<PAGE>

                                                                    EXHIBIT 28.2

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

Management's discussion and analysis relates to the financial condition and
results of operations 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).


RESULTS OF OPERATIONS

The results of operations discussed below include BNSF results for the year
ended December 31, 1997 and 1996, BNI results for the year ended December 31,
1995 and SFP results from the merger date, September 22, 1995, through December
31, 1995. All earnings per share information is stated on a diluted basis.

YEAR ENDED DECEMBER 31, 1997 COMPARED WITH YEAR ENDED DECEMBER 31, 1996

BNSF recorded net income for 1997 of $885 million ($5.64 per common share),
compared with net income of $889 million ($5.74 per common share) for 1996. The
decrease in net income is primarily due to a fourth quarter special charge of
$90 million ($57 million after tax) or $.36 per common share principally related
to the consolidation of union clerical functions. This was largely offset by
improved operating results in 1997 despite severe weather conditions in the
first quarter of 1997 throughout the Northern Plains and the Pacific Northwest
(PNW). The financial impact of recurring and protracted outages on many parts of
the system, the cost of repairing track, signals and equipment, and the
operating inefficiencies caused by the weather is virtually impossible to
measure with precision. However, the Company estimates that the severe weather
in the first quarter of 1997 resulted in lost revenue opportunities of
approximately $100 million and increased operating expenses by at least $50
million.

  Excluding the fourth quarter special charge, net income for 1997 was $942
million ($6.00 per common share) compared with 1996 net income of $889 million
($5.74 per common share).
--------------------------------------------------------------------------------
REVENUE TABLE

The following table presents BNSF's revenue information by commodity for the
years ended December 31, 1997, 1996 and 1995 and includes certain
reclassifications of prior year information to conform to current year
presentation.

<TABLE>
<CAPTION>
                                             Revenues                   Revenue Ton Miles (RTM)          Revenue Per Thousand RTM
                                  ----------------------------     -------------------------------     ----------------------------
                                   1997       1996       1995        1997        1996        1995       1997       1996       1995
                                  ------     ------     ------     -------     -------     -------     ------     ------     ------
                                          (IN MILLIONS)                     (IN MILLIONS)
<S>                               <C>        <C>        <C>        <C>         <C>         <C>         <C>        <C>        <C>
Intermodal                        $2,282     $2,039     $1,076      79,964      71,262      38,516     $28.54     $28.61     $27.94
Coal                               1,972      1,973      1,821     169,776     169,380     153,169      11.62      11.65      11.89
Agricultural Commodities           1,087      1,171      1,143      57,039      59,601      55,356      19.06      19.65      20.65
Chemicals                            793        765        443      30,750      28,896      17,155      25.79      26.47      25.82
Forest Products                      573        556        471      25,876      25,140      19,828      22.14      22.12      23.75
Consumer Goods                       505        470        365      19,814      18,201      12,332      25.49      25.82      29.60
Metals                               424        413        320      19,958      20,199      13,804      21.24      20.45      23.18
Automotive                           422        396        211       7,102       6,062       3,158      59.42      65.32      66.81
Minerals                             352        319        260      14,309      12,318      10,119      26.60      25.90      25.69
Other                                  3         39          7           -           -           -          -          -          -
------------------------          ------     ------     ------     -------     -------     -------     ------     ------     ------
    Total                         $8,413     $8,141     $6,117     424,588     411,059     323,437     $19.81     $19.71     $18.91
========================          ======     ======     ======     =======     =======     =======     ======     ======     ======
</TABLE>

                                     BURLINGTON NORTHERN SANTA FE CORPORATION 13

<PAGE>

REVENUES

Total revenues for 1997 were $8,413 million or 3 percent higher compared with
revenues of $8,141 million for 1996. The $272 million increase primarily
reflects increases in the intermodal, consumer goods, minerals, chemicals,
automotive, forest products and metals segments partially offset by lower
agricultural commodities revenues. Revenue per revenue ton mile, a key
performance statistic, increased slightly in 1997 to $19.81 from $19.71 in 1996.
During 1997, BNSF's share of the Western United States (U.S.) rail traffic
market, based on reporting to the Association of American Railroads, increased
1.8 points to 41.4 percent.

