<PAGE>

                                                                    EXHIBIT 28.1

REPORT OF INDEPENDENT ACCOUNTANTS
TO THE STOCKHOLDERS AND BOARD OF
DIRECTORS OF BURLINGTON NORTHERN
SANTA FE CORPORATION AND SUBSIDIARIES

In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, of cash flows and of changes in stockholders'
equity present fairly, in all material respects, the financial position of
Burlington Northern Santa Fe Corporation and subsidiary companies at December
31, 1997 and 1996, and the results of their operations and their cash flows for
each of the two years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above. The
consolidated financial statements of Burlington Northern Santa Fe Corporation
and subsidiary companies for the year ended December 31, 1995 were audited by
other independent accountants whose report dated February 15, 1996, except as to
the information presented in Note 8 for which the date is February 6, 1998,
expressed an unqualified opinion on those statements and included an explanatory
paragraph that described the change in the Company's method of accounting for
periodic major locomotive overhauls in 1995 discussed in Note 7 to the financial
statements.

/s/ Price Waterhouse LLP
Price Waterhouse LLP
Chicago, Illinois
February 6, 1998

                                     BURLINGTON NORTHERN SANTA FE CORPORATION 21

<PAGE>

CONSOLIDATED STATEMENT OF INCOME

Burlington Northern Santa Fe Corporation and Subsidiaries
(Dollars in millions, except per share data)
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------
Year ended December 31,                                                1997     1996     1995
---------------------------------------------------------------      ------   ------   ------
<S>                                                                  <C>      <C>      <C>
Revenues                                                             $8,413   $8,141   $6,117
                                                                     ------   ------   ------
Operating expenses:
 Compensation and benefits                                            2,675    2,561    2,067
 Purchased services                                                     866      832      547
 Equipment rents                                                        820      736      540
 Depreciation and amortization                                          773      760      520
 Fuel                                                                   747      727      480
 Materials and other                                                    675      777      702
 Special charges                                                         90       --      735
                                                                     ------   ------   ------
      Total operating expenses                                        6,646    6,393    5,591
---------------------------------------------------------------      ------   ------   ------
Operating income                                                      1,767    1,748      526
Interest expense                                                        344      301      220
Other income (expense), net                                             (19)      (7)      28
                                                                     ------   ------   ------
Income before income taxes                                            1,404    1,440      334
Income tax expense                                                      519      551      136
                                                                     ------   ------   ------
Income before extraordinary item and cumulative effect
 of change in accounting method                                         885      889      198
Extraordinary item, loss on early retirement of debt, net of tax         --       --       (6)
                                                                     ------   ------   ------
Income before cumulative effect of change in accounting method          885      889      192
Cumulative effect of change in accounting method, net of tax             --       --     (100)
                                                                     ------   ------   ------
Net income                                                           $  885   $  889   $   92
===============================================================      ======   ======   ======
Basic earnings per common share:
 Income before extraordinary item and change in accounting method    $ 5.72   $ 5.84   $ 1.70
 Extraordinary item                                                      --       --     (.06)
 Change in accounting method                                             --       --     (.96)
                                                                     ------   ------   ------
      Basic earnings per common share                                $ 5.72   $ 5.84   $ 0.68
===============================================================      ======   ======   ======
Diluted earnings per common share:
 Income before extraordinary item and change in accounting method    $ 5.64   $ 5.74   $ 1.67
 Extraordinary item                                                      --       --     (.05)
 Change in accounting method                                             --       --     (.95)
                                                                     ------   ------   ------
      Diluted earnings per common share                              $ 5.64   $ 5.74   $ 0.67
===============================================================      ======   ======   ======
Average shares (in millions):
 Basic                                                                154.8    152.1    104.4
 Diluted                                                              157.0    154.8    105.9
</TABLE>
See accompanying notes to consolidated financial statements.

22 BURLINGTON NORTHERN SANTA FE CORPORATION

<PAGE>

CONSOLIDATED BALANCE SHEET

Burlington Northern Santa Fe Corporation and Subsidiaries
(Dollars in millions)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
December 31,                                                                    1997      1996
------------------------------------------------------------------------     -------   -------
<S>                                                                          <C>       <C>
ASSETS
Current assets:
 Cash and cash equivalents                                                   $    31   $    47
 Accounts receivable, net                                                        635       628
 Materials and supplies                                                          205       222
 Current portion of deferred income taxes                                        333       307
 Other current assets                                                             30        44
                                                                             -------   -------
   Total current assets                                                        1,234     1,248

Property and equipment, net                                                   19,211    17,633
Other assets                                                                     891       882
                                                                             -------   -------
        Total assets                                                         $21,336   $19,763
========================================================================     =======   =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
 Accounts payable and other current liabilities                              $ 1,952   $ 2,063
 Long-term debt due within one year                                              108       165
                                                                             -------   -------
   Total current liabilities                                                   2,060     2,228

Long-term debt and commercial paper                                            5,181     4,546
Deferred income taxes                                                          5,175     4,729
Casualty and environmental reserves                                              448       543
Employee merger and separation costs                                             469       466
Other liabilities                                                              1,191     1,270
                                                                             -------   -------
      Total liabilities                                                       14,524    13,782
========================================================================     -------   -------
Commitments and contingencies (see Notes 14 and 15)

Stockholders' equity:
 Common stock, $.01 par value, 300,000,000 shares authorized;
   156,746,601 shares and 154,198,088 shares issued, respectively                  2         2
 Additional paid-in capital                                                    4,995     4,838
 Retained earnings                                                             1,863     1,165
 Treasury stock, at cost, 442,816 shares and 196,122 shares, respectively        (39)      (16)
 Other                                                                            (9)       (8)
                                                                             -------   -------
      Total stockholders' equity                                               6,812     5,981
                                                                             -------   -------
        Total liabilities and stockholders' equity                           $21,336   $19,763
========================================================================     =======   =======

</TABLE>
See accompanying notes to consolidated financial statements.

                                     BURLINGTON NORTHERN SANTA FE CORPORATION 23
<PAGE>

CONSOLIDATED STATEMENT OF CASH FLOWS

Burlington Northern Santa Fe Corporation and Subsidiaries
(Dollars in millions)
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
Year ended December 31,                                                                     1997      1996      1995
-----------------------------------------------------------------------------------       -------   -------   -------
<S>                                                                                       <C>       <C>       <C>
OPERATING ACTIVITIES
 Net income                                                                               $   885   $   889   $    92
 Adjustments to reconcile net income to net cash provided by operating activities:
   Cumulative effect of change in accounting method                                            --        --       100
   Depreciation and amortization                                                              773       760       520
   Deferred income taxes                                                                      433       453      (112)
   Special charges                                                                             90        --       735
   Employee merger and separation costs paid                                                 (116)     (183)     (118)
   Other, net                                                                                (221)      (62)       51
 Changes in current assets and liabilities, excluding SFP assets/liabilities acquired:
   Accounts receivable:
     Sale of accounts receivable                                                              301        40        --
     Other changes                                                                           (333)     (140)       63
   Materials and supplies                                                                      17        (2)      (42)
   Other current assets                                                                         4        (6)       (5)
   Accounts payable and other current liabilities                                             (19)      122       132
                                                                                          -------     -----     -----
     Net cash provided by operating activities                                              1,814     1,871     1,416
-----------------------------------------------------------------------------------       -------   -------   -------
INVESTING ACTIVITIES
 Cash used for capital expenditures                                                        (2,182)   (2,234)     (890)
 Purchase of SFP, net of cash acquired                                                         --        --      (488)
 Other, net                                                                                  (147)      (10)       12
                                                                                          -------   -------   -------
      Net cash used for investing activities                                               (2,329)   (2,244)   (1,366)
-----------------------------------------------------------------------------------       -------   -------   -------
FINANCING ACTIVITIES
 Net increase (decrease) in commercial paper                                                 (239)      (78)      895
 Proceeds from issuance of long-term debt                                                   1,002       626     1,294
 Payments on long-term debt                                                                  (173)     (103)   (2,071)
 Dividends paid                                                                              (185)     (184)     (129)
 Proceeds from stock options exercised                                                        102       118        25
 Other, net                                                                                    (8)       (9)      (41)
                                                                                          -------   -------   -------
      Net cash provided by (used for) financing activities                                    499       370       (27)
                                                                                          -------   -------   -------
Increase (decrease) in cash and cash equivalents                                              (16)       (3)       23
Cash and cash equivalents:
   Beginning of year                                                                           47        50        27
                                                                                          -------   -------   -------
   End of year                                                                            $    31   $    47   $    50
-----------------------------------------------------------------------------------       -------   -------   -------
SUPPLEMENTAL CASH FLOW INFORMATION
 Interest paid, net of amounts capitalized                                                $   346   $   306   $   228
 Income taxes paid, net of refunds                                                             32        69       250
 Directly financed asset acquisitions                                                          --        43       140
 Noncash consideration for purchase of SFP:
   Net assets acquired                                                                                        $ 3,319
   Cash paid                                                                                                     (532)
   Cash acquired                                                                                                   26
                                                                                                              -------
        Noncash consideration                                                                                 $ 2,813
-----------------------------------------------------------------------------------       -------   -------   -------
</TABLE>
See accompanying notes to consolidated financial statements.

