Union Pacific Reports Fourth Quarter Earnings

2005 Highlights -- Revenue Growth and Improved Efficiency

Omaha, Neb., January 19, 2006 – Union Pacific Corporation (NYSE: UNP) today reported 2005 fourth quarter net income of $296 million, or $1.10 per diluted share, compared to $79 million, or $0.30 per diluted share in the fourth quarter of 2004. The 2004 results include the impact of a non-cash charge for unasserted asbestos claims of $154 million after-tax, or $0.58 per diluted share. Excluding the asbestos charge, 2005 fourth quarter diluted earnings per share increased by 25 percent.

"Union Pacific is operating more efficiently, allowing us to handle record volumes and recover more rapidly from challenges such as hurricanes, the Kansas washouts and severe winter storms," said Jim Young, President and Chief Executive Officer. "We have gained traction throughout the year with our operating initiatives. I am particularly pleased that we converted strong revenue growth into a significant increase in operating income."

2005 Fourth Quarter Summary

In the fourth quarter of 2005, Union Pacific Corporation reported operating income of $533 million compared to 2004’s $451 million, which excludes the $247 million pre-tax, non-cash asbestos charge.

  • The Railroad’s commodity revenue was up 13 percent to a quarterly best $3.5 billion, with all commodities posting increases for the quarter. The main component of the growth was an 11 percent increase in average revenue per car (ARC), which reached an all-time record of $1,428 per car in the fourth quarter. Growth in ARC can be attributed to fuel cost recovery under the Company’s surcharge programs and yield improvements.
  • Business volumes, as measured by total carloads, grew one percent to a fourth quarter record 2.4 million.
  • Operating margin improved to 14.7 percent versus 14.0 percent in 2004. The 2004 fourth quarter results exclude the impact of the non-cash asbestos charge. Including the charge, the reported fourth quarter 2004 operating margin was 6.3 percent.
  • The Railroad’s average quarterly fuel price including transportation and taxes was $2.08 compared to $1.46 per gallon in 2004, a 42 percent increase.
  • Quarterly average train speed, as reported to the Association of American Railroads, was 20.5 mph, the same as the fourth quarter of 2004. Quarterly terminal dwell time improved 4 percent to 29.8 hours versus 31.2 hours reported in the fourth quarter of 2004.

Fourth Quarter Commodity Revenue Summary versus 2004

  • Industrial Products up 19 percent
  • Agricultural up 18 percent
  • Intermodal up 14 percent
  • Automotive up 8 percent
  • Chemicals and Energy each up 6 percent

2005 Full Year Summary

Full year 2005 net income was $1.0 billion or $3.85 per diluted share, versus $604 million, or $2.30 per diluted share in 2004. The 2005 full year results include a non-cash income tax expense reduction of $118 million after-tax, or $.44 per diluted share. The 2004 full year results include the impact of the non-cash asbestos charge. The comparison of 2005 and 2004 earnings, excluding the tax and asbestos items, would be $3.41 per diluted share versus $2.89 per diluted share, an 18 percent increase.

  • Railroad commodity revenue totaled a record $13.0 billion, an 11 percent increase. The main driver of this growth was a $122 increase in ARC to a record $1,358 per car. Growth in ARC can be attributed to fuel cost recovery under the Company’s surcharge programs and yield improvements.
  • Business volumes, as measured by total carloads, increased 1 percent to a record level of 9.5 million.
  • Operating income was $1.8 billion, a 16 percent increase from $1.5 billion in 2004, which excluded the non-cash asbestos charge. The reported 2004 operating income was $1.3 billion.
  • Operating margin improved to 13.2 percent versus 12.6 percent in 2004, excluding the non-cash asbestos charge. The reported 2004 full year operating margin was 10.6 percent.
  • The Railroad’s average yearly fuel price including transportation and taxes was $1.77 compared to $1.22 per gallon in 2004, a 45 percent increase.
  • Average system speed, as reported to the Association of American Railroads, declined 0.3 mph in 2005 to 21.1 mph. This compares to an average system speed of 21.4 mph in 2004. Average terminal dwell time improved 6 percent versus 2004, to 28.7 hours from 30.5 hours.

2006 Outlook

"Looking ahead, we are optimistic about 2006. Our network is more resilient than it was at this time last year and we are continuing to build momentum," Young said. "We expect demand will continue to be strong, particularly in the areas of coal and intermodal.