  Intermodal revenues improved $243 million or 12 percent compared with 1996,
due to increased volume growth in the Direct, International, Truckload, and IMC
segments. The Direct segment experienced a 14 percent growth in revenues
primarily due to an 18 percent gain in loadings. Direct segment growth was due
to volume increases from less than truckload (LTL) shipments led by Yellow
Freight, Consolidated Freightways and Roadway. LTL volume from Yellow Freight,
Consolidated Freightways, and Roadway has grown substantially all year with
growth accelerating in the 2nd, 3rd, and 4th quarters in particular due to
Yellow Freight's change of operations completed in April 1997. International
revenues increased 10 percent from 1996 due to an 8 percent increase in units
moved. International growth has been the result of a strong import economy and
increased market share by steamship lines such as Hyundai, OOCL, and Cosco that
utilize BNSF. Truckload revenues increased 21 percent due to a 20 percent
increase in loadings, primarily attributable to strength in the Company's
Chicago to California and Southeast to California corridors.

  Agricultural Commodities revenues were $84 million lower, or 7 percent, than
1996, due primarily to a decrease in shipments of wheat for export in the first
and second quarters due to the U.S. uncompetitiveness in the world market and
severe weather conditions in the Northern Plains and PNW in the first quarter.
Some of the volume losses were offset by shorter haul, lower revenue movements
from the southern U.S. plains wheat region. Agricultural commodities revenues
were also unfavorably impacted by lower revenue per car for corn movements and
volume declines in barley traffic.

  Chemicals revenues increased $28 million, or 4 percent, primarily due to
higher demand for petroleum and plastic products. Chemicals carloadings
increased 4 percent due to additional traffic from Texas Gulf Coast shippers.
Rate increases in petroleum products offset average revenue per car decreases in
agricultural minerals and industrial products.

  Consumer Goods revenues were $35 million higher, or 7 percent, as compared
with 1996 primarily due to growth in the government and machinery and bulk foods
segments. Overall consumer goods carloadings increased 13 percent. Volume gains
in bulk foods were the result of strong corn syrup and sugar loadings, while
gains in government and machinery was the result of special moves for Boeing and
additional military movements.

  Metals revenues increased $11 million, or 3 percent, due to a 4 percent
increase in revenue per revenue ton mile. Revenue per car gains were realized in
steel due to a shift in traffic mix away from scrap to sheet steel and
structural products.

  Automotive revenues increased $26 million, or 7 percent, due to a 5 percent
volume gain in motor vehicle and vehicle parts traffic. BNSF experienced gains
in units moved for Honda and General Motors which were partially offset by
reduced Ford shipments. Revenue per revenue ton mile decreased 9 percent due to
changes in the traffic mix.

  Minerals revenues increased $33 million, or 10 percent, compared with 1996 due
primarily to a 6 percent increase in shipments. Volume gains in clay and
aggregates, sand, rock and specialty minerals and sodium compounds were
partially offset by a decrease in shipments of cement, gypsum and lime. Clay and
aggregates revenue increases were due to increased movements from Wyoming
producers. Rock and specialty minerals volume gains were led by improvements in
crushed stone from Texas origins. Additional loadings in the sodium compounds
were the result of specific business initiatives to increase the Company's
participation in the market.

EXPENSES

Total operating expenses for 1997 were $6,646 million or $253 million higher
compared with expenses of $6,393 million for 1996. As discussed in Note 3:
Special charges, the Company recorded a $90 million ($57 million after-tax)
special charge in the fourth quarter of 1997 primarily related to the
consolidation of union clerical functions. Excluding the special charge,
operating expenses for 1997 were $6,556 million, $163 million or 3 percent
higher than 1996. The adjusted operating ratio for 1997 was 77.9 percent,
compared with an operating ratio of 78.5 percent for 1996.

  Compensation and benefit expenses of $2,675 million were $114 million or 4
percent higher than 1996. A majority of the increase was due to higher costs
associated with weather-related repairs to track and equipment and slower
operations. Additionally, wages were higher due to volume related increases in
train crew costs and because of 1997 wage increases to both salaried and union
employees.


14 BURLINGTON NORTHERN SANTA FE CORPORATION

<PAGE>

  Purchased services expenses of $866 million increased $34 million, or 4
percent, compared with 1996 due to higher ramping and drayage costs related to
increased intermodal volumes. Joint facility costs were also higher due to
operations over trackage rights gained as a condition of the merger of UP-SP.
The above were partially offset by lower professional service expenses.

