CONSOLIDATED FINANCIAL HIGHLIGHTS

Burlington Northern Santa Fe Corporation and Subsidiaries(Dollars in millions, except per share data)The selected financial data shown below include BNI results for each of the five years ended December 31, 1995

and SFP results from September 22, 1995 to December 31, 1995.

(1) 1995 includes $735 million before taxes related to merger, severance and asset charges as discussed in Note 3 of the financial statements.1991 includes pre-tax charge of $708 million related to: (i) costs for reducing surplus crew positions and a management separation pay program,(ii) increases in estimated personal injury costs and (iii) increases in estimated environmental clean-up costs.

(2) 1995 includes the cumulative effect of the change in accounting method for locomotive overhauls which decreased net income by $100 million, or$.94 per common share. Additionally, 1995 includes an extraordinary loss on retirement of debt of $6 million (after tax), or $.05 per common share.

(3) 1994 includes the cumulative effect of the implementation of the accounting standard for postemployment benefits.(4) 1992 includes the cumulative effect of the change in accounting method for revenue recognition and the cumulative effect of the implementation of

the accounting standard for postretirement benefits.(5) 1991 includes extraordinary loss on retirement of debt.(6) 1995 and 1991 operating ratios exclude the pre-tax charges discussed in note (1) above.

P AGE

I

Yearended December 31, 1995 1994 1993 1992 1991

FOR THE YEAR

Revenues $ 6,183 $ 4,995 $ 4,699 $ 4,630 $ 4,559

Operating income (loss)(1)526 853 661 597 (239)

Income (loss) before extraordinary item andcumulative effect of change in accounting method 198 426 296 299 (306)

Accounting change/Extraordinary item (2)(3)(4)(5) (106) (10) - (21) (14)

Net income (loss) $ 92 $ 416 $ 296 $ 278 $ (320)

Earnings (loss) available for common stockholders $ 71 $ 394 $ 274 $ 275 $ (321)

Primary earnings (loss) per share:Before extraordinary item and change in

accounting method $ 1.66 $ 4.48 $ 3.06 $ 3.35 $ (3.96)

Accounting change/Extraordinary item (.99) (.11) - (.24) (.18)

Primary earnings (loss) per share $ .67 $ 4.37 $ 3.06 $ 3.11 $ (4.14)

Average shares (in thousands) 106,730 90,187 89,672 88,617 77,462

Fully diluted earnings (loss) per share:

Before extraordinary item and change in

accounting method $ 1.66 $ 4.38 $ 3.04 $ 3.34 $ (3.96)

Accounting change/Extraordinary item (.99) (.11) - (.24) (.18)

Fully diluted earnings (loss) per share $ .67 $ 4.27 $ 3.04 $ 3.10 $ (4.14)

Average shares (in thousands) 106,730 97,528 97,189 89,492 77,462

Dividends declared per common share $ 1.20 $ 1.20 $ 1.20 $ 1.20 $ 1.20

AT YEAR ENDTotalassets $ 18,269 $ 7,592 $ 7,045 $ 6,563 $ 6,324

Long-term debt, including current portionand commercial paper 4,233 1,819 1,737 1,567 1,982

Redeemable preferred stock - - - 9 11

Stockholders' equity 5,037 2,237 1,919 1,728 1,202

OTHER

Totalcapital expenditures $ 1,042 $ 753 $ 676 $ 487 $ 509

Depreciation and amortization 520 362 352 338 347

Operating ratio (6) 80% 83% 86% 87% 90%

Total debt to total capital, excluding

redeemable preferred stock 46% 45% 48% 48% 62%

BURLINGTON NORTHERN SANTA FE

To OUR SHAREHOLDERS,

CUSTOMERSAND COLLEAGUES

1995 was a historic year for us. It brought together two

successful companies - Burlington Northern Inc. and

Santa Fe Pacific Corporation - and created Burlington

Northern Santa Fe Corporation in September. The year

1995 was also one of our better years in terms of our on-

going pursuit of an injury-free workplace, on-time service,

customer satisfaction, and financial performance.

BNSF's well-balanced business portfolio derived

about 25 percent of its combined 1995 revenues from

transporting a record 204 million tons of coal, mostof it from the Powder River Basin

of Wyoming and Montana. Another

25 percent came from intermodal

shipments - more than 2.5 million

trailers and containers, another record,were moved on flatcars in 1995. About

15 percent of combined 1995 revenuesreflected the movement of a record

Significant unusual items include merger, severance

and asset charges of $453 million after-tax for 1995.

These charges, along with reserves established at the

time of the merger, cover the costs associated with the

elimination of some 3,000 positions in 1995 and over

the next few years, the disposition of about 4,000 miles

of low-density track in 14 states, the closing of offices,

facilities, and other operations that will not be needed

as a result of combining the two railroads. There also

was a $100 million after-tax charge associated with a

change in accounting for locomotive overhauls and

another $6 million for the early retirement of debt. With

these items, BNSF net income was

$92 million, or $0.67 per common

share, on an as reported basis for

1995, compared with $416 million,

or $4.27 per common share, fully

diluted, in 1994.

During the fourth quarter of 1995,

we learned that we can achieve high

levels of on-time, damage-free

service simultaneously for each of

the largest segments of our franchise

- agricultural commodities, coal and

intermodal. Improving both our

service performance and our safety

record are key to the future success of our company.

In this period, the first one in which we operated as a

merged railroad, one incredible achievement exempli-

fied the potential of the new company better than any

other: BNSF handled 27,040 trailers without one failure

for our largest Intermodal customeI; United Parcel Service,

from Thanksgiving to Christmas Eve.

This streak continued until January 18, 1996, when a

large portion of our railroad in the Midwest was snow-

bound. For 58 consecutive days, 43,709 trailers arrived

at every UPS hub for sorting on schedule to enable UPS

to meet its commitments to its customers - a magnifi-

cent example of thousands of BNSF people working as a

team to achieve a common goal. I believe this will

become the standard for the service we will provide

customers in all segments of our business, and this will

enable us to achieve one of our goals, consistent

revenue growth. For 1996, our overall on-time perfor-

mance target is 92 percent.

663,000 carloads of agricultural

commodities, like corn, wheat and

soybeans, while transportation of foods,

beverages, forest products, chemi-

cals, minerals and metals accounted

for the remaining 35 percent.We entered 1996 focused on our vision: To realize the

tremendous potential of the new Burlington Northern

and Santa Fe Railway by providing transportation

services that consistently meet our customers' expecta-

tions. Our new railway, the largest in North America,

will provide single-line service with broad geographic

scope, as shown on pages 8-9, making it easier for

shippers to use the improved services we are now

capable of providing.RECORD-SETTING PERFORMANCES

THROUGHOUT 1995

For 1995, BNSF generated $1.576 billion in combined

operating income, excluding unusual items. This repre-

sents a 32 percent improvement over 1994. Combined

revenues grew nearly $500 million year over year, while

adjusted operating expenses were only $110 million

higher. As a result, the operating ratio was lowered to

80.7 percent from 84.5. For 1996, we are targeting a 78

percent operating ratio.

P A G (

ROBERT D. KREBS

BNSF President and Chief Executive Officer

"we have a strong

franchise, resource-

ful employees,and the momentum

to fulfill our

merger promise. "

For several years, employees of both BN and Santa Fe

have aggressively worked to reduce personal injuries

and lost work days due to injuries. For 1995, personal

injuries were down over 30 percent, as more than 95

percent of our 45,000 employees worked injury-free.

BNSF enters 1996 as the third safest major railroad in

North America with the goal of another 25 percent

improvement in 1996.INVESTING FOR GROWTH

In 1996, we plan a capital program approaching $1.7

billion which will support our efforts to increase

revenues and reduce our operating ratio.

About $1.1 billion will be spent to

maintain our franchise, as we resur-

face more than 12,000 miles of track,

and replace 700 miles of rail and 3

million ties, while keeping our equip-

ment fleet at the level required to

respond to demand and customers'

expectations. BNSF will add 87 loco-

motives in 1996, both alternating

current and direct current units,

acquire three aluminum coal sets

and 90 taconite cars, and remanu-

facture 1,050 other freight cars.

More than $500 million is slated for capacity expan-

sion projects at key locations across our network, all of

which will enable us to grow our business. The BNSF

route from the Midwest to the Pacific Northwest (PNW)

is 11 percent shorter than that of our major competitor,

which means we can provide better service at lower

operating cost for our grain, intermodal and merchandise

customers. To expand PNW capacity, we need a third

route between eastern Washington and the coast. Several

alternatives are being pursued and we expect to be in a

position to start running trains over a new route in 1997.

Another expansion will be the completion of 55 miles

of double track on BNSF's premier route from Chicago

to California. By year end, we will have eliminated more

than one-third of the single track that remained on a

660-mile segment of this lane when we began the

program two years ago.

We have scheduled several yard expansions in 1996

to accommodate intermodal growth and improve operat-

ing efficiencies. The Argentine yard in Kansas City,

BURLINGTON NORTHERN SANTA FE

Kansas, will be rebuilt from the ground up at a cost of

about $90 million over a two-year period. The Hobart

intermodal facility in Los Angeles is scheduled for a $25

million upgrade and the final phase of the three-year San

Bernardino expansion will be completed this summer.

Capacity will also be enhanced at our yard in Barstow,

California, and at our Chicago Corwith yard this year.

In addition, BNSF is better positioned to participate

in NAFTA-driven growth in 1996 as a result of gaining

access to the border crossing at Eagle Pass, Texas,

through our merger trackage agreement with the

Southern Pacific. This complements our El Paso, Texas,

gateway and Canadian access intoBritish Columbia and Manitoba.

Much of the progress made since

last September is a result of thework and commitment of 45,000

employees all over BNSF and their

willingness to pull together as we

build a new company. The supportfrom our Board of Directors also has

enabled us to make rapid progress

and to establish a 1996 plan thatwill demonstrate the wisdom of the

merger that created Burlington Northern Santa Fe.

A person who deserves much credit and my personal

appreciation for making BNSF happen is GeraldGrinstein, our former chairman, who decided to leave

the company at the end of 1995. All of us will miss his

wisdom and his wit, and we wish him well as he pursues

new challenges.

Another director who will be terribly missed is

Barbara Jordan, who passed away in mid-January.

Although her tenure on the Board was less than five

years, her contributions will forever be a part of BNSF.

I'm confident that BNSF will grow successfully in the

years ahead. We have a strong franchise, resourceful

employees, and the momentum to fulfill our merger promise.

Robert D. Krebs

President and Chief Executive Officer

February 20, 1996

P AGE

I

BLENDING THE

BEST OF TWO

GREATRAILROADS

In the long history of American railroading no merger

has been larger, approved so quickly or demonstrated

greater potential. Combining Burlington Northern Inc.

and Santa Fe Pacific Corp. created much more than the

largest rail network in North America. It created a new

competitor with the market reach needed to deliver new

single-line services to customers throughout two-thirdsof the United States as well as to Canada and Mexico.

BN didn't reach the Southwest. Santa Fe didn't reach

the Pacific Northwest or the Southeast. Now BNSF

delivers to all of those areas with 31,000 route miles in

27 states and two Canadian provinces stretching from

all major ports along the West Coast, to the Great Lakes

and the Gulf, and from Canada to Mexico.

BN was primarily a coal, grain and merchandise railroad.

Santa Fe was primarily an intermodal and automotive

carrier. Together, BNSF creates a stronger portfolio with

a more diversified and balanced product mix.

More importantly, customers have access to shorter

routes and faster transit times using

BNSF, and many of the interline traffic

exchanges that delay shipments will

be eliminated, giving customers more

single-line service options to more

BNSFTOOKDEliVERY markets than the predecessor railroads

OF 130 MOREACmc- could deliver independently. The great

challenge now facing BNSF is to realize1995 WHICHARENOW

. its tremendous potential by continu-PARTOF THE INOUSTRY S

ing to build on the momentum of the

FLEETOF4,400 UNITS. record-settingperformancesof 1995.

TlON LOCOMOTIVESIN

LARGESTLOCOMOTIVE

P AGE

LEVERAGING FRANCHISE STRENGTHS

INTER MODAL:THE GROWTH LEADER

There is tremendous growth potential for BNSF's

Intermodal business. BNSF has some of the fastest and

most direct intermodal routes in many of the nation's

major transportation lanes. That includes the shortest

route between Chicago and Seattle (2,218 miles) ... one

of the shortest routes between Chicago and Los Angeles

(2,214 miles) ... and the best single-

line route between California and the

Southeast. Service improvements maq.e

during the fourth quarter alone in this

largely untapped intermodallane

reduced transit times between Memphis, BNSF EMPLOYEESHAVE

Tennessee, and Southern California by BEENSO SUCCESSFUL. .. ATREDUCINGINJURIES24 hours III both dIrectIons. Overall,

THATTHECOMPANYNOW

Intermodal on-time performance reached HASTHETHIRD LOWEST

record highs in the third and fourth INJURY RATE AMONG

quarters on both BN and Santa Fe. MAJOR RAILROADS.

This combination of superior routes and on-time

service gives Intermodal the greatest growth opportuni-

ties for the new company. To take advantage of those

strengths, BNSF introduced Guaranteed and Premium

intermodal service in addition to regular service in the

fourth quarter of 1995 for customers shipping betweenthe Pacific Northwest and Midwest. BNSF also offers

better intermodal service through midwestern gateways

like Chicago, Kansas City and St. Louis to both thePNW and California.

To accommodate future growth, BNSF is expanding

capacity at key terminals, improving on-time

performance and equipment utilization, offering new

services, and modifying train schedules to meet cus-

tomers' needs. Multi-year capacity expansion projects

at intermodal facilities in Los Angeles (Hobart) and

Chicago (Corwith) will boost capacity at each to more

than one million units-per-year when completed in

1997. At San Bernardino, California, the intermodal

facility is being expanded to handle more than 400,000

units annually after completion in mid-year 1996. The

total investment to expand capacity at these facilitiesalone is $155 million.

BNSF moved more intermodal traffic on a combined

basis in 1995 than any other rail system in the world,

more than 2.5 million containers and trailers. Despite

sluggish economic conditions, BNSF

posted a 4 percent increase in com-

bined volume, mostly attributable to

growth of international and less-than

truck-load (LTL) traffic.BNSF HASACCESSTO AUTOMOTIVE: GROWTH

ALLMUORWESTCOAST TH R 0 UGH INN 0 VAT IONPORTS, WHICHEXPECT. .

Combmed BNSF automotIve carloadsCOITAINER VOLUMES TO

DOUBLEOVERTHENEXTdeclined less than one-half percent

20YEARS. despite depressed automobile sales

and reduced production. While BNSF only serves a

couple of auto-assembly plants directly, it is leveraging

innovation as a means of increasing market share.

BNSF is a technological leader in the development of

equipment designed to improve protection for automo-

biles in transit. The company has acquired intermodal

trailer and container equipment designed to ship

automobiles in a fully enclosed environment and has

helped develop a lightweight, fully enclosed, articulated

multilevel rail car to provide the same protection instandard rail service.

