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, 2007




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: 1-11535





Exact name of registrant as specified
in its charter




Burlington Northern Santa Fe
Corporation


State
      of Incorporation
              Delaware
            I.R.S.
      Employer Identification No.
              41-1804964Address
      of principal executive offices, including zip code
              2650
      Lou Menk Drive
              Fort
      Worth, Texas 76131-2830
              Registrant's telephone number,
      including area code
              (800)
      795-2673Securities
      registered pursuant to Section 12(b) of the Act:Title
      of each class
              Common
      Stock, $0.01 par value
            Name
      of each exchange on which registered
              New
      York Stock ExchangeSecurities
      registered pursuant to Section 12(g) of the Act:
              None




Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities
Act.                                                                                           Yes [x] No [ ]




Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the
Act.                                                                                       Yes [  ] No [x]




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 [x] No [ ]




Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of Regulation S-K(§ 229.405)is not contained herein, and will not be
contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.[
]


Indicate
by check mark whether the registrant is a large accelerated filer, accelerated
filer, non-accelerated filer, or smaller reporting company (as defined
in Rule 12b-2 of the Act).


Large accelerated filer
[x]      Accelerated filer [
]      Non-accelerated filer [
]      Smaller reporting company [
]


Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the
Act).                                                                                                                     Yes [] No [x]




The
aggregate market value of the voting stock held by non-affiliates of the
registrant was approximately $29.822billion on June 30, 2007. For purposes of this calculation only,
the


registrant
has excluded stock beneficially owned by directors and officers. By doing so,
the registrant does not admit that such persons are affiliates within the
meaning of Rule 405


under
the Securities Act of 1933 or for any other purpose.




Indicate
the number of shares outstanding of each of the registrant’s classes of common
stock, as of the latest practicable date:


Common
Stock, $0.01 par value, 348,201,513sharesoutstanding as of February 4, 2008.




DOCUMENTS INCORPORATED BY
REFERENCE


List hereunder the documents from which
parts thereof have been incorporated by reference and the Part of the Form 10-K
into which such information is incorporated:


Burlington
Northern Santa Fe Corporation’s definitive Proxy Statement, to be filed not
later than 120 days after the end of the fiscal year covered by this
report.....................Part III


i


Table of
Contents







Part I
            Item 1.     Business
            1Item 1A.  Risk Factors
            1Item 1B.   Unresolved Staff
      Comments
            4Item 2.     
      Properties
            5Item 3.      Legal
      Proceedings
            10Item 4.      Submission of
      Matters to a Vote of Security Holders
            11Executive Officers of the
Registrant
            11Part II
            Item 5.      Market for
      Registrant’s Common Equity, Related Stockholder Matters
              and Issuer Purchases of Equity
    Securities
            12Item 6.      Selected Financial
      Data
            13Item 7.      Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
            14Item 7A.   Quantitative and Qualitative
      Disclosures About Market Risk
            35Item 8.      Financial Statements
      and Supplementary Data
            37Item 9.      Changes in and
      Disagreements With Accountants on Accounting and Financial
      Disclosure
            74Item 9A.   Controls and
      Procedures
            74Item 9B.   Other Information
            74Part III
            Item 10.    Directors, Executive Officers
      and Corporate Governance
            75Item 11.    Executive
      Compensation
            75Item 12.    Security Ownership of Certain
      Beneficial Owners and Management
              and Related Stockholder Matters
            75Item 13.    Certain Relationships and
      Related Transactions, and Director Independence
            76Item 14.    Principal Accountant Fees and
      Services
            76Part IV
            Item 15.    Exhibits and Financial
      Statement Schedules
            77Signatures
            S-1Exhibit Index
            E-1





ii
 Table of Contents


Part I







Item 1.
Business
 Burlington Northern Santa Fe Corporation
(BNSF, Registrant or Company) was incorporated in the State of Delaware on
December 16, 1994. On September 22, 1995, the shareholders of Burlington
Northern Inc. (BNI) and Santa Fe Pacific Corporation (SFP) became the
shareholders of BNSF pursuant to a business combination of the two
companies.
  On December 30, 1996, BNI merged with
and into SFP. On December 31, 1996, The Atchison, Topeka and Santa Fe Railway
Company merged with and into Burlington Northern Railroad Company (BNRR), and
BNRR changed its name to The Burlington Northern and Santa Fe Railway Company.
On January 2, 1998, SFP merged with and into The Burlington Northern and Santa
Fe Railway Company. On January 20, 2005, The Burlington Northern and Santa Fe
Railway Company changed its name to BNSF Railway Company (BNSF
Railway).
  Through its subsidiaries, BNSF is
engaged primarily in the freight rail transportation business. At December 31,
2007, BNSF and its subsidiaries had approximately40,000 employees. The rail operations of BNSF Railway,
BNSF’s principal operating subsidiary, comprise one of the largest railroad
systems in North America.
  BNSF’s internet address is www.bnsf.com.
Through this internet website (under the “Investors” link), BNSF 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, as well as 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
(SEC). Filings on Forms 3, 4 and 5 are also available on this website within one
day after filing with the SEC. BNSF’s annual CEO certification filed pursuant to
the New York Stock Exchange’s Corporate Governance Listing Standards is filed as
an exhibit to this Form 10-K. BNSF makes available on its website other
previously filed SEC reports, registration statements and exhibits via a link to
the SEC’s website at www.sec.gov. The following documents are also made
available on the Company’s website:
  •Code of
    Conduct
  •Code of Business Conduct and
      Ethics for Scheduled
Employees
  •Corporate Governance
      Guidelines;
      and
  •Charters of the Audit,
      Compensation and Development and Directors and Corporate Governance
      Committees
  Further discussion of the Company’s
business, including equipment and business sectors, is incorporated by reference
from Item 2, “Properties.”
  Item 1A. Risk
Factors
  The Company faces intense competition
from rail carriers and other transportation providers, and its failure to
compete effectively could adversely affect its results of operations, financial
condition or liquidity.
  The Company operates in a highly
competitive business environment. Depending on the specific market, the Company
faces intermodal, intramodal, product and geographic competition. For example,
the Company believes that high service truck lines, due to their ability to
deliver non-bulk products on an expedited basis, have had and will continue to
have an adverse effect on the Company’s ability to compete for deliveries of
non-bulk, time-sensitive freight. While the Company must build or acquire and
maintain its rail system, trucks and barges are able to use public rights-of-way
maintained by public entities. Any material increase in the capacity and quality
of these alternative methods or the passage of legislation granting greater
latitude to motor carriers with respect to size and weight restrictions could
have an adverse effect on the Company’s results of operations, financial
condition or liquidity.In addition, a failure to provide the
level of service required by the Company’s customers could result in loss of
business to competitors.


1
 Table of
Contents


A downturn in the
economy or change in government policy could negatively impact demand for the
Company’s services.
  Significant,
extended negative changes in economic conditions that impact the producers and
consumers of the commodities transported by the Company may have an adverse
effect on the Company’s operating results, financial condition or liquidity. In
addition, changes in United States and foreign government policies could change
the economic environment and affect demand for the Company’s services. For
example, changes in clean air laws or regulation ofcarbon
dioxide emissionscould
reduce the demand for coal. Also, United States and foreign government
agriculture tariffs or subsidies could affect the demand for
grain.
  As part of its
railroad operations, the Company frequently transports chemicals and other
hazardous materials.
  The
Company is required to transport these commodities to the extent of its common
carrier obligation. An accidental release of these commodities could result in a
significant loss of life and extensive property damage as well as environmental
remediation obligations. The associated costs could have an adverse effect on
the Company’s operating results, financial condition or
liquidity.
  Future acts of
terrorism or war, as well as the threat of war, may cause significant
disruptions in the Company’s business operations.
  Terrorist
attacks, such as those that occurred on September 11, 2001, as well as the more
recent attacks on the transportation systems in Madrid, London and in India, and
any government response to those types of attacks and war or risk of war may
adversely affect the Company’s results of operations, financial condition or
liquidity. The Company’s rail lines and facilities could be direct targets or
indirect casualties of an act or acts of terror, which could cause significant
business interruption and result in increased costs and liabilities and
decreased revenues, which could have an adverse effect on its operating results
and financial condition. Such effects could be magnified if releases of
hazardous materials are involved. Any act of terror, retaliatory strike,
sustained military campaign or war or risk of war may have an adverse impact on
the Company’s operating results and financial condition by causing or resulting
in unpredictable operating or financial conditions, including disruptions of
rail lines, volatility or sustained increase of fuel prices, fuel shortages,
general economic decline and instability or weakness of financial markets. In
addition, insurance premiums charged for some or all of the coverage currently
maintained by the Company could increase dramatically or certain coverage may
not be available to the Company in the future.
  The Company is
subject to stringent environmental laws and regulations, which may impose
significant costs on its business operations.
  The
Company’s operations are subject to extensive federal, state and local
environmental laws and regulations concerning, among other things, emissions to
the air; discharges to waters; the generation, handling, storage, transportation
and disposal of waste and hazardous materials; and the cleanup of hazardous
material or petroleum releases.Changes
to or limits on carbon dioxide emissionscould
result in significant capital expenditures to comply with these regulations.
Further, local concerns on emissionsand
other forms of pollutioncould
inhibit the Company’s ability to build facilities in strategic locations to
facilitate growth and efficient operations.In
addition, many of the Company’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. Environmental liability can extend to previously owned or operated
properties, leased properties and properties owned by third parties, as well as
to properties currently owned and used by the Company. Environmental liabilities
have arisen and may continue to arise from claims asserted by adjacent
landowners or other third parties in toxic tort litigation. The Company has been
and may continue to be subject to allegations or findings to the effect that it
has violated, or is strictly liable under, these laws or regulations. The
Company’s operating results, financial condition or liquidity could be adversely
affected as a result of any of the foregoing, and it may be required to incur
significant expenses to investigate and remediate environmental contamination.
The Company records liabilities for environmental cleanup when the amount of its
liability is both probable and reasonably
estimable.
  The Company’s future
success depends on its ability to continue to comply with the significant
federal, state and local governmental regulations to which it is
subject.
  The
Company is subject to a significant amount of governmental regulation with
respect to its rates and practices, railroad operations and a variety of health,
safety, labor, environmental and other matters. Failure to comply with
applicable laws and regulations could have a material adverse effect on the
Company. Governments may change the legislative framework within which the
Company operates without providing the Company with any recourse for any adverse
effects that the change may have on its business. Also, some of the regulations
require the Company to obtain and maintain various licenses, permits and other
authorizations, and it cannot assure that it will continue to be able to do so.
Increased economic regulation of the rail industry could negatively impact the
Company’s ability to determine prices for rail services and to make capital
improvements to its rail network, resulting in an adverse effect on the
Company’s results of operations, financial condition or
liquidity.


2
 Table of
Contents


The availability of
qualified personnel could adversely affect the Company’s
operations.
  Changes
in demographics,
training requirementsand
the availability of qualified personnel, particularly engineers and trainmen,
could negatively impactthe
Company’sability
to meet demand for rail service.Recruiting
and retaining qualified personnel, particularly those with expertise in the
railroad industry,
are vital to operations.Unpredictable
increases in demand for rail services may exacerbate such risks, which could
have a negative impact on operational efficiency and otherwise have a material
adverse effect onthe
Company’s operating results, financial condition or
liquidity.
  Most of the
Company’s employees are represented by unions, and failure to successfully
negotiate collective bargaining agreements may result in strikes, work
stoppages, or substantially higher ongoing labor
costs.
  A
significant majority of BNSF Railway’s employees are union-represented. BNSF
Railway’s union employees work under collective bargaining agreements with
various labor organizations. Wages, health and welfare benefits, work rules and
other issues have traditionally been addressed through industry-wide
negotiations. These negotiations have generally taken place over an extended
period of time and have previously not resulted in any extended work stoppages.
The existing agreements have remained in effect and will continue to remain in
effect until new agreements are reached or the Railway Labor Act’s procedures
(which include mediation, cooling-off periods and the possibility of
Presidential intervention) are exhausted. While the negotiations have not yet
resulted in any extended work stoppages, if the Company is unable to negotiate
acceptable new agreements, it could result in strikes by the affected workers,
loss of business and increased operating costs as a result of higher wages or
benefits paid to union members, any of which could have an adverse effect on the
Company’s operating results, financial condition or
liquidity.
  Severe weather and
natural disasters could disrupt normal business operations, which would result
in increased costs and liabilities and decreases in
revenues.
  The
Company’s success is dependent on its ability to operate its railroad system
efficiently. Severe weather and natural disasters, such as tornados, flooding
and earthquakes, could cause significant business interruptions and result in
increased costs and liabilities and decreased revenues. In addition, damages to
or loss of use of significant aspects of the Company’s infrastructure due to
natural or man-made disruptions could have an adverse affect on the Company’s
operating results, financial condition or liquidity for an extended period of
time until repairs or replacements could be made. Additionally, during natural
disasters, the Company’s workforce may be unavailable, which could result in
further delays. Extreme swings in weather could also negatively affect the
performance of locomotives and rolling stock.
  Fuel supply
availability and fuel prices may adversely affect the Company’s results of
operations, financial condition or liquidity.
  Fuel
supply availability could be impactedas
a result of limitations in refining capacity, disruptions to the supply chain,
or rising global demand. A significant reduction in fuel availability could
impact the Company’s ability to provide transportation services at current
levels, increase fuel costs and impact the economy. Each of these factors could
have an adverse effect on the Company’s operating results, financial condition
or liquidity. Additionally, the Company is expected to be able to offset a
significant portion of the anticipated higher fuel costs through its fuel
surcharge program in 2008. However, to the extent that the Company is unable to
maintain and expand its existing fuel surcharge program, increases in fuel
prices could have an adverse effect on the Company’s operating results,
financial condition or liquidity.
  The Company depends
on the stability and availability of its information technology
systems.
  The
Company relies on information technology in all aspects of its business. A
significant disruption or failure of its information technology systems could
result in service interruptions, safety failures, security violations,
regulatory compliance failures and the inability to protect corporate
information assets against intruders or other operational difficulties. Although
the Company has taken steps to mitigate these risks, including Business
Continuity Planning, Disaster Recovery Planning and Business Impact Analysis, a
significant disruption could adversely affect the Company’s results of
operations, financial condition or liquidity. Additionally, if the Company is
unable to acquire or implement new technology, it may suffer a competitive
disadvantage, which could also have an adverse effect on the Company’s results
of operations, financial condition or
liquidity.
  The Company’s
operational dependencies may adversely affect results of operations, financial
condition or liquidity.
  Due
to the integrated nature of the United States’ freight transportation
infrastructure, the Company’s operations may be negatively affected by service
disruptions of other entities such as ports and other railroads which
interchange with the Company. A significant prolonged service disruption of one
or more of these entities could have an adverse effect on the Company’s results
of operations, financial condition or
liquidity.


3
 Table of
Contents


Personal injury
claims constitute a significant expense, and increases in the amount or severity
of these claims could adversely affect the Company’s operating
results.
  The
Company is subject to various personal injury claims by third parties and
employees, including claims by employees who worked around asbestos until 1985,
when its use at BNSF was substantially eliminated. Personal injury claims by
BNSF Railway employees are subject to the Federal Employees’ Liability Act
(FELA), rather than state workers’ compensation laws. The Company believes that
the FELA system, which includes unscheduled awards and a reliance on the jury
system, has contributed to increased expenses in the past. Future events, such
as increases in the number of claims that are filed, developments in legislative
and judicial standards and the costs of settling claims, could result in an
adverse effect on the Company’s operating
results.
  Item 1B. Unresolved Staff Comments
 None.


4
 Table of
Contents


Item 2.
Properties
  Track
Configuration
 BNSF Railway
operates over a railroad system consisting ofapproximately
32,000 route miles of track,excluding multiple
main tracks, yard tracks and sidings, approximately 23,000 miles of which are
owned route miles, including easements, in 28 states and two Canadian provinces
as of December 31, 2007. Approximately 9,000 route miles of BNSF Railway’s
system consist of trackage rights that permit BNSF Railway to operate its trains
with its crews over other railroads’ tracks.
  As of December 31,
2007, the total BNSF Railway system, including single and multiple main tracks,
yard tracks and sidings, consisted of approximately 50,000 operated miles of
track, all of which are owned by or held under easement by BNSF Railway except
for approximately 10,000 route miles operated under trackage rights. At December
31, 2007, approximately 26,000 miles of BNSF Railway’s track consisted of
112-pound per yard or heavier rail, including approximately 20,000 track miles
of 131-pound per yard or heavier rail.
  Equipment
Configuration
 BNSF Railway owned
or had under non-cancelable leases exceeding one year the following units of
railroad rolling stock and other equipment as of the dates shown
below.


At December
      31,
            
            
            2007
            
            2006
            
            2005Locomotives
            
            
            6,400
            
            
            6,330
            
            
            5,790Freight
      cars:Covered
      hopper
            
            
            36,439
            
            
            33,488
            
            
            34,631Gondola
            
            
            13,690
            
            
            13,998
            
            
            12,579Open
      hopper
            
            
            11,428
            
            
            11,277
            
            
            10,973Flat
            
            
            10,470
            
            
            11,382
            
            
            8,537Box
            
            
            7,948
            
            
            8,937
            
            
            8,685Refrigerator
            
            
            4,196
            
            
            4,631
            
            
            4,983Tank
            
            
            427
            
            
            426
            
            
            422Autorack
            
            
            416
            
            
            641
            
            
            748Other
            
            
            324
            
            
            341
            
            
            323Total
      freight cars
            
            
            85,338
            
            
            85,121
            
            
            81,881Domestic
      chassis
            
            
            11,714
            
            
            12,849
            
            
            12,649Company
      service cars
            
            
            4,070
            
            
            3,982
            
            
            4,091Domestic
      containers
            
            
            3,253
            
            
            3,275
            
            
            10,412Trailers
            
            
            1,200
            
            
            1,209
            
            
            1,916Commuter
      passenger cars
            
            
            163
            
            
            165
            
            
            179Average age from date of manufacture–locomotive fleet (years)a
            
            
            15
            
            
            15
            
            
            15Average age from
      date of manufacture–freight car fleet (years)a
            
            
            14
            
            
            14
            
            
            15a 
      These averages are not weighted to reflect the
      greater capacities of the newer equipment.




Capital
Expenditures and Maintenance
  Capital
Expenditures
 The
extent of the BNSF Railway’s maintenance and capacity program is outlined in the
following table:
 
 Year ended December
      31,
              
              
              2008
      Estimate
              
              
              2007
              
              
              2006
              
              
              2005Track
      miles of rail laida
              
              
              908
              
              
              994
              
              
              854
              
              
              711Cross
      ties inserted (thousands)a
              
              
              3,237
              
              
              3,126
              
              
              2,957
              
              
              3,171Track
      resurfaced (miles)
              
              
              13,075
              
              
              11,687
              
              
              12,588
              
              
              12,790a 
      Includes both maintenance of existing route system and expansion projects.
      Expenditures for these maintenance programs are primarily
      capitalized.
 
 A
breakdown of the Company’s cash capital expenditures for the three years ended
December 31, 2007, is incorporated by reference from a table in Item 7,
Management’s Discussion and Analysis of Financial Condition and Results of
Operations under the heading “Liquidity and Capital Resources; Investing
Activities.”


5
 Table of
Contents




BNSF’s planned 2008 capital commitments
are incorporated by reference from Item 7, Management’s Discussion and Analysis
of Financial Condition and Results of Operations under the heading “Executive
Summary; Business Outlook for 2008.”
  Maintenance
 As of December 31, 2007, General
Electric Company, Alstom Transportation, Inc. and Electro-Motive Diesel, Inc.
performed locomotive maintenance and overhauls for BNSF Railway at its
facilities under various maintenance agreements that covered approximately4,240locomotives.
  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 containers, chassis 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 include33major intermodal hubs located across the
system. BNSF Railway’s largest intermodal facilities in terms of 2007 volume
were as follows:


Intermodal
      Facilities
              
              LiftsHobart
      Yard (Los Angeles, California)
              
              
              1,243,000Logistics
      Park (Chicago, Illinois)
              
              
              755,000Corwith
      Yard (Chicago, Illinois)
              
              
              739,000Willow
      Springs (Illinois)
              
              
              636,000Alliance
      (Fort Worth, Texas)
              
              
              567,000Cicero
      (Illinois)
              
              
              517,000San
      Bernardino (California)
              
              
              500,000Argentine
      (Kansas City, Kansas)
              
              
              369,000Seattle
      International Gateway (Seattle, Washington)
              
              
              305,000Memphis
      (Tennessee)
              
              
              284,000


BNSF Railway owns23 automotive distribution facilities
and serves eightport
facilities where automobiles are loaded on or unloaded from multi-level rail
cars 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, intermodal and coal
cars) are shown below:
 Classification
      Yards
                Daily Average
                  Cars
      ProcessedArgentine
      (Kansas City, Kansas)
                1,807Galesburg
      (Illinois)
                1,642Barstow
      (California)
                1,349Pasco
      (Washington)
                1,274Tulsa
      (Oklahoma)
                1,198
  As of December 31, 2007, certain BNSF
Railway properties and other assets were subject to liens securing $102million of mortgage debt. Certain
locomotives, rolling stock and facilities of BNSF Railway were subject to
equipment leases and financing obligations, as referred to in Notes 9 and 10 to
the Consolidated Financial Statements.
  Productivity
 Productivity, as measured by thousand
gross ton miles per employee, is shown in the table below. Gross ton miles is
defined as the product of the number of loaded and empty miles traveled and the
combined weight of the car and contents.Certain prior period amountshave been adjusted to
conform to current year presentation.
 Year ended December
      31,
              
              
              2007
              
              2006
              
              2005Thousand
      gross ton miles divided by average number of employees
              
              
              27,222
              
              
              27,092
              
              
              26,964


6
 Table of
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A discussion of Employees and Labor
Relations is incorporated by reference from Item 7, Management’s Discussion and
Analysis of Financial Condition and Results of Operations, under the heading
“Other Matters; Employee and Labor Relations.”
  Business
Mix
 In serving the Midwest, Pacific
Northwest and the Western, Southwestern and Southeastern regions and ports of
the country, BNSF transports, through one operating transportation services
segment, a range of products and commodities derived from manufacturing,
agricultural and natural resource industries. Approximately65 percent of the freight revenues
originated by the Company is covered by contractual agreements of varying
duration, while the balance is subject to common carrier, published prices or
quotations offered by the Company. BNSF’s financial performance is influenced
by, among other things, general and industry economic conditions at the
international, national and regional levels. The following map illustrates the
Company’s primary routes, including trackage rights, which allow BNSF to access
major cities and ports in the western and southern United States as well as
Canadian and Mexican traffic. In addition to major cities and ports, BNSF
efficiently serves many smaller markets by working closely with approximately
200 shortline partners. BNSF has also entered into marketing agreements with CSX
Transportation, Canadian National Railway Company and Kansas City Southern
Railway Company, expanding the marketing reach for each railroad and their
customers.
  
   Consumer
Products:
 The Consumer Products’ freight business
provided approximately37percent of freight revenues
in 2007 and consisted of the following business sectors:
  •
              International
      Intermodal—
      International business consists primarily of container traffic from
      steamship companies such asMaersk, Hyundai and Yang
      Ming.International Intermodal accounted
      for approximately46percent of total
      Consumer Products revenues.
  •
              Domestic
      Intermodal— Domestic
      Intermodal generated approximately45percent of total Consumer Products
      revenue. The Domestic Intermodal sector is comprised of the following
      business areas:
 •
                  Truckload/Intermodal
      Marketing Companies—
      The Truckload business area is comprised of full truckload carriers such
      as J.B. Hunt Transportation, Schneider National and Swift Transportation.
      The Intermodal Marketing Companies business area is comprised of shippers’
      agents and consolidators such as the Hub
  Group.


7
 Table of
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•
              Expedited
      Truckload/Less-than-Truckload— This business area is comprised
      of less-than-truckload carriers and parcel carriers such as United Parcel
      Service and YRC Worldwide. It also includes expedited truckload carriers
      such as Werner Enterprises, Stevens Transport and U.S. Xpress
      Enterprises.
  •
              Automotive— The transportation of both
      assembled motor vehicles, primarily those manufactured outside of the
      United States, and shipments of vehicle parts to numerous destinations
      throughout the Midwest, Southwest, West and Pacific Northwest provided
      about9percent of total Consumer Products
      revenues.
  Industrial Products:
 The Industrial Products’ freight
business provided approximately24percent of BNSF’s freight revenues in
2007 and consisted of the following five business areas:
  •
              Construction
      Products— The
      Construction Products sector represented approximately33percent of total Industrial
      Products revenues in 2007. This sector serves virtually all of the
      commodities included in or resulting from the production of steel along
      with mineral commodities such as clays, sands, cements, aggregates, sodium
      compounds and other industrial minerals. Industrial taconite, an iron ore
      derivative produced in northern Minnesota, scrap steel and coal coke are
      BNSF’s primary input products transported. Finished steel products range
      from structural beams and steel coils to wire and nails. BNSF links the
      integrated steel mills in the East with fabricators in the West and
      Southwest. Service is also provided to various mini-mills in the Southwest
      that produce rebar, beams and coiled rod for the construction industry.
      Industrial minerals include various mined and processed commodities such
      as cement and aggregates (construction sand, gravel and crushed stone)
      that generally move to domestic markets for use in general construction
      and public work projects, including highways. Borates and clays move to
      domestic points as well as to export markets primarily through West Coast
      ports. Sodium compounds, primarily soda ash, are moved to domestic markets
      for use in the manufacturing of glass and other industrial products. Sand
      is utilized in the manufacturing of glass and in foundry and oil drilling
      applications.
  •
              Building
      Products— This sector
      generated approximately 29 percent of total 2007 Industrial Products
      revenues and includes primary forest product commodities such as lumber,
      plywood, oriented strand board, particleboard, paper products, pulpmill
      feedstocks, wood pulp and sawlogs. Also included in this sector are
      government, machinery and waste traffic. Commodities from this diverse
      group primarily originate from the Pacific Northwest, Western Canada,
      upper Midwest and the Southeast for shipment mainly into domestic markets.
      Industries served include construction, furniture, photography,
      publishing, newspaper and industrial packaging. Shipments of waste,
      ranging from municipal waste to contaminated soil, are transported to
      landfills and reclamation centers across the country. The government and
      machinery business includes aircraft parts, agricultural and construction
      machinery, military equipment and large industrial
      machinery.
  •
              Petroleum
      Products— Commodities
      included in the Petroleum Products sector are liquefied petroleum gas
      (LPG), diesel fuels, asphalt, alcohol, solvents, petroleum coke, lubes,
      oils, waxes and carbon black. This group made up16percent of total Industrial
      Products revenues for 2007. Product use varies based on commodity and
      includes the use of LPG for heating purposes, diesel fuel and lubes to run
      heavy machinery and asphalt for road projects and roofing. Products within
      this group originate and terminate throughout the BNSF network, with the
      largest areas of activities being the Texas Gulf, Pacific Northwest,
      California, Montana and
Illinois.
  •
              Chemicals
      and Plastic Products—
      The Chemicals and Plastic Products sector represented approximately14percent of total 2007 Industrial
      Products revenues. This group is composed of industrial chemicals and
      plastics commodities. These commodities include caustic soda, chlorine,
      industrial gases, acids, polyethylene, polypropylene and polyvinyl
      chloride. Industrial chemicals and plastics resins are used by the
      automotive, housing and packaging industries, as well as for feedstocks,
      to produce other chemicals and plastic products. These commodities
      originate primarily in the Gulf Coast region for shipment mainly into
      domestic markets.
  •
              Food
      and Beverages— Food
      and Beverages represented approximately8percent of total 2007 Industrial
      Products revenues. This group consists of beverages, canned goods and
      perishable food items. Other consumer goods such as cotton, salt, rubber
      and tires and miscellaneous boxcar shipments are also included in this
      business area.


8
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Coal:
 In
2007, the transportation of coal contributedabout
21 percent of freight revenues. BNSF is one of the largest transporters of
low-sulfur coal in the United States. More than 90 percent of all BNSF’s coal
tons originatedfrom
the Powder River Basin of Wyoming and Montana. These coal shipments were
destined for coal-fired electric generating stations located primarily in the
North Central, South Central, Southeast, Mountain and Pacific Northwest regionsof
the United States. BNSF also transports coal from the Powder River Basin to
markets in Canada and the eastern United States. Demand for Powder River Basin
coal has increased substantially over the past 20 years due to its relatively
low sulfur content, abundant reserves, relatively inexpensive mine production
and competitive delivered cost to power plants.
  Other BNSF coal
shipments originate principally in Colorado, Illinois, New Mexico and North
Dakota. These shipments move to electrical generating stations and industrial
plants in the Mountain and North Central regions of the United States and to
Mexico.
  Agricultural
Products:
 The transportation
of Agricultural Products providedapproximately 18
percentof 2007 freight
revenues. These products include wheat, corn, bulk foods, soybeans, oil seeds
and meals, feeds, barley, oats and rye, flour and mill products, milo, oils,
specialty grains, malt, ethanol and fertilizer. The BNSF system is strategically
located to serve the grain-producing regions of the Midwest and Great Plains.
The Company continues to develop and operate a shuttle network for grain and
grain products, which allows more efficient use of equipment and improved cycle
times. In addition to serving most grain-producing areas, BNSF serves most major
terminal, storage, feeding and food-processing locations. Furthermore, BNSF has
access to major export markets in the Pacific Northwest, western Great Lakes,
Texas Gulf and Mexico.
  Freight
Statistics
 The following table
sets forth certain freight statistics relating to rail operations for the
periods indicated.Certain prior
period amounts have been adjusted to conform to current year
presentation.
  Year ended December
      31,
                
                2007
                
                2006
                
                2005Revenue ton miles
      (millions)a
                
                657,572
                
                
                647,857
                
                
                604,656Freight
      revenue per thousand revenue ton miles
                
                $
                23.34
                
                $
                22.45
                
                $
                20.85Average
      length of haul (miles)
                
                
                1,079
                
                
                1,067
                
                
                1,068a  Revenue ton miles is
      defined as the product of the number of loaded miles traveled and the
      weight of the contents.
 
 Revenue, cars/units and average revenue
per car/unit information for the three years ended December 31, 2007, is
incorporated by reference from a table in Item 7, Management’s Discussion and
Analysis of Financial Condition and Results of Operations, under the heading
“Results of Operations; Revenue Table.”
  Government
Regulation and Legislation
 The Company is subject to federal, state
and local laws and regulations generally applicable to all businesses. 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 the DOT, the Occupational Safety
and Health Administration (OSHA), as well as other federal and 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 profitability of BNSF’s business.
  DOT and OSHA have jurisdiction under
several federal statutes over a number of safety and health aspects of rail
operations, including the transportation of hazardous materials. 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 also subject to extensive federal, state and
local environmental regulation. These laws cover discharges to water, 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.


9
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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 to, 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 on current and former owners and operators of a site, without regard to
fault or the legality of the original conduct. Accordingly, BNSF Railway may be
responsible under CERCLA and other federal and state statutes for all or part of
the costs to clean up 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.
 Railroad
Retirement
 Railroad industry
personnel are covered by the Railroad Retirement System instead of Social
Security. BNSF Railway’s contributions under the Railroad Retirement System have
been almost triple those in industries covered by Social Security. The Railroad
Retirement System, funded primarily by payroll taxes on covered employers and
employees, includes a benefit roughly equivalent to Social Security (Tier I), an
additional benefit similar to that allowed in some private defined-benefit plans
(Tier II) and other benefits. For 2007, the Railroad Retirement System required
up to a19.75 percent
contribution by railroad employers on eligible wages, while the Social Security
and Medicare Acts only required a 7.65 percent contributionon similar wage
bases.
  Competition
 The business
environment in which BNSF Railway operates is 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. 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 by the Association of American Railroads, BNSF’s share of the western
United States rail traffic in 2007 was approximately49percent.
  Item 3. Legal
Proceedings
 Beginning May 14,
2007, 27 similar class action complaints were filed in six federal district
courts around the country against BNSF and four other Class I railroads (and, in
some cases, the Association of American Railroads) alleging that they have
conspired to fix fuel surcharges with respect to unregulated freight
transportation services in violation of the antitrust laws and seeking
injunctive relief and unspecified treble damages.  On November 6,
2007, the Judicial Panel on Multidistrict Litigation entered an order to
consolidate cases in the federal district court of the District of Columbia for
coordinated or consolidated pretrial proceedings.  (In
re:  Rail Freight Fuel Surcharge Antitrust Litigation, MDL No. 1869).
The Company believes that these claims are without merit and intends to defend
against the allegations vigorously.  The Company is also responding to
a state grand jury subpoena requesting production of information related to fuel
surcharges.  The Company does not believe that the outcome of any of
these proceedings will have a material effect on its financial condition,
results of operations or liquidity.
  Information
concerning certain pending tax-related administrative or adjudicative state
proceedings or appeals is incorporated by reference from Note 5 to the
Consolidated Financial Statements, and information concerning other claims and
litigation is incorporated by reference from Note 10 to the Consolidated
Financial Statements.


