##### Table of Contents

##### Index to Financial Statements

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



Form 10-K



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



| | For the fiscal year ended December 31, 2003
| | -------------------------------------------



OR



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



| | For the transition period from                      to
| | ------------------------------------------------------



Commission File Number: 1-6324



The Burlington Northern and Santa Fe Railway Company

(Exact name of registrant as specified in its charter)



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



2650 Lou Menk Drive

Fort Worth, Texas 76131-2830

(Address of principal executive offices, including zip code)



(800) 795-2673

(Registrants telephone number, including area code)



Securities registered pursuant to Section 12(b) of the Act:



The securities listed below are registered on the New York Stock Exchange.



|                                                           |  |                                                       
|---------------------------------------------------------- |  | ------------------------------------------------------
|Title of each class                                        |  |                                                       
|Burlington Northern, Inc.                                  |  | Northern Pacific Railway Company                      
|(Now The Burlington Northern and Santa Fe Railway Company) |  | General Lien Railway and Land Grant 3% Bonds, due 2047
|Consolidated Mortgage Bonds                                |  |                                                       
|9.25%, Series H, due 2006                                  |  |                                                       
|6.55%, Series K, due 2020                                  |  | St. Louis-San Francisco Railway Company Income        
|3.80%, Series L, due 2020                                  |  | Debentures, 5%, Series A, due 2006                    
|3.20%, Series M, due 2045                                  |  |                                                       
|8.15%, Series N, due 2020                                  |  |                                                       
|6.55%, Series O, due 2020                                  |  |                                                       
|8.15%, Series P, due 2020                                  |  |                                                       



---



Securities registered pursuant to Section 12(g) of the Act: None



Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirement
for the past 90 days. Yes þ No ̈



Indicate the number of shares outstanding of each of the registrants classes of common stock, as of the latest
practicable date: 1,000 shares of Outstanding Common Stock, $1.00 par value, as of February 2, 2004.



*The Burlington Northern and Santa Fe Railway Company is a wholly-owned subsidiary of Burlington Northern Santa Fe Corporation (BNSF); as a result, there
is no market data with respect to registrants shares.



DOCUMENTS INCORPORATED BY REFERENCE



None



REGISTRANT MEETS THE CONDITIONS SET FORTH IN THE GENERAL
INSTRUCTION (I)(1)(a) AND (b) OF FORM 10-K AND IS THEREFORE FILING THIS FORM WITH THE REDUCED DISCLOSURE FORMAT.



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TABLE OF CONTENTS



|               |  |                                                                                      |  |     
|-------------- |  | ------------------------------------------------------------------------------------ |  | ----
|               |  |                                                                                      |  | Page
|               | 
|PART I         |  |                                                                                     
|               |  |                                                                                     
|Items 1 and 2. |  | Business and Properties                                                              |  | 1   
|               |  |                                                                                     
|Item 3.        |  | Legal Proceedings                                                                    |  | 6   
|               | 
|PART II        |  |                                                                                     
|               |  |                                                                                     
|Item 5.        |  | Market for Registrants Common Equity and Related Stockholder Matters                |  | 7   
|               |  |                                                                                     
|Item 7.        |  | Managements Narrative Analysis of Results of Operations                             |  | 7   
|               |  |                                                                                     
|Item 7A.       |  | Quantitative and Qualitative Disclosures About Market Risk                           |  | 10  
|               |  |                                                                                     
|Item 8.        |  | Financial Statements and Supplementary Data                                          |  | 11  
|               |  |                                                                                     
|Item 9.        |  | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure |  | 39  
|               |  |                                                                                     
|Item 9A.       |  | Controls and Procedures                                                              |  | 39  
|               |  |                                                                                     
|Item 14.       |  | Principal Accountant Fees and Services                                               |  | 39  
|               | 
|PART IV        |  |                                                                                     
|               |  |                                                                                     
|Item 15.       |  | Exhibits, Financial Statement Schedules, and Reports on Form 8-K                     |  | 40  
|               | 
|Signatures     |  | S-1                                                                                 
|               | 
|Exhibits       |  | E-1                                                                                 



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##### Index to Financial Statements



PART I



|ITEMS 1 and 2. | Business and Properties
|-------------- | -----------------------



The Burlington Northern and Santa Fe Railway Company (BNSF Railway or Company), formerly known as the Burlington Northern Railroad Company (BNRR) was
incorporated in the State of Delaware on January 13, 1961, and is a wholly-owned subsidiary of Burlington Northern Santa Fe Corporation (BNSF). On September 22, 1995, the stockholders of Burlington Northern, Inc. (BNI) and Santa Fe Pacific
Corporation (SFP) became the stockholders of BNSF pursuant to a business combination of the two companies. To effect the combination, BNSF was formed to act as the parent holding company of BNI and SFP. BNI and SFP each owned a large, Class I
railroad: the BNRR and The Atchison, Topeka and Santa Fe Railway Company (ATSF), respectively.



On December 30, 1996, BNI merged with and into SFP. On December 31, 1996, The Atchison, Topeka and Santa Fe Railway Company (ATSF) merged with and into BNRR, and BNRR changed its name to The Burlington Northern and
Santa Fe Railway Company. On January 2, 1998, BNSF Railways parent, SFP, merged with and into BNSF Railway.



BNSF Railway operates one of the largest railroad systems in North America. At December 31, 2003, BNSF Railway had approximately 36,500 employees.



BNSF Railways Internet address is www.bnsf.com.
Through this internet website (found in the Investors link) BNSF Railway makes available, free of charge, its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K, and all amendments to those
reports, as soon as reasonably practicable after these reports are electronically filed with or furnished to the Securities and Exchange Commission.



Track Configuration



As of December 31, 2003, BNSF Railway operates over a railroad system consisting of approximately 32,500 route miles of track (excluding second, third and
fourth main tracks, yard tracks, and sidings), approximately 24,500 miles of which are owned route miles, including easements, through 28 states and two Canadian provinces. Approximately 8,000 route miles of BNSF Railways system consist of
trackage rights that permit BNSF Railway to operate its trains with its crews over another railroads tracks. BNSF Railway operates over other trackage through lease or other contractual arrangements.



As of December 31, 2003, the total BNSF Railway system, including first,
second, third and fourth main tracks, yard tracks, and sidings, consists of approximately 50,000 operated miles of track, all of which are owned by or held under easement by BNSF Railway except for approximately 8,500 route miles operated under
trackage rights. At December 31, 2003, approximately 26,500 miles of BNSF Railways track consists of 112-pound per yard or heavier rail, including approximately 19,500 track miles of 131-pound per yard or heavier rail.



1



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##### Index to Financial Statements

Equipment Configuration



BNSF Railway owned or had under non-cancelable leases exceeding one year the following units of railroad rolling stock as of the dates shown below:



|                        |  |                 |  |        |  |       
|----------------------- |  | --------------- |  | ------ |  | ------
|                        |  | At December 31,
|                        |  | 2003            |  | 2002   |  | 2001  
|Locomotives             |  | 5,377           |  | 5,226  |  | 5,357 
|Freight Cars:           |  |                 |  |        |  |       
|Covered Hopper          |  | 36,255          |  | 37,609 |  | 38,007
|Gondola                 |  | 15,327          |  | 14,942 |  | 15,075
|Box-specially equipped  |  | 10,021          |  | 9,612  |  | 9,641 
|Open Hopper             |  | 10,866          |  | 10,848 |  | 11,094
|Flat                    |  | 7,854           |  | 7,946  |  | 7,844 
|Refrigerator            |  | 5,427           |  | 5,588  |  | 5,554 
|Autorack                |  | 827             |  | 843    |  | 877   
|Tank                    |  | 639             |  | 501    |  | 506   
|Box-general purpose     |  | 31              |  | 559    |  | 581   
|Other                   |  | 302             |  | 319    |  | 343   
|                        |  |                 |  |        |  |       
|Total Freight Cars      |  | 87,549          |  | 88,767 |  | 89,522
|                        |  |                 |  |        |  |       
|Domestic Containers     |  | 10,627          |  | 8,197  |  | 8,259 
|Domestic Chassis        |  | 9,864           |  | 8,180  |  | 8,205 
|Company Service Cars    |  | 4,028           |  | 4,035  |  | 4,132 
|Trailers                |  | 2,152           |  | 2,163  |  | 2,200 
|Commuter Passenger Cars |  | 163             |  | 160    |  | 160   
|                        |  |                 |  |        |  |       



The average age from
date of manufacture of the locomotive fleet at December 31, 2003, was 15 years; the average age from date of manufacture or remanufacture of the freight car fleet at December 31, 2003, was 16 years. These averages are not weighted to reflect the
greater capacities of the newer equipment.



Capital Expenditures and
Maintenance



A breakdown of cash capital expenditures
during 2003, 2002 and 2001 is set forth in the following table:



|                                      |  |                         |       |      |   |       |  |   |      
|------------------------------------- |  | ----------------------- | ----- | ---- | - | ----- |  | - | -----
|                                      |  | Year Ended December 31,
|                                      |  | 2003                    |       | 2002 |   | 2001 
|                                      |  | (in millions)          
|Maintenance of way:                   |  |                         |       |      |   |       |  |   |      
|Rail                                  |  | $                       | 202   |      | $ | 193   |  | $ | 233  
|Ties                                  |  |                         | 227   |      |   | 222   |  |   | 254  
|Surfacing                             |  |                         | 160   |      |   | 161   |  |   | 146  
|Other                                 |  |                         | 337   |      |   | 325   |  |   | 335  
|                                      |  |                         |       |      |   |       |  |   |      
|Total maintenance of way              |  | $                       | 926   |      | $ | 901   |  | $ | 968  
|Mechanical                            |  |                         | 133   |      |   | 168   |  |   | 183  
|Information services                  |  |                         | 63    |      |   | 79    |  |   | 69   
|Other                                 |  |                         | 115   |      |   | 107   |  |   | 113  
|                                      |  |                         |       |      |   |       |  |   |      
|Total maintenance of business         |  | $                       | 1,237 |      | $ | 1,255 |  | $ | 1,333
|New locomotive acquisitions           |  |                         | 270   |      |   |      |  |   |     
|Terminal and line expansion and other |  |                         | 218   |      |   | 103   |  |   | 126  
|                                      |  |                         |       |      |   |       |  |   |      
|Total                                 |  | $                       | 1,725 |      | $ | 1,358 |  | $ | 1,459
|                                      |  |                         |       |      |   |       |  |   |      



2



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##### Index to Financial Statements

The table above does not include expenditures for equipment financed through operating leases
(principally locomotive and rolling stock). BNSF Railways planned 2004 cash capital expenditures approximate $1.9 billion. Approximately $1.2 billion of the total planned capital expenditures will be for maintenance of business activities,
primarily consisting of expenditures to maintain BNSF Railways track, signals, bridges and tunnels. The Company plans to spend approximately $0.5 billion on the purchase and maintenance of locomotives. The remaining $0.2 billion is planned to
be spent on terminal and line expansions, as well as other projects.



As of December 31, 2003, General Electric Company, Alstom Transportation Inc., OmniTRAX Locomotive Services, LLC and the Electro-Motive Division of General Motors Corporation performed locomotive maintenance and overhauls for BNSF Railway
at its facilities under various maintenance agreements that covered approximately 3,200 locomotives.



The extent of the BNSF Railways track maintenance program is depicted in the following table:



|                                   |  |                         |  |        |  |       
|---------------------------------- |  | ----------------------- |  | ------ |  | ------
|                                   |  | Year Ended December 31,
|                                   |  | 2003                    |  | 2002   |  | 2001  
|Track miles of rail laid(a)        |  | 749                     |  | 685    |  | 891   
|Cross ties inserted (thousands)(a) |  | 2,353                   |  | 2,248  |  | 2,704 
|Track resurfaced (miles)           |  | 12,399                  |  | 12,499 |  | 11,011



|(a) | Includes expenditures for both maintenance of existing route system and expansion projects. These expenditures are primarily capitalized.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------



BNSF Railways planned 2004 track maintenance of way program will
result in the installation of approximately 570 track miles of rail, the replacement of about 2.4 million ties, and the resurfacing of approximately 12,000 miles of track.



Property and Facilities



BNSF Railway operates various facilities and equipment to support its transportation system, including its infrastructure and locomotives and freight cars
as previously described. It also owns or leases other equipment to support rail operations, including highway trailers, containers and vehicles. Support facilities for rail operations include yards and terminals throughout its rail network, system
locomotive shops to perform locomotive servicing and maintenance, a centralized network operations center for train dispatching and network operations monitoring and management in Fort Worth, Texas, regional dispatching centers, computers,
telecommunications equipment, signal systems, and other support systems. Transfer facilities are maintained for rail-to-rail as well as intermodal transfer of containers, trailers and other freight traffic. These facilities include 36 major
intermodal hubs located across the system and one intermodal hub center off-line used in connection with haulage agreements with other railroads. BNSF Railways largest intermodal facilities in terms of 2003 volume were:



|                                      |  |          
|------------------------------------- |  | ---------
|Intermodal Facilities                 |  | Lifts    
|Hobart Yard (Los Angeles, California) |  | 1,217,000
|Corwith Yard (Chicago, Illinois)      |  | 697,000  
|Willow Springs (Illinois)             |  | 658,000  
|San Bernardino (California)           |  | 497,000  
|Alliance (Fort Worth, Texas)          |  | 476,000  
|Cicero (Illinois)                     |  | 454,000  
|Argentine (Kansas City, Kansas)       |  | 273,000  
|                                      |  |          



BNSF Railway owns 25
automotive distribution facilities where automobiles are loaded or unloaded from multi-level rail cars and serves eight port facilities in the United States and Canada.



BNSF Railways largest freight car classification yards based on the average daily number of cars processed (excluding
cars that do not change trains at the terminal and intermodal and coal cars) are shown below:



|                                |  |                             
|------------------------------- |  | ----------------------------
|Classification Yard             |  | Daily Average Cars Processed
|Argentine (Kansas City, Kansas) |  | 1,814                       
|Galesburg (Illinois)            |  | 1,590                       
|Barstow (California)            |  | 1,323                       
|Pasco (Washington)              |  | 1,210                       
|Memphis (Tennessee)             |  | 938                         
|                                |  |                             



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##### Index to Financial Statements

As of December 31, 2003, certain BNSF Railway properties and other assets are subject to liens securing
$391 million of mortgage debt. Certain locomotives and rolling stock of BNSF Railway are subject to equipment obligations and leases, as referred to in Notes 9 and 10 to the Consolidated Financial Statements.



Productivity



Productivity, as measured by thousand gross ton miles per employee, has risen steadily in the last three years as shown in
the table below.



|                                                                |  |                         |  |        |  |       
|--------------------------------------------------------------- |  | ----------------------- |  | ------ |  | ------
|                                                                |  | Year Ended December 31,
|                                                                |  | 2003                    |  | 2002   |  | 2001  
|Thousand gross ton miles divided by average number of employees |  | 24,906                  |  | 23,374 |  | 22,862
|                                                                |  |                         |  |        |  |       



Business Mix



In serving the Midwest, Pacific Northwest and the Western, Southwestern, and
Southeastern regions and ports of the country, BNSF Railway transports, through one operating transportation services segment, a range of products and commodities derived from manufacturing, agricultural, and natural resource industries.
Accordingly, its financial performance is influenced by, among other things, general and industry economic conditions at the international, national, and regional levels. The map below illustrates the Companys primary routes, including
trackage rights, which allow BNSF Railway to access major cities and ports in the western United States as well as Canadian and Mexican traffic. In addition to major cities and ports, BNSF Railway efficiently serves many smaller markets by working
closely with the Companys more than 200 shortline partners. BNSF Railway has also entered into marketing agreements with Canadian National Railway Company and Kansas City Southern Railway Company expanding the marketing reach for the
organizations.



LOGO



4



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##### Index to Financial Statements

Consumer Products: The Consumer Products freight business
provided approximately 39 percent of freight revenues in 2003.



Industrial Products: Industrial Products freight business provided approximately 23 percent of BNSF Railways freight revenues in 2003.



Coal: In 2003, the transportation of coal contributed about 22 percent of freight revenues.



Agricultural Products:
The transportation of Agricultural Products provided approximately 16 percent of 2003 total freight revenues.



Freight Statistics: The following table sets forth certain freight statistics relating to rail operations for the periods indicated:



|                                               |  |                         |         |      |   |         |  |   |        
|---------------------------------------------- |  | ----------------------- | ------- | ---- | - | ------- |  | - | -------
|                                               |  | Year Ended December 31,
|                                               |  | 2003                    |         | 2002 |   | 2001   
|Revenue ton miles (millions)                   |  |                         | 508,200 |      |   | 490,234 |  |   | 501,829
|Freight revenue per thousand revenue ton miles |  | $                       | 18.26   |      | $ | 18.10   |  | $ | 18.11  
|Average length of haul (miles)                 |  |                         | 1,014   |      |   | 992     |  |   | 992    



Revenue, cars/units
and average revenue per car/unit information for the two years ended December 31, 2003, is incorporated by reference from a table in Item 7, Managements Narrative Analysis of Results of Operations, under the headings Results of
Operations; Revenue Table.



Government Regulation and Legislation



Rail operations are subject to the regulatory
jurisdiction of the Surface Transportation Board (STB) of the United States Department of Transportation (DOT), the Federal Railroad Administration of DOT, the Occupational Safety and Health Administration (OSHA), as well as state regulatory
agencies. The STB has jurisdiction over disputes and complaints involving certain rates, routes and services, the sale or abandonment of rail lines, applications for line extensions and construction, and consolidation or merger with, or acquisition
of control of, rail common carriers. The outcome of STB proceedings can affect the costs and profitability of BNSF Railways business.



