10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2005

OR

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

For the transition period from            to            

Commission file number 1-6324

BNSF Railway Company

(Formerly known as The Burlington Northern and Santa Fe Railway Company)

(Exact name of registrant as specified in its charter)

Delaware	41-6034000
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
2650 Lou Menk Drive Fort Worth, Texas	76131
(Address of principal executive offices)	(Zip Code)

(800) 795-2673

(Registrant’s telephone number, including area code)

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

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

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

Class	Shares Outstanding at July 20, 2005
Common stock, $1.00 par value	1,000 shares

Registrant meets the conditions set forth in General Instruction H (1) (a) and (b) of Form 10-Q and is therefore filing this Form 10-Q with the reduced disclosure format permitted by General Instruction H (2).

Table of Contents

	PAGE
PART I
Item 1. Financial Statements	3
Item 2. Management’s Narrative Analysis of Results of Operations	26
Item 4. Controls and Procedures	31
PART II
Item 1. Legal Proceedings	32
Item 6. Exhibits	32
Signatures	S-1
Exhibits	E-1

2

PART I

FINANCIAL INFORMATION

Item 1. Financial Statements

BNSF RAILWAY COMPANY and SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Dollars in millions)

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2005			2004			2005			2004
Revenues	$	3,106		$	2,664		$	6,059		$	5,140
Operating expenses:
Compensation and benefits		846			816			1,695			1,602
Purchased services		399			334			795			664
Depreciation and amortization		268			251			531			500
Equipment rents		218			197			431			384
Fuel		461			326			853			606
Materials and other		201			228			404			458
Total operating expenses		2,393			2,152			4,709			4,214
Operating income		713			512			1,350			926
Interest expense		34			34			68			66
Interest income, related parties		(18	)		(6	)		(32	)		(12	)
Other expense, net		8			5			14			1
Income before income taxes		689			479			1,300			871
Income tax expense		262			182			494			331
Net income	$	427		$	297		$	806		$	540

See accompanying Notes to Consolidated Financial Statements.

3

BNSF RAILWAY COMPANY and SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollars in millions)

(Unaudited)

	June 30, 2005		December 31, 2004
ASSETS
Current assets:
Cash and cash equivalents	$	21	$	321
Accounts receivable, net		273		165
Materials and supplies		378		339
Current portion of deferred income taxes		133		293
Other current assets		836		554
Total current assets		1,641		1,672
Property and equipment, net		26,127		25,762
Other assets		2,217		1,637
Intercompany notes receivable, net		2,040		1,859
Total assets	$	32,025	$	30,930
LIABILITIES AND STOCKHOLDER’S EQUITY
Current liabilities:
Accounts payable and other current liabilities	$	2,573	$	2,346
Long-term debt due within one year		176		160
Total current liabilities		2,749		2,506
Long-term debt		1,609		1,669
Deferred income taxes		7,890		7,813
Casualty and environmental liabilities		906		941
Minimum pension liability		353		353
Employee separation costs		116		124
Other liabilities		1,653		1,698
Total liabilities		15,276		15,104
Commitments and contingencies (see Notes 2, 4 and 5)
Stockholder’s equity:
Common stock, $1 par value, 1,000 shares authorized; issued and outstanding and paid-in capital		6,286		6,286
Retained earnings		10,339		9,533
Accumulated other comprehensive income		124		7
Total stockholder’s equity		16,749		15,826
Total liabilities and stockholder’s equity	$	32,025	$	30,930

See accompanying Notes to Consolidated Financial Statements.

4

BNSF RAILWAY COMPANY and SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in millions)

(Unaudited)

Six Months Ended June 30,	2005			2004
OPERATING ACTIVITIES
Net income	$	806		$	540
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		531			500
Deferred income taxes		165			225
Employee separation costs paid		(15	)		(15	)
Long-term casualty and environmental liabilities, net		(33	)		32
Other, net		(171	)		(78	)
Changes in current assets and liabilities:
Accounts receivable, net		(108	)		(92	)
Materials and supplies		(39	)		(28	)
Other current assets		(61	)		(122	)
Accounts payable and other current liabilities		179			(97	)
Net cash provided by operating activities		1,254			865
INVESTING ACTIVITIES
Capital expenditures		(797	)		(692	)
Other, net		(499	)		(287	)
Net cash used for investing activities		(1,296	)		(979	)
FINANCING ACTIVITIES
Payments on long-term debt, net		(77	)		(71	)
Net (increase) decrease in intercompany notes receivable		(181	)		230
Other, net		—			1
Net cash (used for) provided by financing activities		(258	)		160
(Decrease) increase in cash and cash equivalents		(300	)		46
Cash and cash equivalents:
Beginning of period		321			18
End of period	$	21		$	64
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid, net of amounts capitalized	$	59		$	31
Income taxes paid, net of refunds	$	346		$	155
Non-cash asset financing	$	38		$	48

See accompanying Notes to Consolidated Financial Statements.

5

BNSF RAILWAY COMPANY and SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDER’S EQUITY

(Dollars in millions)

(Unaudited)

	Common Stock and Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income		Total Stockholder’s Equity
Balance at December 31, 2004	$	6,286	$	9,533	$	7	$	15,826
Comprehensive income:
Net income		—		806		—		806
Gain on derivative instruments, net of tax expense of $74		—		—		117		117
Total comprehensive income								923
Balance at June 30, 2005	$	6,286	$	10,339	$	124	$	16,749

See accompanying Notes to Consolidated Financial Statements.

6

BNSF RAILWAY COMPANY and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

1. Accounting Policies and Interim Results

The Consolidated Financial Statements should be read in conjunction with BNSF Railway Company’s Annual Report on Form 10-K for the year ended December 31, 2004, including the financial statements and notes thereto. The Consolidated Financial Statements include the accounts of BNSF Railway Company and its majority-owned subsidiaries, all of which are separate legal entities (collectively, BNSF Railway or Company). BNSF Railway is a wholly-owned subsidiary of Burlington Northern Santa Fe Corporation (BNSF), and is the principal operating subsidiary of BNSF. All significant intercompany accounts and transactions have been eliminated.

The results of operations for any interim period are not necessarily indicative of the results of operations to be expected for the entire year. In the opinion of management, the unaudited financial statements reflect all adjustments (consisting of only normal recurring adjustments except as disclosed) necessary for a fair statement of BNSF Railway’s consolidated financial position as of June 30, 2005, and the results of operations for the three and six month periods ended June 30, 2005 and 2004.

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

2. Hedging Activities

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

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

Fuel

Fuel costs represented 18 percent and 14 percent of total operating expenses during the six month periods ended June 30, 2005 and 2004, respectively. Due to the significance of diesel fuel expenses to the operations of BNSF Railway 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 the first six months of 2005 and excluding the impact of the hedges, each one-cent increase in the price of fuel would result in approximately $14 million of additional fuel expense on an annual basis.

7

BNSF RAILWAY COMPANY and SUBSIDIARIES

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

Total Fuel-Hedging Activities

As of June 30, 2005, BNSF Railway’s total fuel hedging activities covered 48 percent, 27 percent, and 3 percent of estimated fuel purchases for the remainder of 2005, 2006 and 2007, 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):

	Three Months Ended June 30,						Six Months Ended June 30,
	2005			2004			2005			2004
Hedge benefit	$	124		$	64		$	231		$	114
Ineffective portion of unexpired hedges		—			(1	)		(2	)		3
Tax effect		(48	)		(24	)		(88	)		(45	)
Hedge benefit, net of tax	$	76		$	39		$	141		$	72

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

	June 30, 2005			December 31, 2004
Short-term fuel-hedging asset	$	440		$	264
Long-term fuel-hedging asset		118			105
Ineffective portion of unexpired hedges		(2	)		(4	)
Tax effect		(214	)		(140	)
Amount included in AOCI, net of tax	$	342		$	225
Settled fuel-hedging contracts receivable	$	124		$	131

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

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

NYMEX #2 Heating Oil Hedges

As of June 30, 2005, BNSF Railway had entered into fuel swap and costless collar agreements utilizing NYMEX #2 heating oil (HO). The hedge prices do not include taxes, transportation costs, certain other fuel handling costs and any differences which may occur between the prices of HO and the purchase price of BNSF Railway’s diesel fuel. The sum of all such costs typically ranges between 7 and 17 cents per gallon.