24 BURLINGTON NORTHERN SANTA FE CORPORATION

<PAGE>

<TABLE>
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Burlington Northern Santa Fe Corporation and Subsidiaries
(Shares in thousands. Dollars in millions, except per share data.)
-----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>


                                                                  Convertible
                                                                   Preferred      Common
                                                                   Stock and    Stock and
                                                     Outstanding   Additional   Additional
                                                       Common       Paid-in      Paid-in    Retained   Treasury
                                                       Shares       Capital      Capital    Earnings     Stock     Other   Total
----------------------------------------------------------------  -----------   ---------   --------   --------   ------   ------
<S>                                                  <C>           <C>          <C>         <C>        <C>       <C>      <C>

Balance at December 31, 1994                              89,224      $  337       $1,444     $  485       $ (5)  $  (24)  $2,237
Net income                                                                                        92                           92
Purchase of SFP:
 Common stock issued                                      52,004                    2,652                                   2,652
 Value of outstanding SFP stock options                                               119                                     119
Conversion and redemption of convertible
 preferred stock for common stock                          7,313        (337)         335                                      (2)
Dividends:
 Common stock, $1.20 per share                                                                  (123)                        (123)
 Convertible preferred stock, $3.125 per share                                                   (21)                         (21)
Adjustments associated with unearned
 compensation, restricted stock                              243                       13                     2       16       31
Exercise of stock options and related tax benefit            778                       39                    (3)               36
Equity adjustment from minimum pension
 liability                                                                                                           (18)     (18)
Cost to equity investment adjustment                                                              26                           26
Other                                                         43                        5                     3                 8
----------------------------------------------------------------  -----------   ---------   --------   --------   ------   ------
Balance at December 31, 1995                             149,605          --        4,607        459         (3)     (26)   5,037
Net income                                                                                       889                          889
Common stock dividends, $1.20 per share                                                         (183)                        (183)
Adjustments associated with unearned
 compensation, restricted stock                              539                        8                    (2)       3        9
Exercise of stock options and related tax benefit          3,454                      191                   (11)              180
Equity adjustment from minimum pension
 liability                                                                                                            15       15
Acquisition of a subsidiary                                  363                       31                                      31
Other                                                         41                        3                                       3
----------------------------------------------------------------  -----------   ---------   --------   --------   ------   ------
Balance at December 31, 1996                             154,002          --        4,840      1,165        (16)      (8)   5,981
Net income                                                                                       885                          885
Common stock dividends, $1.20 per share                                                         (187)                        (187)
Adjustments associated with unearned
 compensation, restricted stock                               83                       13                    (4)       2       11
Exercise of stock options and related tax benefit          2,191                      140                   (19)              121
Equity adjustment from minimum pension
 liability                                                                                                            (3)      (3)
Other                                                         28                        4                                       4
----------------------------------------------------------------  -----------   ---------   --------   --------   ------   ------
Balance at December 31, 1997                             156,304      $   --       $4,997     $1,863       $(39)  $   (9)  $6,812
----------------------------------------------------------------  -----------   ---------   --------   --------   ------   ------
</TABLE>
See accompanying notes to consolidated financial statements.

                                     BURLINGTON NORTHERN SANTA FE CORPORATION 25

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS BURLINGTON NORTHERN SANTA FE
CORPORATION AND SUBSIDIARIES

1. ACCOUNTING POLICIES

   PRINCIPLES OF CONSOLIDATION

     The consolidated financial statements include the accounts of Burlington
Northern Santa Fe Corporation and its majority-owned subsidiaries (collectively,
BNSF or Company). BNSF was incorporated in Delaware on December 16, 1994, for
the purpose of effecting a business combination between Burlington Northern Inc.
(BNI) and Santa Fe Pacific Corporation (SFP) which was consummated on September
22, 1995. The principal subsidiary of BNSF is The Burlington Northern and Santa
Fe Railway Company (BNSF Railway). BNSF Railway was formed in December 1996,
when The Atchison, Topeka and Santa Fe Railway Company (ATSF) merged with and
into Burlington Northern Railroad Company (BNRR). The accompanying BNSF
consolidated statements of income and cash flows for the years ended December
31, 1997, 1996 and 1995 include BNSF's results and cash flows for the years
ended December 31, 1997 and 1996, BNI's results and cash flows for the year
ended December 31, 1995, and SFP's results and cash flows from September 22,
1995 through December 31, 1995. All significant intercompany accounts and
transactions have been eliminated.

USE OF ESTIMATES

The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the periods presented.

RECLASSIFICATIONS

Certain comparative prior year amounts in the consolidated financial statements
and notes have been reclassified to conform with the current year presentation.

CASH AND CASH EQUIVALENTS

All short-term investments with original maturities of less than 90 days are
considered cash equivalents. Cash equivalents are stated at cost, which
approximates market value.

MATERIALS AND SUPPLIES

Materials and supplies consist mainly of diesel fuel and repair parts for
equipment and other railroad property and are valued at the lower of average
cost or market.

PROPERTY AND EQUIPMENT

Property and equipment are depreciated and amortized on a straight-line basis
over their estimated useful lives. Upon normal sale or retirement of depreciable
railroad property, cost less net salvage is charged to accumulated depreciation
and no gain or loss is recognized. Significant premature retirements are
recorded as gains or losses at the time of their occurrence. Expenditures which
significantly increase asset values or extend useful lives are capitalized.
Repair and maintenance expenditures are charged to operating expense when the
work is performed. Property and equipment are stated at cost including property
values of SFP, which were adjusted in applying purchase accounting.

  Additionally, the Company incurs certain direct labor, contract service and
other costs associated with the development and installation of computer
software. Costs for newly developed software or significant enhancements to
existing software are typically capitalized. Research, operations and
maintenance costs are charged to operating expense when the work is performed.

REVENUE RECOGNITION

Transportation revenues are recognized based upon the proportion of service
provided.

2. ACQUISITION OF SFP

     On June 29, 1994, BNI and SFP entered into an Agreement and Plan of Merger
(as amended, the Merger Agreement) pursuant to which SFP would merge with BNI in
the manner set forth below (the Merger). Stockholders of BNI and SFP approved
the Merger Agreement at special stockholders' meetings held on February 7, 1995.
On August 23, 1995, the Interstate Commerce Commission issued a written decision
approving the Merger and on September 22, 1995 the Merger was consummated.

  Pursuant to the Merger Agreement, BNI and SFP commenced tender offers
(together, the Tender Offer) to acquire 25 million and 38 million shares of SFP
common stock, respectively, at $20 per share in cash. During 1995, SFP borrowed
$1.0 billion under a credit facility of which $760 million of the proceeds were
used to purchase the 38 million shares pursuant to the Tender Offer. In
addition, BNI borrowed $500 million under a credit facility to finance BNI's
purchase of SFP common stock in the Tender Offer. The Tender Offer was completed
on February 21, 1995.

  To ensure that the transaction contemplated by the Merger Agreement qualified
as a tax-free transaction for federal income tax purposes, the parties utilized
the holding company structure. Under the holding company structure, BNSF created
two subsidiaries. One subsidiary merged with and into BNI, and the other
subsidiary merged with and into SFP.

26 BURLINGTON NORTHERN SANTA FE CORPORATION

<PAGE>

  The 1995 business combination with SFP was accounted for by the purchase
method. As such, the accompanying consolidated financial statements include
assets, liabilities and financial results of SFP after Merger consummation. The
following summarizes the purchase price (dollars in millions, except per share
data, and shares in thousands):

<TABLE>
-------------------------------------------    --------    --------
<S>                                            <C>         <C>
BNI investment in SFP at September 22, 1995                $    516
Shares of SFP common stock outstanding
 at September 22, 1995                          151,396
Less SFP shares held by BNI                     (25,000)
                                               --------
Remaining SFP shares outstanding                126,396
Exchange ratio                                    .4114
                                               --------
Shares of BNSF common stock issued               52,000
Per share value of BNSF common stock           $     51
                                               --------
Total value of BNSF common stock issued                       2,652
Value of outstanding SFP stock options                          119
BNI direct acquisition costs                                     32
-------------------------------------------                --------
     Purchase price                                        $  3,319
-------------------------------------------                --------
</TABLE>

  The purchase price was calculated based on an estimated fair value of BNSF
common stock of $51 per share. The fair value was determined from the average of
the daily closing prices of BNI common stock for the five trading days
immediately preceding and the five trading days immediately following approval
of the Merger by BNI and SFP shareholders which occurred on February 7, 1995.
The effects of the acquisition on the consolidated balance sheet, including the
fair value adjustments, were as follows (in millions):

<TABLE>
<S>                            <C>
----------------------------   -------
Property and equipment, net    $ 9,409
Other assets                       886
Deferred income taxes           (2,936)
Long-term debt                  (2,034)
Other liabilities               (2,006)
----------------------------   -------
     Net assets acquired       $ 3,319
----------------------------   -------
</TABLE>

  The purchase price allocation included $138 million for anticipated
nonrecurring costs and expenses for severance and relocation of prior SFP
employees and the planned disposition of excess SFP office space and other SFP
assets.

