UNITED
STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



FORM 10-Q



(Mark One)



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



For the quarterly period ended March 31, 2003



OR



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



For the transition period from to



Commission file number 1-6324



THE BURLINGTON NORTHERN AND SANTA FE RAILWAY COMPANY

(Exact name of registrant as specified in its charter)



|Delaware                                                       |  | 41-6034000                          
|-------------------------------------------------------------- |  | ------------------------------------
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)



2650
Lou Menk Drive

Fort Worth, Texas

(Address of principal executive offices)



76131

(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
üNo



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



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



|Class                         |  | Shares Outstanding at April 21, 2003
|----------------------------- |  | ------------------------------------
|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).



---



PART I

FINANCIAL INFORMATION



Item 1.    Financial Statements



THE BURLINGTON NORTHERN AND SANTA FE RAILWAY COMPANY and SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Dollars in
millions)

(Unaudited)



|                                                                      |  | Three Months Ended March 31, |      
|--------------------------------------------------------------------- |  | ---------------------------- | -----
|                                                                      |  | 2003                         |      
|Revenues                                                              |  | $                            | 2,227
|                                                                      |  |                              |      
|                                                                     
|Operating expenses:                                                   |  |                              |      
|Compensation and benefits                                             |  |                              | 714  
|Purchased services                                                    |  |                              | 296  
|Depreciation and amortization                                         |  |                              | 226  
|Equipment rents                                                       |  |                              | 169  
|Fuel                                                                  |  |                              | 274  
|Materials and other                                                   |  |                              | 197  
|                                                                      |  |                              |      
|Total operating expenses                                              |  |                              | 1,876
|                                                                      |  |                              |      
|Operating income                                                      |  |                              | 351  
|Interest expense                                                      |  |                              | 38   
|Interest income, related parties                                      |  |                              | (8   
|Other expense (income), net                                           |  |                              | 2    
|                                                                      |  |                              |      
|                                                                     
|Income before income taxes and cumulative effect of accounting change |  |                              | 319  
|Income tax expense                                                    |  |                              | 121  
|                                                                      |  |                              |      
|Income before cumulative effect of accounting change                  |  |                              | 198  
|Cumulative effect of accounting change, net of income tax             |  |                              | 39   
|                                                                      |  |                              |      
|Net income                                                            |  | $                            | 237  
|                                                                      |  |                              |      



See
accompanying Notes to Consolidated Financial Statements.



2



---



THE
BURLINGTON NORTHERN AND SANTA FE RAILWAY COMPANY and SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollars in millions)

(Unaudited)



|                                                                                               |  | March 31, 2003 |        |   | December 31, 2002 |  
|---------------------------------------------------------------------------------------------- |  | -------------- | ------ | - | ----------------- | -
|ASSETS                                                                                         |  |                |        |   |                   |  
|Current assets:                                                                                |  |                |        |   |                   |  
|Cash and cash equivalents                                                                      |  | $              | 65     |   |                   | $
|Accounts receivable, net                                                                       |  |                | 135    |   |                   |  
|Materials and supplies                                                                         |  |                | 246    |   |                   |  
|Current portion of deferred income taxes                                                       |  |                | 272    |   |                   |  
|Other current assets                                                                           |  |                | 192    |   |                   |  
|                                                                                               |  |                |        |   |                   |  
|Total current assets                                                                           |  |                | 910    |   |                   |  
|Property and equipment, net                                                                    |  |                | 24,183 |   |                   |  
|Other assets                                                                                   |  |                | 860    |   |                   |  
|Intercompany notes receivable, net                                                             |  |                | 904    |   |                   |  
|                                                                                               |  |                |        |   |                   |  
|Total assets                                                                                   |  | $              | 26,857 |   |                   | $
|                                                                                               |  |                |        |   |                   |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                           |  |                |        |   |                   |  
|Current liabilities:                                                                           |  |                |        |   |                   |  
|Accounts payable and other current liabilities                                                 |  | $              | 1,681  |   |                   | $
|Long-term debt due within one year                                                             |  |                | 145    |   |                   |  
|                                                                                               |  |                |        |   |                   |  
|Total current liabilities                                                                      |  |                | 1,826  |   |                   |  
|Long-term debt and commercial paper                                                            |  |                | 2,057  |   |                   |  
|Deferred income taxes                                                                          |  |                | 7,055  |   |                   |  
|Casualty and environmental liabilities                                                         |  |                | 338    |   |                   |  
|Minimum pension liability                                                                      |  |                | 368    |   |                   |  
|Employee merger and separation costs                                                           |  |                | 162    |   |                   |  
|Other liabilities                                                                              |  |                | 1,222  |   |                   |  
|                                                                                               |  |                |        |   |                   |  
|Total liabilities                                                                              |  |                | 13,028 |   |                   |  
|                                                                                               |  |                |        |   |                   |  
|Commitments and contingencies (see Notes 2, 5 and 6)                                           |  |                |        |   |                   |  
|Stockholders equity:                                                                          |  |                |        |   |                   |  
|Common stock, $1 par value, 1,000 shares authorized;issued and outstanding and
paid-in capital |  |                | 6,286  |   |                   |  
|Retained earnings                                                                              |  |                | 7,747  |   |                   |  
|Accumulated other comprehensive loss                                                           |  |                | (204   | ) |                   |  
|                                                                                               |  |                |        |   |                   |  
|Total stockholders equity                                                                     |  |                | 13,829 |   |                   |  
|                                                                                               |  |                |        |   |                   |  
|Total liabilities and stockholders equity                                                     |  | $              | 26,857 |   |                   | $
|                                                                                               |  |                |        |   |                   |  



See
accompanying Notes to Consolidated Financial Statements.



3



---



THE
BURLINGTON NORTHERN AND SANTA FE RAILWAY COMPANY and SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in millions)

(Unaudited)



|                                                                                  |  | Three Months Ended March 31, |     
|--------------------------------------------------------------------------------- |  | ---------------------------- | ----
|                                                                                  |  | 2003                         |     
|OPERATING ACTIVITIES                                                              |  |                              |     
|Net income                                                                        |  | $                            | 237 
|Adjustments to reconcile net income to net cash provided by operating
activities: |  |                              |     
|Depreciation and amortization                                                     |  |                              | 226 
|Deferred income taxes                                                             |  |                              | 92  
|Employee merger and separation costs paid                                         |  |                              | (10 
|Cumulative effect of accounting change, net of tax                                |  |                              | (39 
|Other, net                                                                        |  |                              | (39 
|Changes in current assets and liabilities:                                        |  |                              |     
|Accounts receivable, net                                                          |  |                              | 3   
|Materials and supplies                                                            |  |                              | (20 
|Other current assets                                                              |  |                              | (102
|Accounts payable and other current liabilities                                    |  |                              | (169
|                                                                                  |  |                              |     
|Net cash provided by operating activities                                         |  |                              | 179 
|                                                                                  |  |                              |     
|                                                                                 
|INVESTING ACTIVITIES                                                              |  |                              |     
|Capital expenditures                                                              |  |                              | (340
|Other, net                                                                        |  |                              | (25 
|                                                                                  |  |                              |     
|Net cash used for investing activities                                            |  |                              | (365
|                                                                                  |  |                              |     
|                                                                                 
|FINANCING ACTIVITIES                                                              |  |                              |     
|Payments on long-term debt                                                        |  |                              | (63 
|Net decrease in intercompany notes receivable                                     |  |                              | 285 
|Other, net                                                                        |  |                              | 1   
|                                                                                  |  |                              |     
|Net cash provided by financing activities                                         |  |                              | 223 
|                                                                                  |  |                              |     
|Increase in cash and cash equivalents                                             |  |                              | 37  
|Cash and cash equivalents:                                                        |  |                              |     
|Beginning of period                                                               |  |                              | 28  
|                                                                                  |  |                              |     
|End of period                                                                     |  | $                            | 65  
|                                                                                  |  |                              |     