8

BNSF RAILWAY COMPANY and SUBSIDIARIES

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

During the first half of 2005, the Company converted approximately 26 million gallons of WTI collars into HO swaps at an average price of $0.84 per gallon. The following tables provide fuel-hedge data based on the quarter being hedged for all HO fuel hedges outstanding as of June 30, 2005:

	Quarter Ending
2005	September 30,		December 31,		Total
HO Swaps
Gallons hedged (in millions)		45.15		15.75		60.90
Average swap price (per gallon)	$	0.87	$	0.93	$	0.89
Fair value (in millions)	$	35	$	12	$	47
HO Collars
Gallons hedged (in millions)		12.60		22.05		34.65
Average cap price (per gallon)	$	0.96	$	0.98	$	0.97
Average floor price (per gallon)	$	0.88	$	0.90	$	0.89
Fair value (in millions)	$	9	$	16	$	25

	Quarter Ending
2006	March 31,		June 30,		September 30,		December 31,		Annual
HO Collars
Gallons hedged (in millions)		15.75		22.05		28.35		31.50		97.65
Average cap price (per gallon)	$	0.97	$	0.92	$	0.91	$	0.94	$	0.93
Average floor price (per gallon)	$	0.90	$	0.84	$	0.84	$	0.87	$	0.86
Fair value (in millions)	$	12	$	16	$	21	$	23	$	72
	Quarter Ending
2007	March 31,		June 30,		September 30,		December 31,		Annual
HO Collars
Gallons hedged (in millions)		31.50		—		—		—		31.50
Average cap price (per gallon)	$	0.93	$	—	$	—	$	—	$	0.93
Average floor price (per gallon)	$	0.86	$	—	$	—	$	—	$	0.86
Fair value (in millions)	$	23	$	—	$	—	$	—	$	23

West Texas Intermediate Crude Oil Hedges

In addition, BNSF Railway enters into fuel swap and costless collar agreements utilizing West Texas Intermediate crude oil (WTI). The hedge prices do not include taxes, transportation costs, certain other fuel handling costs, and any differences which may occur between the prices of WTI and the purchase price of BNSF Railway’s diesel fuel, including refining costs. The sum of all such costs typically ranges between 12 and 32 cents per gallon. Due to recent increases in refining costs, the difference between WTI prices and the purchase price of BNSF Railway diesel fuel is currently outside of this typical range.

9

BNSF RAILWAY COMPANY and SUBSIDIARIES

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

No additional WTI hedges were entered into during the first six months of 2005; however, during the first half of 2005, the Company converted approximately 26 million gallons of WTI collars into HO swaps as stated in the NYMEX #2 Heating Oil Hedges section. The following tables provide fuel-hedge data based on the quarter being hedged for all WTI fuel hedges outstanding as of June 30, 2005:

	Quarter Ending
2005	September 30,		December 31,		Total
WTI Swaps
Barrels hedged (in thousands)		1,125		1,350		2,475
Equivalent gallons hedged (in millions)		47.25		56.70		103.95
Average swap price (per barrel)	$	24.55	$	24.54	$	24.54
Fair value (in millions)	$	37	$	46	$	83
WTI Collars
Barrels hedged (in thousands)		1,700		1,650		3,350
Equivalent gallons hedged (in millions)		71.40		69.30		140.70
Average cap price (per barrel)	$	27.30	$	27.11	$	27.21
Average floor price (per barrel)	$	22.70	$	22.57	$	22.64
Fair value (in millions)	$	51	$	52	$	103

	Quarter Ending
2006	March 31,		June 30,		September 30,		December 31,		Annual
WTI Swaps
Barrels hedged (in thousands)		1,350		675		375		—		2,400
Equivalent gallons hedged (in millions)		56.70		28.35		15.75		—		100.80
Average swap price (per barrel)	$	24.43	$	25.16	$	25.69	$	—	$	24.83
Fair value (in millions)	$	45	$	22	$	12	$	—	$	79
WTI Collars
Barrels hedged (in thousands)		1,500		1,500		825		525		4,350
Equivalent gallons hedged (in millions)		63.00		63.00		34.65		22.05		182.70
Average cap price (per barrel)	$	30.05	$	30.20	$	30.81	$	31.93	$	30.47
Average floor price (per barrel)	$	25.66	$	25.79	$	26.32	$	27.42	$	26.04
Fair value (in millions)	$	43	$	42	$	22	$	13	$	120
	Quarter Ending
2007	March 31,		June 30,		September 30,		December 31,		Annual
WTI Collars
Barrels hedged (in thousands)		150		—		—		—		150
Equivalent gallons hedged (in millions)		6.30		—		—		—		6.30
Average cap price (per barrel)	$	33.00	$	—	$	—	$	—	$	33.00
Average floor price (per barrel)	$	29.00	$	—	$	—	$	—	$	29.00
Fair value (in millions)	$	4	$	—	$	—	$	—	$	4

10

BNSF RAILWAY COMPANY and SUBSIDIARIES

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

NYMEX #2 Heating Oil Refining Spread Hedges

As of June 30, 2005, the Company had entered into fuel swap agreements utilizing the HO refining spread (HO-WTI) to hedge the equivalent of approximately 69 million gallons of fuel with an average swap price of $11.51 per barrel. HO-WTI is the difference in price between HO and WTI; therefore a HO-WTI swap in combination with a WTI swap is equivalent to a HO swap. The following table provides fuel hedge data based upon the quarter being hedged for all HO-WTI fuel hedges outstanding as of June 30, 2005:

	Quarter Ending
2005	September 30,		December 31,		Total
HO-WTI Swaps
Barrels hedged (in thousands)		900		750		1,650
Equivalent gallons hedged (in millions)		37.80		31.50		69.30
Average swap price (per barrel)	$	11.75	$	11.22	$	11.51
Fair value (in millions)	$	—	$	2	$	2

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, establishing rates in anticipation of future debt issuances and 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.

As of June 30, 2005, the Company had no interest hedging transactions outstanding. As of June 30, 2004, the Company had one swap transaction outstanding with an interest rate component and recorded a de minimis hedge benefit in the Consolidated Statement of Income for the quarter then ended.

3. Accounts Receivable, Net

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

The Company’s total capacity to sell undivided interests to investors under the A/R sales program is $700 million at June 30, 2005, which is comprised of a $350 million, 364-day accounts receivable facility and a $350 million, five-year accounts receivable facility. The commitments of the investors are currently scheduled to expire in October 2005 and October 2008, respectively. Outstanding undivided interests held by investors under the A/R sales program were $650 million at June 30, 2005 and December 31, 2004. These receivables are derecognized by BNSF Railway in connection with the sale of undivided interests under the A/R sales program. The undivided interests were supported by $1,026 million and $894 million of receivables transferred by SFRC to the master trust at June 30, 2005 and December 31, 2004, respectively. When SFRC transfers these receivables to the master trust, it retains an undivided interest in the receivables sold. This retained interest is included in accounts receivable in the Company’s financial statements. SFRC’s retained interest in these receivables of $376 million and $244 million at June 30, 2005 and December 31, 2004, respectively, less an allowance for uncollectible accounts, reflected the total accounts receivable transferred by SFRC to the master trust less $650 million at June 30, 2005 and December 31, 2004, 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.