  The consolidated pro forma results presented below were prepared as if the
Merger had occurred on January 1, 1995 and include the historical results of BNI
and SFP, excluding the after tax effect of $309 million for merger-related
charges recorded by BNI in 1995. Additionally, the consolidated pro forma
results include the effects of purchase accounting adjustments and the Tender
Offer. Pro forma adjustments reflecting merger benefits are not included. This
unaudited consolidated pro forma information is not necessarily indicative of
the results of operations that might have occurred had the Merger actually taken
place on January 1, 1995 or of future results of operations of the combined
entities (dollars in millions, except per share data):

<TABLE>
Year ended December 31,                1995
----------------------------------    ------
<S>                                   <C>
Revenues                              $8,097
Operating expenses                     6,771
Income before extraordinary items        605
Net income(1)                            499
Basic earnings per share:
 Income before extraordinary items    $ 4.19
 Net income                             3.46
Diluted earnings per share:
 Income before extraordinary items    $ 3.98
 Net income                             3.29
</TABLE>

(1) Pro forma results include approximately $230 million (pre-tax) related to
the merger severance and asset charge which are not considered directly
attributable to the Merger. Additionally, pro forma net income includes the $100
million cumulative effect for the change in accounting for locomotive overhauls
for years prior to 1995 and a $25 million reduction for the effect of the change
on 1995. Also, pro forma net income includes the $6 million extraordinary charge
for retirement of debt.

-------------------------------------------------------------------------------

3. SPECIAL CHARGES

  Included in the Consolidated Statement of Income for 1997 and 1995 are
operating expenses of $90 million and $735 million, respectively, related to
special charges.

1995 SPECIAL CHARGE

Significant components of the 1995 charge are as follows:

  Employee-related costs of $287 million were recorded for anticipated
involuntary separations related to BNSF's plan to centralize its union clerical
functions. The clerical consolidation plan was approved by management in 1995
and implementation of the plan began in 1996. The Company and union entered into
an implementation agreement in 1995 which allows BNSF to abolish positions and
provide separation benefits to affected employees. Benefits paid to affected
employees are in the form of lump-sum payments or payments made over several
years depending upon seniority level and election of the employee.

  Costs of $254 million were recorded for salaried employees and reflect
severance, pension and other employee benefits, and costs for employee
relocations incurred during the period. Severance, pension and other employee
benefit costs of $231 million reflect the elimination of approximately 1,000
former BNI employees. Most of these positions were eliminated in 1995 and 1996.
Additional components of salaried employee costs include special termination
benefits to be received under the Company's retirement plan and expenses related
to restricted stock which vested upon approval of the Merger. Relocation
expenses of $23 million reflect costs incurred in 1995 for relocating
approximately 300 former BNI employees.

  Costs of $105 million were included for branch line dispositions reflecting
the write-off of the net book value of the lines at the anticipated disposition
date, less estimated net proceeds. Approximately 75 line segments, covering
3,300 miles of former BNI lines were included, of which


                                     BURLINGTON NORTHERN SANTA FE CORPORATION 27

<PAGE>

approximately 2,800 miles were disposed of through 1997. Remaining costs of $89
million included in the $735 million charge related to obligations at leased
facilities, a majority of which have been vacated, and the write-off of
duplicate and excess assets including computer hardware and software and certain
facilities.

  Additional accruals of $138 million were recorded through purchase accounting
related to former SFP employees and assets. Approximately $105 million of these
costs related to termination of approximately 500 salaried employees for
severance payments and special termination benefits to be received under the
Company's retirement and health and welfare plans. Salaried employee costs also
include amounts to relocate approximately 500 former SFP employees. The
remaining $33 million of costs relate to the sale or abandonment of 500 miles of
branch lines, rents on vacated leased facilities and the write-off of excess
assets.

1997 SPECIAL CHARGE

In the fourth quarter of 1997, the Company recorded a $90 million pre-tax
special charge. Approximately $65 million of the charge related to the
consolidation of union clerical employees and the remainder of the charge
related to severance and other costs for exempt employees. As discussed above,
BNSF recorded an initial charge of $287 million in 1995 for the consolidation of
clerical functions. However, the 1995 charge excluded costs associated with
voluntary severances for employees who were given the opportunity to relocate
and follow their work, but elected severance. During the fourth quarter of 1997,
the Company completed substantially all of the consolidation from field
locations. All voluntary severances associated with the plan have now been
completed. Remaining clerical positions to be eliminated by the Company will be
at central locations and will result in involuntary separations. The Company
anticipates that completion of the plan will result in the elimination of 1,800
employees including 1,600 permanent positions. Approximately 1,250 positions
have been eliminated through 1997 and the remaining position eliminations are
anticipated to occur in 1998 and early 1999. The costs to complete the
consolidation, including future involuntary severances, have now been provided
for by the 1995 and 1997 charges. Additionally, the Company has relocated
approximately 350 clerical employees from field to central locations. Relocation
costs have been charged to operating expense in the period incurred.

LIABILITY BALANCE AND ACTIVITY

Current and long-term employee merger and separation liabilities totaling $551
million are included in the consolidated balance sheet at December 31, 1997 and
principally represent employee-related costs for the centralization of clerical
functions, as well as remaining liabilities for actions taken by ATSF in prior
periods. The majority of these prior ATSF costs are associated with deferred
benefits payable upon separation or retirement to certain active conductors and
trainmen incurred in connection with an agreement which, among other things,
reduced crew sizes. Additionally, certain locomotive engineers are eligible for
a deferred benefit payable, upon separation or retirement, associated with an
agreement with ATSF which allowed for more flexible work rules.

  During 1997, BNSF made $116 million of employee merger and separation payments
principally related to the reduction of approximately 750 clerical employees,
payments of salaried employee separations, and deferred benefits for ATSF
conductors, trainmen and locomotive engineers. At December 31, 1997, $82 million
of the remaining accrual is included within current liabilities for anticipated
costs to be paid in 1998. The remaining costs are expected to be paid over the
next several years, except for certain costs related to conductors, trainmen and
locomotive engineers of the former ATSF which will be paid upon the employees'
separation or retirement, as well as certain benefits for clerical employees
which will be paid on an installment basis, generally over five to ten years or
in some cases through retirement.

4. POTENTIAL SALE OF INVESTMENT IN PIPELINE PARTNERSHIPS

  Santa Fe Pacific Pipelines, Inc. (Pipelines), an indirect wholly-owned
subsidiary of BNSF, has a 2 percent general partnership interest and a 42
percent limited partnership interest in Santa Fe Pacific Pipeline Partners, L.P.
and its operating subsidiary (Pipeline Partnerships). The interests in Pipeline
Partnerships are accounted for under the equity method by BNSF and results are
included in Other income (expense), net in the consolidated statement of income.
BNSF's investment in the Pipeline Partnerships at December 31, 1997 was
approximately $286 million and is included in Other assets in the consolidated
balance sheet. On October 18, 1997, Pipelines entered into an agreement with
Kinder Morgan Energy Partners L.P. (Kinder Morgan) whereby Kinder Morgan will
acquire substantially all of Pipelines' interests in the Pipeline Partnerships.
Total cash consideration to be received by Pipelines will be approximately $90
million. Pipelines' limited partnership interest is represented by 8,148,148
common units held by Pipelines and upon consummation, 1.39 Kinder Morgan
partnership units will be received in exchange for each Pipelines common unit
held.

  Additionally, through its subsidiary, SFP Pipeline Holdings, Inc., the Company
has variable rate exchangeable debentures (VREDs) with a par value of $219
million which are reflected in long-term debt at $268 million in the
consolidated balance sheet at December 31, 1997. The VREDs are exchangeable for
Pipelines' 8,148,148 common units. Consummation of


28 BURLINGTON NORTHERN SANTA FE CORPORATION

<PAGE>

the Kinder Morgan transaction will cause an "Exchange Event" under the VRED
agreement, and accordingly, VRED holders will be eligible to receive cash equal
to the par value of the VREDs or the Kinder Morgan units received by Pipelines
for its limited partnership interest. The current market value of the Kinder
Morgan units is substantially higher than the par value of the VREDs.

  The transaction is subject to a number of conditions, including the approval
by the unitholders of both parties and certain regulatory agencies. The
transaction is expected to be consummated in the first quarter of 1998 and is
anticipated to result in a one-time after-tax gain of approximately $30 million.
The ongoing effect on BNSF's results of operations is not anticipated to be
significant as Pipelines' equity income from its interests in Pipeline
Partnerships is largely offset by interest expense related to the VREDs.