10
 Table of
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Item 4. Submission of Matters to a Vote
of Security Holders
 No matters were
submitted by BNSF to a vote of its securities holders during the fourth quarter
of 2007.
  Executive
Officers of the Registrant
  Listed below are
the names, ages and positions of all executive officers of BNSF and their
business experience during the past five years. Executive officers hold office
until their successors are elected or appointed, or until their earlier death,
retirement, resignation or removal.
  Matthew K. Rose, 48
 Chairman, President
and Chief Executive Officer of BNSF since March 2002.
  Thomas N. Hund, 54
 Executive Vice
President and Chief Financial Officer since January
2001.
  Carl R. Ice, 51
 Executive Vice
President and Chief Operations Officer since January
2001.
  John P. Lanigan, Jr.,
52
 Executive Vice President and Chief
Marketing Officer since January 2003.
  Roger Nober, 43
 Executive Vice President Law and
Secretary since January 2007. Prior to that, partner of Steptoe & Johnson
LLP, Washington, DC (law firm) from March 2006 and Chairman of the United States
Surface Transportation Board from November 2002 – January
2006.
  Peter J. Rickershauser,
59
 Vice President–Network Development since
May 1999.


11
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Part II


Item 5. Market for
Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities


BNSF’s common stock is listed on the New
York Stock Exchange under the symbol “BNI.” Information as to the high and low
sales prices of such stock for the two years ended December 31, 2007, and the
frequency and amount of dividends declared on such stock during such periods, is
set forth in Note 16 to the Consolidated Financial Statements.The approximate number of holders of
record of the common stock atFebruary 4, 2008, was
32,000.


Common Stock
Repurchases
 The
following table presents repurchases by the Company of its common stock for each
of the three months for the quarter ended December 31, 2007, (shares in
thousands):





Issuer Purchases of Equity
      SecuritiesPeriod
            
            
            Total Number of Shares
      Purchaseda
            
            
            Average Price Paid
              Per
      Share
            
            
            Total Number of Shares
              Purchased as Part of
              Publicly Announced Plans
              or Programsb
            
            
            Maximum Number of
              Shares That May Yet be
              Purchased Under the
              Plans or ProgramsbOctober
      1 – 31
            
            
            272
            
            $
            85.22
            
            
            270
            
            
            32,643November
      1 – 30
            
            
            1,987
            
            
            85.51
            
            
            1,967
            
            
            30,676December
      1 – 31
            
            
            1,262
            
            
            85.23
            
            
            1,175
            
            
            29,501Total
            
            
            3,521
            
            $
            85.39
            
            
            3,412a  Total number of
      shares purchased includes approximately 109 thousand shares where
      employees delivered already owned shares or used an attestation procedure

              to satisfy the exercise price of stock options or the withholding of
      tax payments. Total number of shares purchased does not include
      approximately 117 thousand
              shares acquired from employees to satisfy tax withholding
      obligations that arose on the vesting of restricted stock or the exercise
      of stock options.b 
      On July 17, 1997, the Board initially authorized and the Company announced
      the repurchase of up to 30 million shares of the Company’s common stock
      from time to
              time in the open market. On December 9, 1999, April 20, 2000, September
      21, 2000, January 16, 2003, December 8, 2005 and February 14, 2007, the
      Board authorized
              and the Company announced extensions of the BNSF share repurchase
      program, adding 30 million shares at each date for a total of 210 million
      shares authorized.
              The share repurchase program does not have an expiration
      date.




12
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Item 6. Selected
Financial Data


The
following table presents, as of and for the dates indicated, selected historical
financial information for the Company(in millions, except per
share data):


December
      31,
              
              2007
              
              2006
              a
              2005
              a
              2004
              a
              2003
              aFor the year
      ended:Revenues
              
              $
              15,802
              
              $
              14,985
              
              $
              12,987
              
              $
              10,946
              
              $
              9,413Operating
      income
              
              $
              3,486
              
              $
              3,521
              
              $
              2,927
              b
              $
              1,709
              c
              $
              1,675Income
      before cumulative
      effect of accounting change
              
              $
              1,829
              
              $
              1,889
              
              $
              1,534
              b
              $
              805
              c
              $
              783
              dBasic earnings per share (before
      cumulative effect of accounting
                change)
              
              $
              5.19
              
              $
              5.23
              
              $
              4.13
              b
              $
              2.18
              c
              $
              2.12
              dAverage basic
      shares
              
              
              352.5
              
              
              361.0
              
              
              371.8
              
              
              370.0
              
              
              369.1Diluted earnings per share (before
      cumulative effect of accounting
                change)
              
              $
              5.10
              
              $
              5.11
              
              $
              4.02
              b
              $
              2.14
              c
              $
              2.10
              dAverage diluted
      shares
              
              
              358.9
              
              
              369.8
              
              
              381.8
              
              
              376.6
              
              
              372.3Dividends declared per common
      share
              
              $
              1.14
              
              $
              0.90
              
              $
              0.74
              
              $
              0.64
              
              $
              0.54At year
      end:Total
assets
              
              $
              33,583
              
              $
              31,797
              
              $
              30,436
              
              $
              29,023
              
              $
              27,050Long-term debt and commercial
      paper, including current portion
              
              $
              8,146
              
              $
              7,385
              
              $
              7,154
              
              $
              6,516
              
              $
              6,684Stockholders’
      equity
              
              $
              11,144
              
              $
              10,528
              
              $
              9,638
              
              $
              9,438
              
              $
              8,608Net debt to total
      capitalizatione
              
              
              41.2
              %
              
              40.0
              %
              
              42.3
              %
              
              39.6
              %
              
              43.6
              %For the year
      ended:Total capital
      expenditures
              
              $
              2,248
              
              $
              2,014
              
              $
              1,750
              
              $
              1,527
              
              $
              1,726Depreciation and
      amortization
              
              $
              1,293
              
              $
              1,176
              
              $
              1,111
              
              $
              1,035
              
              $
              927aPrior
      year numbers have been adjusted for the retrospective adoption of
      Financial Accounting Standards Board (FASB) Staff Position
      (FSP)  AUG AIR-1,Accounting
      for Planned Major Maintenance Activities.
      See Note 2 to the Consolidated Financial Statements for additional
      information.
                
                b2005
      operating income, income before cumulative effect of accounting change and
      earnings per share include an impairment charge related to an agreement to
      sell certain line segments to the State of New Mexico in the future of
      $71 million pre-tax, $44 million net of tax, or $0.12 per basic
      and diluted share.See
      discussion under Item 7, Management's Discussion and Analysis of Financial
      Condition and Results of Operations, under the heading "New Mexico
      Department of Transportation."
                
                c2004
      operating income, income before cumulative effect of accounting change and
      earnings per share include a charge for a change in estimate of unasserted
      asbestos and environmental liabilities of $465 million pre-tax,
      $288 million net of tax, or $0.78 per basic share and $0.77 per
      diluted share.
                
                d2003
      income before cumulative effect of accounting change excludes the
      favorable cumulative effect of an accounting change for asset retirement
      obligations of $39 million, net of tax, or $0.11 per basic share and
      $0.10 per diluted share.
                
                eNet
      debt is calculated as total debt (long-term debt and commercial paper plus
      long-term debt due within one year) less cash and cash equivalents, and
      total capitalization is calculated as the sum of net debt and total
      stockholders’ equity.


13
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Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of
Operations


Management’s discussion and analysis
relates to the financial condition and results of operations of Burlington
Northern Santa Fe Corporation and its majority-owned subsidiaries
(collectively BNSF, Registrant or Company). The principal operating subsidiary
of BNSF is the BNSF Railway Company (BNSF Railway) through which BNSF derives
substantially all of its revenues. All earnings per share information is stated
on a diluted basis.
  Company
Overview
 Through its subsidiaries, BNSF is
engaged primarily in the freight rail transportation business. BNSF’s primary
operating subsidiary, BNSF Railway, operates one of the largest North American
rail networks withabout
32,000 route miles in 28 states and two Canadian provinces. Through its one operating
transportation segment, BNSF Railway transports a wide range of products and
commodities including Consumer Products, Industrial Products, Coal and
Agricultural Products.
  Additional operational information,
including weekly intermodal and carload unit reports as submitted to the
Association of American Railroads (AAR) and annual reports submitted to the
Surface Transportation Board (STB), are available on the Company’s website at
www.bnsf.com/investors.
  Executive
Summary
  Fiscal Year 2007 — Financial
Overview
 •
              The Company achieved earnings of
      $5.10 per share compared with 2006 earnings of $5.11 per
      share.
  •
              Freight revenues increased 6
      percent to $15.3
      billion,which
      included revenue increases in each of theCompany’s four business
      groups.
  •
              Of the 6-percent increase in
      freight revenue, 6 percent, 1 percent  and 1 percent was
      attributable to price, unit growth and fuel surcharges, respectively.
      These were partially offset by a decrease due to changes in business
      mix.
  •
              Operating expenses for 2007
      increased 7 percent compared with 2006, largely driven by a
      $463million increase in fuel expense
      primarily reflecting increasedfuelprices and areduced fuel-hedgebenefit.
  •
              Operating income of $3.5 billion
      for 2007decreased
      $35 million from 2006 despite a $310 million reduction in fuel-hedge
      benefit.
  •
              Each year capital expenditures are
      a significant use of cash for BNSF. In 2007, BNSF increased its cash
      capital expenditures to $2.25 billion from $2.01 billion in the prior
      year primarily due to both maintenance of BNSF’s track structure and
      additional expansion projects undertaken in 2007.Despite the increase in capital
      expenditures, BNSF’s capital commitments, which includes both cash spent
      for capital and locomotive leases, decreased approximately $80 million to
      $2.59 billion in 2007 due to fewer locomotive leases entered into in 2007
      as compared to 2006.
  Business Outlook for
2008
 •
              BNSF expects to see revenue growth
      in the high single digitson about flat unit
      volumes.
  •
              Combining projected revenue growth
      with anongoing focus
      on productivity,low
      double-digit growthin earnings per share is
      achievable.
  •
              The Company’s planned capital
      commitment program for 2008 is approximately $2.45 billion as compared to
      $2.59 billion in 2007. The decrease in the capital commitment program
      versus prior year is principally related to lower expansion capital driven
      by lower anticipated demand.
  •
              BNSF anticipates leasing 200
      locomotives with a cost of about $400 million and investing over $200
      million in track and facilities to expand capacity to continue to meet
      demand for consistent freight rail service. The 2008 capacity expansion
      program is expected to be approximately $350 million lower than
      2007.
  •
              The Company expects to spend more
      than $1.8 billion to keep its infrastructure strong by refreshing track,
      signal systems, structures, freight cars and implementing new
      technologies.


14
 Table of
Contents


Results of
Operations


Revenue Table
 The
following table presents BNSF’s revenue information by business group for the
years ended December 31, 2007, 2006 and 2005.


Revenues
              (in
      millions)
            
            Cars / Units(in
      thousands)
            
            Average Revenue Per Car /
      UnitYear ended December
      31,
            
            2007
            
            2006
            
            2005
            
            2007
            
            2006
            
            2005
            
            2007
            
            2006
            
            2005Consumer
      products
            
            $
            5,664
            
            $
            5,613
            
            $
            4,898
            
            
            5,149
            
            
            5,520
            
            
            5,215
            
            $
            1,100
            
            $
            1,017
            
            $
            939Industrial
      products
            
            
            3,684
            
            
            3,589
            
            
            3,128
            
            
            1,664
            
            
            1,686
            
            
            1,655
            
            
            2,214
            
            
            2,129
            
            
            1,890Coal
            
            
            3,279
            
            
            2,916
            
            
            2,448
            
            
            2,472
            
            
            2,458
            
            
            2,238
            
            
            1,326
            
            
            1,186
            
            
            1,094Agricultural
      products
            
            
            2,722
            
            
            2,427
            
            
            2,132
            
            
            1,033
            
            
            973
            
            
            916
            
            
            2,635
            
            
            2,494
            
            
            2,328Total
      freight revenues
            
            
            15,349
            
            
            14,545
            
            
            12,606
            
            
            10,318
            
            
            10,637
            
            
            10,024
            
            $
            1,488
            
            $
            1,367
            
            $
            1,258Other
      revenues
            
            
            453
            
            
            440
            
            
            381Total operating
      revenues
            
            $
            15,802
            
            $
            14,985
            
            $
            12,987





Expense Table
 The
following table presents BNSF’s expense information for the years ended December
31, 2007, 2006 and 2005 (in millions):





Year ended December
      31,
            
            
            2007
            
            
            2006
            a
            
            2005
            aCompensation
      and benefits
            
            
            $
            3,773
            
            
            $
            3,816
            
            
            $
            3,515Fuel
            
            
            
            3,197
            
            
            
            2,734
            
            
            
            1,959Purchased
      services
            
            
            
            2,023
            
            
            
            1,906
            
            
            
            1,713Depreciation
      and amortization
            
            
            
            1,293
            
            
            
            1,176
            
            
            
            1,111Equipment
      rents
            
            
            
            942
            
            
            
            930
            
            
            
            886Materials
      and other
            
            
            
            1,088
            
            
            
            902
            
            
            
            876Total operating
      expenses
            
            
            $
            12,316
            
            
            $
            11,464
            
            
            $
            10,060Interest
      expense
            
            
            $
            511
            
            
            $
            485
            
            
            $
            437Other
      expense, net
            
            
            $
            18
            
            
            $
            40
            
            
            $
            37Income
      tax expense
            
            
            $
            1,128
            
            
            $
            1,107
            
            
            $
            919a  Prior year numbers have been adjusted for
      the retrospective adoption of FSP AUG AIR-1, Accounting for
      Planned Major Maintenance Activities.
              See Note 2 to the Consolidated Financial Statements for additional
      information.





Year Ended December 31, 2007, Compared
with Year Ended December 31, 2006
 BNSF recorded net income for 2007 of
$1,829million, or $5.10 per share. In
comparison, net income for 2006 was $1,889 million, or $5.11 per
share.


Revenues
  Freight
 Freight revenues of $15,349 million for 2007 were $804
million, or 6percent
higher than 2006. Freight revenues reflecteda 3-percent decrease inunitvolumes. Freight revenues included an
increase of approximately$150 million in fuel surchargescompared with thesame 2006 period. Growth in
prices and fuel surcharges drove average revenue per car/unit up 9 percent in
2007 to $1,488 from $1,367 in 2006.


Consumer
      Products
                The
      Consumer Products' freight business includes a significant intermodal
      component and consists of the following three business areas: 
      international intermodal, domestic intermodal, and
automotive.
                
                Consumer Products revenues of $5,664 million for 2007
      were $51 million, or 1 percent, higher than 2006.  Higher revenue per
      unit due to improved yields and fuel surcharges was partially offset by
      lower volumes related to economic softness as well as reduced
      trans-pacific service of a large international customer.
              graphic




15
 Table of
Contents







Industrial
      Products
              Industrial Products’ freight
      business consists of five business areas:
              construction products, building
      products, petroleum products, chemicals and
              plastic products and food and
      beverages.
              
              Industrial Products revenues increased $95
      million, or 3 percent, to $3,684 million for 2007, while unit volumes
      decline 1 percent.  The 4-percent increase in average revenue per car
      was mainly the result of price increases.  Strong demand for
      petroleum products, chemicals and plastics was offset by a decline in
      building products as a result of weakness in the housing
      market.
            graphic




Coal
 BNSF
is one of the largest transporters of low-sulfur coal in the United States. More
than90percent
of all BNSF’s coal tons originate from the Powder River Basin of Wyoming and
Montana.
  Coal
revenues of $3,279 million for 2007 increased $363 million, or 12 percent,
versus a year agodue
to improved yields, contractual inflation escalators,increased
tons per unitand
fuel surcharges. Coal unit volumes increased 1 percentdespite
mine production and weather-relatedissues.
   Agricultural
      Products
                The
      Agricultural Products' freight business transports agricultural products
      including corn, wheat, soybeans, bulk foods, ethanol, fertilizer and other
      products.
                
                Agricultural Products revenues of $2,722 million for
      2007 were $295 million, or 12 percent higher than revenues for 2006. 
      This increase was primarily due to strong volume growth, favorable mix of
      business and price increases with the strongest revenue growth in wheat,
      soybeans, bulk foods, ethanol and fertilizer.
              graphic





Other Revenues
 Other
revenues increased $13 million, or 3 percent, to $453 million for 2007 compared
to 2006.This
increase was primarily due to volume growth of BNSF Logistics, an indirect,
wholly-owned non-rail subsidiary that specializes in providing third-party
logistics
and transportation services.
  Expenses
 Total
operating expenses for 2007 were $12,316 million, an increase of $852 million,
or 7 percent over 2006.
  Compensation and
Benefits
 Compensation
and benefits includes expenses for BNSF employee wages, health and welfare,
payroll taxes and other related items. The primary factors influencing the
expenses recorded are volume, headcount, utilization, wage rates, incentives
earned during the period, benefit plan participation and pension
expenses.
  Compensation
and benefits expenses of $3,773 million were $43 million, or 1 percentlowerthan
2006, on flat employee headcount. Wages and benefit increases were offset by
lower variable compensation costs and other cost
controls.
  Fuel
 Fuel
expense is driven by market price, the level of locomotive consumption of diesel
fuel and the effects of hedging activities.


Fuel
expenses of $3,197 million for 2007 were $463 million, or 17 percent, higher
than 2006. The increase in fuel expense was due to an increase in the average
all-in cost per gallon of diesel fuel, partially offset by a decline in
consumption related to improved fuel efficiency. The average all-in cost per
gallon of diesel fuel increased by37
cents to $2.22, or $538 million, which is comprised of an increase in the
average purchase price of 16 cents, or $228 million, and a decrease in the
hedge benefit of 21 cents, or $310 million (2007 benefit of
$31 million less 2006 benefit of $341 million). Consumption in 2007
decreased 36 million gallons to 1,442million
gallons when compared with consumption in the same 2006 period, resulting in a
$75 million decrease in fuel
expense.


16
 Table of
Contents


Purchased Services
 Purchased
services expense includes ramping (lifting of containers onto and off of cars);
drayage (highway movements to and from railway facilities); maintenance of
locomotives, freight cars and equipment; transportation costs over other
railroads; technology services outsourcing; professional services; and other
contract services provided to BNSF. Purchased services expense also includes
purchased transportation costs for BNSF Logistics,an
indirect, non-rail subsidiary of BNSF that specializes in providing third-party
logistics and transportation services.
The expenses are driven by the rates established in the related contracts and
the volume of services required.
  Purchased
services expenses of $2,023 million for 2007 were $117 million, or 6 percent
higher than 2006. Beyond general inflation, the largest drivers of this increase
were (i) $25 million in haulage payments for transportation over other
railroads, principally due to a new southeast intermodal agreement; (ii) $20
million in purchased transportation costs for BNSF Logistics; (iii) $10 million
in locomotive maintenance costs; and (iv) $10 million in ramping costs (lifting
of containers onto and off of cars).
  Depreciation and
Amortization
 Depreciation
and amortization expenses for the period are determined by using the group
method of depreciation, applying a single rate to the gross investment in a
particular class of property. Due to the capital-intensive nature of BNSF’s
operations, depreciation expense is a significant component of the Company’s
operating expense. The full effect of inflation is not reflected in operating
expenses since depreciation is based on historical
cost.
  Depreciation
and amortization expenses of $1,293 million for 2007 were $117 million, or 10
percent higher than 2006. This increase was primarily due to continuing capital
expenditures as well as updated depreciation rates for locomotives (see
discussion under the heading “Critical Accounting Estimates;
Depreciation”).
  Equipment
Rents
 Equipment
rents expense includes long-term and short-term payments primarily for
locomotives, freight cars, containers and trailers. The expense is driven
primarily by volume, lease and rental rates, utilization of equipment and
changes in business mix resulting in equipment usage
variances.
  Equipment
rents expenses for 2007 of $942 million were $12 million, or 1 percent, higher
than 2006, on a 3-percentdecline
in unit volumes. The variance represents an increase in locomotive lease
expense, partially offset by a decrease in freight car equipment expense due to
the impact of the Company’s privatization efforts,
lower volumesand
velocity improvements for freight car
equipment.
  Materials and Other
 Material
expenses consist mainly of the costs involved to purchase mechanical and
engineering materials, in addition to other items for construction and
maintenance of property and equipment. Other expenses include personal injury
claims, environmental remediation and derailments as well as utilities,
impairments of long-lived assets, locomotive overhauls, property and
miscellaneous taxes and employee separation costs. The total is offset by gains
on land sales and insurance
recoveries.
  Materials
and other expenses of $1,088 million for 2007, which consisted of approximately
$450
million of materials expense with the remainder consisting of numerous other
items, were $186 million, or 21 percent higher than 2006. The increase was
primarily due to increases of approximately(i)
$65 million and $16 million first quarter environmental and technology
charge, respectively (see discussion under the heading “Other Matters; Charge
for Environmental Costs and Technology System Write-Off”); (ii) $40 million in
environmental remediation developments; (iii)$25million
due largely to rising costs for materials for locomotives, freight cars and
track structure; and (iv) $20millionin
crew transportation costs principally
due to increased fuel and insurance-related costs aswell
as increased usage due to adverse weather. In addition, a$22 million
gain from a line sale to the State of New Mexicowasrecorded
in 2006(see
discussion under theheading
“Other Matters; New MexicoDepartment
of Transportation”).
  Interest Expense
 Interest
expense of $511 million for 2007 was $26 million, or 5 percent higher than 2006.
This increase was primarily the result of a higher average debt balance,
partially offset by lower average rates.
  Income Taxes
 The
effective rate in 2007 was 38.2 percent compared with 36.9 percent for the prior
year.The
increase inthe
effective tax rate primarily reflects income tax adjustments that favorably
impacted income tax expense in 2006 as compared with
2007.
 Year Ended December 31, 2006, Compared
with Year Ended December 31, 2005
 BNSF
recorded net income for 2006 of $1,889 million, or $5.11 per share. In
comparison, net income for 2005 was $1,534 million, or $4.02 per share,
which included a $0.12 per share impairment charge related to an agreement to
sell certain line segments to the State of New Mexico (see discussion under
heading “Other Matters; New Mexico Department of
Transportation”).


17
 Table of
Contents
  Revenues
  Freight
 Freight
revenues of $14,545 million for 2006 were $1,939 million, or 15
percent higher than 2005. Freight revenues reflected a 6-percent increase in
volumes. Freight revenues include an increase of approximately $600 million in
fuel surcharges compared with the same 2005 period. Growth in prices and fuel
surcharges drove average revenue per car/unit up 9 percent in 2006 to $1,367
from $1,258 in 2005.
  Consumer
      Products
                    Consumer Products
      revenues of $5,613 million for 2006 were $715 million, or 15 percent
      greater than 2005.  The increase in average revenue per unit of 8
      percent was primarily related to price increases and increased fuel
      surcharges.  Additionally, cars/units increased by 6 percent due
      primarily to growth in international
    intermodal.
                  graphic




Industrial
      Products
                  Industrial Products
      revenues increased $461 million, or 15 percent, to $3,589 million for
      2006.  The revenue increase was driven by double-digit growth in four
      of the five business areas.  The 13-percent increase in average
      revenue per car was the result of price increases and increased fuel
      surcharges.  Units increased 2 percent driven by demand for plastics,
      petroleum products and steel, partially offset by softness in demand for
      building products.
                graphic
 Coal
 Coal
revenues of $2,916 million for 2006 increased $468 million, or 19
percent, versus 2005. The revenue increase was primarily driven by a 10-percent
increase in volumes resulting from significant customer demand and greater line
throughput due to increased network fluidity. Average revenue per car increased
8 percent driven by contractual price escalations, increased length of haul and
fuel surcharges.
 Agricultural
      Products
                    Agricultural
      Products revenues of $2,427 million for 2006 were $295 million, or 14
      percent higher than revenues for 2005.  This increase was primarily
      due to a 7-percent increase in average revenue per car, which was driven
      by both price increases and increased fuel surcharges associated with
      higher fuel prices, and a 6-percent increase in volume driven primarily by
      an increase in demand for corn.
                  graphic


Other Revenues


Other
revenues increased $59 million, or 15 percent, to $440 million for
2006 compared to 2005. This increase was primarily due to increases in demurrage
charges and volume growth of BNSF Logistics, an indirect, wholly-owned non-rail
subsidiary that specializes in providing third-party logistics and
transportation services.
  Expenses
 Total
operating expenses for 2006 were $11,464 million, an increase of
$1,404 million, or 14 percent over 2005. The increase in operating expenses
was primarily the result of significant fuel price increases and a 6-percent
increase in gross-ton miles handled. Operating expenses for 2005 were impacted
by a $71 million pre-tax impairment charge related to an agreement to sell
certain line segments to the State of New Mexico.
  Compensation and
Benefits
 Compensation
and benefits expenses of $3,816 million were $301 million, or 9
percent higher than 2005. The increase was primarily related to 6 percent higher
unit volumes, which resulted in a 5-percent increase in the average headcount.
Additionally, increased stock-based compensation expense of approximately
$30 million, due largely to the adoption of Statement of Financial
Accounting Standards (SFAS) No. 123R,Share-Based Payment,and
increased pension expense of approximately $30 million contributed to the
overall increase in compensation and benefits expense as compared with the prior
year.


18
 Table of
Contents
 Fuel
 Fuel
expenses of $2,734 million for 2006 were $775 million, or 40 percent,
higher than 2005. The increase in fuel expense is due to an increase in the
average all-in cost per gallon of diesel fuel, as well as an increase in
consumption driven by higher volumes. The average all-in cost per gallon of
diesel fuel increased by 45 cents to $1.85, or $661 million, which is
comprised of an increase in the average purchase price of 32 cents, or
$471 million, and a decrease in the hedge benefit of 13 cents, or
$190 million (2006 benefit of $341 million less 2005 benefit of
$531 million). Consumption in 2006 was 1,478 million gallons compared
with 1,402 million gallons in 2005, resulting in a $114 million
increase in fuel expense.
  Purchased Services
 Purchased
services expenses of $1,906 million for 2006 were $193 million, or 11
percent higher than 2005. This increase was primarily due to increases in the
following volume-related costs of approximately (i) $50 million in
intermodal ramp costs; (ii) $40 million in haulage payments for
transportation over other railroads; (iii) $35 million in locomotive,
freight car and equipment maintenance expense; and (iv) $25 million in
purchased transportation costs for BNSF Logistics.
  Depreciation and
Amortization
 Depreciation
and amortization expenses of $1,176 million for 2006 were $65 million,
or 6 percent higher than 2005. This increase was primarily due to ongoing
capital expenditures.
  Equipment Rents
 Equipment
rents expenses for 2006 of $930 million were $44 million, or 5 percent
higher than 2005 driven by an increase of approximately $45 million in
locomotive rents, which was largely the result of an increase in the number of
locomotives under operating leases. Freight car equipment was essentially flat
year-over-year due to the impact of increasing volumes being offset by the
impact of the Company’s privatization efforts, velocity improvements and an
increase in off-line receipts.
  Materials and Other
 Materials
and other expenses of $902 million for 2006, which consisted of
approximately $425 million of materials expense with the remainder
consisting of numerous other items, were $26 million, or 3 percent higher
than 2005. The increase was primarily due to increases of approximately (i)
$65 million in materials costs for locomotives, freight cars and track
structure; (ii) $35 million in crew transportation and lodging expense;
(iii) $20 million in property taxes; and (iv) $20 million in expense
related to derailments. These increases were offset by a $22 million gain
from a line sale to the State of New Mexico recorded in 2006. Expenses for 2005
were impacted by a $71 million pre-tax impairment charge related to an
agreement to sell certain line segments to the State of New Mexico(see
discussion under the heading “Other Matters; New Mexico Department of
Transportation”).
  Interest Expense
 Interest
expense of $485 million for 2006 was $48 million, or 11 percent higher
than 2005. This increase was primarily the result of a higher average debt
balance.
  Income Taxes
 The
effective rate in 2006 was 36.9 percent compared with 37.5 percent for the prior
year. The decrease in the effective tax rate primarily reflects income tax
adjustments that favorably impacted income tax expense in 2006 as compared with
2005.
  Liquidity
and Capital Resources
 Liquidity
is a company’s ability to generate cash flows to satisfy current and future
obligations. Cash generated from operations is BNSF’s principal source of
liquidity. BNSF generally funds any additional liquidity requirements through
debt issuance, including commercial paper, through leasing of assets and through
the sale of a portion of its accounts receivable.
  Operating Activities
  2007
 Net
cash provided by operating activities was $3,492million
during 2007 compared with $3,189 million during 2006.The
increase was primarily the result of an increase in earnings before depreciation
and amortization expense,
higher environmental accruals in 2007, and higher contributions to the pension
plan in 2006.
  2006
 Net
cash provided by operating activities was $3,189 million during 2006
compared with $2,706 million during 2005. The increase was primarily the
result of an increase in earnings before depreciation and amortization
expense.
 19
 Table of
Contents


Investing Activities
  2007
 Net
cash used for investing activities was $2,415million
during 2007 compared with $2,167 million during 2006. Investing activities
for the year included $2,248million
of capital expenditures, which were $234million
higher than 2006 primarily due to an increase in capital expenditures for
maintenance of BNSF’s track structure and for terminal and line expansions as
illustrated in the table below.
  2006
 Net
cash used for investing activities was $2,167 million during 2006 compared
with $2,120 million during 2005. Investing activities for the year included
$2,014 million of capital expenditures, which were $264 million higher
than 2005 primarily due to an increase in capital expenditures for maintenance
of BNSF’s track structure and for terminal and line expansions as illustrated in
the table below. The decrease in cash used for other investing activities
primarily reflects timing of equipment financing activities, $50 million in
consideration received for the third easement sale to Seattle Sound Transit and
$45 million in consideration received for the New Mexico line sale as
discussed in the “Other Matters” section. Additionally, 2005 included
consideration paid to another carrier for trackage rights and alternative access
rights and an investment in Pace
Synfuels.
  A
breakdown of cash capital expenditures during 2007, 2006 and 2005 is set forth
in the following table (in millions):


Year ended December
      31,
            
            2007
            
            
            2006
            
            
            2005Maintenance
      of way:Rail
            
            $
            376
            
            
            $
            304
            
            
            $
            232Ties
            
            
            316
            
            
            
            311
            
            
            
            284Surfacing
            
            
            235
            
            
            
            214
            
            
            
            183Other
            
            
            432
            
            
            
            397
            
            
            
            354Total
      maintenance of way
            
            
            1,359
            
            
            
            1,226
            
            
            
            1,053Mechanical
            
            
            141
            
            
            
            152
            
            
            
            136Information
      services
            
            
            75
            
            
            
            65
            
            
            
            64Other
            
            
            105
            
            
            
            121
            
            
            
            108Total
      maintenance of business
            
            
            1,680
            
            
            
            1,564
            
            
            
            1,361Terminal
      and line expansion
            
            
            568
            
            
            
            450
            
            
            
            389Total
            
            $
            2,248
            
            
            $
            2,014
            
            
            $
            1,750





The table
above does not include expenditures for equipment financed through operating
leases (principally related to locomotives).




Financing Activities
  2007
 Net cash used for
financing activities during 2007 was $1,122million,
primarily related to common stock repurchases of $1,265 million,
including $43million to
satisfy tax withholding obligations for stock option exercises, and dividend
payments of$380 million,
which were partially offset by net debt borrowings of $234 million,
proceeds from stock options exercised of $142 million, excess tax benefits
from equity compensation plans of $121 million and proceeds from a facility
financing obligation of $41 million.
  Aggregate debt to
mature in 2008 is $411 million.
BNSF’s ratio of net debt to total capitalizationwas 41.2 percent at
December 31, 2007, compared with 40.0 percent at December 31, 2006. The
Company’s adjusted net debt to total capitalization was 51.8percent at December
31, 2007, compared with 51.7 percent at December 31, 2006. BNSF’s adjusted net
debt to total capitalization is a non-GAAP measure and should be considered in
addition to, but not as a substitute or preferable to, the information prepared
in accordance with GAAP. However, management believes that adjusted net debt to
total capitalization provides meaningful additional information about the
ability of BNSF to service long-term debt and other fixed obligations and to
fund future growth.