DOT and OSHA have jurisdiction under several federal statutes over a number of safety and health aspects of rail operations. State agencies regulate some
aspects of rail operations with respect to health and safety in areas not otherwise preempted by federal law.



BNSF Railways rail operations, as well as those of its competitors, are subject to extensive federal, state and local environmental regulation.
These laws cover discharges to waters, air emissions, toxic substances, and the generation, handling, storage, transportation, and disposal of waste and hazardous materials. This regulation has the effect of increasing the cost and liabilities
associated with rail operations. Environmental risks are also inherent in rail operations, which frequently involve transporting chemicals and other hazardous materials.



Many of BNSF Railways land holdings are and have been used for industrial or transportation-related purposes or leased
to commercial or industrial companies whose activities may have resulted in discharges onto the property. As a result, BNSF Railway is now subject and will from time to time continue to be subject to environmental cleanup and enforcement actions. In
particular, the federal Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), also known as the Superfund law, generally imposes joint and several liability for cleanup and enforcement costs, without regard to fault or the
legality of the original conduct, on current and former owners and operators of a site. Accordingly, BNSF Railway may be responsible under CERCLA and other federal and state statutes for all or part of the costs to cleanup sites at which certain
substances may have been released by BNSF Railway, its current lessees, former owners or lessees of properties, or other third parties. Further discussion is incorporated by reference from Note 10 to the Consolidated Financial Statements.



5



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##### Index to Financial Statements

Competition



The business environment in which BNSF Railway operates remains highly competitive. Depending on the specific market, deregulated motor carriers, other
railroads and river barges may exert pressure on price and service levels. The presence of advanced, high service truck lines with expedited delivery, subsidized infrastructure and minimal empty mileage continues to affect the market for non-bulk,
time sensitive freight. The potential expansion of longer combination vehicles could further encroach upon markets traditionally served by railroads. In order to remain competitive, BNSF Railway and other railroads continue to develop and implement
operating efficiencies to improve productivity.



As railroads
streamline, rationalize and otherwise enhance their franchises, competition among rail carriers intensifies. BNSF Railways primary rail competitor in the western region of the United States is the Union Pacific Railroad Company (UP). Other
Class I railroads and numerous regional railroads and motor carriers also operate in parts of the same territories served by BNSF Railway.



Based on weekly reporting to the Association of American Railroads, in 2003, BNSF Railways share of the western United States rail traffic was
approximately 45 percent.



|ITEM 3. | Legal Proceedings
|------- | -----------------



Ray Ridgeway, et al. v. Burlington Northern Santa Fe Corporation and The Burlington Northern and Santa Fe Railway Company, No. 48-185170-00
(District Court of Tarrant County, Texas, 48thJudicial District) is a state court action filed on October 27, 2000.
The plaintiffs causes of action include alleged breach of contract, negligence, and breach of fiduciary duties with respect to a special dividend that was paid in 1988 by a Burlington Northern Santa Fe Corporation (BNSF) predecessor, Santa Fe
Southern Pacific Corporation (SFSP). The complaint alleges that SFSP erroneously informed shareholders as to the tax treatment of the dividendspecifically, the apportionment of the dividend as either a distribution of earnings and profits or a
return of capitalwhich allegedly caused some shareholders to overpay their income taxes. The plaintiffs assert through their experts report, that SFSP had essentially no accumulated earnings and profits and that the entire dividend
distribution should have been treated as a return of capital, rather than the approximately 34 percent that SFSP determined was a return of capital. BNSF Railway believes these claims lack merit and that it has substantial defenses on both the
merits of these claims and the attempted class action, and it is defending these claims vigorously.



In 2002, BNSF Railway was sued by the North Dakota Department of Health (DOH), and a number of private intervenors, including the City of Mandan,
regarding the scope of BNSFs obligation to remediate all or part of a diesel plume or plumes in Mandan, North Dakota. Proceedings were brought in state court, North Dakota Department of Health, et al. v. The Burlington Northern and Santa Fe
Railway Company; District Court, State of North Dakota, County of Morton, South Central Judicial District Civil No. 02-C-1174, and in an administrative proceeding (Case No. 84-400 WPC). In both proceedings, DOH is seeking injunctive relief and
compensatory damages as well as unspecified penalties that could exceed $100,000 due to alleged, historic spills of fuel. The intervenors are seeking injunctive relief and personal injury and property damages. In August 2002, the administrative law
judge recommended granting the plaintiffs Motion for Partial Summary Judgment but that penalties were inappropriate against BNSF Railway. The subsequent administrative order issued on February 5, 2003, granted Partial Summary Judgment on
liability and denied BNSFs Motion to Stay the Administrative Proceeding but did not include the administrative law judges recommendation regarding penalties. BNSF appealed the order in May 2003. On October 21, 2003, the state court
reversed the order and the administrative proceeding was stayed pending outcome of the state court lawsuit.



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



Reference is made to Note 5 to the Consolidated Financial Statements for information concerning certain pending tax related administrative or adjudicative
state proceedings or appeals.



6



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##### Index to Financial Statements

PART II



|ITEM 5. | Market for Registrants Common Equity and Related Stockholder Matters
|------- | ---------------------------------------------------------------------



BNSF Railways common stock is owned by BNSF and therefore is not traded on any market.



|ITEM 7. | Managements Narrative Analysis of Results of Operations
|------- | --------------------------------------------------------

Managements narrative analysis relates to the results of operations of The Burlington Northern and Santa Fe Railway Company and its majority-owned subsidiaries (collectively, BNSF Railway or Company). BNSF
Railway is a wholly-owned subsidiary of BNSF. The following narrative analysis should be read in conjunction with the Consolidated Financial Statements and the accompanying notes.



Results of Operations



Revenue Table



The following table presents BNSF Railways revenue information by commodity for the years ended December 31, 2003 and 2002:



|                         |  |                         |       |                |   |                             |  |       |  |       |  |      |       |  |   |      
|------------------------ |  | ----------------------- | ----- | -------------- | - | --------------------------- |  | ----- |  | ----- |  | ---- | ----- |  | - | -----
|                         |  | Year Ended December 31,
|                         |  | Revenues                |       | Cars/Units     |   | Average RevenuePer Car/Unit
|                         |  | 2003                    |       | 2002           |   | 2003                        |  | 2002  |  | 2003  |  | 2002
|                         |  | (in millions)           |       | (in thousands) |   |                             |  |      
|Consumer Products        |  | $                       | 3,650 |                | $ | 3,345                       |  | 4,336 |  | 3,880 |  | $    | 842   |  | $ | 862  
|Industrial Products      |  |                         | 2,138 |                |   | 2,041                       |  | 1,428 |  | 1,415 |  |      | 1,497 |  |   | 1,442
|Coal                     |  |                         | 2,025 |                |   | 2,071                       |  | 2,048 |  | 2,097 |  |      | 989   |  |   | 988  
|Agricultural Products    |  |                         | 1,465 |                |   | 1,408                       |  | 834   |  | 794   |  |      | 1,757 |  |   | 1,773
|                         |  |                         |       |                |   |                             |  |       |  |       |  |      |       |  |   |      
|Total Freight Revenues   |  |                         | 9,278 |                |   | 8,865                       |  | 8,646 |  | 8,186 |  | $    | 1,073 |  | $ | 1,083
|                         |  |                         |       |                |   |                             |  |       |  |       |  |      |       |  |   |      
|Other Revenues           |  |                         | 102   |                |   | 98                          |  |       |  |       |  |      |       |  |   |      
|                         |  |                         |       |                |   |                             |  |       |  |       |  |      |       |  |   |      
|Total Operating Revenues |  | $                       | 9,380 |                | $ | 8,963                       |  |       |  |       |  |      |       |  |   |      
|                         |  |                         |       |                |   |                             |  |       |  |       |  |      |       |  |   |      



Expense Table



The following table presents BNSF Railways expense information for the
years ended December 31, 2003 and 2002:



|                              |  |                        |       |      |   |      
|----------------------------- |  | ---------------------- | ----- | ---- | - | -----
|                              |  | Year EndedDecember 31,
|                              |  | 2003                   |       | 2002
|                              |  | (in millions)         
|Compensation and benefits     |  | $                      | 2,960 |      | $ | 2,893
|Purchased services            |  |                        | 1,232 |      |   | 1,139
|Depreciation and amortization |  |                        | 909   |      |   | 930  
|Equipment rents               |  |                        | 705   |      |   | 698  
|Fuel                          |  |                        | 1,073 |      |   | 833  
|Materials and other           |  |                        | 811   |      |   | 794  
|                              |  |                        |       |      |   |      
|Total operating expenses      |  | $                      | 7,690 |      | $ | 7,287
|                              |  |                        |       |      |   |      
|Interest expense              |  | $                      | 144   |      | $ | 153  
|                              |  |                        |       |      |   |      
|Other expense, net            |  | $                      | 13    |      | $ | 12   
|                              |  |                        |       |      |   |      
|Income tax expense            |  | $                      | 574   |      | $ | 570  
|                              |  |                        |       |      |   |      



7



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##### Table of Contents

##### Index to Financial Statements

Year Ended December 31, 2003 Compared with Year Ended December 31, 2002



BNSF Railway recorded net income for 2003 of $1,023 million, which includes
the favorable cumulative effect of an accounting change of $39 million, net of tax, compared with net income for 2002 of $961 million. Operating income of $1,690 million in 2003 was $14 million higher than 2002.



Revenues



Freight revenues of $9,278 million were $413 million, or 5 percent, higher than 2002. Freight revenues in 2003 included fuel
surcharges of $110 million, compared with $26 million in the prior year. Average revenue per car/unit decreased 1 percent in 2003 to $1,073 from $1,083 in 2002.



Consumer Products revenues of $3,650 million for 2003 were $305 million, or 9 percent, greater than 2002. The increase in Consumer Products revenue is
primarily due to increased volumes in the international, truckload and perishable sectors. The reduction in average revenue per unit of 2 percent is primarily related to the strong growth in the international sector, which has lower average revenue
per unit.



Industrial Products revenues increased $97 million,
or 5 percent, to $2,138 million for 2003. The revenue increase is primarily due to increased business in steel, taconite, clay and minerals in the construction products sector and increased military, lumber, plywood, particle board and paper traffic
in the building products sector, which were somewhat offset by lower plastics traffic. Rate increases along with some fuel surcharges contributed to a 4 percent increase in average revenue per car.



Coal revenues of $2,025 million for 2003 decreased $46 million, or 2 percent,
versus a year ago. The decrease is primarily a result of lower volumes from the first quarter draw-down of utility stockpiles, weaker demand due to milder weather, utility plant shutdowns and the conversion of a utility plant from coal to natural
gas. The average revenue per car grew slightly.



Agricultural
Products revenues of $1,465 million for 2003 were $57 million, or 4 percent, higher than revenues for 2002. This increase is primarily due to more ethanol shipments from plants in the Midwest to California and higher shipments of ethanol
by-products. Increased export shipments of soybeans also contributed to growth. The average revenue per car was down slightly due to a change in traffic mix partially offset by increased fuel surcharges.



Expenses



Total operating expenses for 2003 were $7,690 million, an increase of $403 million, or 6 percent, over 2002 primarily due to
higher fuel expense and greater volumes handled.



Fuel expenses
of $1,073 million for 2003 were $240 million, or 29 percent, higher than 2002. The increase in fuel expense was primarily the result of a 16-cent, or $194 million, increase in the average all-in cost per gallon of diesel fuel. The increase in the
average all-in cost per gallon of diesel fuel is comprised of a 17-cent, or $212 million, increase in the average purchase price which is partially offset by an increase in the hedge benefit of 1-cent, or $18 million (2003 benefit of $68 million
less 2002 benefit of $50 million). Consumption in 2003 was 1,213 million gallons compared with 1,149 million gallons in 2002.



Compensation and benefits expenses of $2,960 million were $67 million, or 2 percent, higher than 2002 primarily due to higher volumes and the
implementation of Statement of Financial Accounting Standards (SFAS) No. 143, Accounting for Asset Retirement Obligations,as described in Note 2 to the Consolidated Financial Statements, as well as wage inflation, higher pension costs and
new hire crew training, partially offset by lower head counts and the favorable impact of railroad retirement reform.



Purchased services expenses of $1,232 million for 2003 were $93 million, or 8 percent, higher than 2002 primarily due to volume-related intermodal ramp
and drayage costs and increased locomotive maintenance costs associated with maintaining more locomotives as well as higher service contracts expense related to an agreement to outsource the management of a large portion of BNSFs information
technology infrastructure entered into during the third quarter of 2002 and the implementation of SFAS No. 143.



8



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##### Table of Contents

##### Index to Financial Statements

Depreciation and amortization expenses of $909 million for 2003 were $21 million, or 2 percent, lower
than 2002 primarily due to the implementation of SFAS No. 143 as well as new lower depreciation rates for locomotives partially offset by normal increases for capital expenditures. Additionally, at the time of the merger of Burlington Northern
Railroad Company and The Atchison, Topeka and Santa Fe Railway Company (ATSF), the Company recorded a decrease in the fair market value of former ATSF locomotives. The decrease was amortized over the remaining useful life of the locomotives and
resulted in an annual decrease to depreciation expense. The amortization period expired at the end of 2003; accordingly, this will cause 2004 and future years depreciation expense to increase by approximately $40 million. In addition, 2004
depreciation expense will increase from capital expenditure activity.



Equipment rents expenses for 2003 of $705 million were $7 million, or 1 percent, higher than 2002 primarily due to volume growth partially offset by decreases in intermodal and carload equipment rent expenses. Decreases in intermodal and
carload equipment rent expenses are a result of greater use of private trailers and containers, as well as favorable lease renegotiations and short term lease rate incentives.



Materials and other expenses of $811 million for 2003 were $17 million, or 2 percent, higher than 2002 principally due to
the implementation of SFAS No. 143, employee severance costs and lower gains from property sales substantially offset by decreased material costs and bad debt expense.



Interest expense of $144 million for 2003 was $9 million, or 6 percent, lower than 2002. This decrease was primarily the
result of lower average interest rates and lower average debt outstanding.



Other expense of $13 million for 2003 was $1 million higher than in 2002.



The effective tax rate in 2003 was 36.8 percent compared with 37.2 percent for the prior-year period. The decrease in the effective tax rate primarily
reflects a tax settlement attributable to prior years that was settled favorably in the second quarter of 2003.



Other Matters



Accounting Pronouncements



See Note 14 to the Consolidated Financial Statements for information about recent accounting pronouncements.



Forward-Looking Information



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



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



9



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##### Table of Contents

##### Index to Financial Statements

|ITEM 7A. | Quantitative and Qualitative Disclosures About Market Risk
|-------- | ----------------------------------------------------------



In the ordinary course of business, BNSF Railway utilizes various financial instruments that inherently have some degree of market risk. The information
presented in Notes 3 and 9 of the Consolidated Financial Statements describe significant aspects of BNSF Railways financial instrument programs which have a material market risk.



Commodity Price Sensitivity



BNSF Railway has a program to hedge against fluctuations in the price of its diesel fuel purchases. Existing hedge transactions as of December 31,
2003, are based on the front month settlement prices of NYMEX #2 heating oil (HO), West Texas Intermediate crude oil (WTI), or the HO refining spread (HO-WTI) which is defined as the difference between HO and WTI. A WTI hedge combined with a HO-WTI
hedge will result in the equivalent of a HO hedge. For swaps, BNSF Railway either pays or receives the difference between the hedge price and the actual average price of the hedge commodity during a specified determination period for a specified
number of gallons. For costless collars, if the average hedge commodity price for a specified determination period is greater than the cap price, BNSF Railway receives the difference for a specified number of gallons. If the average commodity price
is less than the floor price, BNSF Railway pays the difference for a specified number of gallons. If the commodity price is between the floor price and the cap price, BNSF Railway neither makes nor receives a payment. Hedge transactions are
generally settled with the counterparty in cash. Based on historical information, BNSF Railway believes there is a significant correlation between the market prices for diesel fuel, WTI, and HO. Further information on fuel hedges is incorporated by
reference from Note 3 to the Consolidated Financial Statements.



At December 31, 2003, BNSF Railway maintained fuel inventories for use in normal operations which were not material to BNSF Railways overall financial position and, therefore, represent no significant market exposure.



Interest Rate Sensitivity



From time to time, BNSF Railway enters into various interest rate hedging
transactions for purposes of managing exposure to fluctuations in interest rates and establishing rates in anticipation of future debt issuances as well as to convert a portion of its fixed-rate long-term debt to floating-rate debt. These interest
rate hedges are accounted for either as cash flow or fair value hedges. BNSF Railways measurement of fair value of interest rate swaps is based on estimates of the mid-market values for the transactions provided by the counterparties to these
agreements. Further information on interest rate hedges is incorporated by reference from Note 3 to the Consolidated Financial Statements.



10



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##### Table of Contents

##### Index to Financial Statements

|ITEM 8. | Financial Statements and Supplementary Data
|------- | -------------------------------------------



The Consolidated Financial Statements of BNSF Railway and subsidiary companies, together with the report of independent auditors, are included as part of
this filing.