5. OTHER INCOME (EXPENSE), NET

   Other income (expense), net includes the following (in millions):

<TABLE>
<CAPTION>
Year ended December 31,                         1997    1996    1995
------------------------------------------     -----   -----   -----
<S>                                            <C>     <C>     <C>
Equity in earnings of Pipeline Partnerships    $  30   $  24   $   9
Gain on property dispositions                     14      23      12
Interest income                                    3       2       8
Accounts receivable sale fees                    (27)    (14)     (4)
BNI's equity in earnings of SFP prior
 to consummation of the Merger                    --      --      16
Miscellaneous, net                               (39)    (42)    (13)
------------------------------------------     -----   -----   -----
     Total                                     $ (19)  $  (7)  $  28
==========================================     =====   =====   =====
</TABLE>

6. INCOME TAXES

   Income tax expense, excluding the 1995 cumulative effect of change in
accounting method and extraordinary item, was as follows (in millions):

<TABLE>
<CAPTION>
Year ended December 31,                        1997    1996    1995
-------------------------                      -----  -----   -----
<S>                                            <C>     <C>     <C>
Current:
 Federal                                       $  72  $  81   $ 216
 State                                            14     17      32
-------------------------------------------    -----  -----   -----
                                                  86     98     248
-------------------------------------------    -----  -----   -----
Deferred:
 Federal                                         372    396    (101)
 State                                            61     57     (11)
-------------------------------------------    -----  -----   -----
                                                 433    453    (112)
-------------------------------------------    -----  -----   -----
     Total                                     $ 519  $ 551   $ 136
===========================================    =====  =====   =====
</TABLE>

  Reconciliation of the federal statutory income tax rate to the effective tax
rate, excluding the cumulative effect of change in accounting method and
extraordinary item, was as follows:

<TABLE>
<CAPTION>
Year ended December 31,                         1997      1996      1995
-------------------------------------------    ------    ------    ------
<S>                                            <C>     <C>     <C>
Federal statutory income tax rate                35.0%     35.0%     35.0%
State income taxes,
 net of federal tax benefit                       3.5       3.4       4.0%
Other, net                                       (1.5)     (0.1)      1.7%
-------------------------------------------    ------    ------    ------
     Effective tax rate                          37.0%     38.3%     40.7%
===========================================    ======    ======    ======
</TABLE>

  The components of deferred tax assets and liabilities were as follows (in
millions):

<TABLE>
<CAPTION>
December 31,                                    1997      1996
-------------------------------------------    -------   -------
<S>                                            <C>       <C>
Deferred tax liabilities:
 Depreciation and amortization                 $(5,677)  $(5,110)
 Other                                            (331)     (397)
-------------------------------------------    -------   -------
      Total deferred tax liabilities            (6,008)   (5,507)
-------------------------------------------    -------   -------
Deferred tax assets:
 Casualty and environmental liabilities            270       300
 Employee merger and separation costs              213       214
 Postretirement benefits                            86        96
 Non-expiring AMT credit carryforwards              36        44
 Other                                             561       431
-------------------------------------------    -------   -------
      Total deferred tax assets                  1,166     1,085
-------------------------------------------    -------   -------
      Net deferred tax liability               $(4,842)  $(4,422)
===========================================    =======   =======
Noncurrent deferred income tax liability       $(5,175)  $(4,729)
Current deferred income tax asset                  333       307
-------------------------------------------    -------   -------
      Net deferred tax liability               $(4,842)  $(4,422)
===========================================    =======   =======
</TABLE>

  In 1997 and 1995, tax benefits of $2 million and $11 million, respectively,
related to the adjustment to recognize the minimum pension liability were
allocated directly to stockholders' equity. In 1996, tax expense of $9 million
related to the adjustment to reduce the minimum pension liability was allocated
directly to stockholders' equity.

  BNSF filed its first federal consolidated income tax return for 1995. BNI's
and SFP's federal income tax returns have been examined through 1991 and 1992,
respectively. All years prior to 1986 are closed for SFP and all years prior to
1989 are closed for BNI. Issues relating to the years 1986-1992 for SFP and for
the years 1989-1991 for BNI are being contested through various stages of
administrative appeal. In addition, BNSF and its subsidiaries have various state
income tax returns in the process of examination, administrative appeal or
litigation. Management believes that adequate provision has been made for any
adjustment that might be assessed for open years through 1997.

7. ACCOUNTING CHANGE

   Effective January 1, 1995, BNSF changed its method of accounting for periodic
major locomotive overhauls. Under the new method, costs of owned locomotives
relating to components requiring major overhaul are depreciated, on a straight-
line basis, to the first major overhaul date. The remaining cost of the owned
locomotive is depreciated, on a straight-line basis, over the estimated economic
life of the locomotive. The cost of overhauls on owned units are then
capitalized when incurred and depreciated, on a straight-line basis, until the
next anticipated overhaul. In addition, estimated costs for major overhauls on
leased units are accrued on a straight-line basis over the life of the leases.
BNSF previously expensed locomotive overhauls when the costs were incurred.

                                     BURLINGTON NORTHERN SANTA FE CORPORATION 29

<PAGE>

BNSF believes that this change is preferable because it improves the matching of
expenses incurred to revenues earned. The cumulative effect of this change on
years prior to 1995 was a reduction in net income of $100 million (net of a $63
million income tax benefit), or $.96 and $.95 for basic earnings per share and
diluted earnings per share, respectively. The effect of this change for the year
ended December 31, 1995, was to reduce income before extraordinary item and
cumulative effect of change in accounting method by $25 million or $.24 per
share.

8. EARNINGS PER SHARE

   The Company adopted Statement of Financial Accounting Standards (SFAS) No.
128 "Earnings Per Share" in the fourth quarter of 1997. SFAS No. 128 requires
the presentation of basic and diluted earnings per share, including the
restatement of prior periods. A summary of the calculation of basic and diluted
earnings per share for the years ended December 31, 1997, 1996 and 1995, is
presented below (in millions, except per share data):

<TABLE>
<CAPTION>
December 31,                          1997    1996    1995
----------------------------------   ------  ------  ------
<S>                                  <C>     <C>     <C>
Income before extraordinary item
 and accounting change               $  885  $  889  $  198
Less: Preferred stock dividends          --      --     (21)
----------------------------------   ------  ------  ------
Income available to
     common stockholders             $  885  $  889  $  177
==================================   ======  ======  ======
Weighted average common shares        154.8   152.1   104.4
Effect of common stock options          2.2     2.7     1.5
----------------------------------   ------  ------  ------
Weighted average diluted shares       157.0   154.8   105.9
==================================   ======  ======  ======
Basic earnings per common share      $ 5.72  $ 5.84  $ 1.70
----------------------------------   ------  ------  ------
Diluted earnings per common share    $ 5.64  $ 5.74  $ 1.67
==================================   ======  ======  ======
</TABLE>

  For the year ended December 31, 1995, the computation of diluted earnings per
share excluded the effects of conversion of preferred stock because it was anti-
dilutive.

9. ACCOUNTS RECEIVABLE, NET

   Effective June 1997, an accounts receivable sale agreement which allowed the
sale of up to $300 million in receivables effective through 1999, was replaced
by an amended and restated agreement which allows BNSF Railway, through a
special purpose subsidiary, to sell up to $600 million of variable rate
certificates which mature in 2002 evidencing undivided interests in an accounts
receivable master trust. The master trust's assets include an ownership interest
in a revolving portfolio of BNSF Railway's accounts receivable which are used to
support the certificates. At December 31, 1997, $581 million of certificates
were outstanding and were supported by receivables of approximately $1.1 billion
in the master trust. Certificates outstanding were $280 million at December 31,
1996. BNSF Railway has retained the collection responsibility with respect to
the accounts receivable held in trust. BNSF Railway is exposed to credit loss
related to collection of accounts receivable to the extent that the amount of
receivables in the master trust exceeds the amount of certificates sold. Costs
related to such agreements vary on a monthly basis and are generally related to
certain interest rates. These costs are included in Other income (expense), net.

  During 1997, BNSF Railway installed a new revenue management system, replacing
separate BNRR and ATSF systems. Primarily as a result of this integration,
accounts receivable balances have risen above historical levels. BNSF maintains
an allowance for corrections to and collectibility of freight and other
billings. At December 31, 1997 and 1996, $70 million and $57 million of such
allowances had been recorded, respectively. BNSF believes the allowance is
adequate to cover disputed and uncollectible receivables at December 31, 1997.

10. PROPERTY AND EQUIPMENT, NET

    Property and equipment, net (in millions), and the weighted average annual
depreciation rate (%) were as follows:
<TABLE>
<CAPTION>
                                                            1997
                                                        Depreciation
December 31,                       1997        1996         Rate
------------------------------   -------   ------------ ------------
<S>                              <C>       <C>              <C>
Land                             $ 1,416        $ 1,418       --
Track structure                   10,527          9,668      3.9%
Other roadway                      7,856          7,231      2.5
Locomotives                        1,874          1,525      4.5
Freight cars and
 other equipment                   1,870          1,879      4.0
Computer hardware
     and software                    412            402     15.6
------------------------------   -------   ------------
Total cost                        23,955         22,123
Less accumulated depreciation
     and amortization             (4,744)        (4,490)
------------------------------   -------   ------------
Property and equipment, net      $19,211        $17,633
==============================   =======   ============
</TABLE>
  The consolidated balance sheet at December 31, 1997 and 1996 included $875
million and $471 million, respectively, for property and equipment under capital
leases.

