For purposes of this report, unless the context otherwise requires, all references herein to "UPC", "Corporation", "we", "us", and "our" shall mean Union Pacific Corporation and its subsidiaries, including Union Pacific Railroad Company, which we separately refer to as "UPRR" or the "Railroad".

The following discussion should be read in conjunction with the Condensed Consolidated Financial Statements and applicable notes to the Condensed Consolidated Financial Statements, Item 1, and other information included in this report. Our Condensed Consolidated Financial Statements are unaudited and reflect all adjustments (consisting only of normal and recurring adjustments) that are, in the opinion of management, necessary for their fair presentation in conformity with accounting principles generally accepted in the United States of America (GAAP).

The Railroad, along with its subsidiaries and rail affiliates, is our one reportable business segment. Although revenue is analyzed by commodity, we analyze the net financial results of the Railroad as one segment due to the integrated nature of the rail network.

Available Information

Our Internet website is www.up.com. We make available free of charge on our website (under the "Investors" caption link) our Annual Reports on Form 10-K; our Quarterly Reports on Form 10-Q; our current reports on Form 8-K; our proxy statements; Forms 3, 4, and 5, filed on behalf of directors and executive officers; and amendments to such reports filed or furnished pursuant to the Securities Exchange Act of 1934, as amended (the Exchange Act), as soon as reasonably practicable after such material is electronically filed with, or furnished to, the Securities and Exchange Commission (SEC). We also make available on our website previously filed SEC reports and exhibits via a link to EDGAR on the SEC's Internet site at www.sec.gov. Additionally, our corporate governance materials, including By-Laws, Board Committee charters, governance guidelines and policies, and codes of conduct and ethics for directors, officers, and employees are available on our website. From time to time, the corporate governance materials on our website may be updated as necessary to comply with rules issued by the SEC and the New York Stock Exchange or as desirable to promote the effective and efficient governance of our company. Any security holder wishing to receive, without charge, a copy of any of our SEC filings or corporate governance materials should send a written request to:
Secretary, Union Pacific Corporation, 1400 Douglas Street, Omaha, NE 68179.

References to our website address in this report, including references in Management's Discussion and Analysis of Financial Condition and Results of Operations, Item 2, are provided as a convenience and do not constitute, and should not be deemed, an incorporation by reference of the information contained on, or available through, the website. Therefore, such information should not be considered part of this report.

Critical Accounting Policies and Estimates

We base our discussion and analysis of our financial condition and results of operations upon our Condensed Consolidated Financial Statements. The preparation of these financial statements requires estimation and judgment that affect the reported amounts of revenues, expenses, assets, and liabilities. We base our estimates on historical experience and on various other assumptions that are believed to be

reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. If these estimates differ materially from actual results, the impact on the Condensed Consolidated Financial Statements may be material. Our critical accounting policies are available in Item 7 of our 2008 Annual Report on Form 10-K. There have not been any significant changes with respect to these policies during the first three months of 2009.

RESULTS OF OPERATIONS

Quarterly Summary

We reported earnings of $0.72 per diluted share on net income of $362 million in the first quarter of 2009 compared to earnings of $0.85 per diluted share on net income of $443 million for the first quarter of 2008. Freight revenues (excluding fuel surcharges) declined $513 million in the first quarter compared to the same period of 2008 driven by a 21% reduction in volume levels. The economic downturn experienced in the fourth quarter of 2008 continued to impact demand for our services across most market sectors. During the quarter, we focused on providing quality service to our customers and reducing variable costs to address weak demand for freight transportation. We continued to implement company-wide productivity initiatives to improve efficiency and reduce costs, in addition to adjusting our resources to reflect lower demand. Our resource reductions included removing from service approximately 24% of our road locomotives and 26% of our freight car inventory. Additionally, these demand-driven resource adjustments and our productivity initiatives combined to reduce our workforce by 8%. These actions coupled with improved pricing and lower fuel prices partially offset the impact of the volume decline.