  Equipment rents expenses of $820 million were $84 million, or 11 percent,
higher than 1996. Lower equipment utilization and higher volumes resulted in
increased locomotive rents and higher time and mileage expenses for rail car and
intermodal trailers and flat cars. Additionally, equipment-related performance
penalties for grain increased $19 million from 1996.

  Fuel expenses of $747 million were $20 million higher than in 1996 due to a 1
percent increase in the average price paid per gallon of diesel fuel as well as
a 2 percent increase in consumption due to volume. Gross ton miles per gallon of
fuel increased by 2 percent to 711 gross ton miles per gallon due to additional
new, fuel-efficient locomotives and the adoption of more fuel efficient
operating practices.

  Materials and other expenses of $675 million were $102 million lower than 1996
partially due to lower derailment and personal injury expenses reflecting the
continuing benefits of employee safety programs. Additionally, other expenses
were reduced by income from the sale of signboard easements and tax incentives
from the state of Nebraska related to investment and employment levels in the
state.

  Interest expense of $344 million was $43 million higher than in 1996,
primarily due to higher debt levels, which increased from $4,711 million at
December 31, 1996 to $5,289 million at December 31, 1997.

  Other income (expense), net was $12 million below 1996. The increase in
expense is due to higher fees from the sale of accounts receivable reflecting an
increase in receivables sold and lower profits from land sales.

  Income tax expense of $519 million was $32 million lower in 1997 due to lower
pre-tax income and a lower effective tax rate due to adjustments to prior years'
tax estimates.

YEAR ENDED DECEMBER 31, 1996 COMPARED WITH YEAR ENDED DECEMBER 31, 1995

BNSF recorded net income for 1996 of $889 million ($5.74 per common share),
compared with net income of $92 million ($.67 per common share) for 1995.
Results for 1995 include a $735 million special charge, which reduced net income
by approximately $453 million. Results for 1995 were further reduced by $100
million (after tax), or $.95 per common share, for the cumulative effect of an
accounting change for locomotive overhauls and $6 million (after tax), or $.05
per common share, for an extraordinary loss on early retirement of debt.
Excluding the above items, net income for 1995 would have been $651 million.

  As discussed in Note 3: Special charges, the Company recorded $735 million for
merger, severance and asset rationalization costs in 1995. The principal
components of the charge were $287 million related to BNSF's plan to centralize
the majority of its clerical functions and $254 million for severance, pension
and other salaried employee benefits and for employee relocation costs incurred
during the period. Additionally, $105 million was recorded for planned branch
line dispositions. The remaining $89 million included obligations for vacating
leased facilities and the write-off of duplicate and excess assets. Additional
accruals of $138 million were recorded through purchase accounting related to
former SFP employees and assets. When its plans are fully implemented, BNSF
expects to have eliminated over 3,300 positions and disposed of approximately
4,000 miles of low density track. To date, BNSF has eliminated approximately
1,700 salaried positions and 1,250 clerical positions and has disposed of
approximately 2,800 miles of low density track.

REVENUES

Total revenues for 1996 were $8,141 million compared with revenues of $6,117
million for 1995. The $2,024 million increase primarily reflects inclusion of a
full year of SFP results in 1996. Prior to the business combination, coal and
agricultural commodities made up approximately 50 percent of BNI's revenues
while intermodal shipments comprised approximately 45 percent of total SFP
revenues.

  Intermodal revenues increased $963 million compared with 1995, due to
inclusion of a full year of SFP operations.

  Coal revenues improved $152 million during 1996. Approximately 85 percent of
the increase was due to inclusion of a full year of SFP operations.
Additionally, tonnage of low-sulfur coal shipped from the Powder River Basin
increased from 1995. Revenue per thousand revenue ton miles declined principally
as a result of continuing competitive pricing pressures and a change in traffic
mix.

  Agricultural commodities revenues during 1996 were $28 million greater than
1995 reflecting a full year of SFP operations largely offset by lower export
shipments of wheat and corn.

  Chemicals revenues increased $322 million compared with 1995. Approximately 90
percent of the increase was due to inclusion of a full year of SFP operations.
The remaining increase was due to strong petroleum products and agricultural
chemicals demand.