11. ACCOUNTS PAYABLE AND OTHER CURRENT LIABILITIES

    Accounts payable and other current liabilities consisted of the following
(in millions):
<TABLE>
<CAPTION>
December 31,                                         1997     1996
<S>                                                 <C>      <C>
------------------------------------------------    ------   ------
Compensation and benefits payable                   $  399   $  393
Casualty and environmental reserves                    291      309
Accounts payable                                       222      218
Rents and leases                                       144      206
Tax liabilities                                        132       78
Employee merger and separation costs                    82      114
Other                                                  682      745
------------------------------------------------    ------   ------
Total                                               $1,952   $2,063
================================================    ======   ======
</TABLE>


30 BURLINGTON NORTHERN SANTA FE CORPORATION
<PAGE>

12. DEBT

Debt outstanding was as follows
(in millions):

<TABLE>
<CAPTION>
December 31,                                             1997          1996
-----------------------------------------------------    ------        ------
<S>                                                      <C>           <C>
Notes and Debentures
    7% debentures, due 2025                              $  350        $  350
    6 3/8% notes, due 2005                                  300           300
    Pipeline exchangeable debentures,
      11.2% (variable), due 2010                            219           219
    8 3/4% debentures, due 2022                             200           200
    6 7/8% debentures, due 2027                             200            --
    7.29% debentures, due 2036                              200           200
    7.25% debentures, due 2097                              200            --
    6 7/8% debentures, due 2016                             175           175
    6.53% notes, due 2037                                   175            --
    7.40% notes, due 1999                                   150           150
    7% notes, due 2002                                      150           150
    7 1/2% debentures, due 2023                             150           150
    8 3/8% notes, due 2001                                  100           100
    8 5/8% notes, due 2004                                  100           100
    6.1% notes, due 2027                                    100            --
    Other                                                    25            28
Mortgage Bonds
    Consolidated mortgage bonds,
      3 1/5% to 9 1/4%, due 2006 to 2045                    321           321
    General mortgage bonds, 3 1/8% and 2 5/8%,
      due 2000 and 2010, respectively                        62            62
    Prior lien railway and land grant bonds, 4%              --            57
    General lien railway and land grant bonds,
      3%, due 2047                                           35            35
    Mortgage notes, 10.325%, due 1998 to 2014                31            31
    First mortgage bonds, series A, 4%                       --            20
    Mortgage notes, 8 5/8%, due serially to 2009             18            18
Commercial Paper and Bank Borrowings
    Commercial paper, 6.0% (variable)                       668           907
    Bank borrowings, 5.98% (variable)                        70            65
Equipment Obligations
    Equipment obligations, weighted average
      rate of 7.98%, due 1998 to 2013                       565           629
    Capitalized lease obligations, weighted average
      rate of 6.84% expiring 1998 to 2010                   695           400
Unamortized purchase accounting adjustment                   89           101
Unamortized discount                                        (59)          (57)
-----------------------------------------------------    ------        ------
    Total                                                 5,289         4,711
Less: Current portion of long-term debt                    (108)         (165)
-----------------------------------------------------    ------        ------
    Long-term debt                                       $5,181        $4,546
=====================================================    ======        ======
</TABLE>

  BNSF issues commercial paper from time to time. These borrowings are supported
by bank revolving credit agreements. Outstanding commercial paper balances are
considered as reducing the amount of borrowings available under these
agreements. The bank revolving credit agreements allow borrowings of up to $500
million on a short-term basis and $1.5 billion on a long-term basis. Annual
facility fees are currently 0.075 percent and 0.11 percent, respectively, and
are subject to change based upon changes in BNSF's senior unsecured debt
ratings. Borrowing rates are based upon i) LIBOR plus a spread based upon BNSF's
senior unsecured debt ratings, ii) money market rates offered at the option of
the lenders, or iii) an alternate base rate. The commitments of the lenders
under the short-term and long-term agreements were extended on November 12,
1997, and are currently scheduled to expire on November 11, 1998 and November
12, 2002, respectively.

  At December 31, 1997, there were no borrowings against the long-term revolving
credit agreement and the maturity value of commercial paper outstanding was $673
million, leaving a total remaining capacity of $827 million under the long-term
revolving credit agreement available and $500 million under the short-term
credit agreement available. A portion of commercial paper has been hedged to
fixed interest rates through interest rate swap transactions (see Note 14:
Hedging activities, leases and other commitments).

  The financial covenants of the bank revolving credit agreements require that
BNSF's consolidated tangible net worth, as defined in the agreements, be at
least $4.4 billion, and that its debt cannot exceed 55 percent of its
consolidated total capital as defined in the agreements. BNSF was in compliance
with these financial covenants at December 31, 1997.

  In February 1997, BNSF issued $100 million of 6.1% notes, due February 27,
2027. These notes may be redeemed on February 27, 2000, 2003 or 2007, at the
option of the holder. In July 1997, BNSF issued $175 million of 6.53% notes due
July 15, 2037 and $200 million of 7.25% debentures due August 1, 2097. The $175
million 6.53% notes may be redeemed on July 15, 2003, at the option of the
holder. In August 1997, BNSF filed a shelf registration of debt securities,
including medium-term notes, that may be issued in one or more series at an
aggregate offering price not to exceed $550 million. In December 1997, the
Company issued $200 million of 6 7/8% debentures, due December 1, 2027 under the
August 1997 registration which has $350 million remaining. The net proceeds of
these debt issues were used for general corporate purposes including the
repayment of commercial paper.

  In February 1996, BNSF issued $175 million of 6 7/8% debentures due February
15, 2016. In June 1996, BNSF issued $200 million of 7.29% debentures due June 1,
2036. In December 1995, BNSF issued $300 million of 6 3/8% notes due December
15, 2005 and $350 million of 7% debentures due December 15, 2025. The net
proceeds from the sale of the notes and debentures were used for general
corporate purposes, including the repayment of commercial paper and short-term
bank loans.

                                     BURLINGTON NORTHERN SANTA FE CORPORATION 31

<PAGE>

  Additionally, in December 1995, BNSF defeased its 9% debentures by placing
$166 million of U.S. government securities into an irrevocable trust for the
purpose of repaying the debentures in April 1996. The defeasance of debt
resulted in an extraordinary charge of $6 million, net of applicable income tax
benefits of $3 million, principally reflecting the call premium on the debt.

  BNSF Railway and its predecessors, BNRR and ATSF, completed cross-border
leveraged leases of equipment for a total amount of $411 million, $311 million
and $136 million in 1997, 1996 and 1995, respectively, which were recorded as
capital lease obligations. These transactions included the issuance of $326
million, $242 million, and $108 million of equipment secured debt in 1997, 1996
and 1995, respectively.

  Aggregate long-term debt scheduled maturities are $108 million, $256 million,
$138 million, $204 million and $996 million for 1998 through 2002, respectively.
Commercial paper of $668 million is included in maturities for 2002. Payments
in 2000 exclude the $100 million 6.1% notes, due 2027, which may be redeemed in
2000 at the option of the holder.

  Substantially all BNSF Railway properties and certain other assets are pledged
as collateral to, or are otherwise restricted under, the various BNSF Railway
long-term debt agreements. Equipment obligations and capital leases are secured
by the underlying equipment.

  In addition, an indirect wholly-owned subsidiary of BNSF is contingently
liable as general partner for $355 million of long-term debt issued by Santa Fe
Pacific Pipeline Partners, L.P. This contingent liability would be reduced to
$190 million upon the consummation of the transaction discussed in Note 4:
Potential sale of investment in pipeline partnerships.

13. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

The estimated fair values of BNSF's financial instruments at December 31, 1997
and 1996 and the methods and assumptions used to estimate the fair value of each
class of financial instruments held by BNSF, were as follows:

CASH AND CASH EQUIVALENTS

The carrying amount approximated fair value because of the short maturity of
these instruments.

LONG-TERM DEBT AND COMMERCIAL PAPER

The fair value of BNSF's long-term debt was primarily based on quoted market
prices for the same or similar issues, or on the current rates that would be
offered to BNSF for debt of the same remaining maturities. The carrying amount
of commercial paper approximated fair value because of the short maturity of
these instruments. The carrying amounts of BNSF's long-term debt and commercial
paper at December 31, 1997 and 1996 were $5,289 million and $4,711 million,
respectively, while the estimated fair values at December 31, 1997 and 1996 were
$5,472 million and $4,721 million, respectively.

14. HEDGING ACTIVITIES, LEASES AND OTHER COMMITMENTS HEDGING ACTIVITIES

FUEL

BNSF has a program to hedge against fluctuations in the price of its diesel fuel
purchases. This program includes forward purchases for delivery at fueling
facilities, and various commodity swap and collar transactions which are
accounted for as hedges. Any gains or losses associated with changes in market
value of these hedges are deferred and recognized as a component of fuel expense
in the period in which the hedged fuel is purchased and used. To the extent BNSF
hedges portions of its fuel purchases, it will not realize the impact of
increases or decreases in fuel prices.

  As of February 6, 1998, BNSF had entered into forward purchases for
approximately 353 million gallons at an average price of approximately 53 cents
per gallon, and fuel swaps for approximately 1,046 million gallons at an average
price of approximately 53 cents per gallon.

  The above prices do not include taxes, transportation costs, certain other
fuel handling costs and, except for forward contracts, any differences which may
occur from time to time between the prices of commodities hedged and the
purchase price of BNSF's diesel fuel.

  BNSF's fuel hedging program covers approximately 72 percent, 29 percent and 18
percent of estimated fuel purchases for 1998, 1999, and 2000, respectively.
Quarterly hedges in 1998 range from 64 percent to 82 percent of anticipated fuel
purchases. Hedges for 1999 and 2000 approximate 29 percent and 18 percent of
estimated consumption for each quarter, respectively. Hedge positions are
closely monitored to ensure that they will not exceed actual fuel requirements
in any period. Unrecognized losses from BNSF's fuel hedging transactions were
approximately $24 million as of December 31, 1997 and unrecognized gains as of
December 31, 1996 were approximately $17 million. BNSF also monitors its hedging
positions and credit ratings of its counterparties and does not anticipate
losses due to counterparty nonperformance.