11

BNSF RAILWAY COMPANY and SUBSIDIARIES

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

The Company retains the collection responsibility with respect to the accounts receivable. Proceeds from collections reinvested in the A/R sales program were approximately $6.4 billion and $5.5 billion for the six months ended June 30, 2005 and 2004, respectively. No servicing asset or liability has been recorded because the fees the Company receives for servicing the receivables approximate the related costs. SFRC’s costs of the sale of receivables are included in other expense, net and were $6 million and $5 million for the six months ended June 30, 2005 and 2004, respectively. These costs fluctuate monthly with changes in prevailing interest rates and were based on weighted average interest rates of 2.9 percent and 1.1 percent in the six months ended June 30, 2005 and 2004, respectively. These costs include interest, discounts associated with transferring the receivables under the A/R sales program to SFRC, program fees paid to banks, incidental commercial paper issuing costs, and fees for unused commitment availability.

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

Receivables funded under the A/R sales program may not include amounts over 90 days past due or concentrations over certain limits with any one customer and certain other receivables. At June 30, 2005 and December 31, 2004, $84 million and $77 million, respectively, of accounts receivable were greater than 90 days old. The Company maintains an allowance for bill adjustments and uncollectible accounts based upon the expected collectibility of accounts receivable, including receivables transferred to the master trust. Credit losses are based on specific identification of uncollectible accounts and application of historical collection percentages by aging category. At June 30, 2005 and December 31, 2004, $53 million and $59 million, respectively, of such allowances had been recorded of which $43 million and $52 million, respectively, had been recorded as a reduction to accounts receivable, net. Additionally, at June 30, 2005 and December 31, 2004, approximately $10 million and $7 million, respectively, had been recorded as an allowance for bill adjustments and uncollectible accounts in accounts payable and other current liabilities because they relate to the $650 million of outstanding undivided interests held by investors. During the six months ended June 30, 2005 and 2004, $4 million and $5 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 June 30, 2005, BNSF Railway is in compliance with these provisions.

12

BNSF RAILWAY COMPANY and SUBSIDIARIES

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

4. Debt

Guarantees

Debt and other obligations of non-consolidated entities guaranteed by the Company as of June 30, 2005, are as follows (dollars in millions):

	Guarantees
	BNSF Railway Ownership Percentage		Principal Amount Guaranteed		Maximum Future Payments		Maximum Recourse Amount a		Remaining Term (in years)	Capitalized Obligations
Kinder Morgan Energy Partners, L.P.	0.5	%	$	190	$	190	$	—	Termination of Ownership	$	—
Kansas City Terminal Intermodal Transportation Corporation	0.0	%	$	65	$	101	$	101	13	$	36	b
Westside Intermodal Transportation Corporation	0.0	%	$	43	$	70	$	—	18	$	37	b
The Unified Government of Wyandotte County/Kansas City, Kansas	0.0	%	$	14	$	22	$	—	18	$	12	b
Various lessors (Residual value guarantees)	0.0	%		N/A	$	298	$	298	Various	$	69	c
All other	0.0	%	$	9	$	10	$	5	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 Sheet.

c Reflects the FIN 45 asset and corresponding liability for the fair value of the residual value guarantees on the Company’s Consolidated Balance Sheet.

Kinder Morgan Energy Partners, L.P.

Santa Fe Pacific Pipelines, Inc. (SFPP), an indirect, wholly owned subsidiary of BNSF, has a guarantee in connection with its remaining special limited partnership interest in SFPP, L.P., 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 Railway or the exercise of the call rights by the general partners of SFPP, L.P.

Kansas City Terminal Intermodal Transportation Corporation

BNSF Railway and another major railroad jointly and severally guarantee $65 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 will be required to fund a portion of the remaining obligation upon default by the original debtor.

13

BNSF RAILWAY COMPANY and SUBSIDIARIES

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

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

BNSF Railway has guaranteed $57 million of debt, the proceeds of which were 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 will only be called for upon default by the original debtor.

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 in the actual residual value of the leased equipment over the RVG. These guarantees will expire between 2005 and 2011.

The maximum future payments, as disclosed in the Guarantees table above, represent the undiscounted maximum amount that BNSF Railway 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 Railway does not anticipate such a large reduction in the fair market value of the leased equipment. As of June 30, 2005, the Company has recorded a $69 million asset and corresponding liability for the fair value of the RVG.

All other

BNSF Railway guarantees $9 million of other debt. BNSF Railway holds a performance bond and has the option to sub-lease property to recover up to $5 million of the $9 million of guarantees. These guarantees expire between 2005 and 2014.

Other than as discussed above, there is no collateral held by a third party which 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 Railway enters into agreements with third parties that include indemnification clauses. In general, these clauses are customary for the types of agreements in which they are included. At times, these clauses may involve indemnification for the acts of the Company, its employees and 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 financial statements. Accordingly, no fair value liability related to indemnities has been recorded in the financial statements.

14

BNSF RAILWAY COMPANY and SUBSIDIARIES

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

5. Commitments and Contingencies

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 Railway 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 Railway 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.

Asbestos

The Company is party to a number of personal injury claims by employees who worked around asbestos. The heaviest exposure for BNSF Railway 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 it was substantially eliminated by 1985.

Prior to 2000, claim filings against the Company for asbestos were not numerous and were sporadic. Accordingly, while the Company had concluded that a probable loss had occurred, it did not believe it could estimate the range of reasonably possible loss because of the lack of experience with such claims and the lack of detailed employment records for the population of exposed employees. The Company believed, however, that the low end of the range of reasonably possible loss, as that term is used in FASB Interpretation No. 14 (FIN 14), Reasonable Estimation of the Amount of a Loss, was immaterial. Subsequent to this period, claim filings increased and, when they continued into 2004, the Company concluded that the low end of the range of reasonably possible loss would be material and that an estimate for unasserted asbestos exposure liability needed to be recorded. BNSF Railway then engaged a third party, with extensive experience in performing asbestos studies, to assist in assessing the unasserted liability exposure. The objective of the assessment was to determine the number of estimated unasserted asbestos claims and the estimated average cost per claim. The Company, with the assistance of the third party, first determined its exposed population from which it was able to derive the estimated number of unasserted claims. The estimated average cost per claim was then determined utilizing recent actual average cost per claim data.

The Company currently expects to obtain an update to this study in the third quarter of 2005. On a quarterly basis, BNSF Railway will monitor actual experience against the number of forecasted claims to be received and expected claim payments. Adjustments to the Company’s estimates will be recorded quarterly if necessary. More periodic updates to the study will occur if trends necessitate a change.

15

BNSF RAILWAY COMPANY and SUBSIDIARIES

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

The following table summarizes the activity in the Company’s accrued obligations for both asserted and unasserted asbestos matters (in millions):

	Three Months Ended June 30,						Six Months Ended June 30,
	2005			2004			2005			2004
Beginning balance	$	340		$	60		$	345		$	60
Accruals		—			7			—			15
Payments		(4	)		(4	)		(9	)		(12	)
Ending balance at June 30,	$	336		$	63		$	336		$	63

Of the June 30, 2005 obligation, $276 million is related to unasserted claims while $60 million is related to asserted claims. At June 30, 2005, $20 million is included in current liabilities. The recorded liability is not discounted. In addition, defense and processing costs, which are recorded on an as-reported basis, are 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 Railway:

	Three Months Ended June 30,				Six Months Ended June 30,
	2005		2004		2005		2004
Claims unresolved at beginning of period	1,919		1,973		1,926		1,985
Claims filed	312		192		485		432
Claims settled, dismissed or otherwise resolved	(111	)	(189	)	(291	)	(441	)
Ending balance at June 30,	2,120		1,976		2,120		1,976

Based on BNSF Railway’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 Railway specific data that was the basis for the study. BNSF Railway projects that approximately 50, 70, and 90 percent of the future unasserted asbestos claims will be incurred 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 $250 million to $450 million. However, BNSF Railway believes that the $336 million recorded is the best estimate of the Company’s future obligation for the settlement of asbestos claims.