"In 2006, we will focus on providing better service to our customers, improving the efficiency of our network and increasing the financial returns on our business."

Non-GAAP Reconciliation

The fourth quarter 2004 operating income, full year 2004 operating income, and diluted earnings per share of $451 million, $1.5 billion and $2.89, respectively, exclude the non-cash charge for unasserted asbestos claims and are non-GAAP measures. The asbestos charge was made to reflect an increase in the Company’s estimated liability, which had previously recognized asserted asbestos claims, to also include unasserted claims.

In addition, the full year 2005 net income of $908 million and earnings per diluted share of $3.41 exclude the income tax reduction item reported in the third quarter of 2005 and are also non-GAAP measures. Management believes these measures provide an alternative presentation of results that more accurately reflects on-going Company operations, without the distorting effects of the asbestos charge and income tax expense reduction items. These measures should be considered in addition to, not as a substitute for, operating income, net income and diluted earnings per share.

The following table provides reconciliations for the fourth quarter 2004, full year 2004 and full year 2005 for operating income, net income, diluted earnings per share and operating margin, excluding the asbestos charge and income tax expense reduction, to reported operating income, net income, diluted earnings per share and operating margin:

Union Pacific Corporation owns one of America’s leading transportation companies. Its principal operating company, Union Pacific Railroad, is the largest railroad in North America, covering 23 states across the western two-thirds of the United States. A strong focus on quality and a strategically advantageous route structure enable the company to serve customers in critical and fast growing markets. It is a leading carrier of low-sulfur coal used in electrical power generation and has broad coverage of the large chemical-producing areas along the Gulf Coast. With competitive long-haul routes between all major West Coast ports and eastern gateways, and as the only railroad to serve all six major gateways to Mexico, Union Pacific has the premier rail franchise in North America.

Supplemental financial information is attached.

Additional information is available on our Web site: www.up.com.

Contact for investors is Jennifer Hamann at (402) 544-4227.
Contact for media is Kathryn Blackwell at (402) 544-3753 or (402) 319-4288.

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This press release and related materials may contain statements about the Corporation’s future that are not statements of historical fact. These statements are, or will be, forward-looking statements as defined by the Securities Act of 1933 and the Securities Exchange Act of 1934. Forward-looking statements include, without limitation, statements regarding: expectations as to continued or increasing demand for rail transportation in excess of supply; expectations regarding operational improvements, including the effectiveness of network management initiatives that have been or will be implemented to improve system velocity, customer service and shareholder returns; expectations as to increased returns, cost savings, revenue growth and earnings; expectations regarding fuel price; the time by which certain objectives will be achieved, including expected improvements in velocity and implementation of network management initiatives; estimates of costs relating to environmental remediation and restoration; proposed new products and services; expectations that claims, lawsuits, environmental costs, commitments, contingent liabilities, labor negotiations or agreements, or other matters will not have a material adverse effect on our consolidated financial position, results of operations or liquidity; and statements concerning projections, predictions, expectations, estimates or forecasts as to the Corporation’s and its subsidiaries’ business, financial and operational results, and future economic performance; and statements of management’s beliefs, expectations, goals and objectives and other similar expressions concerning matters that are not historical facts.

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Important factors that could affect the Corporation’s and its subsidiaries’ future results and could cause those results or other outcomes to differ materially from those expressed or implied in the forward-looking statements include, but are not limited to: whether the Corporation and its subsidiaries are fully successful in implementing their financial and operational initiatives, including those plans and management initiatives to improve system velocity and network performance or otherwise improve operations; the impact of ongoing track maintenance and restoration work being performed in the Southern Powder River Basin of Wyoming; industry competition, conditions, performance and consolidation; general legislative and regulatory developments, including possible enactment of initiatives to re-regulate the rail industry; legislative, regulatory and legal developments involving taxation, including enactment of new federal or state income tax rates, revisions of controlling authority and the outcome of tax claims and litigation; changes in securities and capital markets; natural events such as severe weather, fire, floods, hurricanes and earthquakes; the effects of adverse general economic conditions, both within the United States and globally; any adverse economic or operational repercussions from terrorist activities and any governmental response thereto; war or risk of war; changes in fuel prices; changes in labor costs; labor stoppages; and the outcome of claims and litigation, including those related to environmental contamination, personal injuries, and occupational illnesses arising from hearing loss, repetitive motion and exposure to asbestos and diesel fumes.

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