COAL: A BRIGHT FUTURE

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Since the first unit train left the Powder River Basin

(PRB) in 1969, BNSF has helped transform this remote

ranching area straddling northeastern Wyoming and

southeastern Montana into one of the nation's most impor-

tant fuel sources for generating electricity. Today,nearly

10 percent of the electricity produced in the United States

is generated from coal hauled by BNSF, most of it from

~~~'- :;:i~'"?--ci:~;~-.,~ <~ : ~ i.I.IM

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P AGE

the PRB. PRB coal is cheaper to mine than most other

domestic sources. It also burns much cleaner, with an

average sulfur content one-sixth to one-half that of most

other coal. As a result, PRB coal is helping to bring many

utilities into compliance with the 1990 Clean Air Act

Amendments without having to install expensive scrubber

systems or purchase emissions credits. The PRB contains

73 percent of the nation's low-sulfur coal reserves. Those

factors, low-fuel cost, low-delivered cost, and low-sulfur

content, have driven unprecedented demand for PRB coal.

In 1995, Burlington Northern Santa Fe hauled acombined total of 204 million tons of coal which takes

into account the coal traffic interchanged between the

former BN and Santa Fe. Independently, BN moved183 million tons of coal, most of it from the PRB, a 7

percent increase from 1994. The Santa Fe Railway.

hauled 36 millions tons of coal, down 10 percent from

1994 as a result of abundant western hydroelectric

supply and lower-than-normal natural gas prices.EXPANDINGCOAL CAPACITY

The record 1995 tonnage represents the kind of growth

BNSF has prepared for with its multi-year investment

strategy designed to capture the anticipated increase indemand for Powder River Basin coal. In 1995, BNSF

invested $385 million in track and equipment to boost

transportation capacity by:

. Constructing 21 miles of double and triple track on

the joint BNSF/UP Orin Line (120 miles of the 127-mile

line are now double or triple tracked);.Constructing 25 miles of additional track between

Alliance, Neb., and Gillette, Wyo.;

. Expanding Alliance yard with four

new receiving and departure tracks and

eight storage tracks; and.Acquiring 130 AC locomotives, eight

new aluminum train sets, and the Trough

Train (an extended car with 13 articu- ABOUT25 PERCENTOF. . I BNSF's 1995 REVENUE

lated sectIOns that Increases coa

I~I

~

WASDERIVEDFROMCOAL

carrying capacity by 30 to 40 percent). TRAFFIC,25 PERCENT

Phase n of the Clean Air Act, which FROMINTERMODAL, 15

requires even lower sulfur emissions in

the year 2000, and impending electric

utility deregulation, will stimulate addi-tional demand for PRB coal over the

next several years. To respond to these

PERCENTFROMAGRICUL-

TURALCOMMODITIESAND

35 PERCENTFROMCON,

SUMERPRODUCTS,

CHEMICALS,MINERALS

ANDMETALS.

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SAFETY

wearing proper safety equipment is an

important part of BNSF's success in

making the railroad a safer place to

work. BN reduced reportable injuries by

30% in 1995. Santa Fe reduced them

by 38%. Together, BNSF has set a

unified target for reducing reportable

injuries by another 25% in 1996.

FORESTPRODUCTS

Companies in the

Northwest, Northern

Midwest and Southeast

have access to new mar-

kets in the Southwest

and west Coast.

CHEMICal COMPANIES

in the PNW and

Canada gain access

to a new single-line

route to the west

Coast via BNSF.

_J

~.fr BNSF offers businesses new international shipping

opportunities because it links all major ports on the

west Coast and the Gulf with the Midwest, Pacific

Northwest, Southwest and the Southeast.

NAFTA

IJ

North American

shippers can

take better

advantage of

NAFTA with

BNSF's north-

south direct

routes between

Canada and

Mexico.

In 1996, BNSF will invest

nearly $1.7 billion to maintain

and improve its infrastructure

BURLINCTONNORTHERN

BN's strengths in coal,

grain and merchandise

combined with Santa Fe's the j

by adding more double

and triple track, expanding

yards and terminals, acquiring

more new locomotives and

COT

strengths in intermodal

and automotive give BNSF

a stronger and more diver-

exter

freight car equipment. mm

sified traffic base.

P AGE

rrrrrrCiTI

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OPERATINGSUERGIES

BNSF will benefit from the

consolidation of operations and

administrative functions,

disposition of about 4,000 miles of

low-density track, and the disposal

of excess office space and other

facilities, and operations.

between Chicago and the Pacific

Northwest, (2,218 miles), and one

of the shortest between Chicago and

Southern California (2,214 miles).

COAl/ELECTRICITY

Nearly 10% of the electricity produced in the

United States is generated from coal hauled by

BNSF. The new railroad's extended routes will

enable cleaner-

burning, low-sulfur

1coal to be delivered

to more markets. 1;:::;,

.:i"

~-iW

~ QUIPMENT, BNSF will improve

.. equipment utilization of

.. its combined 90,000-car

,- fleet and of its combined

4,400-10comotive fleet.

it moves from Texas to

the Canadian border.

INTERMOOAlSNIPPERS

have access to new

direct routes on

p

combined with BN's routes in

the Pacific Northwest, Midwest

and Southeast give BNSF

extended market reach through

most of the Western two-thirds

of the United States.

large fleet will enable

BNSF to move grain cars

north with the harvest as

BNSF between

Southern California

and the Southeast, and

to new single-line

service options

throughout most of the

western United States.

P AGE

-- -- - --

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t:-~~.,J.1"~~i;~fl~~~;:'~«('~~{~'l~\;~'{' , ,,': <'iJ:',~:\):!~;,:~.:~

t:::1:t/\{{ 11b!~(>'I' '~i~: 'V! ,l'.">-'".:,' [ '0' t.""\ ~ ~ "".,;~.,',i[,~,~.\~,.~:(.~~;:,~ ~i,,~)q~~1t"I:~';:Jt(~,f~'!i~J~Qr:\)~'.'~ ':.~\~growthopportunities, BNSF is continuing to focus on cus-

tomer service. Innovative pricing, faster cycle times for

coal trains (the time it takes to move a loaded coal train

from the mine to the utility and back) and reduced

costs through new technologies are helping BNSF lay

the groundwork for long-tenn growth in the coal business.METALS AND MINERALS: ACCESS TO STRONG

PRODUCTION CAPACITY

Improved demand for pipe, alumina and structural

steel helped increase metals traffic a combined total of

7 percent in 1995. BNSF has on-line access to more

than 40 percent of the nation's aluminum production

capacity, to the nation's largest deposit of taconite (iron

ore) in Minnesota's 'Iron Range', and to some of themost efficient steel mini-mills in the United States.

Expanded single-line service opportunities will enable

BNSF to extend the market reach of many of its metal

and mineral shippers.AGRICULTURALCOMMODITIES:

A RECORD YEAR

No BNSF business segment did a

better job in 1995 of seizing traffic

opportunities than AgriculturalACCESSTOSOMEOFTHE Commodities.A record combinedBNSF HASON,LINE

NATION'SMOSTEFFI.

CIENTSTEEl MINI-

MillS, ITS LARGEST

DEPOSITOF IRON ORE

(TACONITE)ANDA LARGE

PARTOF ITS AlUMINUM

PRODUCTIONCAPACITY.

P AGE 1 0

663,000 carloads of grain were

transported by BNSF.The record

grain performance was led by strong

domestic demand and by export

demand for com and soybean ship-

ments through the Pacific Northwest

ports. High barge rates on the Mississippi River and

ocean freight spreads that favored exporting grain from

ports in the Pacific Northwest over those on the Gulf

combined with a good crop supply on BNSF's system to

create an opportunity BNSF anticipated, planned for

and capitalized on very successfully.

BNSF is the largest rail transporter

of grain in North America, in part,because it connects most of the nation's

key grain-producing areas to most of its

major domestic consumption markets

and grain export ports. BNSF serves BNSFAlSO SERVES

key grain-producing regions stretching MOSTOF THE NATION'SLARGESTDOMESTIC

from the Northern to the Southern GreatGRAINMARKETSAND

Plains, and from the Pacific Northwest MOSTOFITS KEY GRAIN

to the Midwest.Comaccountsfor about EXPORTPORTS.

35 percent of BNSF's grain revenue, wheat 34 percent,

feeds and minor oilseeds 8 percent, soybeans 7 per-

cent, barley 5 percent, and flour, mill products, malt,

oil and specialty grains 11 percent. It is this diversity

of grain-producing regions, and of the grains and grain

products produced in those areas that hedges BNSF's

exposure to fluctuations in the market for specific

types of grains.NEW OPPORTUNITIES IN GRAIN

The USDA's long-term outlook indicates continued

strong growth in United States agricultural exports over

the next 10 years. The greatest demand is expected to

come from China, which could account for almost

one-third of the estimated increase in grain exports.

BNSF is well positioned to participate in that opportunity.

In addition, the merger has created single-line opportu-

nities to Southern California and Mexico, and for direct

routing of spring wheat to the Gulf of Mexico. Linkagesfrom Kansas and Oklahoma to the Pacific Northwest

and from the upper Midwest to Southern California

provide opportunities for opening new markets and cre-

ating more transportation options in existing markets.

The expanded grain market coverage and larger graincar fleet will enable BNSF to move cars in line with the

natural seasonal rotation of the harvest as it moves

north from Texas to the Canadian border.

To help improve the productivity of that 35,000 grain-

car fleet, BNSF invested in additional track sidings and

yard expansions along many of its key grain routes in

1995, significantly expanding the rail yards at Hauser,

Idaho, and at Pasco and Vancouver, Washington, which

handle most of BNSF's grain trains bound for the PNWCONSUMERAND INDUSTRIAL PRODUCTS:

EXTENDED MARKET REACH

Strong demand for petroleum helped increase BNSF's

combined Chemical carloads by 3 percent, helping to

offset reduced demand for lumber and canned goods inthe Forest Products and Consumer Goods units.

Access to new markets and new direct routes will

benefit most of BNSF's chemical, consumer and forest

products customers as much as it does, grain, coal,

intermodal or automobile shippers.

In Forest Products, for example, BNSF serves more

of North America's primary

timber producing areas than

any other railroad and is con-

sequently one of the largest

carriers of lumber, paper

products, plywood, pulpmill

feedstock and wood pulp in

the industry. BNSF's extend-

ed market coverage enables

forest products producers inthe Southeast, Minnesota and

the Pacific Northwest to reach

destinations in the Southwest

with single-line service.

Chemical shippers in the PNW and Canada have

access to a new single-line route to the West Coast and

to Mexico, and consumer products shippers now have

a new single-line alternative to virtually all of the

major consumer markets in the Western two-thirds ofthe United States.

EXPANDING CAPACITY

BNSF is continuing to make record

capital investments to provide theservice levels needed to win addition-

in capital projects, including about

$5.00 million for terminal and track

capacity expansion.

Yet investing in traditional rail

infrastructure is not enough. BNSF

cannot expect to reach its service,

growth, safety and operating cost

goals without the benefit of the verybest real-time information and control

tITHE NOC PLACES

OPEIATiORSTEAMMEM-

BERSWITHINFEETOF

UCI OTHERTO

INCREASETHE SPEED

systems. BNSF is developing and ANDCOORDINATIONOF

implementing the industry's best DECISIORS.

examples of those technologies at its new operationscenter in Fort Worth.

THE NOC: A 21sT CENTURY CONTROL CENTER

THE MAINTENANCEAND al business. In 1996, BNSF will add

87 new locomotives, bringing to

nearly a thousand the number of new

power units that have been added tothe combined BNSF fleet in the

1990's. In total, the new company will

invest approximately $1.7 billion

TRACK,TERMINALAND

EQUIP.En CAPACITY

EXPANSIONPROJECTS

CDNmlE AT BNSF

TO STAYIN STEP

WITH RElENUEGRDWTH

OPPORTUNITIES.

P AGE 1 2

The NetworkOperations

Center (NOC) is the largest

and most technologicallyadvanced control center

of its kind in any industry.

. ~~ It has the ability to not onlyview, track and help manage

day-to-day operations, but to

provide an electronic

overview of the entire system,

helping to identify potential

problems in advance and

prevent them from occurring.

The NOC is currently

providing these services for the Northern and

Burlington Lines on BNSF's system. The Systems

Operations Control Center in Schaumburg, performsthese functions for most of the Santa Fe Lines on

BNSF's network.

SUMMARY

The new company got off to a great start in the

fourth quarter of 1995, capping off what had

been a great year for the predecessor companies -a remarkable accomplishment of service improvement

achieved in spite of severe weather problems on many

parts of the system. The challenge for 1996 is to

build on that momentum, to make BNSF a safer place

to work by reducing injuries another 25 percent, to

reach an overall on-time performance level of 92

percent, and to reduce the ratio of expenses to

income to 78 percent.

I'liCES

, TEAM MEM-

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tions

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IStry.

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to

FINANCIAL CONTENTS

13 Management's Discussion and Analysis

21 Report of Management

21 Report of Independent Accountants22 Consolidated Statements of Income

23 Consolidated Balance Sheets

24 Consolidated Statements of Cash Flows

25 Consolidated Statements of Changes in

Stockholders' Equity

Notes to Consolidated Financial Statements26

MANAGEMENT'S DISCUSSION AND ANALYSISOF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

M anagement'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 or Company). The principal

subsidiaries are Burlington Northern Inc. (BNI), Burlington

Northern Railroad Company (BNRR), Santa Fe Pacific

Corporation (SFP) and The Atchison, Topeka and Santa Fe

Railway Company (ATSF).ACQUISITION OF SFP

On June 29, 1994, BNI and SFP entered into an Agreement

and Plan of Merger (as amended on October 26,1994,December 18, 1994, January 24, 1995 and September 19,1995,

the Merger Agreement) pursuant to which SFP would mergewith BNI in the manner set forth below (the Merger).

Stockholders of BNI and SFP approved the Merger Agreement

at special stockholders' meetings held on February 7, 1995.On August 23,1995, the Interstate Commerce Commission

(ICC) issued a written decision approving the Merger and

on September 22,1995 the Merger was consummated. Asdiscussed in Note 2, the business combination with SFP was

accounted for by the purchase method.Pursuant to the Merger Agreement, on December 23,1994,

BNI and SFP commenced tender offers (together, the Tender

Offer) to acquire 25 million and 38 million shares of SFP

common stock, respectively, at $20 per share in cash. During

the first quarter of 1995, SFP borrowed $1.0 billion under acredit facility of which $760 million of the proceeds were

used to purchase the 38 million shares pursuant to the TenderOffer. In addition, BNI borrowed $500 million under a credit

facility of which the proceeds were used to finance BNI's

purchase of SFP common stock in the Tender Offer. The TenderOffer was completed on February 21,1995.

Also, pursuant to the Merger Agreement, BNI and SFP wereentitled to elect to consummate the Merger through the use

of one of two possible structures: (i) a merger of SFP with andinto BNI or (ii) the Holding Company Structure described below.

To ensure that the transaction contemplated by the Merger

BURLINGTON NORTHERN SANTA FE

Agreement qualified as a tax-free transaction for federal income

tax purposes, the parties utilized the Holding Company Structure.Under the Holding Company Structure, BNSF created two

subsidiaries. One subsidiary merged with and into BNI, and

the other subsidiary merged with and into SFP. Each holder ofone share of BNI common stock received one share of BNSFcommon stock and each holder of one share of SFP common

stock, excluding the SFP common stock acquired by BNI inthe Tender Offer and the SFP common stock held by SFP as

treasury stock, received 0.41143945 shares of BNSF commonstock, which reflects the effects of the repurchase program

discussed below. The rights of each stockholder of BNSF are

substantially identical to the rights of a stockholder of BNI,and the Holding Company Structure has the same economic

effect with respect to the stockholders of BNI and SFP as

would a direct merger of BNI and SFP.In the Merger Agreement, the exchange ratio of BNSF

common shares for each share of outstanding SFP common

stock upon consummation of the Merger was set at not lessthan 0.40 shares to not more than 0.4347 shares, with

repurchases of SFP common stock by SFP increasing the

exchange ratio pro rata. SFP repurchased approximately3.6 million shares which, along with the effect of SFP stock

options exercised, resulted in the final exchange ratio of0.41143945 shares.RESULTS OF OPERATIONS

The results of operations discussed below include BNI

results for the years ended December 31, 1995, 1994

and 1993 and SFP results from September 22,1995 throughDecember 31, 1995.YEAR ENDED DECEMBER 31, 1995 COMPAREDWITH

YEAR ENDED DECEMBER 31, 1994

BNSF recorded net income for 1995 of $92 million ($.67 per

common share, primary and fully diluted) compared with net

income of $416 million ($4.37 per common share, primary,

and $4.27 per common share, fully diluted) for 1994. Results

for 1995 were reduced by $735 million of merger, severance

and asset charges (see Note 3: Merger, severance and asset

charges). The corresponding reduction in net income was

approximately $453 million, or $4.24 per common share.Results for 1995 were further reduced by $100 million (after

tax), or $.94 per common share, for the cumulative effect of

an accounting change for locomotive overhauls and $6 million

(after tax), or $.05 per common share, for an extraordinaryloss on early retirement of debt. Results for 1994 were reduced

by $10 million (after tax), or $.11 per common share, for thecumulative effect of an accounting change for postemployment

benefits. Excluding the above items, net income for 1995 would

have been $651 million compared to $426 million in 1994.

P AGE I 3

BURLINGTON NORTHERN SANTA FE

--

Revenue table

The following table presents BNSF's revenue infonnation by commodity for the years ended December 31,1995,1994 and 1993and includes certain reclassifications of prior year infonnation to confonn to current year presentation. SFP results are included

only for the period of September 22,1995 to December 31,1995.

323,437 $18.69 $18.71 $19.33260,574 237,339

Revenues

Total revenues for 1995 were $6,183 million compared with

revenues of $4,995 million for 1994. The $1,188 million

increase reflects $802 million of SFP revenues for the period

of September 22,1995 to December 31, 1995. Excluding SFp,revenues increased by $386 million or 8 percent primarily

due to improved Coal and Agricultural Commodities revenues.

Coal revenues improved $146 million during 1995 due to

higher traffic levels caused primarily by new business,favorable weather conditions early in the year and increaseddemand for low-sulfur coal from the Powder River Basin as

well as the addition of $58 million of SFP revenues in 1995.

Revenue per thousand revenue ton miles declined as a result

of continuing competitive pricing pressures and a change intraffic mix.

Agricultural Commodities revenues during 1995 were

$342 million greater than 1994. The increase was principally

caused by improvements in com and soybean revenues of$259 million and $41 million, respectively. Com and soybean