                                     BURLINGTON NORTHERN SANTA FE CORPORATION 15

<PAGE>

  Revenue increases and changes per thousand revenue ton miles in all other
commodity groups are principally due to the inclusion of SFP results for the
full year.

EXPENSES

Total operating expenses for 1996 were $6,393 million compared with expenses of
$5,591 million for 1995. The operating ratio for 1996 was 78.5 percent, compared
with an operating ratio of 79.4 percent for 1995, excluding a $735 million
special charge. The favorable decrease in the operating ratio reflects synergies
from combining operations which resulted in reduced costs principally within
administrative functions. These benefits were partially offset by higher prices
paid for labor, services and materials, including a significant increase in the
cost of diesel fuel during 1996.

  Compensation and benefits expenses of $2,561 million were $494 million above
1995 principally due to the full year of combined operations. The Company began
to realize the benefits of the merger during 1996 as employment, which
approximated 43,000 at the end of 1996, decreased by 5 percent when compared
with the prior year. Salaried employee levels decreased over 15 percent in the
same time period.

  Purchased services expenses increased $285 million for 1996 compared with
1995, principally reflecting a full year of combined operations.

  Equipment rents expenses were $196 million higher than 1995 due to the full
year combined operations as well as an increase in lease rental expense for
freight cars.

  Depreciation and amortization expense for 1996 was $240 million higher than
1995 primarily due to the full year depreciation and amortization for combined
operations.

  Fuel expenses for 1996 were $247 million or 51 percent higher than 1995
primarily due to an increase in consumption resulting from the full year of
combined operations and an 8 cent increase in the average price per gallon.

  Materials and other expenses for 1996 increased $75 million compared with
1995. The increase reflects the full year of combined operations partially
offset by decreases in expenses from cost initiatives including reductions in
employee injuries due to increased focus on employee safety.

  Interest expense increased $81 million compared with 1995, due to the full
year effect of interest on SFP debt in 1996 as well as an increase in the levels
of outstanding debt.

  Other income (expense), net was $35 million below 1995. The decrease is due to
a full year of combined operations in 1996 as well as $16 million of equity in
earnings of SFP from February 21, 1995, the date of BNI's initial investment in
SFP, to September 22, 1995, the date of merger consummation.

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 described in Note 2: Acquisition of SFP (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. As discussed in Note 2, the business combination with SFP was
accounted for by the purchase method.

  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 of which the
proceeds were used to finance BNI's purchase of SFP common stock in the Tender
Offer. The Tender Offer was completed on February 21, 1995.

CAPITAL RESOURCES AND LIQUIDITY
1997 CASH FLOWS

Cash generated from operations is BNSF's principal source of liquidity. BNSF
generally funds any additional liquidity requirements through debt issuance,
including commercial paper, or leasing of assets.

  Operating activities provided cash of $1,814 million during 1997 compared with
$1,871 million during 1996. The decrease in cash from operations was in part
caused by an increase in cash used for working capital reflecting the timing of
payments, partially offset by a decrease in payments for employee, merger and
separation costs. Additionally, the Company had a significant increase in
receivable balances during 1997 which was largely offset by the sale of an
additional $300 million of accounts receivable in June.

  BNSF's cash outflows from investing activities for 1997 predominantly
consisted of capital expenditures of $2,182 million which are further discussed
below, while cash inflows from financing activities of $499 million principally
reflect net proceeds from borrowings partially offset by dividend payments.

16 BURLINGTON NORTHERN SANTA FE CORPORATION

<PAGE>

OTHER CAPITAL RESOURCES AND LIQUIDITY

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. Additionally, the Company has a shelf registration
of debt securities, including medium-term notes, which had $350 million
available for borrowing 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. The net
proceeds of these debt issues were used for general corporate purposes including
the repayment of commercial paper.

  During 1997, BNSF Railway installed a new revenue management system, replacing
separate BNRR and ATSF systems. Primarily as a result of systems integration,
accounts receivable balances have risen above historical levels. Receivable
balances reached a 1997 high at September 30, 1997 and during the fourth
quarter, the Company was able to reduce outstanding receivables by $140 million.
The Company expects to further reduce receivables during 1998. The increase is
largely offset by additional accounts receivable sales in 1997. BNSF maintains
an allowance for corrections to and collectibility of freight and other billing,
and believes that the December 31, 1997 allowance is adequate to cover disputed
and uncollectible receivables.