20
 Table of
Contents





The
following table presents a reconciliation of the calculation of adjusted net
debt to total capitalization percentage:




December
31,
              
              2007
              
              2006
              aNet debt to total
      capitalizationb
              
              
              41.2
              %
              
              40.0
              %Adjustment for long-term operating
      leasesc
              
              
              10.5
              
              
              11.2Adjustment for other debt
      equivalentsd
              
              
              0.5
              
              
              0.5Adjustment for unfunded pension
      and retiree health and welfare liabilitya
              
              
              0.7
              
              
              1.1Adjustment for junior subordinated
      notese
              
              
              (1.1
              )
              
              (1.1
              )Adjusted net debt to total
      capitalization
              
              
              51.8
              %
              
              51.7
              %a  
      Prior
      year numbers have been adjusted for the retrospective adoption of FSP AUG
      AIR-1,Accounting
      for Planned Major Maintenance Activities.See
      Note 2tothe
      Consolidated Financial Statements for additional
      information.
                
                b  Net
      debt to total capitalization is calculated as total debt (long-term debt
      and commercial paper plus long-term debt due within one year) less cash
      and cash equivalents divided by the sum of net debt and total
      stockholders’ equity.
                
                c  
      Represents
      the net present value of future operating lease
      commitments.
                
                d  
      Adjustment
      for other debt equivalents principally includes accounts receivable
      financing (see Note 6 to the Consolidated Financial Statements for
      additional information).
                
                eJunior subordinated notes are included in total
      debt on the respectiveConsolidated Balance Sheets; however, as
      they include certain equity characteristics, they have been assigned 50
      percent equity credit for purposes of this
      calculation.
  In February 2007, the Board of Directors
(the Board) authorized an additional $1.4 billion of debt securities that
may be issued through the Securities and Exchange Commission (SEC) debt shelf
registration process, for a total of $2.1 billion authorized to be
issued.
  In April 2007, BNSF issued
$650 million of 5.65 percent debentures and $650 million of 6.15
percent debentures due May 1, 2017 and May 1, 2037, respectively. The net
proceeds from the sale of the debentures are being used for general corporate
purposes including, but not limited to, working capital, capital expenditures,
funding the maturity of debt which matured in 2007, the repayment of commercial
paper and the repurchase of common stock. The issuance of these debentures
reduced the amount of debt authorized to be issued by the Board through the SEC
debt shelf registration process to $800 million.
  In 2007, BNSF entered into several
capital leases totaling approximately $325 million to finance locomotives and
freight cars. The terms of the leases are between 15 and 20
years.
  In 2005, the Company commenced the
construction of an intermodal facility that it intends to sell to a third party
and subsequently lease back. Once construction of the facility is complete and
all improvements have been sold to the third party, BNSF will lease the facility
from the third party for 20 years. Construction is expected to be completed by
early 2009 with an approximate cost of$160million. As of December 31, 2007, BNSF
has sold $41 million of completed improvements. This sale leaseback transaction
is being accounted for as a financing obligation due to continuing
involvement.  The outflows from the construction of the facility are
classified as investing activities, and the inflows from the associated
financing proceeds are classified as financing activities in the Company's
Consolidated Statements of Cash Flows.
  2006
 Net cash used for financing activities
during 2006 was $722 million, primarily related to common stock repurchases
of $730 million and dividend payments of $310 million, which were
partially offset by net debt borrowings of $116 million, proceeds from
stock options exercised of $116 million and excess tax benefits from equity
compensation plans of $95 million. Upon adoption of SFAS No. 123R, the
excess tax benefits from equity compensation plans were classified in financing
activities. However, as the Company adopted SFAS No. 123R prospectively,
financial statements prior to January 1, 2006, include excess tax benefits as an
operating activity.
  In August 2006, BNSF issued
$300 million of 6.20 percent debentures due August 15, 2036. The net
proceeds from the sale of the debentures are being used for general corporate
purposes including but not limited to working capital, capital expenditures and
the repayment of outstanding commercial paper. See Note 3 to the Consolidated
Financial Statements for information related to the hedges unwound as part of
this debt issuance.
  2005
 Net cash used for financing activities
during 2005 was $833 million primarily related to common stock repurchases
of $799 million, prepaid forward share repurchases of $600 million and
dividend payments of $267 million, which where partially offset by net debt
borrowings of $599 million and proceeds from stock options exercised of
$244 million.


21
 Table of
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In December 2005, BNSF issued
$500 million of 6.613 percent junior subordinated notes due December 31,
2055. The junior subordinated notes are callable on or after January 15, 2026,
at par plus accrued and unpaid interest. On January 15, 2026, if the junior
subordinated notes are not called, the interest rate will change to an annual
rate equal to the 3-month London Interbank Offered Rate (LIBOR) plus 2.35
percent, reset quarterly. Interest payments may be deferred, at the option of
the Company, on a cumulative basis for a period of up to five consecutive years;
however, during this time the Company would not be permitted to declare or pay
dividends on its common stock. In the event that certain financial covenants are
not maintained, the Company would be required to sell common stock, the proceeds
of which would be used to pay any accrued and unpaid interest. At December 31,
2007, the Company was in compliance with these covenants. Because of this
structure, certain rating agencies provide a considerable degree of equity
treatment for purposes of calculating various ratios and metrics. The majority
of the net proceeds of the debt issuance were used to repurchase common stock,
with the remainder used for general corporate purposes.
  Dividends
 Common stock dividends declared were
$1.14, $0.90 and $0.74 per share annually for 2007, 2006 and 2005, respectively.
Dividends paid on common stock were $380 million, $310 million and
$267 million during 2007, 2006 and 2005, respectively. On October 18, 2007,
the Board declared a quarterly dividend of $0.32 per share on outstanding shares
of common stock, payable January 2, 2008 to shareholders of record on December
12, 2007. On February 13, 2008, the Board declared a quarterly dividend of $0.32
per share on outstanding shares of common stock, payable April 1, 2008, to
shareholders of record on March 11, 2008.
  Common Stock Repurchase
Program
 During 2007, 2006 and 2005, the Company
repurchased approximately15 million, 18 million and
14 million shares, respectively, of its common stock at average prices of$83.96 per share, $73.43 per share and
$54.95 per share, respectively. Further information on this repurchase program
is incorporated by reference from Note 15 to the Consolidated Financial
Statements.
  In February 2007, the Board authorized
the extension of the current BNSF share repurchase program, adding
30 million shares to the total of 180 million shares previously
authorized in equal amounts in July 1997, December 1999, April 2000, September
2000, January 2003 and December 2005.
  Since 2001, BNSF has primarily utilized
free cash flow to repurchase its shares. In February 2007,BNSF announced it would modify its share
repurchase approach based on improved credit statistics over the past few years,
including interest coverage, debt-to-cash flow and debt-to-capital ratios. These
credit statistics have improved sufficiently that BNSF isnowdevoting additionalfinancial capacity to share repurchases.
This difference in approach is expected to result in a moderately higher level
of debt.
  Long-Term Debt and Other
Obligations
 The Company’s business is capital
intensive. BNSF has historically generated a significant amount of cash from
operating activities, which it uses to fund capital additions, service debt,
repurchase shares and pay dividends. Additionally, the Company relies on access
to the debt and leasing markets to finance a portion of capital additions on a
long-term basis.
  During 2007, BNSF agreed to acquire an
additional 1,025 locomotives, bringing its total commitment to acquire 1,505 new
locomotives by 2013. As of December 31, 2007, BNSF had taken delivery of 480 of
the 1,505 locomotives, including 200 during 2007.
  During 2006, BNSF agreed to acquire
4,000 covered hoppers and 1,400 double-stack cars by 2010. As of December 31,
2007, BNSF had taken delivery of 1,998 of the covered hoppers and 350 of the
double-stack cars.
  The locomotives and freight cars under
these agreements have been or are expected to be financed fromone or a combination of sources
including, but not limited to, cash from operations, capital or operating leases
and debt issuances. The decision on the method used for a particular acquisition
financing will depend on market conditions and other factors at that
time.
  The Company also utilizes a commercial
paper program backed by a bank revolving credit agreement to manage liquidity
needs. For 2008 and the foreseeable future, the Company expects that cash from
operating activities, access to capital markets, the accounts receivable sales
program and the bank revolving credit agreement will be sufficient to enable the
Company to meet its obligations when due. The Company believes these sources of
funds will also be sufficient to fund capital additions that are necessary to
maintain its competitiveness and position the Company for future revenue
growth.
  The Company’s ratio of earnings to fixed
charges was4.62 and4.90 times for the years
ended December 31, 2007 and 2006, respectively. Additionally, the Company’s
ratio of net cash provided by operating activities divided by total average debt
was 44 percent for the years ended December 31, 2007 and 2006, respectively.


22
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The following table summarizes the
Company’s obligations under long-term debt and other contractual commitments at
December 31, 2007 (in millions):
 Payments Due by
      PeriodContractual
      Obligations
                  
                  Total
                  
                  
                  Less than
                    1 year
                  
                  
                  1–3 years
                  
                  
                  3–5 years
                  
                  
                  More than
                    5 yearsLong-term
      debta
                  
                  $
                  7,208
                  
                  
                  $
                  258
                  
                  
                  $
                  605
                  
                  
                  $
                  1,037
                  
                  
                  $
                  5,308Capital lease
      obligations
                  
                  
                  938
                  
                  
                  
                  153
                  
                  
                  
                  245
                  
                  
                  
                  132
                  
                  
                  
                  408Interest
      paymentsb
                  
                  
                  7,751
                  
                  
                  
                  280
                  
                  
                  
                  913
                  
                  
                  
                  800
                  
                  
                  
                  5,758Operating lease
      obligationsc
                  
                  
                  7,498
                  
                  
                  
                  699
                  
                  
                  
                  1,310
                  
                  
                  
                  1,107
                  
                  
                  
                  4,382Purchase
      obligationsd
                  
                  
                  14,304
                  
                  
                  
                  5,126
                  
                  
                  
                  2,463
                  
                  
                  
                  1,831
                  
                  
                  
                  4,884Other long-term liabilities
      reflectedon the balance sheet under
      GAAPe
                  
                  
                  575
                  
                  
                  
                  98
                  
                  
                  
                  196
                  
                  
                  
                  157
                  
                  
                  
                  124Total contractual
      obligations
                  
                  $
                  38,274
                  
                  
                  $
                  6,614
                  
                  
                  $
                  5,732
                  
                  
                  $
                  5,064
                  
                  
                  $
                  20,864aExcludes
      capital lease obligations.
                    
                    bInterest
      payments relate to fixed-rate long-term debt and capital lease obligations
      and exclude the impact of any interest-rate hedging activities (see Note 3
      to the Consolidated Financial Statements for additional information).
      Additionally, the Company’s only variable-rate debt is commercial paper,
      which expires within 90 days; therefore, the related interest has been
      excluded from the table above.
                    
                    cGross
      payments due, which include an interest
      component.
                    
                    dIncludes
      short-line minimum usage commitments, asset maintenance and other purchase
      commitments.
                    
                    eConsists
      of employee separation payments as discussed in Note 11 to the
      Consolidated Financial Statements, actuarially estimated payments from
      BNSF expected to be made over the next five years for the pension plans
      and the retiree health and welfare plan as discussed in Note 13 to the
      Consolidated Financial Statementsandestimatedfuture
      cash flows for income tax liabilities and interest accrued related to
      unrecognized tax benefits as discussed in Note 5 to the Consolidated
      Financial Statements.




In the normal course of business, the
Company enters into long-term contracts 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.
  Credit Agreement
 Commercial paper and the revolving
credit agreement are discussed in Note 9 to the Consolidated Financial
Statements. The $1.2 billion revolving credit agreement includes covenants and
events of default typical for this type of facility, including a maximum
debt-to-capital test and a$75 million cross-default
provision. At December 31, 2007,there were no bank borrowings against
the revolving credit agreements, andthe Company was in compliance with its
debt covenants. BNSF’s maximumdebt-to-capital test provides
approximately $8 billion of debt capacity above BNSF’s outstanding debt as of
December 31, 2007, before an event of default would occur under these covenants.
With the exception of a voluntary bankruptcy or insolvency, any event of default
has either or both a cure period or notice requirement before termination of the
agreement. A voluntary bankruptcy or insolvency would be considered an immediate
termination event.
  Market Conditions
 In spite of recent credit market
conditions resulting from issues within the sub-prime mortgage market, BNSF has
not experienced significant impacts to liquidity or cost of debt. The market
conditions have not affected BNSF’s ability to issue commercial paper, secure
necessary debt financings or obtain funding through its accounts receivable
sales program.


23
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Off-Balance
Sheet Arrangements
  Sale of Accounts
Receivable
 The accounts receivable sales program of
Santa Fe Receivables Corporation, as described in Note 6 to the Consolidated
Financial Statements, includes various provisions that, if triggered, would
allow the investors participating in this program, at their option, to cancel
the program. These provisions include a maximum debt-to-capital test, which is
the same as in the BNSF revolving credit agreements described above. BNSF’s
maximum debt-to-capital test provides approximately $8 billion of debt capacity
above BNSF’s outstanding debt as of December 31, 2007. At December31, 2007, the Company’s capacity to sell
undivided interests to investors under the accounts receivable sales
program was $700 million, which was comprised of two $175 million,
364-day accounts receivablesalesfacilities and two $175 million, 3-year
accounts receivablesalesfacilities. The Company
amended the two 364-day facilities in November 2007,reducing the committed amounts to $175
million each andmodifying
their maturities to November 2008. The two 3-year facilities were entered into
in November 2007 concurrently with theamendment and extensionof the 364-day facilities and will
mature in November 2010.Outstanding undivided interests held by
investors under the A/R sales program were $300 million at December 31, 2007 and
December 31, 2006, respectively. Management expects to be able to either extend
the commitment of the current investors under the 364-day facilitiespast November 2008 or to
find additional investors in the accounts receivable sales program who will
commit to purchase undivided interests after November 2008.
  The accounts receivable sales program
provides efficient financing at a competitive interest rate as compared with
traditional borrowing arrangements and provides diversification of funding
sources. Since the funding is collateralized by BNSF receivables, the risk of
exposure is only as great as the risk of default on these receivables (see Note
6 to the Consolidated Financial Statements for additional
information).
  Guarantees
 The Company acts as guarantor for
certain debt and lease obligations of others. During the past few years, the
Company has primarily utilized guarantees to allow third-party entities to
obtain favorable terms to finance the construction of assets that will benefit
the Company. Additionally, in the ordinary course of business, BNSF enters into
agreements with third parties that include indemnification clauses. The Company
does not expect performance under these guarantees or indemnities to have a
material adverse effect on the Company’s liquidity in the foreseeable future
(see Note 9 to the Consolidated Financial Statements for additional
information).
  Inflation
 Due to the capital-intensive nature of
BNSF’s business, the full effect of inflation is not reflected in operating
expenses because depreciation is based on historical cost. An assumption that
all operating assets were depreciated at current price levels would result in
substantially greater expense than historically reported
amounts.
  Other
Matters
  Charge for Environmental Costs and
Technology System Write-Off
 In the first quarter of 2007, the
Company recorded a pre-tax charge of $81 million, or $0.14 after-tax per
share. This charge reflected an approximate $65 million increase in
environmental costs primarily related to a final resolution with the State of
Washington and its Department of Ecology on clean-up of an existing
environmental site at Skykomish and an adverse reversal of a trial court
decision on appeal regarding a site at Arvin, California. In addition, the
Company recorded a non-cash charge of $16 million to write-off a technology
system that has been replaced.
  Planned Major Maintenance
Activities
 Effective January 1, 2007, the Company
transitioned to the deferral method of accounting for leased locomotive
overhauls under the Financial Accounting Standards Board (FASB) Staff Position
(FSP) AUG AIR-1,Accounting for
Planned Major Maintenance Activities,issued in September 2006. Additional
information concerning the adoption of this accounting principle is incorporated
by reference from Note 2 to the Consolidated Financial
Statements.
  Uncertain Tax
Positions
 Effective January 1, 2007, the Company
adopted the provisions of FASB Interpretation No. (FIN) 48,Accounting for
Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109,
Accounting for Income Taxes.Additional information concerning the
Company’s uncertain tax positions is incorporated by reference from Notes 2 and
5 to the Consolidated Financial Statements.
  Commercial
 In February 2005, the Company received a
Civil Investigative Demand from the Antitrust Division of the Department of
Justice requesting information concerning the Company’s pricing activities
relating to the shipment of coal from the southern Powder River Basin. The
Company has responded to all requests for information, and the matter remains
pending.


24
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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 does not hold or issue derivative financial
instruments for trading or speculative purposes. The Company formally documents
the relationship between the hedging instrument and the hedged item, as well as
the risk management objective and strategy for the use of the hedging
instrument. This documentation includes linking the derivatives that are
designated as 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 thereafter, 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 loss (AOCL)
as a separate component of stockholders’ equity and reclassified into earnings
in the period during which the hedge transaction affects earnings. Cash flows
related to fuel and interest rate hedges are classified as operating activities
in the Consolidated Statements of Cash Flows.
  BNSF monitors its
hedging positions and credit ratings of its counterparties and does not
anticipate losses due to counterparty nonperformance.As of
December 31, 2007, BNSF’s counterparties have an investment grade credit
rating.
  Fuel
 BNSF measures the
fair value of fuel hedges from data provided by various external counterparties.
To value a swap, the Company uses the forward commodity price for the period
hedged (see Note 3 to the Consolidated Financial Statements for additional
information).
  Subsequent to
December 31, 2007, the Company entered into fuel swap agreements utilizing New
York Mercantile Exchange #2 Heating Oil. The following table provides additional
fuel-hedge data through February 4, 2008 based on the quarter being
hedged.
  Quarter
    Ending2008
                
                March 31,
                
                June 30,
                
                September
    30,
                
                December
31,
                
                AnnualHO SwapsGallons hedged (in
      millions)
                
                
                –
                
                
                6.80
                
                
                6.80
                
                
                6.06
                
                
                19.66Average swap price (per
      gallon)
                
                $
                –
                
                $
                2.42
                
                $
                2.43
                
                $
                2.48
                
                $
                2.44
 
 Interest
Rate
 From time to time,
the Company enters into various interest rate hedging transactions for the
purpose of managing exposure to fluctuations in interest rates by establishing
rates in anticipation of both future debt issuances and the refinancing of
leveraged leases, as well as converting a portion of its fixed-rate long-term
debt to floating-rate debt. The Company uses interest rate swaps and treasury
locks as part of its interest rate risk management strategy. BNSF’s measurement
of the fair value of interest rate derivatives is based on estimates of the
mid-market values for the transactions provided by the counterparties to these
agreements (see Note 3 to the Consolidated Financial Statements for additional
information).
  In anticipation of
a future debt issuance, the Company entered into treasury locks in January 2008,
having an aggregatenotional amount of
$75million to fix a
portion of the rate for a future 10-year unsecured debt
issuance.  Including theseventreasury locks that
were executed in 2007 for the sameexpected debt
issuance, the totalamount
hedged is$250millionwithan
average locked-in rate of 4.24percent. The
treasury locks are expected to be unwound during 2008, and any gain or loss on
the hedges will be amortized to interest expense over the life of the issued
debt. These transactions are accounted for as cash flow
hedges.
  Employee and Labor
Relations
 A significant
majority of BNSF Railway’s employees are union-represented. BNSF Railway’s union
employees work under collective bargaining agreements with various labor
organizations. A negotiating process for new, major collective bargaining
agreements covering all of BNSF Railway’s union employees has been underway
since the bargaining round was initiated November 1, 2004. Wages, health and
welfare benefits, work rules and other issues have traditionally been addressed
through industry-wide negotiations. These negotiations have generally taken
place over an extended period of time and have previously not resulted in any
extended work stoppages. The existing agreements have remained in effect and
will continue to remain in effect until new agreements are reached or the
Railway Labor Act’s procedures (which include mediation, cooling-off periods and
the possibility of U.S. Presidential intervention) are exhausted. Agreements
undergoing renegotiation in the current bargaining round provide for periodic
wage increases until new agreements are
reached.


25
 Table of
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The current
bargaining round for all unions with contracts that came into effect after
January 1, 2005, began on and after November 1, 2004, with the serving of
Section 6 notices, which are each side’s initial proposals. BNSF is
participating in a coordinated national handling of these proposals. The current
agreements remain in effect until new agreements are reached or until changes to
the existing agreements are made.
  Final agreements
have been reached under the current bargaining round, covering about65percent of BNSF’s
unionized workforce. These agreements resolve all wage, work rule, and benefit
issues through December 31, 2009. A tentative agreement (subject to membership
ratification—a process which will take from 45 to 90 days) was reached with the
United Transportation Union (“UTU”) on January 28, 2008. The UTU represents just
under 30 percent of BNSF’s scheduled employees.BNSF remains in
national bargaining with the International Association of Machinists and
Aerospace Workers.
  Seattle Sound
Transit
 In December 2003,
BNSF Railway Company entered into several agreements with Central Puget Sound
Regional Transit Authority (Sound Transit), a government authority established
by King, Pierce and Snohomish counties within the State of Washington. BNSF has
agreed to sell to Sound Transit under the threat of condemnation a combination
of (i) four easements enabling Sound Transit to offer commuter rail service over
existing BNSF track from Seattle to Everett and (ii) 18 miles of railroad line
from south of Tacoma to Nisqually, Washington.
  Sound Transit
agreed to pay BNSF approximately $260 million for four commuter easements
to operate trains on the segment between Seattle and Everett and entered into
agreements both for service on the commuter easements and joint use of track for
commuter and freight purposes. The Company received approximately
$80 million of cash in 2003 upon the closing of the first easement,
$80 million of cash in 2004 upon closing of the second easement,
$50 million of cash in 2006 upon closing of the thirdeasement and
$50 millionin cash in 2007
upon closing of the fourth and final easement. The sale proceeds will be
recognized in income over the average life of the associated track structure
(approximately 37 years).
  Additionally, the
Company sold 18 miles of railroad line and associated real estate from south of
Tacoma to Nisqually in several separate transactions. The Company recognized
gains associated with the sale of $9 million and $7 million, net of
tax, in 2005 and 2004, respectively.
  New Mexico Department of
Transportation
 In the fourth
quarter of 2005, BNSF Railway Company entered into agreements with the New
Mexico Department of Transportation to sell the Company’s rail line and certain
adjacent property between Belen, New Mexico and Trinidad, Colorado, through a
series of sales agreements, while retaining freight easement rights on the line.
The Company recognized an impairment charge in 2005 related to this agreement of
$71 million. During the first quarter of 2006, upon closing the sale of the
first line segment, the Company recognized a gain of $22 million and
received a cash payment of $45 million. During the first quarter of 2007,
upon closing the sale of the second line segment, the Company recognized a gain
of $2 million and received cash of $18 million. Upon satisfaction of
closing conditions, the remaining line sales are expected to close in 2008. BNSF
expects to receive a cash payment of $4 million in 2008 related to this
transactionand any related
gain is immaterial. The impairment
charge and the gains were recorded as a component of materials and other
expense.
  American Jobs Creation Act of
2004
 In October 2004,
the American Jobs Creation Act of 2004 was signed into law. Part of the
legislation includes the repeal of a 4.3–cent tax per gallon of diesel fuel. The
tax was gradually phased out in 2005 and 2006 and was completely phased out
January 1, 2007. Based on actual fuel consumption, the repeal of the tax
resulted in $32million,
$8 million and $21 million in incremental savings for the years ended
December 31, 2007, 2006 and 2005, respectively.
  Critical
Accounting Estimates
 In the ordinary
course of business, the Company makes a number of estimates and assumptions
related to the reporting of results of operations and financial position in the
preparation of its financial statements in conformity with accounting principles
generally accepted in the United States of America. Actual results could differ
significantly from those estimates under different assumptions and conditions.
The following discussion addresses the Company’s most critical accounting
estimates.
  Management has
discussed the development and selection of the critical accounting estimates
described below with the Audit Committee of the Board of Directors, and the
Audit Committee has reviewed the Company’s disclosure relating to them in this
Management’s Discussion and Analysis of Financial Condition and Results of
Operations.
  Legal
 BNSF’s most
significant legal claims relate to personal injury claims and environmental
matters. These claims are discussed in more detail
below.


26
 Table of
Contents


Personal
Injury
 Personal injury
claims, including asbestos claims and employee work-related injuries and
third-party injuries (collectively, other personal injury), are a significant
expense for the railroad industry. Personal injury claims by BNSF Railway
employees are subject to the provisions of the Federal Employers’ Liability Act
(FELA) rather than state workers’ compensation laws. FELA’s system of requiring
the finding of fault, coupled with unscheduled awards and reliance on the jury
system, contributed to increased expenses in past years. Other proceedings
include claims by non-employees for punitive as well as compensatory damages. A
few proceedings purport to be class actions. The variability present in settling
these claims, including non-employee personal injury and matters in which
punitive damages are alleged, could result in increased expenses in future
years. BNSF has implemented a number of safety programs designed to reduce the
number of personal injuries as well as the associated claims and personal injury
expense.
  BNSF records a
liability for personal injury claims when the expected loss is both probable and
reasonably estimable. The liability and ultimate expense projections are
estimated using standard actuarial methodologies. Liabilities recorded for
unasserted personal injury claims are based on information currently available.
Due to the inherent uncertainty involved in projecting future events such as the
number of claims filed each year, developments in judicial and legislative
standards and the average costs to settle projected claims, actual costs may
differ from amounts recorded. Expense accruals and any required adjustments are
classified as materials and other in the Consolidated Statements of
Income.
  Asbestos
 The Company is
party to a number of personal injury claims by employees and non-employees who
may have been exposed to asbestos. The heaviest exposure for BNSF employees was
due to work conducted in and around the use of steam locomotive engines that
were phased out between the years of 1950 and 1967. However, other types of
exposures, including exposure from locomotive component parts and building
materials, continued after 1967 until they were substantially eliminated at BNSF
by 1985.
  BNSF assesses its
unasserted liability exposure on an annual basis during the third quarter. BNSF
determines its asbestos liability by estimating its exposed population, the
number of claims likely to be filed, the number of claims that will likely
require payment, and the estimated cost per claim. Estimated filing and
dismissal rates and average cost per claim are determined utilizing recent claim
data and trends.
  Key elements of the assessment
include:
  •
              Because BNSF did not have detailed
      employment records in order to compute the population of potentially
      exposed employees, it computed an estimate using Company employee data
      from 1970 forward and estimated the BNSF employee base from 1938-1969
      using railroad industry historical census data and estimating BNSF’s
      representation in the total railroad
  population.
  •
              The projected incidence of disease
      was estimated based on epidemiological studies using employees’ age,
      duration and intensity of exposure while
  employed.
  •
              An estimate of the future
      anticipated claims filing rate by type of disease (non-malignant, cancer
      and mesothelioma) was computed using the Company’s average historical
      claim filing rates for the period
  2004-2006.
  •
              An estimate of the future
      anticipated dismissal rate by type of claim was computed using the
      Company’s historical average dismissal rates observed in
      2005-2007.
  •
              An estimate of the future
      anticipated settlement by type of disease was computed using the Company’s
      historical average of dollars paid per claim for pending and future claims
      using the average settlement by type of incidence observed during
      2005-2007.
  From these
assumptions, BNSF projected the incidence of each type of disease to the
estimated population to arrive at an estimate of the total number of employees
that could potentially assert a claim. Historical claim filing rates were
applied for each type of disease to the total number of employees that could
potentially assert a claim to determine the total number of anticipated claim
filings by disease type. Historical dismissal rates, which represent claims that
are closed without payment, were then applied to calculate the number of future
claims by disease type that would likely require payment by the Company.
Finally, the number of such claims was multiplied by the average settlement
value to estimate BNSF’s future liability for unasserted asbestos
claims.


27
 Table of
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The most sensitive assumptions for this
accrual are the estimated future filing rates and estimated average claim
values. Asbestos claim filings are typically sporadic and may include large
batches of claims solicited by law firms. To reflect these factors, BNSF used a
multi-year calibration period (i.e., the average historical filing rate for the
period 2004-2006) because it believed it would be most
representative of its future claim experience. In addition, for non-malignant
claims, the number of future claims to be filed against BNSF declines at a rate
consistent with both mortality and age as there is a decreasing propensity to
file a claim as the population ages. BNSF believes the average claim values by
type of disease from the historical period 2005-2007are most representative of future claim
values. Non-malignant claims, which representapproximately 90 percent of the total
number and 75 percent of the cost of estimated future asbestos claims, were
priced by age of the projected claimants. Historically, the ultimate settlement
value of these types of claims is most sensitive to the age of the claimant. A
10-percent increase or decrease in either the forecasted number of unasserted
claims or the average claim values would result in an approximate
$25 million increase or decrease in the liability recorded for unasserted
asbestos claims.
  Further discussion on asbestos is
incorporated by reference from Note 10 to the Consolidated Financial
Statements.
  Other Personal
Injury
 BNSF estimates its other personal injury
liability claims and expense quarterly based on the covered population, activity
levels and trends in frequency and the costs of covered injuries. Estimates
include unasserted claims except for certain repetitive stress and other
occupational trauma claims that result from prolonged repeated events or
exposure. Such claims are estimated on an as-reported basis because, while the
Company has concluded that a probable loss has occurred, it cannot estimate the
range of reasonably possible loss due to other contributing causes of such
injuries and the fact that continued exposure is required for the potential
injury to manifest itself as a claim. The Company believes that the low end of
the range of reasonably possible loss, as that term is used in FIN 14,Reasonable
Estimation of the Amount of a Loss, is immaterial for these repetitive
stress and other occupational trauma claims.
  Key elements of the actuarial assessment
include:
  •
              Size and demographics (employee
      age and craft) of the
workforce.
  •
              Activity levels (manhours by
      employee craft and
carloadings).
  •
              Expected claim frequency rates by
      type of claim (employee FELA or third-party liability) based on historical
      claim frequency trends.
  •
              Expected dismissal rates by type
      of claim based on historical dismissal
  rates.
  •
              Expected average paid amounts by
      type of claim for open and incurred but not reported claims that
      eventually close with
payment.
  From these assumptions, BNSF estimates
the number of open claims by accident year that will likely require payment by
the Company. The projected number of open claims by accident year that will
require payment is multiplied by the expected average cost per claim by accident
year and type to determine BNSF’s estimated liability for all asserted claims.
Additionally, BNSF estimates the number of its incurred but not reported claims
that will likely result in payment based upon historical emergence patterns by
type of claim. The estimated number of projected claims by accident year
requiring payment is multiplied by the expected average cost per claim by
accident year and type to determine BNSF’s estimated liability for incurred but
not reported claims.
  The most sensitive assumptions for this
accrual are the expected average cost per claim and the projected frequency
rates for the number of claims that will ultimately result in payment. A
10-percent increase or decrease in either the expected average cost per claim or
the frequency rate for claims with payment would result in anapproximate $45 million increase or
decrease in BNSF’s recorded other personal injury reserves.
  Further discussion on other personal
injury is incorporated by reference from Note 10 to the Consolidated Financial
Statements.


28
 Table of
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Environmental
 The Company’s operations, as well as
those of its competitors, are subject to extensive federal, state and local
environmental regulation. BNSF’s operating procedures include practices to
protect the environment from the risks inherent in railroad operations, which
frequently involve transporting chemicals and other hazardous materials.
Additionally, many of BNSF’s land holdings are and have been used for industrial
or transportation-related purposes or leased to commercial or industrial
companies whose activities may have resulted in discharges onto the property. As
a result, BNSF is subject to environmental 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 has been notified
that it is a potentially responsible party (PRP) for study and cleanup costs at
Superfund sites for which investigation and remediation payments are or will be
made or are yet to be determined (the Superfund sites) and, in many instances,
is one of several PRPs. In addition, BNSF may be considered a PRP under certain
other laws. Accordingly, under CERCLA and other federal and state statutes, BNSF
may be held jointly and severally liable for all environmental costs associated
with a particular site. If there are other PRPs, BNSF generally participates in
the cleanup of these sites through cost-sharing agreements with terms that vary
from site to site. Costs are typically allocated based on such factors as
relative volumetric contribution of material, the amount of time the site was
owned or operated and/or the portion of the total site owned or operated by each
PRP.
  Liabilities for environmental cleanup
costs are recorded when BNSF’s liability for environmental cleanup is probable
and reasonably estimable. Subsequent adjustments to initial estimates are
recorded as necessary based upon additional information developed in subsequent
periods. Environmental costs include initial site surveys and environmental
studies as well as costs for remediation of sites determined to be
contaminated.
  BNSF estimates the ultimate cost of
cleanup efforts at its known environmental sites on an annual basis during the
third quarter. Ultimate cost estimates for environmental sites are based on
historical payment patterns, current estimated percentage to closure ratios and
benchmark patterns developed from data accumulated from industry and public
sources, including the Environmental Protection Agency and other governmental
agencies. These factors incorporate experience gained from cleanup efforts at
other similar sites into the estimates for which remediation and restoration
efforts are still in progress. The most significant assumptions are as follows:
(i) historical payment patterns of site development and (ii) variance from
benchmark costs. A 10 percent change in any of these individual assumptions
could result in an increase or decrease of up to $20 million in BNSF’s estimated
environmental liability.
  Further discussion on environmental is
incorporated by reference from Note 10 to the Consolidated Financial
Statements.
  Other Claims
and Litigation
 In addition to asbestos, other personal
injury and environmental matters discussed above, BNSF and its subsidiaries are
also parties to a number of other legal actions and claims, various governmental
proceedings and private civil suits arising in the ordinary course of business,
including those related to disputes and complaints involving certain
transportation rates and charges (including complaints seeking refunds of prior
charges paid for coal transportation and the prescription of future rates for
such movements and claims relating to service under contract provisions or
otherwise). Some of the legal proceedings include claims for punitive as well as
compensatory damages, and a few proceedings purport to be class actions. While
the final outcome of these matters cannot be predicted with certainty,
considering among other things the meritorious legal defenses available and
liabilities that have been recorded along with applicable insurance, it is the
opinion of BNSF that none of these items, when finally resolved, will have a
material adverse effect on the Company’s financial position or liquidity.
However, an unexpected adverse resolution of one or more of these items could
have a material adverse effect on the results of operations in a particular
quarter or fiscal year.
  Income Taxes
 BNSF is subject to various federal,
state and local income taxes in the taxing jurisdictions where the Company
operates. BNSF accounts for income taxes by providing for taxes payable or
refundable in the current year and for deferred tax assets and liabilities for
future tax consequences of events that have been recognized in financial
statements or tax returns.
  BNSF recorded total income tax expense,
including federal, state and other income taxes,of $1,128 million,
$1,107 million and $919 million for the years ended December 31, 2007,
2006 and 2005, respectively. BNSF’s Consolidated Balance Sheets reflect
$290 million and $345 million of net current deferred tax assets at
December 31, 2007 and 2006, respectively. Also included in BNSF’s Consolidated
Balance Sheets are $8,484 million and $8,298 million of net
non-current deferred tax liabilitiesat December 31, 2007 and 2006,
respectively. Classification of deferred tax assets and liabilities as current
or non-current is determined by the financial statement classification of the
asset or liability to which the temporary difference is related. If a temporary
difference is not related to an asset or liability for financial reporting, it
is classified according to the expected reversal date of the temporary
difference.