See
accompanying Notes to Consolidated Financial Statements.



4



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THE BURLINGTON NORTHERN AND SANTA FE 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 The Burlington Northern and Santa Fe Railway Company (BNSF Railway or Company) Annual Report on Form 10-K for the year ended
December 31, 2002, including the financial statements and notes thereto. BNSF Railway is a wholly-owned subsidiary of Burlington Northern Santa Fe Corporation (BNSF), and is the principal operating subsidiary of BNSF. The Consolidated Financial
Statements include the accounts of BNSF Railway and its majority owned subsidiaries. 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, all adjustments (consisting of only normal recurring adjustments, except as disclosed) necessary to present fairly BNSF Railways consolidated financial position as of March 31,
2003 and the results of operations for the three month periods ended March 31, 2003 and 2002 have been included.



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



Cumulative Effect of Accounting
Change, Net



The Company adopted Statement
of Financial Accounting Standards (SFAS) No. 143, Accounting for Asset Retirement Obligations, on January 1, 2003. This statement requires BNSF Railway to recognize a liability for legally obligated asset retirement costs associated with
tangible long-lived assets. SFAS No. 143 also disallows the accrual of retirement costs that are not legal obligations. As a result, BNSF Railway and other railroads were required to change their accounting policies for certain track structure
assets to exclude removal costs as a component of depreciation expense where the inclusion of such costs would result in accumulated depreciation balances exceeding the historical basis of the assets. This change will result in lower Depreciation
and amortization expense primarily offset by higher Compensation and benefits and Purchased services expenses in the period in which removal costs are incurred.



The net cumulative effect of adopting SFAS No. 143 for years prior to 2003 was an increase to Net income of
$39 million, net of tax, which is reflected in the cumulative effect adjustment recorded in the first quarter of 2003. The net effect of adoption of SFAS No. 143 on the first quarter of 2003 is an increase to Income before cumulative effect of
accounting change of $4 million, net of tax. The Company currently anticipates that the adoption of SFAS No. 143 will have an insignificant impact on full year 2003 Income before cumulative effect of accounting change. The Companys liability
for legally obligated asset retirement costs is $4 million at March 31, 2003.



The following table presents the pro forma net income if SFAS No. 143 would have been applied retroactively:



|                       |  | Quarter Ended March 31,
|---------------------- |  | -----------------------
|                       |  | 2003                   
|                       |  | (in millions)          
|                      
|Net income as reported |  | $                      
|                      
|Pro forma net income   |  | $                      
|                       |  |                        



2.    Hedging Activities



The Company currently uses derivatives to hedge against increases in diesel fuel prices and interest rates as well as to convert a portion of its fixed-rate long-term debt to floating-rate debt. The Company formally
documents



5



---

THE BURLINGTON NORTHERN AND SANTA FE RAILWAY COMPANY AND SUBSIDIARIES



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



the relationship between the hedging instrument and the hedged item, as well as the risk management
objective and strategy for the use of the hedging instrument. This documentation includes linking the derivatives that are designated as fair value or cash flow hedges to specific assets or liabilities on the balance sheets, commitments or
forecasted transactions. The Company assesses at the time a derivative contract is entered into, and at least quarterly, whether the derivative item is effective in offsetting the changes in fair value or cash flows. Any change in fair value
resulting from ineffectiveness, as defined by SFAS No. 133,Accounting for Derivative Instruments and Hedging Activities, is recognized in current period earnings. For derivative instruments that are designated and qualify as cash flow
hedges, the effective portion of the gain or loss on the derivative instrument is recorded in Accumulated Other Comprehensive Income (AOCI) as a separate component of stockholders equity and reclassified into earnings in the period during
which the hedge transaction affects earnings.



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



Fuel



Fuel costs represented 14.6 and 10.4 percent of total operating expenses during the three months ended March 31, 2003 and 2002,
respectively. Due to the significance of diesel fuel expenses to the operations of BNSF Railway and the historical volatility of fuel prices, the Company maintains a program to hedge against fluctuations in the price of its diesel fuel purchases.
The intent of the program is to protect the Companys operating margins and overall profitability from adverse fuel price changes by entering into fuel-hedge instruments based on managements evaluation of current and expected diesel fuel
price trends. However, to the extent the Company hedges portions of its fuel purchases, it may not realize the impact of decreases in fuel prices. Conversely, to the extent the Company does not hedge portions of its fuel purchases, it may be
adversely affected by increases in fuel prices. Based on fuel consumption during the first quarter of 2003 and excluding the impact of the hedging program, each one-cent increase in the price of fuel would result in approximately $12 million of
additional fuel expense on an annual basis.



The
fuel-hedging program includes the use of derivatives that are accounted for as cash flow hedges. As of March 31, 2003, the Company had entered into fuel swap and costless collar agreements utilizing West Texas Intermediate crude oil (WTI). The hedge
prices do not include taxes, transportation costs, certain other fuel handling costs, and any differences which may occur between the prices of WTI and the purchase price of BNSF Railways diesel fuel, including refining costs. The sum of all
such costs typically ranges between 12 and 30 cents per gallon. The tables below provide fuel hedge data for the WTI fuel hedges outstanding at March 31, 2003.



|                                        |  | Quarter Ended |        | Total        
|--------------------------------------- |  | ------------- | ------ | -------------
|2003                                    |  | June 30,      |        | September 30,
|WTI Swaps                               |  |               |        |              
|Barrels hedged (in thousands)           |  |               | 600    |              
|Equivalent gallons hedged (in millions) |  |               | 25.20  |              
|Average swap price (per barrel)         |  | $             | 20.52  |              
|Fair value (in millions)                |  | $             | 5      |              
|                                       
|WTI Collars                             |  |               |        |              
|Barrels hedged (in thousands)           |  |               | 3,450  |              
|Equivalent gallons hedged (in millions) |  |               | 144.90 |              
|Average cap price (per barrel)          |  | $             | 27.89  |              
|Average floor price (per barrel)        |  | $             | 23.50  |              
|Fair value (in millions)                |  | $             | 8      |              
|                                        |  |               |        |              