  As discussed in Note 9 to the financial statements, the Company completed a
new amended and restated accounts receivable sales agreement in June 1997 to
sell up to $600 million of accounts receivable. This agreement replaced an
existing accounts receivable sale agreement which allowed the sale of up to $300
million of accounts receivable. In June 1997, the Company sold an additional
$300 million of accounts receivable.

CAPITAL EXPENDITURES AND RESOURCES

A breakdown of cash capital expenditures is set forth in the following table (in
millions):
<TABLE>
<CAPTION>
Year ended December 31,     1997    1996    1995
-----------------------     ----    ----    ----
<S>                        <C>     <C>      <C>
Maintenance of Way         $  974  $  854   $ 482
Equipment                     572     514     112
Expansion Projects            428     445     229
Other                         208     421      67
-----------------------    ------  ------   -----
Total                      $2,182  $2,234   $ 890
=======================    ======  ======   =====
</TABLE>

  Maintenance of way expenditures for 1997 increased primarily due to an
increase in spending on rail and tie renewal projects. Expansion projects in
both 1997 and 1996 reflect double and triple tracking of main line track and
construction of intermodal facilities. Equipment expenditures were higher in
1997 reflecting an increase in locomotive purchases. Other projects in 1996
include $150 million related to rail lines acquired from UP-SP.

  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.

INFLATION

Due to the capital intensive nature of BNSF's business, the full effect of
inflation is not reflected in operating expenses because depreciation is based
on historical cost. An assumption that all operating assets were depreciated at
current price levels would result in substantially greater expense than
historically reported amounts.


                                     BURLINGTON NORTHERN SANTA FE CORPORATION 17

<PAGE>

DIVIDENDS

Common stock dividends declared were $1.20 per common share annually for 1997,
1996 and 1995. Dividends paid on common stock were $185 million and $184 million
during 1997 and 1996, respectively. Dividends on common and preferred stock were
$129 million during 1995. The increase in 1996 dividends as compared to 1995
reflects an increase in outstanding shares of common stock principally due to
the Merger. On January 15, 1998, the Board of Directors declared a dividend of
30 cents per share upon its outstanding shares of common stock, $.01 par value,
payable April 1, 1998, to stockholders of record on March 10, 1998.

CAPITAL STRUCTURE

BNSF's ratio of total debt to total capital was 44 percent, 44 percent and 46
percent at the end of 1997, 1996 and 1995, respectively.

OTHER MATTERS

CASUALTY AND ENVIRONMENTAL

Personal injury claims, including work-related injuries to employees, are a
significant expense for the railroad industry. Employees of BNSF are compensated
for work-related injuries according to the provisions of the Federal Employers'
Liability Act (FELA). FELA's system of requiring finding of fault, coupled with
unscheduled awards and reliance on the jury system, contributed to significant
increases in expense in past years. BNSF implemented a number of safety programs
to reduce the number of personal injuries as well as the associated claims and
personal injury expense. The total amount of personal injury expenses were $139
million, $162 million, and $143 million in 1997, 1996 and 1995, respectively.
Expenses in 1997 and 1996 reflect a full year of combined operations while 1995
includes SFP expenses from September 22, 1995 through December 31, 1995.

  As discussed in more detail in Note 15: Environmental and other contingencies,
the Company'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,
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 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


18 BURLINGTON NORTHERN SANTA FE CORPORATION

<PAGE>

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.

LABOR

Labor unions represent approximately 88 percent of BNSF Railway employees under
collective bargaining agreements with 13 different labor organizations. The
collective bargaining agreements reached in 1995 and 1996 as a result of
industry-wide labor contract negotiations will remain in effect through at least
December 31, 1999 and until new agreements are reached or the Railway Labor
Act's procedures are exhausted.