The following documents are filed as a part of
this report:



|                                                                                                       |  |      
|------------------------------------------------------------------------------------------------------ |  | -----
|                                                                                                       |  | Page 
|Consolidated Financial Statements                                                                      |  |      
|Report of Independent Auditors                                                                         |  | 12   
|Consolidated Statements of Income for the three years ended December 31, 2003                          |  | 13   
|Consolidated Balance Sheets as of December 31, 2003 and 2002                                           |  | 14   
|Consolidated Statements of Cash Flows for the three years ended December 31, 2003                      |  | 15   
|Consolidated Statements of Changes in Stockholders Equity for the three years ended December 31, 2003 |  | 16   
|Notes to Consolidated Financial Statements                                                             |  | 17-38



11



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##### Table of Contents

##### Index to Financial Statements

REPORT OF INDEPENDENT AUDITORS



To the Stockholder
and Board

of Directors of The Burlington

Northern and Santa
Fe Railway Company and Subsidiaries



In our opinion, the consolidated financial
statements listed in the accompanying index present fairly, in all material respects, the financial position of The Burlington Northern and Santa Fe Railway Company and subsidiary companies at December 31, 2003 and 2002, and the results of their
operations and their cash flows for each of the three years in the period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America. 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 auditing standards generally accepted in the United States of
America, 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
our opinion.



As discussed in Note 2 to the consolidated financial statements,
effective January 1, 2003, the Company changed the manner in which it accounts for asset retirement costs that are not legal obligations.



|                                   |  | 
|---------------------------------- |  | 
|                                  
|/s/ PricewaterhouseCoopers LLP    
|Fort Worth, TexasFebruary 11, 2004



12



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##### Table of Contents

##### Index to Financial Statements

THE BURLINGTON NORTHERN AND SANTA FE RAILWAY COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Dollars in millions)



|                                                                      |  |                         |       |   |      |   |       |      |  |   |       |  
|--------------------------------------------------------------------- |  | ----------------------- | ----- | - | ---- | - | ----- | ---- |  | - | ----- | -
|                                                                      |  | Year Ended December 31, |      
|                                                                      |  | 2003                    |       |   | 2002 |   |       | 2001 | 
|Revenues                                                              |  | $                       | 9,380 |   |      | $ | 8,963 |      |  | $ | 9,201 |  
|                                                                      |  |                         |       |   |      |   |       |      |  |   |       |  
|Operating expenses:                                                   |  |                         |       |   |      |   |       |      |  |   |       |  
|Compensation and benefits                                             |  |                         | 2,960 |   |      |   | 2,893 |      |  |   | 2,861 |  
|Purchased services                                                    |  |                         | 1,232 |   |      |   | 1,139 |      |  |   | 1,090 |  
|Depreciation and amortization                                         |  |                         | 909   |   |      |   | 930   |      |  |   | 908   |  
|Equipment rents                                                       |  |                         | 705   |   |      |   | 698   |      |  |   | 736   |  
|Fuel                                                                  |  |                         | 1,073 |   |      |   | 833   |      |  |   | 973   |  
|Materials and other                                                   |  |                         | 811   |   |      |   | 794   |      |  |   | 864   |  
|                                                                      |  |                         |       |   |      |   |       |      |  |   |       |  
|Total operating expenses                                              |  |                         | 7,690 |   |      |   | 7,287 |      |  |   | 7,432 |  
|                                                                      |  |                         |       |   |      |   |       |      |  |   |       |  
|Operating income                                                      |  |                         | 1,690 |   |      |   | 1,676 |      |  |   | 1,769 |  
|Interest expense                                                      |  |                         | 144   |   |      |   | 153   |      |  |   | 170   |  
|Interest income, related parties                                      |  |                         | (25   | ) |      |   | (20   | )    |  |   | (21   | )
|Other expense, net                                                    |  |                         | 13    |   |      |   | 12    |      |  |   | 70    |  
|                                                                      |  |                         |       |   |      |   |       |      |  |   |       |  
|Income before income taxes and cumulative effect of accounting change |  |                         | 1,558 |   |      |   | 1,531 |      |  |   | 1,550 |  
|Income tax expense                                                    |  |                         | 574   |   |      |   | 570   |      |  |   | 598   |  
|                                                                      |  |                         |       |   |      |   |       |      |  |   |       |  
|Income before cumulative effect of accounting change                  |  | $                       | 984   |   |      | $ | 961   |      |  | $ | 952   |  
|Cumulative effect of accounting change, net of tax                    |  |                         | 39    |   |      |   |      |      |  |   |      |  
|                                                                      |  |                         |       |   |      |   |       |      |  |   |       |  
|Net income                                                            |  | $                       | 1,023 |   |      | $ | 961   |      |  | $ | 952   |  
|                                                                      |  |                         |       |   |      |   |       |      |  |   |       |  



See accompanying Notes
to Consolidated Financial Statements.



13



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##### Table of Contents

##### Index to Financial Statements

THE BURLINGTON NORTHERN AND SANTA FE RAILWAY COMPANY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollars in millions)



|                                                                                               |  |              |        |   |      |   |        |  
|---------------------------------------------------------------------------------------------- |  | ------------ | ------ | - | ---- | - | ------ | -
|                                                                                               |  | December 31, |       
|                                                                                               |  | 2003         |        |   | 2002 |  
|ASSETS                                                                                         |  |              |        |   |      |   |        |  
|Current assets:                                                                                |  |              |        |   |      |   |        |  
|Cash and cash equivalents                                                                      |  | $            | 18     |   |      | $ | 28     |  
|Accounts receivable, net                                                                       |  |              | 121    |   |      |   | 138    |  
|Materials and supplies                                                                         |  |              | 266    |   |      |   | 226    |  
|Current portion of deferred income taxes                                                       |  |              | 280    |   |      |   | 302    |  
|Other current assets                                                                           |  |              | 145    |   |      |   | 73     |  
|                                                                                               |  |              |        |   |      |   |        |  
|Total current assets                                                                           |  |              | 830    |   |      |   | 767    |  
|Property and equipment, net                                                                    |  |              | 25,016 |   |      |   | 23,968 |  
|Other assets                                                                                   |  |              | 920    |   |      |   | 849    |  
|Intercompany notes receivable, net                                                             |  |              | 1,455  |   |      |   | 1,189  |  
|                                                                                               |  |              |        |   |      |   |        |  
|Total assets                                                                                   |  | $            | 28,221 |   |      | $ | 26,773 |  
|                                                                                               |  |              |        |   |      |   |        |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                           |  |              |        |   |      |   |        |  
|Current liabilities:                                                                           |  |              |        |   |      |   |        |  
|Accounts payable and other current liabilities                                                 |  | $            | 2,024  |   |      | $ | 1,875  |  
|Long-term debt due within one year                                                             |  |              | 244    |   |      |   | 173    |  
|                                                                                               |  |              |        |   |      |   |        |  
|Total current liabilities                                                                      |  |              | 2,268  |   |      |   | 2,048  |  
|Long-term debt                                                                                 |  |              | 1,736  |   |      |   | 2,083  |  
|Deferred income taxes                                                                          |  |              | 7,474  |   |      |   | 6,966  |  
|Casualty and environmental liabilities                                                         |  |              | 305    |   |      |   | 352    |  
|Minimum pension liability                                                                      |  |              | 359    |   |      |   | 368    |  
|Employee merger and separation costs                                                           |  |              | 144    |   |      |   | 170    |  
|Other liabilities                                                                              |  |              | 1,250  |   |      |   | 1,198  |  
|                                                                                               |  |              |        |   |      |   |        |  
|Total liabilities                                                                              |  |              | 13,536 |   |      |   | 13,185 |  
|                                                                                               |  |              |        |   |      |   |        |  
|Commitments and contingencies (see Notes 3, 9 and 10)                                          |  |              |        |   |      |   |        |  
|Stockholders equity:                                                                          |  |              |        |   |      |   |        |  
|Common stock, $1 par value 1,000 shares authorized; issued and outstanding and paid-in capital |  |              | 6,286  |   |      |   | 6,286  |  
|Retained earnings                                                                              |  |              | 8,533  |   |      |   | 7,510  |  
|Accumulated other comprehensive loss                                                           |  |              | (134   | ) |      |   | (208   | )
|                                                                                               |  |              |        |   |      |   |        |  
|Total stockholders equity                                                                     |  |              | 14,685 |   |      |   | 13,588 |  
|                                                                                               |  |              |        |   |      |   |        |  
|Total liabilities and stockholders equity                                                     |  | $            | 28,221 |   |      | $ | 26,773 |  
|                                                                                               |  |              |        |   |      |   |        |  



See accompanying Notes
to Consolidated Financial Statements.



14



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##### Table of Contents

##### Index to Financial Statements

THE BURLINGTON NORTHERN AND SANTA FE RAILWAY COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in millions)



|                                                                                  |  |                         |        |   |      |   |        |      |  |   |        |  
|--------------------------------------------------------------------------------- |  | ----------------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                                                                  |  | Year Ended December 31, |       
|                                                                                  |  | 2003                    |        |   | 2002 |   |        | 2001 | 
|OPERATING ACTIVITIES                                                              |  |                         |        |   |      |   |        |      |  |   |        |  
|Net income                                                                        |  | $                       | 1,023  |   |      | $ | 961    |      |  | $ | 952    |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                         |        |   |      |   |        |      |  |   |        |  
|Depreciation and amortization                                                     |  |                         | 909    |   |      |   | 930    |      |  |   | 908    |  
|Deferred income taxes                                                             |  |                         | 459    |   |      |   | 441    |      |  |   | 318    |  
|Employee merger and separation costs paid                                         |  |                         | (43    | ) |      |   | (55    | )    |  |   | (55    | )
|Cumulative effect of accounting change, net of tax                                |  |                         | (39    | ) |      |   |       |      |  |   |       |  
|Other, net                                                                        |  |                         | (89    | ) |      |   | (147   | )    |  |   | 50     |  
|Changes in current assets and liabilities:                                        |  |                         |        |   |      |   |        |      |  |   |        |  
|Accounts receivable, net                                                          |  |                         | 17     |   |      |   | 89     |      |  |   | 126    |  
|Materials and supplies                                                            |  |                         | (40    | ) |      |   | (25    | )    |  |   | 29     |  
|Other current assets                                                              |  |                         | 20     |   |      |   | (24    | )    |  |   | 103    |  
|Accounts payable and other current liabilities                                    |  |                         | 168    |   |      |   | 68     |      |  |   | (97    | )
|                                                                                  |  |                         |        |   |      |   |        |      |  |   |        |  
|Net cash provided by operating activities                                         |  |                         | 2,385  |   |      |   | 2,238  |      |  |   | 2,334  |  
|                                                                                  |  |                         |        |   |      |   |        |      |  |   |        |  
|INVESTING ACTIVITIES                                                              |  |                         |        |   |      |   |        |      |  |   |        |  
|Capital expenditures                                                              |  |                         | (1,725 | ) |      |   | (1,358 | )    |  |   | (1,459 | )
|Other, net                                                                        |  |                         | (93    | ) |      |   | (161   | )    |  |   | (106   | )
|                                                                                  |  |                         |        |   |      |   |        |      |  |   |        |  
|Net cash used for investing activities                                            |  |                         | (1,818 | ) |      |   | (1,519 | )    |  |   | (1,565 | )
|                                                                                  |  |                         |        |   |      |   |        |      |  |   |        |  
|FINANCING ACTIVITIES                                                              |  |                         |        |   |      |   |        |      |  |   |        |  
|Payments on long-term debt, net                                                   |  |                         | (316   | ) |      |   | (290   | )    |  |   | (277   | )
|Net change in intercompany notes receivable and payable                           |  |                         | (266   | ) |      |   | (481   | )    |  |   | (183   | )
|Dividends paid                                                                    |  |                         |       |   |      |   |       |      |  |   | (358   | )
|Other, net                                                                        |  |                         | 5      |   |      |   | 2      |      |  |   | 4      |  
|                                                                                  |  |                         |        |   |      |   |        |      |  |   |        |  
|Net cash used for financing activities                                            |  |                         | (577   | ) |      |   | (769   | )    |  |   | (814   | )
|                                                                                  |  |                         |        |   |      |   |        |      |  |   |        |  
|Decrease in cash and cash equivalents                                             |  |                         | (10    | ) |      |   | (50    | )    |  |   | (45    | )
|Cash and cash equivalents:                                                        |  |                         |        |   |      |   |        |      |  |   |        |  
|Beginning of year                                                                 |  |                         | 28     |   |      |   | 78     |      |  |   | 123    |  
|                                                                                  |  |                         |        |   |      |   |        |      |  |   |        |  
|End of year                                                                       |  | $                       | 18     |   |      | $ | 28     |      |  | $ | 78     |  
|                                                                                  |  |                         |        |   |      |   |        |      |  |   |        |  
|SUPPLEMENTAL CASH FLOW INFORMATION                                                |  |                         |        |   |      |   |        |      |  |   |        |  
|Interest paid, net of amounts capitalized                                         |  | $                       | 151    |   |      | $ | 174    |      |  | $ | 212    |  
|Income taxes paid, net of refunds                                                 |  | $                       | 120    |   |      | $ | 178    |      |  | $ | 278    |  
|Non-cash facilities financing                                                     |  | $                       |       |   |      | $ | 138    |      |  | $ |       |  
|                                                                                  |  |                         |        |   |      |   |        |      |  |   |        |  



See accompanying Notes
to Consolidated Financial Statements.



15



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##### Table of Contents

##### Index to Financial Statements

THE BURLINGTON NORTHERN AND SANTA FE RAILWAY COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY

(Dollars in millions)



|                                                                         |  |                              |       |                  |   |       |                                            |  |   |                          |   |  |   |        |  
|------------------------------------------------------------------------ |  | ---------------------------- | ----- | ---------------- | - | ----- | ------------------------------------------ |  | - | ------------------------ | - |  | - | ------ | -
|                                                                         |  | CommonStockandPaid-inCapital |       | RetainedEarnings |   |       | AccumulatedOtherComprehensiveIncome (Loss) |  |   | TotalStockholdersEquity |  
|Balance at December 31, 2000                                             |  | $                            | 6,286 |                  | $ | 5,955 |                                            |  | $ | (10                      | ) |  | $ | 12,231 |  
|Comprehensive income:                                                    |  |                              |       |                  |   |       |                                            |  |   |                          |   |  |   |        |  
|Net income                                                               |  |                              |      |                  |   | 952   |                                            |  |   |                         |   |  |   | 952    |  
|Minimum pension liability adjustment, net of tax expense of $1           |  |                              |      |                  |   |      |                                            |  |   | 2                        |   |  |   | 2      |  
|Cumulative effect of adoption of SFAS No. 133, net of tax expense of $35 |  |                              |      |                  |   |      |                                            |  |   | 56                       |   |  |   | 56     |  
|Other, net of tax benefit of $36                                         |  |                              |      |                  |   |      |                                            |  |   | (58                      | ) |  |   | (58    | )
|                                                                         |  |                              |       |                  |   |       |                                            |  |   |                          |   |  |   |        |  
|Total comprehensive income                                               |  |                              |      |                  |   | 952   |                                            |  |   |                         |   |  |   | 952    |  
|                                                                         |  |                              |       |                  |   |       |                                            |  |   |                          |   |  |   |        |  
|Dividends paid                                                           |  |                              |      |                  |   | (358  | )                                          |  |   |                         |   |  |   | (358   | )
|                                                                         |  |                              |       |                  |   |       |                                            |  |   |                          |   |  |   |        |  
|Balance at December 31, 2001                                             |  | $                            | 6,286 |                  | $ | 6,549 |                                            |  | $ | (10                      | ) |  | $ | 12,825 |  
|Comprehensive income:                                                    |  |                              |       |                  |   |       |                                            |  |   |                          |   |  |   |        |  
|Net income                                                               |  |                              |      |                  |   | 961   |                                            |  |   |                         |   |  |   | 961    |  
|Minimum pension liability adjustment, net of tax benefit of $136         |  |                              |      |                  |   |      |                                            |  |   | (220                     | ) |  |   | (220   | )
|Other, net of tax expense of $13                                         |  |                              |      |                  |   |      |                                            |  |   | 22                       |   |  |   | 22     |  
|                                                                         |  |                              |       |                  |   |       |                                            |  |   |                          |   |  |   |        |  
|Total comprehensive income                                               |  |                              |      |                  |   | 961   |                                            |  |   | (198                     | ) |  |   | 763    |  
|                                                                         |  |                              |       |                  |   |       |                                            |  |   |                          |   |  |   |        |  
|Balance at December 31, 2002                                             |  | $                            | 6,286 |                  | $ | 7,510 |                                            |  | $ | (208                     | ) |  | $ | 13,588 |  
|Comprehensive income:                                                    |  |                              |       |                  |   |       |                                            |  |   |                          |   |  |   |        |  
|Net income                                                               |  |                              |      |                  |   | 1,023 |                                            |  |   |                         |   |  |   | 1,023  |  
|Minimum pension liability adjustment, net of tax expense of $3           |  |                              |      |                  |   |      |                                            |  |   | 6                        |   |  |   | 6      |  
|Other, net of tax expense of $41                                         |  |                              |      |                  |   |      |                                            |  |   | 68                       |   |  |   | 68     |  
|                                                                         |  |                              |       |                  |   |       |                                            |  |   |                          |   |  |   |        |  
|Total comprehensive income                                               |  |                              |       |                  |   | 1,023 |                                            |  |   | 74                       |   |  |   | 1,097  |  
|                                                                         |  |                              |       |                  |   |       |                                            |  |   |                          |   |  |   |        |  
|Balance at December 31, 2003                                             |  | $                            | 6,286 |                  | $ | 8,533 |                                            |  | $ | (134                     | ) |  | $ | 14,685 |  
|                                                                         |  |                              |       |                  |   |       |                                            |  |   |                          |   |  |   |        |  



See accompanying Notes
to Consolidated Financial Statements



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##### Index to Financial Statements

THE BURLINGTON NORTHERN AND SANTA FE RAILWAY COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|1. | The Company
|-- | -----------



The Burlington Northern and Santa Fe Railway Company and its majority-owned subsidiaries, (collectively, BNSF Railway or Company) is a wholly-owned
subsidiary of Burlington Northern Santa Fe Corporation (BNSF). BNSF Railway operates one of the largest railroad networks in North America with approximately 32,500 route miles covering 28 states and two Canadian provinces. Through one operating
transportation services segment, BNSF Railway transports a wide range of products and commodities including the transportation of Consumer Products, Industrial Products, Coal and Agricultural Products, derived from manufacturing, agricultural and
natural resource industries, which constituted 39 percent, 23 percent, 22 percent and 16 percent, respectively, of total freight revenues for the year ended December 31, 2003.