Operationally, we improved our network fluidity versus the first quarter of 2008. As reported to the Association of American Railroads (AAR), average train speed and average terminal dwell time improved 23% and 4% respectively, during the first quarter of 2009 compared to 2008. Lower volume levels, network management initiatives, and continued focus on enhancing terminal processing all contributed to these improvements.

Operating Revenues



                                           Three Months Ended
                                                    March 31,         %
                 Millions of Dollars          2009       2008    Change
                 Freight revenues      $    3,240    $ 4,059     (20)%
                 Other revenues               175        211    (17)
                 Total                 $    3,415    $ 4,270     (20)%

Freight revenues are revenues generated by transporting freight or other materials from our six commodity groups. Freight revenues vary with volume (carloads) and average revenue per car (ARC). ARC is driven by changes in price, traffic mix, and fuel surcharges. As a result of contractual obligations with some of our customers, we have provided incentives for meeting or exceeding specified cumulative volumes or shipping to and from specific locations, which we record as a reduction to freight revenues based on the actual or projected future shipments. We recognize freight revenues on a percentage-of-completion basis as freight moves from origin to destination. We allocate freight revenues between reporting periods based on the relative transit time in each reporting period and recognize expenses as we incur them.

Other revenues include revenues earned by our subsidiaries, revenues from our commuter rail operations, and accessorial revenues, which we earn when customers retain equipment owned or controlled by us or when we perform additional services such as switching or storage. We recognize other revenues as we perform services or meet contractual obligations.

Freight revenues and volume levels for all six commodity groups decreased during the first quarter of 2009 as a result of the recessionary economy. We experienced substantial declines in both revenue and volume of automotive, industrial products, and intermodal shipments. Lower fuel surcharges due to lower fuel prices also drove freight revenues lower in the first quarter 2009 compared to 2008. ARC increased 1% during the period driven by core pricing gains which were mostly offset by reduced fuel cost recoveries. Fuel cost recoveries include fuel surcharge revenue and the impact of resetting the base fuel price for certain traffic, which is described below in more detail.

Our fuel surcharge programs (excluding index-based contract escalators that contain some provision for fuel) generated $147 million in freight revenues in the first quarter of 2009. Fuel surcharge revenue is not comparable to prior periods due to implementation of new mileage-based fuel surcharge programs. In April 2007, we converted regulated traffic, which represents approximately 20% of our current revenue base, to mileage-based fuel surcharge programs. In addition, we continue to convert portions of our non-regulated traffic to mileage-based fuel surcharge programs. Additionally, we reset the base fuel price at which the new mileage-based fuel surcharges take effect. The resetting of the fuel price at which the fuel surcharge begins, in conjunction with rebasing the affected transportation rates to include a portion of what had been in the fuel surcharge, did not materially change our freight revenue as higher base rates offset lower fuel surcharge revenue.

The following tables summarize the year-over-year changes in freight revenues, revenue carloads, and ARC by commodity type:

                                           Three Months Ended
                 Freight Revenues                   March 31,         %
                 Millions of Dollars          2009       2008    Change
                 Agricultural          $      661    $   756     (13)%
                 Automotive                   162        363    (55)
                 Chemicals                    513        603    (15)
                 Energy                       807        857     (6)
                 Industrial Products          546        773    (29)
                 Intermodal                   551        707    (22)
                 Total                 $    3,240    $ 4,059     (20)%

                                          Three Months Ended
                Revenue Carloads                   March 31,         %
                Thousands                  2009         2008    Change
                Agricultural               212          240     (12)%
                Automotive                  97          188    (48)
                Chemicals                  180          225    (20)
                Energy                     521          582    (10)
                Industrial Products        222          304    (27)
                Intermodal                 615          796    (23)
                Total                    1,847        2,335     (21)%




                                             Three Months Ended
                                                      March 31,         %
               Average Revenue per Car          2009       2008    Change
               Agricultural              $    3,116    $ 3,151      (1)%
               Automotive                     1,675      1,930    (13)
               Chemicals                      2,843      2,676       6
               Energy                         1,550      1,473       5
               Industrial Products            2,459      2,540     (3)
               Intermodal                       897        889       1
               Average                   $    1,755    $ 1,738       1 %

Agricultural Products - Lower volume and fuel surcharges decreased agricultural freight revenue in the first quarter of 2009 versus 2008. Price improvements partially offset these declines. Declines in export and domestic markets of 29% and 13%, respectively, drove lower shipments of corn and feed grains. Weaker export demand in the Pacific Northwest and Gulf regions also reduced shipments of wheat and food grains compared to the first quarter of 2008.