6



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THE BURLINGTON NORTHERN AND SANTA FE RAILWAY COMPANY AND SUBSIDIARIES



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





|                                        |  | Quarter Ended |       | Annual  
|--------------------------------------- |  | ------------- | ----- | --------
|2004                                    |  | March 31,     |       | June 30,
|WTI Swaps                               |  |               |       |         
|Barrels hedged (in thousands)           |  |               | 525   |         
|Equivalent gallons hedged (in millions) |  |               | 22.05 |         
|Average swap price (per barrel)         |  | $             | 20.68 |         
|Fair value (in millions)                |  | $             | 2     |         
|                                       
|WTI Collars                             |  |               |       |         
|Barrels hedged (in thousands)           |  |               | 1,800 |         
|Equivalent gallons hedged (in millions) |  |               | 75.60 |         
|Average cap price (per barrel)          |  | $             | 26.85 |         
|Average floor price (per barrel)        |  | $             | 22.29 |         
|Fair value (in millions)                |  | $             | 1     |         
|                                        |  |               |       |         
|                                       
|                                        |  | Quarter Ended |       | Annual  
|2005                                    |  | March 31,     |       | June 30,
|WTI Collars                             |  |               |       |         
|Barrels hedged (in thousands)           |  |               | 2,175 |         
|Equivalent gallons hedged (in millions) |  |               | 91.35 |         
|Average cap price (per barrel)          |  | $             | 25.66 |         
|Average floor price (per barrel)        |  | $             | 21.03 |         
|Fair value (in millions)                |  | $             |      |         
|                                        |  |               |       |         



In
addition, BNSF Railway had entered into costless collar agreements utilizing NYMEX #2 heating oil (HO). The hedge prices do not include taxes, transportation costs, certain other fuel handling costs and any differences which may occur between the
prices of HO and the purchase price of BNSF Railways diesel fuel. The sum of all such costs typically ranges between 7 and 17 cents per gallon. The table below provides fuel hedge data for the HO fuel hedges outstanding at March 31, 2003.



|                                 |  | Quarter Ended |       | Total |              
|-------------------------------- |  | ------------- | ----- | ----- | -------------
|2003                             |  | June 30,      |       |       | September 30,
|HO Collars                       |  |               |       |       |              
|Gallons hedged (in millions)     |  |               | 56.70 |       |              
|Average cap price (per gallon)   |  | $             | 0.94  |       |              
|Average floor price (per gallon) |  | $             | 0.79  |       |              
|Fair value (in millions)         |  | $             | (4    | )     |              
|                                 |  |               |       |       |              



As of
March 31, 2003, BNSF Railways total fuel-hedging program covered approximately 55 percent, 32 percent and 23 percent of estimated fuel purchases for the remainder of 2003, 2004 and 2005, respectively. Hedge positions are closely monitored to
ensure that they will not exceed actual fuel requirements in any period.



7



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THE BURLINGTON NORTHERN AND SANTA FE 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 March 31, |   
|---------------------------------------------------------------------- |  | ---------------------------- | --
|                                                                       |  | 2003                         |   
|Hedge benefit (loss) including ineffective portion of unexpired hedges |  | $                            | 22
|Tax effect                                                             |  |                              | 8 
|                                                                       |  |                              |   
|Hedge benefit (loss), net of tax                                       |  | $                            | 14
|                                                                       |  |                              |   



During
the first quarter of 2003, the Company recognized a loss of $2 million related to the ineffective portion of unexpired hedges. The ineffective portion of unexpired hedges for the same period in 2002 was de minimis.



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



|                                                    |  | March 31, |   
|--------------------------------------------------- |  | --------- | --
|                                                    |  | 2003      |   
|Fuel hedging asset                                  |  | $         | 36
|Ineffective portion of unexpired hedges             |  |           | 2 
|Tax effect                                          |  |           | 14
|                                                    |  |           |   
|Amount included in AOCI, net of tax                 |  | $         | 24
|                                                    |  |           |   
|Settled fuel hedging contracts receivable (payable) |  | $         | 24
|                                                    |  |           |   



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



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



See Other Matters within Managements Narrative Analysis of Results of Operations for information about fuel hedges entered into after March 31, 2003.



Interest Rate



From time to time, the Company enters into
various interest rate hedging transactions for the purpose of converting a portion of its fixed-rate long-term debt to floating-rate debt. The Company uses interest rate swaps as part of its interest rate risk management strategy. These swaps are
accounted for as fair value hedges under SFAS No. 133. They qualify for the short cut method of recognition and, therefore, no portion of these swaps is treated as ineffective.



As of March 31, 2003, BNSF Railway had one swap on a notional amount of $100 million ($100 million at
December 31, 2002) in which it pays an average floating rate, which fluctuates quarterly, based on LIBOR. The average floating rate to be paid by BNSF Railway as of March 31, 2003, was 5.63 percent and the average fixed rate BNSF Railway is to
receive is 8.63 percent. This swap will expire in 2004.



The amounts recorded in the Consolidated Statements of Income for the interest rate fair value hedge transaction was as follows (in millions):



|                          |  | Three Months Ended March 31,
|------------------------- |  | ----------------------------
|                          |  | 2003                        
|Hedge benefit             |  | $                           
|Tax effect                |  |                             
|                          |  |                             
|Hedge benefit, net of tax |  | $                           
|                          |  |                             



8



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THE BURLINGTON NORTHERN AND SANTA FE RAILWAY COMPANY AND SUBSIDIARIES



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





The
amounts recorded in other assets with a corresponding increase to debt on the Consolidated Balance Sheets for the interest rate fair value hedge transaction, which represents the fair value of the unexpired hedge, was as follows (in millions):



|                                       |  | March 31, 2003 |   | December 31, 2002
|-------------------------------------- |  | -------------- | - | -----------------
|Short-term interest rate hedging asset |  | $              | 1 |                  
|Long-term interest rate hedging asset  |  | $              | 4 |                  
|                                       |  |                |   |                  



BNSF
Railways measurement of the fair value of the interest rate swap is based on estimates of the mid-market value for the transaction provided by the counterparty to this agreement.



3.    Comprehensive Income



Total comprehensive income for the three months ended March 31, 2003 and 2002, respectively, was comprised of
the following:



|                                       |  | Three Months Ended March 31,
|-------------------------------------- |  | ----------------------------
|                                       |  | 2003                        
|Net income                             |  | $                           
|Other comprehensive income, net of tax |  |                             
|                                       |  |                             
|Total comprehensive income             |  | $                           
|                                       |  |                             



BNSF
Railways comprehensive income includes Net income and changes related to derivatives, which qualify for cash flow hedge accounting.