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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. BNSF has not recorded a valuation
allowance, as it believes that the deferred tax assets will be fully realized in
the future.
  All federal income tax returns of BNSF’s
predecessor companies, Burlington Northern Inc. and Santa Fe Pacific
Corporation, are closed through 1994 and the business combination date of
September 22,1995, respectively. Internal Revenue
Service (IRS) examination of the years 1995 through 1999 for BNSF is completed,
and the un-agreed issues are pending before IRS Appeals. It is anticipated that
a settlement with the IRS for the years 1995 through 1999 may be reached within
the next twelve months. Examination of the years 2000 through 2002 and 2003
through 2005 for BNSF are completed and protests of the un-agreed issues are
pending before IRS Appeals. BNSF is currently under examination for year
2006.
  BNSF and its subsidiaries have various
state income tax returns in the process of examination, administrative appeal or
litigation. State income tax returns are generally subject to examination for a
period of three to five years after filing of the respective return. The state
impact of any federal changes remains subject to examination by various states
for a period of up to one year after formal notification to the
states.
  Due to the capital-intensive nature of
BNSF’s business, a significant portion of the audit issues with the IRS and
other taxing authorities relate to whether expenditures are classified as
maintenance or capital and whether certain asset valuations are appropriate. A
provision for taxes resulting from ongoing and future federal and state audits
is based on an estimation of aggregate adjustments that may be required as a
result of the audits. The Company believes that adequate provision has been made
for any adjustment that might be assessed for open years through
2007.
  BNSF makes estimates of the potential
liability based on its assessment of all potential tax exposures. In addition,
the Company uses factors such as applicable tax laws and regulations, current
information and past experience with similar issues to make these
judgments.
  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. Changes
in the Company’s estimates regarding the statutory tax rate to be applied to the
reversal of deferred tax assets and liabilities could materially affect the
effective tax rate.
  The Company has not significantly
changed its methodology for calculating income tax expense for the years
presented, and there are currently no known trends, demands, commitments, events
or uncertainties that are reasonably likely to occur and materially affect the
methodology or assumptions described above. Further information on uncertain tax
positions is incorporated by reference from Notes 2 and 5 to the Consolidated
Financial Statements.
  Employment Benefit
Plans
 BNSF sponsors a funded, noncontributory
qualified pension plan, the BNSF Retirement Plan, which covers most non-union
employees, and an unfunded non-tax-qualified pension plan, the BNSF Supplemental
Retirement Plan, which covers certain officers and other employees. The benefits
under these pension plans are based on years of credited service and the highest
consecutive sixty months of compensation for the last ten years of salaried
employment with BNSF. BNSF’s funding policy is to contribute annually not less
than the regulatory minimum and not more than the maximum amount deductible for
income tax purposes with respect to the funded plan.
  Certain salaried employees of BNSF that
have met age and years of service requirements are eligible for life insurance
coverage and medical benefits, including prescription drug coverage, during
retirement. This postretirement benefit plan, referred to as the retiree health
and welfare 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’s policy
is to fund benefits payable under the medical and life insurance plans as they
come due. Generally, employees beginning salaried employment with BNSF
subsequent to September 22, 1995, are not eligible for medical benefits during
retirement.
  The amounts recorded in the Consolidated
Statements of Income for the pension and the retiree health and welfare plans
were as follows (in millions):
  Year ended December
      31,
                
                2008
    Estimate
                
                2007
                
                2006
                
                2005Net pension
      cost
                
                $
                30
                
                $
                52
                
                $
                68
                
                $
                38Net retiree health and welfare
      cost
                
                $
                17
                
                $
                17
                
                $
                14
                
                $
                11


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The decrease in the
2008 net pension cost as compared to 2007 primarily reflects higher than
expected returns on plan assets over the past several years as well as a 50
basis point increase in the discount rate.
  At December 31,
2007, BNSF had net losses, excluding prior service costs, of $234 million and
$67 million related to the pension and retiree health and welfare benefits
plans, respectively, which had been recognized as a component of AOCL under SFAS
No. 158,Employers’
Accounting for Defined Benefit Pension and Other Postretirement Plans–an
amendment of FASB Statements No. 87, 88, 106 and 132R, as described in
Note 13 to the Consolidated Financial Statements. These losses were comprised of
gains and losses from changes in discount rates, actuarial assumptions and
census data as well as market gains and losses and will be recognized as a
component of net pension and retiree health and welfare costs over the next 17
and 8 years, respectively, as follows:


Deferred Losses to Be
      Recognized (in millions)Fiscal
    year
              
              Pension
              
              Retiree Health and Welfare
      Benefits2008a
              
              $
              
              
              16
              
              $
              
              
              42009
              
              10
              
              42010
              
              5
              
              42011
              
              2
              
              32012
              
              2
              
              3Thereafter
              
              21
              
              21a  Excludes
      a $5 million pre-tax component of the $7 million net of tax decrease to
      retained earnings recorded in January 2008 related to the change in
      measurement date
                under SFAS No. 158,Employers’
      Accounting for Defined Benefit Pension and Other Postretirement Plans—an
      amendment of FASB Statement No. 87, 88, 106 and
                132R.See
      Note 13 to the Consolidated Financial
      Statements.
 
 The Company estimates liabilities and
expenses for the pension and retiree health and welfare plans. Estimated amounts
are based on historical information, current information and estimates about
future events and circumstances. Significant assumptions used in the valuation
of the pension or retiree health and welfare obligations include expected return
on plan assets, discount rate, rate of increase in compensation levels and the
health care cost trend rate.
  From time to time, the Company will
change pension and retiree health and welfare assumptions in response to current
conditions and expected future experience. Significant assumptions for the past
three years are as follows:


Pension
      Benefits
                
                
                Retiree Health and Welfare
      BenefitsAssumptions Used to Determine
      Net
                  Cost for Fiscal Years Ended
      December 31,
                
                2007
                
                
                2006
                
                
                2005
                
                
                2007
                
                
                2006
                
                
                2005Discount
      rate
                
                
                5.50
                %
                
                
                5.25
                %
                
                
                5.75
                %
                
                
                5.50
                %
                
                
                5.25
                %
                
                
                5.75
                %Expected
      long-term rate of return on plan assets
                
                
                8.00
                %
                
                
                8.00
                %
                
                
                8.00
                %
                
                
                –
                %
                
                
                –
                %
                
                
                –
                %Assumed
      health care cost trend rate
                
                
                –
                %
                
                
                –
                %
                
                
                –
                %
                
                
                10.00
                %
                
                
                10.50
                %
                
                
                10.00
                %Rate to which health care cost
      trend rate

                  is expected to
      decline and remain
                
                
                –
                %
                
                
                –
                %
                
                
                –
                %
                
                
                5.00
                %
                
                
                5.00
                %
                
                
                5.00
                %Year that the rate reaches the ultimate trend rate
                
                
                –
                
                
                
                –
                
                
                
                –
                
                
                
                2012
                
                
                
                2012
                
                
                
                2010Rate
      of compensation increase
                
                
                3.90
                %
                
                
                3.90
                %
                
                
                3.90
                %
                
                
                3.90
                %
                
                
                3.90
                %
                
                
                3.90
                %
  31
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  Pension
      Benefits
                
                
                Retiree Health and Welfare
      BenefitsAssumptions Used to Determine
      Benefit
                  Obligations at September
      30a
                
                2007
                
                
                2006
                
                
                2007
                
                
                2006Discount
      rate
                
                
                6.00
                %
                
                
                5.50
                %
                
                
                6.00
                %
                
                
                5.50
                %Assumed
      health care cost trend rate
                
                
                –
                %
                
                
                –
                %
                
                
                10.50
                %
                
                
                10.00
                %Rate to which health care cost
      trend rate

                  is
      expected to decline and remain
                
                
                –
                %
                
                
                –
                %
                
                
                5.00
                
                
                
                5.00
                %Year that the rate reaches the ultimate trend rate
                
                
                –
                
                
                
                –
                
                
                
                2016
                
                
                
                2012Rate
      of compensation increase
                
                
                3.80
                %
                
                
                3.90
                %
                
                
                3.80
                %
                
                
                3.90
                %a 
      The Company’s pension and retiree health and welfare plans used a
      measurement date of September 30 through 2007. However, BNSF is changing
      its measurement date and has
                  elected to apply the transition option under which a 15-month measurement
      was determined as of September 30, 2007 that covers the period until the
      fiscal year-end measurement is
                  required on December 31, 2008. See Note 13 to the Consolidated Financial
      Statements.
  BNSF determined the discount rate by
adjusting the Moody’s Aa Corporate bond yield to reflect the difference between
the duration of the future estimated cash flows of the Company’s pension and
retiree health and welfare plans and the duration of the Moody’s Aa index. The
expected return on plan assets reflects the expected long-term rates of return
on those assets. The rate of compensation increase is determined based on
historical experience. Finally, the health care cost trend rates reflect the
expected future increases in health care costs.
  The discount rate used for the 2008
calculation of net benefit cost was increased to 6.00 percent to reflect market
conditions at the September 30, 2007 measurement date. The expected rate of
return on plan assetsremained consistent from 2007 to 2008,and the Company does not
expect any near-term significant changes to the current investment allocation of
assets. However, unforeseen changes in the investment markets or other external
factors could prompt changes in these estimates in future years.
  The following table is an estimate of
the impact on future net benefit cost that could result from hypothetical
changes to the most sensitive assumptions, the discount rate and rate of return
on plan assets:
 Sensitivity
      AnalysisHypothetical DiscountRate Change
              
              Change in Net Benefit
      CostPension
              
              Retiree Health and
      Welfare50
      basis point decrease
              
              $6
      million increase
              
              $1
      million increase50
      basis point increase
              
              $6
      million decrease
              
              $1
      million decreaseHypothetical
      Rate of Return
                on
      Plan Assets ChangePension50
      basis point decrease
              
              $7
      million increase50
      basis point increase
              
              $7
      million decrease
  Based on its current assumptions and
funding methodology, the Company is expected to be required to make
contributionsof $34 millionto the BNSF Retirement Plan in
2008.The Company
currently determines required funding by amortizing asset gains and losses over
a period of five years. If the Company was required to fully fund the unfunded
portion of its projected benefit obligation, which was $173 million at
December 31, 2007, for these pension plans and $299 million for the retiree
health and welfare plan, the Company’s management believes that it would have
sufficient liquidity, and it could fund the balance without a significant impact
to the Company’s financial position. Additionally, the Company expects to make
benefit payments in 2008 of approximately $7 million and $25 million from its
non-qualified defined benefit and retiree health and welfare plans,
respectively.
  In August of 2006, the President signed
the Pension Protection Act of 2006 (PPA) into law. While the Act will have some
effect on specific plan provisions in the Company’s retirement program, its
primary effect will be to change the minimum funding requirements. The Company
expects that the Act will accelerate the required funding of future
contributions for the Company’s pension plans beginning with the 2009 fiscal
year. Anticipated payments, including the impact of the PPA, over the next five
years are included in the Contractual Obligations table under the heading
“Long-Term Debt and Other Obligations” in Item 7, Management’s Discussion and
Analysis of Financial Condition and Results of Operations. The Company does not
anticipate that this legislation will significantly impact its results of
operations, financial condition or liquidity.
  Further
information on employee benefits is incorporated by reference from Note 13 to
the Consolidated Financial Statements.


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Depreciation
 Due to the capital-intensive nature of
the railroad industry, depreciation expense is a significant component of the
Company’s operating expense. The Company recorded depreciation and amortization
expenses of $1,293million, $1,176 million and
$1,111 million for the years ended December 31, 2007, 2006 and 2005,
respectively. At December 31, 2007 and 2006, the Company had property and
equipment, net balances of$29,567 million and
$27,921 million, which included $9,177million and $8,617million, respectively, of accumulated depreciation.
  The Company uses the group method of
depreciation under 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. The
Company conducts studies of depreciation rates and the required accumulated
depreciation balance as required by the STB, which is generally every three
years for equipment property and every six years for track structure and other
roadway property. Changes in the estimated service lives of the assets and their
related depreciation rates are implemented prospectively, and the difference
between the calculated accumulated depreciation and the amount recorded is
amortized over the average remaining service lives of the
assets.
  See Note 2 to the Consolidated Financial
Statements for additional information related to the retrospective adoption of
FSP AUG AIR-1,Accounting for
Planned Major Maintenance Activities.
  A study conducted in 2007 resulted in
the Company adopting new depreciation rates for locomotives that resulted in a
net increase in 2007 depreciation expenseof $17 million and approximately
$22million on an
ongoing annual basis, as calculated using the asset base at the time of the rate
change.In 2006, the
Company conducted a depreciation rate study of its equipment (excluding
locomotives). The results of this studydidnot materially impact the Company’s
current or future results of operations.All other rate studies are current under
the STB’s requirements.
  Forward-Looking
Information
 To the extent that statements made by
the Company relate to the Company’s future economic performance or business
outlook, projections or expectations of financial or operational results, or
refer to matters that are not historical facts, such statements are
“forward-looking” statements within the meaning of the federal securities laws.
These forward-looking statements include, but are not limited to, statements
regarding:
  •
                Expectations as to operating
      results, such as revenue growth and earnings per
    share;
  •
                Expectations as to the effect of
      claims, litigation, environmental and personal injury costs, commitments,
      contingent liabilities, and governmental and regulatory investigations and
      proceedings on the Company’s financial
  condition;
  •
                Plans and goals for future
      operational improvements and capital commitments;
    and
  •
                Future market conditions or
      economic performance.
  Forward-looking statements involve a
number of risks and uncertainties, and actual performance or results may differ
materially. For a discussion of material risks and uncertainties that the
Company faces, see the discussion in Item 1A, “Risk Factors,” of this Annual
Report on Form 10-K. Important factors that could cause actual results to differ
materially include, but are not limited to, the following:
  •
                Economic
      and industry conditions:material adverse changes in
      economic or industry conditions, both in the United States and globally,
      changes in customer demand, effects of adverse economic conditions
      affecting shippers or BNSF’s supplier base, adverse economic conditions in
      the industries and geographic areas that produce and consume freight,changes in demand due
      to more stringent regulatory policies such as the regulation of
      carbon dioxide emissions that could reduce the demand for coal
      governmental tariffs or subsidies that could affect the demand for
      grain, competition
      and consolidation within the transportation industry, the extent to which
      BNSF is successful in gaining new long-term relationships with customers
      or retaining existing ones,level of service failures that
      could lead customers to use competitors’
      services,
      changes in fuel prices and other key materials and disruptions in supply
      chains for these materials, changes in the securities and capital markets
      and changes in crew availability, labor costs and labor difficulties,
      including stoppages affecting either BNSF’s operations or customers’
      abilities to deliver goods to BNSF for
  shipment;


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•
                Legal,
      legislative and regulatory factors:developments and changes in laws
      and regulations, including those affecting train operations or the
      marketing of services, the ultimate outcome of shipper and rate claims
      subject to adjudication or claims, investigations or litigation alleging
      violations of the antitrust laws, increased economic regulation of the
      rail industry through legislative action and revised rules and standards
      applied by the U.S. Surface Transportation Board in various areas
      including rates and services, developments in environmental investigations
      or proceedings with respect to rail operations or current or past
      ownership or control of real property, and developments in and losses
      resulting from other types of claims and litigation, including those
      relating to personal injuries, asbestos and other occupational diseases,
      the release of hazardous materials, environmental contamination and damage
      to property; and
  •
                Operating
      factors:technical
      difficulties, changes in operating conditions and costs, changes in
      business mix, the availability of equipment and human resources to meet
      changes in demand, the extent of the Company’s ability to achieve its
      operational and financial initiatives and to contain costs, the
      effectiveness of steps taken to maintain and improve operations and
      velocity and network fluidity, including the management of the amount of
      traffic on the system to meet demand and the ability to acquire sufficient
      resources to meet that demand, the ability to expand the capacity of the
      system, congestion on other railroads and capacity constraints affecting
      all links in the transportation chain that feed traffic and goods to
      BNSF’s systems,restrictions on development and
      expansion plans due to environmental concerns, disruptions to BNSF’s technology
      network including computer systems and software, as well as natural events
      such as severe weather, fires, floods and earthquakes or man-made or other
      disruptions of BNSF Railway’s operating systems, structures, or equipment
      including the effects of acts of terrorism on the Company’s system or
      other railroads’ systems.
  The Company cautions against placing
undue reliance on forward-looking statements, which reflect its current beliefs
and are based on information currently available to it as of the date a
forward-looking statement is made. The Company undertakes no obligation to
revise forward-looking statements to reflect future events, changes in
circumstances, or changes in beliefs. In the event the Company does update any
forward-looking statement, no inference should be made that the Company will
make additional updates with respect to that statement, related matters, or any
other forward-looking statements. Any corrections or revisions and other
important assumptions and factors that could cause actual results to differ
materially from forward-looking statements made by the Company may appear in the
Company’s public filings with the SEC, which are accessible at www.sec.gov, and
on the Company’s website at www.bnsf.com, and which investors are advised to
consult.


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Item 7A.
Quantitative and Qualitative Disclosures About Market Risk




In the
ordinary course of business, BNSF utilizes various financial instruments that
inherently have some degree of market risk. The following table summarizes the
impact of these hedging activities on the Company’s results of operations (in
millions):





Year ended December
      31,
            
            2007
            
            2006Fuel-hedge
      benefit (including ineffective
      portion of unexpired hedges)
            
            $
            31
            
            $
            341Interest rate hedge loss
            
            
            (3
            )
            
            (1
            )Total
      hedge benefit
            
            
            28
            
            
            340Tax
      effect
            
            
            (11
            )
            
            (131
            )Hedge
      benefit, net of tax
            
            $
            17
            
            $
            209




The Company’s fuel-hedge benefit is due
to increases in fuel prices subsequent to the initiation of various hedges. The
information presented in the Management’s Discussion and Analysis of Financial
Condition and Results of Operations section and Notes 3 and 9 to the
Consolidated Financial Statements describe significant aspects of BNSF’s
financial instrument activities that have a material market risk. Additionally,
the Company uses fuel surcharges, which it believes substantially mitigates the
risk of fuel price volatility.
  Commodity
Price Sensitivity
 BNSF engages in hedging activities to
partially mitigate the risk of fluctuations in the price of its diesel fuel
purchases. Existing hedge transactions as of December 31, 2007, are based on the
front month settlement prices of West Texas Intermediate crude oil (WTI). For
swaps, BNSF 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. Hedge transactions are generally
settled with the counterparty in cash. Based on historical information, BNSF
believes there is a significant correlation between the market prices for diesel
fuel and WTI.
  At December 31, 2007, BNSF had recorded
a net fuel-hedging asset of $39 million for fuel hedges covering 2008
through 2010.
  The following table is an estimate of
the impact to earnings that could result from hypothetical price changes during
the twelve-month period ending December 31, 2008, and the balance sheet impact
from the hypothetical price changes, both based on the Company’s hedge position
at December 31, 2007:


Sensitivity
      AnalysisHedged Commodity Price
      Change
            
            Fuel-Hedge Annual Pre-Tax
      Earnings Impact
            
            Balance Sheet Impact of Change
      in Fuel-Hedge Fair Value10
      percent increase
            
            $9
      million increase
            
            $13
      million increase10
      percent decrease
            
            $9
      million decrease
            
            $13
      million decrease




Based on fuel consumption during the
twelve-month period ending December 31, 2007, of 1,442 million gallons and
fuel prices during that same period, excluding the impact of the Company’s
hedging activities, a 10-percent increase or decrease in the commodity
price per gallon would result in an approximate $295 million increase or
decrease, respectively, in fuel expense (pre-tax) on an annual
basis.
  At December 31, 2007, BNSF maintained
fuel inventories for use in normal operations, which were not material to BNSF’s
overall financial position and, therefore, represent no significant market
exposure. Further information on fuel hedges is incorporated by reference from
Note 3 to the Consolidated Financial Statements.
  Interest
Rate Sensitivity
 From time to time, BNSF enters into
various interest rate hedging transactions for purposes of managing exposure to
fluctuations in interest rates by establishing rates in anticipation of both
future debt issuances and the refinancing of leveraged leases, 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 as cash flow or fair value hedges. BNSF’s
measurement of the fair value of these hedges is based on estimates of the
mid-market values for the transactions provided by the counterparties to these
agreements.
  At December 31, 2007, the fair value of
BNSF’s debt, excluding capital leases, was $7,475 million, which includes a fair
value interest rate hedge benefit of $6 million. Additionally, the Company had
recorded an interest rate hedging liability of $5 million for cash flow
hedges.


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The following table is an estimate of
the impact to earnings and the fair value of the total debt, excluding capital
leases, and interest rate hedges that could result from hypothetical interest
rate changes during the twelve-month period ending December 31, 2008, based on
debt levels and outstanding hedges as of December 31, 2007:


Sensitivity
      AnalysisHypothetical
      Change
              in
      Interest Rates
            
            
            
            Change
      in Fair ValueFloating
      Rate Debt-
              Annual Pre-Tax Earnings
      Impact
            
            Total
      Debta
            
            Interest
      Rate Hedges1
      percent decrease
            
            $7
      million increase
            
            $718
      million increase
            
            $8
      million decrease1
      percent increase
            
            $7
      million decrease
            
            $602
      million decrease
            
            $5
      million increasea  Excludes impact of
      interest rate
hedges.





Further
information on interest rate hedges is incorporated by reference from Note 3 to
the Consolidated Financial Statements. Information on the Company’s debt, which
may be sensitive to interest rate fluctuations, is incorporated by reference
from Note 9 to the Consolidated Financial Statements.


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Item 8. Financial
Statements and Supplementary Data




The Consolidated Financial Statements
and Management’s Report on Internal Control Over Financial Reporting of BNSF and
subsidiary companies, together with the report of the Company’s independent
registered public accounting firm, are included as part of this
filing.
  The following documents are filed as a
part of this report:


Consolidated Financial
      StatementsManagement’s
      Report on Internal Control Over Financial Reporting
            38Report
      of Independent Registered Public Accounting Firm
            39Consolidated
      Statements of Income for each of the three years in the period ended
      December 31, 2007
            40Consolidated
      Balance Sheets as of December 31, 2007 and 2006
            41Consolidated
      Statements of Cash Flows for each of the three years in the
      period ended December 31, 2007
            42Consolidated
      Statements of Changes in Stockholders’ Equity for each of the three years
      in the period ended December 31, 2007
            43Notes
      to Consolidated Financial Statements
            44-73







37
 Table of
Contents


Management’s Report on Internal Control Over Financial
Reporting





To the Shareholders of Burlington
Northern Santa Fe Corporation
 and Subsidiaries
  The management of
Burlington Northern Santa Fe Corporation (the Company) is responsible for
establishing and maintaining adequate internal control over financial reporting.
The Company’s internal control over financial reporting was designed to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of the Company’s financial statements for external reporting
purposes in accordance with generally accepted accounting principles in the
United States of America.
  Management assessed
the effectiveness of the Company’s internal control over financial reporting as
of December 31, 2007. In making this assessment, management used the criteria
set forth by the Committee of Sponsoring Organizations of the Treadway
Commission inInternal
Control – Integrated Framework. Based on
management’s assessment, the Company concluded that as of December 31, 2007, the
Company’s internal control over financial reporting was effective based on those
criteria.
  The effectiveness
of the Company’s internal control over financial reporting as of December 31,
2007, has been audited by PricewaterhouseCoopers LLP, the Company’s independent
registered public accounting firm, as stated in their report, which appears on
the following page.
 38
 Table of
Contents


Report of Independent Registered Public Accounting
Firm





To the Shareholders and Board of
Directors of


Burlington Northern Santa Fe
Corporation




In our opinion, the accompanying
consolidated financial statements listed in the accompanying index present
fairly, in all material respects, the financial position of Burlington Northern
Santa Fe Corporation and its subsidiaries (the Company) at December 31, 2007 and
2006, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 2007 in conformity with accounting
principles generally accepted in the United States of America.  Also
in our opinion, the Company maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2007, based on
criteria established in Internal Control -
Integrated Frameworkissued by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO).  The Company's management is
responsible for these financial statements, for maintaining effective internal
control over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting, included in the accompanying
Management's Report on Internal Control Over Financial Reporting.  Our
responsibility is to express opinions on these financial statements and on the
Company's internal control over financial reporting based on our integrated
audits.  We conducted our audits in accordance with the standards of
the Public Company Accounting Oversight Board (United States).  Those
standards require that we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of material
misstatement and whether effective internal control over financial reporting was
maintained in all material respects.  Our audits of the financial
statements included 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.  Our audit of internal control over
financial reporting included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk.  Our audits also included
performing such other procedures as we considered necessary in the
circumstances. We believe that our audits provide a reasonable basis for our
opinions.
  As discussed in Note 2 to the
consolidated financial statements, effective January 1, 2007, the Company
changed the manner in which it accounts for planned major maintenance activities
and the manner in which it accounts for uncertain tax
positions.
  A company’s internal control over
financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted
accounting principles.  A company’s internal control over financial
reporting includes those policies and procedures that (i) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect
the transactions and dispositions of the assets of the company; (ii) provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the financial
statements.
  Because of its inherent limitations,
internal control over financial reporting may not prevent or detect
misstatements.  Also, projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
     Fort Worth, Texas
  February 12, 2008


39
 Table of
Contents


Burlington
Northern Santa Fe Corporation and Subsidiaries


Consolidated Statements of
Income


In
millions, except per share data




Year ended December
      31,
            
            
            2007
            
            
            
            2006
            
            
            
            2005(As Adjusted)a
            
            
            
            (As Adjusted)aRevenues
            
            
            $
            15,802
            
            
            $
            14,985
            
            
            $
            12,987Operating
      expenses:Compensation and
      benefits
            
            
            
            3,773
            
            
            
            3,816
            
            
            
            3,515Fuel
            
            
            
            3,197
            
            
            
            2,734
            
            
            
            1,959Purchased
    services
            
            
            
            2,023
            
            
            
            1,906
            
            
            
            1,713Depreciation and
      amortization
            
            
            
            1,293
            
            
            
            1,176
            
            
            
            1,111Equipment rents
            
            
            
            942
            
            
            
            930
            
            
            
            886Materials and
    other
            
            
            
            1,088
            
            
            
            902
            
            
            
            876Total operating
      expenses
            
            
            
            12,316
            
            
            
            11,464
            
            
            
            10,060Operating
income
            
            
            
            3,486
            
            
            
            3,521
            
            
            
            2,927Interest
      expense
            
            
            
            511
            
            
            
            485
            
            
            
            437Other
      expense, net
            
            
            
            18
            
            
            
            40
            
            
            
            37Income before income
      taxes
            
            
            
            2,957
            
            
            
            2,996
            
            
            
            2,453Income
      tax expense
            
            
            
            1,128
            
            
            
            1,107
            
            
            
            919Net income
            
            
            $
            1,829
            
            
            $
            1,889
            
            
            $
            1,534Earnings
      per share:Basic earnings per
      share
            
            
            $
            5.19
            
            
            $
            5.23
            
            
            $
            4.13Diluted earnings per
      share
            
            
            $
            5.10
            
            
            $
            5.11
            
            
            $
            4.02Average
      shares:Basic
            
            
            
            352.5
            
            
            
            361.0
            
            
            
            371.8Dilutive effect of stock
      awards
            
            
            
            6.4
            
            
            
            8.8
            
            
            
            10.0Diluted
            
            
            
            358.9
            
            
            
            369.8
            
            
            
            381.8


a
            Prior
      year numbers have been adjusted for the retrospective adoption of
      Financial Accounting Standards Board (FASB) Staff Position (FSP)


AUG AIR-1,
      Accounting for Planned Major Maintenance Activities. See Note 2 of
      the Consolidated Financial Statements for additional
      information.




See
      accompanying Notes to Consolidated Financial
  Statements.


40
 Table of
Contents


Burlington
Northern Santa Fe Corporation and Subsidiaries


Consolidated Balance
Sheets


Dollars
in millions, shares in thousands




December
    31,
            
            
            2007
            
            
            
            2006Assets
            
            
            
            
            
            
            (As Adjusted)aCurrent
      assets:Cash and cash
      equivalents
            
            
            $
            330
            
            
            $
            375Accounts receivable,
      net
            
            
            
            790
            
            
            
            805Materials and
      supplies
            
            
            
            579
            
            
            
            488Current portion of deferred
      income taxes
            
            
            
            290
            
            
            
            345Other current
      assets
            
            
            
            192
            
            
            
            168Total current
      assets
            
            
            
            2,181
            
            
            
            2,181Property
      and equipment, net
            
            
            
            29,567
            
            
            
            27,921Other
      assets
            
            
            
            1,835
            
            
            
            1,695Total assets
            
            
            $
            33,583
            
            
            $
            31,797Liabilities and Stockholders’
      EquityCurrent
      liabilities:Accounts payable and other
      current liabilities
            
            
            $
            2,824
            
            
            $
            2,853Long-term debt due within one
      year
            
            
            
            411
            
            
            
            473Total current
      liabilities
            
            
            
            3,235
            
            
            
            3,326Long-term
      debt and commercial paper
            
            
            
            7,735
            
            
            
            6,912Deferred
      income taxes
            
            
            
            8,484
            
            
            
            8,298Casualty
      and environmental liabilities
            
            
            
            843
            
            
            
            830Pension
      and retiree health and welfare liability
            
            
            
            444
            
            
            
            604Employee
      separation costs
            
            
            
            77
            
            
            
            86Other
      liabilities
            
            
            
            1,621
            
            
            
            1,213Total
    liabilities
            
            
            
            22,439
            
            
            
            21,269Commitments
      and contingencies (see Notes 3, 9 and 10)Stockholders’
      equity:Common stock, $0.01 par value,
      600,000 shares authorized;
              537,330shares and 532,080 shares issued, respectively
            
            
            
            5
            
            
            
            5Additional
      paid-in-capital
            
            
            
            7,348
            
            
            
            6,990Retained
    earnings
            
            
            
            11,152
            
            
            
            9,739Treasury stock, at cost, 189,626shares and 174,205 shares, respectively
            
            
            
            (7,222
            )
            
            
            (5,929
            )Accumulated other comprehensive
      loss
            
            
            
            (139
            )
            
            
            (277
            )Total stockholders’
      equity
            
            
            
            11,144
            
            
            
            10,528Total liabilities and
      stockholders’ equity
            
            
            $
            33,583
            
            
            $
            31,797


a
            Prior
      year numbers have been adjusted for the retrospective adoption of
      FSP AUG AIR-1,
      Accounting for Planned Major Maintenance
  Activities.


See
      Note 2 of the Consolidated Financial Statements for additional
      information.




See
      accompanying Notes to Consolidated Financial
  Statements.


41
 Table of
Contents


Burlington
Northern Santa Fe Corporation and Subsidiaries




Consolidated Statements of Cash
Flows


In
millions




Year ended December
      31,
            
            
            2007
            
            
            
            2006
            
            
            
            2005Operating
      Activities
            
            
            
            
            
            
            (As Adjusted)a
            
            
            
            (As Adjusted)aNet
      income
            
            
            $
            1,829
            
            
            $
            1,889
            
            
            $
            1,534Adjustments
      to reconcile net income to net cash provided
              by
      operating activities:Depreciation
      and amortization
            
            
            
            1,293
            
            
            
            1,176
            
            
            
            1,111Deferred
      income taxes
            
            
            
            280
            
            
            
            316
            
            
            
            219Employee
      separation costs paid
            
            
            
            (21
            )
            
            
            (27
            )
            
            
            (30
            )Long-term
      casualty and environmental liabilities, net
            
            
            
            26
            
            
            
            (55
            )
            
            
            (71
            )Other,
      net
            
            
            
            183
            
            
            
            (43
            )
            
            
            2Changes
      in current assets and liabilities:Accounts
      receivable, net
            
            
            
            20
            
            
            
            (127
            )
            
            
            (138
            )Change
      in accounts receivable sales program
            
            
            
            –
            
            
            
            –
            
            
            
            (350
            )Materials
      and supplies
            
            
            
            (91
            )
            
            
            (92
            )
            
            
            (57
            )Other
      current assets
            
            
            
            12
            
            
            
            99
            
            
            
            (5
            )Accounts
      payable and other current liabilities
            
            
            
            (39
            )
            
            
            53
            
            
            
            491Net
      cash provided by operating activities
            
            
            
            3,492
            
            
            
            3,189
            
            
            
            2,706Investing
      ActivitiesCapital
      expenditures
            
            
            
            (2,248
            )
            
            
            (2,014
            )
            
            
            (1,750
            )Construction
      costs for facility financing obligation
            
            
            
            (37
            )
            
            
            (14
            )
            
            
            (4
            )Other,
      net
            
            
            
            (130
            )
            
            
            (139
            )
            
            
            (366
            )Net
      cash used for investing activities
            
            
            
            (2,415
            )
            
            
            (2,167
            )
            
            
            (2,120
            )Financing
      ActivitiesNet(decrease)increaseincommercial paper and bank borrowings
            
            
            
            (584
            )
            
            
            283
            
            
            
            563Proceeds
      from issuance of long-term debt
            
            
            
            1,300
            
            
            
            300
            
            
            
            500Payments
      on long-term debt
            
            
            
            (482
            )
            
            
            (467
            )
            
            
            (464
            )Dividends
      paid
            
            
            
            (380
            )
            
            
            (310
            )
            
            
            (267
            )Proceeds
      from stock options exercised
            
            
            
            142
            
            
            
            116
            
            
            
            244Purchase
      of BNSF common stock
            
            
            
            (1,265
            )
            
            
            (730
            )
            
            
            (799
            )Prepaid
      forward repurchase of treasury stock
            
            
            
            –
            
            
            
            –
            
            
            
            (600
            )Excess
      tax benefits from equity compensation plans
            
            
            
            121
            
            
            
            95
            
            
            
            –Proceeds
      from facility financing obligation
            
            
            
            41
            
            
            
            –
            
            
            
            –Other,
      net
            
            
            
            (15
            )
            
            
            (9
            )
            
            
            (10
            )Net
      cash used for financing activities
            
            
            
            (1,122
            )
            
            
            (722
            )
            
            
            (833
            )(Decrease)
      increasein cash and cash equivalents
            
            
            
            (45
            )
            
            
            300
            
            
            
            (247
            )Cash
      and cash equivalents:Beginning
      of year
            
            
            
            375
            
            
            
            75
            
            
            
            322End
      of year
            
            
            $
            330
            
            
            $
            375
            
            
            $
            75Supplemental Cash Flow
      InformationInterest
      paid, net of amounts capitalized
            
            
            $
            494
            
            
            $
            462
            
            
            $
            427Income
      taxes paid, net of refunds
            
            
            $
            680
            
            
            $
            779
            
            
            $
            545Non-cash
      asset financing
            
            
            $
            461
            
            
            $
            109
            
            
            $
            68


a
            Prior
      year numbers have been adjusted for the retrospective adoption of
      FSP AUG AIR-1,
      Accounting for Planned Major Maintenance
  Activities.


