Management's discussion and analysis relates to the financial condition and results of operations of Burlington Northern Santa Fe Corporation and its majority-owned subsidiaries (collectively BNSF, Registrant or the Company). The principal operating subsidiary of BNSF is the BNSF Railway Company (BNSF Railway) through which BNSF derives substantially all of its revenues. All earnings per share information is stated on a diluted basis.

Company Overview

Through its subsidiaries, BNSF is engaged primarily in the freight rail transportation business. BNSF's principal operating subsidiary, BNSF Railway, operates one of the largest North American rail networks, with about 32,000 route miles in 28 states and two Canadian provinces. Through its one operating transportation segment, BNSF Railway transports a wide range of products and commodities including Consumer Products, Industrial Products, Coal and Agricultural Products.

Additional operational information, including weekly intermodal and carload unit reports as submitted to the Association of American Railroads and annual reports submitted to the Surface Transportation Board, are available on the Company's website at www.bnsf.com/investors.

Executive Summary

Third Quarter 2007 - Financial Overview:

††† Quarterly earnings were $1.48 per diluted share, or 11 percent higher than third-quarter 2006 earnings of $1.33 per diluted share.

††† Quarterly freight revenues increased $133 million, or 4 percent, to an all-time quarterly record of $3.95 billion compared with $3.82 billion in the prior year.

†† † The 4-percent increase in revenue is primarily attributable to strong yields as well as volume growth in BNSF's Agricultural Products business.

† † Unit volumes were 5-percent lower primarily due to a decrease in Consumer Products units of 10-percent resulting from economic softness as well as reduced trans-pacific service of a large international customer.

††† Operating expenses for the third quarter of 2007 increased $50 million or 2 percent as compared with the third quarter of 2006.

††† Operating income increased to $1 billion, an increase of $80 million or 9 percent, compared with the third-quarter of 2006.

Results of Operations

Three Months Ended September 30, 2007, Compared with Three Months Ended
September 30, 2006

Revenues

The following table presents BNSF's revenue information by business group for
the three months ended September 30, 2007 and 2006. Certain comparative prior
year revenue amounts have been reclassified between the business groups to
conform to the current year presentation. There was no impact to total freight
revenues as a result of these reclassifications.

                                   Revenues              Cars / Units           Average Revenue
                                 (in millions)          (in thousands)           Per Car / Unit
                               2007        2006        2007        2006         2007        2006

   Consumer Products          $ 1,455     $ 1,494       1,307       1,447     $  1,113     $ 1,032
   Industrial Products            962         951         431         440        2,232       2,161
   Coal                           849         748         627         628        1,354       1,191
   Agricultural Products          682         622         265         245        2,574       2,539
   Total Freight Revenues       3,948       3,815       2,630       2,760     $  1,501     $ 1,382
   Other Revenues                 121         124
   Total Operating Revenues   $ 4,069     $ 3,939

Freight revenues for the third quarter of 2007 were $3,948 million, up 4 percent compared with the same 2006 period, while cars/units declined 5 percent during this same period and revenue ton miles were relatively flat year over year. Freight revenues included a decrease of approximately $10 million in fuel surcharges compared with the same 2006 period. Average revenue per car/unit was up 9 percent in the third quarter of 2007 from the third quarter of 2006 primarily due to mix of business and improved pricing.

The Consumer Products' freight business includes a significant intermodal component and consists of the following three business areas:
international intermodal, domestic intermodal and automotive.

Industrial Products' freight business consists of five business areas: building products,
construction products, petroleum products, chemicals and plastic products and food and beverages.

Coal

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

Coal revenues of $849 million for the third quarter of 2007 increased $101 million, or 14 percent, compared with the same period a year ago due to increased tons per unit, contractual inflation escalators, improved yields and a $14 million accrual adjustment related to favorable coal rate case developments. Coal unit volumes were flat in the third quarter due to mine production constraints.
Agricultural Products

The Agricultural Products' freight business transports agricultural products including corn, wheat, soybeans, bulk foods, ethanol, fertilizer and other products.

Other Revenues

Other revenues decreased $3 million, or 2 percent, to $121 million for the third quarter of 2007. The decrease was primarily due to a reduction in customer storage revenues for containers at BNSF intermodal hubs.

Expenses

Total operating expenses for the third quarter of 2007 were $3,068 million, an increase of $50 million, or 2 percent, versus the same period in 2006.

Compensation and Benefits

Compensation and benefits includes expenses for BNSF employee wages, health and welfare, payroll taxes and other related items. The primary factors influencing the expenses recorded are volume, headcount, utilization, wage rates, incentives earned during the period, benefit plan participation and pension expenses.

Compensation and benefits expenses of $937 million in the third quarter of 2007 decreased by $38 million, or 4 percent, from $975 million in the third quarter of 2006 due primarily to lower variable compensation costs for the Company's salaried and scheduled workforce.