revenues benefited from increased crop production as well as

higher traffic volumes to the Pacific Northwest due to stronger

export demand during 1995. Barley and wheat revenuesdeclined primarily due to weaker export demand when compared

with the strong demand in 1994. Additionally, AgriculturalCommodities revenues included $59 million of SFP revenues

during 1995. The shift in commodities to lower yielding comand soybeans from higher yielding wheat led to the aggregate

decrease in revenue per thousand revenue ton miles.Intennodal revenues increased $373 million when compared

with 1994, almost exclusively due to the inclusion of SFPrevenues in 1995. Metals revenues increased $55 million due

to increased taconite, aluminum and steel products revenuesas well as the addition of $28 million of SFP revenues in 1995.

P AGE I 4

Current year revenues for Forest Products increased $19million and Chemicals/Plastics revenues increased $92 million

when compared to 1994. The increase in Forest Product rev-enues was due to the addition of $32 million of SFP revenues

and was partially offset by lower traffic levels for lumber. Theaddition of $80 million of SFP revenues along with strong

petroleum products demand contributed to the increase inChemicals/Plastics revenues.

Revenue increases in all other commodity groups are

principally due to the inclusion of SFP revenues from

September 22, 1995.Expenses

As discussed in Note 3: Merger, severance and asset charges,

the Company recorded $735 million for merger, severance and

asset charges in 1995. The principal components of the chargewere $287 million related to BNSF's plan to centralize the

majority of its union clerical functions and $254 million

related to salaried employee costs for severance, pension and

other employee benefits and costs for employee relocations

during the period. Additionally, $105 million was recorded for

planned branch line dispositions, while the remaining $89million included obligations for vacating leased facilities and

the write-off of duplicate and excess assets. Additional accrualsof $138 million were recorded through purchase accounting

related to fonner SFP employees and assets.

When its plans are completed, BNSF expects to have elim-

inated approximately 3,000 positions and disposed of approxi-

mately 4,000 miles of low density track. Total annual savingsrelated to these plans, when fully implemented, are expectedto exceed $250 million. Insignificant savings were recognized

in 1995 due to timing of severances. A significant portion of

the savings will be recognized in 1996 and the full benefit of

savings are anticipated to be realized by the end of 1998,when the plan is fully implemented. Also, as described in

Note 3, costs related to union employee relocation as well as

Revenues1995 1994 1993

(IN MILLIONS)

Coal $1,815 $1,669 $1,532Intermodal 1,1l8 745 701

Agricultural Commodities 1,101 759 710

Forest Products 459 440 419

Chemicals/Plastics 402 310 315

Food 347 304 291

Metals 308 253 248

Minerals and Ores 285 244 230

Automotive 210 152 141

Other 138 119 112

Total $6,183 $4,995 $4,699

Revenue Revenue PerTonMiles (RTM) Thousand RTM

1995 1994 1993 1995 1994 1993

(IN MILLIONS)

153,169 136,164 117,654 $1l.85 $12.26 $13.0238,516 24,671 22,718 29.03 30.20 30.8655,356 33,922 33,945 19.89 22.37 20.92

19,828 19,495 18,329 23.15 22.57 22.8615,127 11,695 11,862 26.57 26.51 26.56

12,332 10,341 9,711 28.14 29.40 29.97

13,804 11,503 11,233 22.31 21.99 22.08

12,147 10,752 10,136 23.46 22.69 22.69

3,158 2,031 1,751 66.50 74.84 80.53

BURLINGTON NORTHERN SANTA FE

certain costs for separation and severances were not included

in the charge; therefore, these costs will be recorded as future

operating expenses. Both the timing and magnitude of any

future expense is currently unknown.Total operating expenses for 1995, including $664 million

of SFP operating expenses and $735 million of merger, sever-ance and asset charges, were $5,657 million compared with

expenses of $4,142 million for 1994. Excluding the merger,severance and asset charges the operating ratio for 1995 was

80 percent, an improvement of three percentage points over

the operating ratio of 83 percent for 1994.

Effective January 1, 1995, BNSF changed its method of

accounting for periodic major locomotive overhauls. Under the

new method, overhauls on owned units are capitalized and

depreciated ratably until the next anticipated overhaul. Inaddition, estimated costs for overhauls on leased units are

accrued on a straight-line basis over the life of the leases.

BNSF previously expensed locomotive overhauls when thecosts were incurred. The cumulative effect of this change for

years prior to 1995 was a reduction in net income of $100

million (after tax) while the effect of this change for the yearended December 31, 1995 was to reduce net income by $25

million (after tax).

Compensation and benefits expenses of $2,065 millionwere $286 million above 1994 and included $233 million of

SFP compensation and benefits expense. The remaining $53

million of the increase was due to higher traffic levels, a wage

increase for union represented employees effective July 1994,an increase in health and welfare costs for union employees

due primarily to an increase in insurance premium rates, and

increased incentive compensation expense. These increases

were partially offset by operating efficiencies.Purchased services expenses increased $54 million for

1995 compared with 1994, principally reflecting the addition

of SFP expenses.

Equipment rents expenses were $111 million higher than1994 due to the inclusion of $70 million of SFP equipment

rents expense in 1995 as well as a $46 million increase in

lease rental expense as a result of a larger fleet of leased

freight cars and an increase in the leasing of locomotives to

meet power requirements in 1995.

Depreciation and amortization expense for 1995 was $158

million higher than 1994 primarily due to the inclusion of $86

million of SFP depreciation and amortization expense for 1995.

Additionally, the increase reflects $30 million attributable tothe 1995 effect of a change in accounting for locomotive

overhauls. The remainder of the increase was due to capital

additions which increased the Company's asset base.

Fuel expenses for 1995 were $111 million higher compared

with 1994 primarily due to the addition of $74 million of SFP

expenses along with a $29 million increase in consumption

resulting from higher traffic volumes in 1995. An increase in

the average price paid per gallon of 1.2 cents in 1995contributed to the remainder of the increase.

Materials expenses for 1995 decreased $5 million com-

pared with 1994. A $39 million reduction was attributable to

the change in accounting for locomotive overhauls in 1995

primarily offset by $35 million of SFP expenses.

Other operating expenses were $65 million higher in 1995

as compared with 1994. The increase reflects the inclusion

of SFP expenses of $60 million and $65 million of expensesassociated with the change in accounting for locomotive over-

hauls, partially offset by a decrease in personal injury expenses.

Interest expense increased $65 million compared with 1994,

principally due to the addition of $26 million of SFP expensein 1995 as well as interest on the $500 million unsecured debtincurred in 1995 to finance BNI's investment in SFP.

Other income (expense), net was $31 million favorable in

1995 as compared with 1994. This increase was due to BNI'sequity in earnings of SFP of $16 million from February 21,1995, the date of BNI's initial investment in SFp, to

September 22, 1995, the date of merger consummation.

Additionally, other income includes income from SFP's 44

percent equity investment in Santa Fe Pacific PipelinePartners, L.P. The remainder of the increase in other incomewas due to interest income on the settlement of a tax refund

and lower fees on the sale of accounts receivable in 1995.

In December 1995, BNSF defeased BNI's 9% debentures

due 2016, by placing $166 million of U.S. government secu-rities into an irrevocable trust for the purpose ofrepaying the

debentures in April 1996. The defeasance resulted in an

extraordinary charge of $6 million (after tax), principally

reflecting the call premium on the debt.YEAR ENDED DECEMBER 31, 1994 COMPAREDWITH

YEAR ENDED DECEMBER 31, 1993

BNSF had net income of $416 million ($4.37 per common

share, primary, and $4.27 per common share, fully diluted) for

the year ended December 31, 1994 compared with net income

of $296 million ($3.06 per common share, primary, and $3.04

per common share, fully diluted) for 1993. Results for 1994included the cumulative effect of the implementation of

Statement of Financial Accounting Standards (SFAS) No. 112

"Employers' Accounting for Postemployment Benefits" which

decreased 1994 net income by $10 million, or $.11 per commonshare. Results for 1993 included the effects of severe flooding

in the Midwest, most notably in the third quarter. Net incomefor 1993 also included the retroactive effects of the Omnibus

Budget Reconciliation Act of 1993 (the Act), which was passed

into law during August 1993. The Act increased the corporate

federal income tax rate by 1 percent, effective January 1, 1993,which reduced BNSF's net income by $28 million, or $.31

per common share, to adjust the January 1, 1993 deferred

tax liability.

P AGE 1 5

-~BURLINGTON NORTHERN SANTA FE

Revenues

Total revenues for 1994 were $4,995 million compared withrevenues of $4,699 million for 1993. The $296 million

increase was primarily attributable to improvements in Coal,

Agricultural Commodities and Intermo~al revenues.

Coal revenues improved $137 million during 1994 as a

result of increased traffic. This increase was primarily causedby a rise in the demand for electricity as well as the need for

utilities to replenish coal stockpiles during the first half of

1994, which were partially depleted during the 1993 summerflooding. Partially offsetting the increase in 1994 traffic was

a decline in revenue per thousand revenue ton miles. These

lower yields were largely due to the transportation in 1994 of

greater volumes above contractual minimum tonnage require-

ments on which customers received lower rates. Continuing

competitive pricing pressures in contract renegotiations alsocontributed to lower yields.

Intermodal revenues increased $44 million during 1994when compared with 1993. Intermodal-international revenues

accounted for the majority of the increase with a $37 million

improvement over 1993 caused by both new business and

growth in existing business. The traffic increases more than

offset BNSF's withdrawal from the Texas market in April 1994.

Revenues from the transportation of Agricultural Commodities

during 1994 were $49 million higher than 1993. This increase

was principally caused by a $31 million improvement inbarley revenues, as well as higher wheat, feeds and oilseeds

revenues. Barley revenues benefited from strong domestic and

export demand caused by favorable market conditions during1994. Higher wheat revenues resulted from an increase in

yield, which is a product of commodity mix, price and length of

haul. Feeds and oilseeds revenues grew because of increased

domestic feed demand. Partially offsetting these increases was a

decrease in corn revenues largely attributable to reduced cropproduction and lower export demand.

Forest Products revenues for 1994 increased $21 million

compared with 1993 primarily due to increased housingstarts during the year, while Food revenues for 1994 were $13

million higher than 1993 as a result of increased exportdemand. Minerals and Ores revenues rose $14 million over

1993 as a result of stronger clays and aggregates traffic caused

by increases in both domestic and export demands, and

Automotive revenues were $11 million higher than 1993 as aresult of increased volume in automotive-international traffic.

Expenses

Total operating expenses for 1994 were $4,142 million comparedwith $4,038 million for 1993. The operating ratio improved

three percentage points to 83 percent from 86 percent.

P AGE 1 6

Compensation and benefits expenses for 1994 were $70

million greater than for 1993. Higher traffic volumes during1994 as well as wage increases for union represented employ-

ees caused an increase in excess of $50 million to wages

and related payroll taxes. Also contributing to the increase incompensation and benefits expenses were increased salaries

and a higher pension expense, due to a reduction in the

discount rate (driven by lower market interest rates) used in

determining the net pension cost.

Purchased services expenses increased $15 million

compared with 1993. Higher intermodal-related costs, due

to increased volumes, and higher third party locomotive

maintenance and repair costs were the most significant

contributing factors to this increase.

Equipment rents expenses were $34 million higher in

1994. This increase was primarily attributable to higher leaseexpenses due to a larger fleet of leased rail cars as well as

leasing locomotives to meet power requirements. Also con-tributing to the increase were payments for failure to achieveservice commitments in the first half of 1994 under various

transportation agreements. These increases were partially offset

by decreased car hire expenses in i994 compared with 1993,

due to the adverse effects of the Midwest flooding in 1993.

Depreciation and amortization expense for 1994 was$10 million higher than 1993, due to an increase in the assetbase and higher traffic levels.

Fuel expenses were $7 million higher during 1994 ascompared with 1993. The average price paid for diesel fuel

decreased 3.1 cents per gallon in 1994 despite the 4.3 centsper gallon increase in the federal fuel tax, effective October 1,

1993. These price savings were more than offset by a $30

million increase in expense due to higher traffic volumes.

Materials expenses were $5 million higher during 1994 as

compared with 1993. Track and locomotive repair materials

costs increased due to higher maintenance levels and a larger

fleet size in 1994. Partially offsetting these increases weregreater scrap sales due to the higher maintenance levels and a

reduction in expenditures for safety and protective equipmentdeployed in 1993.

Other operating expenses were $37 million less when com-

pared with 1993. A $46 million decrease in personal injuryexpenses and the absence in 1994 of costs associated with the

1993 third quarter floods were partially offset by increases inderailment-related expenses and property taxes.

Interest expense for the year increased $10 million compared

with 1993, primarily due to a higher average outstanding debtbalance in 1994.

Other income (expense), net was $8 million lower in 1994

compared with 1993. This resulted primarily from lossesrelated to international ventures.

70

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1994

The effective tax rate was 38.7 percent for 1994 compared

with 43.2 percent for 1993. The higher effective tax rate for

1993 resulted from the increase in tax rates pursuant to the

Act and the related impact on the deferred tax liability atJanuary 1, 1993.CAPITAL RESOURCES AND LIQUIDITYCASH FROM OPERATIONS

C ash generated from operations is BNSF's principal source

of liquidity and is primarily used for dividends and

capital expenditures. To the extent cash outflows exceed cash

provided by operations, BNSF would generally fund the excess

through the issuance of debt or financing through capital or

operating leases. Operating activities provided cash of $1,416

million in 1995, compared with $808 million in 1994 and $578million in 1993. The increase in cash from operations in 1995

was attributable primarily to a $421 million increase in net

earnings excluding net noncash charges. An increase of $263million from working capital activities, including additionalcash from the collection of accounts receivable and favorable

activity in accounts payable and other current liabilities also

contributed to the increase. The above were partially offset

by cash used in 1995 to pay employee merger and separation

costs. The increase in cash from operations in 1994 over1993 was primarily attributable to increased net income and a

$68 million decrease in labor-related payments. BNSF's cash

outflows from investing and financing activities principally

relate to dividends and capital expenditures. Additionally, in

1995 the Company had expenditures of $500 million relatedto the Tender Offer.

OTHER CAPITALRESOURCES

BNSF maintains a program for the issuance, from time to time,

of commercial paper. These borrowings are supported by bank

revolving credit agreements. Outstanding commercial paper

balances are considered as reducing available borrowings under

these agreements. The bank revolving credit agreements allow

borrowings of up to $1.0 billion on a short-term basis and $1.5

billion on a long-term basis. Annual facility fees are currently

.08 percent and .125 percent, respectively, and are subject

to change based upon changes in BNSF's senior unsecured

debt ratings. Borrowings are based upon LIBOR plus a spread

based upon BNSF's senior unsecured debt ratings, money

market rates as offered by the lenders, or an alternate base rate.The commitment of the banks to make loans are currently

scheduled to expire on November 19, 1996 and November 21,

2000, respectively. At December 31, 1995, borrowings against

the long-term revolving credit agreement were $85 million

and the maturity value of commercial paper outstanding was

$996 million, leaving a total of $419 million of the long-termrevolving credit agreement available and $1.0 billion of the

short-term revolving credit agreement available. The maturity

value of commercial paper outstanding at December 31, 1994was $91 million.

BURLINGTON NORTHERN SANTA FE

In December 1995, BNSF issued $300 million of 63/8%

Notes due December 15, 2005 and $350 million of 7%

Debentures due December 15, 2025 under a registration

statement filed by BNSF on November 22, 1995 covering the

issuance, from time to time, of up to $1 billion aggregate

principal amount of debt securities. The net proceeds from

the sale of the notes and debentures were primarily used for

general corporate purposes, including but not limited to the

repayment of commercial paper and short-term bank loans

having an average interest rate of approximately 6 percent.

During the course of 1995, the Company entered into various

interest rate swap agreements with a principal amount of $500

million, for the purpose of establishing rates in anticipation of

debt issuances under a shelf registration statement (see Note10: Debt). In conjunction with the fourth quarter 1995

issuance of 10 year 6 3/8% notes and 30 year 7% debentures,the Company closed out the swap transactions which resultedin losses of $13 million and $15 million, respectively. The

losses were deferred and will be recognized over the term of

the borrowings.

Additionally, in December 1995, BNSF defeased BNI's 9%

debentures due 2016, by placing $166 million of U.S. gov-

ernment securities into an irrevocable trust for the purpose of

repaying the debentures in April 1996. The defeasance of

debt resulted in an extraordinary charge of $6 million, net of

applicable income tax benefits of $3 million, principally

reflecting the call premium on the debt.CAPITAL EXPENDITURES AND RESOURCES

A breakdown of cash capital expenditures is set forth in the

following table (in millions):

The above capital expenditures exclude $136 million and $50

million of equipment acquired under cross-border capital lease

arrangements in 1995 and 1994, respectively. Capital roadway

expenditures in 1995 increased when compared with 1994 as

a result of extensive capacity expansion projects, primarilylocated in the Powder River Basin as well as the inclusion of

$1l5 million of SFP capital expenditures from September 22,