4.    Accounts Receivable, Net



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



SFRC has the capacity to sell $700 million of undivided interests to investors under the A/R sales program. Outstanding undivided interests held by investors under the A/R sales program were $625 million at March 31, 2003, and $594
million, net of $8 million of excess cash held in the trust at December 31, 2002. These receivables were derecognized by BNSF Railway in connection with the sale of undivided interests under the A/R sales program. The undivided interests were
supported by $819 million and $771 million of receivables transferred by SFRC to the master trust at March 31, 2003 and December 31, 2002, respectively. When SFRC transfers these receivables to the master trust, it retains an undivided interest in
the receivables sold. This retained interest is included in accounts receivable in the Companys financial statements. SFRCs retained interest in these receivables of $194 million and $177 million at March 31, 2003 and December 31, 2002,
respectively, less an allowance for uncollectible accounts, reflected the total accounts receivables transferred by SFRC to the master trust less $625 million and $594 million, at March 31, 2003 and December 31, 2002, 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.



The Company retains the collection
responsibility with respect to the accounts receivable. Proceeds from collections reinvested in the A/R sales program were approximately $2.2 billion and $2.3 billion for the three months ended March 31, 2003 and 2002, respectively. No servicing
asset or liability has been recorded since the fees the Company receives for servicing the receivables approximate the related costs. SFRCs costs of the sale of



9



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THE BURLINGTON NORTHERN AND SANTA FE RAILWAY COMPANY AND SUBSIDIARIES



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



receivables are included in Other expense (income), net and were $2 million and $3 million for the
three months ended March 31, 2003 and 2002, respectively. These costs fluctuate monthly with changes in prevailing interest rates, and were based on weighted average interest rates of 1.4 percent and 2.1 percent in the three months ended March 31,
2003 and 2002, respectively. These costs include interest, discounts associated with transferring the receivables under the A/R sales program to SFRC, program fees paid to banks, incidental commercial paper issuing costs, and fees for unused
commitment availability.



The amount of accounts
receivable transferred by BNSF Railway to SFRC fluctuates based upon the availability of receivables and is directly affected by changing business volumes and credit risks, including dilution and delinquencies. BNSF Railway has historically
experienced very low levels of default or dilution. If dilution or delinquency percentages were to increase one percentage point, the value of BNSF Railways retained interest would increase by approximately $8 million.



Receivables funded under the A/R sales program may not include
amounts over 90 days past due or concentrations over certain limits with any one customer. At March 31, 2003 and December 31, 2002, $76 million and $77 million, respectively, of accounts receivable were greater than 90 days old. The Company
maintains an allowance for bill adjustments and uncollectible accounts based upon the expected collectibility of accounts receivable, including receivables transferred to the master trust. Credit losses are based on specific identification of
uncollectible accounts and application of historical collection percentages by aging category. At March 31, 2003 and December 31, 2002, $85 million and $82 million, respectively, of such allowances had been recorded. During each of the three months
ended March 31, 2003 and 2002, $1 million of accounts receivable were written off.



The investors in the master trust have no recourse to BNSF Railways other assets except for customary warranty and indemnity claims. Creditors of BNSF Railway have no recourse to the assets of
the master trust or SFRC unless and until all claims of their respective creditors have been paid. The A/R sales program includes provisions that, if triggered, allow the investors participating in this program, at their option, to cancel the
program. At March 31, 2003, BNSF Railway was in compliance with these provisions.



5.    Debt



Mortgage Bonds



Three Months Ended March 31, 2003



The Company exercised an option to call $29 million of 2.63 percent mortgage bonds issued by a predecessor company and due January 1, 2010. Cash generated from operations was used to fund the call.



10



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THE BURLINGTON NORTHERN AND SANTA FE RAILWAY COMPANY AND SUBSIDIARIES



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





Other



Debt
guaranteed by the Company is as follows (dollar amounts in millions):



|                                                               |  | Guarantees                       
|-------------------------------------------------------------- |  | ---------------------------------
|                                                               |  | BNSF Railway Ownership Percentage
|Counterparty                                                   |  |                                  
|Kinder Morgan Energy Partners LP                               |  | 0.5                              
|Kansas City Terminal Intermodal Transportation Corporation     |  | 0.0                              
|The Unified Government of Wyandotte County/Kansas City, Kansas |  | 0.0                              
|Westside Intermodal Transportation Corporation                 |  | 0.0                              
|San Jacinto Partnership                                        |  | 49.0                             
|All other                                                      |  | 0.0                              
|                                                               |  |                                  



(a)    Reflects the maximum amount the Company could recover from a third party other than the counterparty.



Kinder Morgan Energy Partners LP



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



Kansas City Terminal Intermodal Transportation Corporation



BNSF Railway and another major railroad jointly and severally guarantee $70 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 and accounts for its interest using the equity method of accounting.



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



Proceeds of guaranteed debt are being used to
finance construction of a bridge that will connect BNSF Railways Argentine Yard in Kansas City, Kansas, with the KCTRC mainline tracks in Kansas City, Missouri. The bridge will be operated by KCTRC.



San Jacinto Partnership



BNSF Railway has agreed to guarantee approximately $85
million of debt, none of which was issued as of March 31, 2003. The proceeds from the debt are to be used to construct and operate a 13-mile railroad which will service several chemical and plastics manufacturing facilities in the Houston, Texas
area. In addition, BNSF Railway has advanced the San Jacinto Partnership $20 million in interim construction financing which is expected to be repaid in 2003 when the debt is expected to be issued.



11



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THE BURLINGTON NORTHERN AND SANTA FE RAILWAY COMPANY AND SUBSIDIARIES



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





All other



BNSF Railway
guarantees $13 million of other debt. BNSF Railway holds a performance bond and has the option to sub-lease property to recover up to $7 million of the $13 million of guarantees. These guarantees expire between 2008 and 2014.



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



Other than amounts recorded for capitalized leases, none of the guarantees above are recorded in the Consolidated Financial Statements of
the Company. BNSF Railway does not expect performance under these guarantees to have a material effect on the Company in the foreseeable future.



6.    Commitments and Contingencies



Casualty and Environmental



Personal injury claims, including work-related injuries to employees, are a significant expense for the railroad industry. Employees of
BNSF Railway are compensated for work-related injuries according to the provisions of the Federal Employers Liability Act (FELA). FELAs system of requiring the finding of fault, coupled with unscheduled awards and reliance on the jury
system, contributed to significant increases in expense in past years. BNSF Railway has implemented a number of safety programs to reduce the number of personal injuries as well as the associated claims and personal injury expense.



Burlington Northern Santa Fe Insurance Company, Ltd. (BNSF
IC), a wholly-owned subsidiary of BNSF, provides insurance coverage for certain punitive damage risks incurred after April 1, 1998, FELA claims, railroad protective and force account insurance claims incurred after January 1, 2002, and certain other
claims which are subject to reinsurance. During the three months ended March 31, 2003, BNSF Railway had paid premiums of $140 million to BNSF IC for such coverage for 2003 of which $105 million is included in Other current assets in the Consolidated
Balance Sheets at March 31, 2003.