The amounts recorded by BNSF Railway 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 Railway that none of these items, when finally resolved, will have a material adverse effect on the Company’s financial position or liquidity. However, should a number of these items occur in the same period, it could have a material adverse effect on the results of operations in a particular quarter or fiscal year.

16

BNSF RAILWAY COMPANY and SUBSIDIARIES

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

Other Personal Injury

BNSF Railway uses a third party actuary to assist the Company in estimating its other personal injury liability claims and expense. These estimates are based on the covered population, activity levels and trends in frequency, and the costs of covered injuries. These actuarial 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.

BNSF Railway obtains quarterly actuarial updates for other personal injury liabilities and monitors 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 accrued obligations for other personal injury matters (in millions):

	Three Months Ended June 30,						Six Months Ended June 30,
	2005			2004			2005			2004
Beginning balance	$	439		$	447		$	459		$	453
Accruals		45			51			90			93
Payments		(35	)		(59	)		(100	)		(107	)
Ending balance at June 30,	$	449		$	439		$	449		$	439

At June 30, 2005, $170 million is included in current liabilities. BNSF Railway’s liabilities for other personal injury claims are undiscounted. In addition, defense and processing costs, which are recorded on an as-reported basis, are 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 Railway:

	Three Months Ended June 30,				Six Months Ended June 30,
	2005		2004		2005		2004
Claims unresolved at beginning of period	3,884		4,488		4,116		4,393
Claims filed	1,025		837		1,937		1,777
Claims settled, dismissed or otherwise resolved	(1,194	)	(974	)	(2,338	)	(1,819	)
Ending balance at June 30,	3,715		4,351		3,715		4,351

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 $400 million to $550 million. However, BNSF Railway believes that the $449 million recorded is the best estimate of the Company’s future obligation for the settlement of other personal injury claims.

The amounts recorded by BNSF Railway 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.

17

BNSF RAILWAY COMPANY and SUBSIDIARIES

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

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 Railway that none of these items, when finally resolved, will have a material adverse effect on the Company’s financial position or liquidity. However, should a number of these items occur in the same period, it could have a material adverse effect on the results of operations in a particular quarter or fiscal year.

Environmental

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

During the first half of 2004, the Company experienced a significant increase in expense relating to environmental remediation developments at known sites for which the majority of the contamination occurred decades ago. Because of these and other developments in recent periods, the Company performed an assessment to determine if it was feasible to better estimate developments at its known sites. The Company determined that a third party actuary had proprietary data that included information from the EPA and other governmental agencies as well as information accumulated from public sources and work performed for other clients. Because of its determination that a better estimate of future development could be made with this data, BNSF Railway engaged this third party actuary, which has an extensive background in performing various studies for large companies, including environmental matters, to assist BNSF Railway in determining the Company’s potential future environmental exposure at known sites. As a result of this study, the Company revised its estimate of its probable environmental losses and its accrued liabilities. The estimate did not include (i) contaminated sites of which the Company is not aware, or (ii) additional amounts for third party claims, which arise out of contaminants allegedly migrating from BNSF Railway property, due to a limited number of sites. BNSF Railway continues to estimate third party claims on a site by site basis when the liability for such claims is probable and reasonably estimable. BNSF Railway’s recorded liability for third party claims as of June 30, 2005 is approximately $20 million.

18

BNSF RAILWAY COMPANY and SUBSIDIARIES

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

The Company’s estimate of ultimate cost for clean up efforts at its known environmental sites utilizes BNSF Railway’s historical payment patterns, its current estimated percentage to closure ratios, and the actuary’s proprietary benchmark patterns developed from data accumulated from public sources and work performed by it for other clients, including the EPA and other governmental agencies. These factors incorporate experience gained from clean up efforts at other similar sites into the estimates for which remediation and restoration efforts are still in progress. BNSF Railway also conducts an ongoing environmental contingency analysis, which considers 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.

The Company currently expects to obtain an update to this study in the third quarter of 2005. On a quarterly basis, BNSF Railway will also monitor actual experience against the forecasted remediation and related payments made on existing sites. Additionally, BNSF Railway will continue its existing, quarterly process to monitor developments to further benchmark actuarial results. Adjustments to the Company’s estimates will continue to be recorded quarterly if necessary based upon developments in subsequent periods. More periodic updates to the study will occur if trends necessitate a change.

BNSF Railway is involved in a number of administrative and judicial proceedings and other mandatory cleanup efforts for 379 sites, 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):

	Three Months Ended June 30,						Six Months Ended June 30,
	2005			2004			2005			2004
Beginning balance	$	376		$	214		$	385		$	199
Accruals		8			38			8			64
Payments		(13	)		(10	)		(22	)		(21	)
Ending balance at June 30,	$	371		$	242		$	371		$	242

At June 30, 2005, $60 million is included in current liabilities. BNSF Railway’s environmental liabilities are not discounted. BNSF Railway anticipates that the majority of the accrued costs at June 30, 2005 will be paid over the next ten years, and no individual site is considered to be material.

19

BNSF RAILWAY COMPANY and SUBSIDIARIES

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

The following table summarizes the environmental sites:

	Three Months Ended June 30,			Six Months Ended June 30,
	2005	2004		2005		2004
BNSF Sites
Number of sites at beginning of period	378	370		384		402
Sites added during the period	1	11		6		22
Sites closed during the period	—	(1	)	(11	)	(44	)
Number of sites at June 30,	379	380		379		380
	Three Months Ended June 30,			Six Months Ended June 30,
	2005	2004		2005		2004
Superfund Sites
Number of sites at beginning of period	23	20		24		22
Sites added during the period	—	1		—		2
Sites closed during the period	—	—		(1	)	(3	)
Number of sites at June 30,	23	21		23		21

Liabilities recorded for environmental costs represent BNSF Railway’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 Railway’s best estimate of all probable costs, without reduction for anticipated recoveries from third parties, BNSF Railway’s total cleanup costs at these sites cannot be predicted with certainty due to various factors such as the extent of corrective actions that may be required, evolving environmental laws and regulations, advances in environmental technology, the extent of other parties’ participation in cleanup efforts, developments in ongoing environmental analyses related to sites determined to be contaminated, and developments in environmental surveys and studies of 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 $600 million. However, BNSF Railway believes that the $371 million recorded 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 Railway 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.

Other Claims and Litigation

In addition to asbestos, other personal injury, and environmental matters discussed above, BNSF Railway 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). Some of the legal proceedings include claims for punitive as well as compensatory damages, and a few proceedings purport to be class actions.

While the final outcome of these matters cannot be predicted with certainty, considering among other things the meritorious legal defenses available and liabilities that have been recorded along with applicable insurance, it is the opinion of BNSF Railway 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.

20

BNSF RAILWAY COMPANY and SUBSIDIARIES

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

6. Employee Separation Costs

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

Six Months Ended June 30,	2005			2004
Beginning balance at January 1,	$	154		$	179
Accruals		7			2
Payments		(15	)		(15	)
Ending balance at June 30,	$	146		$	166

Employee separation liabilities of $146 million are included in the Consolidated Balance Sheet at June 30, 2005, and principally represent the following: (i) deferred benefits payable upon separation or retirement to certain active conductors, trainmen and locomotive engineers; (ii) employee-related severance costs for the consolidation of clerical functions, material handlers in mechanical shops and trainmen on reserve boards; and (iii) certain non-union employee severance costs. Employee separation expenses are recorded in materials and other in the Consolidated Statements of Income. At June 30, 2005, $30 million of the remaining liabilities are included in current liabilities for anticipated costs to be paid over the next twelve months.