1995 through December 31, 1995. Capital roadway expendi-

tures for 1994 increased compared with 1993 primarily due

to spending related to strategic initiatives for transportation

network management and extensive roadway improvements.Capital equipment expenditures for 1995 also increased when

compared with 1994 due to the inclusion of $34 million of

SFP capital expenditures. Capital equipment expenditures for

P AGE 1 7

I

Yearended December31, 1995 1994 1993

Road,roadway structuresand real estate $706 $544 $459

Equipment 184 154 217

Total capital expenditures $890 $698 $676

-- - JBURLINGTON NORTHERN SANTA FE

1994 declined when compared to 1993 primarily as a result of

acquiring more equipment through operating leases rather than

through purchases. Capital expenditures in 1996 are expectedto approximate $1. 7 billion, including noncash capital expen-ditures of approximately $200 million primarily for either

directly financed or leased equipment acquisitions, andreimbursed projects.

BNSF has a commitment to acquire 149 locomotives during1996 and 1997. Nineteen locomotives were financed in

February 1996 through a capital lease. The remaining commit-ment will be financed from one or a combination of sources

including cash from operations, capital or operating leases,debt issuances and other miscellaneous sources. The decision

on the method used to finance equipment depends uponcurrent market conditions and other factors and will be based

upon the most appropriate alternative available at such time.

In both 1995 and 1994, BNSF financed new equipment

through long-term capital and operating leases. During 1993,equipment was financed through debt issuance and long-termoperating leases.INFLATION

Because of the capital intensive nature of BNSF's businesses

and because depreciation is based on historical costs, the full

effect of inflation is not reflected in operating expenses. An

assumption that all operating assets were replaced at current

price levels would result in depreciation charges substantiallygreater than historically reported amounts.DIVIDENDS

Common stock dividends declared were $1.20 per common

share annually for 1995, 1994 and 1993. Dividends paid oncommon and preferred stock during 1995 and 1994 were $129

million and during 1993 were $125 million. On January 18,1996, the BNSF board of directors declared a dividend of 30

cents per share upon its outstanding shares of Common Stock,$.01 par value, payable April 1, 1996, to stockholders ofrecord on March 11, 1996.CAPITAL STRUCTURE

BNSF's ratio of total debt to total capital was 46 percent at

the end of 1995 compared with 45 and 48 percent at the end

of 1994 and 1993, respectively.OTHER MATTERS

CASUALTYAND ENVIRONMENTAL

Personal injury claims, including work-related injuries to

employees, are a significant expense for the railroad.

industry. Employees of BNSF are compensated for work-related

injuries according to the provisions of the Federal Employers'

Liability Act (FELA). FELA's system of requiring findingof fault, coupled with unscheduled awards and reliance on

P AGE I 8

the jury system, resulted in significant increases in expense

in past years. For several years prior to 1992, the trend of

significant increases in BNSF's personal injury expense

reflected the combined effects of increasing frequency ofclaims, rising medical expenses, legal judgments and settle-

ments. To improve worker safety and counter increasing costs,BNSF implemented a number of programs to reduce thenumber of personal injury claims and the dollar amount of

claim settlements. The total amount of personal injuryexpenses were $143 million, $170 million and $216 million

in 1995, 1994 and 1993, respectively, including SFP expensesfrom only September 22, 1995 through December 31, 1995.

BNSF is also working with others, through the Association of

American Railroads, to seek changes in legislation to providea more equitable program for injury compensation in therailroad industry.

BNSF's operations, as well as those of its competitors, aresubject to extensive federal, state and local environmental

regulation. BNSF's operating procedures include practices toprotect the environment from the environmental risks inherent

in railroad operations, which frequently involve transportingchemicals and other hazardous materials.

Additionally, many of BNSF's land holdings are and have

been used for industrial or transportation-related purposes orleased to commercial or industrial companies whose activities

may have resulted in discharges onto the property. As a result,

BNSF is subject to environmental clean-up and enforcement

actions. In particular, the Federal Comprehensive Environmental

Response Compensation and Liability Act of 1980 (CERCLA),also known as the "Superfund" law, as well as similar state

laws generally impose joint and several liability for clean-up

and enforcement costs without regard to fault or the legality of

the original conduct on current and former owners and opera-

tors of a site. BNSF has been notified that it is a potentiallyresponsible party (PRP) for study and clean-up costs at

approximately 30 Superfund sites for which investigation and

remediation payments are or will be made or are yet to bedetermined (the Superfund sites) and, in many instances, is

one of several PRPs. In addition, BNSF may be considered a

PRP under certain other laws. Accordingly, under CERCLA

and other federal and state statutes, BNSF may be held jointlyand severally liable for all environmental costs associated

with a particular site. If there are other PRPs, BNSF generally

participates in the clean-up of these sites through cost-sharingagreements with terms that vary from site to site. Costs aretypically allocated based on relative volumetric contribution

of material, the amount of time the site was owned or operated,and/or the portion of the total site owned or operated byeach PRP.

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Environmentalcostsinclude initial site surveysand environ-

mentalstudies of potentially contaminatedsites as well ascostsfor remediation and restoration of sites determined to be

contaminated.Liabilities for environmental clean-up costsare

initially recorded when BNSF's liability for environmentalclean-upis both probable and a reasonableestimate ofassociatedcostscan be made. Adjustments to initial estimatesarerecordedas necessarybasedupon additional information

developedin subsequentperiods. BNSFconducts an ongoingenvironmental contingency analysis, which considers a com-binationof factors including independent consultingrepQrts,site visits, legal reviews, analysis of the likelihood of partici-

pation in and the ability of other PRPs to pay for clean-up,and historical trend analyses.

BNSF is involved in a number of administrative and judicial

proceedings and other mandatory clean-up efforts at approxi-

mately 320 sites, including the Superfund sites, at which it is

being askedto participate in the study or clean-up, or both, ofalleged environmental contamination. BNSF paid approxi-

mately $31 million, $21 million and $27 million during 1995,

1994 and 1993, respectively relating to mandatory clean-upefforts, including amounts expended under federal and state

voluntary clean-up programs. BNSF has accruals of approxi-

mately $235 million for remediation and restoration of allknown sites, including $225 million pertaining to mandated

sites, of which approximately $60 million relates to the Superfund

sites. BNSF anticipates that the majority of the accrued costsat December 31,1995 will be paid over the next five years.No individualsite is considered to be material. Recoveries

received from third parties, net of legal costs incurred, were

approximately $31 million during the year ended December31, 1995 and were not significant in prior years.

Liabilities recorded for environmental costs representBNSF's best estimates for remediation and restoration of thesesites and include both asserted and unasserted claims.

Unasserted claims are not considered to be a material compo-

nent of the liability. Although recorded liabilities includeBNSF's best estimates of all costs, without reduction for antic-

ipated recoveries from third parties, BNSF's total clean-upcosts at these sites cannot be predicted with certainty due tovarious factors such as the extent of corrective actions that

maybe required, evolvingenvironmentallaws and regula-tions, advances in environmental technology, the extent of

other PRPs' participation in clean-up efforts,developmentsinongoingenvironmentalanalyses related to sites determined tobe contaminated,and developmentsin environmentalsurveysand studies of potentially contaminated sites. As a result,

future charges to income for environmental liabilities couldhave a significant effect on results of operations in a particular

quarter or fiscal year as individual site studies and remediation

and restoration efforts proceed or as new sites arise. However,

expenditures associated with such liabilities are typically paidout over a long period; therefore, management believes that it

is unlikely that any identified matters, either individually or

in the aggregate,will have a material adverse effect on BNSF'sconsolidated financial position or liquidity.

BNSF expects it will become subject to future requirements

regulating air emissions from diesel locomotives that mayincrease its operating costs. Regulations applicable to new

locomotive engines are expected to be issued by the Environ-

mental Protection Agency soon. It is anticipated that these

regulations will be effective for locomotive engines installedafter 1999. Under some interpretations offederallaw, older

locomotiveengines may be regulated by statesbasedon stan-dards and procedures which the State of California ultimately

adopts. At this time it is unknown whether California will

adopt locomotive emission standards that may differ fromfederal standards.

OTHER CLAIMSAND LITIGATION

BNSF and its subsidiaries are parties to a number of legal

actions and claims, various governmental proceedings and

private civil suits arising in the ordinary course of business,including those related to environmental matters and personal

injury claims. While the final outcome of these items cannot

be predicted with certainty, considering among other thingsthe meritorious legal defenses available, it is the opinion of

management that none of these items, when finally resolved,will have a material adverse effect on the annual results of

operations, financial position or liquidity of BNSF, althoughan adverse resolution of a number of these items could have

a material adverse effect on the results of operationsin aparticular quarter or fiscal year.LABOR

Rail union employees represent approximately 87 percent ofBNSF's workforce. In December 1994, BNRR reached an

agreement with the Railroad Yardmasters Division of theUnited TransportationUnion (UTU)which is effectivethrough1999 with respect to wages, work rules and all other mattersexcept health and welfare benefits. Health and welfare issues

are being addressed at the national level and will apply toBNRR's approximately 250 yardmasters. Effective July 1, 1995,the yardmasters received a 3 percent base wage increaseunder the agreement.

Labor agreements currently in effect for unions other than

the yardmasters include provisions which prohibited the par-ties from serving notices to change wages, benefits, rules and

working conditions prior to November 1, 1994. BNSF's rail-road operating subsidiaries joined with the other railroads to

negotiate with the unions on a multi-employer basis onNovember 1, 1994. At that time, all unions were served pro-

posals for productivity improvements as well as other changes.

P AGE 1 9

BURLINGTON NORTHERN SANTA FE

JR

Thereafter, unions also served notices on the railroads which

proposed increasing wages and benefits and restoring many

of the restrictive work rules and practices that were modified

or eliminated under the current agreements. A number of the

unions are also challenging the railroads' right to negotiate

on a multi-employer basis and the issue is currently pendingin federal district court in Washington, D.C.

In December 1995, BNSF's multi-employer bargaining

representative, the National Carriers' Conference Committee

(NCCC), reached a tentative agreement with the UTUresolving wage, benefit and work rule issues through 1999.

The agreement is subject to ratification, the results of whichshould be known in March 1996.

At this time, the railroads and most of the other unions

are proceeding in direct negotiations on the parties' proposalswith many in mediation. The National Mediation Board has

scheduled and held meetings with the parties. The ultimate

outcome of the negotiations cannot be predicted.

Under labor agreements currently in effect for most of theunionized work force, a cost of living allowance of 9 cents per

hour went into effect on July I, 1995. The cost of living

allowance was dependent upon changes in the Consumer PriceIndex not to exceed 3 percent.

Tentative agreements resolving merger-related issues were

reached with the Brotherhood of Locomotive Engineers and

UTU in December 1995. These agreements are subject toratification, the results of which should be known in March

1996. Merger implementing negotiations are ongoing withthe carman and yardmaster unions. Discussions with the

Transportation Communications Union resulted in an agree-

ment resolving all merger-related and other issues covering

railroads' clerical employees.

BNRR and ATSF are each parties to service interruption

insurance agreements under which on a combined basis they

would be required to pay premiums of up to a maximum of

approximately $106 million in the event of work stoppages on

other railroads related to ongoing national bargaining. BNRR

and ATSF are also entitled to receive payments under certain

conditions if a work stoppage occurs on either property.HEDGING ACTIVITIESFuel

BNSF has a program to hedge against fluctuations in the price

of its diesel fuel purchases. This program includes forward

purchases for delivery at fueling facilities. Additionally, thisprogram includes exchange-traded petroleum futures contracts

and various commodity swap and collar transactions which

are accounted for as hedges. Any gains or losses associated

with changes in market value of these hedges are deferredand recognized as a component of fuel expense in the period

in which the hedged fuel is purchased and used. To the extent

BNSF hedges portions of its fuel purchases, it may not fully

benefit from decreases in fuel prices.

PAC E 2 0

As of December 31, 1995, BNSF had entered into forward

purchases for approximately 69 million gallons at an average

price of approximately 49 cents per gallon. In addition, BNSF

held petroleum futures contracts representing approximately

60 million gallons at an average price of approximately 48

cents per gallon. These contracts have expiration dates rangingfrom January 1996 to October 1996.

The above prices do not include taxes, fuel handling costs,

certain transportation costs and, except for forward contracts,any differences which may occur from time to time between

the prices of commodities hedged and the purchase price ofBNSF's diesel fuel.

BNSF's current fuel hedging program covers approximately

12 percent of estimated 1996 fuel purchases. The current and

future fuel delivery prices are monitored continuously and

hedge positions are adjusted accordingly. Hedge positions are

also closely monitored to ensure that they will not exceedactual fuel requirements. Unrealized gains or losses from

BNSF's fuel hedging transactions were not material at

December 31, 1995 and 1994. BNSF monitors its hedgingpositions and credit ratings of its counterparties and does not

anticipate losses due to counterparty nonperformance.Interest rate

From time to time, the Company enters into interest rate trans-

actions for the purpose of establishing rates on anticipated

debt transactions or fixing interest rates on floating rate debt.

As of December 31,1995, no interest rate hedging transactions

were outstanding, although in February 1996, the Companyentered into interest rate transactions to fix interest rates on

floating rate debt with a total principal amount of $225 million.

The transactions call for the payment of fixed rates of 4.8

percent and receipt of a floating rate based on commercial

paper rates over a period of 12 to 18 months.RECENT ACCOUNTINGPRONOUNCEMENTS

In October 1995, the Financial Accounting Standards Board

(FASB) issued SFAS No. 123, ''Accounting for Stock-Based

Compensation." The Company believes that it will continue touse Accounting Principle Board Opinion No. 25 to measure

and recognize employee stock-based transactions and will

provide required additional disclosures commencing in 1996.In March 1995, the FASB issued SFAS No. 121,

''Accounting for the Impairment of Long-Lived Assets and for

Long-Lived Assets to Be Disposed Of," which establishes the

accounting and reporting requirements for recognizing and

measuring impairment of long-lived assets to be either held

and used or held for disposal. BNSF is currently evaluatingthe financial impact of adopting this standard, however, the

impact is not anticipated to be significant.

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REPORT OF MANAGEMENT

To THE STOCKHOLDERS OF

BURLINGTON NORTHERN

SANTA FE CORPORATION

The accompanying consolidated financial statements of

Burlington Northern Santa Fe Corporation and subsidiary

companies were prepared by management, who are responsible

for their integrity and objectivity. They were prepared in

accordance with generally accepted accounting principles and

properly include amounts that are based on management'sbest judgments and estimates. Other financial information

included in this annual report is consistent with that in theconsolidated financial statements.

The Company maintains a system of internal accounting

controls, supported by adequate documentation, to providereasonable assurance that assets are safeguarded and that thebooks and records reflect the authorized transactions of the

Company. Limitations exist in any system of internal account-

ing controls based upon the recognition that the cost of thesystem should not exceed the benefits derived. The Company

believes its system of internal accounting controls, augmented

by its internal auditing function, appropriately balances the

cost/benefit relationship.

Independent accountants provide an objective assessment

of the degree to which management meets its responsibility

for fairness of financial reporting. They regularly evaluate the

system of internal accounting controls and perform such tests

and other procedures as they deem necessary to express an

opinion on the fairness of the consolidated financial statements.The Board of Directors pursues its responsibility for the

Company's financial statements through its Audit Committee

which is composed solely of directors who are not officers

or employees of the Company. The Audit Committee meets

regularly with the independent accountants, managementand internal auditors. The independent accountants and the

Company's internal auditors have direct access to the AuditCommittee, with and without the presence of management

representatives, to discuss the scope and results of their workand their comments on the adequacy of internal accounting

controls and the quality of financial reporting.

If'Robert D. Krebs

President and Chief Executive Officer

/l&;tDenis E. SpringerSenior Vice President and Chief Financial Officer

G-L 7).-;LSJThomas N. Hund

Vice President and Controller

REPORT OF INDEPENDENT ACCOUNTANTS

To THE STOCKHOLDERS AND

BOARD OF DIRECTORS OF BURLINGTON NORTHERN

SANTA FE CORPORATION AND SUBSIDIARIES

We have audited the consolidated balance sheets of