The Company
recognized personal injury expenses of approximately $14 million and $47 million for the three months ended 2003 and 2002, respectively. BNSF Railway made payments for personal injuries of $39 million during the first quarter of 2003. At March 31,
2003 the Company had recorded liabilities of $348 million related to both asserted and unasserted personal injury claims. Of this amount, $157 million is included in current liabilities. BNSF Railways liabilities for both asserted and
unasserted personal injury claims are undiscounted.



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 approximately 30 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



12



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THE BURLINGTON NORTHERN AND SANTA FE RAILWAY COMPANY AND SUBSIDIARIES



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



in the cleanup of these sites through cost-sharing agreements with terms that vary from site to site.
Costs are typically allocated based on 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.



Environmental costs include initial site surveys and
environmental studies of potentially contaminated sites as well as costs for remediation and restoration of sites determined to be contaminated. Liabilities for environmental cleanup costs are initially recorded when BNSF Railways liability
for environmental cleanup is both probable and a reasonable estimate of associated costs can be made. Adjustments to initial estimates are recorded as necessary based upon additional information developed in subsequent periods. BNSF Railway conducts
an ongoing environmental contingency analysis, which considers a combination of factors including independent consulting reports, site visits, legal reviews, analysis of the likelihood of participation in and the ability of other PRPs to pay for
cleanup, and historical trend analyses.



BNSF
Railway is involved in a number of administrative and judicial proceedings and other mandatory cleanup efforts at approximately 415 sites, including the Superfund sites, at which it is participating in the study or cleanup, or both, of alleged
environmental contamination. The Company recognized environmental expenses of approximately $15 million and $10 million for the first three months of 2003 and 2002, respectively. BNSF Railway paid $14 million during the first quarter of 2003 for
mandatory and unasserted cleanup efforts, including amounts expended under federal and state voluntary cleanup programs. BNSF Railway has recorded liabilities for remediation and restoration of all known sites of $197 million at March 31, 2003. Of
this amount, $50 million is included in current liabilities. BNSF Railways environmental liabilities are not discounted. BNSF Railway anticipates that the majority of the accrued costs at March 31, 2003, will be paid over the next five years
and no individual site is considered to be material.



Liabilities recorded for environmental costs represent BNSF Railways best estimates for remediation and restoration of these sites and include both asserted and unasserted claims. Unasserted claims are not considered to be a
material component of the liability. Although recorded liabilities include BNSF Railways best estimates of all 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 potentially contaminated sites. As a result, future charges to
income for environmental liabilities could have a significant effect on results of operations in a particular quarter or fiscal year as individual site studies and remediation and restoration efforts proceed or as new sites arise. However,
management believes it is unlikely any identified matters, either individually or in the aggregate, will have a material adverse effect on BNSF Railways results of operations, financial position or liquidity.



Other Claims and Litigation



BNSF Railway and its subsidiaries are parties to a number of
legal actions and claims, various governmental proceedings and private civil suits arising in the ordinary course of business, including those related to environmental matters, Federal Employers Liability Act claims by BNSF Railway employees,
other personal injury claims, and disputes and complaints involving certain transportation rates and charges (including complaints seeking refunds of prior charges paid for coal transportation and the prescription of future rates for such
movements). Some of the legal proceedings include claims for punitive as well as compensatory damages, and a few proceedings purport to be class actions. While the final outcome of these matters cannot be predicted with certainty, considering among
other things the meritorious legal defenses available and liabilities that have been recorded along with applicable insurance, it is the opinion of BNSF Railways management that none of these items, when finally resolved, will have a material
adverse effect on the results of operations, financial position or liquidity of BNSF



13



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THE BURLINGTON NORTHERN AND SANTA FE RAILWAY COMPANY AND SUBSIDIARIES



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



Railway, although an adverse resolution of a number of these items could have a material adverse
effect on the results of operations in a particular quarter or fiscal year.



7.    Employee Merger and Separation Costs



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



|                                |  | Three months ended March 31, |    
|------------------------------- |  | ---------------------------- | ---
|                                |  | 2003                         |    
|Beginning balance at January 1, |  | $                            | 210
|Payments                        |  |                              | (10
|Other                           |  |                              |   
|                                |  |                              |    
|Ending balance at March 31,     |  | $                            | 200
|                                |  |                              |    



Employee
merger and separation liabilities of $200 million are included in the Consolidated Balance Sheets at March 31, 2003, and principally represent: (i) deferred benefits payable upon separation or retirement to certain active conductors, trainmen and
locomotive engineers; (ii) employee-related severance costs for the consolidation of clerical functions, material handlers in mechanical shops and trainmen on reserve boards; and (iii) certain non-union employee severance costs. Employee merger and
separation expenses are recorded in Materials and other in the Consolidated Income Statements. At March 31, 2003, $38 million of the remaining liabilities are included in current liabilities for anticipated costs to be paid over the next twelve
months.



Conductors, Trainmen and Locomotive
Engineers



Liabilities related
to deferred benefits payable upon separation or retirement to certain active conductors, trainmen and locomotive engineers were $163 million at March 31, 2003. These costs were primarily incurred in connection with labor agreements reached prior to
the consummation of the business combination of BNSFs predecessor companies Burlington Northern Inc. and Santa Fe Pacific Corporation (the Merger) which, among other things, reduced train crew sizes and allowed for more flexible work rules.
The remaining costs will be paid between 2003 and approximately 2024.



Consolidation of Clerical Functions



Liabilities related to the consolidation of clerical functions were $19 million at March 31, 2003, and primarily provide for severance costs associated with the clerical consolidation plan adopted in
1995 upon the Merger. The consolidation plan resulted in the elimination of approximately 1,500 permanent positions and was substantially completed during 1999. The liability also includes costs related to the reduction of approximately 40 and 140
material handlers in 2001 and 2000, respectively.



The remaining liability balance at March 31, 2003, represents benefits to be paid to affected employees who did not receive lump-sum payments, but instead will be paid over five to ten years or in some cases through retirement.



Non-Union Employee Severance



Liabilities principally related to certain
remaining non-union employee severances resulting from the fourth quarter 2001 workforce reduction, the second quarter 1999 reorganization, and the Merger were $18 million at March 31, 2003. These costs will be paid over the next several years based
on deferral elections made by the employees.



14



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THE BURLINGTON NORTHERN AND SANTA FE RAILWAY COMPANY AND SUBSIDIARIES



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





8.    Related Party Transactions



BNSF Railway is involved with BNSF and certain of its subsidiaries in related party transactions in the ordinary course of business, which include payments made on each others behalf and
performance of services. Under the terms of a tax allocation agreement with BNSF, BNSF Railway made federal and state income tax payments, net of refunds, of $84 million and $126 million, during the first three months of 2003 and 2002, 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 $1 million and a net intercompany payable balance of $7 million at March 31, 2003 and December 31, 2002, respectively, which are reflected in
the Consolidated Balance Sheets. Net intercompany receivable or payable balances are settled in the ordinary course of business.