Conductors, Trainmen and Locomotive Engineers

Liabilities related to deferred benefits payable upon separation or retirement to certain active conductors, trainmen and locomotive engineers are $126 million at June 30, 2005. These costs were primarily incurred in connection with labor agreements reached prior to the consummation of the business combination of BNSF’s predecessor companies Burlington Northern, Inc. and Santa Fe Pacific Corporation (the Merger) which, among other things, reduced train crew sizes and allowed for more flexible work rules. The remaining costs will be paid through approximately 2024. In 2005 and 2004, the Company updated its estimates and recorded an additional liability of $2 million each year related to deferred benefits.

Consolidation of Clerical Functions

Liabilities related to the consolidation of clerical functions are $14 million at June 30, 2005, and primarily provide for separation programs announced in July 2003 and July 2004 and severance costs associated with the clerical consolidation plan adopted in 1995 upon the Merger. The July 2004 separation program affected approximately 40 employees and resulted in accrued severance costs of approximately $4 million. Reductions related to the July 2004 separation program were substantially completed by December 31, 2004. The July 2003 separation program resulted in accrued severance costs of approximately $12 million, affected approximately 150 employees and was substantially completed in 2003. The 1995 consolidation plan resulted in the elimination of approximately 1,500 permanent positions and was substantially completed during 1999. The liability also includes costs related to the reduction of approximately 40 and 140 material handlers in 2001 and 2000, respectively. In the first six months of 2005, BNSF recorded other liabilities of approximately $4 million primarily related to a voluntary severance program for certain union employees.

Other Employee Separation Costs

Other employee separation cost liabilities are $6 million at June 30, 2005, and principally relate to certain remaining non-union employee severances resulting from the fourth quarter 2001 workforce reduction and the Merger. These costs will be paid over the next several years based on deferral elections made by the affected employees. Also included in the other employee separation costs accrual is an estimate for the remaining payments to be made to other union employees as a result of a $1 million relocation program initiated in the first quarter of 2005. This program is expected to be substantially complete by the end of 2005.

21

BNSF RAILWAY COMPANY and SUBSIDIARIES

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

7. Retirement Plans and Other Post-Employment Benefit Plans

Components of the net periodic cost for the three and six months ended June 30 were as follows (in millions):

	Pension Benefits
	Three Months Ended June 30,						Six Months Ended June 30,
Net Periodic Cost	2005			2004			2005			2004
Service cost	$	5		$	5		$	10		$	10
Interest cost		25			24			47			48
Expected return on plan assets		(26	)		(28	)		(51	)		(56	)
Amortization of net loss		7			3			13			6
Net cost recognized	$	11		$	4		$	19		$	8

	Health and Welfare Benefits
	Three Months Ended June 30,						Six Months Ended June 30,
Net Periodic Cost	2005			2004			2005			2004
Service cost	$	—		$	1		$	1		$	2
Interest cost		3			5			7			10
Amortization of net loss		1			1			2			3
Amortization of prior service costs		(1	)		(1	)		(3	)		(2	)
Net cost recognized	$	3		$	6		$	7		$	13

BNSF sponsors a postretirement health care benefit plan that provides prescription drug coverage. The recent Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (Act) provides for a federal subsidy for plans that provide prescription drug benefits that are actuarially equivalent to Medicare Part D.

BNSF adopted guidance pursuant to FASB Staff Position 106-2 Accounting and Disclosure Requirements Related to the Drug, Improvement and Modernization Act of 2003 as of April 1, 2004. The Company and its actuarial advisors have determined that the prescription drug coverage provided by BNSF’s post-retirement health care benefit plan is actuarially equivalent to Medicare Part D, and accordingly, the subsidy will provide some relief for BNSF ongoing retiree medical costs.

8. Related Party Transactions

BNSF Railway is involved with BNSF and certain of its subsidiaries in related party transactions in the ordinary course of business, which include payments made on each other’s behalf and performance of services. Under the terms of a tax allocation agreement with BNSF, BNSF Railway made federal and state income tax payments, net of refunds, of $346 million and $155 million during the first six months of 2005 and 2004, respectively, which are reflected in changes in working capital in the Consolidated Statement of Cash Flows.

BNSF Railway had a net intercompany payable balance of $9 million and $2 million at June 30, 2005 and December 31, 2004, respectively. These balances are reflected in accounts payable in the Consolidated Balance Sheet. Net intercompany payable balances are settled in the ordinary course of business.

22

BNSF RAILWAY COMPANY and SUBSIDIARIES

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

At June 30, 2005 and December 31, 2004, BNSF Railway had $184 million and $152 million, respectively, of intercompany notes payable to BNSF at a variable interest rate of 1.0 percent above the monthly average of the daily effective Federal Funds rate. During the first six months of 2005, BNSF Railway had additional borrowings of $32 million of variable rate notes and made a de minimis amount of repayments. Proceeds from borrowings are primarily used to fund capital expenditures and other investing activities. Interest is paid semi-annually on all intercompany notes payable. Interest expense on intercompany notes payable is reflected in interest income, related parties in the Consolidated Income Statements. The intercompany notes are due on demand.

At June 30, 2005 and December 31, 2004, BNSF Railway had $2,224 million and $2,011 million, respectively, of intercompany notes receivable from BNSF with a variable interest rate of 1.0 percent above the monthly average of the daily effective Federal Funds rate. The $213 million increase in intercompany notes receivable is due to $767 million of repayments from BNSF offset by additional borrowings of $980 million during the first six months of 2005. Interest is collected semi-annually on all intercompany notes receivable. The intercompany notes receivable are presented net of the intercompany notes payable discussed above in the Consolidated Balance Sheets. Interest income from intercompany notes receivable is presented in interest income, related parties in the Consolidated Income Statements.

BNSF Logistics is a wholly owned subsidiary of BNSF that specializes in providing third-party logistics services. BNSF Railway earned revenues of $6 million and $1 million for the six months ended June 30, 2005 and 2004, respectively, for transportation services provided to BNSF Logistics by BNSF Railway. Additionally, BNSF Railway purchased truck transportation services for the Company’s materials and supplies from BNSF Logistics of $13 million and $7 million for the six months ended June 30, 2005 and 2004.

Under various stock incentive plans, BNSF has granted options to employees to purchase its common stock at a price not less than the fair market value at the date of grant. Certain employees of BNSF Railway participate in these plans. In addition, under these plans BNSF has provided other long-term incentives to certain BNSF Railway employees, including, among other things, restricted stock and a discounted stock purchase program. Compensation expense, net of tax, recorded for stock incentive plans in accordance with Accounting Principles Board Opinion 25 was $10 million and $7 million for the six months ended June 30, 2005 and 2004, respectively.

9. Accounting Pronouncements

Stock-Based Compensation

The Financial Accounting Standards Board (FASB) issued SFAS No. 123R, Share-Based Payment, which originally required implementation for interim or annual reporting periods beginning after June 15, 2005. However, in April 2005, the Securities and Exchange Commission adopted a new rule to amend the compliance date to the beginning of the Company’s next fiscal year (January 1, 2006, for the Company). SFAS No. 123R requires the Company to recognize the cost of employee services received in exchange for the Company’s equity instruments. Currently, in accordance with APB Opinion 25, the Company records the intrinsic value of stock based compensation as expense. Accordingly, no compensation expense is currently recognized for fixed stock option plans as the exercise price equals the stock price on the date of grant. Under SFAS No. 123R, BNSF Railway will be required to measure compensation expense over the options’ vesting period based on the stock options’ fair value at the date the options are granted. SFAS No. 123R allows for the use of the Black-Scholes or a lattice option-pricing model to value such options. The Company has determined that it will use the Black-Scholes option-pricing model to calculate the fair value of its options. Based on a study performed by the Company’s management, the fair values obtained from each of the two pricing models were not substantially different. As allowed by SFAS No. 123R, the Company can elect either Modified Prospective Application, which applies the Statement to new awards and modified awards after the effective date, and to any unvested awards as service is rendered on or after the effective date, or Modified Retrospective Application which can apply the Statement to all prior years for which SFAS No. 123 was effective. BNSF Railway is currently evaluating which method of application will be used.