Burlington Northern Santa Fe Corporation andSubsidiaries as of December 31, 1995 and 1994, and the

related consolidated statements of income, changes in stock-

holders' equity and cash flows for each of the three years

in the period ended December 31, 1995. These consolidatedfinancial statements are the responsibility of the Company's

management. Our responsibility is to express an opinion onthese consolidated financial statements based on our audits.

We conducted our audits in accordance with generally

accepted auditing standards. Those standards require that we

plan and perform the audit to obtain reasonable assuranceabout whether the financial statements are free of material

misstatement. An audit includes examining, on a test basis,

evidence supporting the amounts and disclosures in thefinancial statements. An audit also includes assessing the

accounting principles used and significant estimates made

by management, as well as evaluating the overall financial

statement presentation. We believe that our audits providea reasonable basis for our opinion.

In our opinion, the consolidated financial statements

referred to above present fairly, in all material respects, the

consolidated financial position of Burlington Northern Santa

Fe Corporation and Subsidiaries as of December 31, 1995and 1994, and the consolidated results of their operations

and their cash flows for each of the three years in the period

ended December 31, 1995 in conformity with generally

accepted accounting principles.As discussed in Note 4 to the consolidated financial

statements, the Company changed its method of accounting

for periodic major locomotive overhauls in 1995 and for

postemployment benefits and investments in debt and equitysecurities in 1994.

Coopers & Lybrand L.L.P.

Fort Worth, Texas

February 15, 1996

P AGE 2 1

J

P AGE 2 2

CONSOLIDATED STATEMENTS OF INCOME

Burlington Northern Santa Fe Corporation and Subsidiaries(Dollars in millions, except per share data)

Year ended December 31, 1995 1994 1993

Revenues $ 6,183 $ 4,995 $ 4,699Operating expenses:

Compensation and benefits 2,065 1,779 1,709Purchased services 526 472 457Equipment rents 540 429 395Depreciation and amortization 520 362 352Fuel 480 369 362Materials 300 305 300Other 491 426 463

Merger, severance and asset charges 735

Total operating expenses 5,657 4,142 4,038

Operating income 526 853 661Interest expense 220 155 145Other income (expense), net 28 (3) 5

Income before income taxes 334 695 521Income tax expense 136 269 225

Income before extraordinary item and cumulative effectof change in accounting method 198 426 296

Extraordinary item, loss on early retirement of debt, net of tax (6)

Income before cumulative effect of change in accounting method 192 426 296Cumulative effect of change in accounting method, net of tax (100) (10)

Net income $ 92 $ 416 $ 296

Primary earnings per common share:Income before extraordinary item and change in accounting method $ 1.66 $ 4.48 $ 3.06Extraordinary item (.05) -

Change in accounting method (.94) (.11)

Primary earnings per common share $ .67 $ 4.37 $ 3.06

Average shares (in thousands) 106,730 90,187 89,672

Fully diluted earnings per common share:Income before extraordinary item and change in accounting method $ 1.66 $ 4.38 $ 3.04Extraordinary item (.05) -Change in accounting method (.94) (.11)

Fully diluted earnings per common share $ .67 $ 4.27 $ 3.04

Average shares (in thousands) 106,730 97,528 97,189

See accompanying notes to consolidated financial statements.

1993

$ 4,699

1,709457395352362300463

4,038

661145

5

521225

296

296

$ 296

$ 3.06

$ 3.06-89,672

$ 3.04

$ 3.04-97,189

CONSOLIDATED BALANCE SHEETS

Burlington Northern Santa Fe Corporation and Subsidiaries

(Dollars in millions)

December 31,

ASSETS

Current assets:

Cash and cash equivalentsAccounts receivable, net

Materials and supplies

Current portion of deferred income taxesOther current assets

1995 1994

Total current assets

Property and equipment, netOther assets

Total assets

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable and other current liabilities

Long-term debt and commercial paper due within one year

Total current liabilities

Long-term debt and commercial paperDeferred income taxes

Casualty and environmental reserves

Employee merger and separation costsOther liabilities

Total liabilities

Commitments and contingencies (see Note 12 and 13)

Stockholders' equity:

Convertible preferred stock and additional paid-in capital, $.01 par value;25,000,000 shares authorized; 6,900,000 shares issued;

o shares and 6,900,000 shares outstanding, respectively

Common stock, $.01 par value, 300,000,000 shares authorized;149,649,930 shares and 89,329,259 shares issued, respectively

Additional paid-in capitalRetained earnings

Treasury stock, at cost, 44,713 shares and 105,438 shares, respectivelyOther

Total stockholders' equity

Total liabilities and stockholders' equity

See accompanying notes to consolidated financial statements.

P . G E 2 3

$ 50 $ 27620 697220 100320 156

54 32

1,264 1,012

16,001 6,3111,004 269

$18,269 $7,592

$ 2,289 $1,32580 122

2,369 1,447

4,153 1,6974,233 1,456

626 416530 -

1,321 339

13,232 5,355

337

1 14,606 1,443

459 485

(3) (5)(26) (24)

5,037 2,237

$18,269 $7,592

, AGE 2 4

jCONSOLIDATED STATEMENTS 0 F CASH FLOWS

Burlington Northern Santa Fe Corporation and Subsidiaries(Dollars in millions)

Year ended December 31, 1995 1994 1993

OPERATING ACTIVITIESNet income $ 92 $ 416 $ 296Adjustments to reconcile net income to net

cash provided by operating activities:

Cumulative effect of change in accounting method 100 10 -Depreciation and amortization 520 362 352Deferred income taxes (112) 126 156

Merger, severance and asset charges 735Employee merger and separation costs paid (118)Other, net 51 9 (117)

Changes in current assets and liabilities, excluding SFPassets/liabilities acquired:

Accounts receivable, net 63 (108) (116)Materials and supplies (42) (13) 6Other current assets (5) (5) (4)Accounts payable and other current liabilities 132 11 5

Net cash provided by operating activities 1,416 808 578

INVESTINGACTIVITIES

Purchase of SFp,net of cash acquired (488) (18)Cash used for capital expenditures (890) (698) (676)Other, net 12 16 17

Net cash used for investing activities (1,366) (700) (659)FINANCINGACTIVITIES

Net increase in commercial paper 895 64 26Proceeds from issuance of long-term debt 1,294 310 224Payments on long-term debt (2,071) (346) (88)Dividends paid (129) (129) (125)Other, net (16) 3 4

Net cash flow provided by (used for) financing activities (27) (98) 41

Increase (decrease) in cash and cash equivalents 23 10 (40)Cash and cash equivalents:

Beginning of year 27 17 57

End of year $ 50 $ 27 $ 17

SUPPLEMENTAL CASH FLOW INFORMATION

Interest paid, net of amounts capitalized $ 228 $ 149 $ 144Income taxes paid, net of refunds 250 128 70Assets financed through capital lease obligations 140 50Noncash consideration for purchase of SFP:

Net assets acquired $ 3,319Cash paid (532)Cash acquired 26

Noncash consideration $ 2,813

See accompanying notes to consolidated financial statements.

P AGE 2 5

I

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

Burlington Northern Santa Fe Corporation and Subsidiaries

(Shares in thousands. Dollars in millions, except per share data.)-

1993 Convertible Other- Preferred CommonStock and Stock and Unearned

Additional Additional Compensation, Minimum$ 296 Outstanding Paid-in Paid-in Retained Treasury Restricted Pension

Common Shares Capital Capital Earnings Stock Stock Liability Total

Balance at December 31, 1992 88,024 $ 337 $ 1,386 $ 30 $ (2) $(19) $ (4) $ 1,728- Net income 296 296

352 Dividends:156 Commonstock, $1.20 per share (106) (106)

Convertiblepreferred stock, $3.125 per share (22) (22)Adjustments associated with unearned

(117) compensation, restricted stock 232 12 (2) (4) 6

Exerciseof stock options and related tax benefit 500 20 20

Equity adjustment from minimum pension(116) liability (6) (6)

6 Other 40 3 3

(4) Balance at December 31, 1993 88,796 337 1,421 198 (4) (23) (10) 1,9195 Net income 416 416-

578 Dividends:

Commonstock, $1.20 per share (107) (107)Convertiblepreferred stock, $3.125 per share (22) (22)

(676)Adjustments associated with unearned

17 compensation, restricted stock 178 12 (1) 11- Exerciseof stock options and related tax benefit 184 8 8(659) Equity adjustment from minimum pension-

liability 9 9

26 Other 66 3 3

224 Balance at December 31, 1994 89,224 337 1,444 485 (5) (23) (1) 2,237(88) Net income 92 92

(125) Purchase of SFP:4 Commonstock issued 52,004 2,652 2,652-

41 Value of outstanding SFP stock options 119 119-

Conversionand redemption of convertible(40)

preferred stock for common stock 7,313 (337) 335 (2)

57Dividends:

- Commonstock, $1.20 per share (123) (123)$ 17 Convertiblepreferred stock, $3.125 per share (21) (21)-

Adjustments associated with unearned

$144 compensation, restricted stock 243 13 2 16 31

70 Exerciseof stock options and related tax benefit 778 39 (3) 36

Equity adjustment from minimum pensionliability (18) (I8)

Cost to equity investment adjustment 26 26Other 43 5 3 8

Balance at December 31, 1995 149,605 $ - $4,607 $ 459 $(3) $ (7) $(19) $5,037

See accompanying notes to consolidated financial statements.

-

NOTES TO CONSOLIDATEDFINANCIALSTATEMENTSBURLINGTON NORTHERN SANTA FECORPORATION AND SUBSIDIARIES

1ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of

Burlington Northern Santa Fe Corporation and its majority-owned subsidiaries (collectively BNSF or Company). BNSF was

incorporated in Delaware on December 16,1994, for the purpose

of effecting a business combination between Burlington

Northern Inc. (BNI) and Santa Fe Pacific Corporation (SFP).

The accompanying BNSF consolidated statements of incomeand cash flows for the years ended December 31,1995,1994and 1993 reflect BNl's historical results and cash flows for

such periods and SFP's results and cash flows from September22, 1995 (the date of its acquisition by BNI) through

December 31,1995. The accompanying BNSF consolidatedbalance sheet at December 31,1994 reflects only BNIhistorical amounts while the BNSF consolidated balance sheet

at December 31,1995 also includes the fair value adjustments

of SFP's assets and liabilities resulting from applying purchase

accounting. The principal subsidiaries of BNSF are BNI,

Burlington Northern Railroad (BNRR), SFP and The Atchison,

Topeka and Santa Fe Railway Company (ATSF). All significant

intercompany accounts and transactions have been eliminated.

The preparation of financial statements in accordance withgenerally accepted accounting principles requires management

to make estimates and assumptions that affect the reportedamounts of assets and liabilities and disclosure of contingentassets and liabilities at the date of the financial statements

and the reported amounts of revenues and expenses during

the periods presented.RECLASSIFICATIONS

Certain comparative prior year amounts in the consolidatedfinancial statements and notes have been reclassified to

conform with the current year presentation.CASH AND CASH EQUIVALENTS

All short-term investments with original maturities of less than

90 days are considered cash equivalents. Cash equivalents

are stated at cost, which approximates market value.MATERIALS AND SUPPLIES

Materials and supplies consist mainly of diesel fuel, repair

parts for equipment and other railroad property and are valued

at the lower of average cost or market.PROPERTY AND EQUIPMENT

Property and equipment are depreciated and amortized on a

straight-line basis over their estimated useful lives. Upon

PIC E 2 ,

normal sale or retirement of depreciable railroad property,

cost less net salvage is generally charged to accumulated

depreciation and no gain or loss is recognized. Significant

premature retirements are recorded as gains or losses at the

time of their occurrence. Expenditures which significantly

increase asset values or extend useful lives are capitalized.

Repair and maintenance expenditures are charged to oper-

ating expense when the work is performed. Property and

equipment are stated at cost including property values of

SFp, which were adjusted in applying purchase accounting.The weighted average annual depreciation rate in effect at

December 31,1995 was 3.7 percent for track structure, 4.8

percent for equipment and 2.5 percent for other road properties.REVENUE RECOGNITION

Transportation revenues are recognized based upon the pro-

portion of service provided.EARNINGS PER COMMONSHARE

Primary earnings per common share are computed by dividing

net income, after deduction of preferred stock dividends, by

the weighted average number of common shares and common

share equivalents outstanding. Fully diluted earnings per

common share are computed by dividing net income by the

weighted average number of common shares and common

share equivalents outstanding. Common share equivalents are

computed using the treasury stock method. An average market

price is used to determine the number of common share equiv-alents for primary earnings per common share. The higher of

the average or end-of-period market price is used to determine

common share equivalents for fully diluted earnings percommon share. In addition, the if-converted method is used

for convertible preferred stock when computing fully dilutedearnings per common share. For the year ended December 31,

1995, the computation of fully diluted earnings per share

was antidilutive; therefore, the amounts reported for primary

and fully diluted earnings per share are the same.

The average number of common shares used for earnings

per share calculations through December 31,1995 reflect theeffect of common shares issued in connection with the merger

with SFP as outstanding for the period from September 22,1995

through December 31,1995. Future calculations will therefore

reflect a significant increase in the number of outstandingcommon shares.

2 ACQUISITION OF SFP

On June 29, 1994, BNI and SFP entered into an Agree-

ment and Plan of Merger (as amended on October 26,1994,

December 18,1994, January 24, 1995 and September 19,

1995, the Merger Agreement) pursuant to which SFP would

merge with BNI in the manner set forth below (the Merger).

Stockholders of BNI and SFP approved the Merger Agreement

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BURLINGTON NORTHERN SANTA FE

at special stockholders' meetings held on February 7, 1995.

On August 23, 1995, the Interstate Commerce Commissionissued a written decision approving the Merger and on

September 22,1995 the Merger was consummated.

Pursuant to the Merger Agreement, on December 23,1994,BNI and SFP commenced tender offers (together, the Tender

Offer) to acquire 25 million and 38 million shares of SFPcommon stock, respectively, at $20 per share in cash. During

the first quarter of 1995, SFP borrowed $1.0 billion under acredit facility of which $760 million of the proceeds were

used to purchase the 38 million shares pursuant to the TenderOffer.In addition, BNI borrowed $500 million under a credit

facility of which the proceeds were used to finance BNI's

purchase of SFP common stock in the Tender Offer.The Tender Offer was completed on February 21, 1995.

Prior to consummation of the Merger, BNI accounted forthe $500 million investment in SFP under the cost method.

Upon consummation of the Merger, BNl's equity in earnings

of SFP prior to the Merger of $16 million was recorded asother income.

Also, pursuant to the Merger Agreement, BNI and SFP

were entitled to elect to consummate the Merger through the

. use of one of twopossible structures: (i) a merger of SFP withand into BNI or (ii) the Holding Company Structure described

below. To ensure that the transaction contemplated by theMerger Agreement qualified as a tax-free transaction for

federal income tax purposes, the parties utilized the Holding

Company Structure.

Under the Holding Company Structure, BNSF created two

subsidiaries. One subsidiary merged with and into BNI, and

the other subsidiary merged with and into SFP. Each holder ofone share of BNI common stock received one share of BNSF

common stock and each holder of one share of SFP common

stock, excluding the SFP common stock acquired by BNI in

the Tender Offer and the SFP common stock held by SFP astreasury stock, received 0.41143945 shares of BNSF common

stock, which reflects the effects of the repurchase programdiscussed below. The rights of each stockholder of BNSF are

substantially identical to the rights of a stockholder of BNI,

and the Holding Company Structure has the same economiceffect with respect to the stockholders of BNI and SFP as

would a direct merger of BNI and SFP.In the Merger Agreement, the exchange ratio of BNSF com-

mon shares for each share of outstanding SFP common stock

upon consummation of the Merger was set at not less than 0.40shares to not more than 0.4347 shares, with repurchases of

SFP common stock by SFP increasing the exchange ratio pro

rata. SFP repurchased approximately 3.6 million shares which,

along with the effect of SFP stock options exercised, resulted

in the final exchange ratio of 0.41143945 shares.The business combination with SFP was accounted for by

the purchase method. As such, the accompanying consolidatedfinancial statements include assets, liabilities and financial

results of SFP after Merger consummation. The following

summarizes the purchase price (dollars in millions, exceptper share data, and shares in thousands):

BNI investment in SFP

Shares of SFP common stock outstanding

at September 22, 1995Less SFP shares held by BNI

Remaining SFP shares outstandingExchange RatioShares of BNSF common stock issuedPer share value of BNSF common stock

Total value of BNSF common stock issued

Value of outstanding SFP stock optionsBNI direct acquisition costs

Purchase price

$ 516

$

151,396

(25,000)

126,396.4114

52,00051

2,65211932

$3,319

The purchase price was calculated based on an estimated

fair value of BNSF common stock of $51 per share. The fair

value was determined from the average of the daily closingprices of BNI common stock for the five trading days immedi-

ately preceding and the five trading days immediately follow-

ing approval of the Merger by BNI and SFP shareholders

which occurred on February 7, 1995. The effects of the

acquisition on the consolidated balance sheet, including thefair value adjustments, were as follows (dollars in millions):

Property and equipment, netOther assetsDeferred income taxes

Long-term debtOther liabilities

Net assets acquired

$ 9,409886

(2,936)

(2,034)(2,006)

$ 3,319

The purchase price allocation included $138 million for

anticipated nonrecurring costs and expenses for severance

and relocation of prior SFP employees and the planneddisposition of excess SFP office space and other SFP assets.

The consolidated pro forma results presented below were

prepared as if the Merger had occurred on January 1, 1994and include the historical results of BNI and SFp, excluding

the after tax effect of $309 million for merger-related charges

recorded by BNI in 1995. Additionally, the consolidated pro

forma results for both periods include the estimated effects of

purchase accounting adjustments and the Tender Offer. Pro

forma adjustments reflecting anticipated merger benefits are

not included. This unaudited consolidated pro forma information

is not necessarily indicative of the results of operations that

might have occurred had the Merger actually taken place on

P A ; E 2 7

BURLINGTON NORTHERN SANTA FE

the date indicated, or of future results of operations of the

combined entities (dollars in millions, except per share data):

Yearended December 31, 1995 1994

Revenues $8,170 $7,676Operating expenses 6,844 6,484Income before extraordinary items 605 536Net income!l) 499 549

Primary earnings per share:Income before extraordinary itemsNet income

