period.
 
 *Compensation
          and benefits*
 
 Compensation
          and benefits expenses of $2,778 million were $32 million, or 1 percent,
          lower
          than the first nine months of 2006. This decrease was primarily related
          to lower
          variable compensation costs, partially offset by wage inflation.
 
 *Fuel*
 
 Fuel
          expenses of $2,237 million for the first nine months of 2007 were $206
          million,
          or 10 percent, higher than the first nine months of 2006. The increase
          in fuel
          expense was due to an increase in the average all-in cost per gallon of
          diesel
          fuel, partially offset by a decline in consumption related to improved
          fuel
          efficiency and lower volumes. The average all-in cost per gallon of diesel
          fuel
          increased by 25 cents to $2.09, resulting in a $272 million increase in
          expense.
          The increase in the average all-in cost primarily reflects a decrease in
          the
          hedge benefit of $278 million (first nine months 2007 benefit of $25 million
          less first nine months 2006 benefit of $303 million). Consumption in the
          first
          nine months of 2007 decreased 31 million gallons to 1,069 million gallons
          when
          compared with consumption in the same 2006 period.
 
 *Purchased
          services*
 
 Purchased
          service expenses of $1,489 million for the first nine months of 2007 were
          $58
          million, or 4 percent, higher than the same 2006 period. This increase
          was
          primarily due to increases in the following costs: haulage payment for
          transportation over other railroads, and locomotive and ramping
          costs.
 
 *Depreciation
          and amortization*
 
 Depreciation
          and amortization expenses of $951 million for the first nine months of
          2007 were
          $77 million, or 9 percent, higher than the same period in 2006. This increase
          in
          depreciation expense was primarily due to continuing capital
          expenditures.
 
 *Equipment
          rents*
 
 Equipment
          rents expenses of $704 million for the first nine months of 2007 were $9
          million, or 1 percent, higher than the first nine months of 2006. The variance
          represents an increase in locomotive lease expense, partially offset by
          a
          decrease in freight car equipment expense due to the impact of the Company’s
          privatization efforts and velocity improvements for freight car
          equipment.
 
 *Materials
          and other*
 
 Materials
          and other expenses of $693 million for the first nine months of 2007 were
          $156 million, or 29 percent, higher than the first nine months of
          2006.  This increase was primarily due to higher materials, crew
          transportation and lodging expense and environmental expenses as well as
          a
          pre-tax charge of $81 million, which consisted of $65 million in environmental
          costs (see discussion in Note 5) and a non-cash charge of $16 million to
          write-off a technology system that has been replaced.
 27
 Table
            of Contents
  *Income
        taxes*
 
 The
          effective tax rate for the nine months ended September 30, 2007 was 38.5
          percent
          compared with 37.4 percent for the same prior year period. The increase
          in the
          effective tax rate is primarily due to favorable prior period income tax
          adjustments recorded in the second quarter of 2006.
 
 **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. These forward-looking statements include,
          but are
          not limited to, statements regarding:
 
 •     Expectations
          as to operating results, such as revenue growth and earnings per
          share;
 
 •     Expectations
          as to the effect of claims, litigation, environmental and personal injury
          costs,
          commitments, contingent
          liabilities, and governmental and regulatory investigations
 and
          proceedings on the
          Company’s financial condition;
 
 •     Plans
          and goals for future operational improvements and capital commitments;
          and
 
 •     Future
          market conditions or economic performance.
 
 Forward-looking
          statements involve a number of risks and uncertainties, and actual performance
          or results may differ materially. For a discussion of material risks and
          uncertainties that the Company faces, see the discussion in the Annual
          Report on
          Form 10-K titled “Risk Factors.” Important factors that could cause actual
          results to differ materially include, but are not limited to, the
          following:
 
 •              **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 or BNSF
          Railway’s supplier base, adverse economic conditions in the industries and
          geographic areas that produce and consume freight, competition and consolidation
          within the transportation industry, the extent to which BNSF is successful
          in
          gaining new long-term relationships with customers or retaining existing
          ones,
          changes in fuel prices and other key materials and disruptions in supply
          chains
          for these 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 customers’ abilities to deliver
          goods to BNSF Railway for shipment;
 
