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

Company Overview

Through its subsidiaries, BNSF is engaged primarily in the freight rail transportation business. BNSF's primary operating subsidiary, BNSF Railway, operates one of the largest North American rail networks 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

††† Quarterly earnings were $1.00 per diluted share, which included a $0.31 per share impact related to environmental matters in Montana (see Note 5 to the Consolidated Financial Statements for additional information). Second-quarter 2007 earnings were $1.20 per diluted share.

††† Quarterly freight revenues of $4.35 billion were $613 million, or 16 percent higher than second-quarter 2007 freight revenues of $3.74 billion.

††† The 16-percent increase in freight revenues is principally due to increased fuel surcharges, driven by higher fuel prices, and improved yields.

††† Operating expenses for the second quarter of 2008 were $3.76 billion compared with second-quarter 2007 operating expenses of $3.00 billion. The $762 million increase in operating expenses was largely driven by a $474 million increase in fuel expense due to significantly higher fuel prices, as well as an increase in expense related to environmental matters in Montana and additional personal injury accruals.

Business Outlook for 2008:

††† The Company anticipates that planned capital commitments for 2008 will be about $2,850 million, or $275 million higher than previously disclosed due to: (i) the acceleration of capital projects to take advantage of the Economic Stimulus Act of 2008, (ii) the acquisition of additional new locomotives which will enable the Company to take advantage of the significant fuel efficiency and other environmental benefits and the Economic Stimulus Act of 2008, and (iii) capital expenditures associated with significant flooding costs in the Midwest.

Results of Operations

Three Months Ended June 30, 2008, Compared with Three Months Ended June 30, 2007

Revenues

The following table presents BNSF's revenue information by business group for
the three months ended June 30, 2008 and 2007.

                                Revenues              Cars / Units           Average Revenue
                              (in millions)          (in thousands)           Per Car / Unit
                            2008        2007        2008        2007         2008       2007

Consumer Products          $ 1,573     $ 1,400       1,236       1,300     $  1,273     $ 1,077
Industrial Products          1,046         950         422         431        2,479       2,204
Coal                           902         776         589         611        1,531       1,270
Agricultural Products          828         610         262         239        3,160       2,552
Total Freight Revenues       4,349       3,736       2,509       2,581     $  1,733     $ 1,448
Other Revenues                 129         107
Total Operating Revenues   $ 4,478     $ 3,843

Freight revenues for the second quarter of 2008 were $4,349 million, up 16 percent compared with the same 2007 period, on a slight decline in unit volumes. Freight revenues included an increase of approximately $400 million in fuel surcharges compared with the same 2007 period. Average revenue per car/unit was up 20 percent in the second quarter of 2008 from the second quarter of 2007 primarily due to fuel surcharges as well as 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.

Consumer Products revenues of $1,573 million for the second quarter of 2008 were $173 million, or 12 percent, greater than the second quarter of 2007. [[Image Removed: graphic]] Higher revenue per unit due to increased fuel surcharges, improved yields and increased domestic intermodal traffic was partially offset by lower international volumes resulting from economic softness, as well as reduced transpacific service of a large international customer.

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

Industrial Products revenues of $1,046 million for the second quarter of 2008 were $96 [[Image Removed: graphic]] million, or 10 percent, greater than the second quarter of 2007, due to continued strong demand for construction products and petroleum products, which were partially offset by weakness in the housing market. The 12-percent increase in average revenue per unit was the result of higher fuel surcharges and improved yields.

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 $902 million for the second quarter of 2008 increased $126 million, or 16 percent, compared with the same period a year ago. The revenue increase was primarily driven by an increase in the average revenue per car of 21 percent driven by improved yields, contractual inflation escalators and increased fuel surcharges, partially offset by a decrease in unit volumes of 4 percent due to weather-related issues.

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

Agricultural Products revenues of $828 million for the second quarter of 2008 were $218 million, or 36 percent, higher than revenues for the second quarter of 2007. This increase was primarily due to a 10-percent increase in unit volume growth principally in ethanol, corn, soybeans and wheat. Additionally, average revenue per unit increased by 24 percent as the result of higher fuel surcharges and improved yields.

