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, Coal, Industrial Products 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 Web site at www.bnsf.com/investors.

Executive Summary

††† Quarterly earnings were $0.86 per diluted share, which included a $0.19 per share loss related to an unfavorable coal rate case decision (see Note 5 to the Consolidated Financial Statements under the heading "Coal Rate Case Decision") and an $0.08 per share loss on interest rate hedges on debt no longer expected to be issued (see Note 2 to the Consolidated Financial Statements for additional information). First-quarter 2008 earnings were $1.30 per diluted share.

††† Quarterly freight revenues of $3.31 billion were $831 million, or 20 percent lower than first-quarter 2008 freight revenues of $4.14 billion.

††††† The 20-percent decrease in freight revenues included a reduction in fuel surcharges of approximately $325 million and a $96 million loss in excess of amounts previously accrued related to the unfavorable coal rate case decision. The remaining variance was due to lower unit volumes as a result of the economic downturn, partially offset by improved yields.

††† Operating expenses for the first quarter of 2009 were $2.76 billion, or 19 percent lower than first-quarter 2008 operating expenses of $3.39 billion. The $631 million decrease in operating expenses was driven by lower fuel prices, which decreased fuel expenses by about $300 million, decreased unit volumes and cost controls.

Capital Commitment Outlook for 2009

Ø The Company anticipates that capital commitments for 2009 will be approximately $2.6 billion, or $100 million lower than previously disclosed. This reduction reflects improved labor productivity of the Company's engineering capital gangs as well as approximately $50 million in expansion and other spending.

Results of Operations

Three Months Ended March 31, 2009, Compared with Three Months Ended March 31, 2008

Revenues

The following table presents BNSF's revenue information by business group for
the three months ended March 31, 2009 and 2008.

                                   Revenues              Cars / Units           Average Revenue
                                 (in millions)          (in thousands)           Per Car / Unit
                               2009        2008        2009        2008         2009       2008

   Consumer Products          $ 1,051     $ 1,384         976       1,165     $  1,077     $ 1,188
   Coal                           863         954         627         634        1,376       1,505
   Industrial Products            719         939         298         403        2,413       2,330
   Agricultural Products          679         866         227         284        2,991       3,049
   Total Freight Revenues       3,312       4,143       2,128       2,486     $  1,556     $ 1,667
   Other Revenues                 112         118
   Total Operating Revenues   $ 3,424     $ 4,261

Freight revenues for the first quarter of 2009 were $3,312 million, down 20 percent compared with the same 2008 period, on a 14-percent decline in unit volumes resulting from the economic downturn. Average revenue per car/unit was down 7 percent in the first quarter of 2009 from the first quarter of 2008 primarily due to a decrease of approximately $325 million in fuel surcharges compared with the same 2008 period, as well as a $96 million loss in excess of amounts previously accrued related to an unfavorable coal rate case decision (see Note 5 to the Consolidated Financial Statements under the heading "Coal Rate Case Decision").

Consumer Products

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

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 declined $91 million, or 10 percent, to $863 million for the first quarter of 2009 compared with the same 2008 period. Improved yields from renewed contracts and contractual inflation escalators on slightly lower unit volumes were more than offset by the $96 million loss in excess of amounts previously accrued related to the unfavorable coal rate case decision (see Note 5 to the Consolidated Financial Statements under the heading "Coal Rate Case Decision") and lower fuel surcharges.

Industrial Products

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

Industrial Products revenues of $719 million for the first quarter of 2009 were $220 million, or 23 percent less than the first quarter of 2008 due to lower unit volumes, driven by lower demand for construction and building products, and decreased fuel surcharges, partially offset by improved yields.

Agricultural Products

The Agricultural Products' freight business transports agricultural products including corn, wheat, soybeans, bulk foods, ethanol, fertilizer and other products. [[Image Removed: graphic]]

Agricultural Products revenues decreased $187 million, or 22 percent, to $679 million for the first quarter of 2009. This decrease was due mainly to reduced domestic loadings and international grain shipments and lower fuel surcharges, partially offset by improved yields.