Fully diluted earnings per share:Income before extraordinary items $ 3.94 $ 3.59Net income 3.25 3.67

(1) Pro forma results for 1995 include approximately$230million (pre-tax)related to the merger,severance and asset charge which are not considereddirectly attributable to the Merger.Additionally,1995 pro forma net incomeincludes the $100 million cumulativeeffect for the change in accountingforlocomotiveoverhauls for years prior to 1995 and a $25 millionreduction forthe effectof the change on 1995. Also, 1995 pro formanet income includesthe $6 million extraordinarycharge for retirement of debt. Proforma 1994net incomeincludes a $10 millionreduction for a change in accounting.

$ 4.003.27

$ 3.633.72

3 MERGER, SEVERANCE AND ASSET CHARGES

Included in the Statement of Income for 1995 are

operating expenses of $735 million related to merger,

severance and asset costs. Significant components includedin these costs are described below.

Employee-related costs of $287 million were recorded

related to BNSF's plan to centralize the majority of its union

clerical functions which was approved in 1995. This plan

includes the reduction of approximately 1,600 employeeswhich, among other things, requires installation of common

information systems. The Company and the union have

entered into an implementation agreement which allows the

Company to abolish the positions and provides separation

benefits to impacted employees. It will take several years to

fully implement this plan due to the geographical complexity

of the new combined rail system, and the time required to

develop and install common systems. Most of the positionreductions are expected to occur during 1996 and 1997, and

the entire plan is expected to be completed by the end of 1998.

No comparable costs were accrued in applying purchase

accounting, as ATSF's operations had previously been

centralized. Also, no provision for clerical relocations was

included in the 1995 expense as employees have yet to com-

mit to relocate. As such, these costs, as well as any separationand severance costs above those provided, will be recorded as

operating expenses of future periods. Both the timing andmagnitude of any such future expense is presently unknown.

Costs of $254 million were recorded for salaried employeesand reflect severance, pension and other employee benefits,

and costs for employee relocations incurred during the period.

P AGE 2 8

J

Severance, pension and other employee benefit costs of $231

million reflect the elimination of approximately 1,000 formerBNI employees. Most of these positions were eliminated in

the third and fourth quarters of 1995; remaining positions will

be eliminated in 1996. Additional components of salariedemployee costs include special termination benefits to be

received under the Company's retirement plan and expenses

related to restricted stock which vested upon approval ofthe Merger. Relocation expenses of $23 million reflect costs

incurred in 1995 for relocating approximately 300 former

BNI employees.

Costs of $105 million are included for branch line disposi-tions reflecting the write-off of the net book value of the lines

at the anticipated disposal date, less estimated net proceeds.

Approximately 75 line segments covering 3,300 miles of former

BNI lines are included. Remaining costs of $89 million

include obligations at leased facilities which are expected tobe vacated and the write-off of duplicate and excess assets

including computer hardware and software and certain facilities.

Additional accruals of $138 million were recorded throughpurchase accounting related to former SFP employees and

assets. Approximately $105 million of these costs related to

termination of approximately 500 salaried employees for

severance payments and special termination benefits to be

received under the Company's retirement and health and

welfare plans. Salaried employee costs also include amounts

to relocate approximately 500 former SFP employees. Theremaining $33 million of costs relate to the sale or abandon-ment of 500 miles of branch lines, rents on vacated leasedfacilities and the write-off of excess assets.

Current and long-term employee merger and separationliabilities totaling $745 million are included in the consolidated

balance sheet and represent employee-related components

of the above costs, as well as remaining liabilities for actions

taken by ATSF in prior periods. The majority of these priorATSF costs are associated with deferred benefits payableupon separation or retirement to certain active conductors and

trainmen, incurred in connection with an agreement which,

among other things, reduced crew sizes. Additionally, certain

locomotive engineers are eligible for a deferred benefit payable

upon separation or retirement, associated with an agreementreached in 1990 with ATSF which allowed for more flexiblework rules.

At December 31, 1995, approximately $215 million of the

above is included within current liabilities for anticipated coststo be paid in 1996. The remaining costs are anticipated to

be paid over the next five years, except for certain costs related

to conductors, trainmen and locomotive engineers of ATSFwill be paid upon the employees separation or retirement.

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BURLINGTON NORTHERN SANTA FE

4 ACCOUNTING CHANGES

Effective January 1, 1995, BNSF changed its method

of accounting for periodic major locomotive overhauls.Under the new method, costs of owned locomotives relating

to components requiring major overhaul are depreciated,

on a straight-line basis, to the first major overhaul date.

The remaining cost of the owned locomotive is depreciated,

on a straight-line basis, over the estimated economic life ofthe locomotive. The cost of overhauls on owned units are then

capitalized when incurred and depreciated, on a straight-linebasis, until the next anticipated overhaul. In addition, estimated

costs for major overhauls on leased units are accrued on a

straight-line basis over the life of the leases. BNSF previously

expensed locomotive overhauls when the costs were incurred.

BNSF believes that this change is preferable because it

improves the matching of expenses incurred to revenuesearned. The cumulative effect of this change on years prior to1995 was a reduction in net income of $100 million (net of a

$63 million income tax benefit) or $.94 per share (primary

and fully diluted). The effect of this change for the year endedDecember 31,1995, was to reduce income before extraordinary

item and cumulative effect of change in accounting method by

$25 million or $.23 per share (primary and fully diluted).

The pro forma effect of this change on 1994 and 1993 wouldhave been to reduce net income to $390 million or $4.08

per share (primary) and $275 million or $2.82 per share(primary), respectively.

Effective January 1, 1994, BNSF adopted Statement of

Financial Accounting Standards (SFAS) No. 112, "Employers'

Accounting for Postemployment Benefits." The cumulativeeffect, net of $7 million income tax benefit, of this change in

accounting attributable to years prior to 1994, at the time of

adoption, was to decrease 1994 net income by $10 million, or

$.11 per common share.In 1994, BNSF adopted SFAS No. 115, ''Accounting for

Certain Investments in Debt and Equity Securities." The

adoption of this standard had no effect on net income andno material effect on stockholders' equity.

5 OTHER INCOME (EXPENSE), NET

Other income (expense), net includes the following

(in millions):

6 INCOME TAXES

Income tax expense, excluding the cumulative effect of

change in accounting method and extraordinary item, was asfollows (in millions):

Reconciliation of the federal statutory income tax rate to the

effective tax rate, excluding the cumulative effect of change in

accounting method and extraordinary item, was as follows:

In August 1993, the Omnibus Budget Reconciliation Act

of 1993 (the Act) was signed into law. The Act increased

the corporate federal income tax rate by 1 percent, effective

January 1, 1993. BNSF recorded $28 million to income tax

expense representing the impact of the 1 percent increase on

BNSF's beginning of the year deferred income tax liability.The components of deferred tax assets and liabilities were

as follows (in millions):

December 31,

Deferred tax liabilities:

Depreciation and amortizationOther

Total deferred tax liabilities

Deferred tax assets:

Casualty and environmental reservesEmployee merger and separation costsNon-expiring AMT credit carryforwardsPostretirement benefitsPensions

Other

Total deferred tax assets

Net deferred tax liability

Noncurrent deferred income tax liabilityCurrent deferred income tax asset

Net deferred tax liability

1995 1994

$(5,076)(249)

(5,325)

$(1,785)(106)

(1,891)

360359124

8869

412

1,412

$(3,913)

$(4,233)320

$(3,913)

255

49287591

$(1,300)-$(1,456)

156$(1,300)

P AGE 2 9

Yearended December31, 1995 1994 1993

BNI's equity in earnings of SFP prior toconsummation of the Merger $ 16 $- $-

Gain on property dispositions 12 15 17

Equity in earnings of pipeline partnership 9 - -Interest income 8 3 6

Accounts receivable sale fees (4) (9) (9)Miscellaneous, net (13) (12) (9)

Total $ 28 $ (3) $ 5

Yearended December31, 1995 1994 1993

Current:Federal $ 216 $124 $ 61State 32 19 8

248 143 69

Deferred:Federal (101) 109 136

State (II) 17 20

(II2) 126 156

Total $ 136 $269 $225

Yearended December31, 1995 1994 1993

Federal statutory income tax rate 35.0% 35.0% 35.0%

State income taxes,net of federal tax benefit 4.0 3.4 3.4

Effect of 1 percent federal tax rateincrease on deferred tax balances

at January 1, 1993 - - 5.0

Other, net 1.7 0.3 (.2)Effective tax rate 40.7% 38.7% 43.2%

--

BURLINGTON NORTHERN SANTA FE

In 1995 and 1993, tax benefits of $11 million and $4 million,

respectively, related to the adjustment to recognize the minimum

pension liability was allocated directly to stockholders' equity.

In 1994, tax expense of $6 million related to the adjustmentto reduce the minimum pension liability was allocated directly

to stockholders' equity.BNSF will file its first federal consolidated income tax

return for 1995. BNI's and SFP's federal income tax returns

have been examined through 1991 and 1990, respectively.All years prior to 1986 are closed for BNI and SFP. Issues

relating to the years 1986-1991 are being contested through

various stages of administrative appeal. In addition, BNSFand its subsidiaries have various state income tax returns in

the process of examination, administrative appeal or litigation.

Management believes that adequate provision has been made

for any adjustment that might be assessed for open years

through 1995.

7 ACCOUNTS RECEIVABLE, NET

A special purpose subsidiary of ATSF has sold, withlimited recourse, variable rate certificates which mature in

December 1999 evidencing undivided interests in an accountsreceivable master trust. The master trust's assets include an

ownership interest in a revolving portfolio of ATSF's accounts

receivable which are used to support the certificates. AtDecember 31, 1995, $240 million of certificates sold were

outstanding and were supported by receivables in the mastertrust of $308 million. A maximum of $300 million of certifi-

cates can be sold if the master trust balance is increased by

receivables which are eligible for sale. ATSF has retained the

collection responsibility with respect to the accounts receivable

held in trust. ATSF is exposed to credit loss related to collec-tion of accounts receivable to the extent that the amount of

receivables in the master trust exceeds the amount of certificates

sold. BNRR's agreement to sell accounts receivable with

limited recourse expired in December 1994. Costs related to

such agreements vary on a monthly basis and are generallyrelated to certain interest rates. Costs related to accounts

receivable sales, which are included in Other income

(expense), net were $4 million in 1995 and $9 million inboth 1994 and 1993.

P AGE 3 0

J

BNSF maintains an allowance for doubtful accounts based

upon the expected collectibility of all accounts receivable,

including accounts receivable sold. Allowances for doubtfulaccounts of $50 million and $20 million have been recorded

at December 31, 1995 and 1994, respectively.

8 PROPERTY AND EQUIPMENT, NET

Property and equipment, net was as follows (in millions):

D,

B

December 31,

Road, roadway structures and real estateEquipment

Total cost

Less accumulated depreciationand amortization

Property and equipment, net

1994

$ 7,8752,304

10,179

1995

$15,9514,383

20,334

B

(4,333)$16,001

(3,868)$ 6,311

The consolidated balance sheets at December 31, 1995

and 1994 included $200 million and $77 million, respectively,

for property and equipment under capital leases. The related

depreciation was included in depreciation expense.Accumulated depreciation for property and equipment under

capital leases was $46 million and $34 million at December

31, 1995 and 1994, respectively.

Capitalized software development costs are generallyamortized over a five- to seven-year estimated useful life

using the straight-line method. Amortization expense was $9

million for the year ended December 31, 1995, $2 million for

the year ended December 31, 1994 and no amortization was

recorded for the year ended December 31, 1993. Unamortized

capitalized software costs were $69 million and $20 millionas of December 31, 1995 and 1994, respectively.

9 ACCOUNTS PAYABLE AND OTHER

CURRENT LIABILITIES

Accounts payable and other current liabilities consisted of the

following (in millions):

BI

51

December31,

Accounts and wages payableCasualty and environmental reservesEmployee merger and separation costsTaxes other than income taxesAccrued vacationsOther

Total

1994

$ 264221

1995-$ 519

290215143141981-

$2,289

11889

633

$1,325

OJ

Lt

mtsbased

ivable,doubtful

recorded

millions):

1994

$ 7,8752,304

10,179

(3,868)

$ 6,311

l,1995

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$ 264221

11889

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$1,325

I

BURLINGTON NORTHERN SANTA FE

BNSF maintains a program for the issuance, from time to

time, of commercial paper. These borrowings are supported

by bank revolving credit agreements. Outstanding commercial

paper balances are considered as reducing available borrowings

under these agreements. The bank revolving credit agreementsallow borrowings of up to $1.0 billion on a short-term basis

and $1.5 billion on a long-term basis. Annual facility fees are

currently .08 percent and .125 percent, respectively, and

are subject to change based upon changes in BNSF's senior

unsecured debt ratings. Borrowings are based upon LlBOR

plus a spread based upon BNSF's senior unsecured debt

ratings, money market rates offered at the option of the lenders,or an alternate base rate. Thecommitmentsof the lenders to

make loans are currently scheduled to expire on November

19,1996 and November 21, 2000, respectively. At December

31,1995, borrowings against the long-term revolving credit

agreement were $85 million and the maturity value of com-

mercial paper outstanding was $996 million, leaving a total

of $419 million of the long-termrevolvingcredit agreementavailable and $1.0 billion of the short-term revolving credit

agreement available. The maturity value of commercial paper

outstanding at December 31,1994 was $91 million.Thefinancial covenants of the bank revolvingcredit agree-

ments require that BNSF's consolidated tangible net worth, as

defined in the agreements, be at least $4.5 billion, and that

its debt, as defined in the agreements, cannot exceed 55 per-cent of its consolidated total capital.

In December 1995, BNSF issued $300 million of 6 3/8%

Notes due December 15, 2005 and $350 million of 7%

Debentures due December 15, 2025 under a registration

statement filed by BNSF on November 22, 1995 covering the

issuance, from time to time, of up to $1 billion aggregate

principal amount of debt securities. The net proceeds from

the sale of the notes and debentures were primarily used for

general corporate purposes, including but not limited to therepayment of commercial paper and short-term bank loans

having an average interest rate of approximately 6 percent.

During the course of 1995, the Companyentered into variousinterest rate swap agreements with a principal amount of

$500 million, for the purpose of establishing rates in anticipa-tion of debt issuances under a shelf registration statement.

The swaps were anticipated to hedge $250 million of 10 year

debt and $250 million of 30 year debt. The swaps relating to

the 10 year issuance called for the payment of a fixed interestrate of 6.6 percent which was based upon 10 year treasury

notes, and the receipt of a variable interest rate. The swapsrelating to the 30 year issuance called for the payment of a

fixed interest rate of 6.8 percent which was based upon 30

year treasury bonds, and the receipt of a variable interest rate.In conjunction with the fourth quarter 1995 issuance of 10

P AGE 3 1

10 DEBTDebt outstanding was as follows (in millions):

December 31, 1995 1994

BNSF:

6 3/8% notes, due 2005 $ 300 $

7% debentures, due 2025 350

Credit facility borrowings, 6.0% (variable) 85

Commercial paper, 6.0% (variable) 761BN!:

8 3/4% debentures, due 2022 200 200

7 1/2% debentures, due 2023 150 150

7% notes, due 2002 150 150

7.40% notes, due 1999 150 150

9% debentures - 156

Equipment obligations, weighted averagerate of 7.20% and 7.08%, respectively,due serially to 2013 200 194

BNRR:

Consolidated mortgage bonds,3 1/5% to 9 1/4%, due 2006 to 2045 321 321

Capitalized lease obligations, weightedaverage rate of 6.59% and 8.01 %,respectively, expiring 1996 to 2008 150 46

Equipment and other obligations, weightedaverage rate of 8.44% and 9.30%,respectively, due serially to 2009 74 91

General mortgage bonds, 3 1/8% and2 5/8%, due 2000 and 2010, respectively 62 62

Prior lien railway and land grant bonds,4%, due 1997 57 57

General lien railway and land grant bonds,3%, due 2047 35 35

First mortgage bonds, series A, 4%, due 1997 20 22

Other 9 158

Commercial paper, 6.1 % (variable) 224 90

SFP/ATSF:

Equipment obligations, weighted averagerate of 8.43%, due serially to 2009 427

Pipeline exchangeable debentures,10.4% (variable), due 2010 219

Senior notes, 8 3/8% and 8 5/8%,due 2001 and 2004, respectively 200

Mortgage notes, 10.325%, due 1996 to 2014 32

Capitalized lease obligations 4

Unamortized purchase accounting adjustment 114Unamortized discount (61) (63)

Total 4,233 1,819

Less:

Current portion of long-term debtand commercial paper (80) (122)

Long-term debt $4,153 $1,697

-

BURLINGTON NORTHERN SANTA FE

year 6 3/8% notes and 30 year 7% debentures, the Company

closed out the swap transactions which resulted in losses of

$13 million and $15 million, respectively. The losses were

deferred and will be recognized over the term of the borrowings.

Additionally, in December 1995, BNSF defeased its 9%

debentures by placing $166 million of U.S. government

securities into an irrevocable trust for the purpose of repaying

the debentures in April 1996. The defeasance of debt resulted

in an extraordinary charge of $6 million, net of applicable

income tax benefits of $3 million, principally reflecting the

call premium on the debt.

In 1995, BNRR completed cross-border leveraged leases

of equipment for a total amount of $136 million which were

recorded as capital lease obligations. These transactions

included the issuance of $108 million of equipment secured

debt at a weighted average yield of 6.39 percent and the

receipt of an up front cash benefit. The up front benefit

reduces the effective interest rate on the debt to 5.76 percent.

In November 1994, BNRRentered into a $150 million

three year term loan facility agreement with a group of

commercial banks and used the proceeds to redeem $150