BNSF Railway was formerly known as the Burlington Northern Railroad Company (BNRR). On December 31, 1996, The Atchison,
Topeka and Santa Fe Railway Company (ATSF) merged with and into BNRR and the name of the surviving entity, BNRR, was changed to The Burlington Northern and Santa Fe Railway Company. Additionally, on January 2, 1998, BNSF Railways parent, Santa
Fe Pacific Corporation (SFP), merged with and into BNSF Railway.



|2. | Significant Accounting Policies
|-- | -------------------------------



Principles of Consolidation



The Consolidated Financial Statements include the accounts of BNSF Railway. All significant intercompany accounts and transactions have been eliminated.



Cumulative Effect of Accounting Change, Net of tax



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



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



|                       |  |                        |       |      |   |      |  |   |    
|---------------------- |  | ---------------------- | ----- | ---- | - | ---- |  | - | ---
|                       |  | Year endedDecember 31,
|                       |  | 2003                   |       | 2002 |   | 2001
|Net income as reported |  | $                      | 1,023 |      | $ | 961  |  | $ | 952
|Pro forma net income   |  | $                      | 984   |      | $ | 950  |  | $ | 934
|                       |  |                        |       |      |   |      |  |   |    



Use of Estimates



The preparation of financial statements in accordance
with generally accepted accounting principles (GAAP) 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. Actual results could differ from those estimates.



Revenue Recognition



Transportation revenues are recognized based upon the proportion of service provided as of the balance sheet date. Revenues from ancillary services are
recognized when performed.



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##### Index to Financial Statements

THE BURLINGTON NORTHERN AND SANTA FE RAILWAY COMPANY AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



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 because of the short maturity of these instruments.



Materials and Supplies



Materials and supplies, which consist mainly of rail, ties and other items for construction and maintenance of property and equipment, as well as diesel
fuel, are valued at the lower of average cost or market.



Property and Equipment, net



Property and
equipment are depreciated and amortized on a straight-line basis over their estimated useful lives. The Company uses the group method of depreciation in which a single depreciation rate is applied to the gross investment in a particular class of
property, despite differences in the service life or salvage value of individual property units within the same class. Upon normal sale or retirement of depreciable railroad property, cost less net salvage value is charged to accumulated
depreciation and no gain or loss is recognized. Significant premature retirements and the disposal of land and non-rail property are recorded as gains or losses at the time of their occurrence.



The Company self-constructs portions of its track structure and rebuilds
certain classes of rolling stock. In addition to direct labor and material, certain indirect costs are capitalized. 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.



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



Long-lived assets are reviewed for impairment when
events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If impairment indicators are present and the estimated future undiscounted cash flows are less than the carrying value of the long-lived assets,
the carrying value is reduced to the estimated fair value as measured by the discounted cash flows.



Environmental Liabilities



Liabilities for environmental cleanup costs are initially recorded when BNSF Railways liability for environmental cleanup is both probable and a
reasonable estimate of associated costs can be made. Adjustments to initial estimates are recorded as necessary based upon additional information developed in subsequent periods. Estimates for these liabilities are undiscounted.



Personal Injury Claims



Personal injury liability and ultimate expense projections are estimated
using standard actuarial methodologies. These actuarial method procedures include unasserted claims, except for certain occupational illnesses, which, due to their unpredictability, are accrued on an as reported basis. BNSF Railways
liabilities for personal injury claims are undiscounted.



Income Taxes



Deferred tax assets and
liabilities are measured using the tax rates that apply to taxable income in the period in which the deferred tax asset or liability is expected to be realized or paid. Valuation allowances are established to reduce deferred tax assets if it is more
likely than not that some or all of the deferred tax asset will not be realized.



Pension and Other Post-Employment Benefits



Annual pension and other post-employment benefits (OPEB) expenses are calculated by third party actuaries using standard actuarial methodologies. The actuaries assist the Company in making estimates based on
historical information, current information and estimates about future events and circumstances. Significant assumptions used in the valuation of pension and OPEB include expected return on plan assets, discount rate, rate of increase in
compensation levels and the health care cost trend rate.



18



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##### Index to Financial Statements

THE BURLINGTON NORTHERN AND SANTA FE RAILWAY COMPANY AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Reclassifications



Certain comparative prior year amounts in the Consolidated Financial Statements have been reclassified to conform to the
current year presentation. These reclassifications had no effect on previously reported operating income and net income.



|3. | Hedging Activities
|-- | ------------------



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



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



Fuel



Fuel costs
represented 14, 11 and 13 percent of total operating expenses during 2003, 2002 and 2001, respectively. Due to the significance of diesel fuel expenses to the operations of BNSF Railway and the historical volatility of fuel prices, the Company
maintains a program to hedge against fluctuations in the price of its diesel fuel purchases. The fuel-hedging program includes the use of derivatives that are accounted for as cash flow hedges. The intent of the program is to protect the
Companys operating margins and overall profitability from adverse fuel price changes by entering into fuel-hedge instruments based on managements evaluation of current and expected diesel fuel price trends. However, to the extent the
Company hedges portions of its fuel purchases, it may not realize the impact of decreases in fuel prices. Conversely, to the extent the Company does not hedge portions of its fuel purchases, it may be adversely affected by increases in fuel prices.
Based on fuel consumption during 2003 and excluding the impact of the hedging program, each one-cent increase in the price of fuel would result in approximately $12 million of additional fuel expense on an annual basis.



Total Fuel Hedging Program



As of December 31, 2003, BNSF Railways total fuel hedging program
covered approximately 67 percent, 46 percent and 14 percent of estimated fuel purchases for 2004, 2005 and 2006, respectively. Hedge positions are closely monitored to ensure that they will not exceed actual fuel requirements in any period.



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



|                                        |  |                        |    |      |   |      |  |   |   
|--------------------------------------- |  | ---------------------- | -- | ---- | - | ---- |  | - | --
|                                        |  | Year EndedDecember 31,
|                                        |  | 2003                   |    | 2002 |   | 2001
|Hedge benefit                           |  | $                      | 65 |      | $ | 50   |  | $ | 48
|Ineffective portion of unexpired hedges |  |                        | 3  |      |   |     |  |   |  
|Tax effect                              |  |                        | 26 |      |   | 19   |  |   | 18
|                                        |  |                        |    |      |   |      |  |   |   
|Hedge benefit, net of tax               |  | $                      | 42 |      | $ | 31   |  | $ | 30
|                                        |  |                        |    |      |   |      |  |   |   



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##### Index to Financial Statements

THE BURLINGTON NORTHERN AND SANTA FE RAILWAY COMPANY AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



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



|                                          |  |              |     |      |   |   
|----------------------------------------- |  | ------------ | --- | ---- | - | --
|                                          |  | December 31,
|                                          |  | 2003         |     | 2002
|Fuel hedging asset                        |  | $            | 145 |      | $ | 31
|Ineffective portion of unexpired hedges   |  |              | 3   |      |   |  
|Tax effect                                |  |              | 55  |      |   | 12
|                                          |  |              |     |      |   |   
|Amount included in AOCI, net of tax       |  | $            | 87  |      | $ | 19
|                                          |  |              |     |      |   |   
|Settled fuel hedging contracts receivable |  | $            | 21  |      | $ | 29
|                                          |  |              |     |      |   |   



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



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



NYMEX #2 Heating Oil Hedges



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



During 2003, the Company entered into fuel swap agreements utilizing HO to
hedge the equivalent of 233 million gallons of fuel at an average price of approximately $0.74 per gallon, and costless collar agreements utilizing HO to hedge the equivalent of approximately 284 million gallons of fuel with an average cap price of
$0.87 per gallon and an average floor price of $0.76 per gallon. In addition, the Company converted approximately 44 million gallons of West Texas Intermediate crude oil (WTI) collars into HO collars. These HO collars had an average cap price of
$0.74 per gallon and an average floor price of $0.67 per gallon. The Company also converted approximately 413 million gallons of WTI collars and 50 million gallons of HO collars into HO swaps. These HO swaps had an average price of $0.70 per gallon.
The Company also terminated 25 million gallons of HO collars for a gain of less than $1 million. As of December 31, 2003, there are no HO collars outstanding. The following table provides fuel hedge data based upon the quarter being hedged for all
HO fuel hedges outstanding at December 31, 2003.



|                                |  |                |        |          |   |               |  |              |        |        |   |        |  |   |       
|------------------------------- |  | -------------- | ------ | -------- | - | ------------- |  | ------------ | ------ | ------ | - | ------ |  | - | ------
|                                |  | Quarter Ending |        |         
|2004                            |  | March 31,      |        | June 30, |   | September 30, |  | December 31, |        | Annual
|HO Swaps                        |  |                |        |          |   |               |  |              |        |        |   |        |  |   |       
|Gallons hedged (in millions)    |  |                | 226.80 |          |   | 179.55        |  |              | 151.20 |        |   | 138.60 |  |   | 696.15
|Average swap price (per gallon) |  | $              | 0.75   |          | $ | 0.69          |  | $            | 0.69   |        | $ | 0.70   |  | $ | 0.71  
|Fair value (in millions)        |  | $              | 33     |          | $ | 19            |  | $            | 14     |        | $ | 13     |  | $ | 79    
|                                |  |                |        |          |   |               |  |              |        |        |   |        |  |   |       



West Texas
Intermediate Crude Oil Hedges



In addition, BNSF
Railway had entered into fuel swap and costless collar agreements utilizing WTI. The hedge prices do not include taxes, transportation costs, certain other fuel handling costs, and any differences which may occur between the prices of WTI and the
purchase price of BNSF Railways diesel fuel, including refining costs. The sum of all such costs typically ranges between 12 and 30 cents per gallon.



During 2003, the Company entered into fuel swap agreements utilizing WTI to hedge the equivalent of approximately 265 million gallons of fuel at an
average price of approximately $24.63 per barrel. Also, during 2003, the Company entered into costless collar agreements utilizing WTI to hedge the equivalent of approximately 684 million gallons of fuel with an average cap price of $27.10 per
barrel and an average floor price of $22.49 per barrel. The following tables provide fuel hedge data based upon the quarter being hedged for all WTI fuel hedges outstanding at December 31, 2003.



20



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##### Index to Financial Statements

THE BURLINGTON NORTHERN AND SANTA FE RAILWAY COMPANY AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



|                                        |  |                |        |          |   |               |  |              |       |        |   |       |  |   |       
|--------------------------------------- |  | -------------- | ------ | -------- | - | ------------- |  | ------------ | ----- | ------ | - | ----- |  | - | ------
|                                        |  | Quarter Ending |        |         
|2004                                    |  | March 31,      |        | June 30, |   | September 30, |  | December 31, |       | Annual
|WTI Swaps                               |  |                |        |          |   |               |  |              |       |        |   |       |  |   |       
|Barrels hedged (in thousands)           |  |                | 525    |          |   | 525           |  |              | 525   |        |   | 675   |  |   | 2,250 
|Equivalent gallons hedged (in millions) |  |                | 22.05  |          |   | 22.05         |  |              | 22.05 |        |   | 28.35 |  |   | 94.50 
|Average swap price (per barrel)         |  | $              | 20.68  |          | $ | 20.64         |  | $            | 20.61 |        | $ | 21.34 |  | $ | 20.85 
|Fair value (in millions)                |  | $              | 6      |          | $ | 5             |  | $            | 5     |        | $ | 5     |  | $ | 21    
|WTI Collars                             |  |                |        |          |   |               |  |              |       |        |   |       |  |   |       
|Barrels hedged (in thousands)           |  |                |       |          |   | 300           |  |              | 300   |        |   | 375   |  |   | 975   
|Equivalent gallons hedged (in millions) |  |                |       |          |   | 12.60         |  |              | 12.60 |        |   | 15.75 |  |   | 40.95 
|Average cap price (per barrel)          |  | $              |       |          | $ | 29.40         |  | $            | 28.60 |        | $ | 27.76 |  | $ | 28.52 
|Average floor price (per barrel)        |  | $              |       |          | $ | 25.00         |  | $            | 24.20 |        | $ | 23.30 |  | $ | 24.10 
|Fair value (in millions)                |  | $              |       |          | $ | 1             |  | $            |      |        | $ | 1     |  | $ | 2     
|                                        |  | Quarter Ending |        |         
|2005                                    |  | March 31,      |        | June 30, |   | September 30, |  | December 31, |       | Annual
|WTI Swaps                               |  |                |        |          |   |               |  |              |       |        |   |       |  |   |       
|Barrels hedged (in thousands)           |  |                | 600    |          |   | 675           |  |              | 1,125 |        |   | 1,350 |  |   | 3,750 
|Equivalent gallons hedged (in millions) |  |                | 25.20  |          |   | 28.35         |  |              | 47.25 |        |   | 56.70 |  |   | 157.50
|Average swap price (per barrel)         |  | $              | 24.26  |          | $ | 24.67         |  | $            | 24.55 |        | $ | 24.54 |  | $ | 24.52 
|Fair value (in millions)                |  | $              | 2      |          | $ | 2             |  | $            | 3     |        | $ | 3     |  | $ | 10    
|WTI Collars                             |  |                |        |          |   |               |  |              |       |        |   |       |  |   |       
|Barrels hedged (in thousands)           |  |                | 3,600  |          |   | 3,000         |  |              | 2,025 |        |   | 1,275 |  |   | 9,900 
|Equivalent gallons hedged (in millions) |  |                | 151.20 |          |   | 126.00        |  |              | 85.05 |        |   | 53.55 |  |   | 415.80
|Average cap price (per barrel)          |  | $              | 26.45  |          | $ | 25.98         |  | $            | 25.79 |        | $ | 25.61 |  | $ | 26.06 
|Average floor price (per barrel)        |  | $              | 21.82  |          | $ | 21.39         |  | $            | 21.19 |        | $ | 21.05 |  | $ | 21.46 
|Fair value (in millions)                |  | $              | 10     |          | $ | 8             |  | $            | 5     |        | $ | 4     |  | $ | 27    
|                                        |  | Quarter Ending |        |         
|2006                                    |  | March 31,      |        | June 30, |   | September 30, |  | December 31, |       | Annual
|WTI Swaps                               |  |                |        |          |   |               |  |              |       |        |   |       |  |   |       
|Barrels hedged (in thousands)           |  |                | 1,350  |          |   | 675           |  |              | 375   |        |   |      |  |   | 2,400 
|Equivalent gallons hedged (in millions) |  |                | 56.70  |          |   | 28.35         |  |              | 15.75 |        |   |      |  |   | 100.80
|Average swap price (per barrel)         |  | $              | 24.43  |          | $ | 25.16         |  | $            | 25.69 |        | $ |      |  | $ | 24.83 
|Fair value (in millions)                |  | $              | 3      |          | $ | 1             |  | $            |      |        | $ |      |  | $ | 4     
|WTI Collars                             |  |                |        |          |   |               |  |              |       |        |   |       |  |   |       
|Barrels hedged (in thousands)           |  |                | 825    |          |   | 750           |  |              | 300   |        |   |      |  |   | 1,875 
|Equivalent gallons hedged (in millions) |  |                | 34.65  |          |   | 31.50         |  |              | 12.60 |        |   |      |  |   | 78.75 
|Average cap price (per barrel)          |  | $              | 27.45  |          | $ | 27.66         |  | $            | 28.44 |        | $ |      |  | $ | 27.69 
|Average floor price (per barrel)        |  | $              | 22.85  |          | $ | 23.05         |  | $            | 23.70 |        | $ |      |  | $ | 23.06 
|Fair value (in millions)                |  | $              | 1      |          | $ | 1             |  | $            |      |        | $ |      |  | $ | 2     



NYMEX #2 Heating
Oil Refining Spread Hedge



In addition, during 2003
the Company entered into fuel swap agreements utilizing the HO refining spread (HO-WTI) to hedge the equivalent of approximately 95 million gallons of fuel with an average swap price of $4.16 per barrel. HO-WTI is the difference in price between HO
and WTI; therefore a HO-WTI swap in combination with a WTI swap is equivalent to a HO swap. The following tables provide fuel hedge data based upon the quarter being hedged for all HO-WTI fuel hedges outstanding at December 31, 2003.