Automotive - A 54% and 40% decline in shipments of finished vehicles and auto parts, respectively, combined with lower fuel surcharges reduced freight revenue in the first quarter of 2009 compared to 2008. Economic conditions led to poor sales and reduced vehicle production during the first quarter of 2009, which in turn reduced shipments of finished vehicles and parts.

Chemicals - Reduced volume levels and fuel surcharges drove lower chemicals freight revenue in the first quarter of 2009 versus 2008. Pricing improvements partially offset these declines. Weak market conditions negatively impacted shipments of liquid and dry chemicals in the first quarter of 2009 compared to 2008, driving volume levels down 28%. In addition, high inventories, production curtailments, and a reduction in advance purchases prior to the spring planting season hampered fertilizer shipments in the quarter.

Energy - Lower volume and fuel surcharges reduced freight revenue from energy shipments in the first quarter of 2009 versus 2008. Price increases partially offset these declines. Shipments from the Southern Powder River Basin of Wyoming (SPRB) and the Colorado and Utah mines were down 11% and 21%, respectively, in the first quarter of 2009 compared to 2008. Higher coal inventories leading into the winter and continued weakness in the economy has resulted in reduced demand at our utility customers, resulting in lower volumes. Production problems at the Colorado and Utah mines and the loss of SPRB customer contracts also contributed to the volume decline.

Industrial Products - Reduced volume and fuel surcharges resulted in lower freight revenue from industrial products shipments in the first quarter of 2009 versus 2008. Price improvements partially offset these declines. Weak demand and inventory reductions resulting from the economic conditions drove a 50% decline in steel shipments in the first quarter of 2009 compared to 2008. The continued weakness in the housing market, surplus production, and general market uncertainty resulted in lower lumber, paper, and newsprint shipments in the quarter versus last year. In addition, cement and stone shipments declined in the first quarter of 2009 due to both high inventories and weak commercial and residential construction market activity.

Intermodal - Decreasing volumes and fuel surcharges reduced freight revenue from intermodal shipments in the first quarter of 2009 versus 2008, partially offset by pricing gains. Volume from international traffic decreased 30% in the first quarter of 2009 compared to 2008, reflecting the recessionary economy, continued weak imports from Asia, and increased diversions to non-UPRR served ports. Additionally, continued weakness in domestic housing and automotive sectors translated into weak demand in large sectors of the international intermodal market, which also contributed to the volume declines. Domestic traffic decreased 9% in the first quarter of 2009 compared to 2008, also reflecting the economic conditions, the loss of a customer contract, and lower volumes from less-than-truckload shippers.

Mexico Business - Each of our commodity groups include revenue from shipments to and from Mexico. Revenue from Mexico business decreased 30% to $268 million in the first quarter of 2009 versus 2008. Volume declined in all six commodity groups, down 28% in aggregate during the first quarter of 2009, with substantial declines in automotive, industrial products, and agricultural shipments.

Operating Expenses



                                                 Three Months Ended
                                                          March 31,         %
          Millions of Dollars                       2009       2008    Change
          Compensation and benefits          $    1,070    $ 1,132      (5)%
          Purchased services and materials          399        469    (15)
          Fuel                                      386        957    (60)
          Depreciation                              345        340       1
          Equipment and other rents                 317        342     (7)
          Other                                     226        242     (7)
          Total                              $    2,743    $ 3,482     (21)%

Operating expenses decreased $739 million in the first quarter of 2009 versus 2008. Our fuel price per gallon declined 47% during the period, decreasing operating expenses by $335 million compared to 2008. Cost savings from lower volume, productivity improvements, and better resource utilization also drove lower operating expenses. Additionally, recovery costs and operational impacts resulting from the January 2008 mudslide that occurred near Eugene, Oregon increased operating expenses in the first quarter of 2008, resulting in a more favorable quarter-over-quarter comparison. Conversely, wage and benefit inflation partially offset these reductions.