At March 31, 2003 and December 31, 2002, BNSF Railway had $75 million and $67 million, respectively, of intercompany notes payable to BNSF
at a variable interest rate of 1.0 percent above the monthly average of the daily effective Federal Funds rate. During the first three months of 2003, BNSF Railway had additional borrowings of $8 million of variable rate notes. Proceeds from
borrowings are primarily used to fund capital expenditures and other investing activities. Interest is paid semi-annually on all intercompany notes payable. Interest expense on intercompany notes payable is reflected in Interest income, related
parties in the Consolidated Statements of Income. The intercompany notes are due on demand.



At March 31, 2003 and December 31, 2002, BNSF Railway had $979 million and $1,256 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 $277 million decrease in intercompany notes receivable is primarily due to repayments of $338 million from BNSF offset by additional borrowings of $61 million during 2003. Interest
is collected semi-annually on all intercompany notes receivable. The intercompany notes receivable are presented net of the intercompany notes payable discussed above in the Consolidated Balance Sheets. Interest income from intercompany notes
receivable is presented in Interest income, related parties in the Consolidated Statements of Income.



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 on the date of grant. Certain employees of BNSF Railway participate in these plans. In addition, under these plans BNSF has provided other long-term incentives, to certain BNSF Railway employees, including, among other things,
restricted stock and a discounted stock purchase program. Compensation expense is recorded for stock incentive plans in accordance with Accounting Principles Board Opinion 25 and was not material for each of the three months ended March 31, 2003 and
2002.



9.    Accounting Pronouncements



The Financial Accounting Standards Board
(FASB) issued Interpretation No. 46 (FIN 46), Consolidation of Variable Interest Entities, in January 2003, which was effective immediately to variable interest entities created after January 31, 2003, and effective in the first interim
period beginning after June 15, 2003 to variable interest entities created before February 1, 2003. FIN 46 addresses the consolidation of variable interest entities through identification of a primary beneficiary. For all financial statements issued
after January 31, 2003, FIN 46 requires transitional disclosures if it is reasonably possible that the Company will consolidate or disclose information about a variable interest entity when this interpretation becomes effective. The Companys
accounts receivable sales program will be unaffected by this new pronouncement.



It has been determined that San Jacinto Rail Ltd., an unconsolidated equity subsidiary of the Company, will be consolidated under the guidance outlined by FIN 46 upon adoption in the third quarter of
2003. In 2001, the Company entered into a partnership (the Partnership) with subsidiaries of three chemical manufacturing companies



15



---

THE BURLINGTON NORTHERN AND SANTA FE RAILWAY COMPANY AND SUBSIDIARIES



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



that ship their products on the BNSF Railway to form San Jacinto Rail Ltd. The purpose of this
Partnership is to construct and operate a 13-mile railroad, which will service several chemical and plastics manufacturing facilities in the Houston, Texas, area. BNSF Railway owns a 48 percent limited partnership interest and a one percent general
partnership interest in the Partnership and acts as the general partner and operator of this facility. BNSF Railway has agreed to guarantee debt incurred by the Partnership, which is expected to be $85 million in connection with the construction of
this rail line, none of which was issued as of March 31, 2003. The Companys maximum exposure to loss at March 31, 2003 is $20 million in interim construction financing advanced to the Partnership. See Note 5 to the Consolidated Financial
Statements for information about BNSF Railways guarantee of the Partnerships debt.



The Company is still evaluating whether other entities will require consolidation but does not anticipate the adoption of FIN 46 to have a material impact on the Companys results from operations,
financial position or liquidity. The evaluation is expected to be completed in the second quarter of 2003.



10.    Report of Independent Accountants



PricewaterhouseCoopers LLPs review report is included in this quarterly report; however, they do 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.





16



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REPORT OF
INDEPENDENT ACCOUNTANTS



To
the Board of Directors and Shareholder of

The Burlington Northern and Santa Fe Railway Company:



We have reviewed the accompanying consolidated balance sheet of
The Burlington Northern and Santa Fe Railway Company and its subsidiaries (BNSF Railway or the Company) as of March 31, 2003, and the related consolidated statements of income and of cash flows for the three-month periods
ended March 31, 2003 and 2002. These interim financial statements are the responsibility of the Companys management.



We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. 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 generally accepted
auditing standards, 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 auditing standards generally accepted in the United States of America, the consolidated balance sheet of the
Company as of December 31, 2002, and the related consolidated statements of income, cash flows, and changes in stockholders equity for the year then ended (not presented herein), and in our report dated February 6, 2003 we expressed an
unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet of the Company as of March 31, 2003, is fairly stated in all material respects in relation to
the consolidated balance sheet from which it has been derived.



/s/ PricewaterhouseCoopers LLP



Fort Worth, Texas

April 30, 2003



17



---



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



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



Results of Operations



Three
Months Ended March 31, 2003 Compared with Three Months Ended March 31, 2002



BNSF Railway recorded net income for the first quarter of 2003 of $237 million after the cumulative effect of an accounting change of $39 million, net of tax, compared with first quarter 2002 net
income of $218 million. Operating income of $351 million for the first quarter of 2003 was $32 million lower than the first quarter of 2002.



The cumulative effect of an accounting change was the result of adopting Statement of Financial Accounting Standards (SFAS) No. 143,
Accounting for Asset Retirement Obligations. The $39 million, net of tax, represents the cumulative effect of adopting SFAS No. 143 for years prior to 2003. The Company currently anticipates that the adoption of SFAS No. 143 will have an
insignificant impact on full year 2003 Income before cumulative effect of accounting change. See Note 1 to the Consolidated Financial Statements.



Revenues



The following table presents BNSF Railways revenue information by commodity group for the three months ended March 31, 2003 and
2002:



|                         |  | Revenues      |       | Cars / Units   |   | Average Revenue Per Car/Unit
|------------------------ |  | ------------- | ----- | -------------- | - | ----------------------------
|                         |  | 2003          |       | 2002           |   | 2003                        
|                         |  | (in millions) |       | (in thousands) |   |                             
|Consumer Products        |  | $             | 847   |                | $ | 775                         
|Industrial Products      |  |               | 511   |                |   | 491                         
|Coal                     |  |               | 485   |                |   | 508                         
|Agricultural Products    |  |               | 358   |                |   | 361                         
|                         |  |               |       |                |   |                             
|Total Freight Revenues   |  |               | 2,201 |                |   | 2,135                       
|                         |  |               |       |                |   |                             
|Other Revenues           |  |               | 26    |                |   | 25                          
|                         |  |               |       |                |   |                             
|Total Operating Revenues |  | $             | 2,227 |                | $ | 2,160                       
|                         |  |               |       |                |   |                             



Freight
revenues for the first quarter of 2003 were $2.2 billion, up 3 percent compared with the same 2002 period including a $16 million increase in revenues from fuel surcharges. Average revenue per car/unit decreased 3 percent in the first quarter of
2003 to $1,078 from $1,108 in the first quarter of 2002.