23

BNSF RAILWAY COMPANY and SUBSIDIARIES

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

Conditional Asset Retirement Obligations

In March 2005, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations—an interpretation of FASB Statement No. 143. This Interpretation clarifies that the term conditional asset retirement obligation, as used in FASB Statement No. 143, refers to a legal obligation to perform an asset retirement activity in which the timing or method of settlement, or both, are conditional on a future event that may or may not be within the control of the entity. An entity is required to recognize a liability for the fair value of a conditional asset retirement obligation if the fair value of the liability can be reasonably estimated. The Company is assessing the impact of the interpretation on its financial statements. The Interpretation will require the recording of a cumulative effect of a change in accounting principle in the fourth quarter of 2005, if applicable.

10. Report of Independent Registered Public Accounting Firm

PricewaterhouseCoopers LLP’s review report is included in this quarterly report; however, PricewaterhouseCoopers LLP does not express an opinion on the unaudited financial information. Accordingly, such report is not a “report” or “part of a registration statement” within the meaning of Sections 7 and 11 of the Securities Act of 1933 and PricewaterhouseCoopers LLP is not subject to the liability provisions of Section 11 of such Act with respect to the review report.

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Report of Independent Registered Public Accounting Firm

To the Shareholder and Board of Directors of BNSF Railway Company:

We have reviewed the accompanying consolidated balance sheet of BNSF Railway Company and its subsidiaries (“BNSF Railway” or the “Company”) as of June 30, 2005, and the related consolidated statements of income for each of the three-month and six-month periods ended June 30, 2005 and 2004, the consolidated statements of cash flows for the six-months ended June 30, 2005 and 2004 and the consolidated statement of changes in stockholder’s equity for the six-month period ended June 30, 2005. These interim financial statements are the responsibility of the Company’s management.

We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the accompanying consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

We previously audited in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet as of December 31, 2004, and the related consolidated statements of income, of changes in stockholder’s equity, and of cash flows for the year then ended (not presented herein), and in our report dated February 10, 2005 we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet information as of December 31, 2004, is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived.

/s/ PricewaterhouseCoopers LLP

Fort Worth, Texas

July 20, 2005

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

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

Results of Operations

Six Months Ended June 30, 2005 Compared with Six Months Ended June 30, 2004

Revenues

The following table presents BNSF Railway’s revenue information by commodity group for the six months ended June 30, 2005 and 2004:

	Revenues				Cars / Units		Average Revenue Per Car / Unit
	2005		2004		2005	2004	2005		2004
	(in millions)				(in thousands)
Consumer Products	$	2,368	$	1,964	2,545	2,285	$	930	$	860
Industrial Products		1,365		1,183	783	757		1,743		1,563
Coal		1,189		1,073	1,090	1,069		1,091		1,004
Agricultural Products		1,017		862	455	457		2,235		1,886
Total Freight Revenues		5,939		5,082	4,873	4,568	$	1,219	$	1,113
Other Revenues		120		58
Total Operating Revenues	$	6,059	$	5,140

Freight revenues for the first six months of 2005 were $5,939 million, up 17 percent compared with the same 2004 period. This increase is due to a 7 percent increase in cars/units and a 10 percent increase in average revenue per car/unit. Additionally, freight revenues included $414 million in fuel surcharges compared with $111 million in the prior year.

Consumer Products

The Consumer Products freight business includes a significant intermodal component and consists of the following business areas: international, direct marketing, truckload, intermodal marketing companies, automotive, and perishables and dry boxcar.

Consumer Products revenues of $2,368 million for the first six months of 2005 were $404 million, or 21 percent, greater than the first six months of 2004. Consumer Products experienced revenue gains in all sectors. The 11 percent increase in units was driven primarily by the international and truckload sectors. Rate increases and increases in fuel surcharges resulted in an 8 percent increase in revenue per unit.

Industrial Products

The Industrial Products freight business consists of four business areas: building products, construction products, chemicals and plastics and petroleum products.

Industrial Products revenues increased $182 million, or 15 percent, to $1,365 million for the first six months of 2005. The revenue increase was due to strength in all four business areas with especially strong gains in lumber, panel products, steel, cement and waste products. Rate increases, increase in fuel surcharges and larger volume increases in higher-rated commodities contributed to a 12 percent increase in average revenue per car.

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Coal

BNSF Railway is one of the largest transporters of low-sulfur coal in the United States. Approximately 90 percent of all BNSF Railway’s coal tons transported originate from the Powder River Basin of Wyoming and Montana.

Heavy snow and rain in the Powder River Basin (PRB) from late April to mid-May 2005 seriously affected rail and mining operations on the PRB joint rail line and beyond. The abnormally high precipitation, occurring just after spring thaw, followed by related derailments, one involving a BNSF Railway train and the other another Class I railroad, severely impacted operations. Another contributing factor was the long-term accumulation of coal dust on this trackage which caused the ballast section to retain water and compromise track stability in a number of locations. BNSF Railway and the other Class I railroad have agreed on the elements of a revised joint line maintenance plan. BNSF Railway had an extensive plan in place and has modified that plan in view of the unprecedented level of precipitation that affected the PRB. The plan includes undercutting, cleaning of shoulder ballast, track surfacing, and replacement or new installation of concrete ties. BNSF Railway expects this additional maintenance activity to have a modest impact on the number of its coal trains that will be operating daily on the joint line during the balance of 2005.

Coal revenues of $1,189 million, for the first six months of 2005, increased $116 million, or 11 percent, versus the same period a year ago. Coal carloads increased 2 percent as a result of new customer business volumes and higher demand from existing customers partially offset as a result of weather-related operational and maintenance disruptions in the Powder River Basin. Average revenue per car increased 9 percent, primarily driven by contractual rate escalations, fuel surcharges and increased length of haul.

Agricultural Products

The Agricultural Products freight business is the transportation of agricultural products including corn, wheat, soybeans, bulk foods, fertilizer, and other products.

Agricultural Products revenues of $1,017 million for the first six months of 2005 were $155 million, or 18 percent, higher than revenues for the first six months of 2004. This increase was primarily due to an increase of 19 percent in average revenue per car, which was related to a favorable mix change driven by increased soybean exports to China, fuel surcharges and price increases.

Other Revenues

Other Revenues increased $62 million to $120 million for the first six months of 2005 compared with the same period in 2004. The increase is primarily attributable to increases in storage related revenues.

Expenses

Total operating expenses for the first six months of 2005 were $4,709 million, an increase of $495 million, or 12 percent, versus the same period in 2004.

Compensation and benefits

Compensation and benefits includes expenses for BNSF Railway employee compensation and benefit programs. 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 for the first half of 2005 of $1,695 million were $93 million, or 6 percent, higher than the same 2004 period. This increase in expense was primarily related to higher volumes, which drove an approximate headcount increase of 5 percent. Additionally, compared to the same 2004 period, pension expense was higher, while incentive compensation expense was lower.

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Purchased services

Purchased service expenses include ramping and drayage, maintenance of locomotive and freight car equipment and technology services outsourcing, and other services, such as vegetation control, provided to BNSF Railway. The expenses are driven by the rates established in the service contracts and the volume of services required.

Purchased service expenses of $795 million for the first half of 2005 were $131 million, or 20 percent, higher than the same 2004 period. This increase was primarily due to higher volume-related costs for intermodal ramp costs, locomotive contract maintenance expense and haulage payments for contracted transportation over other roads.

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 Railway’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 $531 million for the first half of 2005 were $31 million, or 6 percent, higher than the same period in 2004. The increase in depreciation expense was due to ongoing capital expenditures.