Other revenues increased $22 million, or 21 percent, to $129 million for the second quarter of 2008. This was primarily due to an increase of about $10 million in BNSF Logistics revenues, which is a wholly-owned third-party logistics company, and an increase in demurrage charges.

Total operating expenses for the second quarter of 2008 were $3,764 million, an increase of $762 million, or 25 percent, versus the same period in 2007.

Fuel

Fuel expense is driven by market price, the level of locomotive consumption of diesel fuel and the effects of hedging activities. Fuel expense only represents fuel used in locomotives for transportation services and excludes additional fuel-related costs such as fuel used for maintenance of way vehicles, intermodal facilities equipment, crew hauling transportation and work trains.

Fuel expenses of $1,245 million for the second quarter of 2008 were $474 million higher than the second quarter of 2007. The increase in fuel expense was due to 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 $1.34 to $3.51, resulting in a $476 million increase in expense. The increase in the average all-in cost reflected an increase in the average purchase price per gallon of $1.41, or a $500 million increase in fuel expenses, offset by an increase in the hedge benefit of 7 cents per gallon, or $24 million (second quarter 2008 benefit of $23 million less second quarter 2007 loss of $1 million). Fuel consumption in the second quarter of 2008 was relatively flat as compared with consumption in the same 2007 period.

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 $951 million were $26 million, or 3 percent, higher than the second quarter of 2007. This increase was primarily related to higher incentive compensation costs and wage inflation. The average number of employees decreased 1 percent compared to the same prior year 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. The expenses are driven by the rates established in the related contracts and the volume of services required.

Purchased service expenses of $540 million for the second quarter of 2008 were $33 million, or 7 percent, higher than the second quarter of 2007. About 30 percent of the increase was due to purchased transportation costs for BNSF Logistics, which increased $10 million for the second quarter of 2008 and which is offset in other revenues. The remainder was due to higher freight car and locomotive contract maintenance expense as well as re-routing costs associated with flooding.

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 because depreciation is based on historical cost.

Depreciation and amortization expenses of $349 million for the second quarter of 2008 were $27 million, or 8 percent, higher than the same period in 2007. This increase in depreciation expense was primarily due to continuing capital expenditures and updated depreciation rates for other roadway property that went into effect in April, 2008.

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 $223 million for the second quarter of 2008, were $14 million, or 6 percent lower than the second quarter of 2007 due to lower volumes and improved asset utilization.

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 $456 million for the second quarter of 2008 were $216 million, or 90 percent, higher than the second quarter of 2007. The increase was primarily due to environmental matters in Montana and additional personal injury accruals.

Interest expense

Interest expense of $140 million for the second quarter of 2008 was $8 million, or 6 percent, higher than the same 2007 period. This was primarily due to a higher average debt balance.

Income taxes

The effective tax rate for the three months ended June 30, 2008 was 38.5 percent compared with 38.4 percent for the same prior year period.

Six Months Ended June 30, 2008, Compared with Six Months Ended June 30, 2007

Revenues

The following table presents BNSF's revenue information by business group for
the six months ended June 30, 2008 and 2007.

                                 Revenues              Cars / Units           Average Revenue
                               (in millions)          (in thousands)           Per Car / Unit
                             2008        2007        2008        2007         2008       2007

Consumer Products           $ 2,957     $ 2,712       2,401       2,575     $  1,232     $ 1,053
Industrial Products           1,985       1,796         825         821        2,406       2,188
Coal                          1,856       1,536       1,223       1,205        1,518       1,275
Agricultural Products         1,694       1,236         546         487        3,103       2,538
   Total Freight Revenues     8,492       7,280       4,995       5,088     $  1,700     $ 1,431
   Other Revenues               247         208
Total Operating Revenues    $ 8,739     $ 7,488

Freight revenues for the first six months of 2008 were $8,492 million, up 17 percent compared with the same 2007 period, while cars/units decreased by 2 percent during this same period. Freight revenues included an increase of approximately $680 million in fuel surcharges compared with the same 2007 period. Average revenue per car/unit was up 19 percent in the first six months of 2008 from the first six months of 2007 primarily due to fuel surcharges and improved pricing.