See
      Note 2 of the Consolidated Financial Statements for additional
      information.




See
      accompanying Notes to Consolidated Financial
  Statements.


42
 Table of
Contents


Burlington
Northern Santa Fe Corporation and Subsidiaries




Consolidated
Statements of Changes in Stockholders’ Equity


Dollars
in millions, shares in thousands, except per share data




Common
      Shares
            
            
            Treasury
      Shares
            
            Common Stock and Paid–in
      Capital
            
            Retained Earningsa
            
            Treasury
      Stock
            
            
            Prepaid
              Forward
      Repurchase
              of Treasury
              Stock
            
            
            Unearned
      Compen­sation
            
            Accumu­lated
      Other
              Compre­hensive
      Loss
            
            Total
              Stock­holders’ EquityaBalance
      at December 31, 2004, asreported
            
            
            517,275
            
            
            
            (140,463
            )
            $
            
            6,304
            
            $
            
            6,792
            
            $
            
            (3,741
            )
            
            $
            –
            
            
            $
            (43
            )
            $
            
            (1
            )
            $
            
            9,311Cumulative
      effect restrospective application,
      net
              of tax of $78a
            
            
            
            
            
            
            
            
            
            
            –
            
            
            
            127
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            127Balance
      at December 31, 2004, as adjusted
            
            
            
            
            
            
            
            
            
            
            6,304
            
            
            
            6,919
            
            
            
            (3,741
            )
            
            
            –
            
            
            
            (43
            )
            
            
            (1
            )
            
            
            9,438Comprehensive
      income:Net
      income
            
            
            
            
            
            
            
            
            
            
            –
            
            
            
            1,534
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            1,534Minimum
      pension liability adjustment, net of tax benefit of $25
            
            
            
            
            
            
            
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            (39
            )
            
            
            (39
            )Fuel/interest
      hedge mark-to-market, net of tax benefit of $8
            
            
            
            
            
            
            
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            (13
            )
            
            
            (13
            )Total
      comprehensiveincome
            
            
            
            
            
            
            
            
            
            
            –
            
            
            
            1,534
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            (52
            )
            
            
            1,482Common
      stock dividends, $0.74 per share
            
            
            
            
            
            
            
            
            
            
            –
            
            
            
            (278
            )
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            (278
            )Restricted
      stock expense
            
            
            
            
            
            
            
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            37
            
            
            
            –
            
            
            
            37Restricted
      stock activity and related tax benefit of $10
            
            
            665
            
            
            
            (140
            )
            
            
            46
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            (16
            )
            
            
            –
            
            
            
            30Exercise
      of stock options and related tax benefit of $84
            
            
            9,349
            
            
            
            (540
            )
            
            
            357
            
            
            
            –
            
            
            
            (29
            )
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            328Purchase
      of BNSF common stock
            
            
            –
            
            
            
            (14,575
            )
            
            
            –
            
            
            
            –
            
            
            
            (799
            )
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            (799
            )Prepaid
      forward repurchase of treasury stock
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            (600
            )
            
            
            –
            
            
            
            –
            
            
            
            (600
            )Balance
      at December 31, 2005, as adjusted
            
            
            527,289
            
            
            
            (155,718
            )
            
            
            6,707
            
            
            
            8,175
            
            
            
            (4,569
            )
            
            
            (600
            )
            
            
            (22
            )
            
            
            (53
            )
            
            
            9,638Comprehensive
      income:Net
      income
            
            
            
            
            
            
            
            
            
            
            –
            
            
            
            1,889
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            1,889Minimum
      pension liability adjustment, net of tax expense of $24
            
            
            
            
            
            
            
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            40
            
            
            
            40Fuel/interest
      hedge mark-to-market, net of tax benefit of $117
            
            
            
            
            
            
            
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            (188
            )
            
            
            (188
            )Total
      comprehensiveincome
            
            
            
            
            
            
            
            
            
            
            –
            
            
            
            1,889
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            (148
            )
            
            
            1,741Adjustment
      to initially apply Statement of Financial Accounting Standard (SFAS) No.
      158, net of tax benefit of $48
            
            
            
            
            
            
            
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            (76
            )
            
            
            (76
            )Common
      stock dividends, $0.90 per share
            
            
            
            
            
            
            
            
            
            
            –
            
            
            
            (325
            )
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            (325
            )Restricted
      stock and stock options expense
            
            
            
            
            
            
            
            
            
            
            72
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            72Restricted
      stock activity and related tax benefit of $15
            
            
            28
            
            
            
            (33
            )
            
            
            16
            
            
            
            –
            
            
            
            (1
            )
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            15Exercise
      of stock options and related tax benefit of $80
            
            
            4,763
            
            
            
            (376
            )
            
            
            225
            
            
            
            –
            
            
            
            (29
            )
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            196Adjustment
      upon adoption of SFAS No. 123R
            
            
            –
            
            
            
            –
            
            
            
            (25
            )
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            22
            
            
            
            –
            
            
            
            (3
            )Purchase
      of BNSF common stock
            
            
            –
            
            
            
            (9,860
            )
            
            
            –
            
            
            
            –
            
            
            
            (730
            )
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            (730
            )Prepaid
      forward repurchase of treasury stock
            
            
            –
            
            
            
            (8,218
            )
            
            
            –
            
            
            
            –
            
            
            
            (600
            )
            
            
            600
            
            
            
            –
            
            
            
            –
            
            
            
            –Balance
      at December 31, 2006, as adjusted
            
            
            532,080
            
            
            
            (174,205
            )
            
            
            6,995
            
            
            
            9,739
            
            
            
            (5,929
            )
            
            
            –
            
            
            
            –
            
            
            
            (277
            )
            
            
            10,528Comprehensive
      income:Net
      income
            
            
            
            
            
            
            
            
            
            
            –
            
            
            1,829
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            1,829Change in unrecognized prior service cost and actuarial losses,
      net of tax expense of $76
            
            
            
            
            
            
            
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            122
            
            
            122Fuel/interest hedge mark-to-market, net of tax expense of
      $10
            
            
            
            
            
            
            
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            16
            
            
            16Total
      comprehensive income
            
            
            
            
            
            
            
            
            
            
            –
            
            
            1,829
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            138
            
            
            1,967Adjustment
      for the adoption of FASB Interpretation No. (FIN) 48
            
            
            
            
            
            
            
            
            
            
            –
            
            
            (13)
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            (13
            )Common
      stock dividends, $1.14 per share
            
            
            
            
            
            
            
            
            
            
            –
            
            
            (403)
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            (403
            )Restricted
      stock and stock options expense
            
            
            
            
            
            
            
            
            
            66
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            66Restricted stock activity and related tax benefit of$23
            
            1
            
            
            (48
            )
            
            24
            
            
            
            –
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            24Exercise of stock options and related tax benefit of $98
            
            5,249
            
            
            (319
            )
            
            268
            
            
            
            –
            
            
            (28
            )
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            240Purchase
      of BNSF common stock
            
            
            –
            
            
            (15,054
            )
            
            
            –
            
            
            
            –
            
            
            (1,265
            )
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            (1,265
            )Balance
      at December 31, 2007
            
            537,330
            
            
            (189,626
            )
            $
            7,353
            
            $
            11,152
            
            $
            (7,222
            )
            
            $
            –
            
            
            $
            –
            
            $
            (139
            )
            $
            11,144


a 
      Prior year numbers have been adjusted for the retrospective adoption of
      FSP AUG AIR-1,
      Accounting for Planned Major Maintenance
  Activities.


See Note 2 of the Consolidated Financial Statements for additional
      information.




See
accompanying Notes to Consolidated Financial Statements.




43
 Table of
Contents


Burlington
Northern Santa Fe Corporation and Subsidiaries




Notes to Consolidated Financial Statements


1. The Company
 Burlington
Northern Santa Fe Corporation (BNSF) is a holding company that conducts no
operating activities and owns no significant assets other than through its
interests in its subsidiaries. BNSF’s principal, wholly-owned subsidiary is BNSF
Railway Company (BNSF Railway), which operates one of the largest railroad
networks in North America with approximately 32,000 route miles in 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 37 percent, 24 percent, 21 percent and 18 percent,
respectively, of total freight revenues for the year ended December 31, 2007.
These Consolidated Financial Statements include BNSF, BNSF Railway and other
majority-owned subsidiaries, all of which are separate legal entities
(collectively, the Company).
 2. Significant Accounting
Policies
  Principles
of Consolidation
 The
Consolidated Financial Statements include the accounts of BNSF, including its
principal subsidiary BNSF Railway. All significant intercompany accounts and
transactions have been eliminated. The Company evaluates its less than
majority-owned investments for consolidation pursuant to FIN 46R,Consolidation
of Variable Interest Entities.
  Use of
Estimates
 The preparation of
financial statements in accordance with generally accepted accounting principles
in the United States of America (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. These estimates and assumptions are periodically reviewed by
management. 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. Customer incentives, which are primarily provided for shipping a
specified cumulative volume or shipping to/from specific locations, are recorded
as a reduction to revenue on a pro-rata basis based on actual or projected
future customer shipments. When using projected shipments, the Company relies on
historic trends as well as economic and other indicators to estimate the
liability for customer incentives.
  Accounts
Receivable, Net
 Accounts
receivable, net includes accounts receivable reduced by an allowance for bill
adjustments and uncollectible accounts. The allowance for bill adjustments and
uncollectible accounts is based on historical experience as well as any known
trends or uncertainties related to customer billing and account
collectibility.
  Cash and
Cash Equivalents
 All
short-term investments with original maturities of 90 days or less 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.


44
 Table of
Contents


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 certain depreciable railroad property, cost less net salvage value
is charged to accumulated depreciation, and no gain or loss is recognized. The
disposals of land and non-rail property as well as significant premature
retirements 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 that 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.
  Leasehold improvements that meet
capitalization criteria are capitalized and amortized on a straight-line basis
over the lesser of their estimated useful lives or the remaining lease term.
Cash flows for capitalized leasehold improvements are reported in the investing
activities other, net line of the Consolidated Statements of Cash
Flows.
  Planned
Major Maintenance Activities
 Effective January 1, 2007, the Company
transitioned to the deferral method of accounting for leased locomotive
overhauls, which includes the refurbishment of the engine and related
components. Previously, the Company used the accrue-in-advance method of
accounting for these planned major maintenance activities; however, under FSP
AUG AIR-1,Accounting for
Planned Major Maintenance Activities, issued in September 2006, this method
is no longer allowed. This change was applied retrospectively for all periods
presented. Accordingly, BNSF has eliminated the asset and liability recorded
from the accrue-in-advance methodology and established an asset for overhauls
that have been performed. This asset of$245million,which is included in property and
equipment, net in the December 31, 2006 Consolidated Balance Sheets, will be
amortized to expense using the straight-line method until the next overhaul is
performed or the end of the lease, whichever comes first, typically between six
and eight years. The effects of these adjustments were as follows (in
millions):
  Consolidated Statements of Income


2006
            
            
            2005Year Ended December
      31,
            
            As
    Reported
            
            
            As
    Adjusted
            
            
            As
    Reported
            
            
            As
    AdjustedDepreciation
      and amortization
            
            $
            1,130
            
            
            $
            1,176
            
            
            $
            1,075
            
            
            $
            1,111Materials
      and other
            
            
            952
            
            
            
            902
            
            
            
            917
            
            
            
            876Total
      operating expenses
            
            
            11,468
            
            
            
            11,464
            
            
            
            10,065
            
            
            
            10,060Operating
      income
            
            
            3,517
            
            
            
            3,521
            
            
            
            2,922
            
            
            
            2,927Income
      before income taxes
            
            
            2,992
            
            
            
            2,996
            
            
            
            2,448
            
            
            
            2,453Income
      tax expense
            
            
            1,105
            
            
            
            1,107
            
            
            
            917
            
            
            
            919Net
      income
            
            $
            1,887
            
            
            $
            1,889
            
            
            $
            1,531
            
            
            $
            1,534Basic
      earnings per share
            
            $
            5.23
            
            
            $
            5.23
            
            
            $
            4.12
            
            
            $
            4.13Diluted
      earnings per share
            
            $
            5.10
            
            
            $
            5.11
            
            
            $
            4.01
            
            
            $
            4.02




45
 Table of
Contents


Consolidated Balance
Sheets


2006December
      31,
            
            As
    Reported
            
            
            As
    AdjustedProperty
      and equipment, net
            
            $
            27,676
            
            
            $
            27,921Other
      assets
            
            
            1,786
            
            
            
            1,695Total
      assets
            
            
            31,643
            
            
            
            31,797Deferred
      income taxes
            
            
            8,216
            
            
            
            8,298Other
      liabilities
            
            
            1,273
            
            
            
            1,213Total
      liabilities
            
            
            21,247
            
            
            
            21,269Retained
      earnings
            
            
            9,607
            
            
            
            9,739Total
      stockholders’ equity
            
            
            10,396
            
            
            
            10,528Total liabilities
      and stockholders’ equity
            
            $
            31,643
            
            
            $
            31,797




Consolidated
Statements of Cash Flows


2006
            
            
            2005Year Ended December
      31,
            
            As
    Reported
            
            
            As
    Adjusted
            
            
            As
    Reported
            
            
            As
    AdjustedNet
      income
            
            $
            1,887
            
            
            $
            1,889
            
            
            $
            1,531
            
            
            $
            1,534Depreciation
      and amortization
            
            
            1,130
            
            
            
            1,176
            
            
            
            1,075
            
            
            
            1,111Deferred
      income taxes
            
            
            314
            
            
            
            316
            
            
            
            217
            
            
            
            219Operating
      activities other, net
            
            
            (74
            )
            
            
            (43
            )
            
            
            (54
            )
            
            
            2Net
      cash provided by operating activities
            
            
            3,108
            
            
            
            3,189
            
            
            
            2,609
            
            
            
            2,706Investing
      activities other, net
            
            
            (58
            )
            
            
            (139
            )
            
            
            (269
            )
            
            
            (366
            )Net
      cash used by investing activities
            
            $
            (2,086
            )
            
            $
            (2,167
            )
            
            $
            (2,023
            )
            
            $
            (2,120
            )


The effects of the adjustments on years
prior to fiscal 2005resulted in an adjustment
to increase stockholders’equity as ofJanuary1, 2005by $127million.
  Environmental
Liabilities
 Liabilities for environmental cleanup
costs are initially recorded when BNSF’s liability for environmental cleanup is
both probable and reasonably estimable. Subsequent 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
 Liabilities for personal injury claims
are initially recorded when the expected loss is both probable and reasonably
estimable. Subsequent adjustments to initial estimates are recorded as necessary
based upon additional information developed in subsequent periods. Liabilities
recorded for unasserted personal injury claims, including those related to
asbestos, are based on information currently available. Estimates of 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.
Investment tax credits are accounted for using the flow-through
method.


46
 Table of
Contents


Uncertain
Tax Positions
 In June 2006, the FASB issued FIN 48,Accounting for
Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109,
Accounting for Income Taxes.This interpretation addresses the
determination of whether tax benefits claimed or expected to be claimed on a tax
return should be recorded in the financial statements. Under FIN 48, the Company
may recognize the tax benefit from an uncertain tax position only if it is more
likely than not that the tax position will be sustained on examination by the
taxing authorities, based on the technical merits of the position. The tax
benefits recognized in the financial statements from such a position should be
measured based on the largest benefit that has a greater than fifty percent
likelihood of being realized upon ultimate settlement. FIN 48 also provides
guidance on derecognition, classification, interest and penalties on income
taxes, accounting in interim periods and requires increased disclosures. The
Company adopted the provisions of FIN 48 on January 1, 2007. As a result of the
implementation of FIN 48, the Company recorded an $83 million increase in
the liability for unrecognized tax benefits, which is offset by a reduction of
the deferred tax liability of $70 million, resulting in a decrease to the
January 1, 2007, retained earnings balance of $13 million (for additional
information see Note 5 to the Consolidated Financial
Statements).
  Stock-Based
Compensation
 The Company adopted SFAS No. 123R,Share-Based Payment,on January 1, 2006. This
statement requires BNSF to recognize the cost of employee services received in
exchange for the Company’s equity instruments. Under SFAS No. 123R, BNSF is
required to record compensation expense over an award’s vesting period based on
the award’s fair value at the date of grant. BNSF has elected to adopt SFAS No.
123R on a modified prospective basis; accordingly, the financial statements for
periods prior to January 1, 2006, do not include compensation cost calculated
under the fair value method. Since the adoption of this new guidance, there have
been no significant changes in the quantity or types of instruments used in
stock-based compensation programs, nor have there been any significant changes
in the terms of existing stock-based compensation arrangements. The Company did,
however, record a favorable cumulative adjustment for estimated forfeitures of
$3 million, which, due to its immateriality, was included as a reduction to
compensation expense in the first quarter of 2006.
  Prior to January 1, 2006, the Company
applied Accounting Principles Board Opinion 25,Accounting for Stock
Issued to Employees,and,
therefore, recorded the intrinsic value of stock-based compensation as expense.
The following table illustrates the effect on net income and earnings per share
if the Company had applied the fair value recognition provisions of SFAS No.
123,Accounting for
Stock-Based Compensation,to stock-based employee compensation (in
millions, except per share data) prior to January 1, 2006:


Year ended December
      31,
            
            2005
            aNet
      income, as reported
            
            $
            1,534Stock-based employee
      compensation expense included
              in reported net income, net of
      related tax effects
            
            
            23Total stock-based compensation
      expense determined
              under fair value method for all
      awards, net of related tax effects
            
            
            (42
            )Pro
      forma net income
            
            $
            1,515Earnings
      per share:Basic – as
      reported
            
            $
            4.13Basic – pro
      forma
            
            $
            4.07Diluted – as
      reported
            
            $
            4.02Diluted – pro
      forma
            
            $
            3.97a  Prior
      year numbers have been adjusted for the retrospective adoption of
      FSP AUG AIR-1,
      Accounting forPlanned
      Major Maintenance
              Activities.  See "Planned Major Maintenance Activities" within
      this footnote for additional information.


Employment
Benefit Plans
 The Company estimates liabilities and
expenses for the pension and retiree health and welfare plans. Estimated amounts
are based on historical information, current information and estimates regarding
future events and circumstances. Significant assumptions used in the valuation
of pension and/or retiree health and welfare liabilities include the expected
return on plan assets, discount rate, rate of increase in compensation levels
and the health care cost trend rate.
  Reclassifications
 Certain comparative prior year amounts
in the Consolidated Financial Statements and accompanying notes have been
reclassified to conform to the current year presentation.
These reclassifications had no effect on previously reported operating income or
net income.


47
 Table of
Contents




3. Hedging
Activities
 The Company uses derivative financial
instruments 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 does not hold or issue derivative financial
instruments for trading or speculative purposes. The Company formally documents
the relationship between the hedging instrument and the hedged item, as well as
the risk management objective and strategy for the use of the hedging
instrument. This documentation includes linking the derivatives that are
designated as 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 thereafter, 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 loss (AOCL) as a
separate component of stockholders’ equity and reclassified into earnings in the
period during which the hedge transaction affects earnings. Cash flows related
to fuel and interest rate hedges are classified as operating activities in the
Consolidated Statements of Cash Flows.
  BNSF monitors its hedging positions and
credit ratings of its counterparties and does not anticipate any losses due to
counterparty nonperformance.
  Fuel
 Fuel costsrepresented26percent, 24 percent and 19 percent of
total operating expenses during 2007, 2006 and 2005, respectively. Due to the
significance of diesel fuel expenses to the operations of BNSF and the
historical volatility of fuel prices, the Company has entered into hedges to
partially mitigate the risk of fluctuations in the price of its diesel fuel
purchases. The fuel hedges include the use of derivatives that are accounted for
as cash flow hedges. The hedging is intended to protect the Company’s operating
margins and overall profitability from adverse fuel price changes by entering
into fuel-hedge instruments based on management’s evaluation of current and
expected diesel fuel price trends. However, to the extent the Company hedges
portions of its fuel purchases, it may not realize the impact of decreases in
fuel prices. Conversely, to the extent the Company does not hedge portions of
its fuel purchases, it may be adversely affected by increases in fuel prices.
Based on fuel consumption during 2007 and excluding the impact of the hedges,
each one-cent increase in the price of fuel per gallon would result in
approximately$14 million of additional fuel
expense on an annual basis.However, BNSF believes any fuel price
increase would be substantially offset by the Company’s fuel surcharge
program.
  Total Fuel-Hedging
Activities
 As of December 31, 2007, BNSF’s total
fuel-hedging positions covered approximately3percent, 1 percent and less than1percent ofestimated fuel purchases for 2008, 2009
and 2010, 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 ended December
      31,
            
            
            2007
            
            
            2006
            
            
            2005Hedge
      benefit
            
            
            $
            30
            
            
            $
            342
            
            
            $
            535Ineffective
      portion of open hedges
            
            
            
            1
            
            
            
            (1
            )
            
            
            (4
            )Tax
      effect
            
            
            
            (12
            )
            
            
            (131
            )
            
            
            (203
            )Hedge
      benefit, net of tax
            
            
            $
            19
            
            
            $
            210
            
            
            $
            328





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





December
    31,
            
            2007
            
            
            2006Short-term
      fuel-hedging asset
            
            $
            29
            
            
            $
            13Long-term
      fuel-hedging asset
            
            
            10
            
            
            
            –Short-term
      fuel-hedging liability
            
            
            –
            
            
            
            (2
            )Ineffective
      portion of open hedges
            
            
            –
            
            
            
            1Tax
      effect
            
            
            (15
            )
            
            
            (4
            )Amount
      included in AOCL, net of tax
            
            $
            24
            
            
            $
            8Settled
      fuel-hedging contracts receivable
            
            $
            6
            
            
            $
            37




48
 Table of
Contents


BNSF measures the fair value of hedges
based upon data provided by various external counterparties. To value a swap,
the Company uses the forward commodity price for the period
hedged.
  New York
Mercantile Exchange (NYMEX) #2 Heating Oil (HO) Hedges
 As of December 31, 2006, BNSF had
outstanding fuel swap agreements utilizing NYMEX #2 HO. No additional HO hedges
were entered into during 2007. As of December 31, 2007, there were no HO hedge
positions outstanding.
  West Texas
Intermediate (WTI) Crude Oil Hedges
 At December 31, 2007, BNSF had
outstanding fuel swap agreements utilizing WTI crude oil. The hedge prices do
not include taxes, transportation costs, certain other fuel handling costs and
any differences which may occur between the prices of WTI and the purchase price
of BNSF’s diesel fuel, including refining costs. Over the twelve months ended
December 31, 2007, the sum of all such costs averagedapproximately 55 cents per
gallon.
  During 2007, the Company entered into
fuel swap agreements utilizing WTI to hedge the equivalent of approximately
1.5 million barrels of fuel with an average swap price of $64.12per barrel. The following
tables provide fuel-hedge data based on the quarter being hedgedfor all WTI fuel hedges outstanding as
of December 31, 2007.


Quarter
      Ending2008
            
            March
31,
            
            
            June 30,
            
            
            September
      30,
            
            
            December
    31,
            
            
            AnnualWTI
SwapsBarrels
      hedged (in thousands)
            
            
            290
            
            
            
            260
            
            
            
            230
            
            
            
            230
            
            
            
            1,010Equivalent
      gallons hedged (in millions)
            
            
            12.18
            
            
            
            10.92
            
            
            
            9.66
            
            
            
            9.66
            
            
            
            42.42Average
      swap price (per barrel)
            
            $
            63.69
            
            
            $
            63.77
            
            
            $
            63.70
            
            
            $
            63.70
            
            
            $
            63.72Fair
      value (in millions)
            
            $
            9
            
            
            $
            8
            
            
            $
            6
            
            
            $
            6
            
            
            $
            29




Quarter
      Ending2009
            
            March
31,
            
            
            June 30,
            
            
            September
      30,
            
            
            December
    31,
            
            
            AnnualWTI
SwapsBarrels
      hedged (in thousands)
            
            
            100
            
            
            
            100
            
            
            
            100
            
            
            
            70
            
            
            
            370Equivalent
      gallons hedged (in millions)
            
            
            4.20
            
            
            
            4.20
            
            
            
            4.20
            
            
            
            2.94
            
            
            
            15.54Average
      swap price (per barrel)
            
            $
            65.10
            
            
            $
            65.10
            
            
            $
            65.10
            
            
            $
            65.00
            
            
            $
            65.08Fair
      value (in millions)
            
            $
            2
            
            
            $
            2
            
            
            $
            2
            
            
            $
            2
            
            
            $
            8




Quarter
      Ending2010
            
            March
31,
            
            
            June 30,
            
            
            September
      30,
            
            
            December
    31,
            
            
            AnnualWTI
SwapsBarrels
      hedged (in thousands)
            
            
            70
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            70Equivalent
      gallons hedged (in millions)
            
            
            2.94
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            2.94Average
      swap price (per barrel)
            
            $
            64.80
            
            
            $
            –
            
            
            $
            –
            
            
            $
            –
            
            
            $
            64.80Fair
      value (in millions)
            
            $
            2
            
            
            $
            –
            
            
            $
            –
            
            
            $
            –
            
            
            $
            2




49
 Table of
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Summarized
Comparative Prior Year Information
 The
following table provides summarized comparative information for hedge
transactions outstanding as of December 31, 2006.





Year ended December
      31,
            
            2007HO SwapsGallons
      hedged (in millions)
            
            
            55.65Average
      swap price (per gallon)
            
            $
            2.11Fair
      value (in millions)
            
            $
            (16
            )HO
    CollarsGallons
      hedged (in millions)
            
            
            40.95Average
      cap price (per gallon)
            
            $
            1.17Average
      floor price (per gallon)
            
            $
            1.07Fair
      value (in millions)
            
            $
            23WTI
    CollarsBarrels
      hedged (in thousands)
            
            
            150Equivalent
      gallons hedged (in millions)
            
            
            6.30Average
      cap price (per barrel)
            
            $
            33.00Average
      floor price (per barrel)
            
            $
            29.00Fair
      value (in millions)
            
            $
            4




Interest
Rate
 From time to time, the Company enters
into various interest rate hedging transactions for the purpose of managing
exposure to fluctuations in interest rates by establishing rates in anticipation
of both future debt issuances and the refinancing of leveraged leases, as well
as converting a portion of its fixed-rate long-term debt to floating-rate debt.
The Company uses interest rate swaps and treasury locks as part of its interest
rate risk management strategy.


Total Interest Rate Hedging
Program
 All interest rate derivative
transactions outstanding are reflected in the following
table:


December 31,
      2007Maturity
      Date2008
            
            
            2009
            
            
            2010
            
            
            2011
            
            
            2012
            
            
            Thereafter
            
            
            Total
            
            
            Fair
    ValueFair Value
      HedgesFixed
      to variable swaps
              (in
      millions)
            
            $
            –
            
            
            $
            200
            
            
            $
            250
            
            
            $
            –
            
            
            $
            –
            
            
            $
            –
            
            
            $
            450
            
            
            $
            6Average
      fixed rate
            
            
            –
            %
            
            
            6.13
            %
            
            
            7.13
            %
            
            
            –
            %
            
            
            –
            %
            
            
            –
            %
            
            
            6.68
            %Average
      floating rate
            
            
            –
            %
            
            
            5.47
            %
            
            
            7.86
            %
            
            
            –
            %
            
            
            –
            %
            
            
            –
            %
            
            
            6.80
            %Cash Flow
      HedgesTreasury
      locks
              (in
      millions)
            
            $
            175
            
            
            $
            –
            
            
            $
            –
            
            
            $
            –
            
            
            $
            –
            
            
            $
            –
            
            
            $
            175
            
            
            $
            (5
            )Average
      rate
            
            
            4.41
            %
            
            
            –
            %
            
            
            –
            %
            
            
            –
            %
            
            
            –
            %
            
            
            –
            %
            
            
            4.41
            %





BNSF’s
measurement of the fair value of interest rate derivatives is based on estimates
of the mid-market values for the transactions provided by the counterparties to
these agreements.




50
 Table of
Contents


Summarized
Comparative Prior Year Information




December 31,
      2006Maturity
      Date2007
            
            
            2008
            
            
            2009
            
            
            2010
            
            
            2011
            
            
            Thereafter
            
            
            Total
            
            
            Fair
    ValueFair Value
      HedgesFixed
      to variable swaps (in millions)
            
            $
            300
            
            
            $
            –
            
            
            $
            200
            
            
            $
            250
            
            
            $
            –
            
            
            $
            –
            
            
            $
            750
            
            
            $
            (6
            )Average
      fixed rate
            
            
            7.88
            %
            
            
            –
            %
            
            
            6.13
            %
            
            
            7.13
            %
            
            
            –
            %
            
            
            –
            %
            
            
            7.16
            %Average
      floating rate
            
            
            7.98
            %
            
            
            –
            %
            
            
            5.84
            %
            
            
            8.23
            %
            
            
            –
            %
            
            
            –
            %
            
            
            7.49
            %Cash Flow
      HedgesTreasury
      locks
              (in
      millions)
            
            $
            130
            
            
            $
            –
            
            
            $
            –
            
            
            $
            –
            
            
            $
            –
            
            
            $
            –
            
            
            $
            130
            
            
            $
            –Average
      rate
            
            
            4.69
            %
            
            
            –
            %
            
            
            –
            %
            
            
            –
            %
            
            
            –
            %
            
            
            –
            %
            
            
            4.69
            %




Fair
Value Interest Rate Hedges
 The Company enters into interest rate
swaps to convert fixed-rate long-term debt to floating-rate debt. These swaps
are accounted for as fair value hedges under SFAS No. 133. These fair value
hedges qualify for the short-cut method of recognition; therefore, no portion of
these swaps is treated as ineffective. As of each of the years ended December
31, 2007 and 2006, BNSFhadoutstandingseven and ten separate swaps,
respectively, with an aggregate notional amount of $450 million and
$750 million, respectively, in which it pays an average floating rate,
which fluctuates quarterly, based on London Interbank Offered Rate (LIBOR). The
average floating rate to be paid by BNSF as of December 31, 2007, was 6.80
percent, and the average fixed rate BNSF is to receive is 6.68
percent.


The amounts recorded in the Consolidated
Statements of Income, as an increase to or reduction of interest expense, for
interest rate fair value hedge transactions were as follows (in
millions):


Year ended December
      31,
            
            2007
            
            
            2006
            
            
            2005Hedge
      (loss) benefit
            
            $
            (3
            )
            
            $
            (1
            )
            
            $
            17Tax
      effect
            
            
            1
            
            
            
            –
            
            
            
            (6
            )Hedge (loss)
      benefit,
      net oftax
            
            $
            (2
            )
            
            $
            (1
            )
            
            $
            11





The
amounts recorded in the Consolidated Balance Sheets for interest rate fair value
hedge transactions, which represent the fair value of open hedges, with a
corresponding adjustment to debt or accrued interest, were as follows (in
millions):




December
    31,
              
              2007
              
              
              2006Long-term
      interest rate hedging asset
              
              $
              6
              
              
              $
              –Long-term
      interest rate hedging liability
              
              $
              –
              
              
              $
              (6
              )
  Cash
Flow Interest Rate Hedges
 In anticipation of a future debt
issuance, the Company entered into seven treasury locks in September, October
and November 2007, having an aggregate notional amount of$175million, and an average locked-in
rate of 4.41 percent, to fix a portion of the rate for a future 10-year
unsecured debt issuance. The treasury locks are expected to be unwound during
2008, and any gain or loss on the hedges will be amortized to interest expense
over the life of the issued debt. These transactions are accounted for as cash
flow hedges.


In anticipation of a future refinancing
of several leveraged leases, the Company had entered into six treasury locks
having an aggregate notional amount of $147 million to fix the interest
rate inherent in the operating lease payments. The treasury locks were
terminated in May 2007 in connection with the refinancing of the leveraged
leases, and the resulting $0.5 million gain on these hedges will be
amortized to equipment rents over the remaining life of the leases. These
transactions are also accounted for as cash flow hedges.
  In anticipation of future debt
issuances, the Company had entered into fourteen treasury locks having an
aggregate notional amount of $450 million to fix a portion of the rate for
a future 10-year unsecured debt issuance and a future 30-year unsecured debt
issuance. The treasury locks were terminated in April 2007 in connection with
the issuance of $650 million 10-year and $650 million 30-year
unsecured debt. Upon termination, BNSF received $6 million from the
counterparties, which will be amortized to interest expense over the life of the
issued debt. These transactions are also accounted for as cash flow
hedges.