Compensation and Benefits - Compensation and benefits include wages, payroll taxes, health and welfare costs, pension costs, other postretirement benefits, and incentive costs. Lower volume and productivity initiatives in all areas, led to an 8% decline in our workforce, saving $106 million in the first quarter of 2009. Conversely, general wage and benefit inflation increased expenses in the first quarter partially offsetting these reductions.

Purchased Services and Materials - Purchased services and materials expense includes the costs of services purchased from outside contractors; materials used to maintain the Railroad's lines, structures, and equipment; costs of operating facilities jointly used by UPRR and other railroads; transportation and lodging for train crew employees; trucking and contracting costs for intermodal containers; leased automobile maintenance expenses; and tools and supplies. Decreased contract services expense (including equipment maintenance) of $48 million and reduced crew transportation and lodging costs of $14 million, due to lower volume levels, primarily contributed to the decrease of expenses in the first quarter of 2009. In addition, we performed fewer locomotive repairs during the quarter, which reduced locomotive materials expense. Clean-up and restoration costs related to the January mudslide also increased expenses in the first quarter of 2008, creating a favorable quarter-over-quarter comparison.

Fuel - Fuel includes locomotive fuel and gasoline for highway and non-highway vehicles and heavy equipment. Lower diesel fuel prices, which averaged $1.51 per gallon (including taxes and transportation costs) in the first quarter of 2009 compared to $2.84 per gallon in the same period in 2008, reduced expenses by $335 million. Volume, as measured by gross ton-miles, decreased 20% in the first quarter versus 2008, lowering expenses by $177 million compared to 2008. A 5% improvement in our fuel consumption rate resulted in $45 million of cost savings due to the use of newer, more fuel efficient locomotives; our fuel conservation programs; improved network operations; and a shift in commodity mix, primarily due to fewer premium (automotive and intermodal) shipments.

Depreciation - The majority of depreciation relates to road property, including rail, ties, ballast, and other track material. A higher depreciable asset base, reflecting higher capital spending in recent years, increased depreciation expense in the first quarter of 2009. Lower depreciation rates for rail and other track material offset most of the increase. The lower rates, which became effective January 1, 2009 after review and approval by the Surface Transportation Board of the U.S. Department of Transportation, resulted from longer asset lives and reduced track usage (based on lower gross ton-miles).

Equipment and Other Rents - Equipment and other rents expense primarily includes rental expense that the Railroad pays for freight cars owned by other railroads or private companies; freight car, intermodal, and locomotive leases; other specialty equipment leases; and office and other rentals. Fewer shipments of finished vehicles, industrial products and intermodal containers primarily contributed to the $23 million reduction in our short-term freight rental expense in the first quarter of 2009 versus 2008. Lower lease expense for freight cars, intermodal containers, locomotives, and fleet vehicles also decreased costs.

Other - Other expenses include personal injury, freight and property damage, insurance, environmental, bad debt, state and local taxes, utilities, telephone and cellular, employee travel, computer software, and other general expenses. Other costs were lower in the first quarter of 2009 compared to the first quarter of 2008, primarily driven by a $12 million decrease in freight and property damage expenses due to lower volume levels. Expenses for personal injuries, employee travel, other expenses associated with our vehicle fleet, computer software, and utilities also decreased in the first quarter of 2009 compared to 2008. Conversely, higher state and local taxes (primarily property taxes) and an increase in bad debt expense due to the economic downturn partially offset these lower costs.

Non-Operating Items



                                           Three Months Ended
                                                    March 31,        %
                 Millions of Dollars         2009        2008   Change
                 Other income          $      23     $    25     (8)%
                 Interest expense           (141)       (126)    12
                 Income taxes               (192)       (244)   (21)%

Other Income - Other income decreased in the first quarter of 2009 compared to 2008 due to lower gains from real estate sales, decreased returns on cash investments reflecting lower interest rates, and reduced rental and licensing income. Lower interest expense on our sale of receivables program partially offset the decreases.