Equipment rents

Equipment rents expenses include long-term and short-term payments primarily for locomotives, freight cars, containers and trailers. The expenses are driven primarily by volume, rental rates, the results of lease negotiations, utilization of owned equipment versus leased equipment, and changes in business mix resulting in equipment usage variances.

Equipment rents expenses for the first six months of 2005 of $431 million were $47 million, or 12 percent, higher than the first six months of 2004. The variance represents expense increases for freight car equipment and locomotive leases which are predominantly related to volume increases.

Fuel

Fuel expenses are driven by the level of locomotive consumption of diesel fuel, market prices and the effects of hedging activities.

Fuel expenses of $853 million for the first six months of 2005 were $247 million, or 41 percent, higher than the first six months of 2004. The increase in fuel expenses was due to an increase in consumption driven by higher volumes and an increase in the average all-in cost per gallon of diesel fuel. The average all-in cost per gallon of diesel fuel increased by 31 cents, or $215 million, which was comprised of an increase in the average purchase price of 46 cents, or $327 million, offset by an increase in the hedge benefit of approximately 15 cents, or $112 million (first six months 2005 benefit of $229 million less first six months of 2004 benefit of $117 million). Consumption in the first six months of 2005 was 694 million gallons, up 5 percent, compared with consumption for the first six months of 2004 of 660 million gallons, resulting in a $32 million increase in fuel expense.

Materials and other

Material expenses consist mainly of the costs involved to purchase mechanical and engineering materials and other items for construction and maintenance of property and equipment. Other expenses include personal injury claims, environmental remediation, and derailments as well as employee separation costs, utilities, and property and miscellaneous taxes. The total is offset by gains on land sales and insurance recoveries.

Materials and other expenses of $404 million for the first six months of 2005 were $54 million, or 12 percent, lower than the first six months of 2004. Approximately $170 million of the total represents materials expenses with the remainder consisting of other items. The overall decrease was primarily due to $30 million in environmental expense related to

28

developments at two former fueling facility sites during the second quarter of 2004, higher casualty costs in the 2004 period driven by two large derailments that occurred in the first quarter of 2004, and lower environmental and personal injury expenses in the first six months of 2005 primarily as a result of the third quarter 2004 charge (see Note 10 of the Consolidated Financial Statements in the Company’s 2004 Form 10-K), partially offset by higher material costs to maintain freight cars and locomotives due to higher volumes in 2005 and lower gains on land sales.

Interest expense

Interest expense of $68 million for the six months ended June 30, 2005, was $2 million, or 3 percent, higher than the same period in 2004. The increase is primarily due to higher average interest rates.

Other expense, net

Other expense was $14 million for the first six months of 2005 compared with $1 million in the same 2004 period. This increase in expense is primarily due to an interest recovery recorded in the first quarter of 2004.

Forward-Looking Information

To the extent that statements made by the Company relate to the Company’s future economic performance or business outlook, projections or expectations of financial or operational results, or refer to matters that are not historical facts, such statements are “forward-looking” statements within the meaning of the federal securities laws. Forward-looking statements involve a number of risks and uncertainties, and actual performance or results may differ materially. Important factors that could cause actual performance or results to differ materially include, but are not limited to:

•    Economic and industry conditions: material adverse changes in economic or industry conditions, both in the United States and globally, changes in customer demand, effects of adverse economic conditions affecting shippers, adverse economic conditions in the industries and geographic areas that produce and consume freight, adverse economic conditions in BNSF Railway’s supplier base, competition and consolidation within the transportation industry, the extent to which BNSF Railway is successful in gaining new long-term relationships with customers or retaining existing ones, changes in fuel prices and other key materials, changes in the securities and capital markets, and changes in crew availability, labor costs and labor difficulties, including stoppages affecting either BNSF Railway’s operations or our customers’ abilities to deliver goods to BNSF Railway for shipment;

•    Legal and regulatory factors: developments and changes in laws and regulations, the ultimate outcome of shipper and rate claims subject to adjudication, legislative and regulatory developments affecting train operations or the marketing of 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 other types of claims and litigation, including those relating to personal injuries, occupational disease, the release of hazardous materials, environmental contamination and damage to property; and

•    Operating factors: technical difficulties, changes in operating conditions and costs, commodity concentrations, 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 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, congestion on other railroads, as well as natural events such as severe weather, 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.

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

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Item 4. Controls and Procedures

Based on their evaluation as of the end of the period covered by this quarterly report on Form 10-Q, BNSF Railway’s principal executive officer and principal financial officer have concluded that BNSF Railway’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934) are effective to ensure that information required to be disclosed by BNSF Railway in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms and that such information is accumulated and communicated to BNSF Railway’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Additionally, as of the end of the period covered by this report, BNSF Railway’s principal executive officer and principal financial officer have concluded that there have been no changes in BNSF Railway’s internal control over financial reporting that occurred during BNSF Railway’s second fiscal quarter that have materially affected, or are reasonably likely to materially affect, BNSF Railway’s internal control over financial reporting.

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BNSF RAILWAY COMPANY and SUBSIDIARIES

PART II OTHER INFORMATION

Item 1. Legal Proceedings

Reference is made to the discussion in the Company’s Form 10-K for the year ended December 31, 2004, to Ray Ridgeway, et al. v. Burlington Northern Santa Fe Corporation and The Burlington Northern and Santa Fe Railway Company, No. 48-185170-00 (District Court of Tarrant County, Texas, 48th Judicial District), a state court action filed on October 27, 2000. The plaintiffs’ causes of action include alleged breach of contract, negligence, and breach of fiduciary duties with respect to a special dividend that was paid in 1988 by a Burlington Northern Santa Fe Corporation (BNSF) predecessor, Santa Fe Southern Pacific Corporation (SFSP). The complaint alleges that SFSP erroneously informed shareholders as to the tax treatment of the dividend—specifically, the apportionment of the dividend as either a distribution of earnings and profits or a return of capital—which allegedly caused some shareholders to overpay their income taxes. The plaintiffs assert, through their expert’s report, that SFSP had essentially no accumulated earnings and profits and that the entire dividend distribution should have been treated as a return of capital, rather than the approximately 34 percent that SFSP determined was a return of capital. On July 8, 2005, the court entered a final order denying the plaintiffs’ requests to certify a class action. Plaintiffs’ have filed a notice of intent to appeal this matter to the Texas Court of Appeals. BNSF believes these claims lack merit and that it has substantial defenses on both the merits of these claims and the attempted class action and it is defending these claims vigorously.

Item 6. Exhibits

A. Exhibits

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

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

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

Dated: July 26, 2005

S-1

BNSF RAILWAY COMPANY and SUBSIDIARIES

Exhibit Index

3.1	Restated Certificate of Incorporation of The Burlington Northern and Santa Fe Railway Company dated January 17, 2005, changing its name to BNSF Railway Company.
12.1	Computation of Ratio of Earnings to Fixed Charges
31.1	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)
32.1	Certification Pursuant to Rule 13a-14(b) and 18 U.S.C. § 1350 (Section 906 of the Sarbanes-Oxley Act of 2002)

E-1

EX-3.1

Exhibit 3.1

RESTATED CERTIFICATE OF INCORPORATION OF

THE BURLINGTON NORTHERN AND SANTA FE RAILWAY COMPANY

The Burlington Northern and Santa Fe Railway Company, a corporation organized and existing under the laws of the State of Delaware, hereby certifies that:

1. The present name of the corporation (hereinafter called the “Corporation”) is THE BURLINGTON NORTHERN AND SANTA FE RAILWAY COMPANY. The name under which the Corporation was originally incorporated is Great Northern Pacific & Burlington Lines, Inc., and the date of filing of the original Certificate of Incorporation of the Corporation with the Secretary of State of Delaware is January 13, 1961.