51
 Table of
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The
amounts recorded in the Consolidated Balance Sheets for interest rate cash flow
hedge transactions, which represent the fair value of open and closed hedges,
were as follows (in millions):




December
    31,
              
              2007
              
              
              2006Interest
      rate hedging liability – open hedges
              
              $
              (5
              )
              
              $
              –Unrecognized
      gain
      on closed hedges
              
              
              19
              
              
              
              15Tax
      effect
              
              
              (5
              )
              
              
              (6
              )Unrecognized
      gain in AOCL, net of tax
              
              $
              9
              
              
              $
              9


4. Other Expense,
Net


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




Year ended December
      31,
              
              2007
              
              
              2006
              
              
              2005Accounts
      receivable sales fees
              
              $
              19
              
              
              $
              23
              
              
              $
              15Loss
      from participation in synthetic fuel partnership
              
              
              5
              
              
              
              9
              
              
              
              14Miscellaneous,
      net
              
              
              (6
              )
              
              
              8
              
              
              
              8Total
              
              $
              18
              
              
              $
              40
              
              
              $
              37
  The decrease in other expense, net was
predominantly due to lower accounts receivable sales fees, a decrease in losses
on BNSF Railway’s participation in a synthetic fuel partnership and an increase
in interest income.
  During the fourth quarter of 2004, BNSF
Railway indirectly purchased a 4.17 percent ownership of a synthetic fuel
partnership through a 50 percent interest in a limited liability company with an
unrelated entity. The synthetic fuel partnership generates Section 29 synthetic
fuel tax credits, which reduce the Company’s effective tax rate (see Note 5 to
the Consolidated Financial Statements for additional information). In 2007, 2006
and 2005, BNSF Railway received a tax benefit from its participation in the
partnership of approximately $7 million, $11 million and $16 million,
respectively, related to the fuel tax credits and the deduction of partnership
operating losses. In 2007, 2006 and 2005, the Company recorded approximately $5
million, $9 million and $14 million, respectively, of other expense,
net related to the Company’s share of the partnership’s losses under the equity
method of accounting. The partnership does not qualify for consolidation under
FIN 46R, as BNSF Railway is not the primary beneficiary of the partnership. The
partnership’s activities terminated on December 31, 2007; therefore, the Company
will not have any additional exposure to loss from the synthetic fuel
partnership.


5. Income Taxes


Income
tax expense was as follows (in millions):




Year
      ended December 31,
              
              2007
              
              
              2006
              a
              
              2005
              aCurrent:Federal
              
              $
              741
              
              
              $
              697
              
              
              $
              620State
              
              
              107
              
              
              
              94
              
              
              
              80Total
      current
              
              
              848
              
              
              
              791
              
              
              
              700Deferred:Federal
              
              
              245
              
              
              
              300
              
              
              
              185State
              
              
              35
              
              
              
              16
              
              
              
              34Total
      deferred
              
              
              280
              
              
              
              316
              
              
              
              219Total
              
              $
              1,128
              
              
              $
              1,107
              
              
              $
              919a 
      Prior year numbers have been adjusted for the retrospective adoption of
      FSP AUG AIR-1,
      Accounting for Planned Major Maintenance
      Activities.
                See Note 2 to the Consolidated Financial Statements for additional
      information.
  52
 Table of
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  Reconciliation
of the federal statutory income tax rate to the effective tax rate was as
follows:




Year ended December
      31,
              
              2007
              
              
              2006
              
              
              2005Federal
      statutory income tax rate
              
              
              35.0
              %
              
              
              35.0
              %
              
              
              35.0
              %State
      income taxes, net of federal tax benefit
              
              
              3.1
              
              
              
              2.6
              
              
              
              3.0Tax
      law change
              
              
              –
              
              
              
              (0.2
              )
              
              
              –Synthetic
      fuel credits
              
              
              (0.2
              )
              
              
              (0.3
              )
              
              
              (0.4
              )Other,
      net
              
              
              0.3
              
              
              
              (0.2
              )
              
              
              (0.1
              )Effective tax
    rate
              
              
              38.2
              %
              
              
              36.9
              %
              
              
              37.5
              %


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




December
    31,
              
              2007
              
              
              2006
              aDeferred
      tax liabilities:Depreciation
      and amortization
              
              $
              (8,977
              )
              
              $
              (8,738
              )Hedging
              
              
              (26
              )
              
              
              (15
              )Other
              
              
              (170
              )
              
              
              (208
              )Total deferred tax
      liabilities
              
              
              (9,173
              )
              
              
              (8,961
              )Deferred
      tax assets:Casualty
      and environmental
              
              
              348
              
              
              
              332Pension
      and retiree health and welfare benefits
              
              
              184
              
              
              
              247Compensation
      and benefits
              
              
              145
              
              
              
              158Employee
      separation costs
              
              
              35
              
              
              
              39Other
              
              
              267
              
              
              
              232Total deferred tax
      assets
              
              
              979
              
              
              
              1,008Net deferred tax
      liability
              
              $
              (8,194
              )
              
              $
              (7,953
              )Non-current
      deferred income tax liability
              
              $
              (8,484
              )
              
              $
              (8,298
              )Current
      portion of deferred income taxes
              
              
              290
              
              
              
              345Net deferred tax
      liability
              
              $
              (8,194
              )
              
              $
              (7,953
              )a 
      Prior year numbers have been adjusted for the retrospective adoption of
      FSP AUG AIR-1,
      Accounting for Planned Major Maintenance Activities.
                See Note 2 to the Consolidated Financial Statements for additional
      information.


All federal income tax returns of BNSF’s
predecessor companies, Burlington Northern Inc. and Santa Fe Pacific
Corporation, are closed through 1994 and the business combination date of
September 22, 1995, respectively. Internal Revenue Service (IRS) examination of
the years 1995 through 1999 for BNSF is completed, and the un-agreed issues are
pending before IRS Appeals. It is anticipated that a settlement with the IRS for
the years 1995 through 1999 may be reached within the next twelve months.
Examination of the years 2000 through 2002 and 2003 through 2005 for BNSF are
completed and protests of the un-agreed issues are pending before IRS Appeals.
BNSF is currently under examination for year 2006.




BNSF and its subsidiaries have various
state income tax returns in the process of examination, administrative appeal or
litigation. State income tax returns are generally subject to examination for a
period of three to five years after filing of the respective return. The state
impact of any federal changes remains subject to examination by various states
for a period of up to one year after formal notification to the
states.




Due to the capital-intensive nature of
BNSF’s business, a significant portion of the audit issues with the IRS and
other taxing authorities relate to whether expenditures are classified as
maintenance or capital and whether certain asset valuations are appropriate. A
provision for taxes resulting from ongoing and future federal and state audits
is based on an estimation of aggregate adjustments that may be required as a
result of the audits. The Company believes that adequate provision has been made
for any adjustment that might be assessed for open years through
2007.




53
 Table of
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Uncertain
Tax Positions
 The Company adopted
the provisions of FIN 48 on January 1, 2007. As a result of the implementation
of FIN 48, the Company recorded an $83 million increase in the liability
for unrecognized tax benefits, which is offset by a reduction of the deferred
tax liability of $70 million, resulting in a decrease to the January 1,
2007, retained earnings balance of $13 million. The amount of unrecognized
tax benefits at December 31, 2007 was $125 million,
of which $91 millionwould impact the
Company’s effective tax rate if recognized. A reconciliation of the beginning
and ending amount of unrecognized tax benefits is as follows (in
millions):
  Balance
      at January 1, 2007
              
              $
              87Additions
      for tax positions related to current year
              
              
              29Additions/reductions
      for tax positions taken in prior years
              
              
              12Reductions
      for tax positions as a result of:Settlements
              
              
              –Lapse
      of statute of limitations
              
              
              (3
              )Balance
      at December 31, 2007
              
              $
              125
  It is expected that
the amount of unrecognized tax benefits will change in the next twelve months;
however, BNSF does not expect the change to have a significant impact on the
results of operations or the financial position of the
Company.
  The Company
recognizes interest accrued related to unrecognized tax benefits in interest
expense and penalties in income tax expense in the Consolidated Statements of
Income, which is consistent with the recognition of these items in prior
reporting periods.The Company had
recorded a liability of approximately $41 million and $65 million for the
payment of interest and penalties for the years ending December 31, 2007, and
2006, respectively. For the year ended December 31, 2007, the Company recognizeda
reduction ofapproximately $7
million in interest and penalty expense. For the years ended December 31, 2006,
and 2005, the Company recognized approximately $5 million and $9 million in
interest and penalty expense, respectively.
  6. Accounts Receivable,
Net
 BNSF Railway
transfers a portion of its accounts receivable to Santa Fe Receivables
Corporation (SFRC), a special purpose subsidiary. SFRC transfers an undivided
interest in such receivables, with limited exceptions, to a master trust and
causes the trust to issue an undivided interest in the receivables to investors
(the A/R sales program). The undivided interests in the master trust may be in
the form of certificates or purchased
interests.
  BNSF Railway’s
total capacity to sell undivided interests to investors under the A/R sales
program was $700 million at December 31, 2007, which was comprised of two
$175 million, 364-day accounts receivable facilities and two $175 million,
3-year accounts receivable facilities. BNSF Railway amended the two 364-day
facilities in November 2007,reducing the
committed amounts to $175 million each andmodifying their
maturities to November 2008. The two 3-year facilities were entered into in
November 2007 concurrently with the amendment and extension of the two 364-day
facilities and will mature in November 2010. Outstanding undivided interests
held by investors under the A/R sales program were $300 million at December
31, 2007 and 2006, respectively, with $75 million
in each facility.These undivided
interests in receivables are excluded from accounts receivable by BNSF Railway
in connection with the sale of undivided interests under the A/R sales program.
These undivided interests were supported by $1,105 million and
$1,030 million of receivables transferred by SFRC to the master trust at
December 31, 2007 and 2006, respectively. When SFRC transfers these receivables
to the master trust, it retains an undivided interest in the receivables sold,
which is included in accounts receivable in the Company’s Consolidated Financial
Statements. The interest that continues to be held by SFRC of $805 million
and $730 million at December 31, 2007 and 2006, respectively, less an
allowance for uncollectible accounts, reflected the total accounts receivable
transferred by SFRC to the master trust less $300 million atbothDecember 31, 2007
and2006, of
outstanding undivided interests held by investors. Due to a relatively short
collection cycle, the fair value of the undivided interest transferred to
investors in the A/R sales program approximated book value, and there was no
gain or loss from the transaction.
  BNSF Railway
retains the collection responsibility with respect to the accounts receivable.
Proceeds from collections reinvested in the A/R sales program were approximately$16.8 billion,
$15.8 billion and $13.6 billion in 2007, 2006 and 2005, respectively.
No servicing asset or liability has been recorded because the fees BNSF Railway
receives for servicing the receivables approximate the related costs. SFRC’s
costs of the sale of receivables are included in other expense, net and were
$19 million, $23 million and $15 million for the years ended
December 31, 2007, 2006 and 2005, respectively. These costs fluctuate monthly
with changes in prevailing interest rates and were based on weighted average
interest rates of 5.6 percent, 5.3 percent and 3.3 percent for the yearsended
December 31, 2007, 2006 and 2005, 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.


54
 Table of
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The amount of accounts receivable
transferred by BNSF Railway to SFRC fluctuates based upon the availability of
receivables and is directly affected by changing business volumes and credit
risks, including dilution and delinquencies. In order for there to be an impact
on the amount of receivables BNSF Railway could sell, the combined dilution and
delinquency percentages would have to exceed an established threshold for the
combined dilution and delinquency percentages. BNSF Railway has historically
experienced very low levels of default or dilution and was well below the
established rate at December 31, 2007. Based on the current levels, if dilution
or delinquency percentages were to increase by one percentage point, there would
be no impact to the amount of receivables BNSF Railway could
sell.
  Receivables funded under the A/R sales
program may not include amounts over 90 days past due or concentrations over
certain limits with any one customer and certain other receivables. At December
31, 2007 and 2006, $11 million and $26 million, respectively, of
accounts receivable were greater than 90 days old.
  BNSF Railway maintains an allowance for
bill adjustments and uncollectible accounts based upon the expected
collectibility of accounts receivable, including receivables transferred to the
master trust. Credit losses are based on specific identification of
uncollectible accounts and application of historical collection percentages by
aging category. At both December 31, 2007 and2006, $36 million of such allowances
had been recorded, of which $34 million had been recorded as a reduction to
accounts receivable, net. Theremaining $2 million at December
31, 2007 and 2006, respectively, had been recorded in accounts payable and other
current liabilities because they relate to the outstanding undivided interests
held by investors. During the years ended December 31, 2007 and 2006,
$4 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, 2007, BNSF Railway was in compliance with
these provisions.
  7. Property and Equipment,
Net
 Property and equipment, net (in
millions), and the weighted average annual depreciation rates (%) were as
follows:
  December
31,
              
              2007
              
              2006
              a
              2007
      Depreciation
                RatesLand
              
              $
              1,718
              
              $
              1,693
              
              
              –
              %Track
    structure
              
              
              18,037
              
              
              17,101
              
              
              3.2
              %Other
    roadway
              
              
              12,370
              
              
              11,608
              
              
              2.4
              %Locomotives
              
              
              4,003
              
              
              3,705
              
              
              6.4
              %Freight cars and other
      equipment
              
              
              2,034
              
              
              1,939
              
              
              5.2
              %Computer hardware and
      software
              
              
              582
              
              
              492
              
              
              14.0
              %Total cost
              
              
              38,744
              
              
              36,538Less accumulated depreciation and
      amortization
              
              
              (9,177
              )
              
              (8,617
              )Property and equipment,
      net
              
              $
              29,567
              
              $
              27,921a 
      Prior
      year numbers have been adjusted for the retrospective adoption of FSP AUG
      AIR-1,Accounting
      for Planned Major Maintenance Activities.See
      Note 2 to the Consolidated Financial Statements for additional
      information.
  The Consolidated Balance Sheets at
December 31, 2007 and 2006,included $1,507 million, net of
$469 million of amortization and $1,039 million, net of
$409 million of amortization, respectively, for property and equipment
under capital leases, primarily for locomotives.
  The Company capitalized
$17 million, $14 million and $13 million of interest for the
years ended December 31, 2007, 2006 and 2005, respectively.


55
 Table of
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8. Accounts Payable and Other Current
Liabilities
 Accounts payable
and other current liabilities consisted of the following (in
millions):
  December
31,
              
              2007
              
              2006Compensation and benefits
      payable
              
              $
              568
              
              $
              699Rents and
      leases
              
              
              303
              
              
              350Accounts
      payable
              
              
              296
              
              
              282Casualty and environmental
      liabilities
              
              
              246
              
              
              233Customer
      incentives
              
              
              145
              
              
              163Property tax
      liabilities
              
              
              141
              
              
              132Accrued
      interest
              
              
              138
              
              
              127Dividends
      payable
              
              
              112
              
              
              90Income tax
      liabilities
              
              
              82
              
              
              68Other
              
              
              793
              
              
              709Total
              
              $
              2,824
              
              $
              2,853
  9. Debt
 Debt outstanding was as follows (in
millions):
  December
      31,
              
              2007a
              
              
              2006aNotes and debentures, due 2008 to
      2097
              $
              6,376
              
              6.6
              %
              $
              5,364
              
              6.8
              %Equipment obligations, due 2008 to
      2016
              
              297
              
              6.6
              
              
              347
              
              6.7Capitalized lease obligations, due
      2008 to 2027
              
              938
              
              6.3
              
              
              609
              
              6.9Mortgage bonds, due 2008 to
      2047
              
              102
              
              5.6
              
              
              106
              
              5.7Financing obligations, due
      2008to 2028
              
              211
              
              6.3
              
              
              153
              
              6.3Commercial
      paper
              
              261
              
              5.5
              
              
              846
              
              5.4Unamortized discount and other,
      net
              
              (39
              )
              
              
              
              (40
              )Total
              
              8,146
              
              
              
              
              7,385Less current portion of long-term
      debt
              
              (411
              )
              7.2
              %
              
              (473
              )
              7.7
              %Long-term
      debt
              $
              7,735
              
              
              
              $
              6,912a 
      Amounts represent debt
      outstanding and weighted average interest ratesfor
      2007 and 2006, respectively. 
      Maturities
      are as of December 31,
2007.
  Notes and
debentures include a fair value adjustment increase for hedges of
$6 million and a decrease of$6 million at
December 31, 2007 and 2006, respectively.
  As of December 31,
2007, certain BNSF Railway properties and other assets were subject to liens
securing $102million of
mortgage debt. Certain locomotives and rolling stock of BNSF Railway were
subject to equipment obligations and capital
leases.
  The following table
provides 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 rate for commercial paper is the current rate at December 31, 2007. The
remainingweighted average
variable rates are based on implied forward rates in the yield curve at December
31, 2007.




December 31,
      2007Maturity
      Date2008
              
              2009
              
              2010
              
              2011
              
              2012
              
              Thereafter
              
              Total  Including
      Capital Leases
              
              Total Excluding Capital
      Leases
              
              Fair Value Excluding Capital
      LeasesFixed-rate
      debt
                (in
      millions)
              
              $
              411
              
              $
              188
              
              $
              206
              
              $
              515
              
              $
              393
              
              $
              5,716
              
              $
              7,429
              
              $
              6,491
              
              $
              6,752Average
      interest rate
              
              
              7.2
              %
              
              6.9
              %
              
              6.8
              %
              
              6.7
              %
              
              6.0
              %
              
              6.5
              %
              
              6.5
              %Variable-rate
      debt
                (in
      millions)
              
              $
              –
              
              $
              204
              
              $
              252
              
              $
              –
              
              $
              261
              
              $
              –
              
              $
              717
              
              $
              717
              
              $
              723Average
      interest rate
              
              
              –
              %
              
              4.4
              %
              
              6.7
              %
              
              –
              %
              
              5.5
              %
              
              –
              %
              
              5.6
              %




BNSF has included maturities of
$261million of commercial paper in the
2012 column above.




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The fair value of BNSF’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 for debt of the same remaining
maturities. Capital leases have been excluded from the calculation of fair value
for both 2007 and 2006. The carrying amount of commercial paper and bank debt
approximates fair value, and the average interest rate equals the current rate
because of the short maturity of these instruments.
  Notes and
Debentures
  2007
 In February 2007, the Board of Directors
(the Board) authorized an additional $1.4 billion of debt securities that
may be issued pursuant to a debt shelf registration statement that has been
filed with the Securities and Exchange Commission, for a total of
$2.1 billion of debt securities authorized to be
issued.
  In April 2007, BNSF issued
$650 million of 5.65 percent debentures and $650 million of 6.15
percent debentures due May 1, 2017 and May 1, 2037, respectively. The net
proceeds from the sale of the debentures are being used for general corporate
purposes including, but not limited to, working capital, capital expenditures,
funding debt which matured in 2007, the repayment of commercial paper and the
repurchase of common stock. The issuance of these debentures reduced the amount
of debt authorized to be issued by the Board through its registration statement
to $800 million.
  2006
 In August 2006, BNSF issued
$300 million of 6.20 percent debentures due August 15, 2036. The net
proceeds from the sale of the debentures are being used for general corporate
purposes including but not limited to working capital, capital expenditures and
the repayment of outstanding commercial paper.
  2005
 In December 2005, BNSF issued
$500 million of 6.613 percent junior subordinated notes due December 31,
2055. The junior subordinated notes are callable on or after January 15, 2026,
at par plus accrued and unpaid interest. On January 15, 2026, if the junior
subordinated notes are not called, the interest rate will change to an annual
rate equal to the 3-month LIBOR plus 2.35 percent, reset quarterly. Interest
payments may be deferred, at the option of the Company, on a cumulative basis
for a period of up to five consecutive years; however, during this time the
Company would not be permitted to declare or pay dividends on its common stock.
In the event that certain financial covenants are not maintained, the Company
would be required to sell common stock, the proceeds of which would be used to
pay any accrued and unpaid interest. At December 31, 2007, the Company was in
compliance with these covenants. Because of this structure, certain rating
agencies provide a considerable degree of equity treatment for purposes of
calculating various ratios and metrics. The majority of the net proceeds of the
debt issuance was used to repurchase common stock, with the remainder used for
general corporate purposes.
  Capital Leases
 In 2007, BNSF entered into several
capital leases totaling approximately $325 million to finance locomotives and
freight cars. The terms of the leases are between 15 and 20
years.
  Financing Obligation
 In 2005, the Company commenced the
construction of an intermodal facility that it intends to sell to a third party
and subsequently lease back. Once construction of the facility is complete and
all improvements have been sold to the third party, BNSF will lease the facility
from the third party for 20 years. Construction is expected to be completed by
early 2009with an
approximate cost of $160million. As of December 31, 2007, BNSF has sold
$41 million of completed improvements. This sale leaseback transaction is being
accounted for as a financing obligation due to continuing involvement.  The
outflows from the construction of the facility are classified as investing
activities, and the inflows from the associated financing proceeds are
classified as financing activities in the Company's Consolidated Statements of
Cash Flows.
  Revolving
Credit Facility and Commercial Paper
 In the fourth quarter, the Company
extended the expiration date of its $1.2 billion long-term bank credit
facility to September 2012. Annual facility fees are currently 0.08 percent for
the facility. The rate is subject to change based upon changes in BNSF’s senior
unsecured debt ratings. Borrowing rates are based upon: (i) LIBOR plus a spread
determined by BNSF’s senior unsecured debt ratings, (ii) money market rates
offered at the option of the lenders, or (iii) an alternate base rate. BNSF must
maintain compliance with certain financial covenants under its revolving credit
agreement. At December 31, 2007, the Company was in compliance with these
covenants.
  At December 31, 2007, there were no bank
borrowings against the revolving credit agreement.


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BNSF issues commercial paper from time
to time that is supported by the bank revolving credit agreement. Outstanding
commercial paper balances reduce the amount of borrowings available under this
agreement.


The maturity value of commercial paper
as of December 31, 2007, of $391 million reduced the total capacity available
under the revolving credit agreements to $809 million. Commercial paper
outstanding included $129 million issued to a consolidated subsidiary of BNSF
that was eliminated upon consolidation. Consolidated commercial paper
outstanding, which had a maturity value of $262 million, was classified as
long-term debt in the Company’s Consolidated Balance
Sheet.


Guarantees
 Debt and other obligations of
non-consolidated entities guaranteed by the Company as of December 31, 2007,
were as follows (dollars in millions):
  Guarantees
              
              Capitalized
      ObligationsBNSF Ownership
      Percentage
              
              
              Principal
                Amount
                Guaranteed
              
              
              Maximum
                Future
    Payments
              
              
              Maximum
                Recourse
                Amount
              a
              Remaining Term
                (in years)Kinder Morgan Energy Partners,
      L.P.
              
              
              0.5
              %
              
              $
              190
              
              
              $
              190
              
              
              $
              –
              
              Termination of
      Ownership
              
              $
              –Kansas City Terminal Intermodal
      Transportation Corporation
              
              
              0.0
              %
              
              $
              56
              
              
              $
              81
              
              
              $
              81
              
              
              11
              
              $
              31
              bWestside Intermodal Transportation
      Corporation
              
              
              0.0
              %
              
              $
              40
              
              
              $
              61
              
              
              $
              –
              
              
              16
              
              $
              34
              bThe Unified Government of
      Wyandotte County/Kansas City, Kansas
              
              
              0.0
              %
              
              $
              13
              
              
              $
              19
              
              
              $
              –
              
              
              16
              
              $
              10
              bChevron Phillips Chemical Company,
      LP
              
              
              0.0
              %
              
              
              N/A
              d
              
              
              N/A
              d
              
              
              N/A
              d
              
              10
              
              $
              14
              cVarious lessors(Residual value
      guarantees)
              
              
              0.0
              %
              
              
              N/A
              
              
              $
              271
              
              
              $
              271
              
              
              Various
              
              $
              68
              cAll other
              
              
              0.0
              %
              
              $
              6
              
              
              $
              7
              
              
              $
              3
              
              
              Various
              
              $
              –a 
      Reflects
      the maximum amount the Company could recover from a third party other than
      the counterparty.
                
                b 
      Reflects
      capitalized obligations that are recorded on the Company’s Consolidated
      Balance Sheets.
                
                c Reflects
      the FIN 45,Guarantor’s
      Accounting and Disclosure Requirements for Guarantees,
      asset and corresponding liability for the fair value of these
      guarantees.
                
                d 
      There
      is no cap to the liability that can be sought from BNSF for BNSF’s
      negligence or the negligence of the indemnified party. However, BNSF could
      receive reimbursement from certain insurance policies if the liability
      exceeds a certain amount.
  Kinder Morgan Energy Partners,
L.P.


Santa Fe Pacific Pipelines, Inc., an
indirect, wholly-owned subsidiary of BNSF Railway, has a guarantee in connection
with its remaining special limited partnership interest in Santa Fe Pacific
Pipelines Partners, L.P. (SFPP), a subsidiary of Kinder Morgan Energy Partners,
L.P., to be paid only upon default by the partnership. All obligations with
respect to the guarantee will cease upon termination of ownership rights, which
would occur upon a put notice issued by BNSF or the exercise of the call rights
by the general partners of SFPP.
  Kansas City Terminal Intermodal
Transportation Corporation
 BNSF Railway and another major railroad
jointly and severally guarantee$56 million of debt of Kansas City
Terminal Intermodal Transportation Corporation, the proceeds of which were used
to finance construction of a double track grade separation bridge in Kansas
City, Missouri, which is operated and used by Kansas City Terminal Railway
Company (KCTRC). BNSF Railway has a 25 percent ownership in KCTRC, accounts for
its interest using the equity method of accounting and would be required to fund
a portion of the remaining obligation upon default by the original
debtor.
  Westside Intermodal Transportation
Corporation and The Unified Government of Wyandotte County/Kansas City,
Kansas
 BNSF Railway has outstanding guarantees
of $53 million of debt, the proceeds of whichwere used to finance construction of a
bridge that connects BNSF Railway’s Argentine Yard in Kansas City, Kansas, with
the KCTRC mainline tracks in Kansas City, Missouri. The bridge is operated by
KCTRC, and payments related to BNSF Railway’s guarantee of this obligation would
only be called for upon default by the original debtor.
 58
 Table of
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  Chevron Phillips Chemical Company,
LP
 In the third quarter of 2007, BNSF
Railway entered into an indemnity agreement with Chevron Phillips Chemical
Company, LP (Chevron Phillips), granting certain rights of indemnity from BNSF
Railway, in order to facilitate access to a new storage facility. Under certain
circumstances, payment under this obligation may be required in the event
Chevron Phillips were to incur certain liabilities or other incremental costs
resulting from trackage access.


Residual Value Guarantees
(RVG)
 In the normal
course of business, the Company enters into leases in which it guarantees the
residual value of certain leased equipment. Some of these leases have renewal or
purchase options, or both, that the Company may exercise at the end of the lease
term. If the Company elects not to exercise these options, it may be required to
pay the lessor an amount not exceeding the RVG. The amount of any payment is
contingent upon the actual residual value of the leased equipment. Some of these
leases also require the lessor to pay the Company any surplus if the actual
residual value of the leased equipment is over the RVG. These guarantees will
expire between2008 and
2011.
  The maximum future
payments, as disclosed in the Guarantees table above, represent the undiscounted
maximum amount that the Company could be required to pay in the event the
Company did not exercise its renewal option and the fair market value of the
equipment had significantly declined. BNSF does not anticipate such a large
reduction in the fair market value of the leased equipment. As of December 31,
2007, the Company had recorded a $68million asset
and corresponding liability for the fair value of the RVG.
  All Other
 As of December 31,
2007, BNSF guaranteed$6 million of
other debt and leases. BNSF holds a performance bond and has the option to
sub-lease property to recover up to $3 million of the $6 million of
guarantees. These guarantees expire between 2008 and
2013.
  Other than as
discussed above, there is no collateral held by a third party that the Company
could obtain and liquidate to recover any amounts paid under the above
guarantees.
  Other than as
discussed above, none of the guarantees are recorded in the Consolidated
Financial Statements of the Company. The Company does not expect performance
under these guarantees to have a material effect on the Company in the
foreseeable future.
  Indemnities
 In the ordinary
course of business, BNSF enters into agreements with third parties that include
indemnification clauses. In general, these clauses are customary for the types
of agreements in which they are included. At times, these clauses may involve
indemnification for the acts of the Company, its employees and agents,
indemnification for another party’s acts, indemnification for future events,
indemnification based upon a certain standard of performance, indemnification
for liabilities arising out of the Company’s use of leased equipment or other
property, or other types of indemnification. Due to the uncertainty of whether
events which would trigger the indemnification obligations would ever occur, the
Company does not believe that these indemnity agreements will have a material
adverse effect on the Company’s results of operations, financial position or
liquidity. Additionally, the Company believes that, due to lack of historical
payment experience, the fair value of indemnities cannot be estimated with any
amount of certainty and that the fair value of any such amount would be
immaterial to the Consolidated Financial Statements. Agreements that contain
unique circumstances, particularly agreements that contain guarantees that
indemnify another party’s acts are disclosed separately if appropriate. Unless
separately disclosed above, no fair value liability related to indemnities has
been recorded in the Consolidated Financial
Statements.


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10. Commitments and
Contingencies
  Lease
Commitments
 BNSF has
substantial lease commitments for locomotives, freight cars, trailers and
containers, office buildings, operating facilities 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 as of December 31, 2007, are summarized
as follows (in millions):
  December
      31,
              
              Capital
    Leases
              
              
              Operating
      Leases
              a2008
              
              $
              204
              
              
              $
              6992009
              
              
              175
              
              
              
              6812010
              
              
              138
              
              
              
              6292011
              
              
              96
              
              
              
              5822012
              
              
              78
              
              
              
              525Thereafter
              
              
              518
              
              
              
              4,382Total
              
              
              1,209
              
              
              $
              7,498Less amount representing
      interest
              
              
              (271
              )Present value of
      minimum lease payments
              
              $
              938a 
      Excludes leases having non-cancelable lease terms of less than one year
      and per diem leases.
  Lease rental
expense for all operating leases, excluding per diem leases, was
$706 million, $665 million and $565 million for the years ended
December 31, 2007, 2006 and 2005, respectively. When rental payments are not
made on a straight-line basis, the Company recognizes rental expense on a
straight-line basis over the lease term. 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.
  Personal
Injury and Environmental Costs
  Personal
Injury
 Personal injury
claims, including asbestos claims and employee work-related injuries and
third-party injuries (collectively, other personal injury), are a significant
expense for the railroad industry. Personal injury claims by BNSF Railway
employees are subject to the provisions of the Federal Employers’ Liability Act
(FELA) rather than state workers’ compensation laws. FELA’s system of requiring
the finding of fault, coupled with unscheduled awards and reliance on the jury
system, contributed to increased expenses in past years. Other proceedings
include claims by non-employees for punitive as well as compensatory damages. A
few proceedings purport to be class actions. The variability present in settling
these claims, including non-employee personal injury and matters in which
punitive damages are alleged, could result in increased expenses in future
years. BNSF has implemented a number of safety programs designed to reduce the
number of personal injuries as well as the associated claims and personal injury
expense.
  BNSF records a
liability for personal injury claims when the expected loss is both probable and
reasonably estimable. The liability and ultimate expense projections are
estimated using standard actuarial methodologies. Liabilities recorded for
unasserted personal injury claims are based on information currently available.
Due to the inherent uncertainty involved in projecting future events such as the
number of claims filed each year, developments in judicial and legislative
standards and the average costs to settle projected claims, actual costs may
differ from amounts recorded. Expense accruals and any required adjustments are
classified as materials and other in the Consolidated Statements of
Income.
  Asbestos
 The Company is
party to a number of personal injury claims by employees and non-employees who
may have been exposed to asbestos. The heaviest exposure for BNSF employees was
due to work conducted in and around the use of steam locomotive engines that
were phased out between the years of 1950 and 1967. However, other types of
exposures, including exposure from locomotive component parts and building
materials, continued after 1967 until they were substantially eliminated at BNSF
by 1985.