Fuel

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

Fuel expenses of $814 million for the third quarter of 2007 were $22 million, or 3 percent, higher than the third quarter of 2006. The increase in fuel expense was due to an increase in the average all-in cost per gallon of diesel fuel, partially offset by a decline in consumption related to improved fuel efficiency and lower volumes. The average all-in cost per gallon of diesel fuel increased by 19 cents to $2.31, resulting in a $62 million increase in expense. The increase in the average all-in cost is primarily related to a decrease in the hedge benefit of $75 million (third quarter 2007 benefit of $1 million less third quarter 2006 benefit of $76 million). Consumption in the third quarter of 2007 decreased by 17 million gallons to 353 million gallons when compared with consumption in the same 2006 period.

Purchased Services

Purchased services expense includes ramping (lifting of containers onto and off of cars); drayage (highway movements to and from railway facilities); maintenance of locomotives, freight cars and equipment; transportation costs over other railroads; technology services outsourcing; professional services; and other contract services provided to BNSF. Purchased services expense also includes purchased transportation costs for BNSF Logistics, an indirect, non-rail subsidiary of BNSF that specializes in providing third-party logistics and transportation services. Purchased services expenses are driven by the rates established in the related contracts and the volume of services required.

Purchased service expenses of $501 million remained relatively flat for the third quarter of 2007 compared with the third quarter of 2006.

Depreciation and Amortization

Depreciation and amortization expenses for the period are determined by using the group method of depreciation, applying a single rate to the gross investment in a particular class of property. Due to the capital-intensive nature of BNSF's operations, depreciation expense is a significant component of the Company's operating expense. The full effect of inflation is not reflected in operating expenses since depreciation is based on historical cost.

Depreciation and amortization expenses of $324 million for the third quarter of 2007 were $28 million, or 9 percent, higher than the same period in 2006. This increase in depreciation expense was primarily due to continuing capital expenditures.

Equipment Rents

Equipment rents expense includes long-term and short-term payments primarily for locomotives, freight cars, containers and trailers. The expense is driven primarily by volume, lease and rental rates, utilization of equipment and changes in business mix resulting in equipment usage variances.

Equipment rents expenses of $235 million for the third quarter of 2007 remained relatively flat for the third quarter of 2007 compared with the third quarter of 2006.

Materials and Other

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

Materials and other expenses of $257 million for the third quarter of 2007, which consisted of $108 million of materials expense with the remainder consisting of numerous other items, were $34 million or 15 percent higher than the third quarter of 2006. The increase was primarily due to environmental expenses, property taxes, crew transportation and lodging expense and a 2006 recovery related to a fuel facility, partially offset by lower asbestos expense.

Interest Expense

Interest expense of $132 million for the third quarter of 2007 was $7 million, or 6 percent, higher than the third quarter of 2006. This was primarily due to a higher average debt balance.

Income taxes

The effective tax rate for the three months ended September 30, 2007 was 38.6 percent compared with 37.8 percent for the same prior year period.

Nine Months Ended September 30, 2007, Compared with Nine Months Ended September 30, 2006

Revenues

The following table presents BNSF's revenue information by business group for
the nine months ended September 30, 2007 and 2006. Certain comparative prior
year revenue amounts have been reclassified between the business groups to
conform to the current year presentation. There was no impact to total freight
revenues as a result of these reclassifications.

                                   Revenues               Cars / Units           Average Revenue
                                 (in millions)           (in thousands)           Per Car / Unit
                               2007         2006        2007        2006         2007        2006

  Consumer Products          $  4,167     $  4,150       3,882       4,128     $  1,073     $ 1,005
  Industrial Products           2,758        2,704       1,252       1,284        2,203       2,106
  Coal                          2,385        2,141       1,832       1,822        1,302       1,175
  Agricultural Products         1,918        1,781         752         726        2,551       2,453
  Total Freight Revenues       11,228       10,776       7,718       7,960     $  1,455     $ 1,354
  Other Revenues                  329          327
  Total Operating Revenues   $ 11,557     $ 11,103

Freight revenues for the first nine months of 2007 were $11,228 million, up 4 percent compared with the same 2006 period, while cars/units declined 3 percent during this same period. Freight revenues included an increase of approximately $30 million in fuel surcharges compared with the same 2006 period. Average revenue per car/unit was up 7 percent in the first nine months of 2007 from the first nine months of 2006 primarily due to mix of business and improved pricing.

Consumer Products

Consumer Products revenues of $4,167 million for the first nine months of 2007 were relatively flat compared to the first nine months of 2006.