2. This Restated Certificate of Incorporation restates and integrates and further amends the provisions of the Corporation’s Certificate of Merger Merging The Atchison, Topeka and Santa Fe Railway Company with and into Burlington Northern Railroad Company dated December 30, 1996 (including Exhibit A thereto, the Restated Certificate of Incorporation of The Burlington Northern and Santa Fe Railway Company) by integrating and restating and further amending said Restated Certificate of Incorporation of The Burlington Northern and Santa Fe Railway Company in its entirety as set forth in Exhibit A attached hereto and made a part hereof.

3. The Restated Certificate of Incorporation herein certified was duly adopted and approved by the written consent of the board of directors and the stockholder of the Corporation in accordance with the applicable provisions of Sections 141(f), 228, 242 and 245 of the General Corporation Law of Delaware, as amended.

IN WITNESS WHEREOF, said THE BURLINGTON NORTHERN AND SANTA FE RAILWAY COMPANY has caused this certificate to be signed by Jeffrey T. Williams, its Assistant Secretary, on January 17th, 2005.

THE BURLINGTON NORTHERN AND SANTA FE RAILWAY COMPANY
By:	/s/ Jeffrey T. Williams
Name:	Jeffrey T. Williams
Title:	Assistant Secretary

Exhibit A

RESTATED

CERTIFICATE OF INCORPORATION

OF

BNSF RAILWAY COMPANY

FIRST: The name of the Corporation is BNSF Railway Company.

SECOND: The address of its registered office in the State of Delaware is Corporation Trust Center, 1209 Orange Street, City of Wilmington, County of New Castle, Delaware 19801. The name of its registered agent at such address is The Corporation Trust Company.

THIRD: The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware as the same exists or may hereafter be amended (“Delaware Law”).

FOURTH: The total number of shares of stock which the Corporation shall have authority to issue is one thousand (1,000) shares of common stock, having a par value of $1.00 per share.

FIFTH: In furtherance and not in limitation of the powers conferred by law, the Board of Directors is expressly authorized:

1. To make, amend or repeal the By-Laws of the Corporation, subject to the power of the stockholders of the Corporation having voting power to amend or repeal By-Laws whether adopted by them or otherwise.

2. To remove at any time any officer elected or appointed by the Board of Directors by such vote of the Board of Directors as may be provided for in the By-Laws. Any other officer of the Corporation may be removed at any time by a vote of the Board of Directors, or by any committee or superior officer upon whom such power of removal may be conferred by the By-Laws or by a vote of the Board of Directors.

3. To establish bonus, profit, sharing, stock option, stock purchase, retirement or other types of incentive or compensation plans for the employees (including officers and directors) of the Corporation and to fix the terms of such plans and to determine, or prescribe the method for determining, the persons to participate in any such plans and the amount of their respective participations.

4. To authorize, and to cause to be executed mortgages, pledges, liens and charges upon the real and personal property of the Corporation and to issue obligations secured thereby.

        Both stockholders and directors shall have power to hold their meetings and the Corporation may have one or more offices, within or without the State of Delaware, and the books of the Corporation may, subject to the laws of the State of Delaware, be kept outside of such State at such places as may be from time to time determined by the Board of Directors.

SIXTH: (1) A director of the Corporation shall not be liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director to the fullest extent permitted by Delaware Law.

(2) (a) Each person (and the heirs, executors or administrators of such person) who was or is a party or is threatened to be made a party to, or is involved in any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that such person is or was a director or officer of the Corporation or is or was serving at the request of the Corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, shall be indemnified and held harmless by the Corporation to the fullest extent permitted by Delaware Law. The right to indemnification conferred in this ARTICLE SIXTH shall also include the right to be paid by the Corporation the expenses incurred on connection with any such proceeding in advance of its final disposition of the fullest extent permitted by Delaware Law. The right to indemnification conferred in this ARTICLE SIXTH shall be a contract right.

        (b) The Corporation may, by action of its Board of Director, provide indemnification to such of the directors, officers, employees and agents of the Corporation to such extent and to such effect as the Board of Directors shall determine to be appropriate and authorized by Delaware Law.

(3) The Corporation shall have the power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss incurred by such person in any such capacity or arising out of his or her status as such, whether or not the Corporation would have the power to indemnify him or her against such liability under Delaware Law.

(4) The rights and authority conferred in this ARTICLE SIXTH shall not be exclusive of any other right which any person may otherwise have or hereafter acquire.

(5) Neither the amendment nor repeal of this ARTICLE SIXTH, nor the adoption of any provision of this Restated Certificate of Incorporation or the By-Laws of the Corporation, nor, to the fullest extent permitted by Delaware Law, any modification of law, shall eliminate or reduce the effect of this ARTICLE SIXTH in respect of any acts or omissions occurring prior to such amendment, repeal, adoption or modification.

SEVENTH: The Corporation reserves the right to amend this Restated Certificate of Incorporation in any manner permitted by Delaware Law and, with the sole exception of those rights and powers conferred under the above ARTICLE SIXTH, all rights and powers conferred herein on stockholders, directors and officers, if any, are subject to this reserved power.

EX-12.1

Exhibit 12.1

BNSF RAILWAY COMPANY and SUBSIDIARIES

COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES

(In Millions, Except Ratio Amounts)

(Unaudited)

Six Months Ended June 30,	2005		2004
Earnings:
Income before income taxes and cumulative effect of accounting change	$	1,300	$	871
Add:
Interest and fixed charges excluding capitalized interest		68		66
Portion of rent under long-term operating leases representative of an interest factor		102		95
Distributed income of investees accounted for under the equity method		2		2
Amortization of capitalized interest		4		4
Less: Undistributed equity in earnings of investments accounted for under the equity method		4		7
Total earnings available for fixed charges	$	1,472	$	1,031
Fixed charges:
Interest and fixed charges	$	74	$	71
Portion of rent under long-term operating leases representative of an interest factor		102		95
Total fixed charges	$	176	$	166
Ratio of earnings to fixed charges		8.36x		6.21x

EX-31.1

Exhibit 31.1

Principal Executive Officer’s Certification

Pursuant to Rule 13a-14(a) (Section 302 of the Sarbanes-Oxley Act of 2002)

I, Matthew K. Rose, certify that:

1. I have reviewed this quarterly report on Form 10-Q of BNSF Railway Company;

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

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

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

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

b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s second fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: July 26, 2005

/s/ Matthew K. Rose

Matthew K. Rose

Chairman, President and

Chief Executive Officer

EX-31.2

Exhibit 31.2

Principal Financial Officer’s Certification

Pursuant to Rule 13a-14(a) (Section 302 of the Sarbanes-Oxley Act of 2002)

I, Thomas N. Hund, certify that:

1. I have reviewed this quarterly report on Form 10-Q of BNSF Railway Company;

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

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

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

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

b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s second fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: July 26, 2005

/s/ Thomas N. Hund

Thomas N. Hund

Executive Vice President and

Chief Financial Officer

EX-32.1

Exhibit 32.1

Certification Pursuant to Rule 13a-14(b) and 18 U.S.C. § 1350

(Section 906 of the Sarbanes-Oxley Act of 2002)

BNSF Railway Company

In connection with the Quarterly Report of BNSF Railway (the “Company”) on Form 10-Q for the period ending June 30, 2005 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Matthew K. Rose, Chairman, President and Chief Executive Officer of the Company, and Thomas N. Hund, Executive Vice President and Chief Financial Officer of the Company, each hereby certifies that, to his knowledge on the date hereof:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: July 26, 2005

/s/ Matthew K. Rose	/s/ Thomas N. Hund
Matthew K. Rose	Thomas N. Hund
Chairman, President and Chief Executive Officer	Executive Vice President and Chief Financial Officer

A signed original of this written statement required by Section 906 has been provided to BNSF Railway Company and will be retained by BNSF Railway Company and furnished to the Securities and Exchange Commission or its staff upon request.