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 $1.18 per diluted share. Second-quarter 2008 earnings were $1.00 per diluted share, which included a $0.31 per share impact related to environmental matters in Montana.

††† Quarterly freight revenues of $3.22 billion were $1.13 billion, or 26 percent, lower than second-quarter 2008 freight revenues of $4.35 billion.

ü The 26-percent decrease in freight revenues included a reduction in fuel surcharges of about $600 million. The decrease was also driven by lower unit volumes as a result of the economic downturn, partially offset by improved yields.

††† Operating expenses of $2.52 billion for the second quarter of 2009 were $1.25 billion, or 33 percent, lower than second-quarter 2008 operating expenses of $3.76 billion. The decrease in operating expenses was driven by lower fuel prices, strong cost controls and decreased unit volumes.

Results of Operations

Three Months Ended June 30, 2009, Compared with Three Months Ended June 30, 2008

Revenues Summary

The following table presents BNSF's revenue information by business group for
the three months ended June 30, 2009 and 2008.

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

Consumer Products          $ 1,038     $ 1,573         958       1,236      $ 1,084     $ 1,273
Coal                           875         902         589         589        1,486       1,531
Industrial Products            686       1,046         282         422        2,433       2,479
Agricultural Products          618         828         212         262        2,915       3,160
Total Freight Revenues       3,217       4,349       2,041       2,509      $ 1,576     $ 1,733
Other Revenues                  99         129
Total Operating Revenues   $ 3,316     $ 4,478

Fuel Surcharges

Freight revenues include both revenue for transportation services and fuel surcharges. BNSF's fuel surcharge program is intended to recover its incremental fuel costs when fuel prices exceed a threshold fuel price. Fuel surcharges are calculated differently depending on the type of commodity transported. In certain commodities, fuel surcharge is calculated using a fuel price from a prior time period that can be up to 60 days earlier. In a period of volatile fuel prices or changing customer business mix, changes in fuel expense and fuel surcharge may significantly differ.

The following table presents fuel surcharge and fuel expense information for the three months ended June 30, 2009 and 2008 (in millions).

                       2009       2008

Total fuel expense a   $ 509     $ 1,291
BNSF fuel surcharges   $ 229     $   819

a Total fuel expense includes locomotive and non-locomotive fuel as well as gains and losses from fuel hedges, which do not impact the fuel surcharge program.

Revenues

Freight revenues for the second quarter of 2009 were $3,217 million, down 26 percent compared with the same 2008 period, on a 19-percent decline in unit volumes resulting from the economic downturn. Average revenue per car/unit was down 9 percent in the second quarter of 2009 from the second quarter of 2008 due to a decrease in fuel surcharges.

Consumer Products

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

Consumer Products revenues of $1,038 million for the second quarter of 2009 were $535 million, or 34 percent less than the second quarter of 2008.

This reflects lower international intermodal, domestic intermodal and automotive volumes due to the economy and a decline in average revenue per unit due primarily to lower fuel surcharges.

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 $875 million for the second quarter of 2009 declined $27 million, or 3 percent, compared with the same 2008 period due to lower fuel surcharges on flat unit volumes, partially offset by a $22 million favorable coal rate case decision during the second quarter of 2009.
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.

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 $30 million, or 23 percent, to $99 million for the second quarter of 2009. The decline was primarily due to a decrease in BNSF Logistics revenues, which is a wholly-owned, third-party logistics company, and a decrease in charges for demurrage and storage costs.

Expenses

Total operating expenses for the second quarter of 2009 were $2,519 million, a decrease of $1,245 million, or 33 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 $824 million in the second quarter of 2009 were $127 million, or 13 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 9 percent compared to the second quarter of 2008.

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 $509 million for the second quarter of 2009 were $782 million, or 61 percent lower than the second 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 $1.86 to $1.65, resulting in a $542 million decrease in expense. The decrease in the average all-in cost reflected a decrease in the average purchase price per gallon of $2.08, or a $610 million decrease in locomotive fuel expense, offset by an increase in the hedge loss of 22 cents per gallon, or $68 million (second quarter 2009 loss of $45 million less second quarter 2008 benefit of $23 million). Locomotive fuel consumption in the second quarter of 2009 decreased by 63 million gallons to 292 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 $466 million for the second quarter of 2009 were $74 million, or 14 percent lower than the second quarter of 2008. The decrease was due to variable expenses on lower volumes, which led to reduced costs in ramping, drayage, car repairs and other volume related costs.