32 BURLINGTON NORTHERN SANTA FE CORPORATION

<PAGE>

INTEREST RATE

From time to time, the Company enters into various interest rate hedging
transactions for the purpose of managing exposure to fluctuations in interest
rates and establishing rates in anticipation of future debt issuances. As of
February 6, 1998, BNSF had interest rate swap transactions which fixed the
interest rate on the total principal amount of $375 million of its commercial
paper debt. The interest rate swap transactions require payment of a weighted
average fixed interest rate of approximately 6.1 percent, and the receipt of a
variable interest rate based on a commercial paper composite rate. Swap
transactions of $250 million will expire in December 1998, and $125 million will
expire in December 1999. Any gains and losses associated with changes in market
value of these swaps are not recognized. BNSF recognizes, on an accrual basis, a
fixed rate of interest on the principal amount of commercial paper hedged over
the term of the swap agreements. Unrecognized losses from BNSF's interest rate
swap transactions were not material as of December 31, 1997.

  In anticipation of a future debt issuance, BNSF has entered into treasury lock
transactions totaling $200 million at an average interest rate of 5.875 percent.
The treasury lock transactions are based on a 30-year U.S. treasury rate and can
be closed by BNSF anytime up to expiration in June 1998. The unrecognized gain
on the treasury lock transactions were not material as of December 31, 1997.

LEASES

BNSF has substantial lease commitments for locomotives, freight cars, trailers,
office buildings and other property. Most of these leases provide the option to
purchase the equipment at fair market value at the end of the lease. However,
some provide fixed price purchase options. Future minimum lease payments (which
reflect leases having non-cancelable lease terms in excess of one year) as of
December 31, 1997 are summarized as follows (in millions):

<TABLE>
<CAPTION>
                                         Capital              Operating
Year ended December 31                    Leases                 Leases
---------------------------------------  -------              ---------
<S>                                      <C>                  <C>

1998                                      $   95              $  313
1999                                          95                 233
2000                                          91                 177
2001                                          90                 146
2002                                          90                 121
Thereafter                                   544               1,210
----------------------------------------  ------              ------
Total                                      1,005              $2,200
                                                              ======
Less amount representing interest            310
----------------------------------------  ------
Present value of minimum lease payments   $  695
========================================  ======
</TABLE>

  Lease rental expense for all operating leases was $456 million, $446 million
and $352 million for the years ended December 31, 1997, 1996 and 1995,
respectively. Contingent rentals and sublease rentals were not significant.

OTHER COMMITMENTS

BNSF has entered into commitments to acquire 380 locomotives in 1998. The
locomotives will be financed from one or a combination of sources including, but
not limited to, cash from operations, capital or operating leases, and debt
issuances. The decision on the method used will depend upon then current market
conditions and other factors. Additionally, BNSF has committed to acquire 325,
76 and 50 locomotives in each of 1999, 2000, and 2001, respectively.

  In connection with the closing of the sale of rail lines in Southern
California in 1992 and 1993, BNSF has entered into various shared use agreements
with the agencies, which require BNSF to pay the agencies approximately $6
million annually to maintain track structure and facilities. Additionally, BNSF
recorded a $50 million liability in 1993 for an obligation retained by BNSF
which under certain conditions requires a repurchase of a portion of the
properties sold.

15. ENVIRONMENTAL AND OTHER CONTINGENCIES

ENVIRONMENTAL

BNSF's operations, as well as those of its competitors, are subject to extensive
federal, state and local environmental regulation. BNSF's operating procedures
include practices to protect the environment from the environmental risks
inherent in railroad operations, which frequently involve transporting chemicals
and other hazardous materials. Additionally, many of BNSF'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 is subject to environmental
clean-up 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 clean-up and enforcement costs without regard to
fault or the legality of the original conduct on current and former owners and
operators of a site. BNSF has been notified that it is a potentially responsible
party (PRP) for study and clean-up costs at approximately 34 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 may be considered a PRP under certain other laws.
Accordingly, under CERCLA and other federal and state statutes, BNSF may be held
jointly and severally liable for all environmental costs associated with a
particular site. If there are other PRPs, BNSF generally participates in the
clean-up of these sites through cost-sharing agreements with terms that vary
from site to site. Costs are typically allocated based on relative



                                     BURLINGTON NORTHERN SANTA FE CORPORATION 33

<PAGE>

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 clean-up
costs are initially recorded when BNSF's liability for environmental clean-up 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 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
clean-up, and historical trend analyses.

  BNSF is involved in a number of administrative and judicial proceedings and
other mandatory clean-up efforts at 353 sites, including the Superfund sites, at
which it is being asked to participate in the study or clean-up, or both, of
alleged environmental contamination. BNSF paid approximately $51 million, $47
million and $31 million during 1997, 1996 and 1995 respectively, for mandatory
clean-up efforts, including amounts expended under federal and state voluntary
clean-up programs. BNSF has accruals of approximately $202 million for
remediation and restoration of all known sites. BNSF anticipates that the
majority of the accrued costs at December 31, 1997, will be paid over the next
five years. No individual site is considered to be material.

  Liabilities recorded for environmental costs represent BNSF'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's best
estimates of all costs, without reduction for anticipated recoveries from third
parties, BNSF's total clean-up 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 clean-up
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 that it is unlikely that any identified matters, either
individually or in the aggregate, will have a material adverse effect on BNSF's
consolidated financial position or liquidity.

  The railroad industry, including BNSF Railway, will become subject to future
requirements regulating air emissions from diesel locomotives that will increase
their operating costs. Regulations applicable to new and rebuilt locomotive
engines were issued by the Environmental Protection Agency in December 1997.
These regulations, which are not yet effective, will be phased in between 2000
and 2010. Under some interpretations of federal law, older locomotive engines
may be regulated by states based on standards and procedures which the State of
California ultimately adopts. The State of California has previously indicated
to the Environmental Protection Agency that it will support the federal rule as
proposed subject to slight technical modifications. Presently, the magnitude of
any future expense is unknown.

OTHER CLAIMS AND LITIGATION

BNSF 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 and
personal injury claims. While the final outcome of these items cannot be
predicted with certainty, considering among other things the meritorious legal
defenses available, it is the opinion of management that none of these items,
when finally resolved, will have a material adverse effect on the annual results
of operations, financial position or liquidity of BNSF, 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.

16. RETIREMENT PLANS

  Prior to October 1, 1996, BNSF sponsored noncontributory defined benefit
pension plans through its subsidiaries, BNI and SFP, covering substantially all
non-union employees. Additionally, BNI and SFP sponsored nonqualified defined
benefit plans for certain officers and other employees. On October 1, 1996, the
respective BNI and SFP qualified defined benefit pension plans were merged,
creating the qualified BNSF Retirement Plan. The corresponding nonqualified
defined benefit plans were merged on October 1, 1996, creating the nonqualified
BNSF

34 BURLINGTON NORTHERN SANTA FE CORPORATION

<PAGE>

Supplemental Retirement Plan. The benefits under BNSF's plans are based on
years of credited service and the highest five-year average compensation levels.
BNSF's funding policy is to contribute annually not less than the regulatory
minimum, and not more than the maximum amount deductible for income tax
purposes.

  Components of the net pension cost for BNSF plans, including the prior BNI and
SFP plans, were as follows (in millions):

<TABLE>
<CAPTION>
Year ended December 31,                   1997    1996   1995(1)
-------------------------------------    -----   -----   -------
<S>                                      <C>     <C>     <C>
Service cost, benefits earned
 during the period                       $  14   $  17   $  11
Interest cost on projected obligation      100      97      65
Actual return on plan assets              (329)   (148)   (114)
Net amortization and deferred amounts      221      43      61
Curtailment costs                           --      --      10
Cost of special termination benefits        --      --      32
-------------------------------------    -----   -----   -----
     Net pension cost                    $   6   $   9   $  65
=====================================    =====   =====   =====
</TABLE>
(1) Represents full year BNI combined with SFP for the period from September 22,
    1995 through December 31, 1995.

    The following table shows the reconciliation of BNSF's funded status of the
qualified plans with amounts recorded in the consolidated balance sheet (in
millions):

<TABLE>
<CAPTION>
December 31,                                    1997      1996
------------------------------------------    -------   -------
<S>                                           <C>       <C>
Vested benefit obligation                     $(1,221)  $(1,081)
==========================================    =======   =======
Accumulated benefit obligation                $(1,269)  $(1,161)
==========================================    =======   =======
Projected benefit obligation                  $(1,357)  $(1,247)
Plan assets at fair value, primarily
     marketable equity and debt securities      1,540     1,320
------------------------------------------    -------   -------
Plan assets in excess of projected
 benefit obligation                               183        73
Unrecognized net gain                            (169)      (63)
Unrecognized prior service cost                   (10)      (10)
Unamortized net transition obligation              13        15
------------------------------------------    -------   -------
Prepaid pension asset                         $    17   $    15
==========================================    =======   =======
</TABLE>

  BNSF uses a September 30 measurement date. The prior BNI and SFP plans used
measurement dates of December 31 and September 30, respectively. The assumptions
used in accounting for the BNSF, BNI and SFP qualified and nonqualified plans
were as follows:

<TABLE>
<CAPTION>
                                 BNSF   BNSF    BNI    SFP
                                 1997   1996   1995   1995
-----------------------------    ----   ----   ----   ----
<S>                              <C>    <C>    <C>    <C>
Discount rate                     7.5%  7.75%   7.0%   7.5%
Rate of increase in
 compensation levels              4.0%   4.0%   4.0%   4.0%
Expected long-term rate
     of return on plan assets     9.5%   9.5%   9.5%  9.75%
-----------------------------    ----   ----   ----   ----
</TABLE>

  The following table shows the reconciliation of the BNSF funded status of the
nonqualified supplemental plan with amounts recorded in the consolidated balance
sheet (in millions):