Consumer Products revenues of $847 million for the first quarter of 2003 were $72 million, or 9 percent, higher than the first quarter of 2002. The increase in Consumer Products revenue is primarily due to increased volumes in the
international, truckload and perishables sectors. The reduction in revenue per unit is primarily related to the increase in the international sector, which has lower average revenue per unit.



Industrial Products revenues increased $20 million, or 4
percent, to $511 million for the first quarter of 2003. The revenue increase is primarily due to increased sheet steel, aluminum, clay and cement traffic in the construction products sector and increased military-related and waste products traffic
in the building products sector.



18



---



Coal revenues
of $485 million for the first quarter of 2003 decreased $23 million, or 5 percent, versus the same period a year ago. The decrease is a result of lower volumes from the draw-down of utility stockpiles, utility maintenance outages, and a March
blizzard in the Powder River Basin.



Agricultural
Products revenues of $358 million for the first quarter of 2003 were $3 million, or 1 percent, lower than revenues for the first quarter of 2002. This decrease is primarily due to a reduction in wheat exports to the Pacific Northwest and Gulf of
Mexico as a result of an increase in wheat exports from other countries, which has displaced demand for US wheat. The decrease in revenue per unit was primarily due to an overall decrease in average length of haul also caused by the reduction in
exports.



Expenses



Total operating expenses for the first quarter of 2003 were
$1,876 million, an increase of $99 million, or 6 percent, versus the same 2002 period.



Compensation and benefits expenses of $714 million were flat with the first quarter of 2002.



Purchased services of $296 million for the first quarter of 2003 were $21 million, or 8 percent, higher than the first quarter of 2002.
This primarily reflects higher service contract expense as a result of the computing infrastructure outsourcing agreement entered into in 2002 and increased equipment maintenance costs.



Depreciation and amortization expenses of $226 million for the first quarter of 2003 were $4 million, or 2
percent, lower than the same period in 2002, primarily due to the implementation of SFAS No. 143. See Note 1 to the Consolidated Financial Statements.



Equipment rents expenses for the first quarter of 2003 of $169 million were $6 million, or 3 percent, lower than the first quarter of
2002. The decrease is primarily attributable to increased utilization of BNSF Railway owned and leased equipment and renegotiation of lower rates on car leases as they come due.



Fuel expenses of $274 million for the first quarter of 2003 were $90 million, or 49 percent, higher than the
first quarter of 2002. The increase in fuel expense was primarily the result of a 29-cent ($84 million) increase in the average all-in cost per gallon of diesel fuel. The increase in the average all-in cost per gallon of diesel fuel includes a
38-cent increase ($111 million) in the average purchase price and a hedge benefit of 8-cents ($24 million). The hedge cost for the same period in 2002 was 1 cent per gallon ($3 million). Consumption in the first quarter of 2003 was 292 million
gallons or 3 percent greater than first quarter 2002 consumption of 283 million gallons.



Materials and other expenses of $197 million for the first quarter of 2003 were $2 million, or 1 percent, lower than the first quarter of 2002 principally due to decreases in derailment and relocation
expenses partially offset by a decrease in gains from property dispositions.



Interest expense of $38 million for the first quarter of 2003 was $3 million, or 7 percent, lower than the first quarter of 2002. This decrease was primarily the result of lower average interest rates.



Other expense, net was $2 million compared to
other income, net of $3 million in the first quarter of 2002. This decrease is primarily the result of lower income from company owned life insurance.



Other Matters



Other Claims and Litigation



BNSF Railway and its subsidiaries are parties to a number of legal actions and claims, various governmental proceedings and private civil
suits arising in the ordinary course of business, including those related to environmental matters, Federal Employers Liability Act claims by BNSF Railway employees, other personal injury claims, and disputes and complaints involving certain
transportation rates and charges (including complaints seeking refunds of prior charges paid for coal transportation and the prescription of future rates for such movements). Some



19



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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s management that none of these items, when finally resolved, will have a material adverse effect on the results of operations, financial position or liquidity of BNSF Railway, although an
adverse resolution of a number of these items could have a material adverse effect on the results of operations in a particular quarter or fiscal year.



Fuel Hedges



From April 1, 2003 through April 21, 2003, the Company entered into additional swap and costless collar agreements utilizing NYMEX #2
Heating Oil (HO) and West Texas Intermediate (WTI) crude oil. The supporting tables below provide fuel hedge data for hedges entered into subsequent to the end of the first quarter period.



|                                        |  | Quarter Ended |      | Annual  
|--------------------------------------- |  | ------------- | ---- | --------
|2004                                    |  | March 31,     |      | June 30,
|HO Collars                              |  |               |      |         
|Gallons hedged (in millions)            |  |               | 6.30 |         
|Average cap price (per gallon)          |  | $             | 0.76 |         
|Average floor price (per gallon)        |  | $             | 0.69 |         
|WTI Collars                             |  |               |      |         
|Barrels hedged (in thousands)           |  |               |     |         
|Equivalent gallons hedged (in millions) |  |               |     |         
|Average cap price (per barrel)          |  |               |     |         
|Average floor price (per barrel)        |  |               |     |         
|                                        |  |               |      |         
|                                       
|                                        |  | Quarter Ended |      | Annual  
|2005                                    |  | March 31,     |      | June 30,
|WTI Swaps                               |  |               |      |         
|Barrels hedged (in thousands)           |  |               |     |         
|Equivalent gallons hedged (in millions) |  |               |     |         
|Average swap price (per barrel)         |  |               |     |         
|                                        |  |               |      |         



Accounting
Pronouncements



The Financial Accounting
Standards Board (FASB) issued Interpretation No. 46 (FIN 46), Consolidation of Variable Interest Entities, in January 2003, which was effective immediately to variable interest entities created after January 31, 2003, and effective in the
first interim period beginning after June 15, 2003 to variable interest entities created before February 1, 2003. FIN 46 addresses the consolidation of variable interest entities through identification of a primary beneficiary. For all financial
statements issued after January 31, 2003, FIN 46 requires transitional disclosures if it is reasonably possible that the Company will consolidate or disclose information about a variable interest entity when this interpretation becomes effective.
The Companys accounts receivable sales program will be unaffected by this new pronouncement.