POTENTIAL SALE OF INVESTMENT IN PIPELINE PARTNERSHIPS

As discussed in Note 4: Potential sale of investment in pipeline partnerships,
Santa Fe Pacific Pipelines, Inc. (Pipelines), an indirect wholly-owned
subsidiary of BNSF, entered into an agreement with Kinder Morgan Energy Partners
L.P. (Kinder Morgan) whereby Kinder Morgan will acquire substantially all of
Pipelines' interests in Santa Fe Pacific Pipeline Partners, L.P. and its
operating subsidiary (Pipeline Partnerships). Total cash consideration to be
received by Pipelines will be approximately $90 million. Pipelines will receive
Kinder Morgan units for its 42 percent limited partnership interests; however,
the Company has debt outstanding, through a subsidiary, which is exchangeable
for common units represented by its limited partnership interest and will become
exchangeable for the Kinder Morgan units to be received by it in the exchange.
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 interest in the Pipeline
Partnerships is largely offset by interest expense related to outstanding debt
of the Company.

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 cost of $84.98 per share have been repurchased under the
program. As discussed in Note 20: Share repurchase program, in November 1997,
the Company sold 500,000 equity put options in connection with its share
repurchase program.

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. Based on 1997 fuel consumption, each one
cent increase in the price of fuel would result in approximately $11 million in
additional fuel expense on an annual basis.

  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

                                     BURLINGTON NORTHERN SANTA FE CORPORATION 19

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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.

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 fix 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 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. Unrecognized gains were
not material as of December 31, 1997.

UP-SP MERGER

The Surface Transportation Board (STB) approved the acquisition of Southern
Pacific Rail Corporation (SP) by Union Pacific Corporation (UP) in its written
decision dated August 12, 1996. The transaction was consummated on September 12,
1996. As a condition of the merger, the STB imposed provisions which grant
BNSF Railway access to approximately 4,000 miles of UP-SP track. The STB
decision provides BNSF Railway with greater access to Gulf Coast and West Coast
markets. Additionally, in late 1997 BNSF Railway was granted temporary access to
additional UP-SP rail lines by order of the STB. On February 13, 1998, the
Company and UP announced an agreement providing for joint ownership of the line
between Houston and New Orleans. This agreement establishes joint dispatching
responsibility for certain Gulf Coast lines and increased access to certain Gulf
Coast shippers for BNSF.

  During 1997, the Company gained approximately 1.8 points of market share of
shipments by rail in the Western United States. This gain was primarily the
result of the trackage rights gained from the UP-SP and operating problems
experienced by the UP-SP associated with consolidating operations. It is
presently unknown when UP-SP's operating difficulties will be resolved and what
effect a fully operational UP-SP will have on BNSF Railway's future market
opportunities and alternatives.

YEAR 2000

BNSF has established a committee to evaluate and manage the cost and risk
associated with the Company's hardware and software becoming year 2000 compliant
and to minimize the impact on the Company's operations. The committee has
identified the major areas of BNSF's information systems that will be affected
by the year 2000 non-compliance and is in the process of implementing changes
and recommending alternative solutions for the year 2000. To date specific
spending on year 2000 activities has not been significant. However, BNSF has
completed year 2000 compliance on certain systems in conjunction with the
merger-related systems integration. The cost of making the Company's remaining
information systems and software year 2000 compliant is estimated to be
approximately $20 million and will be incurred over the next two years.
Additionally, management is evaluating the impact of year 2000 compliance on
other areas of the Company. It is the opinion of management that year 2000 will
not have a material adverse effect on the annual results of operations or
financial position of the Company.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income" and
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information." The Statements are effective for fiscal years beginning after
December 15, 1997. SFAS No. 130 requires the presentation of comprehensive
income and its components in a full set of financial statements. SFAS No. 131
requires the disclosure of financial and descriptive information about
reportable operating segments. Both SFAS No. 130 and 131 are modifications of
disclosure requirements which will have no effect on the results of operations
or financial condition of the Company. The Company does not anticipate any
significant changes in disclosure as a result of adopting SFAS Nos. 130 and 131.

FORWARD-LOOKING INFORMATION

To the extent that these written statements include predictions concerning
future operations and results of operations, such statements are forward-looking
statements that involve risks and uncertainties, and actual results may differ
materially. Factors that could cause actual results to differ materially
include, but are not limited to, general economic downturns, which may limit
demand and pricing; labor matters, which may affect the costs and feasibility of
certain operations; and competition and commodity concentrations, which may
affect traffic and pricing levels.

20 BURLINGTON NORTHERN SANTA FE CORPORATION