Union Pacific Reports Record Fourth Quarter and Full Year Earnings

Operating Ratio Improves to 79.6 percent

Omaha, Neb., January 25, 2007 – Union Pacific Corporation (NYSE: UNP) today reported 2006 fourth quarter net income of $485 million, or $1.78 per diluted share, compared to $296 million, or $1.10 per diluted share in the fourth quarter of 2005.

Fourth Quarter 2006 Highlights

  • Record fourth quarter 2006 commodity revenue totaled $3.8 billion, up 9 percent.
  • Operating income grew 52 percent to an all time quarterly record of $810 million.
  • Fourth quarter operating ratio of 79.6 percent was a 5.7 point improvement versus fourth quarter 2005 and a quarterly best.

Full Year 2006 Highlights

  • Full year commodity revenue grew 15 percent to an all time record of $14.9 billion.
  • Operating income of $2.9 billion was an all time record, up 61 percent.
  • Full year operating ratio improved 5.3 points versus 2005 to 81.5 percent.

Union Pacific Corporation (NYSE: UNP) today reported 2006 fourth quarter net income of $485 million, or $1.78 per diluted share, compared to $296 million, or $1.10 per diluted share in the fourth quarter of 2005.

"Our key accomplishments for the fourth quarter were the nearly six-point improvement in operating ratio and best-ever operating income," said Jim Young, President and Chief Executive Officer. "Overall, we turned in a great fourth quarter performance - a strong finish to a record year. In 2006, we significantly improved our return on invested capital and laid the foundation for further operational and financial improvement, benefiting both our customers and our shareholders."

2006 Fourth Quarter Summary

In the fourth quarter of 2006, Union Pacific Corporation reported operating income of $810 million compared to $533 million in fourth quarter 2005, a 52 percent improvement.

  • Operating ratio improved to 79.6 percent versus 85.3 percent in 2005.
  • The Company’s commodity revenue grew nine percent to a fourth quarter best $3.8 billion, with five of the six business groups posting increases for the quarter. The main component of the growth was an eight percent increase in average revenue per car (ARC). Growth in ARC resulted from yield improvements and the Company’s fuel surcharge programs.
  • Business volumes, as measured by total carloads, grew one percent to 2.4 million.
  • The Company’s fuel consumption rate, as measured by gallons per thousand gross ton-miles, was a fourth quarter best rate of 1.27 versus 1.30 in the fourth quarter 2005.
  • The Railroad’s average quarterly fuel price including transportation and taxes was $1.94 compared to $2.08 per gallon in 2005.
  • Quarterly average train speed, as reported to the Association of American Railroads, was 22 mph, up 1.5 mph from the fourth quarter of 2005. Quarterly terminal dwell time improved 13 percent to 25.9 hours versus 29.8 hours reported in the fourth quarter of 2005.

Fourth Quarter Commodity Revenue Summary versus 2005

  • Agricultural and Energy each up 20 percent
  • Chemicals up 9 percent
  • Intermodal up 4 percent
  • Automotive up 2 percent
  • Industrial Products was flat

2006 Full Year Summary

"2006 was a great year for Union Pacific," Young said. "Our network management initiatives and capacity expansion programs helped us move record volumes for our customers."

Full year 2006 net income was $1.6 billion or $5.91 per diluted share, versus $1.0 billion, or $3.85 per diluted share reported in 2005. The 2005 full year results included a non-cash income tax expense reduction of $118 million after-tax, or $.44 per diluted share. The comparison of 2006 and 2005 earnings, excluding the tax item, would be $5.91 per diluted share versus $3.41 per diluted share, a 73 percent increase.

Railroad commodity revenue totaled a record $14.9 billion, a 15 percent increase. The main driver of this growth was an 11 percent increase in ARC to $1,509. Growth in ARC resulted from yield improvements and the Company’s fuel surcharge programs.

  • Business volumes, as measured by total carloads, increased three percent to a record level of 9.9 million.
  • Operating income was a record $2.9 billion, a 61 percent increase from $1.8 billion in 2005.
  • Operating ratio improved 5.3 points to 81.5 percent versus 86.8 percent in 2005.
  • The Company’s fuel consumption rate was a full year best at 1.28 versus 1.30 in 2005.
  • The Railroad’s average yearly fuel price was $2.06 compared to $1.77 per gallon in 2005, a 16 percent increase.
  • Average system speed, as reported to the Association of American Railroads, was 21.4, up 0.3 mph compared to 2005. Average terminal dwell time improved 5 percent versus 2005, to 27.2 hours from 28.7 hours.

2007 Outlook

"While economic indicators are mixed, we are optimistic about what we see ahead for Union Pacific in 2007," Young said.

Non-GAAP Reconciliation

The full year 2005 net income of $908 million and earnings per diluted share of $3.41, which excluded the income tax expense reduction item reported in the third quarter of 2005, are 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 income tax expense reduction item. These measures should be considered in addition to, not as a substitute for, net income and diluted earnings per share. The following table reconciles full year 2005 net income and diluted earnings per share, excluding the income tax expense reduction, to net income and diluted earnings per share:

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 at 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.

This press release and related materials contain statements about the Corporation’s future that are not statements of historical fact, including statements regarding future operational and financial improvements and views regarding economic indicators and the Corporation’s outlook regarding future performance and financial results. 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 also include, without limitation, information or statements regarding: expectations as to continued or increasing demand for rail transportation services; expectations regarding operational improvements, including the effectiveness of network management initiatives that have been or will be implemented to improve operations, customer service, and shareholder returns; expectations as to increased returns, cost savings, revenue growth, and earnings; expectations regarding fuel price and our ability to mitigate fuel costs; the time by which certain objectives will be achieved, including expected improvements in operations 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; 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.

Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of the times that, or by which, such performance or results will be achieved. Forward-looking information, including expectations regarding operational and financial improvements and the Corporation’s future performance or results are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in the statement.

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 outcome of claims and litigation, environmental contamination, personal injuries, and occupational illnesses arising from hearing loss, repetitive motion and exposure to asbestos and diesel fumes; the impact of a rail accident involving the release of hazardous materials, which we are required to transport under federal law; legislative and regulatory developments, including possible enactment of initiatives to re-regulate the rail industry; changes in labor costs, labor stoppages, and the availability of qualified personnel required for our operations; the impact of ongoing track maintenance, upgrades, and restoration work being performed in the Southern Powder River Basin of Wyoming; natural events such as severe weather, fire, floods, hurricanes and earthquakes; changes in fuel prices or changes to our ability to recover fuel costs, including any changes resulting from regulatory or legislative activities; adverse economic conditions affecting customer demand and the industries and geographic areas that produce and consume the commodities we carry; industry competition, conditions, performance and consolidation; 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; 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; and war or risk of war. More information regarding risk factors and other cautionary information are available in the Corporation’s Annual Report on Form 10-K for 2005, which was filed with the SEC on February 24, 2006. The Corporation updates information regarding risk factors if circumstances require such updates in its periodic reports on Form 10-Q and its subsequent Annual Reports on Form 10-K (or such other reports that may be filed with the SEC).

Forward-looking statements speak only as of, and are based only upon information available on, the date the statements were made. The Corporation assumes no obligation to update forward-looking information to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking information. If the Corporation does update one or more forward-looking statements, no inference should be drawn that the Corporation will make additional updates with respect thereto or with respect to other forward-looking statements. References to our Web site are provided for convenience and, therefore, information on or available through the Web site is not, and should not be deemed to be, incorporated by reference herein.

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