Other Revenues

Other revenues decreased $6 million, or 5 percent, to $112 million for the first quarter of 2009. The decline was primarily due to a decrease in BNSF Logistics revenues. BNSF Logistics is a wholly-owned, third-party logistics company.

Expenses

Total operating expenses for the first quarter of 2009 were $2,755 million, a decrease of $631 million, or 19 percent, from the same period in 2008.

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 $868 million in the first quarter of 2009 were $115 million, or 12 percent lower than the same prior year period. This decrease was primarily the result of lower volumes, cost controls, and reduced incentive compensation costs, which covers all non-union and about one quarter of union employees. The average number of employees decreased 5 percent compared to the first quarter of 2008.

Fuel

Fuel expense is driven by market price, the level of locomotive consumption of diesel fuel and the effects of hedging activities. Substantially all fuel expense consists of fuel used in locomotives for transportation services. Fuel expense also includes non-locomotive fuel-related costs such as, fuel used in vehicles (maintenance of way and other vehicles/equipment), fuel used in refrigerated cars, intermodal facilities' fuel, and fuel-based products used in servicing locomotives.

Fuel expenses of $614 million for the first quarter of 2009 were $431 million, or 41 percent lower than the first quarter of 2008. The decrease in fuel expense was primarily due to a decrease in the average all-in cost per gallon of locomotive diesel fuel. The average all-in cost per gallon of locomotive diesel fuel decreased by $0.92 to $1.85, resulting in a $294 million decrease in expense. The decrease in the average all-in cost reflected a decrease in the average purchase price per gallon of $1.29, or a $409 million decrease in locomotive fuel expense, offset by an increase in the hedge loss of 36 cents per gallon, or $115 million (first quarter 2009 loss of $105 million less first quarter 2008 benefit of $10 million). Locomotive fuel consumption in the first quarter of 2009 decreased by 46 million gallons to 318 million gallons, when compared with consumption in the same 2008 period. The remainder of the decrease was primarily due to lower non-locomotive fuel prices.

Purchased services

Purchased services expense includes the following: ramping (lifting of containers onto and off of rail 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 $478 million for the first quarter of 2009 were $47 million, or 9 percent lower than the first quarter of 2008. The decrease was due to variable expenses on lower volumes which led to reduced costs in ramping, drayage and equipment maintenance, as well as lower spending for professional and other services.

Depreciation and amortization

Depreciation and amortization expenses for the period are determined by using the group method of depreciation, which applies 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 expenses. The full effect of inflation is not reflected in operating expenses because depreciation is based on historical cost.

Depreciation and amortization expenses of $370 million for the first quarter of 2009 were $29 million, or 9 percent higher than the same period in 2008. This increase in depreciation expense was primarily due to capital expenditures and due to updated depreciation rates that went into effect in April 2008 for other roadway property, which includes items such as bridges, office buildings and facilities, telecommunication and information technology systems and machinery.

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 $201 million decreased $29 million, or 13 percent, compared to the first quarter of 2008 due to improved car velocity, lower volumes and the return of leased equipment.

Materials and other

Material expenses consist mainly of the costs involved to purchase mechanical and engineering materials, in addition to other items for maintenance of property and equipment. Other expenses principally 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 $224 million for the first quarter of 2009 were $38 million or 15 percent lower than the first quarter of 2008 due largely to lower derailment and personal injury costs, reduced volumes and cost controls, partially offset by increased environmental expenses.

Interest expense

Interest expense of $198 million for the first quarter of 2009 was $64 million, or 48 percent higher than the first quarter of 2008. This increase was primarily attributable to a $43 million loss for interest rate hedges on debt no longer expected to be issued (see Note 2 to the Consolidated Financial Statements), and the unfavorable coal rate case decision further increased interest expense by $9 million (see Note 5 to the Consolidated Financial Statements under the heading "Coal Rate Case Decision").

Income taxes

The effective tax rate for the three months ended March 31, 2009, was 37.4 percent compared with 38.6 percent for the same prior year period. The decrease in the effective tax rate is primarily related to the effect of enacted state tax legislation during the first quarter of 2009.