Interest Expense - Interest expense increased in the first quarter 2009 versus 2008 due to a higher weighted-average debt level of $9.0 billion, compared to $7.9 billion in 2008, partially offset by a lower effective interest rate of 6.2% in the first quarter of 2009, compared to 6.3% in the first quarter of 2008.

Income Taxes - Income taxes were $52 million lower in the first quarter 2009 compared to 2008, driven by lower pre-tax income. Our effective tax rates were 34.7% and 35.5% in the first quarter of 2009 and 2008, respectively.

OTHER OPERATING/PERFORMANCE AND FINANCIAL STATISTICS

We report key Railroad performance measures weekly to the Association of American Railroads (AAR), including carloads, average daily inventory of rail cars on our system, average train speed, and average terminal dwell time. We provide this data on our website at www.up.com/investors/reports/index.shtml.

Operating/Performance Statistics

Railroad performance measures reported to the AAR, as well as other performance
measures, are included in the table below:



                                                  Three Months Ended
                                                           March 31,         %
                                                     2009       2008    Change
       Average train speed (miles per hour)         27.2       22.2      23 %
       Average terminal dwell time (hours)          24.3       25.2      (4)%
       Average rail car inventory (thousands)      286.4      306.3      (7)%
       Gross ton-miles (billions)                  206.6      257.2     (20)%
       Revenue ton-miles (billions)                118.4      140.7     (16)%
       Operating ratio                              80.3       81.5    1.2 pt
       Employees (average)                        44,997     49,073      (8)%
       Customer satisfaction index                    87         81      6 pt

Average Train Speed - Average train speed is calculated by dividing train miles by hours operated on our main lines between terminals. Lower volume levels, ongoing network management initiatives, and

productivity improvements contributed to a 23% improvement in average train speed in the first quarter of 2009 compared to 2008.

Average Terminal Dwell Time - Average terminal dwell time is the average time that a rail car spends at our terminals. Lower average terminal dwell time improves asset utilization and service. Average terminal dwell time improved 4% during the first quarter of 2009 compared to 2008. Lower volumes combined with initiatives to more timely deliver rail cars to our interchange partners and customers improved dwell time.

Gross and Revenue Ton-Miles - Gross ton-miles are calculated by multiplying the weight of loaded or empty freight cars by the number of miles hauled. Revenue ton-miles are calculated by multiplying the weight of freight by the number of tariff miles. Gross and revenue-ton-miles decreased 20% and 16%, respectively, in the first quarter of 2009 compared to 2008, due to a 21% decrease in carloads. Commodity mix changes (notably automotive shipments which were 48% lower in 2009 compared to 2008) drove the 4% difference in declines between gross ton-miles and revenue ton-miles.

Operating Ratio - Operating ratio is defined as our operating expense as a percentage of operating revenues. Our operating ratio improved 1.2 points to 80.3% in the first quarter of 2009. Price increases, lower fuel prices, network management initiatives, and improved productivity drove the improvement.

Employees - Productivity initiatives and lower volumes reduced employee levels throughout the Company in the first quarter of 2009 versus 2008. Fewer train and engine personnel due to 21% lower volume and network initiatives, combined with improved productivity within the support organizations contributed to a lower full-time equivalent force level.

Customer Satisfaction Index - The customer satisfaction survey asks customers to rate how satisfied they are with our performance over the last 12 months on a variety of attributes. A higher score indicates higher customer satisfaction. The improvement in survey results in the first quarter of 2009 generally reflects customer recognition of our service.

Debt to Capital / Adjusted Debt to Capital



                                                    March 31,     December 31,
        Millions of Dollars, Except Percentages          2009             2008
        Debt (a)                                  $    9,195    $       8,927
        Equity                                        15,654           15,447
        Capital (b)                               $   24,849    $      24,374
        Debt to capital (a/b)                          37.0%            36.6%

. . .