Consumer Products

Consumer Products revenues of $2,957 million for the first six months of 2008 were $245 million, or 9 percent, greater than the first six months of 2007. This reflected increased fuel surcharges and improved yields, partially offset by lower volumes related to economic softness as well as reduced transpacific service of a large international customer.

Industrial Products

Industrial Products revenues of $1,985 million for the first six months of 2008 were $189 million, or 11 percent, greater than the first six months of 2007, due to improved yields on relatively flat unit volumes. Continued strong demand for construction products and petroleum products was partially offset by a decline in building products as a result of weakness in the housing market.

Coal

Coal revenues of $1,856 million for the first six months of 2008 increased $320 million, or 21 percent, compared with the same 2007 period. The increase was primarily driven by an increase in the average revenue per car of 19 percent driven by contractual inflation escalators, improved yields and higher fuel surcharges. Strong coal unit volumes in the first quarter of 2008 were offset by second quarter weather-related issues, resulting in relatively flat volumes for the first six months of 2008.

Agricultural Products

Agricultural Products revenues of $1,694 million for the first six months of 2008 were $458 million, or 37 percent, higher than revenues for the first six months of 2007. This increase was primarily due to revenue growth in ethanol, wheat, corn and soybeans and a 22-percent increase in average revenue per unit. The increase in revenue per unit was the result of improved yields and higher fuel surcharges.

Other Revenues

Other revenues increased $39 million, or 19 percent, to $247 million for the first six months of 2008. This increase was primarily due to an increase of about $20 million in BNSF Logistics revenues, which is a wholly-owned third-party logistics company, and an increase in demurrage charges.

Total operating expenses for the first six months of 2008 were $7,150 million, an increase of $1,197 million, or 20 percent, versus the same 2007 period.

Fuel

Fuel expenses of $2,254 million for the first six months of 2008 were $831 million, or 58 percent, higher than the first six months of 2007. The increase in fuel expense was due to 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 $1.15 to $3.14, resulting in an $825 million increase in expense. The increase in the average all-in cost reflected an increase in the average purchase price per gallon of $1.16, or an $834 million increase in fuel expenses, offset by an increase in the hedge benefit of 1 cent per gallon, or $9 million (first six months 2008 benefit of $33 million less first six months 2007 benefit of $24 million). Fuel consumption in the first six months of 2008 increased by 3 million gallons to 719 million gallons, when compared with consumption in the same 2007 period.

Compensation and benefits

Compensation and benefits expenses of $1,934 million were $77 million, or 4 percent, higher than the first six months of 2007. This increase was primarily related to higher incentive compensation costs and wage inflation. The average number of employees decreased approximately 1 percent compared to the same 2007 period.

Purchased services

Purchased services expenses of $1,065 million for the first six months of 2008 were $56 million, or 6 percent, higher than the same 2007 period. This increase was primarily due to an increase in purchased transportation costs for BNSF Logistics of about $20 million, as well as higher locomotive and freight car contract maintenance expense, and haulage payments for transportation over other railroads.

Depreciation and amortization

Depreciation and amortization expenses of $690 million for the first six months of 2008 were $61 million, or 10 percent, higher than the same period in 2007. This increase in depreciation expense was primarily due to continuing capital expenditures, updated depreciation rates for locomotives that went into effect in April, 2007 and updated depreciation rates for other roadway property that went into effect in April, 2008.

Equipment rents

Equipment rents expenses of $453 million for the first six months of 2008 were $16 million, or 3 percent, lower than the first six months of 2007 due to lower volumes, improved velocity and increased asset utilization.

Materials and other

Materials and other expenses of $754 million for the first six months of 2008 were $188 million, or 33 percent, higher than the first six months of 2007. The increase was primarily due to an increase in environmental accruals, additional personal injury accruals, higher property taxes and inflationary increases associated with non-locomotive fuel costs, partially offset by a $16 million write-off of a technology system in the first quarter of 2007.

Interest expense

Interest expense of $274 million for the first six months of 2008 was $21 million, or 8 percent, higher than the same 2007 period. This was primarily due to a higher average debt balance.