<TABLE>
<CAPTION>
December 31,                                           1997    1996
-----------------------------------------------       -----   -----
<S>                                                   <C>     <C>
Actuarial present value of benefit obligations:
Vested benefit obligation                             $ (38)  $ (31)
===============================================       =====   =====
Accumulated benefit obligation                        $ (39)  $ (32)
===============================================       =====   =====
Projected benefit obligation                          $ (47)  $ (39)
-----------------------------------------------       -----   -----
Unrecognized net loss                                    19      14
Unrecognized prior service cost                           1       1
Unamortized net transition obligation                     1       1
Adjustment required to recognize minimum liability      (13)     (9)
-----------------------------------------------       -----   -----
Accrued pension liability                             $ (39)  $ (32)
===============================================       =====   =====
</TABLE>

  BNSF sponsors 401(k) thrift and profit sharing plans which cover substantially
all non-union employees and certain union employees. BNSF matches 50 percent of
the first 6 percent of non-union employees' contributions, which are subject to
certain percentage limits of the employees' earnings, at each pay period.
Depending on BNSF's performance, an additional matching contribution of up to 30
percent of the first 6 percent can be made at the end of the year. Prior to
December 31, 1996, BNSF sponsored 401(k) thrift and profit sharing plans through
its subsidiaries, BNI and SFP, which covered substantially all non-union
employees and certain union employees. The plans covering non-union employees
were merged on December 31, 1996. Under the prior plans, BNI employees were
immediately fully vested in the employer match, while SFP employees became
vested on a five year schedule based on length of service. As part of the
transition to the BNSF plan, former SFP employees became fully vested in the
employer match made through December 31, 1996. Employer contributions made
subsequent to December 31, 1996, for all non-union employees, are subject to the
five year length of service vesting schedule. BNSF's 401(k) matching expense was
$14 million in 1997 and $13 million in 1996 and 1995.

17. OTHER POSTEMPLOYMENT BENEFIT PLANS

  BNSF provides life insurance benefits to eligible, former BNI non-union
employees. The life insurance plan is noncontributory and covers retirees only.
The postretirement benefit costs related to former BNI employees were $1 million
in each of the three years ended December 31, 1997, 1996 and 1995, respectively.

  BNSF's policy is to fund benefits payable under the life insurance plan as
they come due. The accumulated postretirement benefit obligation related to the
former BNI plan was approximately $17 million at December 31, 1997 and 1996.


                                     BURLINGTON NORTHERN SANTA FE CORPORATION 35

<PAGE>

  Salaried employees of the former SFP who have rendered 10 years of service
after attaining age 45 are eligible for both medical benefits and life insurance
coverage during retirement. The retiree medical plan is contributory and
provides benefits to retirees, their covered dependents and beneficiaries.
Retiree contributions are adjusted annually. The plan also contains fixed
deductibles, coinsurance and out-of-pocket limitations. The life insurance plan
is noncontributory and covers retirees only. The combined components of SFP's
postretirement benefit cost related to former SFP employees relating to its
medical and life insurance plans were as follows (in millions):
<TABLE>
<CAPTION>
                                              Life Insurance
                                             and Medical Plan
                                         -------------------------
                                          1997     1996    1995(1)
-------------------------------------    -------  ------   -------
<S>                                      <C>      <C>      <C>
Service cost                              $   4    $   5    $   1
Interest cost                                14       16        4
Net amortization and deferred amounts        (1)      --       (2)
-------------------------------------    ------   ------   ------
     Net postretirement benefit cost      $  17    $  21    $   3
=====================================    ======   ======   ======
</TABLE>

(1) Includes only the components of postretirement benefit cost from September
22, 1995 to December 31, 1995.

  BNSF's policy is to fund benefits payable under the medical and life insurance
plans as they become due. The following table shows the reconciliation of the
plans' obligations to amounts accrued at December 31, 1997 and 1996 (in
millions). The former SFP plan uses a September 30 measurement date.
<TABLE>
<CAPTION>
                                       Life Insurance       Medical
                                            Plan              Plan
                                       ---------------------------------
                                         1997    1996     1997     1996
-----------------------------------    ------   ------   ------   ------
<S>                                    <C>      <C>      <C>      <C>
Accumulated postretirement
benefit obligation:
 Retirees                               $  44    $  43    $ 111    $ 119
 Fully eligible active participants        --       --        6       11
 Other active participants              3        4       26       33
-----------------------------------     -----    -----    -----    -----
                                           47       47      143      163
Unrecognized net gain (loss)               (2)      (1)      18       (3)
-----------------------------------     -----    -----    -----    -----
     Accrued postretirement
      benefit cost                      $  45    $  46    $ 161    $ 160
===================================     =====    =====    =====    =====
</TABLE>

  For purposes of the above calculations, the assumed health care cost trend
rate for both managed care and non-managed care medical costs is 10 percent in
1997 and is assumed to decrease gradually to 5 percent by 2006 and remain
constant thereafter. Increasing the assumed health care cost trend rates by one
percentage point would increase the accumulated postretirement benefit
obligation for the medical plan by $15 million and the combined service and
interest components of net periodic postretirement benefit cost recognized in
1997 by $2 million.

  For 1997 and 1996, the weighted-average discount rate assumed in determining
the accumulated postretirement  benefit obligation was 7.5 percent and 7.75
percent, respectively, and the assumed weighted-average salary increase was 4
percent for both 1997 and 1996.

OTHER PLANS

Under collective bargaining agreements, BNSF participates in multiemployer
benefit plans which provide certain postretirement health care and life
insurance benefits for eligible union employees. Insurance premiums paid
attributable to retirees, which are generally expensed as incurred, were $15
million, $14 million and $11 million, in 1997, 1996 and 1995, respectively.

18. STOCK OPTIONS, OTHER INCENTIVE PLANS AND OTHER STOCKHOLDERS' EQUITY

STOCK OPTIONS

Under BNSF's stock option plan, options may be granted to officers and salaried
employees at the fair market value of the Company's common stock on the date of
grant. Approximately 4.3 million common shares were available for future grant
at December 31, 1997. All options expire within 10 years after the date of
grant. Shares issued upon exercise of options may be issued from treasury shares
or from authorized but unissued shares.

  The Company applies Accounting Principles Board (APB) Opinion 25 and related
interpretations in accounting for its stock option plans. Accordingly, no
compensation expense has been recognized for its fixed stock option plans as the
exercise price equals the stock price on the date of grant. Had compensation
expense been determined for stock options granted in 1997, 1996, and 1995 based
on the fair value at grant dates consistent with SFAS No. 123 "Accounting for
Stock Based Compensation," the Company's pro forma net income and earnings per
share would have been as follows:
<TABLE>
<CAPTION>
                                              1997      1996     1995
--------------------------------------     --------   -------   ------
<S>                                         <C>       <C>       <C>
Net income (in millions)                     $  857    $  871    $  84
Basic earnings per share                     $ 5.54    $ 5.73    $ .60
Diluted earnings per share                   $ 5.46    $ 5.63    $ .59
--------------------------------------     --------   -------   ------
  The pro forma amounts were estimated using the Black-Scholes option pricing model with the
   following assumptions:

                                               1997      1996     1995
--------------------------------------     --------   -------   ------
Weighted average expected
 life (years)                                   3.0       3.0      3.0
Expected volatility                              20%       20%      20%
Annual dividend per share                    $ 1.20    $ 1.20    $1.20
Risk free interest rate                        5.81%     6.11%    6.11%
Weighted average fair value
     of options granted                      $15.45    $13.34    $9.41
--------------------------------------     --------   -------   ------
</TABLE>

  A summary of the status of the stock option plans as of December 31, 1997,
1996 and 1995, and changes during the years then ended, is presented below:


36 BURLINGTON NORTHERN SANTA FE CORPORATION

<PAGE>

<TABLE>
<CAPTION>

                                             1997                                 1996                               1995
                                 ------------------------------     ------------------------------       ---------------------------
                                               Weighted Average                   Weighted Average                  Weighted Average
                                 Options       Exercise Prices      Options       Exercise Prices        Options    Exercise Prices
-------------------------------  -----------   ----------------     -----------   ----------------       ---------  ----------------
<S>                              <C>              <C>                 <C>            <C>                   <C>         <C>

Balance at beginning of
 year                              8,255,285             $49.46       9,598,653             $37.44       4,119,731            $41.16
Granted                            2,926,012              88.21       2,439,380              75.77       1,026,414             58.20
Conversion of SFP options                 --                 --              --                 --       5,342,024             29.86
Exercised                         (2,364,230)             46.37      (3,582,964)             34.37        (821,769)            31.27
Cancelled                           (229,944)             70.75        (199,784)             64.01         (67,747)            55.29
                                   ---------             ------       ---------             ------       ---------            ------
Balance at end of year             8,587,123              62.95       8,255,285              49.46       9,598,653             37.44
                                   =========             ======       =========             ======       =========            ======
Options exercisable at
 year end                          5,473,286                          5,934,124                          7,465,135
</TABLE>
------------------------------------------------------------------------------
The following table summarizes information regarding stock options outstanding
at December 31, 1997:
<TABLE>
<CAPTION>
Range of                                             Options        Options    Weighted  Average      Weighted Average
Exercise prices                                  Outstanding    Exercisable       Remaining Life       Exercise Prices
------------------------------------------------------------    -----------    -----------------      ----------------
<S>                                               <C>           <C>                <C>                   <C>
$09.04 to $49.66                                   2,109,315     2,109,315          4.2 years             $24.34
$50.88 to $73.88                                   1,896,323     1,882,323          6.4 years             $56.03/(1)/
$74.50 to $74.50                                   1,407,661     1,407,661          8.1 years             $74.50
$80.19 to $87.25                                     522,419        70,759          8.3 years             $83.00/(1)/
$88.31 to $98.88                                   2,651,405         3,228          9.0 years             $88.43/(1)/
                                                   ---------     ---------          ---------             ------
$09.04 to $98.88                                   8,587,123     5,473,286          7.1 years             $48.93
                                                   =========     =========          =========             ======
</TABLE>
(1) The weighted average exercise price of options outstanding approximates the
    weighted average exercise price of options exercisable.
--------------------------------------------------------------------------------
  Options to purchase approximately three million shares of common stock at
$87.31 per share were granted to exempt employees on January 14, 1998. These
options will vest and become exercisable on January 14, 1999 and will expire on
January 14, 2008.