21



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##### Index to Financial Statements

THE BURLINGTON NORTHERN AND SANTA FE RAILWAY COMPANY AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



|                                        |  |                |       |          |   |               |  |              |       |        |   |       |  |   |      
|--------------------------------------- |  | -------------- | ----- | -------- | - | ------------- |  | ------------ | ----- | ------ | - | ----- |  | - | -----
|                                        |  | Quarter Ending |       |         
|2004                                    |  | March 31,      |       | June 30, |   | September 30, |  | December 31, |       | Annual
|HO-WTI Swaps                            |  |                |       |          |   |               |  |              |       |        |   |       |  |   |      
|Barrels hedged (in thousands)           |  |                | 525   |          |   | 525           |  |              | 525   |        |   | 675   |  |   | 2,250
|Equivalent gallons hedged (in millions) |  |                | 22.05 |          |   | 22.05         |  |              | 22.05 |        |   | 28.35 |  |   | 94.50
|Average swap price (per barrel)         |  | $              | 4.55  |          | $ | 3.17          |  | $            | 3.81  |        | $ | 4.90  |  | $ | 4.16 
|Fair value (in millions)                |  | $              |      |          | $ |              |  | $            |      |        | $ |      |  | $ |     



Summarized
Comparative Prior Year Information



The following
table provides summarized comparative information for hedge transactions as of December 31, 2002.



|                                        |  |                   |        |      |   |        |  |   |       
|--------------------------------------- |  | ----------------- | ------ | ---- | - | ------ |  | - | ------
|                                        |  | December 31, 2002
|                                        |  | 2003              |        | 2004 |   | 2005  
|WTI Swaps                               |  |                   |        |      |   |        |  |   |       
|Barrels hedged (in thousands)           |  |                   | 2,400  |      |   | 2,100  |  |   |      
|Equivalent gallons hedged (in millions) |  |                   | 100.80 |      |   | 88.20  |  |   |      
|Weighted average swap price             |  | $                 | 20.55  |      | $ | 20.63  |  | $ |      
|Fair value (in millions)                |  | $                 | 11     |      | $ | 6      |  | $ |      
|WTI Collars                             |  |                   |        |      |   |        |  |   |       
|Barrels hedged (in thousands)           |  |                   | 11,100 |      |   | 3,600  |  |   | 3,000 
|Equivalent gallons hedged (in millions) |  |                   | 466.20 |      |   | 151.20 |  |   | 126.00
|Weighted average cap price              |  | $                 | 27.70  |      | $ | 24.96  |  | $ | 24.88 
|Weighted average floor price            |  | $                 | 23.35  |      | $ | 20.48  |  | $ | 20.38 
|Fair value (in millions)                |  | $                 | 13     |      | $ | 1      |  | $ |      



Interest Rate



From time to time, BNSF Railway enters into various
interest rate hedging transactions for purposes of managing exposure to fluctuations in interest rates and establishing rates in anticipation of future debt issuances as well as to convert a portion of its fixed-rate long-term debt to floating-rate
debt. The Company uses an interest rate swap as part of its interest rate risk management strategy.



Total Interest Rate Hedging Program



The swap transaction outstanding with an interest rate component is reflected in the following table.



|                                     |  |                   |      |   |      |   |      |   |      |   |      |   |              |   |       |   |      |            |  |   |  
|------------------------------------ |  | ----------------- | ---- | - | ---- | - | ---- | - | ---- | - | ---- | - | ------------ | - | ----- | - | ---- | ---------- |  | - | -
|                                     |  | December 31, 2003
|                                     |  | Maturity Date     |      |   |      |   |     
|                                     |  | 2004              |      |   | 2005 |   | 2006 |   | 2007 |   | 2008 |   | There- after |   | Total |   |      | Fair Value
|Fair value hedge                     |  |                   |      |   |      |   |      |   |      |   |      |   |              |   |       |   |      |            |  |   |  
|Fixed to variable swap (in millions) |  | $                 | 100  |   |      |  |      |  |      |  |      |  |              |  |       | $ | 100  |            |  | $ | 3
|Average fixed rate                   |  |                   | 8.63 | % |      |  |      |  |      |  |      |  |              |  |       |   | 8.63 | %          |  |   | 
|Average floating rate                |  |                   | 5.44 | % |      |  |      |  |      |  |      |  |              |  |       |   | 5.44 | %          |  |   | 
|                                     |  |                   |      |   |      |   |      |   |      |   |      |   |              |   |       |   |      |            |  |   |  



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



22



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##### Index to Financial Statements

THE BURLINGTON NORTHERN AND SANTA FE RAILWAY COMPANY AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Summarized Comparative Prior Year Information



|                                     |  |                   |  |      |      |   |      |   |      |   |      |   |              |   |       |   |      |           |  |   |  
|------------------------------------ |  | ----------------- |  | ---- | ---- | - | ---- | - | ---- | - | ---- | - | ------------ | - | ----- | - | ---- | --------- |  | - | -
|                                     |  | December 31, 2002
|                                     |  | Maturity Date     |  |      |      |   |     
|                                     |  | 2003              |  | 2004 |      |   | 2005 |   | 2006 |   | 2007 |   | There- after |   | Total |   |      | FairValue
|Fair value hedge                     |  |                   |  |      |      |   |      |   |      |   |      |   |              |   |       |   |      |           |  |   |  
|Fixed to variable swap (in millions) |  |                  |  | $    | 100  |   |      |  |      |  |      |  |              |  |       | $ | 100  |           |  | $ | 5
|Average fixed rate                   |  |                  |  |      | 8.63 | % |      |  |      |  |      |  |              |  |       |   | 8.63 | %         |  |   | 
|Average floating rate                |  |                  |  |      | 5.98 | % |      |  |      |  |      |  |              |  |       |   | 5.98 | %         |  |   | 
|                                     |  |                   |  |      |      |   |      |   |      |   |      |   |              |   |       |   |      |           |  |   |  



As of December 31,
2002, BNSF Railway had entered into one swap on a notional amount of $100 million in which it pays a floating rate, which fluctuates quarterly, based on LIBOR. The floating rate to be paid by BNSF Railway as of December 31, 2003, was 5.44 percent
and the fixed rate BNSF Railway is to receive is 8.63 percent. This swap will expire in 2004.



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



|                          |  |                        |   |      |   |  
|------------------------- |  | ---------------------- | - | ---- | - | -
|                          |  | Year EndedDecember 31,
|                          |  | 2003                   |   | 2002
|Hedge benefit             |  | $                      | 3 |      | $ | 2
|Tax effect                |  |                        | 1 |      |   | 1
|                          |  |                        |   |      |   |  
|Hedge benefit, net of tax |  | $                      | 2 |      | $ | 1
|                          |  |                        |   |      |   |  



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



|                                       |  |              |   |      |       
|-------------------------------------- |  | ------------ | - | ---- | ------
|                                       |  | December 31,
|                                       |  | 2003         |   | 2002
|Short-term interest rate hedging asset |  | $            | 3 |      | $    1
|Long-term interest rate hedging asset  |  | $            |  |      | $    4
|                                       |  |              |   |      |       



|4. | Other Expense, Net
|-- | ------------------



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



|                                   |  |                        |    |      |   |      |  |   |    |  
|---------------------------------- |  | ---------------------- | -- | ---- | - | ---- |  | - | -- | -
|                                   |  | Year EndedDecember 31, |   
|                                   |  | 2003                   |    | 2002 |   | 2001 | 
|Accounts receivable sale fees      |  | $                      | 9  |      | $ | 12   |  | $ | 30 |  
|Write-down of non-rail investments |  |                        |   |      |   |     |  |   | 47 |  
|Miscellaneous, net                 |  |                        | 4  |      |   |     |  |   | (7 | )
|                                   |  |                        |    |      |   |      |  |   |    |  
|Total                              |  | $                      | 13 |      | $ | 12   |  | $ | 70 |  
|                                   |  |                        |    |      |   |      |  |   |    |  



Losses recognized in
2001 related to non-rail investments consisted primarily of Pathnet Telecommunications, Inc., a telecommunications venture; a decline in the cash surrender value of company owned life insurance policies; and a portfolio of other non-core
investments.



23



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##### Index to Financial Statements

THE BURLINGTON NORTHERN AND SANTA FE RAILWAY COMPANY AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



|5. | Income Taxes
|-- | ------------



Income tax expense was as follows (in millions):



|               |  |                        |     |      |   |      |  |   |    
|-------------- |  | ---------------------- | --- | ---- | - | ---- |  | - | ---
|               |  | Year EndedDecember 31,
|               |  | 2003                   |     | 2002 |   | 2001
|Current:       |  |                        |     |      |   |      |  |   |    
|Federal        |  | $                      | 97  |      | $ | 115  |  | $ | 250
|State          |  |                        | 18  |      |   | 14   |  |   | 30 
|               |  |                        |     |      |   |      |  |   |    
|Total current  |  |                        | 115 |      |   | 129  |  |   | 280
|               |  |                        |     |      |   |      |  |   |    
|Deferred:      |  |                        |     |      |   |      |  |   |    
|Federal        |  |                        | 403 |      |   | 386  |  |   | 274
|State          |  |                        | 56  |      |   | 55   |  |   | 44 
|               |  |                        |     |      |   |      |  |   |    
|Total deferred |  |                        | 459 |      |   | 441  |  |   | 318
|               |  |                        |     |      |   |      |  |   |    
|Total          |  | $                      | 574 |      | $ | 570  |  | $ | 598
|               |  |                        |     |      |   |      |  |   |    



Reconciliation of the
federal statutory income tax rate to the effective tax rate was as follows:



|                                               |  |                        |   |  |      |   |  |      |  
|---------------------------------------------- |  | ---------------------- | - |  | ---- | - |  | ---- | -
|                                               |  | Year EndedDecember 31, |  
|                                               |  | 2003                   |   |  | 2002 |   |  | 2001 |  
|Federal statutory income tax rate              |  | 35.0                   | % |  | 35.0 | % |  | 35.0 | %
|State income taxes, net of federal tax benefit |  | 3.1                    |   |  | 3.0  |   |  | 3.1  |  
|Tax settlement                                 |  | (0.8                   | ) |  |     |   |  |     |  
|Other, net                                     |  | (0.5                   | ) |  | (0.8 | ) |  | 0.5  |  
|                                               |  |                        |   |  |      |   |  |      |  
|Effective tax rate                             |  | 36.8                   | % |  | 37.2 | % |  | 38.6 | %
|                                               |  |                        |   |  |      |   |  |      |  



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



|                                         |  |              |        |   |      |   |        |  
|---------------------------------------- |  | ------------ | ------ | - | ---- | - | ------ | -
|                                         |  | December 31, |       
|                                         |  | 2003         |        |   | 2002 |  
|Deferred tax liabilities:                |  |              |        |   |      |   |        |  
|Depreciation and amortization            |  | $            | (7,596 | ) |      | $ | (7,148 | )
|Other                                    |  |              | (510   | ) |      |   | (403   | )
|                                         |  |              |        |   |      |   |        |  
|Total deferred tax liabilities           |  |              | (8,106 | ) |      |   | (7,551 | )
|                                         |  |              |        |   |      |   |        |  
|Deferred tax assets:                     |  |              |        |   |      |   |        |  
|Casualty and environmental               |  |              | 181    |   |      |   | 218    |  
|Employee merger and separation costs     |  |              | 69     |   |      |   | 80     |  
|Pension and post-retirement benefits     |  |              | 238    |   |      |   | 237    |  
|Other                                    |  |              | 424    |   |      |   | 352    |  
|                                         |  |              |        |   |      |   |        |  
|Total deferred tax assets                |  |              | 912    |   |      |   | 887    |  
|                                         |  |              |        |   |      |   |        |  
|Net deferred tax liability               |  | $            | (7,194 | ) |      | $ | (6,664 | )
|                                         |  |              |        |   |      |   |        |  
|Noncurrent deferred income tax liability |  | $            | (7,474 | ) |      | $ | (6,966 | )
|Current deferred income tax asset        |  |              | 280    |   |      |   | 302    |  
|                                         |  |              |        |   |      |   |        |  
|Net deferred tax liability               |  | $            | (7,194 | ) |      | $ | (6,664 | )
|                                         |  |              |        |   |      |   |        |  



In accordance with the
income allocation agreement between BNSF and BNSF Railway, the Company makes payments to or receives refunds from BNSF based on its separate consolidated tax liabilities. The federal income tax returns of BNSFs predecessor companies,
Burlington Northern Inc. and Santa Fe Pacific Corporation are closed through 1994 and the business combination date September 1995, respectively. BNSF Railway is currently under Internal Revenue Service examination for years 1995 through 1999. In
addition, BNSF Railway and its subsidiaries have various state income tax returns in the process of examination, administrative appeal or litigation. The Company believes that adequate provision has been made for any adjustment that might be
assessed for open years through 2003.



24



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##### Index to Financial Statements

THE BURLINGTON NORTHERN AND SANTA FE RAILWAY COMPANY AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



|6. | Accounts Receivable, Net
|-- | ------------------------



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



SFRC renewed
$350 million of its $700 million accounts receivable facility, effective June 2003, for an additional 364 days. In addition, SFRC entered into a separate $350 million accounts receivable facility with a five year term in June 2003. The
Companys total capacity to sell undivided interests to investors under the A/R sales program was $700 million at December 31, 2003. Outstanding undivided interests held by investors under the A/R sales program were $625 million at December 31,
2003, and $594 million, net of $8 million of excess cash held in the trust, at December 31, 2002. These receivables were derecognized by BNSF Railway in connection with the sale of undivided interests under the A/R sales program. The undivided
interests were supported by $808 million and $771 million of receivables transferred by SFRC to the master trust at December 31, 2003 and December 31, 2002, respectively. When SFRC transfers these receivables to the master trust, it retains an
undivided interest in the receivables sold. This retained interest is included in accounts receivable in the Companys financial statements. SFRCs retained interest in these receivables of $183 million and $177 million at December 31,
2003 and 2002, respectively, less an allowance for uncollectible accounts, reflected the total accounts receivables transferred by SFRC to the master trust less $625 million and $594 million, at December 31, 2003 and 2002, respectively, of
outstanding undivided interests held by investors. Due to a relatively short collection cycle, the fair value of the undivided interest transferred to investors in the A/R sales program approximated book value and there was no gain or loss from the
transaction.



The Company retains the collection responsibility
with respect to the accounts receivable. Proceeds from collections reinvested in the A/R sales program were approximately $9.8 billion in 2003 and $9.5 billion in 2002. No servicing asset or liability has been recorded since the fees the Company
receives for servicing the receivables approximate the related costs. SFRCs costs of the sale of receivables are included in other expense, net and were $9 million and $12 million for the year ended December 31, 2003 and 2002, respectively.
These costs fluctuate monthly with changes in prevailing interest rates, and were based on weighted average interest rates of 1.1 percent and 2.0 percent for the years ended December 31, 2003 and 2002, respectively. These costs include interest,
discounts associated with transferring the receivables under the A/R sales program to SFRC, program fees paid to banks, incidental commercial paper issuing costs, and fees for unused commitment availability.



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



Receivables funded under the A/R sales program may not include amounts over 90 days past due or concentrations over certain
limits with any one customer. At December 31, 2003 and December 31, 2002, $78 million and $77 million, respectively, of accounts receivable were greater than 90 days old. The Company maintains an allowance for bill adjustments and uncollectible
accounts based upon the expected collectibility of accounts receivable, including receivables transferred to the master trust. Credit losses are based on specific identification of uncollectible accounts and application of historical collection
percentages by aging category. At December 31, 2003 and December 31, 2002, $85 million and $82 million, respectively, of such allowances had been recorded. During the year ended December 31, 2003, 2002 and 2001, $7 million, $7 million and $8
million, respectively, of accounts receivable were written off.



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



25



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##### Index to Financial Statements

THE BURLINGTON NORTHERN AND SANTA FE RAILWAY COMPANY AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



|7. | Property and Equipment, Net
|-- | ---------------------------



Property and equipment, net (in millions), and the weighted average annual depreciation rate (%) were as follows:



|                                               |  |              |        |   |      |   |        |                      |  |      |  
|---------------------------------------------- |  | ------------ | ------ | - | ---- | - | ------ | -------------------- |  | ---- | -
|                                               |  | December 31, |       
|                                               |  | 2003         |        |   | 2002 |   |        | 2003DepreciationRate | 
|Land                                           |  | $            | 1,505  |   |      | $ | 1,481  |                      |  |     | %
|Track structure                                |  |              | 13,797 |   |      |   | 13,003 |                      |  | 3.6  |  
|Other roadway                                  |  |              | 10,178 |   |      |   | 9,713  |                      |  | 2.5  |  
|Locomotives                                    |  |              | 3,468  |   |      |   | 2,721  |                      |  | 3.7  |  
|Freight cars and other equipment               |  |              | 1,757  |   |      |   | 1,678  |                      |  | 4.6  |  
|Computer hardware and software                 |  |              | 313    |   |      |   | 254    |                      |  | 11.1 |  
|                                               |  |              |        |   |      |   |        |                      |  |      |  
|Total cost                                     |  |              | 31,018 |   |      |   | 28,850 |                      |  |      |  
|Less accumulated depreciation and amortization |  |              | (6,002 | ) |      |   | (4,882 | )                    |  |      |  
|                                               |  |              |        |   |      |   |        |                      |  |      |  
|Property and equipment, net                    |  | $            | 25,016 |   |      | $ | 23,968 |                      |  |      |  
|                                               |  |              |        |   |      |   |        |                      |  |      |  



The Consolidated
Balance Sheets at December 31, 2003 and 2002, included $940 million, net of $281 million of amortization, and $972 million, net of $249 million of amortization, respectively, for property and equipment under capital leases, primarily for
locomotives.



|8. | Accounts Payable and Other Current Liabilities
|-- | ----------------------------------------------



Accounts payable and other current liabilities consisted of the following (in millions):



|                                       |  |              |       |      |   |      
|-------------------------------------- |  | ------------ | ----- | ---- | - | -----
|                                       |  | December 31,
|                                       |  | 2003         |       | 2002
|Compensation and benefits payable      |  | $            | 417   |      | $ | 409  
|Casualty and environmental liabilities |  |              | 171   |      |   | 217  
|Accounts payable                       |  |              | 239   |      |   | 201  
|Tax liabilities                        |  |              | 280   |      |   | 260  
|Contract allowances                    |  |              | 129   |      |   | 124  
|Rents and leases                       |  |              | 121   |      |   | 150  
|Equipment purchases                    |  |              | 114   |      |   |     
|Accrued interest                       |  |              | 38    |      |   | 42   
|Employee merger and separation costs   |  |              | 35    |      |   | 40   
|Other                                  |  |              | 480   |      |   | 432  
|                                       |  |              |       |      |   |      
|Total                                  |  | $            | 2,024 |      | $ | 1,875
|                                       |  |              |       |      |   |      



|9. | Debt
|-- | ----



Debt outstanding was as follows (in millions):



|                                                                                      |  |              |       |   |      |   |       |  
|------------------------------------------------------------------------------------- |  | ------------ | ----- | - | ---- | - | ----- | -
|                                                                                      |  | December 31, |      
|                                                                                      |  | 2003         |       |   | 2002 |  
|Notes and debentures, weighted average rate of 7.5 percent, due 2004 to 2022          |  | $            | 313   |   |      | $ | 467   |  
|Equipment obligations, weighted average rate of 7.1 percent, due 2004 to 2016         |  |              | 537   |   |      |   | 611   |  
|Capitalized lease obligations, weighted average rate of 6.4 percent, due 2004 to 2023 |  |              | 612   |   |      |   | 646   |  
|Mortgage bonds, weighted average rate of 8.3 percent, due 2004 to 2047                |  |              | 391   |   |      |   | 422   |  
|Financing obligations, weighted average rate of 6.3 percent, due 2012 to 2028         |  |              | 153   |   |      |   | 138   |  
|Unamortized discount and other, net                                                   |  |              | (26   | ) |      |   | (28   | )
|                                                                                      |  |              |       |   |      |   |       |  
|Total                                                                                 |  |              | 1,980 |   |      |   | 2,256 |  
|Less current portion of long-term debt                                                |  |              | (244  | ) |      |   | (173  | )
|                                                                                      |  |              |       |   |      |   |       |  
|Long-term debt                                                                        |  | $            | 1,736 |   |      | $ | 2,083 |  
|                                                                                      |  |              |       |   |      |   |       |  



26



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##### Index to Financial Statements

THE BURLINGTON NORTHERN AND SANTA FE RAILWAY COMPANY AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Notes and debentures include increases related to fair value adjustments for hedges of $2 million and
$4 million at December 31, 2003 and 2002, respectively.