Industrial Products

Industrial Products revenues of $2,758 million for the first nine months of 2007 were $54 million, or 2 percent, greater than the first nine months of 2006 despite a 2 percent reduction in unit volumes, which were more than offset by improved yields. Continued strong demand for petroleum products, chemicals and plastics and construction products was offset by a decline in building and construction products as a result of weakness in the housing market.

Coal

Coal revenues of $2,385 million for the first nine months of 2007 increased $244 million, or 11 percent, compared with the same period a year ago due to increased tons per unit, contractual inflation escalators and improved yields. Coal unit volumes were relatively flat due to mine production and weather-related issues.

Agricultural Products

Agricultural Products revenues of $1,918 million for the first nine months of 2007 were $137 million, or 8 percent, higher than revenues for the first nine months of 2006. This increase was primarily due to revenue growth in wheat, ethanol, fertilizer and soybeans.

Other Revenues

Other revenues of $329 million for the first nine months of 2007 were relatively flat as compared with the same period of 2006.

Expenses

Total operating expenses for the first nine months of 2007 were $9,021 million, an increase of $496 million, or 6 percent, versus the same 2006 period.

Compensation and Benefits

Compensation and benefits expenses of $2,794 million were $28 million, or 1 percent, lower than the first nine months of 2006. This decrease was primarily related to lower variable compensation costs, partially offset by wage inflation.

Fuel

Fuel expenses of $2,237 million for the first nine months of 2007 were $206 million, or 10 percent, higher than the first nine months of 2006. The increase in fuel expense was due to an increase in the average all-in cost per gallon of diesel fuel, partially offset by a decline in consumption related to improved fuel efficiency and lower volumes. The average all-in cost per gallon of diesel fuel increased by 25 cents to $2.09, resulting in a $272 million increase in expense. The increase in the average all-in cost primarily reflects a decrease in the hedge benefit of $278 million (first nine months 2007 benefit of $25 million less first nine months 2006 benefit of $303 million). Consumption in the first nine months of 2007 decreased 31 million gallons to 1,069 million gallons when compared with consumption in the same 2006 period.

Purchased Services

Purchased service expenses of $1,510 million for the first nine months of 2007 were $65 million, or 4 percent, higher than the same 2006 period. This increase was primarily due to increases in the following costs: haulage payment for transportation over other railroads, purchased transportation costs for BNSF Logistics and locomotive and ramping costs (lifting of containers onto and off of cars).

Depreciation and Amortization

Depreciation and amortization expenses of $953 million for the first nine months of 2007 were $78 million, or 9 percent, higher than the same period in 2006. This increase in depreciation expense was primarily due to continuing capital expenditures.

Equipment Rents

Equipment rents expenses of $704 million for the first nine months of 2007 were $9 million, or 1 percent, higher than the first nine months of 2006. The variance represents an increase in locomotive lease expense, partially offset by a decrease in freight car equipment expense due to the impact of the Company's privatization efforts and velocity improvements for freight car equipment.

Materials and Other

Materials and other expenses of $823 million for the first nine months of 2007, which consisted of $330 million of materials expense with the remainder consisting of numerous other items, were $166 million, or 25 percent, higher than the first nine months of 2006. The increase was primarily due to the environmental and technology charge of $81 million (see discussion under the heading "Other Matters; Charge for Environmental Costs and Technology System Write-Off"), as well as higher materials, crew transportation and lodging expense and environmental expenses.

Interest Expense

Interest expense of $385 million for the first nine months of 2007 was $21 million, or 6 percent, higher than the third quarter of 2006. This was primarily due to a higher average debt balance.

Income taxes

The effective tax rate for the nine months ended September 30, 2007 was 38.5 percent compared with 37.3 percent for the same prior year period. The increase in the effective tax rate is primarily due to favorable prior period income tax adjustments recorded in the second quarter of 2006.

Liquidity and Capital Resources

Cash generated from operations is BNSF's principal source of liquidity. BNSF generally funds any additional liquidity requirements through debt issuance, including commercial paper, through leasing of assets and through the sale of a portion of its accounts receivable.

Operating Activities

Net cash provided by operating activities was $2,465 million for the nine months ended September 30, 2007, which was relatively flat compared with $2,366 million for the nine months ended September 30, 2006.

Investing Activities

Net cash used for investing activities was $2,111 million for the nine months ended September 30, 2007, compared with $1,845 million for the nine months ended September 30, 2006. Investing activities for the nine months ended September 30, 2007, included $1,775 million of capital expenditures, as discussed below, and $336 million of cash used for other investing activities. The increase in cash used for other investing activities primarily reflects the timing of equipment financing activities. Additionally, cash used for other investing activities included a cash source of $18 million and $45 million for the nine months ended September 30, 2007 and September 30, 2006, respectively, related to line sales to the State of New Mexico, which occurred in the first quarters of 2007 and 2006, respectively.