Income taxes

The effective tax rate for both the six months ended June 30, 2008 and 2007 was 38.5 percent.

Liquidity and Capital Resources

Liquidity is a company's ability to generate cash flows to satisfy current and future obligations. Cash generated from operations is BNSF's principal source of liquidity. BNSF generally funds any additional liquidity requirements through debt issuance, including commercial paper, through leasing of assets and through the sale of a portion of its accounts receivable.

Net cash provided by operating activities was $1,705 million for the six months ended June 30, 2008, compared with $1,576 million for the six months ended June 30, 2007. The increase was primarily the result of increased income before depreciation and amortization.

 Investing Activities

Net cash used for investing activities was $1,458 million for the six months
ended June 30, 2008, compared with $1,334 million for the six months ended June
30, 2007. The increase in cash used for investing activities primarily reflects
an increase in other investing activities due to the timing of equipment
financing activities, partially offset by a decrease in cash capital
expenditures. The following table presents a breakdown of cash capital
expenditures for the six months ended June 30, 2008 and 2007 (in millions):

          Six Months Ended June 30,                      2008        2007
          Engineering                                   $   726     $   708
          Mechanical                                         69          62
          Other                                              51          51
          Total Replacement Capital                         846         821
          Information Services                               43          36
          New Locomotive and Freight Car Acquisitions         9           -
          Terminal and Line Expansion                       144         295
          Total                                         $ 1,042     $ 1,152

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

Six Months Ended June 30, 2008

Net cash used for financing activities during the first six months of 2008 was $96 million, primarily related to common stock repurchases of $642 million, including $59 million to satisfy tax withholding obligations for stock option exercises, and dividend payments of $223 million, which were partially offset by net debt borrowings of $585 million, excess tax benefits from equity compensation plans of $82 million, proceeds from stock options exercised of $79 million and proceeds from a facility financing obligation of $29 million.

Aggregate debt due to mature within one year is $434 million. BNSF's ratio of net debt to total capitalization was 42.4 percent at June 30, 2008, compared with 41.2 percent at December 31, 2007. The Company's adjusted net debt to total capitalization was 52.4 percent at June 30, 2008, compared with 51.8 percent at December 31, 2007. BNSF's adjusted net debt to total capitalization is a non-GAAP measure and should be considered in addition to, but not as a substitute for 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:

                                                                                        December
                                                                   June 30,               31,
                                                                     2008                 2007
Net debt to total capitalization a                                        42.4 %             41.2 %
Adjustment for long-term operating leasesb                                 9.9               10.5
Adjustment for other debt equivalents c                                    0.4                0.5
Adjustment for unfunded pension and retiree health and
welfare liability                                                          0.7                0.7
Adjustment for junior subordinated notes d                                (1.0 )             (1.1 )
Adjusted net debt to total capitalization                                 52.4 %             51.8 %

In March 2008, BNSF issued $650 million of 5.75 percent notes due March 15, 2018. The net proceeds from the sale of the notes are being used for general corporate purposes including, but not limited to, working capital, capital expenditures, repurchase of our common stock pursuant to our share repurchase program and repayment of commercial paper.

In April 2008, the Board authorized an additional $850 million of debt securities that may be issued through the SEC debt shelf registration process, for a total of $1 billion authorized to be issued as of June 30, 2008.

The Company has commenced the construction of an intermodal facility that it intends to sell to a third party and subsequently lease back. Once construction of the facility is complete and all improvements have been sold to the third party, BNSF will lease the facility from the third party for 20 years. Construction is expected to be completed in 2009 with an approximate cost of $160 million. During the first six months of 2008, the Company sold $29 million of completed improvements, bringing the total sold to date to $70 million. This sale leaseback transaction is being accounted for as a financing obligation due to continuing involvement. The outflows from the construction of the facility are classified as investing activities, and the inflows from the associated financing proceeds are classified as financing activities in the Company's Consolidated Statements of Cash Flows.

Six Months Ended June 30, 2007

Net cash used for financing activities during the first six months of 2007 was $224 million, primarily related to the common stock repurchases of $709 million, including $33 million to satisfy tax withholding obligations for stock option . . .