Liquidity and Capital Resources

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

Operating Activities

Net cash provided by operating activities was $734 million for the three months ended March 31, 2009, compared with $915 million for the three months ended March 31, 2008. The decrease was primarily the result of a decrease in earnings before depreciation and amortization expense and changes in working capital, including $50 million related to decreased utilization of the Company's accounts receivable sales program.

Investing Activities

Net cash used for investing activities was $391 million for the three months
ended March 31, 2009, compared with $743 million for the three months ended
March 31, 2008. The decrease in cash used for investing activities primarily
related to proceeds from the sale of assets financed in the first quarter of
2009 that were acquired in 2008, as well as lower expansion capital. The
following table presents a breakdown of cash capital expenditures for the three
months ended March 31, 2009 and 2008 (in millions):

Three Months Ended March 31,   2009      2008
Engineering                    $ 347     $ 298
Mechanical                        37        36
Other                             28        29
Total Replacement Capital        412       363
Information Services              19        23
Terminal and Line Expansion       31        82
Total                          $ 462     $ 468

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

Financing Activities

Three Months Ended March 31, 2009

Net cash used for financing activities during the first quarter of 2009 was $366 million, primarily related to net payments on long-term debt of $251 million and dividend payments of $136 million, partially offset by proceeds from a facility financing obligation of $15 million and proceeds from stock options exercised of $8 million

Aggregate debt due to mature within one year, excluding commercial paper, was $275 million. BNSF's ratio of net debt to total capitalization was 44.3 percent at March 31, 2009, compared with 44.5 percent at December 31, 2008. The Company's adjusted net debt to total capitalization was 54.2 percent at March 31, 2009, compared with 54.7 percent at December 31, 2008. 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
                                                                   March 31,              31,
                                                                     2009                 2008
Net debt to total capitalization a                                        44.3 %             44.5 %
Adjustment for long-term operating leases and other debt
equivalents b                                                              9.4                9.7
Adjustment for unfunded pension and retiree health and
welfare liability                                                          1.5                1.5
Adjustment for junior subordinated notes c                                (1.0 )             (1.0 )
Adjusted net debt to total capitalization                                 54.2 %             54.7 %

In February 2009, the Board authorized an additional $1 billion of debt securities that may be issued through the SEC debt shelf registration process, for a total of $1.5 billion authorized to be issued as of March 31, 2009.

During the first quarter of 2009, BNSF entered into a 12-year capital lease to finance $368 million of locomotives and freight cars. Additionally, BNSF entered into capital leases totaling $27 million to finance maintenance of way and other vehicles/equipment with lease terms of five to seven years.

In 2005, the Company commenced the construction of an intermodal facility that it intends to sell to a third party and subsequently lease back. Once construction of the facility is complete and all improvements have been sold to the third party, BNSF will lease the facility from the third party for 20 years. Construction is expected to be completed by mid-2009 with an approximate cost of $160 million. As of March 31, 2009, BNSF has sold $124 million of completed improvements. This sale leaseback transaction is being accounted for as a financing obligation due to continuing involvement. The outflows from the construction of the facility are classified as investing activities, and the inflows from the associated financing proceeds are classified as financing activities in the Company's Consolidated Statements of Cash Flows.

Three Months Ended March 31, 2008

Net cash provided for financing activities during the first three months of 2008 was $23 million, primarily related to net debt borrowings of $430 million, proceeds from stock options exercised of $35 million, excess tax benefits from equity compensation plans of $31 million and proceeds from a facility financing obligation of $18 million, which were partially offset by common stock repurchases of $373 million, including $18 million to satisfy tax withholding obligations for stock option exercises, and dividend payments of $112 million.

During the first quarter of 2008, BNSF entered into capital leases totaling $25 million to finance maintenance of way and other vehicles/equipment with lease terms of three to seven years.

Dividends

Common stock dividends declared for the three months ended March 31, 2009 and 2008 were $0.40 and $0.32 per share, respectively. Dividends paid on common stock during the first quarter of 2009 and 2008 were $136 million and $112 million, respectively. On February 13, 2009, the Board declared a quarterly dividend of $0.40 per share on outstanding shares of common stock, payable April 1, 2009, to shareholders of record on March 11, 2009. On April 23, 2009, the Board declared a quarterly dividend of $0.40 per share on outstanding shares of common stock, payable July 1, 2009 to shareholders of record on June 10, 2009.