Certain BNSF Railway properties and other assets are subject to liens securing $391 million of mortgage debt. Certain locomotives and rolling stock of BNSF Railway are subject to equipment obligations and capital leases.



The following tables provide fair value information for the Companys
debt obligations including principal cash flows and related weighted average interest rates by contractual maturity dates. Weighted average variable rates are based on implied forward rates in the yield curve at December 31, 2003. The fair values
presented in the table below do not include the fair value of the swap.



|                                 |  |                   |     |   |      |   |     |      |  |   |      |   |  |      |     |   |             |   |     |       |  |   |           |   |  |   |       |   |  |   |      
|-------------------------------- |  | ----------------- | --- | - | ---- | - | --- | ---- |  | - | ---- | - |  | ---- | --- | - | ----------- | - | --- | ----- |  | - | --------- | - |  | - | ----- | - |  | - | -----
|                                 |  | December 31, 2003
|                                 |  | Maturity Date     |     |   |     
|                                 |  | 2004              |     |   | 2005 |   |     | 2006 |  |   | 2007 |   |  | 2008 |     |   | There-after |   |     | Total |  |   | FairValue
|Fixed-Rate Debt (in millions)    |  | $                 | 142 |   |      | $ | 146 |      |  | $ | 432  |   |  | $    | 135 |   |             | $ | 135 |       |  | $ | 888       |   |  | $ | 1,878 |   |  | $ | 1,900
|Average Interest Rate            |  |                   | 7.1 | % |      |   | 7.1 | %    |  |   | 8.4  | % |  |      | 6.9 | % |             |   | 6.9 | %     |  |   | 6.9       | % |  |   | 7.3   | % |  |   |      
|Variable-Rate Debt (in millions) |  | $                 | 102 |   |      |   |    |      |  |   |     |   |  |      |    |   |             |   |    |       |  |   |          |   |  | $ | 102   |   |  | $ | 102  
|Average Interest Rate            |  |                   | 5.6 | % |      |   |    |      |  |   |     |   |  |      |    |   |             |   |    |       |  |   |          |   |  |   | 5.6   | % |  |   |      
|                                 |  |                   |     |   |      |   |     |      |  |   |      |   |  |      |     |   |             |   |     |       |  |   |           |   |  |   |       |   |  |   |      



|                                 |  |                   |     |   |      |   |     |      |  |   |      |   |  |      |     |   |             |   |     |       |  |   |           |   |  |   |       |   |  |   |      
|-------------------------------- |  | ----------------- | --- | - | ---- | - | --- | ---- |  | - | ---- | - |  | ---- | --- | - | ----------- | - | --- | ----- |  | - | --------- | - |  | - | ----- | - |  | - | -----
|                                 |  | December 31, 2002
|                                 |  | Maturity Date     |     |   |     
|                                 |  | 2003              |     |   | 2004 |   |     | 2005 |  |   | 2006 |   |  | 2007 |     |   | There-after |   |     | Total |  |   | FairValue
|Fixed-Rate Debt (in millions)    |  | $                 | 173 |   |      | $ | 145 |      |  | $ | 146  |   |  | $    | 433 |   |             | $ | 136 |       |  | $ | 1,119     |   |  | $ | 2,152 |   |  | $ | 2,198
|Average Interest Rate            |  |                   | 6.4 | % |      |   | 7.1 | %    |  |   | 7.1  | % |  |      | 8.4 | % |             |   | 6.9 | %     |  |   | 7.1       | % |  |   | 7.3   | % |  |   |      
|Variable-Rate Debt (in millions) |  |                   |    |   |      | $ | 104 |      |  |   |     |   |  |      |    |   |             |   |    |       |  |   |          |   |  | $ | 104   |   |  | $ | 119  
|Average Interest Rate            |  |                   |    |   |      |   | 6.1 | %    |  |   |     |   |  |      |    |   |             |   |    |       |  |   |          |   |  |   | 6.1   | % |  |   |      
|                                 |  |                   |     |   |      |   |     |      |  |   |      |   |  |      |     |   |             |   |     |       |  |   |           |   |  |   |       |   |  |   |      



The fair value of BNSF
Railways long-term debt is primarily based on quoted market prices for the same or similar issues or on the current rates that would be offered to BNSF Railway for debt of the same remaining maturities.



As described below, excluded from the 2003 and 2002 tables are $107 million
and $67 million, respectively, of intercompany notes payable to BNSF.



At December 31, 2003 and 2002, BNSF Railway had $107 million and $67 million, respectively, of intercompany notes payable to BNSF at a variable interest rate of 1.0 percent above the monthly average of the daily effective Federal Funds
rate. During 2003, BNSF Railway had additional net borrowings of $41 million of variable rate notes. Interest is paid semi-annually on all intercompany notes payable. Interest expense on intercompany notes payable is reflected in Interest income,
related parties in the Consolidated Income Statements. The intercompany notes are due on demand.



At December 31, 2003 and 2002, BNSF Railway had $1,562 million and $1,256 million, respectively, of intercompany notes receivable from BNSF with a
variable interest rate of 1.0 percent above the monthly average of the daily effective Federal Funds rate. The increase of $306 million in intercompany notes receivable is due to net borrowings by BNSF during 2003. Interest is collected
semi-annually on all intercompany notes receivable.



In BNSF
Railways Consolidated Balance Sheets, the intercompany notes receivable are presented net of the intercompany notes payable discussed above. BNSF Railway had a net intercompany notes receivable balance of $1,455 and $1,189 million at December
31, 2003 and 2002, respectively.



27



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##### Index to Financial Statements

THE BURLINGTON NORTHERN AND SANTA FE RAILWAY COMPANY AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Mortgage Bonds



2003



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



Notes and
Debentures



2003



The Company exercised an option to call $150 million of 7.5 percent bonds
due July 2023 at a price of 103.02 percent of par. Intercompany borrowings were used to fund the call.



Financing Obligations



2002



The Company financed the construction of an intermodal facility by a third party and entered into an agreement to lease the intermodal facility for 20
years. This lease transaction is accounted for as a financing and has a purchase option. The Company recorded an asset in property and equipment, net and a liability in long-term debt of $138 million which represents the fair market value at lease
inception.



Guarantees



Debt guaranteed by the Company as of December 31, 2003 is as follows (dollar
amounts in millions):



|                                                               |  |                                |   |  |                           |     |                       |   |                           |  |                          |     |  |                        
|-------------------------------------------------------------- |  | ------------------------------ | - |  | ------------------------- | --- | --------------------- | - | ------------------------- |  | ------------------------ | --- |  | -----------------------
|                                                               |  | Guarantees                    
|                                                               |  | BNSFRailwayOwnershipPercentage |   |  | PrincipalAmountGuaranteed |     | MaximumFuturePayments |   | MaximumRecourseAmount (a) |  | RemainingTerm (in years)
|Counterparty                                                   |  |                                |   |  |                           |     |                       |   |                           |  |                          |     |  |                        
|Kinder Morgan Energy Partners, L.P.                            |  | 0.5                            | % |  | $                         | 190 |                       | $ | 190                       |  | $                        |    |  | Terminationof Ownership
|Kansas City Terminal Intermodal Transportation Corporation     |  | 0.0                            | % |  | $                         | 68  |                       | $ | 111                       |  | $                        | 111 |  | 15                     
|The Unified Government of Wyandotte County/Kansas City, Kansas |  | 0.0                            | % |  | $                         | 14  |                       | $ | 23                        |  | $                        |    |  | 19                     
|Westside Intermodal Transportation Corporation                 |  | 0.0                            | % |  | $                         | 45  |                       | $ | 76                        |  | $                        |    |  | 19                     
|San Jacinto Partnership                                        |  | 49.0                           | % |  | $                         | 50  |                       | $ | 51                        |  | $                        |    |  | Less than 1            
|All other                                                      |  | 0.0                            | % |  | $                         | 11  |                       | $ | 15                        |  | $                        | 6   |  | Various                



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



Kinder Morgan Energy Partners LP



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



Kansas City Terminal Intermodal Transportation Corporation



BNSF Railway and another major railroad jointly and severally guarantee $68 million of debt of Kansas City Terminal
Intermodal Transportation Corporation, the proceeds of which were used to finance construction of a double track grade separation bridge in Kansas City, Missouri, which is operated and used by Kansas City Terminal Railway Company (KCTRC). BNSF
Railway has a 25 percent ownership in KCTRC and accounts for its interest using the equity method of accounting.



28



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##### Index to Financial Statements

THE BURLINGTON NORTHERN AND SANTA FE RAILWAY COMPANY AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



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



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



San Jacinto Partnership



BNSF Railway and BNSF have agreed to guarantee approximately $85 million of
debt. BNSF has guaranteed $50 million of debt outstanding as of December 31, 2003. The proceeds from the debt are to be used to construct and operate a 13-mile railroad which will service several chemical and plastics manufacturing facilities in the
Houston, Texas area. In addition, the San Jacinto Partnership used $22 million of the proceeds to repay all of the interim construction advances previously made by BNSF Railway. As discussed in Note 14 to the Consolidated Financial Statements, the
San Jacinto Partnership will likely be consolidated on March 31, 2004.



All other



BNSF Railway
guarantees $11 million of other debt and leases. BNSF Railway holds a performance bond and has the option to sub-lease property to recover up to $6 million of the $11 million of guarantees. These guarantees expire between 2005 and 2014.



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



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



Indemnities



In the ordinary course of business, BNSF Railway enters into agreements with third parties that include indemnification clauses. In general, these clauses
are customary for the types of agreements in which they are included. At times, these clauses may involve indemnification for the acts of the Company, its employees and/or agents, indemnification for another partys acts, indemnification for
future events, indemnification based upon a certain standard of performance, indemnification for liabilities arising out of the Companys use of leased equipment or other property, or other types of indemnification. Due to the uncertainty of
whether the events which would trigger the indemnification obligations will ever occur and, if they did, the extent of the liability which would thereby result, the exposure for future indemnification payments cannot be estimated with any amount of
certainty. However, the Company does not believe, based on information available, that these indemnity agreements will have a material adverse effect on the Companys results of operation, financial position or liquidity.



|10. | Commitments and Contingencies
|--- | -----------------------------



Lease Commitments



BNSF Railway has substantial lease commitments for locomotives, freight cars, trailers and containers, office buildings and other property, and many of
these leases provide the option to purchase the leased item 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, 2002, are summarized as follows (in millions):



|                                        |  |               |     |                 |   |      
|--------------------------------------- |  | ------------- | --- | --------------- | - | -----
|                                        |  | December 31, 
|                                        |  | CapitalLeases |     | OperatingLeases
|2004                                    |  | $             | 110 |                 | $ | 437  
|2005                                    |  |               | 109 |                 |   | 442  
|2006                                    |  |               | 108 |                 |   | 409  
|2007                                    |  |               | 96  |                 |   | 366  
|2008                                    |  |               | 90  |                 |   | 366  
|Thereafter                              |  |               | 234 |                 |   | 3,326
|                                        |  |               |     |                 |   |      
|Total                                   |  |               | 747 |                 | $ | 5,346
|                                        |  |               |     |                 |   |      
|Less amount representing interest       |  |               | 135 |                 |   |      
|                                        |  |               |     |                 |   |      
|Present value of minimum lease payments |  | $             | 612 |                 |   |      
|                                        |  |               |     |                 |   |      



29



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##### Index to Financial Statements

THE BURLINGTON NORTHERN AND SANTA FE RAILWAY COMPANY AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Lease rental expense for all operating leases was $462 million, $448 million and $443 million for the
years ended December 31, 2003, 2002 and 2001, respectively. Contingent rentals and sublease rentals were not significant.



Other Commitments



In the normal course of business, the Company enters into long-term contractual requirements for future goods and services needed for the operations of
the business. Such commitments are not in excess of expected requirements and are not reasonably likely to result in performance penalties or payments that would have a material adverse effect on the Companys liquidity.



30



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##### Index to Financial Statements

THE BURLINGTON NORTHERN AND SANTA FE RAILWAY COMPANY AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Casualty and Environmental



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



The Company formed a consolidated wholly-owned subsidiary,
Burlington Northern Santa Fe Insurance Company, Ltd. (BNSF IC), in the second quarter of 2002. BNSF IC provides insurance coverage for certain punitive damage risks incurred after April 1, 1998, FELA claims, railroad protective and force account
insurance claims incurred after January 1, 2002, and certain other claims which are subject to reinsurance. During the years ended December 31, 2003 and 2002, BNSF Railway had paid and expensed premiums of $140 million and $133 million, respectively
to BNSF IC for such coverage. At December 31, 2003 and 2002 there was no unamortized premium remaining on the Consolidated Balance Sheets.



The Company recognized personal injury expenses of approximately $69 million, $94 million and $195 million in 2003, 2002 and 2001, respectively, for
claims not insured by BNSF IC. BNSF Railway made payments for personal injuries of approximately $165 million, $179 million and $173 million in 2003, 2002 and 2001, respectively. At December 31, 2003 and 2002, the Company had recorded liabilities of
$277 million and $373 million, respectively, related to personal injury claims. Of these amounts, $121 million and $166 million, respectively, are included in current liabilities. BNSF Railways liabilities for personal injury claims are
undiscounted.



The Companys operations, as well as those
of its competitors, are subject to extensive federal, state and local environmental regulation. BNSF Railways operating procedures include practices to protect the environment from the risks inherent in railroad operations, which frequently
involve transporting chemicals and other hazardous materials. Additionally, many of BNSF Railways land holdings are and have been used for industrial or transportation-related purposes or leased to commercial or industrial companies whose
activities may have resulted in discharges onto the property. As a result, BNSF Railway is subject to environmental cleanup and enforcement actions. In particular, the Federal Comprehensive Environmental Response, Compensation and Liability Act of
1980 (CERCLA), also known as the Superfund law, as well as similar state laws generally impose joint and several liability for cleanup and enforcement costs on current and former owners and operators of a site without regard to fault or the legality
of the original conduct. BNSF Railway has been notified that it is a potentially responsible party (PRP) for study and cleanup costs at approximately 20 Superfund sites for which investigation and remediation payments are or will be made or are yet
to be determined (the Superfund sites) and, in many instances, is one of several PRPs. In addition, BNSF Railway may be considered a PRP under certain other laws. Accordingly, under CERCLA and other federal and state statutes, BNSF Railway may be
held jointly and severally liable for all environmental costs associated with a particular site. If there are other PRPs, BNSF Railway generally participates in the cleanup of these sites through cost-sharing agreements with terms that vary from
site to site. Costs are typically allocated based on relative volumetric contribution of material, the amount of time the site was owned or operated, and/or the portion of the total site owned or operated by each PRP.



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



31



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THE BURLINGTON NORTHERN AND SANTA FE RAILWAY COMPANY AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



BNSF Railway is involved in a number of administrative and judicial proceedings and other mandatory
cleanup efforts at approximately 430 sites, including the Superfund sites, at which it is participating in the study or cleanup, or both, of alleged environmental contamination. The Company recognized environmental expenses of approximately $59
million, $43 million and $51 million during 2003, 2002 and 2001, respectively. BNSF Railway paid approximately $56 million, $49 million and $72 million during 2003, 2002 and 2001, respectively, for mandatory and unasserted cleanup efforts, including
amounts expended under federal and state voluntary cleanup programs. BNSF Railway has recorded liabilities for remediation and restoration of all known sites of $199 million at December 31, 2003, compared with $196 million at December 31, 2002. Of
these amounts, $50 million and $51 million, respectively, are included in current liabilities. BNSF Railways environmental liabilities are not discounted. BNSF Railway anticipates that the majority of the accrued costs at December 31, 2003,
will be paid over the next five years and no individual site is considered to be material.