 •              **Legal,
            legislative and regulatory factors:** developments and changes in laws
            and regulations, including those affecting train operations or the marketing
            of
            services, the ultimate outcome of shipper and rate claims subject to
            adjudication or claims, investigations or litigation alleging violations
            of the
            antitrust laws, increased economic regulation of the rail industry through
            legislative action and revised rules and standards applied by the U.S.
            Surface
            Transportation Board in various areas including rates and services, developments
            in environmental investigations or proceedings with respect to rail operations
            or current or past ownership or control of real property, and developments
            in
            and losses resulting from other types of claims and litigation, including
            those
            relating to personal injuries, asbestos and other occupational diseases,
            the
            release of hazardous materials, environmental contamination and damage
            to
            property; and
  •              **Operating
          factors:** technical difficulties, changes in operating conditions and
          costs, changes in business mix, 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 velocity
          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, the ability to expand the capacity of the system, congestion
          on
          other railroads and capacity constraints affecting all links in the
          transportation chain that feed traffic and goods to BNSF’s systems, disruptions
          to BNSF’s technology network including computer systems and software, as well as
          natural events such as severe weather, fires, floods and earthquakes or
          man-made
          or other disruptions of BNSF Railway’s operating systems, structures, or
          equipment including the effects of acts of terrorism on the Company’s system or
          other railroads’ systems.
 28
 Table
            of Contents
  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 and other important assumptions and factors that could cause
          actual
          results to differ materially from forward-looking statements made by the
          Company
          may appear in the Company’s public filings with the SEC, which are accessible at
          www.sec.gov, and on the Company’s website at www.bnsf.com, and which investors
          are advised to consult.  In particular, a discussion of significant
          risk factors applicable to the Company is included in Part I, Item 1A,
          Risk
          Factors, in the Company’s Form 10-K for the year ended December 31,
          2006.
    29
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 **Item
        4T.    Controls and
        Procedures.**
 
 Based
          on
          their evaluation as of the end of the period covered by this quarterly
          report on
          Form 10-Q, BNSF Railway’s principal executive officer and principal financial
          officer have concluded that BNSF Railway’s disclosure controls and procedures
          (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange
          Act of
          1934) are effective to ensure that information required to be disclosed
          by BNSF
          Railway in the reports that it files or submits under the Securities Exchange
          Act of 1934 is recorded, processed, summarized, and reported within the
          time
          periods specified in Securities and Exchange Commission rules and forms
          and that
          such information is accumulated and communicated to BNSF Railway’s management,
          including its principal executive and principal financial officers, as
          appropriate to allow timely decisions regarding required disclosure.
          Additionally, as of the end of the period covered by this report, BNSF
          Railway's
          principal executive officer and principal financial officer have concluded
          that
          there have been no changes in BNSF Railway's internal control over financial
          reporting that occurred during BNSF Railway's third fiscal quarter that
          have
          materially affected, or are reasonably likely to materially affect, BNSF
          Railway's internal control over financial reporting.
 30
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  **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.
  31
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            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. Hund**Thomas
                  N. Hund**
                **Executive
                  Vice President and Chief Financial Officer**
                **(On
                  behalf of the Registrant and**
                **as
                  principal financial
                  officer)**
 Date:  October
                  23, 2007
 S-1
 
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              of Contents
  **BNSF
        RAILWAYCOMPANY and SUBSIDIARIES**
 
 **Exhibit
        Index**
 
 Incorporated
                  by Reference
                (if
                  applicable)Exhibit
                  Number and Description
              
              Form
              File
                  Date
              File
                  No.
              Exhibit3.1
              
              Restated
                  Certificate of Incorporation of BNSF Railway Company, dated January
                  17,
                  2005.
              
              10-Q
              7/26/2005
              001-06324
              3.13.2
              
              By-Laws
                  of BNSF Railway Company, as amended August 30, 2005.
              
              10-Q
              10/25/2005
              001-06324
              3.112.1
              
              Computation
                  of Ratio of Earnings to Fixed
                  Charges.*31.1
              
              Principal
                  Executive Officer’s Certifications Pursuant to
                  Section 302 of the Sarbanes-Oxley Act of 2002.*31.2
              
              Principal
                  Financial Officer’s Certifications Pursuant to
                  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).*
 
 __________________
 *Filed
        herewith
  E-1