million aggregate principal amount of Railroad Consolidated

Mortgage Bonds, 10%, Series J, due November 1, 1997. In

November 1995, this debt was repaid through the issuance of

commercial paper by BNRR.

In May 1994, BNI issued $150 million of 7.4% notes due

May 15, 1999 and used the proceeds to retire $150 million

aggregate principal amount of Railroad Consolidated Mortgage

Bonds, 8 7/8%, Series I, due May 30, 1994.

Aggregate long-term debt scheduled maturities are $80

million, $149 million, $75 million, $215 million and $1,168

million for 1996 through 2000, respectively.

Substantially all BNRR properties and certain other assets

are pledged as collateral to or are otherwise restricted under

the various BNRR long-term debt agreements. Equipment

obligations are secured by the underlying equipment.In addition, a subsidiary of SFP is contingently liable as

general partner for $355 million of long-term debt held by

Santa Fe Pacific Pipeline Partners, L.P. (Pipeline Partnership).

The SFP subsidiary holds a 44 percent interest in the Pipeline

Partnership which it accounts for under the equity method. Thepipeline exchangeable debentures are exchangeable for BNSF's

limited partnership interest in the Pipeline Partnership.

P AGE 3 2

~11 DISCLOSURES ABOUT FAIR VALUE

OF FINANCIAL INSTRUMENTS

The estimated fair values of BNSF's financial instruments at

December 31, 1995 and 1994 and the methods and assump-tions used to estimate the fair value of each class of financial

instruments held by BNSF, were as follows:

CASH AND CASH EQUIVALENTS

The carrying amount approximated fair value because of the

short maturity of these instruments.MARKETABLE SECURITIES

Marketable securities, which are used to fund liabilities of

certain employee benefit plans, consist of corporate bonds

(47 percent of carrying amount) and United States government

or agency issues (53 percent of carrying amount) and are

classified as available for sale. The carrying value of available

for sale securities is adjusted for changes in fair value and

any unrealized gains or losses are recorded as a component of

stockholders' equity. At December 31, 1995, the unrealized

gains and losses were immaterial. Realized gains or losses fromthe sales of marketable securities were also immaterial for

1995. The fair value for these securities was based on market.

ACCRUED INTEREST PAYABLE

The carrying amount approximated fair value as the majority

of interest payments are made semiannually.LONG-TERM DEBT AND COMMERCIAL PAPER

The fair value of BNSF's long-term debt was primarily based

on quoted market prices for the same or similar issues, oron the current rates that would be offered to BNSF for debt

of the same remaining maturities. The carrying amount of

commercial paper approximated fair value because of the

short maturity of these instruments.

The carrying amount and estimated fair values of BNSF's

financial instruments were as follows (in millions):

BNSFalso holds investments in, and has advances to,

several unconsolidated transportation affiliates. It was not

practicable to estimate the fair value of these financial

instruments, which were carried at their original cost of

$45 million and $16 million in the December 31, 1995and 1994 consolidated balance sheets.

December31, 1995 1994

Carrying Fair Carrying FairAmount Value Amount Value

Assets:Cash and cash

equivalents $ 50 $ 50 $ 27 $ 27Marketable securities 20 20 20 20

Liabilities:

Accrued interest payable 71 71 45 45

Long-term debt andcommercial paper 4,233 4,412 1,819 1,742

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BURLINGTON NORTHERN SANTA FE

12 HEDGING ACTIVITIES, LEASESAND OTHER COMMITMENTS

HEDGING ACTIVITIES

Fuel

BNSF has a program to hedge against fluctuations in the price

. ofits diesel fuel purchases. This programincludes forwardpurchases for delivery at fueling facilities. Additionally, this

program includes exchange-traded petroleum futures contracts

and various commodity swap and collar transactions whichare accounted for as hedges. Any gains or losses associated

with changes in market value of these hedges are deferred

and recognized as a component of fuel expense in the periodin which the hedged fuel is purchased and used. To the extent

BNSF hedges portions of its fuel purchases, it may not fully

benefit from decreases in fuel prices.As of December 31, 1995, BNSF had entered into forward

purchases for approximately 69 million gallons at an averageprice of approximately 49 cents per gallon. In addition, BNSF

held petroleum futures contracts representing approximately

60 million gallons at an average price of approximately 48cents per gallon. These contracts have expiration dates ranging

from January, 1996 to October, 1996.

The above prices do not include taxes, fuel handling costs,

certain transportation costs and, except for forward contracts,

any differences which may occur from time to time between

the prices of commodities hedged and the purchase price ofBNSF's diesel fuel.

BNSF's current fuel hedging program covers approximately12 percent of estimated 1996 fuel purchases. The current

and future fuel delivery prices are monitored continuously

and hedge positions are adjusted accordingly. Hedge positions

are also closely monitored to ensure that they will not exceed

actual fuel requirements in any period. Unrealized gains or

losses from BNSF's fuel hedging transactions were not material

at December 31,1995 and 1994. BNSF monitors its hedgingpositions and credit ratings of its counterparties and does not

anticipate losses due to counterparty nonperformance.Interest rate

From time to time, the Company enters into various interest

rate hedging transactions for the purpose of managing

exposure to fluctuations in interest rates and establishing

rates in anticipation of future debt issuances. During 1995,

the Company closed out interest rate swap transactions in

conjunction with the issuance of debt (see Note 10: Debt).No contracts were outstanding at December 31,1995.

LEASES

BNSF has substantial lease commitments for locomotives,

freight cars, trailers, office buildings and other property. Most

of these leases provide the option to purchase the equipmentat fair market value at the end of the lease. However, some

provide fixed price purchase options. Future minimum lease

payments (which reflect leases having non-cancelable lease

terms in excess of one year) as of December 31,1995 aresummarized as follows (in millions):

Year ended December 31CapitalLeases

OperatingLeases

1996

1997

1998

1999

2000Thereafter

Total

Less amount representing interest

Present value of minimum lease payments

$ 2222222019112

217

63

$154

$ 274

263

220

185

159

1,425

$2,526

Lease rental expense for all operating leases was $303

million, $229 million and $194 million for the years ended

December 31,1995,1994 and 1993, respectively. Contingent

rentals and sublease rentals were not significant.OTHER COMMITMENTS

BNSF has entered into commitments to acquire 149 locomotives

during 1996 and 1997. In addition, BNSF has two power pur-

chase agreements, expiring in 1998 and 2001, that currentlyinvolve 197 locomotives. Payments required by the agreements

are based upon usage, subject to specified take-or-pay

minimums. The rates specified in the two agreements are

renegotiable every two years. BNSF's 1996 minimum commit-

ment obligation is $51 million. Based on projected locomotive

power requirements, BNSF's payments in 1996 are expectedto be in excess of the minimum. Payments under the agree-ments totaled $49 million, $47 million and $53 million in

1995,1994 and 1993, respectively. In 1990, BNI entered intoa letter of credit for the benefit of a vendor. This letter of

credit is a performance guarantee for up to $15 million forlocomotive overhauls.

In connection with the closing of the sale of rail lines insouthern California in 1992 and 1993, BNSF has entered into

various shared use agreements with the agencies, which

require BNSF to pay the agencies approximately $6 millionannually to maintain track structure and facilities. Additionally,

BNSF recorded a $50 million liability in 1993 for an obligationretained by BNSF, which under certain conditions requires a

repurchase of a portion of the properties sold.

P AGE 3 3

I

--- -

BURLINGTON NORTHERN SANTA FE

-~BNRR andATSF are each parties to service interruption

insurance agreements under which on a combined basis they

would be required to pay premiums of up to a maximum of

approximately $106 million in the event of work stoppages on

other railroads related to ongoing national bargaining. BNRR

andATSFare also entitledtoreceive payments under certain

conditions if a work stoppage occurs on either property.

13 ENVIRONMENTAL AND OTHER CONTINGENCIES

ENVIRONMENTAL

BNSF's operations, as well as those of its competitors, are

subject to extensive federal, state and local environmental

regulation. BNSF's operating procedures include practices toprotect the environment from the environmental risks inherent

in railroad operations, which frequently involve transportingchemicals and other hazardous materials.

Additionally, many of BNSF's land holdings are and have

beenused for industrial or transportation related purposes orleased to commercial or industrial companies whose activities

may have resulted in discharges onto the property. As a result,

BNSF is subject to environmental cleanup and enforcement

actions. In particular, the Federal Comprehensive Environ-

mental Response Compensation and Liability Act of 1980

(CERCLA),also knownas the "Superfund"law, as well assimilar state laws generally impose joint and several liabilityfor clean-up and enforcement costs without regard to fault

or the legality of the original conduct on current and former

owners and operators of a site. BNSF has been notified that it

is a potentially responsible party (PRP) for study and clean-upcosts at approximately 30 Superfund sites for which investi-

gation and remediation payments are or will be made or are

yet to be determined (the Superfund sites) and, in many

instances, is one of several PRPs. In addition, BNSF may beconsidered a PRP undercertain other laws. Accordingly,under CERCLA and other federal and state statutes, BNSF

may be held jointly and severally liable for all environmental

costs associated with a particular site. If there are other PRPs,

BNSF generally participates in the clean-up of these sites

through cost-sharing agreements with terms that vary from

site to site. Costs are typically allocated based on relativevolumetric contribution of material, the amount of time the

site wasowned or operated, and/or the portion of the total siteowned or operated by each PRP.

Environmental costs include initial site surveys and

environmental studies of potentially contaminated sites aswellas costs for remediation and restorationof sites deter-mined to be contaminated. Liabilities for environmental

clean-up costs are initially recorded when BNSF's liability forenvironmental clean-up is both probable and a reasonable

P AGE 3 4

estimate of associated costs can be made. Adjustments to

initial estimates are recorded as necessary based upon addi-

tional information developed in subsequent periods. BNSF

conducts an ongoing environmental contingency analysis,

which considers a combination of factors including indepen-

dent consulting reports, site visits, legal reviews, analysis

of the likelihood of participation in and the ability of other

PRPs to pay for clean-up, and historical trend analyses.BNSF is involved in a number of administrative and

judicial proceedings and other mandatory clean-up efforts at

approximately 320 sites, including the Superfund sites, at

which it is being asked to participate in the study and/or

clean-up of the environmental contamination. BNSF paidapproximately $31 million, $21 million and $27 million during

1995, 1994 and 1993, respectively relating to mandatory

clean-up efforts, including amounts expended under federal

and state voluntary clean-up programs. BNSF hasaccruals

of approximately $235 million for remediation and restoration

of all known sites, including $225 million pertaining tomandated sites, of which approximately $60 million relates to

the Superfund sites. BNSF anticipates that the majority of the

accrued costs at December 31,1995 will bepaid over thenext five years. No individual site is considered to be material.

Recoveries received from third parties, net of legal costs

incurred, were approximately $31 million during the year ended

December 31,1995 and were not significant in prior years.Liabilities recorded for environmental costs represent

BNSF's best estimates for remediation and restoration of these

sites and include both asserted and unasserted claims.

Unasserted claims are not considered to be a material compo-nent of the liability. Although recorded liabilities includeBNSF's best estimates of all costs, without reduction for

anticipated recoveries from third parties, BNSF's total clean-

up costs at these sites cannot bepredicted with certainty dueto various factors such as the extent of corrective actions that

may be required, evolving environmental laws and regulations,advances in environmental technology, the extent of other

PRPs' participation in clean-up efforts, developments in

ongoing environmental analyses related to sites determined to

be contaminated, and developments in environmental surveysand studies of potentially contaminated sites. As a result,

future charges to income for environmental liabilities could

have a significant effect on results of operations in a particularquarter or fiscal year as individual site studies and remediation

and restoration efforts proceed or as new sites arise. However,

expenditures associated with such liabilities are typically paidout over a long period; therefore, management believes that

it is unlikely that any identified matters, either individually orin the aggregate, will have a material adverse effect on BNSF's

consolidated financial position or liquidity.

lts to

on addi-

BNSF

Jysis,

indepen-

alysisf other

ses.

mdeffortsat

tes, atld/or

, paidion during

[atory. federaJ

ccruals:estoration

g torelates to

lrityo~therer the

Iematerial.

costs

yearended

,r years.esenton of these

ms.

ial compo-lclude

n for,taJclean-

taintydue:tions that

regulations,f other

Its in

ermined to

tal surveysresult,es could

a particularremediation

~.However,

picallypaidevesthat

ividuallyorton BNSFs

BURLINGTON NORTHERN SANTA FE

BNSF expects it will become subject to future requirements

regulating air emissions from diesel locomotives that mayincrease its operating costs. Regulations applicable to new

locomotive engines are expected to be issued by the

Environmental Protection Agency soon. It is anticipated that

these regulations will be effective for locomotive engines

installed after 1999. Under some interpretations of federal law,

older locomotive engines may be regulated by states based

on standards and procedures which the State of California

ultimately adopts. At this time it is unknown whetherCalifornia will adopt locomotive emission standards that maydiffer from federal standards.

OTHER CLAIMSAND LITIGATION

BNSF and its subsidiaries are parties to a number of legal

actions and claims, various governmental proceedings and

private civil suits arising in the ordinary course of business,

including those related to environmental matters and personal

injury claims. While the final outcome of these items cannot

be predicted with certainty, considering among other thingsthe meritorious legal defenses available, it is the opinion of

management that none of these items, when finally resolved,will have a material adverse effect on the annual results of

operations, financial position or liquidity of BNSF, althoughan adverse resolution of a number of these items could have

a material adverse effect on the results of operations in a

particular quarter or fiscal year.

14 RETIREMENT PLANS

BNSF has noncontributory defined benefit pension

plans through its subsidiaries, BNI and SFp, covering sub-

stantially all non-union employees. BNI and SFP also have

nonqualified defined benefit plans for certain officers and

other employees. The benefits under BNSF's plans are basedon years of credited service and the highest five-year average

compensation levels. BNSF's funding policy is to contributeannually not less than the regulatory minimum, and not morethan the maximum amount deductible for income tax purposes.

Components of the net pension cost for BNI's plans wereas follows (in millions):

The following table shows the reconciliation of BNI's

funded status of the plans with amounts recorded in the

consolidated balance sheets (in millions):

BNI uses a December 31 measurement date. The assumptions

used in accounting for BNI's plans were as follows:

Components of net pension income for SFP's plans from

September 22, 1995 through December 31, 1995 were asfollows (in millions):

Service cost, benefits earned during the period

Interest cost on projected benefit obligationActual return on plan assetsNet amortization and deferred amounts

Net pension income

$ 2II

(21)4

$ (4)

The following table shows the reconciliation of SFP's fundedstatus of the plans with amounts recorded in the consolidatedbalance sheet at December 31, 1995 (in millions):

Assets ExceedAccumulated

Benefits

AccumulatedBenefits

Exceed Assets

Actuarial present value of benefit obligations:Vested benefit obligation

Accumulated benefit obligation

$(547)-$(575)-$(614)

$ (7)-$ (8)-$(11)Projected benefit obligation

Plan assets at fair value, primarily common

stock, and U.S. and corporate bonds

Plan assets in excess of (less than)

projected benefit obligationUnrecognized net loss

Prepaid (accrued) pension asset(liability)

718

104 (II)3

$ 104 $ (8)

P AGE 3 5

I

Yearended December31, 1995 1994 1993

Service cost, benefits earned

during the period $ 9 $ 12 $ 9

Interest cost on projected benefit obligation 54 50 50

Actual return on plan assets (93) (25) (57)Net amortization and deferred amounts 57 (1) 24

Curtailment costs 10

Cost of special termination benefits 32

Net pension cost $ 69 $ 36 $ 26

December31, 1995 1994

Actuarial present value of benefit obligations:Vested benefit obligation $(641) $(481)

Accumulated benefit obligation $(696) $(553)

Projected benefit obligation $(758) $(628)

Plan assets at fair value, primarily marketableequity and debt securities 534 467

Projected benefit obligation in excessof plan assets (224) (161)

Unrecognized net loss 93 41

Unrecognized prior service cost 2 5

Unamortized net transition obligation 20 29

Adjustment required to recognizeminimum liability (53) (12)

Accrued pension liability $(162) $ (98)

December31, 1995 1994 1993

Discount rate 7.0% 9.0% 7.0%

Rate of increase in compensation levels 4.0% 5.5% 5.5%

Expected long-term rate of return

on plan assets 9.5% 9.5% 9.5%

BURLINGTON NORTHERN SANTA FE

~SFP uses a September 30 measurement date. The

assumptions used in accounting for SFP's plans for 1995

were as follows:

Discount rate

Rate of increase in compensation levelsExpected long-term rate of return on plan assets

7.5 %4.0 %

9.75%

BNSF sponsors 40l(k) thrift and profit sharing plans through

its subsidiaries, BNI and SFp, which cover substantially

all non-union employees and certain union employees. BNI

matches 35percent of the first 6 percent of non-union

employees' contributions, which is subject to certain percentage

limits of the employees' earnings, at the end of each quarter.

Depending on BNI's performance, an additional matching

contribution of 20 to 40 percent can be made following the

end of the year. SFP matches 100 percent of the first 4 percent

of non-union employees' contributions and25percent of the

first 4 percent of union employees' contributions. BNSF'sexpense was$13million, $8million and$6million in 1995,