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 $379 million for the second quarter of 2009 were $30 million, or 9 percent higher than the same period in 2008. This increase in depreciation expense was primarily due to ongoing 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 $196 million for the second quarter of 2009 were $27 million, or 12 percent lower than the second 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 $145 million for the second quarter of 2009 were $265 million, or 65 percent lower than the second quarter of 2008 due largely to environmental matters in Montana during the second quarter of 2008 and lower derailment and personal injury costs, reduced volumes and cost controls.

Interest expense

Interest expense of $137 million for the second quarter of 2009 was $3 million, or 2 percent lower than the second quarter of 2008. This decrease was primarily attributable to a $10 million gain related to terminated treasury locks (see Note 2 to the Consolidated Financial Statements), partially offset by a higher average debt balance.

Income taxes

The effective tax rate for the three months ended June 30, 2009, was 38.7 percent compared with 38.5 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 2008.

Six Months Ended June 30, 2009, Compared with Six Months Ended June 30, 2008

Revenues Summary

  The following table presents BNSF's revenue information by business group for
the six months ended June 30, 2009 and 2008.


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

Consumer Products          $ 2,089     $ 2,957       1,934       2,401      $ 1,080     $ 1,232
Coal                         1,738       1,856       1,216       1,223        1,429       1,518
Industrial Products          1,405       1,985         580         825        2,422       2,406
Agricultural Products        1,297       1,694         439         546        2,954       3,103
Total Freight Revenues       6,529       8,492       4,169       4,995      $ 1,566     $ 1,700
Other Revenues                 211         247
Total Operating Revenues   $ 6,740     $ 8,739

Fuel Surcharges

The following table presents fuel surcharge and fuel expense information for the
six months ended June 30, 2009 and 2008 (in millions).

                        2009        2008

Total fuel expense a   $ 1,123     $ 2,336
BNSF fuel surcharges   $   547     $ 1,463

a Total fuel expense includes locomotive and non-locomotive fuel as well as gains and losses from fuel hedges, which do not impact the fuel surcharge program.

Revenues

Freight revenues for the first six months of 2009 were $6,529 million, down 23 percent compared with the same 2008 period, on a 17 percent decline in unit volumes resulting from the economic downturn. Average revenue per car/unit was down 8 percent in the first six months of 2009 from the first six months of 2008 due to a decrease in fuel surcharges, 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

Consumer Products revenues of $2,089 million for the first six months of 2009 were $868 million, or 29 percent less than the first six months of 2008. This reflects lower international intermodal, domestic intermodal and automotive volumes due to the economy and a decline in average revenue per unit due primarily to lower fuel surcharges.

Coal

Coal revenues of $1,738 million for the first six months of 2009 declined $118 million, or 6 percent, compared with the same 2008 period. Improved yields from renewed contracts, contractual inflation escalators on slightly lower unit volumes and a $22 million favorable coal rate case decision during the second quarter of 2009 were offset by the $96 million loss in excess of amounts previously accrued related to the unfavorable coal rate case decision during the first quarter of 2009 (see Note 5 to the Consolidated Financial Statements under the heading "Coal Rate Case Decision") and lower fuel surcharges.

Industrial Products

Industrial Products revenues of $1,405 million for the first six months of 2009 were $580 million, or 29 percent less than the first six months 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

Agricultural Products revenues of $1,297 for the first six months of 2009 decreased $397 million, or 23 percent. 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 $36 million, or 15 percent, to $211 million for the first six months of 2009. The decline was primarily due to a decrease in BNSF Logistics revenues, which is a wholly-owned, third-party logistics company, and a decrease in charges for demurrage and storage costs.

Expenses

Total operating expenses for the first six months of 2009 were $5,274 million, a decrease of $1,876 million, or 26 percent, from the same period in 2008.