A breakdown of cash capital expenditures for the nine months ended September 30, 2007 and 2006, is set forth in the following table (in millions):

                Nine Months Ended September 30,    2007        2006
                Maintenance of Way                $ 1,088     $   969
                Mechanical                            102         111
                Information Services                   49          46
                Other                                  74          82
                Total Maintenance of Business       1,313       1,208
                Terminal and Line Expansion           462         341
                Total                             $ 1,775     $ 1,549

The increase in cash capital expenditures in the first nine months of 2007 was primarily due to an increase in capital expenditures to maintain BNSF's track structure and for terminal and line expansions. The above table does not include expenditures for equipment financed through operating leases.

Financing Activities

Nine Months Ended September 30, 2007

Net cash used for financing activities during the first nine months of 2007 was $354 million, primarily related to the common stock repurchases of $964 million, including $33 million to satisfy tax withholding obligations for stock option exercises, dividend payments of $268 million, partially offset by net borrowings of $659 million, proceeds from stock options exercised of $126 million and excess tax benefits from equity compensation plans of $105 million.

Aggregate debt due to mature within one year is $403 million. BNSF's ratio of net debt to total capitalization was 41.9 percent at September 30, 2007, compared with 40.0 percent at December 31, 2006. The Company's adjusted net debt to total capitalization was 52.9 percent at September 30, 2007, compared with 51.7 percent at December 31, 2006. BNSF's adjusted net debt to total capitalization is a non-GAAP financial measure and should be considered in addition to, but not as a substitute or preferable to, the information prepared in accordance with GAAP. However, management believes that adjusted net debt to total capitalization provides meaningful additional information about the ability of BNSF to service long-term debt and other fixed obligations and to fund future growth.

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

                                                         September 30,           December 31,
                                                              2007                   2006
Net debt to total capitalization a                                 41.9 %                 40.0 %
Adjustment for long-term operating leasesb                         10.9                   11.2
Adjustment for other debt equivalents c                             0.2                    0.5
Adjustment for unfunded pension and retiree health
and welfare liability                                               1.0                    1.1
Adjustment for junior subordinated notes d                         (1.1 )                 (1.1 )
Adjusted net debt to total capitalization                          52.9 %                 51.7 %

a Net debt to total capitalization is calculated as total debt (long-term debt and commercial paper plus long-term debt due within one year) less cash and cash equivalents divided by the sum of net debt and total stockholders' equity. b Represents the net present value of future operating lease commitments. c Adjustment for other debt equivalents principally includes accounts receivable financing. See Note 3 of the Consolidated Financial Statements. d Junior subordinated notes are included in total debt on the respective Consolidated Balance Sheets; however, as they include certain equity characteristics, they have been assigned 50 percent equity credit for purposes of this calculation.

In February 2007, the Board of Directors (the Board) authorized an additional $1.4 billion of debt securities that may be issued through the Securities and Exchange Commission (SEC) debt shelf registration process, for a total of $2.1 billion authorized to be issued.

In April 2007, BNSF issued $650 million of 5.65 percent debentures and $650 million of 6.15 percent debentures due May 1, 2017 and May 1, 2037, respectively. The net proceeds from the sale of the debentures are being used for general corporate purposes including, but not limited to, working capital, capital expenditures, funding the maturity of debt which matures in 2007, the repayment of commercial paper and the repurchase of common stock. The issuance of these debentures reduced the amount of debt authorized to be issued by the Board through the SEC debt shelf registration process to $800 million.

In October 2007, BNSF entered into a 20-year capital lease to finance approximately $225 million of locomotives and freight cars.

Nine Months Ended September 30, 2006

Net cash used for financing activities during the first nine months of 2006 was $512 million, primarily related to common stock repurchases of $590 million, including $28 million to satisfy tax withholding obligations for stock option exercises, dividend payments of $220 million, partially offset by net borrowings of $123 million, proceeds from stock options exercised of $99 million, and excess tax benefits from equity compensation plans of $80 million.

Dividends

Common stock dividends declared for the nine months ended September 30, 2007 and 2006 were $0.82 and $0.65 per share, respectively. Dividends paid on common stock during the first nine months of 2007 and 2006 were $268 million and $220 million, respectively. On July 19, 2007, the Board declared a quarterly dividend of $0.32 per share on outstanding shares of common stock, payable October 1, 2007 to shareholders of record on September 10, 2007. On October 18, 2007, the Board declared a quarterly dividend of $0.32 per share on outstanding shares of common stock, payable January 2, 2008 to shareholders of record on December 12, 2007.

Common Stock Repurchase Program

During the first nine months of 2007, BNSF repurchased approximately 11 million shares of its common stock at an average price of $83.54 per share under the Company's share repurchase program amounting to a total cost of $931 million. In February 2007, the Board authorized the extension of the current BNSF share . . .