1994 and 1993, respectively.

15 OTHER POSTEMPLOYMENTBENEFIT PLANS

BNI provides life insurance benefits to eligible non-

union employees.The life insurance plan is noncontributoryand covers retirees only. Components of BNI's postretirement

benefit cost were $1 million in each of three years ended

December 31, 1995, 1994 and 1993, respectively.

BNI's policy is to fund benefits payable under the life

insurance plan as they come due. The following table presentsthe status of BNI'slife insurance plan and the accrued post-retirement benefit cost reflected in the consolidated balance

sheets(inmillions).BNIuses a December31 measurementdate.

December31,

Accumulated postretirement benefit obligation:Retirees

Fully eligible active participantsOther active participants

1995 1994

$14I2

17I

$18Unrecognized net gain

Accrued postretirement benefit cost

The discount rate used in determining the benefit obligation

was 7 percent at December 31, 1995 and 9 percent at

December 31,1994.

Salaried employees of SFP who have rendered 10 years

of service after attaining age 45 are eligible for both medical

benefitsand lifeinsurance coverage during retirement.The

retireemedical plan iscontributoryand provides benefitsto

retirees,theircovered dependents and beneficiaries.Retiree

contributionsare adjusted annually.The plan also contains

fixeddeductibles,coinsurance and out-of-pocketlimitations.

PAC E 3 6

The lifeinsurance plan isnoncontributory and covers retirees

only. Components of the SFP's postretirement benefit cost

from September 22, 1995 to December 31, 1995 relating to its

medical and lifeinsurance plans were as follows(inmillions):

Service cost

Interest costNet amortization and deferred amounts

Net postretirement benefit cost

Life InsurancePlan

$-I

MedicalPlan

$ I3

~)$2$ I

SFP's policyistofund benefitspayable under the medical

and life insurance plans as they come due. The following

table shows the reconciliation of the plans' obligations to

amounts accrued at December 31, 1995 (in millions). SFP

uses a September30 measurement date.

Life InsurancePlan

MedicalPlan

Accumulated postretirement benefit

obligation:Retirees

Fully eligible active participantsOther active participants

$45 $1301540185

~)$177

4

49

~$47

Unrecognized net loss

Accrued postretirement benefit cost

$1112

144

$18

For 1995, the assumed health care cost trend rate for

managed care medical costsisII percent and isassumed to

decrease gradually to 5 percent by 2006 and remain constant

thereafter.For medical costsnot in managed care,the assumed

health care costtrend rateis 13 percent and isassumed to

decrease gradually to 5 percent by 2006 and remainconstant

thereafter.Increasing the assumed health care cost trend rates

by one percentage point would increase the accumulated

postretirementbenefitobligationforthe medical plan by $16million and the combined service and interest components

of net periodicpostretirementbenefitcost recognized in 1995by $2 million.

For 1995, the weighted-average discount rate assumed in

determining the accumulated postretirement benefit obligation

was 7.5 percent and the assumed weighted-average salary

increase was 4.0 percent.OTHER PLANS

Under collective bargaining agreements, BNSF participates in

multi employer benefit plans which provide certain postretire-

ment health care and life insurance benefits for eligible unionemployees. Insurance premiums paid attributable to retirees,

which are generally expensed as incurred, were $ll millionin 1995 and $10 million in both 1994 and 1993.

'ees

ritsns):

icalPlan

$ 13

~)$2

dicalPlan

1301540

185

~)177

to

;tant

rates

$16

1995

:dinI .igatlOn

IOn

16 PREFERRED CAPITALSTOCK

6 1/4% CUMULATIVECONVERTIBLE PREFERRED

STOCK, SERIES A, $.01 PAR VALUE, AUTHORIZED

25,000,000 SHARES-6,900,000 SHARES ISSUED

In November 1992, BNI issued 6,900,000 shares of 61/4%

Cumulative Convertible Preferred Stock, Series A, No Par

Value. The convertible preferred stock was not redeemable

prior to December 26,1995. On September 22, 1995, the

outstanding BNI shares were converted to 6,878,607 sharesof BNSF 6 1/4% Cumulative Convertible Preferred Stock,

$.01 par value.On October 19, 1995, the BNSF board of directors voted to

redeem BNSF's 6 1/4% Cumulative Convertible Preferred

Stock, Series A, $.01 par value, effective December 26,1995,

at the redemption price of $52.1875 per share and declared adividend which, when paid, was 74.65 cents per share (repre-

senting the normal quarterly dividend of 78.125 cents per

share pro rated up to the effective redemption date) to holdersofrecord on December 7,1995. The dividend was paid on

January 2,1996. The majority of the holders of this preferredstock elected to convert their shares into BNSF common stock

as BNSF's common stock price was significantly higher than

the redemption price. As such, the cash payment for shares

redeemed was not significant.CLASS A PREFERRED STOCK, $.01 PAR VALUE,

AUTHORIZED50,000,000 SHARES-UNISSUEDAt December 31, 1995, BNSF had available for issuance

50,000,000 shares of Class A Preferred Stock, $.01 Par Value.

The Board of Directors has the authority to issue such stockin one or more series, to fix the number of shares and to fix

the designations and the powers.

17 COMMONSTOCK AND ADDITIONAL

PAID-IN CAPITAL

BNSF is authorized to issue 300,000,000 shares of Common

Stock, $.01 Par Value. At December 31, 1995, there were

149,605,217 shares of common stock outstanding. Each

holder of common stock is entitled to one vote per share inthe election of directors and on all matters submitted to a

vote of stockholders. Subject to the rights and preferences of

any future issuance of preferred stock, each share of commonstock is entitled to receive dividends as may be declared by

the Board of Directors out of funds legally available and to

share ratably in all assets available for distribution to stock-holders upon dissolution or liquidation. No holder of common

stock has any preemptive right to subscribe for any securitiesof BNSF.

Pursuant to the terms of the Merger Agreement, on

September 22, 1995, BNSF issued 141,866,851 shares of

common stock, $.01 par value, of which 89,862,751 shares

BURLINGTON NORTHERN SANTA FE

were exchanged for the outstanding shares of BNI commonstock and 52,004,100 were exchanged for the outstanding

shares of SFP common stock, excluding the SFP common

stock acquired by BNI in the Tender Offer.

18 STOCK OPTIONS, OTHER INCENTIVE PLANS

AND OTHER STOCKHOLDERS' EQUITYSTOCK OPTIONS

Under BNSF's stock option plans, options may be granted to

officers and salaried employees at fair market value on the

date of grant. Approximately 4.3 million shares were availablefor future grant at December 31,1995. All options expire

within 10 years after the date of grant.Activity in stock option plans was as follows:

Shares issued upon exercise of options may be issued from

treasury shares or from authorized but unissued shares.

All stock options outstanding at February 7, 1995 became

exercisable upon approval of the Merger by BNI and SFPstockholders.

PIG E 3 1

Exercise PriceOptions per Share

Balance at

December 31,1992 3,251,324 $10.32 to $44.24Granted 947,125 55.56 to 55.94

Exercised (508,476) 10.32 to 44.24Cancelled (54,882) 22.50 to 55.94

Balance at

December 31,1993 3,635,091 12.49 to 55.94Granted 752,690 53.69 to 55.94Exercised (184,088) 12.49 to 55.94Cancelled (83,962) 20.48 to 55.94

Balance at

December 31,1994 4,1l9,731 15.26 to 55.94Granted 1,026,414 52.00 to 82.25

Conversion of

SFP stock options 5,342,024 7.36 to 73.88

Exercised (821,769) 7.36 to 59.38

Cancelled (67,747) 12.69 to 59.38

Balance at

December 31,1995 9,598,653 7.36 to 82.25

Exercisable at December 31:1995 7,465,135 $ 7.36 to $59.381994 2,950,427 15.26 to 55.941993 2,153,170 12.49 to 44.24

BURLINGTON NORTHERN SANTA FE

OTHER INCENTIVE PLANS

BNI and SFP have various other incentive plans, in addition

to stock options, which are administered separately on behalf

of employees from each of the combined companies.BNI has restricted stock award plans under which up to

1,700,000 common shares may be awarded to eligible

employees and directors. No cash payment is required by theindividual. Shares awarded under the plan may not be sold,

transferred or used as collateral by the holder until the sharesawarded become free of the restrictions, generally by one-third on the third, fourth and fIfth anniversaries of the date of

grant. All shares still subject to restrictions are generally

forfeited and returned to the plan if the employee or director's

relationship is terminated. ITthe employee or director retires,

becomes disabled or dies, the restrictions will lapse at thattime. Restricted stock awards under these plans, net offorfeitures, were 243,631, 177,670 and 232,354 shares in 1995,

1994 and 1993, respectively. A total of 141,621, 780,694and 870,525 restricted common shares were outstanding at

December 31, 1995, 1994 and 1993, respectively. As a result

of the Merger, outstanding restricted shares became fully

vested in February 1995 resulting in $24 million operating

expense reflected in merger, severance and asset charges.

Compensation expense for 1994 and 1993 was not signifIcant.

Additionally, BNI adopted an employee stock purchase plan

in 1992, effective in 1993, as a means to encourage employee

ownership of BNSF common stock. A total of 500,000 sharesof common stock were authorized for distribution under this

plan. The plan allows eligible BNSF employees to use theproceeds of incentive compensation awards to purchase shares

of BNSF common stock at a discount from the market price

and may require that the shares purchased be held for a

specifIc time period. The difference between the market priceand the employees' purchase price is recorded as additional

compensation expense. During the years ended December 31,1995, 1994 and 1993,39,421,31,832 and 34,629 shares

were purchased under this plan. The related compensationexpense was not signifIcant. BNI also has a stock award

PAC E 3 I

--

plan which provides for grants of shares of BNSF's common

stock to full-time employees, excluding officers, based uponperformance. A total of 100,000 shares of common stock has

been authorized for these awards. During the years endedDecember 31,1995,1994 and 1993, 2,965, 3,900 and 5,540

shares were awarded under this plan. The related compensa-

tion expense was not signifIcant.

Under the SFP Long Term Incentive Stock Plan (Long TermPlan), 67,632 restricted shares of BNSF common stock

resulted from the conversion of existing SFP restricted shares

upon consummation of the Merger. No new grants were

awarded and forfeitures of 1,254 shares occurred during the

period from September 22,1995 to December 31,1995. The

restrictions on these shares generally lapse upon attaining

certain corporate performance objectives, completing arequired vesting period. A total of 64,477 restricted common

shares were outstanding at December 31,1995.OTHER STOCKHOLDERS' EQUITY

As a result of the Merger, certain investments in third partiesheld by both BNI and SFP, which were previously recorded

on the cost method, were converted to the equity method due

to BNSF's combined ownership position and ability to exercisesignifIcant influence. As such, $26 million, which is net ofdeferred taxes of $17 million, was recorded as an increase to

retained earnings to reflect BNI's undistributed equity in earn-

ings since initial investment. SFP's investments were adjusted

to fair value upon the application of purchase accounting.1,

(1)

(2)

(3)

(4)

(5)

non

rties

ed

due

erCise

of

se to

I earn-

ljusted

g.

BURLINGTON NORTHERN SANTA FE

19 QUARTERLY FINANCIAL DATA -UNAUDITED

First(Dollars in millions, except per sh~re data)

1995

124

$ 1,347205

101

$

(100)

1

Revenues

Operating income (10ss)(1)(3)

Income (loss) before extraordinary item and cumulative effectof change in accounting method

Extraordinary item, loss on early retirement of debt, net of tax (2)Cumulative effect of change in accounting method, net of tax(3)

Net income (loss) $

1.31

Primary earnings (loss) per common share: (0)

Income (loss) before extraordinary item and change in accounting method

Extraordinary item

Change in accounting method

Primary earnings (loss) per common share

$ 1.31 $ 1.05

$

Fully diluted earnings (loss) per common share: (0)

Income (loss) before extraordinary item and change

in accounting methodExtraordinary item

Change in accounting method

Fully diluted earnings (loss) per common share

Dividends declared per common share

Common stock price:HighLow

1994Revenues

Operating incomeIncome before cumulative effect of change in accounting method

Cumulative effect of change in accounting method, net of taxIS)

Net income

Primary earnings (loss) per common share:Income before change in accounting method

Change in accounting method

Primary earnings per common share

(1.11)

$ (0.06)

$ 1.18 $ .84 $ .90

(.11)

.79

.30

Fully diluted earnings (loss) per common share:Income before change in accounting method

Change in accounting method

Fully diluted earnings per common share

Dividends declared per common share

Common stock price:

HighLow

$ 1.46

$

$

$ 6656 3/4

(I) Results include pre-tax charges of $587 million, $106 million, $10 million and $32 million for the fourth, third, second and first quarters of 1995,respectively related to merger, severance and asset charges as discussed in Note 3.

(2)Results for the fourth quarter include the loss on defeasance of BNI 9% debentures of $6 million, net of $3 million income tax benefit, or $.04 per share,treated as an extraordinary item.

(3) EffectiveJanuary I, 1995, BNSF changed its accounting for locomotiveoverhauls. The cumulative effect of this change attributable to years prior to 1995was to decrease net income by $100 million, or $1.1I per share. Additionally, first, second and third quarter results were restated for the impact of thechange on 1995 by reducing operating income, net income and both primary and fully diluted per share amounts as follows: first quarter-$I2 million,$7 million and $.09; second quarter-$9 million, $6 million and $.06; and third quarter-$1I million, $6 million and $.06, respectively.

(4) Fullydiluted earnings per share are antidilutive for the first and fourth quarters of 1995; therefore, the amounts reported for primary and fully dilutedearnings per share are the same. Amounts may not total to the annual earnings per share because each quarter and the year are calculated separatelybased on average outstanding shares and common share equivalents during that period.

(5) Effective January I, 1994, BNSF adopted Statement of Financial Accounting Standards No. 1I2, "Employers' Accounting for Postemployment Benefits."The cumulative effect of this change attributable to years prior to 1994, was to decrease net income by $10 million, or $.1I per common share.

P AGE 3 9

r

!

In

I

n

s

I)40 Isa-

renn

ares

:herhe

Fourth Third Second

$ 2,092 $ 1,460 $ 1,284(175) 254 242

(160) 133 124

(6)

$ (166) $ 133

$ (1.15) $ 1.32(0.04) -

- -$ (1.19) $ 1.32

$ (1.15) $ 1.28 $ 1.26 $ 1.05

(0.04) - - -(1.11)

$ (1.19) $ 1.28 $ 1.26 $ (0.06)

$ .30 $ .30 $ .30 $ .30

$83 7/8 $76 114 $63 5/8 $60 1/871 1/4 62 5/8 56 118 47 1/2

$ 1,344 $ 1,249 $ 1,192 $ 1,210264 229 178 182142 115 82 87

(10)

$ 142 $ 115 $ 82 $ 77

$ 1.51 $ 1.22 $ .85 $ .90(.11)

$ 1.51 $ 1.22 $ .85 $ .79

$ 1.46 $ 1.18 $ .84

$ .30 $ .30 $ .30

$ 51 5/8 $ 53 5/8 $ 60 1/846 5/8 48 1/4 52 1/2

---.I I

BURLINGTON NORTHERN SANTA FE OFFICERS

-- - - -- - - - - - --

BURLINGTON NORTHERN SANTA FE DIRECTORS.

JOSEPH F.ALIBRANDI (1)(2)Chairman,Whittaker Corporation

(telecommunications) and

Chairman, BioWhittaker,

Inc. (biotechnology),

Los Angeles, California.Board member since 1982.

JACK S. BLANTON

(2)( 4)Chairman and Chief

Executive OjJicer, Houston

Endowment, Inc. (charitable

foundation), Houston, Texas.

Board member since 1989.

JOHN J. BURNS,

JR.(1)(2)President and Chief Executive

Officer, Alleghany

Corporation (holding company

with title insurance, investment

management, reinsurance,

industrial minerals, and steel

fastener operations),

New York, New York.

Board member since 1995.

PAC E 4 0

DANIEL P.

DAVISON (1)(2)Chairman of the Board,

Burlington Northern Santa

Fe Corporation. Retired

Chairman and Chief

Executive OJJicer, U.S. Trust

Corporation, New York, NewYork. Board member since

1976.

GEORGE

DEUKMEJIAN

(3)(4)Partner, Sidley & Austin

(law firm) and former

Governor of the State of

California, Los Angeles,

California. Board member

since 1991.

DANIEL J. EVANS

(1)(2)Chairman, Daniel J. Evans

Associates (consulting),

Seattle, Washington. Boardmembersince 1991.

ROBERT D. KREBS

President and Chief Executive

OjJicer, Burlington Northern

Santa Fe Corporation, Fort

Worth, Texas. Board member

since 1983.

BILL M. LINDIG

(1)(4)President and Chief Executive

Officer, SYSCO Corporation

(marketer and distributor of

foodservice products),

Houston, Texas. Board

membersince 1993.

BEN F. LOVE

(1)(4)Investor, Retired Chairman

and Chief Executive OjJicer

(1972-1989), Texas

Commerce Bancshares, Inc.

(banking), Houston, Texas.Board member since 1990."

Roy S. ROBERTS

(3)(4)Vice President, General

Motors Corporation and

General Manager,

Pontiac-GMC Division,

Pontiac, Michigan (motor

vehicle manufacturer).Board member since 1993.

MARC J. SHAPIRO

(3)Chairman and Chief

Executive OjJicer, Texas

Commerce Bank N.A. (bank-

ing), Houston, Texas. Boardmembersince 1995.

ARNOLD R.

WEBER (1)(3)Chancellor, Northwestern

University, Evanston, Illinois.

Board member since 1986.

ROBERT H. WEST

(2)(3)Chairman, Butler

Manufacturing Company

(manufacturer of pre-engi-

neered building systems and

specially components),

Kansas City, Missouri.Board member since 1980.

J. STEVEN

WHISLER (3)President, Phelps Dodge

Mining Company, and

Senior Vice President,

Phelps Dodge Corporation

(mining and manufacturing),

Phoenix, Arizona. Board

member since 1995.

EDWARD E.

WHITACRE, JR.

(1)(4)Chairman and Chief

Executive Officer, SBCCommunications Inc.

(communications), San

Antonio, Texas. Board

member since 1993.

RONALD B.

WOODARD (3)President, Boeing

Commercial Airplane Group

(aerospace), Seattle,

Washington. Board membersince 1995.

MICHAEL B.

YANNEY (1)(2)Chairman and Chief

Executive Officer, America

First Companies (invest-

ments), Omaha, Nebraska.Board member since 1989.

. Years of Board service

includes service on Boards of

Burlington Northern Inc. and

Santa Fe Pacific Corporation

and predecessor companies.

Committee Assignments:

(1) Executive Committee

(2) Compensation Committee

(3) Audit Committee

(4) Directors and CorporateGovernance Committee

**Also served as director of

Burlington Northern Inc.

from 1986-1988

ROBERT D. JAMES B. CHARLES 1. THOMAS N. RICHARD A.KREBS. DAGNON. SCHULTZ. HUND. RUSSACKPresidentand Senior VicePresident- Senior VicePresident- VicePresidentand Controller Vice President-Corporate

ChiefExecutiveOjJicer EmployeeRelations Intermodaland Automotive Relations

BusinessUnit MARSHA K.

JOHN Q. DONALD G. MORGAN RICHARD E.ANDERSON. McINNES. DENIS E. Vice President-Investor WElCHER

Senior Vice President-Coal, Senior Vice President and SPRINGER. Relations and Corporate Vice President and General

Metals and Minerals Chief Operations Officer Senior Vice President and Secretary Counsel

Business Unit Chief Financial OfficerJEFFREY R. PATRICK J. DANIEL J.

DOUGLAS J. MORELAND. GREGORY T. OTTENS MEYER WESTERBECK

BABB. Senior Vice President-Law SWIENTON. Vice President-Finance and Vice President and General

Senior Vice President and and General Counsel Senior Vice President- Treasurer Tax Counsel

Chief of Staff Consumer and Industrial

Business Unit . Executive OjJicer of

Burlington Northern

Santa Fe Corporation

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