Share Repurchase Program

BNSF did not repurchase shares during the first quarter of 2009. Program-to-date repurchases through March 31, 2009, were 192 million shares at an average price of $41.53 per share, leaving 18 million shares available for repurchase out of the 210 million shares authorized. During the three months ended March 31, 2009, the Company acquired shares from employees at a cost of $4 million to satisfy tax withholding obligations.

Long-Term Debt and Other Obligations

The Company's business is capital intensive. BNSF has historically generated a significant amount of cash from operating activities, which it uses to fund capital additions, service debt, repurchase shares and pay dividends. Additionally, the Company relies on access to the debt and leasing markets to finance a portion of capital additions on a long-term basis.

In the first quarter of 2009, BNSF took delivery of 130 locomotives under a long-term commitment. At March 31, 2009, BNSF's remaining commitment was to acquire 738 locomotives by 2013.

Under an agreement entered into in 2006, as amended, BNSF has remaining railcar purchase obligations for 253 double-stack cars, 48 covered hopper cars, and 101 autorack cars through 2010.

The locomotives and freight cars under these agreements have been or are expected to be financed from one or a combination of sources including, but not limited to, cash from operations, capital or operating leases, and debt issuances. The decision on the method used for a particular acquisition financing will depend on market conditions and other factors at that time.

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

Credit Agreement

Information concerning the Company's outstanding commercial paper balances and revolving credit agreement is incorporated by reference from Note 4 to the Consolidated Financial Statements.

Sale of Accounts Receivable

The accounts receivable sales program of Santa Fe Receivables Corporation, as described in Note 3 to the Consolidated Financial Statements, includes thresholds for dilution, delinquency and write-off ratios that, if exceeded, would allow the investors participating in this program, at their option, to cancel the program. These provisions include a maximum debt-to-capital test, which is the same as in BNSF's revolving credit agreements. At March 31, 2009, BNSF Railway was in compliance with these provisions.

The accounts receivable sales program provides efficient financing at a competitive interest rate as compared with traditional borrowing arrangements and provides diversification of funding sources. Since the funding is collateralized by BNSF receivables, the risk of exposure is only as great as the risk of default on these receivables (see Note 3 to the Consolidated Financial Statements for additional information).

Guarantees

The Company acts as guarantor for certain debt and lease obligations of others. During the past few years, the Company has primarily utilized guarantees to allow third-party entities to obtain favorable terms to finance the construction of assets that will benefit the Company. Additionally, in the ordinary course of business, BNSF enters into agreements with third parties that include indemnification clauses. The Company does not expect performance under these guarantees or indemnities to have a material adverse effect on the Company's liquidity in the foreseeable future (see Note 4 to the Consolidated Financial Statements for additional information).

Hedging Activities

The Company uses derivatives to hedge against increases in diesel fuel prices and interest rates as well as to convert a portion of its fixed-rate long-term debt to floating-rate debt. The Company does not hold or issue derivative financial instruments for trading or speculative purposes. The Company formally documents the relationship between the hedging instrument and the hedged item, as well as the risk management objective and strategy for the use of the hedging instrument. This documentation includes linking the derivatives that are designated as fair value or cash flow hedges to specific assets or liabilities on the balance sheet, commitments or forecasted transactions. The Company assesses at the time a derivative contract is entered into, and at least quarterly thereafter, whether the derivative item is effective in offsetting the changes in fair value or cash flows. Any change in fair value resulting from ineffectiveness, as defined by Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended, is recognized in current period earnings. For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the gain or loss on the derivative instrument is recorded in accumulated other comprehensive loss (AOCL) as a separate component of stockholders' equity and reclassified into earnings in the period during which the hedge transaction affects earnings. Cash flows related to fuel and interest rate derivatives are classified as operating activities in the Consolidated Statements of Cash Flows.

BNSF monitors its hedging positions and credit ratings of its counterparties and . . .