Compensation and benefits

Compensation and benefits expenses of $1,692 million in the first six months of 2009 were $242 million, or 13 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 7 percent compared to the same 2008 period.

Fuel expenses of $1,123 million for the first six months of 2009 were $1,213 million, or 52 percent lower than the first six months 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 $1.39 to $1.75, resulting in an $844 million decrease in expense. The decrease in the average all-in cost reflected a decrease in the average purchase price per gallon of $1.68, or a $1,027 million decrease in locomotive fuel expense, offset by an increase in the hedge loss of 29 cents per gallon, or $183 million (first six months 2009 loss of $150 million less first six months 2008 benefit of $33 million). Locomotive fuel consumption for the first six months of 2009 decreased by 109 million gallons to 610 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 service expenses of $944 million for the first six months of 2009 were $121 million, or 11 percent lower than the first six months of 2008. The decrease was due to variable expenses on lower volumes, which led to reduced costs in ramping, drayage, car repairs and other volume related costs.

Depreciation and amortization

Depreciation and amortization expenses of $749 million for the first six months of 2009 were $59 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 expenses of $397 million for the first six months of 2009 were $56 million, or 12 percent lower than the first six months of 2008 due to improved car velocity, lower volumes and the return of leased equipment.

Materials and other

Materials and other expenses of $369 million for the first six months of 2009 were $303 million or 45 percent lower than the first six months of 2008 due largely to environmental matters in Montana during the second quarter of 2008 and lower derailment and personal injury costs, reduced volumes and cost controls.

Interest expense

Interest expense of $335 million for the first six months of 2009 was $61 million, or 22 percent higher than the first six months of 2008. This increase was primarily attributable to a net $32 million loss for terminated treasury locks (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"). The remainder of the increase was primarily due to a higher average debt balance.

Income taxes

The effective tax rate for the six months ended June 30, 2009, was 38.2 percent compared with 38.5 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 $1,522 million for the six months ended June 30, 2009, compared with $1,656 million for the six months ended June 30, 2008. The decrease was primarily the result of a decrease in earnings before depreciation and amortization expense and environmental related matters in Montana during the second quarter of 2008.

Investing Activities

Net cash used for investing activities was $1,297 million for the six months
ended June 30, 2009, compared with $1,409 million for the six months ended June
30, 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, partially offset by a $40 million increase in cash
capital expenditures. The following table presents a breakdown of cash capital
expenditures for the six months ended June 30, 2009 and 2008 (in millions):

Six Months Ended June 30,                     2009    2008
Engineering                                 $   864 $   725
Mechanical                                       62      69
Other                                            58      52
Total Replacement Capital                       984     846
Information Services                             43      43
New Locomotive and Freight Car Acquisitions       -       8
Terminal and Line Expansion                      55     145
Total                                       $ 1,082 $ 1,042

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

Financing Activities

Six Months Ended June 30, 2009

Net cash used for financing activities during the first six months of 2009 was $374 million, primarily related to payments on long-term debt of $322 million and dividend payments of $273 million, partially offset by proceeds from a facility financing obligation of $51 million and an increase in commercial paper and bank borrowings of $167 million.

Aggregate debt due to mature within one year was $555 million. BNSF's ratio of net debt to total capitalization was 44.1 percent at June 30, 2009, compared with 44.5 percent at December 31, 2008. The Company's adjusted net debt to total capitalization was 53.6 percent at June 30, 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
                                                                   June 30,               31,
                                                                     2009                 2008
Net debt to total capitalization a                                        44.1 %             44.5 %
Adjustment for long-term operating leases and other debt
equivalents b                                                              9.1                9.7
Adjustment for unfunded pension and retiree health and
welfare liability                                                          1.4                1.5
Adjustment for junior subordinated notes c                                (1.0 )             (1.0 )
Adjusted net debt to total capitalization                                 53.6 %             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 June 30, 2009.

During the first six months of 2009, BNSF entered into a 12-year capital lease to finance $368 million of locomotives and freight cars. Additionally, BNSF . . .