OTHER INCENTIVE PLANS

BNSF has other long-term incentive programs in addition to stock options which
are administered separately on behalf of employees.

  Under the BNSF 1996 Stock Incentive Plan and the Non-Employee Directors' Stock
Plan (NEDS), up to 10,000,000 and 300,000 shares of BNSF common stock,
respectively, have been authorized to be issued in the form of stock options,
restricted stock, performance shares and performance units.

  During 1996, BNSF awarded a total of approximately 400,000 shares of
restricted stock to eligible employees and directors. No cash payment is
required by the individual. Shares awarded under the plans may not be sold,
transferred or used as collateral by the holder until the shares awarded become
free of restrictions. The restrictions will be lifted in thirds over three years
beginning on the third anniversary of the grant date if certain stock price
based performance goals are met. If, however, the performance goals are not met,
the restricted shares will be forfeited. All shares still subject to
restrictions are generally forfeited and returned to the plan if the employee's
or director's relationship is terminated. A total of 334,000 restricted shares
related to this award were outstanding as of December 31, 1997. Additionally, in
December 1997, BNSF issued 30,000 restricted shares of stock at $94.44. The
shares are time-vesting and vest ratably over the five year period ending
December 31, 2002.

  Additionally, under the BNSF 1996 Stock Incentive Plan certain eligible
employees may defer the cash payment of their bonus paid under the Incentive
Compensation Plan (ICP) and will receive restricted stock which restrictions
lapse in three years or in two years if certain performance goals are met. The
number of restricted shares awarded are based on the amount of bonus deferred,
plus incremental shares, using the market price of BNSF common stock on the date
of grant. Restricted awards granted under this program totaled 119,972 shares in
1997. A total of 195,088 awards were outstanding under this and prior programs
on December 31, 1997.

  In addition, all regularly-assigned salaried employees not eligible to
participate in deferrals of ICP are eligible to participate in the BNSF
Discounted Stock Purchase Program. This program allows employees to use their
bonus earned under the ICP to purchase BNSF common stock at a discount from the
market price and requires that the stock be restricted for a three year period.
During the years ended December 31, 1997, 1996 and 1995, 28,000, 29,000 and
39,000 shares, respectively, were purchased under this plan.

  Compensation expense is recorded under the BNSF Stock Incentive Plan in
accordance with APB Opinion 25 and was not material in 1997, 1996 or 1995.


                                     BURLINGTON NORTHERN SANTA FE CORPORATION 37

<PAGE>

OTHER STOCKHOLDERS' EQUITY

As a result of the Merger, certain investments in third parties held by both BNI
and SFP, which were previously recorded on the cost method, were converted to
the equity method due to BNSF's combined ownership position and ability to
exercise significant influence. As such, $26 million, which is net of deferred
taxes of $17 million, was recorded in 1995 as an increase to retained earnings
to reflect BNI's undistributed equity in earnings since initial investment.
SFP's investments were adjusted to fair value upon the application of purchase
accounting.

19. COMMON STOCK AND PREFERRED CAPITAL STOCK
COMMON STOCK

BNSF is authorized to issue 300,000,000 shares of common stock, $.01 Par Value.
At December 31, 1997, there were 156,303,785 shares of common stock outstanding.
Each holder of common stock is entitled to one vote per share in the election of
directors and on all matters submitted to a vote of stockholders. Subject to the
rights and preferences of any future issuance of preferred stock, each share of
common stock is entitled to receive dividends as may be declared by the Board of
Directors out of funds legally available and to share ratably in all assets
available for distribution to stockholders upon dissolution or liquidation. No
holder of common stock has any preemptive right to subscribe for any securities
of BNSF.

PREFERRED STOCK, SERIES A, $.01 PAR VALUE, AUTHORIZED 25,000,000 SHARES

In 1992, BNI issued 6,900,000 shares of 6 1/4% Cumulative Convertible Preferred
Stock, Series A, No Par Value. The convertible preferred stock was not
redeemable prior to December 1995. In September 1995, the outstanding BNI shares
were converted to 6,878,607 shares of BNSF 6 1/4% Cumulative Convertible
Preferred Stock, Series A, $.01 par value. In October 1995, the Board of
Directors voted to redeem BNSF's 6 1/4% Cumulative Convertible Preferred Stock,
Series A, $.01 par value, effective December 26, 1995, at the redemption price
of $52.1875 per share. The majority of the holders of this preferred stock
elected to convert their shares into BNSF common stock as BNSF's common stock
price was higher than the redemption price. As a result, the cash payment for
shares redeemed was not significant.

CLASS A PREFERRED STOCK, $.01 PAR VALUE, AUTHORIZED 50,000,000 SHARES -- ZERO
SHARES ISSUED

At December 31, 1997, BNSF had available for issuance 50,000,000 shares of Class
A Preferred Stock, $.01 Par Value. The Board of Directors has the authority to
issue such stock in one or more series, to fix the number of shares and to fix
the designations and the powers, rights, and qualifications and restrictions of
each series.

20. SHARE REPURCHASE PROGRAM

On July 17, 1997, the Board of Directors of BNSF authorized the repurchase of up
to 10 million shares of the Company's common stock from time to time in the open
market. Repurchased shares will be available to satisfy future requirements of
various stock-based employee compensation programs. Through February 6, 1998,
65,100 shares at a total cost of $84.98 per share have been repurchased under
the program.

  In November 1997, the Company sold equity put options to an independent third
party and received cash proceeds of approximately $1 million. These options
entitle the holder to sell 500,000 shares of BNSF common stock to the Company on
May 5, 1998 at a price of $88 per share. The option contract is for physical
settlement; however, it permits a net-share or net-cash settlement method at the
Company's election. If the market price is below the option price on May 5,
1998, it is possible that BNSF would purchase the 500,000 shares at a price of
$88 per share resulting in cash outflows of $44 million. However, as noted
above, BNSF can also elect to settle on a net-share or net-cash basis for the
difference between the market price and option price on that date. The Company
accounts for the effects of this transaction within stockholders' equity.



38 BURLINGTON NORTHERN SANTA FE CORPORATION

<PAGE>

<TABLE>
<CAPTION>

21. QUARTERLY FINANCIAL DATA -- UNAUDITED
(Dollars in millions, except per share data)            Fourth         Third          Second        First
------------------------------------------------------  --------       --------       -------       -------
<S>                                                     <C>            <C>            <C>           <C>
1997
Revenues/(1)/                                           $  2,187       $  2,138       $ 2,064       $ 2,024
Operating income/(2)/                                        438            541           459           329
------------------------------------------------------  --------       --------       -------       -------
Net income/(2)/                                         $    217       $    283       $   235       $   150
------------------------------------------------------  --------       --------       -------       -------

Basic earnings per common share/(3)/                    $   1.40       $   1.82       $  1.53       $   .97
Diluted earnings per common share/(3)/                  $   1.38       $   1.80       $  1.50       $   .96
Dividends declared per common share                     $    .30       $    .30       $   .30       $   .30
Common stock price:
 High                                                   $100 3/8       $     98       $91 1/2       $89 1/2
 Low                                                     91 5/16        90 9/16        70 7/8            74

1996
Revenues/(1)/                                           $  2,080       $  2,032       $ 2,013       $ 2,016
------------------------------------------------------  --------       --------       -------       -------
Operating income                                             469            476           418           385
------------------------------------------------------  --------       --------       -------       -------
Net income                                              $    244       $    247       $   211       $   187
------------------------------------------------------  --------       --------       -------       -------

Basic earnings per common share/(3)/                    $   1.59       $   1.62       $  1.38       $  1.25
Diluted earnings per common share/(3)/                  $   1.57       $   1.59       $  1.36       $  1.22
Dividends declared per common share                     $    .30       $    .30       $   .30       $   .30
Common stock price:
 High                                                   $ 90 1/8       $ 86 3/4       $88 3/4       $87 1/8
 Low                                                      77 7/8         76 1/4        77 7/8        73 1/2
------------------------------------------------------  --------       --------       -------       -------
</TABLE>

(1) Amounts do not agree to previously reported amounts due to certain
    reclassifications between revenues and expenses which were not significant.
(2) Fourth quarter 1997 results include a $90 million pre-tax charge ($57
    million after tax) as discussed in Note 3.
(3) Earnings per share information has been restated to reflect adoption of SFAS
    No. 128.


                                     BURLINGTON NORTHERN SANTA FE CORPORATION 39