60
 Table of
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BNSF
assesses its unasserted liability exposure on an annual basis during the third
quarter. BNSF determines its asbestos liability by estimating its exposed
population, the number of claims likely to be filed, the number of claims that
will likely require payment, and the estimated cost per claim. Estimated filing
and dismissal rates and average cost per claim are determined utilizing recent
claim data and trends.
  During
the third quarters of 2007, 2006 and 2005, the Company analyzed recent filing
and payment trends to ensure the assumptions used by BNSF to estimate its future
asbestos liability were reasonable. In 2007, management recorded a decrease in
expense of $17 million due to a statistically significant reduction in
filing rate experience for non-malignant claims. In 2006 and 2005, management
recorded no additional expense. The Company plans to update its study again in
the third quarter of 2008.
  Throughout
the year, BNSF monitors actual experience against the number of forecasted
claims and expected claim payments and will record adjustments to the Company’s
estimates as necessary.
  The
following table summarizes the activity in the Company’s accrued obligations for
both asserted and unasserted asbestos matters (in
millions):
  2007
              
              
              2006
              
              
              2005Beginning
      balance
              
              $
              306
              
              
              $
              326
              
              
              $
              345Accruals
              
              
              (17
              )
              
              
              –
              
              
              
              –Payments
              
              
              (19
              )
              
              
              (20
              )
              
              
              (19
              )Ending balance at December
      31,
              
              $
              270
              
              
              $
              306
              
              
              $
              326
  Of
the obligation at December 31, 2007, $226 million was related to unasserted
claims while $44 million was related to asserted claims. At December 31, 2007
and 2006, $17millionand
$22 million were included in current liabilities, respectively.The
recorded liability was not discounted. In addition, defense and processing
costs, which are recorded on an as-reported basis, were not included in the
recorded liability. The Company is presently self-insured for asbestos-related
claims.
  The
following table summarizes information regarding the number of asserted asbestos
claims filed against BNSF:
  2007
              
              2006Claims unresolved at January
      1,
              
              
              1,975
              
              
              2,121Claims
filed
              
              
              376
              
              
              530Claims settled, dismissed or
      otherwise resolved
              
              
              (570
              )
              
              (676
              )Claims unresolved at December
      31,
              
              
              1,781
              
              
              1,975
  Based
on BNSF’s estimate of the potentially exposed employees and related mortality
assumptions, it is anticipated that unasserted claims will continue to be filed
through the year 2050. The Company recorded an amount for the full estimated
filing period through 2050 because it had a relatively finite exposed population
(former and current employees hired prior to 1985), which it was able to
identify and reasonably estimate and about which it had obtained reliable
demographic data (including age, hire date and occupation) derived from industry
or BNSF specific data that was the basis for the study. BNSF projects that
approximately 55,
70 and 90 percent of the future unasserted asbestos claims will be filed within
the next 10, 15 and 25 years, respectively.
  Because
of the uncertainty surrounding the factors used in the study, it is reasonably
possible that future costs to settle asbestos claims may range from
approximately $245 million to $295 million. However, BNSF believes
that the $270 million recorded atDecember
31, 2007, is the best estimate of the Company’s future obligation for the
settlement of asbestos claims.
  The
amounts recorded by BNSF for the asbestos-related liability were based upon
currently known facts. Future events, such as the number of new claims to be
filed each year, the average cost of disposing of claims, as well as the
numerous uncertainties surrounding asbestos litigation in the United States,
could cause the actual costs to be higher or lower than
projected.
  While
the final outcome of asbestos-related matters cannot be predicted with
certainty, considering among other things the meritorious legal defenses
available and liabilities that have been recorded, it is the opinion of BNSF
that none of these items, when finally resolved, will have a material adverse
effect on the Company’s financial position or liquidity. However, the occurrence
of a number of these items in the same period could have a material adverse
effect on the results of operations in a particular quarter or fiscal
year.


61
 Table of
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Other Personal
Injury
 BNSF
estimates its other personal injury liability claims and expense quarterly based
on the covered population, activity levels and trends in frequency and the costs
of covered injuries. Estimates include unasserted claims except for certain
repetitive stress and other occupational trauma claims that result from
prolonged repeated events or exposure. Such claims are estimated on an
as-reported basis because, while the Company has concluded that a probable loss
has occurred, it cannot estimate the range of reasonably possible loss due to
other contributing causes of such injuries and the fact that continued exposure
is required for the potential injury to manifest itself as a claim. The Company
believes that the low end of the range of reasonably possible loss, as that term
is used in FIN 14,Reasonable
Estimation of the Amount of a Loss,
is immaterial for these repetitive stress and other occupational trauma
claims.
  BNSF
monitors quarterly actual experience against the number of forecasted claims to
be received, the forecasted number of claims closing with payment and expected
claims payments. Adjustments to the Company’s estimates are recorded quarterly
as necessary or more frequently as new events or revised estimates
develop.
  The
following table summarizes the activity in the Company’s accruedobligations
for other personal injury matters (in
millions):
  2007
              
              
              2006
              
              
              2005Beginning
      balance
              
              $
              439
              
              
              $
              422
              
              
              $
              459Accruals
              
              
              190
              
              
              
              188
              
              
              
              181Payments
              
              
              (190
              )
              
              
              (171
              )
              
              
              (218
              )Ending balance at December
      31,
              
              $
              439
              
              
              $
              439
              
              
              $
              422
  At
December 31, 2007 and 2006, $163 million and $153 million were included in
current liabilities, respectively.
BNSF’s liabilities for other personal injury claims are undiscounted. In
addition, defense and processing costs, which are recorded on an as-reported
basis, were not included in the recorded liability. The Company is substantially
self-insured for other personal injury
claims.
  The following table summarizes
information regarding the number of personal injury claims, other than asbestos,
filed against BNSF:
  2007
              
              2006Claims unresolved at January
      1,
              
              
              3,130
              
              
              3,617Claims
filed
              
              
              3,894
              
              
              3,516Claims settled, dismissed or
      otherwise resolved
              
              
              (3,702
              )
              
              (4,003
              )Claims unresolved at December
      31,
              
              
              3,322
              
              
              3,130
  Because of the uncertainty surrounding
the ultimate outcome of other personal injury claims, it is reasonably possible
that future costs to settle other personal injury claims may range from
approximately $380 million to $530 million. However, BNSF believes
that the $439 million recorded at December 31, 2007, is the best estimate of the
Company’s future obligation for the settlement of other personal injuryclaims.
  The amounts recorded by BNSF for other
personal injury claims were based upon currently known facts. Future events,
such as the number of new claims to be filed each year, the average cost of
disposing of claims, as well as the numerous uncertainties surrounding personal
injury litigation in the United States, could cause the actual costs to be
higher or lower than projected.
  While the final outcome of these other
personal injury matters cannot be predicted with certainty, considering among
other things the meritorious legal defenses available and liabilities that have
been recorded, it is the opinion of BNSF that none of these items, when finally
resolved, will have a material adverse effect on the Company’s financial
position or liquidity. However, the occurrence of a number of these items in the
same period could have a material adverse effect on the results of operations in
a particular quarter or fiscal year.


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BNSF Insurance
Company
 The Company has a consolidated,
wholly-owned subsidiary, Burlington Northern Santa Fe Insurance Company, Ltd.
(BNSF IC) that provides insurance coverage for certain risks incurred after
April 1, 1998, FELA claims, railroad protective and force account insurance
claims and certain excess general liability coverage incurred after January 1,
2002, and certain other claims which are subject to reinsurance. Beginning in
2004, BNSF IC entered into annual reinsurance pooling agreements with several
other companies. The pooling agreements insure workers compensation, general
liability, auto liability and FELA risk. In accordance with the agreements, BNSF
IC cedes a portion of its FELA exposure to the pool and assumes a proportionate
share of the entire pool’s risk. Each year BNSF IC reviews the objectives and
performance of the pool to determine its continued participation in the pool. At
December 31, 2007, BNSF IC had invested in third-party commercial paper, time
deposits and money market accounts as well as in commercial paper issued by
BNSF. All of the third-party investments are classified as cash and cash
equivalents on the Company’s Consolidated Balance Sheet. At December 31, 2007,
there was approximately $300 million related to these third-party investments,
which were classified as cash and cash equivalents on the Company’s Consolidated
Balance Sheet, as compared with approximately $350 million at December 31,
2006.
  Environmental
 The Company’s operations, as well as
those of its competitors, are subject to extensive federal, state and local
environmental regulation. BNSF’s operating procedures include practices to
protect the environment from the risks inherent in railroad operations, which
frequently involve transporting chemicals and other hazardous materials.
Additionally, many of BNSF’s land holdings are and have been used for industrial
or transportation-related purposes or leased to commercial or industrial
companies whose activities may have resulted in discharges onto the property. As
a result, BNSF is subject to environmental 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 has been notified
that it is a potentially responsible party (PRP) for study and cleanup costs at
Superfund sites for which investigation and remediation payments are or will be
made or are yet to be determined (the Superfund sites) and, in many instances,
is one of several PRPs. In addition, BNSF may be considered a PRP under certain
other laws. Accordingly, under CERCLA and other federal and state statutes, BNSF
may be held jointly and severally liable for all environmental costs associated
with a particular site. If there are other PRPs, BNSF generally participates in
the cleanup of these sites through cost-sharing agreements with terms that vary
from site to site. Costs are typically allocated based on such factors as
relative volumetric contribution of material, the amount of time the site was
owned or operated and/or the portion of the total site owned or operated by each
PRP.
  Liabilities for environmental cleanup
costs are recorded when BNSF’s liability for environmental cleanup is probable
and reasonably estimable. Subsequent adjustments to initial estimates are
recorded as necessary based upon additional information developed in subsequent
periods. Environmental costs include initial site surveys and environmental
studies as well as costs for remediation of sites determined to be
contaminated.


BNSF estimates the ultimate cost of
cleanup efforts at its known environmental sites on an annual basis during the
third quarter. Ultimate cost estimates for environmental sites are based on
historical payment patterns, current estimated percentage to closure ratios and
benchmark patterns developed from data accumulated from industry and public
sources, including the Environmental Protection Agency and other governmental
agencies. These factors incorporate experience gained from cleanup efforts at
other similar sites into the estimates for which remediation and restoration
efforts are still in progress.
  During the third quarter of 2007, 2006
and 2005, the Company analyzed recent data and trends to ensure the assumptions
used by BNSF to estimate its future environmental liability were reasonable. As
a result of this study, in the third quarter of 2007, 2006 and 2005, management
recorded additional expense of approximately $20 million, $5 million
and $12 million as of the June 30 measurement date, respectively. The
Company plans to update its study again in the third quarter of
2008.
  On a quarterly basis, BNSF monitors
actual experience against the forecasted remediation and related payments made
on existing sites and conducts ongoing environmental contingency analyses, which
consider a combination of factors including independent consulting reports, site
visits, legal reviews and analysis of the likelihood of participation in, and
the ability to pay for, cleanup of other PRPs. Adjustments to the Company’s
estimates will continue to be recorded as necessary based on developments in
subsequent periods. Additionally, environmental accruals, which are classified
as materials and other in the Consolidated Statements of Income, include amounts
for newly identified sites or contaminants, third-party claims and legal fees
incurred for defense of third-party claims and recovery
efforts.


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Annual studies do not include (i)
contaminated sites of which the Company is not aware, (ii) additional amounts
for third-party claims, which arise out of contaminants allegedly migrating from
BNSF property, due to a limited number of sites, or (iii) natural resource
damage claims. BNSF continues to estimate third-party claims on a site by site
basis when the liability for such claims is probable and reasonably estimable.
BNSF’s recorded liability for third-party claims as of December 31, 2007, is
approximately $21 million.
  BNSF is involved in a number of
administrative and judicial proceedings and other mandatory cleanup effortsfor 346sites, including Superfund sites, at
which it is participating in the study or cleanup, or both, of alleged
environmental contamination.
  The following table summarizes the
activity in the Company’s accrued obligations for environmental matters (in
millions):
  2007
              
              
              2006
              
              
              2005Beginning
      balance
              
              $
              318
              
              
              $
              370
              
              
              $
              385Accruals
              
              
              126
              
              
              
              20
              
              
              
              33Payments
              
              
              (64
              )
              
              
              (72
              )
              
              
              (48
              )Ending balance at December
      31,
              
              $
              380
              
              
              $
              318
              
              
              $
              370
  At December 31, 2007 and 2006, $66
million and $58 million was included in current liabilities, respectively.
In the first quarter of 2007, the Company recorded a $65 million pre-tax
charge, or $0.11 per share, due to an increase in environmental costs primarily
related to a final resolution with the State of Washington and its Department of
Ecology on clean-up of an existing environmental site at Skykomish and an
adverse reversal of a trial court decision on appeal regarding a site at Arvin,
California.
  BNSF’s environmental liabilities are not
discounted. BNSF anticipates that the majority of the accrued costs at December
31, 2007, will be paid over the next ten years, and no individual site is
considered to be material.
  The following table summarizes the
environmental sites:
  BNSF Sites
              
              Superfund
    Sites2007
              
              
              2006
              
              2007
              
              2006Number of sites at January
      1,
              
              
              375
              
              
              369
              
              
              20
              
              
              20Sites added during the
      period
              
              
              16
              
              
              23
              
              
              –
              
              
              –Sites closed during the
      period
              
              
              (45
              )
              
              (17
              )
              
              –
              
              
              –Number of sites at December
      31,
              
              
              346
              
              
              375
              
              
              20
              
              
              20
  Liabilities recorded for environmental
costs represent BNSF’s best estimate of its probable future obligation for the
remediation and settlement of these sites and include both asserted and
unasserted claims. Unasserted claims are not a material component of the
liability. Although recorded liabilities include BNSF’s best estimate of all
probable costs, without reduction for anticipated recoveries from third parties,
BNSF’s total cleanup costs at these sites cannot be predicted with certainty due
to various factors such as the extent of corrective actions that may be
required, evolving environmental laws and regulations, advances in environmental
technology, the extent of other parties’ participation in cleanup efforts,
developments in ongoing environmental analyses related to sites determined to be
contaminated and developments in environmental surveys and studies of
contaminated sites.
 Because of the uncertainty surrounding
these factors, it is reasonably possible that future costs for environmental
liabilities may range from approximately $300 million to $525 million.
However, BNSF believes that the $380 million recorded at December31, 2007, is the best estimate of the
Company’s future obligation for environmental costs.
  While the final outcome of these
environmental matters cannot be predicted with certainty, it is the opinion of
BNSF that none of these items, when finally resolved, will have a material
adverse effect on the Company’s financial position or liquidity. However, the
occurrence of a number of these items in the same period could have a material
adverse effect on the results of operations in a particular quarter or fiscal
year.


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Other Claims
and Litigation
 In addition to asbestos, other personal
injury and environmental matters discussed above, BNSF and its subsidiaries are
also parties to a number of other legal actions and claims, various governmental
proceedings and private civil suits arising in the ordinary course of business,
including those related to disputes and complaints involving certain
transportation rates and charges (including complaints seeking refunds of prior
charges paid for coal transportation and the prescription of future rates for
such movements and claims relating to service under contract provisions or
otherwise). Some of the legal proceedings include claims for punitive as well as
compensatory damages, and a few proceedings purport to be class actions. While
the final outcome of these matters cannot be predicted with certainty,
considering among other things the meritorious legal defenses available and
liabilities that have been recorded along with applicable insurance, it is the
opinion of BNSF that none of these items, when finally resolved, will have a
material adverse effect on the Company’s financial position or liquidity.
However, an unexpected adverse resolution of one or more of these items could
have a material adverse effect on the results of operations in a particular
quarter or fiscal year.
  11. Employee Separation
Costs
 Employee separation costs activity was
as follows (in millions):
  2007
                
                
                2006
                
                
                2005Beginning balance at January
      1,
                
                $
                107
                
                
                $
                132
                
                
                $
                154Accruals
                
                
                5
                
                
                
                2
                
                
                
                8Payments
                
                
                (21
                )
                
                
                (27
                )
                
                
                (30
                )Ending balance at December
      31,
                
                $
                91
                
                
                $
                107
                
                
                $
                132
  Employee separation liabilities of
$91million were included in the
Consolidated Balance Sheet at December 31, 2007, and principally represent the
following: (i) $86 million for deferred benefits payable upon separation or
retirement to certain active conductors, trainmen and locomotive engineers; (ii)
$1million for employee-related
severance costs for the consolidation of clerical functions, material handlers
in mechanical shops and trainmen on reserve boards; and (iii) $4 million
for certain non-union employee severance costs. Employee separation expenses are
recorded in materials and other in the Consolidated Statements of Income. At
December 31, 2007, $14 million of the remaining liabilities were included
in current liabilities.
  The deferred benefits payable upon
separation or retirement to certain active conductors, trainmen and locomotive
engineers were primarily incurred in connection with labor agreements reached
prior to the business combination of BNSF’s predecessor companies, Burlington
Northern Inc. and Santa Fe Pacific Corporation (the Merger). These agreements,
among other things, reduced train crew sizes and allowed for more flexible work
rules. The majority of the remaining costs will be paid between 2008 and 2020.
As of December 31, 2007, the Company had updated its estimate and recorded an
additional liability of $4million related to deferred
benefits(see (i) above)and a liability of $1
million related tonon-unionseverancecosts (see (iii) above). The remaining costs for (ii) above are
expected to be paid out between 2008 and approximately 2011, and the costs for
(iii) above will be paid over the next several years based on deferral elections
made by the affectedemployees.
 12. Earnings Per
Share
 Basic earnings per share is based on the
weighted average number of common shares outstanding. Diluted earnings per share
is based on basic earnings per share adjusted for the effect of potential common
shares outstanding that were dilutive during the period, arising from employee
stock awards and incremental shares calculated using the treasury stock
method.
  Weighted average stock options totaling2.2million, 1.1 million and
0.1 million for 2007, 2006 and 2005, respectively, were not included in the
computation of diluted earnings per share, because the options’ exercise price
exceeded the average market price of the Company’s stock for those
periods.
  13. Employment Benefit
Plans
 BNSF sponsors a funded, noncontributory
qualified pension plan, the BNSF Retirement Plan, which covers most non-union
employees, and an unfunded non-tax-qualified pension plan, the BNSF Supplemental
Retirement Plan, which covers certain officers and other employees. The benefits
under these pension plans are based on years of credited service and the highest
consecutive sixty months of compensation for the last ten years of salaried
employment with BNSF. BNSF’s funding policy is to contribute annually not less
than the regulatory minimum and not more than the maximum amount deductible for
income tax purposes with respect to the funded plan.


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Certain salaried employees of BNSF that
have met age and years of service requirements are eligible for life insurance
coverage and medical benefits, including prescription drug coverage, during
retirement. This postretirement benefit plan, referred to as the retiree health
and welfare 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’s policy
is to fund benefits payable under the medical and life insurance plans as they
come due. Generally, employees beginning salaried employment with BNSF
subsequent to September 22, 1995, are not eligible for medical benefits during
retirement.
  In September 2006, the FASB issued SFAS
No. 158,Employers’
Accounting for Defined Benefit Pension and Other Postretirement Plans–an
amendment of FASB Statements No. 87, 88, 106 and 132R,which requires the recognition of the
overfunded or underfunded status of a defined benefit postretirement plan in the
Company’s balance sheet. This portion of the new guidance was adopted by the
Company on December 31, 2006. Additionally, the pronouncement eliminates the
option for the Company to use a measurement date prior to the Company’s fiscal
year-end effective December 31, 2008. SFAS No. 158 provides two approaches to
transition to a fiscal year-end measurement date, both of which are to be
applied prospectively. BNSF has elected to apply the transition option under
which a 15-month measurement wasdetermined as of September 30, 2007 that
covers the period until the fiscal year-end measurement is required on December
31, 2008. As a result, the Company recorded a $7 million decrease to retained
earnings in January 2008.


The following table showsthe incremental effect of applying SFAS
No. 158 to both the Company’s pension and retiree health and welfare plans on
individual line items in the Consolidated Balance Sheet as of December 31, 2006
(in millions):
  Pension and Retiree Health and
      Welfare BenefitsBalances Prior to Adoption of SFAS
      No. 158 and the Minimum Liability Adjustment
              
              
              Minimum Liability
      Adjustment
              
              
              Balances Prior to Adoption of SFAS
      No. 158
              
              
              SFAS No. 158 Adoption
      Adjustments
              
              
              Ending Balances After Adoption of
      SFAS No. 158Pension
    asset
              
              $
              156
              
              
              $
              –
              
              
              $
              156
              
              
              $
              (156
              )
              
              $
              –Total
assets
              
              $
              31,953
              
              
              $
              –
              
              
              $
              31,953
              
              
              $
              (156
              )
              
              $
              31,797Pension
      liability
              
              $
              52
              
              
              $
              –
              
              
              $
              52
              
              
              $
              (52
              )
              
              $
              –Additional minimum pension
      liability
              
              $
              417
              
              
              
              (64
              )
              
              $
              353
              
              
              
              (353
              )
              
              $
              –Liability for retiree health and
      welfare benefits
              
              $
              257
              
              
              
              –
              
              
              $
              257
              
              
              
              (257
              )
              
              $
              –Pension and retiree health and
      welfare liability
              
              $
              –
              
              
              
              –
              
              
              $
              –
              
              
              
              630
              
              
              $
              630Deferred income
      taxes
              
              $
              8,322
              
              
              
              24
              
              
              $
              8,346
              
              
              
              (48
              )
              
              $
              8,298Total
      liabilities
              
              $
              21,389
              
              
              $
              (40
              )
              
              $
              21,349
              
              
              $
              (80
              )
              
              $
              21,269AOCL
              
              $
              (241
              )
              
              $
              40
              
              
              $
              (201
              )
              
              $
              (76
              )
              
              $
              (277
              )Total stockholders’
      equity
              
              $
              10,564
              
              
              $
              40
              
              
              $
              10,604
              
              
              $
              (76
              )
              
              $
              10,528
 
 Components of the net cost for these
plans were as follows (in millions):
  Pension
      Benefits
              
              
              Retiree Health and Welfare
      BenefitsYear ended December
      31,
              
              2007
              
              
              2006
              
              
              2005
              
              
              2007
              
              
              2006
              
              
              2005Service
cost
              
              $
              25
              
              
              $
              25
              
              
              $
              20
              
              
              $
              2
              
              
              $
              3
              
              
              $
              2Interest
    cost
              
              
              97
              
              
              
              94
              
              
              
              95
              
              
              
              17
              
              
              
              15
              
              
              
              17Expected return on plan
      assets
              
              
              (105
              )
              
              
              (97
              )
              
              
              (102
              )
              
              
              –
              
              
              
              –
              
              
              
              –Amortization of net
      loss
              
              
              35
              
              
              
              46
              
              
              
              25
              
              
              
              6
              
              
              
              3
              
              
              
              –Amortization of prior service
      cost
              
              
              –
              
              
              
              –
              
              
              
              –
              
              
              
              (8
              )
              
              
              (7
              )
              
              
              (8
              )Net cost
      recognized
              
              $
              52
              
              
              $
              68
              
              
              $
              38
              
              
              $
              17
              
              
              $
              14
              
              
              $
              11
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The projected benefit obligation is the
present value of benefit earned to date by plan participants, including the
effect of assumed future salary increases and expected healthcare cost trend
rate increases. The following table shows the change in projected benefit
obligation based on the September 30 measurement date (in
millions):
  Pension
      Benefits
                  
                  
                  Retiree Health and Welfare
      BenefitsChange in Benefit
      Obligation
                  
                  2007
                  
                  
                  2006
                  
                  
                  2007
                  
                  
                  2006Benefit obligation at beginning of
      period
                  
                  $
                  1,830
                  
                  
                  $
                  1,858
                  
                  
                  $
                  311
                  
                  
                  $
                  295Service
cost
                  
                  
                  25
                  
                  
                  
                  25
                  
                  
                  
                  2
                  
                  
                  
                  3Interest
    cost
                  
                  
                  97
                  
                  
                  
                  94
                  
                  
                  
                  17
                  
                  
                  
                  15Plan participants’
      contributions
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  8
                  
                  
                  
                  8Actuarial (gain)
      loss
                  
                  
                  (59
                  )
                  
                  
                  (18
                  )
                  
                  
                  (3
                  )
                  
                  
                  19Medicare
      subsidy
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  2
                  
                  
                  
                  1Benefits
    paid
                  
                  
                  (130
                  )
                  
                  
                  (129
                  )
                  
                  
                  (33
                  )
                  
                  
                  (30
                  )Projected benefit obligation at
      end of period
                  
                  
                  1,763
                  
                  
                  
                  1,830
                  
                  
                  
                  304
                  
                  
                  
                  311Component representing future
      salary increases
                  
                  
                  (57
                  )
                  
                  
                  (76
                  )
                  
                  
                  –
                  
                  
                  
                  –Accumulated benefit obligationat end of
      period
                  
                  $
                  1,706
                  
                  
                  $
                  1,754
                  
                  
                  $
                  304
                  
                  
                  $
                  311
  Both the BNSF Retirement Plan and the
BNSF Supplemental Retirement Plan had accumulated and projected benefit
obligations in excess of plan assets at September 30, 2007 and 2006.
 The following table shows the change in
plan assets of the plans based on the September 30 measurement date (in
millions):
  Pension
      Benefits
                  
                  
                  Retiree Health and Welfare
      BenefitsChange in Plan
      Assets
                  
                  2007
                  
                  
                  2006
                  
                  
                  2007
                  
                  
                  2006Fair value of plan assets at
      beginning of period
                  
                  $
                  1,394
                  
                  
                  $
                  1,347
                  
                  
                  $
                  –
                  
                  
                  $
                  –Actual return on plan
      assets
                  
                  
                  208
                  
                  
                  
                  126
                  
                  
                  
                  –
                  
                  
                  
                  –Employer
      contribution
                  
                  
                  116
                  
                  
                  
                  50
                  
                  
                  
                  23
                  
                  
                  
                  21Plan participants’
      contributions
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  8
                  
                  
                  
                  8Medicare
      subsidy
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  2
                  
                  
                  
                  1Benefits
    paid
                  
                  
                  (130
                  )
                  
                  
                  (129
                  )
                  
                  
                  (33
                  )
                  
                  
                  (30
                  )Fair value of plan assets at
      measurement date
                  
                  $
                  1,588
                  
                  
                  $
                  1,394
                  
                  
                  $
                  –
                  
                  
                  $
                  –Adjustment for fourth quarter
      contribution
                  
                  $
                  2
                  
                  
                  $
                  111
                  
                  
                  $
                  5
                  
                  
                  $
                  6
  The following table shows the funded
status, defined as plan assets less the projected benefit obligation, as of
December 31 (in millions):
  Pension
      Benefits
                  
                  
                  Retiree Health and Welfare
      Benefits2007
                  
                  
                  2006
                  
                  
                  2007
                  
                  
                  2006Funded status (plan assets less
      projected
                    benefit
      obligations)
                  
                  $
                  (173
                  )
                  
                  $
                  (325
                  )
                  
                  $
                  (299
                  )
                  
                  $
                  (305
                  )
  Of the combined pension and retiree
health and welfare benefits liability of $472 million recognized as of December
31, 2007, $28 million was included in other current
liabilities.


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Prior to December 31, 2006, actuarial
gains and losses and prior service costs were not recognized in the Company’s
Consolidated Balance Sheets, but were only included in the footnote disclosures.
Beginning on December 31, 2006, upon adoption of SFAS No. 158, the Company began
recognizing these costs in the Consolidated Balance Sheets through an adjustment
to AOCL. Beginning in 2007, the Company recognized actuarial gains and losses
and prior service costs in AOCL as they arose.The following table shows the pre-tax
change in AOCL attributable to the components of the net cost and the change in
benefit obligation (in millions):
  Pension
      Benefits
              
              Retiree Health
      and
                Welfare
      BenefitsChange in
    AOCL
              
              2007
              
              2006
              
              2005
              
              2007
              
              2006
              
              2005Balance at January
      1,
              
              $
              429
              
              $
              417
              
              $
              353
              
              $
              48
              
              $
              –
              
              $
              –Increase (decrease) in minimum
      liability included in other comprehensive loss prior to adoption of SFAS
      No. 158
              
              
              –
              
              
              (64
              )
              
              64
              
              
              –
              
              
              –
              
              
              –SFAS No. 158 adoption
      adjustment
              
              
              –
              
              
              76
              
              
              –
              
              
              –
              
              
              48
              
              
              –Amortization of actuarial
      loss
              
              
              (35
              )
              
              –
              
              
              –
              
              
              (6
              )
              
              –
              
              
              –Amortization of prior service
      costs
              
              
              –
              
              
              –
              
              
              –
              
              
              8
              
              
              –
              
              
              –Actuarial
    gain
              
              
              (161
              )
              
              –
              
              
              –
              
              
              (4
              )
              
              –
              
              
              –Balance at December
      31,
              
              $
              233
              
              $
              429
              
              $
              417
              
              $
              46
              
              $
              48
              
              $
              –
  The estimated net actuarial loss and
prior service credit for these defined benefit pension plans that will be
amortized from AOCL into net periodic benefit cost over the next fiscal year is
expected to be $16 million and less than $1 million, respectively. The estimated
net actuarial loss and prior service credit for the retiree health and welfare
benefit plans that will be amortized from AOCL into net periodic benefit cost
over the next fiscal year is expected to be $4 million and $8 million,
respectively. Pre-tax amounts currently recognized in AOCL consist of the
following (in millions):
  Pension
      Benefits
              
              
              Retiree Health and Welfare
      Benefits2007
              
              
              2006
              
              
              2007
              
              
              2006Net actuarial
      loss
              
              $
              234
              
              
              $
              430
              
              
              $
              67
              
              
              $
              77Prior service
      cost
              
              
              (1
              )
              
              
              (1
              )
              
              
              (
      21
              )
              
              
              (29
              )Pre-tax amount recognizedin AOCL at December
      31,
              
              
              233
              
              
              
              429
              
              
              
              46
              
              
              
              48After-tax amount recognizedin AOCL at December
      31,
              
              $
              143
              
              
              $
              264
              
              
              $
              28
              
              
              $
              29
 
 The expected long-term rate of return is
the return the Company anticipates earning, 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 considered the following: (i) forward looking capital
market forecasts; (ii) historical returns for individual asset classes; and
(iii) the impact of active portfolio management.
  The assumptions used in accounting for
the BNSF plans were as follows:
  Assumptions used to determine net
      cost
                for fiscal years ended December
      31,
              
              Pension
      Benefits
              
              Retiree Health and Welfare
      Benefits2007
              
              2006
              
              2005
              
              2007
              
              2006
              
              2005Discount
    rate
              
              5.50
              %
              
              5.25
              %
              
              5.75
              %
              
              5.50
              %
              
              5.25
              %
              
              5.75
              %Expected long-term rate of return
      on plan assets
              
              8.00
              %
              
              8.00
              %
              
              8.00
              %
              
              –
              %
              
              –
              %
              
              –
              %Rate of compensation
      increase
              
              3.90
              %
              
              3.90
              %
              
              3.90
              %
              
              3.90
              %
              
              3.90
              %
              
              3.90
              %Assumptions used to determine
      benefit
                obligations at September
      30,
              
              Pension
      Benefits
              
              
              
              Retiree Health and Welfare
      Benefits2007
              
              2006
              
              
              
              2007
              
              2006Discount
    rate
              
              6.00
              %
              
              5.50
              %
              
              
              
              6.00
              %
              
              5.50
              %Rate of compensation
      increase
              
              3.80
              %
              
              3.90
              %
              
              
              
              3.80
              %
              
              3.90
              %


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The following table presents assumed
health care cost trend rates:
  December
31,
              
              2007
              
              2006
              
              
              2005Assumed health care cost trend
      rate for next year
              
              
              10.50
              %
              
              10.00
              %
              
              10.50
              %Rate to which health care cost
      trend rate is expected to decline and remain
              
              
              5.00
              %
              
              5.00
              %
              
              5.00
              %Year that the rate reaches the
      ultimate trend rate
              
              
              2016
              
              
              2012
              
              
              2012
 
 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 (in millions):
  One Percentage-Point
      Increase
              
              One Percentage-Point
      DecreaseEffect on total service and
      interest cost
              
              $
              2
              
              $
              (2
              )Effect on postretirement benefit
      obligation
              
              $
              23
              
              $
              (20
              )
  The qualified BNSF Retirement Plan asset
allocation at September 30, 2007 and 2006 and the target allocation for 2007 by
asset category are as follows:
 Target
      Allocation
                
                
                Percentage of Pension
      Plan
                  Assets at September
      30,Plan Asset
      Allocation
                
                2007
                
                
                2007
                
                
                2006Equity
      Securities
                
                
                45
      – 75
                %
                
                
                63
                %
                
                
                63
                %Fixed Income
      Securities
                
                
                20
      – 40
                %
                
                
                27
                
                
                
                28Real Estate
                
                
                5
      – 15
                %
                
                
                10
                
                
                
                9Total
                
                
                
                
                
                
                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 Company’s management
has adopted the above asset allocation ranges. This allows flexibility to
accommodate market changes in the asset classes within definedparameters.
  Based on its current assumptions and
funding methodology, the Company is expected to be required to make
contributionsof $34 million to the BNSF
Retirement Plan in 2008. The Company expects to make benefit payments in 2008 of
approximately $7 million and $25 million from its non-qualified
defined benefit and retiree health and welfare plans, respectively.
  The following table shows expected
benefit payments fromitsdefined benefit pension
plans and expected claim payments and Medicare Part D subsidy receipts for the
retiree health and welfare plan for the next five fiscal years and the aggregate
five years thereafter (in millions):
 Fiscal year
              
              Expected Pension Plan Benefit
      Payments
              a
              Expected Retiree Health and
      Welfare Payments
              
              Expected Medicare
      Subsidy2008
              
              $
              131
              
              $
              25
              
              $
              (3
              )2009
              
              
              133
              
              
              26
              
              
              (3
              )2010
              
              
              134
              
              
              27
              
              
              (3
              )2011
              
              
              135
              
              
              28
              
              
              (3
              )2012
              
              
              136
              
              
              28
              
              
              (3
              )2013–2017
              
              
              691
              
              
              144
              
              
              (20
              )a 
      Primarily consists of Qualified Defined Benefit Plan payments, which are
      made from the plan trust and do not represent an immediate cash outflow to
      the Company.