Liabilities recorded for environmental costs represent BNSF Railways best estimates for remediation and restoration of these sites and include both asserted and unasserted claims. Unasserted claims are not
considered to be a material component of the liability. Although recorded liabilities include BNSF Railways best estimates of all costs, without reduction for anticipated recoveries from third parties, BNSF Railways total cleanup costs
at these sites cannot be predicted with certainty due to various factors such as the extent of corrective actions that may be required, evolving environmental laws and regulations, advances in environmental technology, the extent of other
parties participation in cleanup efforts, developments in ongoing environmental analyses related to sites determined to be contaminated, and developments in environmental surveys and studies of potentially contaminated sites. As a result,
future charges to income for environmental liabilities could have a significant effect on results of operations in a particular quarter or fiscal year as individual site studies and remediation and restoration efforts proceed or as new sites arise.
However, management believes it is unlikely any identified matters, either individually or in the aggregate, will have a material adverse effect on BNSF Railways results of operations, financial position or liquidity.



Other Claims and Litigation



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



|11. | Employee Merger and Separation Costs
|--- | ------------------------------------



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



|                                |  |      |     |   |      |   |     |      |  |   |     |  
|------------------------------- |  | ---- | --- | - | ---- | - | --- | ---- |  | - | --- | -
|                                |  | 2003 |     |   | 2002 |   |     | 2001 | 
|Beginning balance at January 1, |  | $    | 210 |   |      | $ | 274 |      |  | $ | 310 |  
|Accruals                        |  |      | 15  |   |      |   | 1   |      |  |   | 30  |  
|Payments                        |  |      | (43 | ) |      |   | (55 | )    |  |   | (55 | )
|Other                           |  |      | (3  | ) |      |   | (10 | )    |  |   | (11 | )
|                                |  |      |     |   |      |   |     |      |  |   |     |  
|Ending balance at December 31,  |  | $    | 179 |   |      | $ | 210 |      |  | $ | 274 |  
|                                |  |      |     |   |      |   |     |      |  |   |     |  



Employee merger and
separation liabilities of $179 million and $210 million are included in the Consolidated Balance Sheets at December 31, 2003 and 2002, respectively, and principally represent: (i) employee-related severance costs for the consolidation of clerical
functions, material handlers in mechanical shops and trainmen on reserve boards; (ii) deferred benefits payable upon separation or retirement to certain active conductors, trainmen and locomotive engineers; and (iii) certain non-union employee
severance costs. Employee merger and separation expenses are recorded in materials and other in the Consolidated Income Statements. At December 31, 2003, $35 million of the remaining liabilities are included in current liabilities for anticipated
costs to be paid in 2004.



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THE BURLINGTON NORTHERN AND SANTA FE RAILWAY COMPANY AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)





Conductors, Trainmen
and Locomotive Engineers



Liabilities related to deferred
benefits payable upon separation or retirement to certain active conductors, trainmen and locomotive engineers were $144 million and $163 million at December 31, 2003 and 2002, respectively. These costs were primarily incurred in connection with
labor agreements reached prior to the consummation of the business combination of BNSFs predecessor companies Burlington Northern, Inc. and Santa Fe Pacific Corporation (the Merger) which, among other things, reduced train crew sizes and
allowed for more flexible work rules. In 2003, the Company updated its estimates and accrued $3 million of additional expenses related to deferred benefits. In 2001, the Company recorded a $5 million reversal of certain deferred benefits payable to
reflect a change in estimates.



Consolidation of Clerical
Functions



Liabilities related to the consolidation of
clerical functions were $20 million and $25 million at December 31, 2003 and 2002, respectively, and primarily provide for severance costs associated with the clerical consolidation plan adopted in 1995 upon the Merger and a separation program
announced in July 2003. The 1995 consolidation plan resulted in the elimination of approximately 1,500 permanent positions and was substantially completed during 1999. The July 2003 separation program resulted in accrued severance costs of
approximately $12 million and will affect approximately 150 employees. Reductions related to the July 2003 separation program were completed in the fourth quarter of 2003. In the fourth quarter of 2001, the Company recorded a charge of $9 million of
costs related to the reduction of approximately 40 material handlers and other clerical positions. This liability balance also includes remaining costs related to the reduction of approximately 140 material handlers in 2000.



In 2003, 2002 and 2001, the Company recorded $1 million, $10 million and $6
million, respectively, of reversals for certain liabilities associated with the consolidation of clerical functions. These reversals primarily reflect accrued payments related to workforce reductions for positions under collective bargaining
agreements where the Company was able to place affected individuals in alternate positions. The remaining liability balance at December 31, 2003, represents benefits to be paid to employees affected by the clerical consolidation and the separation
program for employees being paid up to ten years or in some cases through retirement versus receiving a lump-sum payment.



Non-Union Employee Severance



Liabilities principally related to certain remaining non-union employee severances resulting from the fourth quarter 2001 workforce reduction and the
Merger were $15 million and $22 million at December 31, 2003 and 2002, respectively. These costs will be paid over the next several years based on deferral elections made by the affected employees.



During the fourth quarter of 2001, the Company reduced 400 positions through
severance, normal attrition and the elimination of contractors. The Company recorded $21 million of expenses for severance, medical and other benefits associated with the costs of terminating 360 employees and approximately $31 million for benefits
to be received under the Companys retirement and medical plans. During the fourth quarter of 2003 and 2002, the Company recorded a $2 million reduction to its liability balance and accrued additional expenses of $1 million, respectively, due
to changes in certain estimates. Substantially all of these planned reductions were completed at December 31, 2001.



33



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##### Index to Financial Statements

THE BURLINGTON NORTHERN AND SANTA FE RAILWAY COMPANY AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



|12. | Retirement Plans and Other Postemployment Benefit Plans
|--- | -------------------------------------------------------



BNSF sponsors a funded, noncontributory qualified BNSF Retirement Plan, which covers substantially all non-union employees and an unfunded, nonqualified
BNSF Supplemental Retirement Plan, which covers certain officers and other employees. The benefits under these plans are based on years of credited service and the highest five-year average compensation levels. BNSF Railway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 with respect to the funded plan.



Certain salaried employees of BNSF Railway that have met certain age and years of service requirements are eligible for
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 basic life insurance plan is noncontributory and covers retirees only. Optional life insurance coverage is available for some retirees; however, the retiree is responsible
for the full cost. BNSF Railways policy is to fund benefits payable under the medical and life insurance plans as they come due. Employees beginning salaried employment with BNSF Railway subsequent to September 22, 1995, are not eligible for
medical benefits during retirement.



BNSF Railways
accumulated post retirement benefit obligation (APBO) and net cost recognized for other post employment benefits (OPEB) do not reflect the effects of the recent Medicare Prescription Drug, Improvement and Modernization Act of 2003 (Act). The
provisions of the Act provide for a federal subsidy for plans that provide prescription drug benefits and meet certain qualifications. Specific authoritative guidance on the accounting for the federal subsidy is pending and when that guidance is
issued, it could require BNSF to change information related to its actuarially determined APBO and net cost for OPEB.



Components of the net (benefit) cost for these plans were as follows (in millions):



|                                      |  |                         |      |   |                             |   |      |      |  |   |      |   |  |      |    |      |  |   |    |  |   |   
|------------------------------------- |  | ----------------------- | ---- | - | --------------------------- | - | ---- | ---- |  | - | ---- | - |  | ---- | -- | ---- |  | - | -- |  | - | --
|                                      |  | Year Ended December 31,
|                                      |  | Pension Benefits        |      |   | Health and Welfare Benefits
|                                      |  | 2003                    |      |   | 2002                        |   |      | 2001 |  |   | 2003 |   |  | 2002 |    | 2001
|Service cost                          |  | $                       | 17   |   |                             | $ | 15   |      |  | $ | 13   |   |  | $    | 4  |      |  | $ | 6  |  | $ | 4 
|Interest cost                         |  |                         | 100  |   |                             |   | 100  |      |  |   | 102  |   |  |      | 22 |      |  |   | 21 |  |   | 18
|Expected return on plan assets        |  |                         | (123 | ) |                             |   | (127 | )    |  |   | (136 | ) |  |      |   |      |  |   |   |  |   |  
|Curtailments/settlements              |  |                         |     |   |                             |   |     |      |  |   | 10   |   |  |      |   |      |  |   |   |  |   | 3 
|Special termination benefits          |  |                         |     |   |                             |   | 2    |      |  |   | 18   |   |  |      |   |      |  |   |   |  |   |  
|Actuarial loss                        |  |                         | 3    |   |                             |   | 1    |      |  |   | 1    |   |  |      | 8  |      |  |   | 3  |  |   |  
|Net amortization and deferred amounts |  |                         |     |   |                             |   | 2    |      |  |   | 2    |   |  |      | (2 | )    |  |   |   |  |   |  
|                                      |  |                         |      |   |                             |   |      |      |  |   |      |   |  |      |    |      |  |   |    |  |   |   
|Net (benefit) cost                    |  | $                       | (3   | ) |                             | $ | (7   | )    |  | $ | 10   |   |  | $    | 32 |      |  | $ | 30 |  | $ | 25
|                                      |  |                         |      |   |                             |   |      |      |  |   |      |   |  |      |    |      |  |   |    |  |   |   



34



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##### Index to Financial Statements

THE BURLINGTON NORTHERN AND SANTA FE RAILWAY COMPANY AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The following table shows the change in benefit obligation based on the September 30 measurement date
(in millions):



|                                          |  |                  |       |   |                            |   |       |      |  |   |      |   |  |   |     |  
|----------------------------------------- |  | ---------------- | ----- | - | -------------------------- | - | ----- | ---- |  | - | ---- | - |  | - | --- | -
|                                          |  | Pension Benefits |       |   | Health and WelfareBenefits |  
|                                          |  | 2003             |       |   | 2002                       |   |       | 2003 |  |   | 2002 |  
|Change in Benefit Obligation              |  |                  |       |   |                            |   |       |      |  |   |      |   |  |   |     |  
|Benefit obligation at beginning of period |  | $                | 1,611 |   |                            | $ | 1,507 |      |  | $ | 363  |   |  | $ | 314 |  
|Service cost                              |  |                  | 17    |   |                            |   | 15    |      |  |   | 4    |   |  |   | 6   |  
|Interest cost                             |  |                  | 100   |   |                            |   | 100   |      |  |   | 22   |   |  |   | 21  |  
|Plan participants contributions          |  |                  |      |   |                            |   |      |      |  |   | 6    |   |  |   | 5   |  
|Amendments                                |  |                  |      |   |                            |   | 2     |      |  |   | (9   | ) |  |   | (12 | )
|Actuarial loss                            |  |                  | 75    |   |                            |   | 117   |      |  |   | 7    |   |  |   | 54  |  
|Curtailments/settlements                  |  |                  |      |   |                            |   | (13   | )    |  |   |     |   |  |   |    |  
|Special termination benefits              |  |                  |      |   |                            |   | 2     |      |  |   |     |   |  |   |    |  
|Benefits paid                             |  |                  | (125  | ) |                            |   | (119  | )    |  |   | (27  | ) |  |   | (25 | )
|                                          |  |                  |       |   |                            |   |       |      |  |   |      |   |  |   |     |  
|Benefit obligation at end of period       |  | $                | 1,678 |   |                            | $ | 1,611 |      |  | $ | 366  |   |  | $ | 363 |  
|                                          |  |                  |       |   |                            |   |       |      |  |   |      |   |  |   |     |  



The accumulated
benefit obligation for all defined benefit pension plans was $1,559 million and $1,503 million at September 30, 2003 and 2002, respectively. Both the BNSF Retirement Plan and the BNSF Supplemental Retirement Plan had an accumulated benefit
obligation in excess of plan assets at September 30, 2003 and 2002.



The following table shows the change in plan assets of the plans based on the September 30 measurement date (in millions):



|                                                 |  |                  |       |   |                            |   |       |      |  |   |      |   |  |   |     |  
|------------------------------------------------ |  | ---------------- | ----- | - | -------------------------- | - | ----- | ---- |  | - | ---- | - |  | - | --- | -
|                                                 |  | Pension Benefits |       |   | Health and WelfareBenefits |  
|                                                 |  | 2003             |       |   | 2002                       |   |       | 2003 |  |   | 2002 |  
|Change in Plan Assets                            |  |                  |       |   |                            |   |       |      |  |   |      |   |  |   |     |  
|Fair value of plan assets at beginning of period |  | $                | 1,151 |   |                            | $ | 1,345 |      |  | $ |     |   |  | $ |    |  
|Actual return on plan assets                     |  |                  | 193   |   |                            |   | (67   | )    |  |   |     |   |  |   |    |  
|Settlements                                      |  |                  |      |   |                            |   | (13   | )    |  |   |     |   |  |   |    |  
|Employer contribution                            |  |                  | 5     |   |                            |   | 5     |      |  |   | 21   |   |  |   | 20  |  
|Plan participants contributions                 |  |                  |      |   |                            |   |      |      |  |   | 6    |   |  |   | 5   |  
|Benefits paid                                    |  |                  | (125  | ) |                            |   | (119  | )    |  |   | (27  | ) |  |   | (25 | )
|                                                 |  |                  |       |   |                            |   |       |      |  |   |      |   |  |   |     |  
|Fair value of plan assets at end of period       |  | $                | 1,224 |   |                            | $ | 1,151 |      |  | $ |     |   |  | $ |    |  
|                                                 |  |                  |       |   |                            |   |       |      |  |   |      |   |  |   |     |  



The following table
shows the reconciliation of the funded status of the plans with amounts recorded in the Consolidated Balance Sheets (in millions):



|                                                     |  |                  |       |   |                            |   |       |      |  |   |      |   |  |   |      |  
|---------------------------------------------------- |  | ---------------- | ----- | - | -------------------------- | - | ----- | ---- |  | - | ---- | - |  | - | ---- | -
|                                                     |  | December 31,     |      
|                                                     |  | Pension Benefits |       |   | Health and WelfareBenefits |  
|                                                     |  | 2003             |       |   | 2002                       |   |       | 2003 |  |   | 2002 |  
|Fair Value of plan assets as of September 30         |  | $                | 1,224 |   |                            | $ | 1,151 |      |  | $ |     |   |  | $ |     |  
|Benefit obligations as of September 30               |  |                  | 1,678 |   |                            |   | 1,611 |      |  |   | 366  |   |  |   | 363  |  
|                                                     |  |                  |       |   |                            |   |       |      |  |   |      |   |  |   |      |  
|Funded status (plan assets less benefit obligations) |  |                  | (454  | ) |                            |   | (460  | )    |  |   | (366 | ) |  |   | (363 | )
|Amounts not recognized:                              |  |                  |       |   |                            |   |       |      |  |   |      |   |  |   |      |  
|Unrecognized net loss                                |  |                  | 480   |   |                            |   | 479   |      |  |   | 111  |   |  |   | 111  |  
|Unrecognized prior service cost                      |  |                  | (2    | ) |                            |   | (3    | )    |  |   | (20  | ) |  |   | (12  | )
|                                                     |  |                  |       |   |                            |   |       |      |  |   |      |   |  |   |      |  
|Net amount recognized as of December 31              |  | $                | 24    |   |                            | $ | 16    |      |  | $ | (275 | ) |  | $ | (264 | )
|                                                     |  |                  |       |   |                            |   |       |      |  |   |      |   |  |   |      |  



35



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##### Table of Contents

##### Index to Financial Statements

THE BURLINGTON NORTHERN AND SANTA FE RAILWAY COMPANY AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The following table shows the amounts recognized in the Consolidated Balance Sheets (in millions):



|                                                                                |  |                  |      |   |                            |   |      |      |  |   |      |   |  |   |      |  
|------------------------------------------------------------------------------- |  | ---------------- | ---- | - | -------------------------- | - | ---- | ---- |  | - | ---- | - |  | - | ---- | -
|                                                                                |  | December 31,     |     
|                                                                                |  | Pension Benefits |      |   | Health and WelfareBenefits |  
|                                                                                |  | 2003             |      |   | 2002                       |   |      | 2003 |  |   | 2002 |  
|Prepaid benefit cost                                                            |  | $                |     |   |                            | $ |     |      |  | $ |     |   |  | $ |     |  
|Accrued benefit cost                                                            |  |                  | (335 | ) |                            |   | (352 | )    |  |   | (275 | ) |  |   | (264 | )
|Intangible assets                                                               |  |                  |     |   |                            |   |     |      |  |   |     |   |  |   |     |  
|Accumulated other comprehensive income                                          |  |                  | 359  |   |                            |   | 368  |      |  |   |     |   |  |   |     |  
|                                                                                |  |                  |      |   |                            |   |      |      |  |   |      |   |  |   |      |  
|Net amount recognized                                                           |  | $                | 24   |   |                            | $ | 16   |      |  | $ | (275 | ) |  | $ | (264 | )
|                                                                                |  |                  |      |   |                            |   |      |      |  |   |      |   |  |   |      |  
|                                                                                | 
|                                                                                |  | December 31,     |     
|                                                                                |  | Pension Benefits |      |   | Health and WelfareBenefits |  
|                                                                                |  | 2003             |      |   | 2002                       |   |      | 2003 |  |   | 2002 |  
|(Decrease) increase in minimum liability included in other comprehensive income |  | $                | (9   | ) |                            | $ | 356  |      |  | $ |     |   |  | $ |     |  



The expected long-term
rate of return is the return to be earned, net of plan expenses, over the period that benefits are paid. It reflects the rate of return on present investments and on expected contributions. In determining the expected long-term rate of return, BNSF
Railway considered: 1) forward looking capital market forecasts, 2) historical returns for individual asset classes and 3) the impact of active portfolio management.