It has been determined that San Jacinto Rail Ltd., an unconsolidated equity subsidiary of the Company, will be consolidated under the
guidance outlined by FIN 46 upon adoption in the third quarter of 2003. In 2001, the Company entered into a partnership (the Partnership) with subsidiaries of three chemical manufacturing companies that ship their products on the BNSF Railway to
form San Jacinto Rail Ltd. The purpose of this Partnership is to construct and operate a 13-mile railroad, which will service several chemical and plastics manufacturing facilities in the Houston, Texas, area. BNSF Railway owns a 48 percent limited
partnership interest and a one percent general partnership interest in the Partnership and acts as the general partner and operator of this facility. BNSF Railway has agreed to guarantee debt incurred by the Partnership, which is expected to be $85
million in connection with the



20



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construction of this rail line, none of which was issued as of March 31, 2003. The Companys maximum
exposure to loss at March 31, 2003 is $20 million in interim construction financing advanced to the Partnership. See Note 5 to the Consolidated Financial Statements for information about BNSF Railways guarantee of the Partnerships debt.



The Company is still evaluating whether other
entities will require consolidation but does not anticipate the adoption of FIN 46 to have a material impact on the Companys results from operations, financial position or liquidity. The evaluation is expected to be completed in the second
quarter of 2003.



Forward-Looking Information



To the extent that statements made by the
Company relate to the Companys future economic performance or business outlook, projections or expectations of financial or operational results, or refer to matters that are not historical facts, such statements are forward-looking
statements within the meaning of the federal securities laws. Forward-looking statements involve a number of risks and uncertainties, and actual results may differ materially. Important factors that could cause actual results to differ materially
include, but are not limited to, economic and industry conditions: material adverse changes in economic or industry conditions, both in the United States and globally, customer demand, effects of adverse economic conditions affecting
shippers, 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 Railway is successful in gaining new long-term
relationships with customers or retaining existing ones, changes in fuel prices, changes in the securities and capital markets, and changes in labor costs and labor difficulties, including stoppages affecting either BNSF Railways operations or
our customers abilities to deliver goods to BNSF Railway for shipment; legal and regulatory factors: developments and changes in laws and regulations and the ultimate outcome of shipper and rate claims subject to adjudication,
environmental investigations or proceedings and other types of claims and litigation; and operating factors: technical difficulties, changes in operating conditions and costs, competition, and commodity concentrations, the Companys
ability to achieve its operational and financial initiatives and to contain costs, as well as natural events such as severe weather, floods and earthquakes or other disruptions of BNSF Railways operating systems, structures, or equipment.



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



Item 4.    Controls and Procedures



Based on their evaluation as of a date within 90 days of the filing date of 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-14(c) and 15d-14(c) of the Securities Exchange Act of 1934) are effective to ensure that
information required to be disclosed by BNSF Railway in its filings under the Securities Exchange Act of 1934 is processed, recorded, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms.
There have been no significant changes in the Companys internal controls, or in other factors that could significantly affect its internal controls, since the date of their most recent evaluation.



21



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THE
BURLINGTON NORTHERN AND SANTA FE RAILWAY COMPANY AND SUBSIDIARIES



PART II OTHER INFORMATION



Item 1.    Legal Proceedings



Ray Ridgeway, et al. v. Burlington Northern Santa Fe Corporation and The Burlington Northern and Santa Fe Railway Company, No. 48-185170-00 (District Court of Tarrant County, Texas, 48thJudicial District) is a state court action filed on October 27, 2000. The plaintiffs causes of action include alleged
breach of contract, negligence, and breach of fiduciary duties with respect to a special dividend that was paid in 1988 by a Burlington Northern Santa Fe Corporation (BNSF) predecessor, Santa Fe Southern Pacific Corporation (SFSP). The complaint
alleges that SFSP erroneously informed shareholders as to the tax treatment of the dividendspecifically, the apportionment of the dividend as either a distribution of earnings and profits or a return of capitalwhich allegedly caused some
shareholders to overpay their income taxes. The plaintiffs assert through their experts report, that SFSP had essentially no accumulated earnings and profits and that the entire dividend distribution should have been treated as a return of
capital, rather than the approximately 34 percent that SFSP determined was a return of capital. Plaintiffs have a motion pending to certify a class of former SFSP shareholders which BNSF Railway has opposed, but a decision on class certification
issues is not expected until the second quarter of 2003. BNSF Railway believes these claims lack merit and that it has substantial defenses on both the merits of these claims and the attempted class action, and it is defending these claims
vigorously.



BNSF Railway and its subsidiaries
are parties to a number of legal actions and claims, various governmental proceedings and private civil suits arising in the ordinary course of business, including those related to environmental matters, Federal Employers Liability Act claims
by BNSF Railway employees, other personal injury claims, and disputes and complaints involving certain transportation rates and charges (including complaints seeking refunds of prior charges paid for coal transportation and the prescription of
future rates for such movements). Some of the legal proceedings include claims for punitive as well as compensatory damages, and a few proceedings purport to be class actions. While the final outcome of these matters cannot be predicted with
certainty, considering among other things the meritorious legal defenses available and liabilities that have been recorded along with applicable insurance, it is the opinion of BNSF Railways management that none of these items, when finally
resolved, will have a material adverse effect on the results of operations, financial position or liquidity of BNSF Railway, although an adverse resolution of a number of these items could have a material adverse effect on the results of operations
in a particular quarter or fiscal year.



22



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Item
6.    Exhibits and Reports on Form 8-K



A.    Exhibits



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



B.    Reports on Form 8-K



None.



23



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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.



THE BURLINGTON NORTHERN
AND SANTA FE RAILWAY COMPANY (Registrant)By:

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


Dated: May 1, 2003



S-1



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CERTIFICATIONS PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002



I, Matthew K. Rose, certify that:



|1. |  | I have reviewed this quarterly report on Form 10-Q of The Burlington Northern and Santa Fe Railway Company;
|-- |  | -----------------------------------------------------------------------------------------------------------



|2. |  | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|3. |  | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|4. |  | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and we have:
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) |  | evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report
(the Evaluation Date); and
| | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | c) |  | presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation
Date;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------



|5. |  | The registrants other certifying officer and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee
of registrants board of directors (or persons performing the equivalent function):
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize
and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) |  | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



|6. |  | The registrants other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Date: May 1, 2003

/s/    MATTHEW K.
ROSEMatthew K. Rose Chairman, President and Chief Executive
Officer






S-2



---



I, Thomas N. Hund, certify
that:



|1. |  | I have reviewed this quarterly report on Form 10-Q of The Burlington Northern and Santa Fe Railway Company;
|-- |  | -----------------------------------------------------------------------------------------------------------

|
|

|2. |  | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|3. |  | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|4. |  | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and we have:
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) |  | evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report
(the Evaluation Date); and
| | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | c) |  | presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation
Date;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------



|5. |  | The registrants other certifying officer and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee
of registrants board of directors (or persons performing the equivalent function):
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize
and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) |  | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



|6. |  | The registrants other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Date: May 1, 2003

/s/    THOMAS N.
HUNDThomas N. Hund Executive Vice President and Chief Financial
Officer






S-3



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THE
BURLINGTON NORTHERN AND SANTA FE RAILWAY COMPANY AND SUBSIDIARIES



EXHIBIT INDEX



|    
|----
|12.1
|    
|99.1





E-1