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Defined
Contribution Plans
 BNSF sponsors qualified 401(k) plans
that cover substantially all employees and a non-qualified defined contribution
plan that covers certain officers and other employees. BNSF 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. Non-union employees are eligible to receive an
annual discretionary matching contribution of up to 30 percent of the first six
percent of their contributions. Employer contributions for all non-union
employees are subject to a five-year length of service vesting schedule. BNSF’s
401(k) matching expense was $21 million, $28 million and $20 million
in 2007, 2006 and 2005, respectively.
 Other
 Under collective bargaining agreements,
BNSF participates in multi-employer benefit plans that 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 $46 million, $44 million and $43 million,
in 2007, 2006 and 2005, respectively (see Note 11 to the Consolidated Financial
Statements for other deferred benefits payable to certain conductors, trainmen
and locomotive engineers).


14. Stock-Based
Compensation
 On April 15, 1999, BNSF shareholders
approved the Burlington Northern Santa Fe 1999 Stock Incentive Plan and
authorized 20 million shares of BNSF common stock to be issued in
connection with stock options, restricted stock, restricted stock units and
performance stock. On April 18, 2001, April 17, 2002, April 21, 2004 and April
19, 2006, BNSF shareholders approved the amendments to the Burlington Northern
Santa Fe 1999 Stock Incentive Plan, which authorized additional awards of
9 million, 6 million, 7 million and 11 million shares,
respectively, of BNSF common stock to be issued in connection with stock
options, restricted stock, restricted stock units and performance stock.
Approximately10million common shares were
available for future grant at December 31, 2007.
  Additionally, on April 18, 1996, BNSF
shareholders approved the non-employee directors’ stock plan and authorized
900,000 shares of BNSF common stock to be issued in connection with this plan.
Approximately450,000common shares were available for future
grant at December 31, 2007.
  Stock
Options
 Under BNSF’s stock plans, options may be
granted to directors, officers and salaried employees at the fair market value
of the Company’s common stock on the date of grant. Stock option grants
generally vest ratably over three years and expire within ten years after the
date of grant. Shares issued upon exercise of options may be issued from
treasury shares or from authorized but unissued shares.
  The fair value of each option award is
estimated on the date of grant using the Black-Scholes option-pricing model. The
following assumptions apply to the options granted for the periods
presented:
  Year ended December
      31,
              
              2007
              
              2006
              
              2005Weighted average expected life
      (years)
              
              
              4.6
              
              
              4.5
              
              
              4.5Weighted average expected
      volatility
              
              
              24.0
              %
              
              24.0
              %
              
              24.0
              %Weighted average dividend per
      share
              
              $
              1.02
              
              $
              0.81
              
              $
              0.69Weighted average risk free
      interest rate
              
              
              4.31
              %
              
              4.76
              %
              
              3.75
              %Weighted average fair value of
      options granted per share
              
              $
              21.91
              
              $
              20.51
              
              $
              11.33
 
  Expected volatilities are based on
historical volatility of the Company’s stock, implied volatilities from traded
options on the Company’s stock and other factors. The Company uses historical
experience with exercise and post-vesting employment termination behavior to
determine the options’ expected life. The expected life represents the period of
time that options granted are expected to be outstanding. The risk-free rate is
based on the U.S. Treasury rate with a maturity date corresponding to the
options’ expected life.


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A summary of the
status of stock options as of, and for the year ended December 31, 2007, is
presented below (options in thousands, aggregate intrinsic value in
millions):
  Year ended December 31,
      2007
              
              Options
              
              Weighted Average Exercise
      Prices
              
              Weighted Average Remaining
      Contractual Term
                (in years)
              
              Aggregate Intrinsic
      ValueBalance at beginning of
      year
              
              
              15,060
              
              $
              38.37Granted
              
              
              1,777
              
              
              88.33Exercised
              
              
              (5,249
              )
              
              32.34Cancelled
              
              
              (244
              )
              
              73.95Balance at end of
      year
              
              
              11,344
              
              $
              48.22
              
              
              5.32
              
              $
              407Options exercisable at year
      end
              
              
              8,459
              
              $
              38.04
              
              
              4.26
              
              $
              384
  The total intrinsic
value of options exercised was $281 million, $222 million and
$232 million for the years ended December 31, 2007, 2006 and 2005,
respectively.
  Other
Incentive Programs
 BNSF has other
long-term incentive programs that utilize restricted shares/units. A summary of
the status of restricted shares/units and the weighted average grant date fair
values as of, and for the year ended December 31, 2007, is presented below
(shares in thousands):
  Year endedDecember 31,
      2007
              
              Time Based
              
              
              Performance
      Based
              
              
              BNSF Incentive Bonus Stock
      Program
              
              
              BNSF Discounted Stock Purchase
      Program
              
              
              TotalBalance atbeginning of
      year
              
              
              1,267
              
              
              $
              48.40
              
              
              
              765
              
              
              $
              53.50
              
              
              
              861
              
              
              $
              46.19
              
              
              
              64
              
              
              $
              49.79
              
              
              
              2,957
              
              
              $
              49.10Granted
              
              
              59
              
              
              
              86.38
              
              
              
              560
              
              
              
              88.80
              
              
              
              –
              
              
              
              –
              
              
              
              7
              
              
              
              79.28
              
              
              
              626
              
              
              
              88.47Vested
              
              
              (557
              )
              
              
              33.96
              
              
              
              (235
              )
              
              
              32.72
              
              
              
              (219
              )
              
              
              32.16
              
              
              
              (20
              )
              
              
              34.62
              
              
              
              (1,031
              )
              
              
              33.31Cancelled
              
              
              (51
              )
              
              
              60.73
              
              
              
              (74
              )
              
              
              78.33
              
              
              
              (3
              )
              
              
              50.83
              
              
              
              –
              
              
              
              –
              
              
              
              (128
              )
              
              
              70.64Balance at end of
      year
              
              
              718
              
              
              $
              61.83
              
              
              
              1,016
              
              
              $
              75.97
              
              
              
              639
              
              
              $
              50.98
              
              
              
              51
              
              
              $
              59.73
              
              
              
              2,424
              
              
              $
              64.85
 
 A summary of the
weighted average grant date fair market values of the restricted share/units as
of, and for the years ended December 31, 2006 and 2005, is presented
below:
  Grant Date Fair Market Value of
      Awards Granted
              
              Time Based
              
              Performance
      Based
              
              BNSF Incentive Bonus Stock
      Program
              
              BNSF Discounted Stock Purchase
      ProgramYear ended December 31,
      2006
              
              $
              79.88
              
              $
              80.17
              
              $
              81.31
              
              $
              81.31Year ended December 31,
      2005
              
              $
              49.23
              
              $
              49.21
              
              $
              47.58
              
              $
              46.91
 
 A summary of the
fair value of the restricted share/units vested during the years ended December
31, 2007, 2006 and 2005 is presented below:
  Total Fair Value of Shares
      Vested(in
    millions)
              
              Time Based
              
              Performance
      Based
              
              BNSF Incentive Bonus Stock
      Program
              
              BNSF Discounted Stock Purchase
      Program
              
              TotalYear ended December 31,
      2007
              
              $
              49
              
              $
              21
              
              $
              18
              
              $
              1
              
              $
              89Year ended December 31,
      2006
              
              $
              42
              
              $
              –
              
              $
              25
              
              $
              1
              
              $
              68Year ended December 31,
      2005
              
              $
              44
              
              $
              11
              
              $
              8
              
              $
              1
              
              $
              64
 
 Time-based awards
are granted to senior managers within BNSF primarily as a retention tool and to
encourage ownership in the Company. They generally vest over three years,
although in some cases up to five years, and are contingent on continued
salaried employment.
  71
 Table of
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Performance-based awards are granted to
senior managers within BNSF to encourage ownership in the Company and to align
management’s interest with those of its shareholders. Performance-based awards
generally vest over three years and are contingent on the achievement of certain
predetermined corporate performance goals (e.g., return on invested capital
(ROIC)) and continued salaried employment.
  Additionally, related to the 2007, 2006
and 2005 performance-based grant, eligible employees may also earn performance
stock that will be granted in 2010, 2009 and 2008, respectively, contingent upon
achievement of higher ROIC goals and continued salaried employment. The Company
has committed to a maximum grant ofapproximately 279,000,235,000 and 316,000 shares,
respectively.
  Certain employees were eligible to
exchange through the Burlington Northern Santa Fe Incentive Bonus Stock Program
the cash payment of their bonus for grants of restricted stock. In September
2005, the program was amended so that exchanges of cash bonus payments for
awards of restricted stock were no longer permitted after February
2006.
  Certain other salaried employees may
participate in the BNSF Discounted Stock Purchase Program and use their bonus to
purchase BNSF common stock at a discount from the market price. These shares
immediately vest but are restricted for a three-year period.
  Shares awarded under each of the plans
may not be sold or used as collateral and are generally not transferable by the
holder until the shares awarded become free of restrictions. Compensation cost,
net of tax, recorded under the BNSF Stock Incentive Plans is shown in the
following table (in millions):
  2007
              
              
              2006
              
              
              2005Compensation
      cost
              
              $
              66
              
              
              $
              72
              
              
              $
              37Income tax
      benefit
              
              
              (23
              )
              
              
              (25
              )
              
              
              (14
              )Total
              
              $
              43
              
              
              $
              47
              
              
              $
              23Compensation cost
      capitalized
              
              $
              7
              
              
              $
              6
              
              
              $
              3
 
 At December 31, 2007, there was $105
million of total unrecognized compensation cost related to unvested share-based
compensation arrangements. That cost is expected to be recognized over a
weighted-average period of 1.19 years.
  15. Common Stock and Preferred Capital
Stock
  Common
Stock
 BNSF is authorized to issue
600 million shares of common stock, $0.01 par value. At December 31, 2007,
there were348million shares of common stock
outstanding. Each holder of common stock is entitled to one vote per share in
the election of directors and on all matters submitted to a vote of
shareholders. Subject to the rights and preferences of any future issuances of
preferred stock, each share of common stock is entitled to receive dividends as
may be declared by the Board out of funds legally available and to share ratably
in all assets available for distribution to shareholders upon dissolution or
liquidation. No holder of common stock has any preemptive right to subscribe for
any securities of BNSF.
  Preferred
Capital Stock
 At December 31, 2007, BNSF had
50 million shares of Class A Preferred Stock, $0.01 par value and
25 million shares of Preferred Stock, $0.01 par value available for
issuance. The Board has the authority to issue such stock in one or more series,
to fix the number of shares and to fix the designations and the powers, rights
and qualifications and restrictions of each series. As of December 31, 2007, no
Class A Preferred Stock had been issued.
  Share
Repurchase Program
 In February 2007, the Board authorized
the extension of the current BNSF share repurchase program, adding
30 million shares to the total of 180 million shares previously
authorized in equal amounts in July 1997, December 1999, April 2000, September
2000, January 2003 and December 2005. During 2007, 2006 and 2005, the Company
repurchasedapproximately
15million, 18 million and
14 million, respectively, of its common stock at average prices of $83.96
per share, $73.43 per share and $54.95 per share, respectively. Total
repurchases through December 31, 2007, were 180 million shares at a total
average cost of $38.20 per share, leaving 30 million shares available for
repurchase out of the 210 million shares presently authorized.
Additionally, during 2007, the Company repurchased shares from employees at a
cost of $43 million to satisfy tax withholding obligations on the vesting
of restricted stock orthe
exercise of stock options.


72
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In December 2005, the Company entered
into prepaid forward transactions to purchase $600 million of the Company’s
common stock whereby a net settlement in shares would occur upon settlement of
the transactions. In late February 2006, these transactions were settled, and
approximately 8 million shares were delivered. While the transactions had
no impact on the shares outstanding at the end of 2005, outstanding shares used
in the calculation of 2006 earnings per share were reduced by approximately
8 million shares when the transactions were settled. The Company accounted
for the transactions in accordance with Emerging Issues Task Force (EITF) 00-19,Accounting for
Derivative Financial Instruments Indexed to, and Potentially Settled in, a
Company’s Own Stock,which
required that the $600 million prepayment be recorded as a reduction in
equity in 2005. When the final settlement was made in 2006, this reduction in
equity was reclassified from prepaid forward repurchase of treasury stock to
treasury stock.
  16. Quarterly Financial
Data—Unaudited
  Dollars in millions, except per
      share data
                
                
                Fourth
                
                Third
                
                Second
                
                First2007Revenues
                
                
                $
                4,245
                
                $
                4,069
                
                $
                3,843
                
                $
                3,645Operating
      income
                
                
                $
                950
                
                $
                1,001
                
                $
                841
                
                $
                694Net income
                
                
                $
                517
                
                $
                530
                
                $
                433
                
                $
                349Basic earnings per
      share
                
                
                $
                1.48
                
                $
                1.51
                
                $
                1.22
                
                $
                0.98Diluted earnings per
      share
                
                
                $
                1.46
                
                $
                1.48
                
                $
                1.20
                
                $
                0.96Dividends declared per
      share
                
                
                $
                0.32
                
                $
                0.32
                
                $
                0.25
                
                $
                0.25Common stock pricea:High
                
                
                $
                88.03
                
                $
                93.04
                
                $
                94.43
                
                $
                85.05Low
                
                
                $
                81.54
                
                $
                76.64
                
                $
                80.41
                
                $
                72.452006bRevenues
                
                
                $
                3,882
                
                $
                3,939
                
                $
                3,701
                
                $
                3,463Operating
      income
                
                
                $
                943
                
                $
                921
                
                $
                864
                
                $
                793Net income
                
                
                $
                519
                
                $
                489
                
                $
                471
                
                $
                410Basic earnings per
      share
                
                
                $
                1.45
                
                $
                1.36
                
                $
                1.30
                
                $
                1.12Diluted earnings per
      share
                
                
                $
                1.42
                
                $
                1.33
                
                $
                1.27
                
                $
                1.09Dividends declared per
      share
                
                
                $
                0.25
                
                $
                0.25
                
                $
                0.20
                
                $
                0.20Common stock pricea:High
                
                
                $
                80.35
                
                $
                79.20
                
                $
                86.62
                
                $
                83.38Low
                
                
                $
                72.77
                
                $
                64.82
                
                $
                71.96
                
                $
                68.32a 
      Average
      of high and low reported daily stock price
                  
                  b 
      Prior
      year numbers have been adjusted for the retrospective adoption of FSP AUG
      AIR-1,Accounting
      for Planned Major Maintenance Activities.
                  See Note 2 to the Consolidated Financial Statements for additional
      information.




73
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Item 9. Changes in and
Disagreements With Accountants on Accounting and Financial
Disclosure
  None.
  Item 9A. Controls and
Procedures
  Disclosure
Controls and Procedures
 Based on their evaluation as of the end
of the period covered by this annual report on Form 10-K, theCompany's principal executive officer
and principal financial officerhave concluded that BNSF’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 in the reports that it files or submits under
the Securities Exchange Act of 1934 is recorded, processed, summarized and
reported within the time periods specified in Securities and Exchange Commission
rules and forms and that such information is accumulated and communicated to
BNSF’s management, including its principal executive and principal financial
officers, as appropriate to allow timely decisions regarding required
disclosure.
  Internal
Control Over Financial Reporting
 The report of management on the
Company’s internal control over financial reporting (as defined in Rules
13a-15(f) and 15(d)-15(f) of the Securities Exchange Act of 1934) is
included in “Management’s Report on Internal Control Over Financial Reporting”
in Item 8.
  PricewaterhouseCoopers LLP, the
independent registered public accounting firm that audited the Company’s
financial statements contained herein, has issued an attestation report on the
effectiveness of the Company’s internal control over financial reporting as of
December 31, 2007. The attestation report is included in Item
8.
  Changes in
Internal ControlOver
Financial Reporting
 As of the end of the period covered by
this report, the Company has concluded that there have been no changes in BNSF’s
internal control over financial reporting that occurred during BNSF’s fourth
fiscal quarter that have materially affected, or are reasonably likely to
materially affect, BNSF’s internal control over financial
reporting.
  Item 9B. Other
Information
 None.


74
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Part
III
 Item 10. Directors,
Executive Officers and Corporate Governance
 Information concerning the directors of
BNSF will be provided under the heading “Item 1: Election of Directors; Nominees
for Director” in BNSF’s proxy statement for its 2008 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
that heading is hereby incorporated by reference.
  Information concerning the executive
officers of BNSF is included in Part 1 of this Report on Form
10-K.
  Information concerning compliance with
Section 16(a) of the Securities Exchange Act of 1934 will be provided under the
heading “Communications and Other Matters; Section 16(a) Beneficial Ownership
Reporting Compliance” in BNSF’s proxy statement for its 2008 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
that heading is hereby incorporated by reference.
  Information concerning the Directors and
Governance Committee’s policy with regard to consideration of any director
candidates recommended by shareholders will be provided under the heading
“Communications and Other Matters; Procedures for Recommending Director
Candidates” in BNSF’s proxy statement for its 2008 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
that heading is hereby incorporated by reference.
  Information concerning the Audit
Committee and the Audit Committee Financial Expert will be provided under the
heading “Governance of the Company; Board Committees; Audit Committee” in BNSF’s
proxy statement for its 2008 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 underthat heading is hereby incorporated by
reference into the Form 10-K.
  The Company has a Code of Conduct that
applies to members of the Board of Directors, officers, and all salaried
employees of BNSF and its subsidiaries. Only the Board of Directors may waive
the application of the Code of Conduct to a director, executive officer, or the
principal accounting officer or controller, and any such waiver will be promptly
disclosed on the Company’s website.  A copy of the Code of Conduct is
available on the Company’s website atwww.bnsf.comunder the “Investors” link and then
“Corporate Governance.”
  Item 11. Executive
Compensation
 Information concerning the compensation
of directors and executive officers of BNSF will be provided under the headings
“Directors’ Compensation,” “Compensation Discussion and Analysis” and “Executive
Compensation” in BNSF’s proxy statement for its 2008 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
those headings is hereby incorporated by reference.
  Item 12. Security
Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
 Certain information about BNSF’s equity
compensation plans is set forth in the table below (number of shares in
thousands) as of December 31, 2007:
  Plan
      Category
              
              Number of Shares to Be Issued upon
      Exercise of Outstanding Options, Warrants and
Rights
              
              Weighted Average Exercise Price of
      Outstanding Options, Warrants and Rights
              
              Number of Shares Available forFuture
    IssuanceEquity compensation plans approved
      by shareholders
              
              
              11,344
              
              $
              48.22
              
              
              10,190Equity compensation plans not
      approved by shareholders
              
              
              –
              
              
              –
              
              
              –Total
              
              
              11,344
              
              $
              48.22
              
              
              10,190


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Information concerning the ownership of
BNSF equity securities by certain beneficial owners and by management will be
provided under the headings “Stock Ownership in the Company; Certain Beneficial
Owners” and “Stock Ownership in the Company; Ownership of Management” in BNSF’s
proxy statement for its 2008 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 that heading is hereby
incorporated by reference.
  Item 13. Certain
Relationships and Related Transactions, and Director
Independence
 Information concerning certain
relationships and related transactions will be provided under the headings
“Governance of the Company; Director Independence” and “Governance of the
Company; Certain Relationships and Related Person Transactions” in BNSF’s proxy
statement for its 2008 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 that heading is hereby incorporated
by reference.
  Item 14. Principal
Accountant Fees and Services
 Information concerning principal
accounting fees and services will be provided under the heading “Item 2:
Appointment of Independent Auditor; Independent Auditor Fees” in BNSF’s proxy
statement for its 2008 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 that heading is hereby incorporated
by reference.


76
 Table of
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Part IV
 
 Item 15. Exhibits and
Financial Statement Schedules


(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.


77
 Table of
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Signatures


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





Burlington Northern Santa Fe
      CorporationBy:
            /s/Matthew
      K. RoseDated:
      February
      14, 2008
            
            Matthew
      K. RoseChairman,
      President and ChiefExecutive
      Officer







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





Signature
            
            Title/s/
      Matthew K. Rose
            
            Chairman,
      President and Chief Executive OfficerMatthew
      K. Rose
            
            (Principal
      Executive Officer), and Director/s/
      Thomas N. Hund
            
            Executive
      Vice President and Chief Financial OfficerThomas
      N. Hund
            
            (Principal
      Financial Officer)/s/
      Paul W. Bischler
            
            Vice
      President and ControllerPaul
      W. Bischler
            
            (Principal
      Accounting Officer)/s/
      Alan L. Boeckmann*
            
            DirectorAlan
      L. Boeckmann/s/
      Donald G. Cook*
            
            DirectorDonald
      G. Cook/s/
      Vilma S. Martinez*
            
            DirectorVilma
      S. Martinez/s/
      Marc F. Racicot*
            
            DirectorMarc
      F. Racicot/s/
      Roy S. Roberts*
            
            DirectorRoy
      S. Roberts/s/
      Marc J. Shapiro*
            
            DirectorMarc
      J. Shapiro


/s/
      J.C. Watts, Jr.*
            
            DirectorJ.C.
      Watts, Jr.




S-1
 Table of
Contents





Signature
            
            Title/s/
      J. Steven Whisler*
            
            DirectorJ.
      Steven Whisler/s/
      Edward E. Whitacre, Jr.*
            
            DirectorEdward
      E. Whitacre, Jr.*By:
            /s/
      Roger NoberDated:
      February
      14, 2008
            
            Roger
      NoberExecutive
      Vice President Law and Secretary




S-2
 Table of
Contents


Burlington Northern Santa Fe Corporation
and Subsidiaries


Exhibit
Index


Exhibit Number and
      Description
            
            Incorporated by
      Reference
              (if
applicable)Form
            
            File Date
            
            File No.
            
            Exhibit(3)
            Articles of Incorporation and
      Bylaws3.1    
        Amended and Restated
      Certificate of Incorporation ofBurlington
              Northern Santa Fe Corproation, datedDecember 21, 1994, as
      amended.
            
            10-Q
            
            8/13/1998
            
            1-11535
            
            3.13.2  
          By-Laws
      of Burlington Northern Santa Fe Corporation,as amended and
              restated, dated December 6, 2007.**(4)       Instruments defining the rights of
      security holders, including indentures4.1   
         Indenture,
      dated as of December 1, 1995, between BNSFand The First
              National Bank of Chicago, as
      Trustee.
            
            S-3
            
            2/8/1999
            
            333-72013
            
            44.2      
      Form of BNSF’s 6 1/8% Notes
      Due March 15, 2009.
            
            10-K
            
            3/31/1999
            
            1-11535
            
            4.24.3      
      Form of BNSF’s 6 3/4%
      Debentures Due March 15, 2029.
            
            10-K
            
            3/31/1999
            
            1-11535
            
            4.34.4 
           Form of BNSF’s 6.70% Debentures
      DueAugust 1,
      2028.
            
            10-K
            
            3/31/1999
            
            1-11535
            
            4.44.5      
      Form of BNSF’s 8.125%
      Debentures Due April 15, 2020.
            
            10-K
            
            2/12/2001
            
            1-11535
            
            4.54.6  
          Form
      of BNSF’s 7.95% Debentures DueAugust 15,
      2030.
            
            10-K
            
            2/12/2001
            
            1-11535
            
            4.64.7     
       Form of BNSF’s 6.75%
      Notes Due July 15, 2011.
            
            10-Q
            
            8/3/2001
            
            1-11535
            
            4.14.8      
      Form of BNSF’s 5.90% Notes
      Due July 1, 2012.
            
            10-Q
            
            8/9/2002
            
            1-11535
            
            4.14.9 Officers’
      Certificate of Determination as to the terms ofBNSF’s 4.875%
              Notes Due January 15, 2015, includingExhibit A thereto, the form of
              the Notes.
            
            8-K
            
            12/9/2004
            
            1-11535
            
            4.14.10    
      Indenture, dated as of
      December 8, 2005, between BNSFand U.S. Bank
              Trust National Association, as Trustee.
            
            S-3 ASR
            
            12/8/2005
            
            333-130214
            
            4.14.11    
      Certificate of Trust of BNSF
      Funding Trust I, executedand filed by U.S.
              Bank Trust National Association,Linda Hurt and James
      Gallegos,as
              Trustees.
            
            S-3 ASR
            
            12/8/2005
            
            333-130214
            
            4.34.12    
      Amended and Restated
      Declaration of Trustof BNSF Funding Trust I,
              dated as ofDecember 15,
      2005.
            
            8-K
            
            12/15/2005
            
            1-11535
            
            4.44.13    
      Guarantee Agreement between
      BNSF and U.S. BankTrust National
              Association, as Guarantee Trustee, datedas of December 15,
      2005.
            
            8-K
            
            12/15/2005
            
            1-11535
            
            4.54.14    
      First Supplemental
      Indenture, dated as ofDecember 15, 2005, between
              BNSF and U.S. Bank Trust National Association, as
      Trustee.
            
            8-K
            
            12/15/2005
            
            1-11535
            
            4.6




E-1
 Table of
Contents


Incorporated
      by Reference
              (if
      applicable)Exhibit Number and
      Description
            
            Form
            
            File Date
            
            File No.
            
            Exhibit4.15   
      Agreement as to Expenses and
      Liabilities dated as of December 15,
              2005,between BNSF and BNSF Funding
      Trust I.
            
            8-K
            
            12/15/2005
            
            1-11535
            
            4.4
              (Exhibit C)4.16   
      Form of BNSF Funding Trust
      I’s 6.613% Trust Preferred Securities.
            
            8-K
            
            12/15/2005
            
            1-11535
            
            4.4
              (Exhibit D)4.17   
      Officer’s Certificate of
      Determination as to the terms of BNSF’s 6.20%
              Debentures Due August 15, 2036, including the form of the
      Debentures.
            
            10-Q
            
            10/24/2006
            
            1-11535
            
            4.14.18   
      First Supplemental
      Indenture, dated as of April 13, 2007, to Indenture
              dated as of December 1, 1995, between Burlington Northern Santa Fe
              Corporation and Bank of New York Trust Company, N.A., as
      Trustee.
            
            8-K
            
            4/13/2007
            
            1-11535
            
            4.14.19   
      Officer’s Certificate of
      Determination as to the terms of BNSF’s 5.65%
              Debentures due May 1, 2017 and 6.15% Debentures Due May 1, 2037,
              including the forms of the Debentures.
            
            8-K
            
            4/13/2007
            
            1-11535
            
            4.2Certain instruments evidencing
      long-term indebtedness of BNSF are not being filed as exhibits to this
      Report because the total amount of securities authorized under any single
      such instrument does not exceed 10% of BNSF’s total assets. BNSF will
      furnish copies of any material instruments upon request of the Securities
      and Exchange Commission.(10)
            Material
      Contracts10.1    Burlington
      Northern Santa Fe Non-Employee Directors’ Stock Plan, as
              amended and restated February 13, 2008.*
      **10.2    Form of Burlington Northern Santa
      Fe Non-Employee Directors’
              Stock Plan
      Director’s Restricted Stock Unit Award Agreement.*
            
            8-K
            
            5/23/2005
            
            1-11535
            
            10.110.3    BNSF Railway
      Company Incentive Compensation Plan, as amended
              andrestated December 17, 2007.* **10.4    Burlington Northern Santa Fe
      Corporation Deferred Compensation
              Plan, as amendedand restated effective December 9,
      2004.*
            
            10-K
            
            2/16/2007
            
            1-11535
            
            10.510.5    Burlington
      Northern Santa Fe Corporation Senior Management Stock
              DeferralPlan,
      as amended and restated effective January 1, 2008.*
      **10.6   
      Burlington Northern Santa Fe
      Incentive Bonus Stock Program, as
              amended and restated effective September 14, 2005.*
            
            8-K
            
            9/19/2005
            
            1-11535
            
            10.110.7   
      Burlington Northern Santa Fe 1996 Stock Incentive Plan,
      as
              amended and restated December 6, 2007.*
      **10.8    Burlington Northern Santa Fe
      Supplemental Retirement Plan,
              effectiveOctober 1, 1996, as amended
      through July 21, 2005.*
            
            8-K
            
            7/27/2005
            
            1-11535
            
            10.110.9    Retirement Benefit Agreement
      between BNSF and Matthew K. Rose,
              asamended and restated September 21,
      2006.*
            
            10-Q
            
            10/24/2006
            
            1-11535
            
            10.510.10  Retirement Benefit Agreement,
      dated January 16, 2003, between BNSF

                and John P. Lanigan.*
            
            10-K
            
            2/13/2004
            
            1-11535
            
            10.29


E-2
 Table of
Contents




Incorporated
      by Reference
                (if
      applicable)Exhibit
      Number and Description
              
              Form
              
              File
      Date
              
              File
      No.
              
              Exhibit


10.11  Burlington Northern Santa Fe
      Estate Enhancement Program, as
              amended
      and restated, effective November 1, 1996.*
            
            10-K 405
            
            3/31/1997
            
            1-11535
            
            10.1510.11.1Amendment of Burlington
      Northern Santa Fe Estate Enhancement
              Program,
      dated December 3, 1998.*
            
            10-Q
            
            8/11/1999
            
            1-11535
            
            10.210.11.2Termination of Burlington
      Northern Santa FeEstate Enhancement
              Program,
      datedSeptember 17, 2003.*
            
            10-K
            
            2/16/2007
            
            1-11535
            
            10.12.210.12  Form of BNSF
      Change-in-Control Agreement, as amended and
              restated December 6, 2007 and effective December 31,
      2007 (applicable
              to Messrs. Rose, Hund, Ice, Lanigan, and Nober and one
      other
              executive officer).* **10.13  Burlington Northern Santa Fe
      Corporation Supplemental Investment
              and
      Retirement Plan, as amended September 12, 2006.*
            
            10-Q
            
            10/24/2006
            
            1-11535
            
            10.610.14  Burlington Northern Inc.
      Director’s Charitable Award Program.*
            
            10-K
            
            4/1/1996
            
            1-11535
            
            10.2210.15  Burlington Northern Santa Fe
      Salary Exchange Option Program, as
              amended
      and restated October 1, 2004.*
            
            10-K
            
            2/15/2005
            
            1-11535
            
            10.1810.16  Burlington
      Northern Santa Fe 1999 Stock Incentive Plan, as amended
              and restated February 13, 2008.*
      **10.17  Form of 1999
      Stock Incentive Plan Stock Option Award
              Agreement.*
      **10.18  Form of 1999
      Stock Incentive Plan Restricted Stock Unit Award
              Agreement.* **10.19  Form of 1999
      Stock Incentive Plan Reload Stock Option
              Agreement.* **10.20  Form of 1999
      Stock Incentive Plan Special Retention Restricted Stock
              Unit AwardAgreement.* **10.21  Form of 1999
      Stock Incentive Plan
      Performance-Based Restricted
              Stock UnitAward
      Agreement.* **10.22  Form of 1999
      Stock Incentive Plan Performance Stock Award
              Agreement.* **10.23  Amended and Restated Benefits Protection Trust
      Agreement by and
              between Burlington Northern Santa Fe Corporation and
      Wachovia
              Bank, dated January 8, 2008.* **10.24  Burlington Northern Santa Fe
      Directors' Retirement Plan*
            
            10-K
            
            4/1/1996
            
            1-11535
            
            10.2710.24.1Termination of Burlington Northern
      Santa Fe Directors' Retirement
              Plan, dated July 17, 2003.*
            
            10-K
            
            2/16/2007
            
            1-11535
            
            10.31.110.25  Form of Indemnification Agreement
      dated as of September 17, 1998,
              entered into between BNSF and directors.*
            
            10-K
            
            3/31/1999
            
            1-11535
            
            10.3710.26  Form of Indemnification Agreement
      dated as of September 17,
              1998,
      entered into between BNSF and certain officers, including
              Messrs, Rose, Hund, Ice, Lanigan, Nober and Rickershauser.*
            
            10-K
            
            3/31/1999
            
            1-11535
            
            10.38




E-3
 Table of
Contents





Incorporated
      by Reference
                (if
      applicable)Exhibit
      Number and Description
              Form
              
              File
      Date
              
              File
      No.
              
              Exhibit


10.27  Burlington Northern Santa Fe 2005 Deferred Compensation
      Plan for
              Non-Employee Directors, amended and restated as of
      February 13,
              2008.* **10.28  Burlington Northern Santa Fe
      Deferred Compensation Plan for
              Directors,
      as amended and restated December 9, 2004.*
            
            10-K
            
            2/16/2007
            
            1-11535
            
            10.3510.29  Replacement Capital
      Covenant, dated as of December 15, 2005, by
              BNSF
      in favor of and for the benefit of each Covered Debtholder
              (as
      defined therein).
            
            10-K
            
            2/17/2006
            
            1-11535
            
            10.41(12)
            Statements re: Computation of
      Ratios12.1Computation
      of Ratio of Earnings to Fixed Charges.**(21)
            Subsidiaries of the
      registrant21.1Subsidiaries
      of BNSF.**(23)
            Consents of experts and
      counsel23.1Consent of
      PricewaterhouseCoopers LLP.**(24)
            Power of
      Attorney24.1Power of Attorney.**(31)
            Rule 13a-14(a)/15d-14(a)
      Certifications31.1 Principal Executive Officer’s Certifications Pursuant to
      Rule 13a-14(a)
              (Section 302 of the Sarbanes-Oxley Act of
      2002).**31.2   
      Principal Financial Officer’s Certifications Pursuant to
      Rule 13a-14(a)
              (Section 302 of the Sarbanes-Oxley Act of
      2002).**(32)
            Section 1350
      Certifications32.1   
      Certification Pursuant to Rule 13a-14(b)
      and18 U.S.C. §
      1350 (Section
              906 of the Sarbanes-Oxley Act of
      2002).**(99)
            Additional
      Exhibits99.1   
      Certification Pursuant to Section 303A.12 of theNew York
      Stock
              Exchange Listed Company
      Manual.**




*Management contract or
      compensatory plan




**Filed
    herewith




E-4