The assumptions used in accounting for the BNSF plans were as follows:



|                                                                                     |  |                  |   |  |                            |   |  |      |   |  |      |  
|------------------------------------------------------------------------------------ |  | ---------------- | - |  | -------------------------- | - |  | ---- | - |  | ---- | -
|                                                                                     |  | Pension Benefits |   |  | Health and WelfareBenefits |  
|                                                                                     |  | 2003             |   |  | 2002                       |   |  | 2003 |   |  | 2002 |  
|Assumptions used to determine net (benefit) cost for fiscal years ended December 31, |  |                  |   |  |                            |   |  |      |   |  |      |  
|Discount rate                                                                        |  | 6.5              | % |  | 7.0                        | % |  | 6.5  | % |  | 7.0  | %
|Expected long-term rate of return on plan assets                                     |  | 8.5              | % |  | 8.5                        | % |  |     |   |  |     |  
|Rate of compensation increase                                                        |  | 3.9              | % |  | 4.0                        | % |  | 3.9  | % |  | 4.0  | %
|                                                                                     |  |                 
|                                                                                     |  | Pension Benefits |   |  | Health and WelfareBenefits |  
|                                                                                     |  | 2003             |   |  | 2002                       |   |  | 2003 |   |  | 2002 |  
|Assumptions used to determine benefit obligations at September 30,                   |  |                  |   |  |                            |   |  |      |   |  |      |  
|Discount rate                                                                        |  | 6.0              | % |  | 6.5                        | % |  | 6.0  | % |  | 6.5  | %
|Rate of compensation increase                                                        |  | 3.9              | % |  | 3.9                        | % |  | 3.9  | % |  | 3.9  | %



The following table
shows the expected health care rate increase and the future rate and time at which it is expected to remain constant.



|                                                                            |  |              |   |  |      |  
|--------------------------------------------------------------------------- |  | ------------ | - |  | ---- | -
|                                                                            |  | December 31, |  
|                                                                            |  | 2003         |   |  | 2002 |  
|Assumed health care cost trend rate                                         |  | 11           | % |  | 11   | %
|Rate to which health care cost trend rate is expected to decline and remain |  | 5            | % |  | 5    | %
|Year that the rate reaches the ultimate trend rate                          |  | 2010         |   |  | 2009 |  



Assumed health care
cost trend rates have a significant effect on the amounts reported for the health care plans. A one-percentage-point change in assumed health care cost trend rates would have the following effects:



|                                             |  |                              |    |                              |   |     |  
|-------------------------------------------- |  | ---------------------------- | -- | ---------------------------- | - | --- | -
|                                             |  | OnePercentage- PointIncrease |    | OnePercentage- PointDecrease |  
|Effect on total service and interest cost    |  | $                            | 3  |                              | $ | (2  | )
|Effect on post retirement benefit obligation |  | $                            | 36 |                              | $ | (30 | )



36



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##### Table of Contents

##### Index to Financial Statements

THE BURLINGTON NORTHERN AND SANTA FE RAILWAY COMPANY AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The qualified BNSF Retirement Plan asset allocation at September 30, 2003, and 2002 and the target
allocation for 2004 by asset category are as follows:



|                      |  |                      |      |  |                                                   |      |  |     |  
|--------------------- |  | -------------------- | ---- |  | ------------------------------------------------- | ---- |  | --- | -
|                      |  | TargetAllocation2004 |      |  | Percentage of PensionPlan Assets at September 30, |     
|                      |  |                      | 2003 |  |                                                   | 2002 | 
|Plan Asset Allocation |  |                      |      |  |                                                   |      |  |     |  
|Equity Securities     |  | 45-75                | %    |  | 57                                                | %    |  | 51  | %
|Debt Securities       |  | 25-45                |      |  | 33                                                |      |  | 39  |  
|Real Estate           |  | 0-10                 |      |  | 10                                                |      |  | 10  |  
|Other                 |  | 0-5                  |      |  |                                                  |      |  |    |  
|                      |  |                      |      |  |                                                   |      |  |     |  
|Total                 |  | 100                  | %    |  | 100                                               | %    |  | 100 | %
|                      |  |                      |      |  |                                                   |      |  |     |  



The general investment
objective of the BNSF Retirement Plan is to grow the Plan assets in relation to the Plan liabilities while prudently managing the risk of a decrease in the Plans assets relative to those liabilities. To meet this objective the Employee
Benefits Committee has adopted the above asset allocation ranges. The target for each asset class is the mid-point of the range. Ranges allow flexibility to accommodate market changes in the asset class when those changes occur on a temporary basis
because of the cost in transitioning assets.



The Company
expects to contribute approximately $20 million to its defined benefit pension plans and approximately $20 million to its OPEB plans in 2004.



Defined Contribution Plans



BNSF sponsors 401(k) plans which cover substantially all employees. BNSF Railway matches 50 percent of the first six percent of non-union employees
contributions and matches 25 percent on the first four percent of a limited number of union employees contributions, which are subject to certain percentage limits of the employees earnings, at each pay period. Depending on BNSFs
performance, non-union employees can receive an additional matching contribution of up to 30 percent of the first six percent at the end of the year. Employer contributions for all non-union employees are subject to a five-year length of service
vesting schedule. BNSF Railways 401(k) matching expense was $16 million, $15 million and $14 million in 2003, 2002 and 2001, respectively.



Other



Under collective bargaining agreements, BNSF Railway participates in multi-employer benefit plans which provide certain post-retirement health care and
life insurance benefits for eligible union employees. Insurance premiums paid attributable to retirees, which are generally expensed as incurred, were $31 million, $20 million and $18 million, in 2003, 2002 and 2001, respectively. Additionally, see
Note 11 to the Consolidated Financial Statements for other deferred benefits payable to certain conductors, trainmen and locomotive engineers.



|13. | Related Party Transactions
|--- | --------------------------



BNSF Railway is involved with BNSF and certain of its subsidiaries in related party transactions in the ordinary course of business, which include
payments made on each others behalf and performance of services. Under the terms of a tax allocation agreement with BNSF, BNSF Railway made federal and state income tax payments, net of refunds, of $120 million, $178 million and $278 million
during 2003, 2002 and 2001, respectively, which are reflected in changes in working capital in the Consolidated Statement of Cash Flows.



BNSF Railway had a net intercompany payable balance of $4 million and $7 million at December 31, 2003 and 2002, respectively, which are reflected in
accounts payable in the Consolidated Balance Sheets. Net intercompany receivable or payable balances are settled in the ordinary course of business.



At December 31, 2003 and 2002, BNSF Railway had $107 million and $67 million, respectively, of intercompany notes payable to BNSF at a variable interest
rate of 1.0 percent above the monthly average of the daily effective Federal Funds rate. During 2003, BNSF Railway had additional borrowings of $41 million of variable rate notes and made repayments of $1 million. Proceeds from borrowings are
primarily used to fund capital expenditures and other investing activities. Interest is paid semi-annually on all intercompany notes payable. Interest expense on intercompany notes payable is reflected in interest income, related parties in the
Consolidated Income Statements. The intercompany notes are due on demand.



37



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##### Index to Financial Statements

THE BURLINGTON NORTHERN AND SANTA FE RAILWAY COMPANY AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



At December 31, 2003 and 2002, BNSF Railway had $1,562 million and $1,256 million, respectively, of
intercompany notes receivable from BNSF with a variable interest rate of 1.0 percent above the monthly average of the daily effective Federal Funds rate. The $306 million increase in intercompany notes receivable is due to additional borrowings of
$712 million offset by $406 million of repayments from BNSF during 2003. Interest is collected semi-annually on all intercompany notes receivable. The intercompany notes receivable are presented net of the intercompany notes payable discussed above
in the Consolidated Balance Sheets. Interest income from intercompany notes receivable is presented in interest income, related parties in the Consolidated Income Statements. BNSF Railway also had transactions with BNSF IC, a related party. See Note
10 to the Consolidated Financial Statements.



BNSF Railway did
not pay any dividends during 2003 or 2002. During 2001, BNSF Railway paid BNSF dividends of $358 million.



Under various plans, BNSF Railway has granted options to employees to purchase its common stock at a price not less than the fair market value at the date
of grant. Certain employees of BNSF Railway participate in these plans. In addition, BNSF Railway has other long-term incentive plans administered separately on behalf of employees that are participated in by certain BNSF Railway employees. These
plans include, among other things, incentive compensation, issuance of restricted stock and a discounted stock purchase program. Compensation expense, net of tax, recorded for stock incentive plans in accordance with Accounting Principles Board
Opinion 25 was $11 million, $10 million and $8 million for the years ended 2003, 2002 and 2001, respectively.



|14. | Accounting Pronouncements
|--- | -------------------------



In 2001, the Company entered into a partnership (the Partnership) with subsidiaries of three chemical manufacturing companies that ship their products on
the BNSF Railway to form San Jacinto Rail Limited. The purpose of the Partnership is to construct and operate a 13-mile railroad, which will service several chemical and plastics manufacturing facilities in the Houston, Texas, area. BNSF Railway
owns a 48 percent limited partnership interest and a one percent general partnership interest in the Partnership and acts as the general partner and operator of this facility. San Jacinto Rail Limited, an unconsolidated subsidiary, will likely be
required to be consolidated by the Company pursuant to Financial Accounting Standards Board (FASB) Interpretation No. 46R (FIN 46), Consolidation of Variable Interest Entities, on March 31, 2004. If consolidation is required, it will have a
minimal impact to the Companys financial statements primarily due to the fact that the Company accounted for this investment prior to the adoption of FIN 46 under the equity method of accounting and recorded all losses incurred by the
Partnership from inception to date as required by the partnership agreement.



BNSF Railway and BNSF have agreed to guarantee debt incurred by the Partnership, which is expected to be $85 million in connection with the construction of this rail line. BNSF has guaranteed $50 million of this debt
outstanding as of December 31, 2003. See Note 9 to the Consolidated Financial Statements for information about BNSF Railways guarantee of the Partnerships debt.



|15. | Quarterly Financial DataUnaudited
|--- | ----------------------------------



|                                                     |  |               |       |       |   |        |  |       |       |  |   |       |    
|---------------------------------------------------- |  | ------------- | ----- | ----- | - | ------ |  | ----- | ----- |  | - | ----- | ---
|                                                     |  | Fourth        |       | Third |   | Second |  | First |      
|                                                     |  | (In millions) |      
|2003                                                 |  |               |       |       |   |        |  |       |       |  |   |       |    
|Revenues                                             |  | $             | 2,480 |       | $ | 2,388  |  | $     | 2,285 |  | $ | 2,227 |    
|Operating income                                     |  | $             | 480   |       | $ | 435    |  | $     | 424   |  | $ | 351   |    
|Income before cumulative effect of accounting change |  | $             | 276   |       | $ | 253    |  | $     | 257   |  | $ | 198   |    
|Net income                                           |  | $             | 276   |       | $ | 253    |  | $     | 257   |  | $ | 237   | (a)
|                                                     |  |               |       |       |   |        |  |       |       |  |   |       |    
|2002                                                 |  |               |       |       |   |        |  |       |       |  |   |       |    
|Revenues                                             |  | $             | 2,293 |       | $ | 2,304  |  | $     | 2,206 |  | $ | 2,160 |    
|Operating income                                     |  | $             | 443   |       | $ | 423    |  | $     | 427   |  | $ | 383   |    
|Net income                                           |  | $             | 258   |       | $ | 245    |  | $     | 240   |  | $ | 218   |    
|                                                     |  |               |       |       |   |        |  |       |       |  |   |       |    



|(a) | 2003 Net income includes the favorable cumulative effect of an accounting change of $39 million, net of tax, as described in Note 2 to the Consolidated Financial
Statements.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



38



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##### Index to Financial Statements

|ITEM 9. | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
|------- | ------------------------------------------------------------------------------------



None.



|ITEM 9A. | Controls and Procedures
|-------- | -----------------------



Based on their evaluation as of the end of the period covered by this annual report on Form 10-K, BNSF Railways principal executive officer and
principal financial officer have concluded that BNSF Railways disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934) are effective to ensure that information required to be
disclosed by BNSF Railway in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commissions rules and
forms and that such information is accumulated and communicated to BNSF Railways management, including its principal executive and principal financial officers as appropriate to allow timely decisions regarding required disclosure.



|ITEM 14. | Principal Accountant Fees and Services
|-------- | --------------------------------------



BNSF Railway is a wholly owned subsidiary of Burlington Northern Santa Fe Corporation (BNSF) and does not have an audit committee of its Board of Directors. Services provided by the registrants principal
accountant and all fees are subject to pre-approval policies and procedures of the Audit Committee of the Board of Directors of BNSF. Information concerning principal accounting fees and services for BNSF including its wholly-owned subsidiary, BNSF
Railway, will be provided under the heading Independent Auditor of BNSFs proxy statement for its 2004 annual meeting of shareholders which will be filed with the Securities and Exchange Commission no later than 120 days after the
end of the fiscal year, and the information under the heading is hereby incorporated by reference.



39



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##### Index to Financial Statements

PART IV



|ITEM 15. | Exhibits, Financial Statement Schedules, and Reports on Form 8-K
|-------- | ----------------------------------------------------------------



|(a) | The following documents are filed as part of this report:
|--- | ---------------------------------------------------------



|1. | Consolidated Financial StatementsSee Item 8
|-- | --------------------------------------------



Schedules are omitted because they are not required or applicable, or the required information is included in the Consolidated Financial Statements or
related notes.



|2. | Exhibits:
|-- | ---------



See Index to Exhibits beginning on page E-1 for a description of the exhibits filed as a part of this Report on Form 10-K.



|(b) | Reports on Form 8-K
|--- | -------------------



None.



40



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##### Index to Financial Statements



SIGNATURES



Pursuant to the
requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, The Burlington Northern and Santa Fe Railway Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



| |  |  |  |                                                      |  |     |  |                                                                
| |  |  |  | ---------------------------------------------------- |  | --- |  | ---------------------------------------------------------------
| |  |  |  | THE BURLINGTON NORTHERN
AND SANTA FE RAILWAY
COMPANY
| |  |  |  |                                                     
| |  |  |  |                                                      |  | By: |  | /s/    Matthew K. Rose                                         
| |  |  |  |                                                      |  |     |  |                                                                
| |  |  |  |                                                      |  |     |  | Matthew K. Rose Chairman, President and Chief Executive Officer



Dated: February 12, 2004



Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of The Burlington Northern and Santa Fe Railway Company and in the capacities and on the date indicated.



|                                                |  |                                                                                                 
|----------------------------------------------- |  | ------------------------------------------------------------------------------------------------
|Signature                                       |  | Title                                                                                           
|                                                | 
|/s/     Matthew K. Rose*Matthew K. Rose         |  | Chairman, President and Chief Executive Officer (Principal Executive Officer), and Director     
|                                                | 
|/s/     Thomas N. Hund*Thomas N. Hund           |  | Executive Vice President and Chief Financial Officer (Principal Financial Officer), and Director
|                                                | 
|/s/     Dennis R. Johnson*Dennis R. Johnson     |  | Vice President and Controller (Principal Accounting Officer)                                    
|                                                | 
|/s/     Carl R. Ice*Carl R. Ice                 |  | Director                                                                                        
|                                                | 
|/s/     Jeffrey R. Moreland*Jeffrey R. Moreland |  | Director                                                                                        
|                                                | 
|/s/     John Lanigan*John Lanigan               |  | Director                                                                                        



|       |  |                   |  |  |  |      |  |                                                                                    
|------ |  | ----------------- |  |  |  | ---- |  | -----------------------------------------------------------------------------------
|       |  |                   |  | 
|Dated: |  | February 12, 2004 |  |  |  | *By: |  | /s/     Jeffrey R. Moreland                                                        
|       |  |                   |  |  |  |      |  |                                                                                    
|       |  |                   |  |  |  |      |  | Jeffrey R. Moreland Executive Vice President Law & Government Affairs and
Secretary



S-1



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##### Table of Contents

##### Index to Financial Statements



THE BURLINGTON NORTHERN AND SANTA FE RAILWAY COMPANY AND SUBSIDIARIES



INDEX OF EXHIBITS



|              |  |                                                                                                                                                                                                                                                                                                                                    
|------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description                                                                                                                                                                                                                                                                                                                        
|              | 
|3.1           |  | Restated Certificate of Incorporation of The Burlington Northern and Santa Fe Railway Company effective December 31, 1996. Incorporated by reference to The Burlington Northern and Santa Fe
Railway Companys Report on Form 10-K for the fiscal year ended December 31, 1996.                                                    
|              | 
|3.2           |  | By-Laws of BNSF Railway as amended through July 17, 1991. Incorporated by reference to Exhibit 3.2 to The Burlington Northern and Santa Fe Railway Company Report on Form 10-K for the fiscal
year ended December 31, 1991.                                                                                                        
|              | 
|4.1           |  | BNSF Railway is not filing any instruments evidencing indebtedness because the total amount of securities authorized under any single such instrument does not exceed ten percent of BNSF
Railways total assets. Copies of any such material instruments will be furnished to the Securities and Exchange Commission upon request.
|              | 
|12.1          |  | Statement regarding the Computation of Ratio of Earnings to Fixed Charges.                                                                                                                                                                                                                                                         
|              | 
|31.1          |  | Principal Executive Officers Certification Pursuant to 18 U.S.C. § 1350 (Section 302 of Sarbanes-Oxley Act of 2002).                                                                                                                                                                                                              
|              | 
|31.2          |  | Principal Financial Officers Certification Pursuant to 18 U.S.C. § 1350 (Section 302 of Sarbanes-Oxley Act of 2002).                                                                                                                                                                                                              
|              | 
|32.1          |  | Certification Pursuant to 18 U.S.C. § 1350 (Section 906 of Sarbanes-Oxley Act of 2002).                                                                                                                                                                                                                                            



E-1