Table of Contents - Union PacificUnion Pacific’s investor relations are coordinated through the Corporate Treasurer. Requests for interviews, investor packages ... gateways and operates

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Table of Contents

Overview

System Map and Facts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Company Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

The Year in Review

Financial Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Operations & Productivity

Safety and the Environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Investing in Our Future . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10

Track and Terminal Density . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11

Expense Initiatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12

Markets

Agricultural . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13

Automotive . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15

Chemicals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18

Energy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20

Industrial Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23

Intermodal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25

Mexico. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .28

Financials

Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .30

Consolidated Statements of Income. . . . . . . . . . . . . . . . . . . . . . .31

Consolidated Statements of Financial Position . . . . . . . . . . . . . .32

Consolidated Statements of Cash Flow . . . . . . . . . . . . . . . . . . . .33

Financial and Operating Statistics. . . . . . . . . . . . . . . . . . . . . . . . .34

Non-GAAP Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35

Non-GAAP Reconciliations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .36

Free Cash Flow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .36

Return on Invested Capital (ROIC) . . . . . . . . . . . . . . . . . . . . .36

Debt to Capital/Adjusted Debt to Capital . . . . . . . . . . . . . . . .37

2005 Income Tax Adjustment . . . . . . . . . . . . . . . . . . . . . . . . . .38

Cautionary Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .39

Company Vision/Mission Statement

VISIONBuilding AmericaOur vision symbolizes the Union Pacific experience for all the people whose lives we touch. It connects the importance of UP’s rail transportation to America’s economy, honors the generations that preceded us and is the promise for the generations that will follow us.

MISSIONThe Men and Women of Union Pacific Are Dedicated to Serve.Union Pacific works for the good of our customers, our shareholders and one another. Our commitment defines us and drives the economic strength of our company and our country.

VALUESFocus on Performance.Our concentration and determination will drive our safety, customer satisfaction and quality results.

Ensure High Ethical Standards.Our reputation will always be a source of pride for our employees and a bond with our customers, shareholders and community partners.

Work as a Team.We are all part of the same team, and working together to reach our common goals is one of our strengths. Communication and respect are the foundation of great teamwork.

Company Overview

Union Pacifi c Corporation (NYSE:UNP) is one of America’s leading transportation companies. Its principal operating company, Union Pacifi c Railroad, is the largest railroad in North America, covering 23 states across two-thirds of the United States.

Investor Inquiries

Union Pacific’s investor relations are coordinated through the Corporate Treasurer. Requests for interviews, investor packages and general information should be directed to:(402) 544-4227 or (877) 547-7261 or [email protected]

Web Site Information

For immediate receipt of new information as it becomes available, we invite you to regularly visit www.up.com. In the Investors section, you can view on-line or download a variety of informative documents, including SEC filings, annual reports, proxy statements, quarterly earnings, press releases, company presentations and corporate governance information. For automatic updates, please subscribe to the Company’s RSS (Really Simple Syndication) feed which provides links to new headlines and summaries through your news reader.

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System Map and Facts

2008 Facts

Track Miles (As of 12/31/08)Route Miles 32,012Other Main Line 6,510Passing Lines and Turnouts 3,037Switching and Classifi cation Yard Lines 9,207 Total Track Miles 50,766 Miles of Rail Installed and Replaced * New 1,049Used 570 Total 1,619 Track Miles of Continuous Welded Rail 28,017Track Miles Under Centralized Traffi c Control 19,776Track Miles Ballasted 11,369Ties Installed and Replaced (thousands) * 4,743

Equipment Owned or Leased at Year EndLocomotives 8,448

Covered Hoppers 35,655Open Hoppers 18,134Gondolas 13,923Boxcars 9,834Other 12,459 Total 90,005

Average Age of Equipment (Years) Road Locomotives 14.6Switch Locomotives 30.6

Covered Hoppers 29.4Open Hoppers 29.4Gondolas 26.9Boxcars 27.0Mechanical Refrigerated 20.8Flat Cars 31.2

* Represent “all-in” numbers, which include engineering replacement programs, commercial facility and capacity work, and other miscellaneous rail and tie projects.

2008 Facts

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Union Pacifi c Corporation owns one of America’s leading

transportation companies, the Union Pacifi c Railroad Company

(Company, UP or Railroad). The Railroad links 23 states in the

western two-thirds of the country and serves the fastest-growing

U.S. population centers. The Company maintains coordinated

schedules with other rail carriers to move freight to and from the

Atlantic Coast, the Pacifi c Coast, the Southeast, the Southwest,

Canada, and Mexico. The Railroad serves the East through major

gateways in Chicago, St. Louis, Memphis and New Orleans. In

addition, UP is the only railroad serving all six major Mexican

gateways and operates key north/south corridors for interchange

traffi c with the Canadian and Mexican rail systems. UP reaches

north into Canada through the Eastport gateway in Idaho, as

well as through exchange points in Minnesota, Wisconsin and

Illinois. That network, combined with a well-balanced and diverse

traffi c mix, makes UP the premier rail franchise in North America,

generating $17.1 billion in freight revenue in 2008.

Union Pacifi c’s freight traffi c consists of bulk, manifest and

premium business. Bulk traffi c is primarily the shipment of coal,

grain, rock and soda ash in unit trains. Access to the Southern

Powder River Basin (SPRB) coal fi elds of northeastern Wyoming

is a key franchise strength. UP also provides direct routes from

major grain-producing areas in the Midwest to domestic markets,

Mexico and ports in the Gulf Coast and Pacifi c Northwest (PNW)

for export.

Manifest traffi c is individual carload or less-than-trainload

business, including commodities such as lumber, steel, paper and

food, transported from thousands of locations on Union Pacifi c’s

vast network. Union Pacifi c also accesses the large chemical-

producing areas along the Gulf Coast.

The Railroad’s premium business includes the transportation

of fi nished vehicles, intermodal containers and truck trailers.

UP’s extensive automotive network handles 75 percent of the

rail-shipped automotive traffi c west of the Mississippi River.

The Railroad also serves the international import market with its

competitive long-haul routes connecting the West Coast ports and

eastern gateways, particularly along the Sunset Corridor from Los

Angeles to El Paso.

The strength of this diverse franchise and effi cient utilization of the

Railroad’s capacity enables the Company to provide its customers

with excellent service, which generates solid fi nancial returns for

our shareholders.

Traffi c Classifi cation - 2008 Carloads

Freight Traffi c - 2008 Carloads

Business Mix - 2008 Freight Revenue

Company Overview

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Union Pacifi c recorded solid fi nancial performance across the

board in 2008. Despite a softer U.S. economy and record fuel

prices, Union Pacifi c combined continued core price improvement

with signifi cant operating effi ciency gains to set best-ever levels in

many measures. The Company also enhanced shareholder returns

through increased dividend payments and continuation of a share

repurchase program initiated in 2007.

Union Pacifi c reported record operating revenue of $18 billion, a

10 percent increase over 2007 notwithstanding lower year-over-

year volumes. Five of the Company’s six business groups achieved

record annual revenue levels in 2008. UP improved its operating

ratio by two points, fi nishing the year at 77.3 percent, a post-

merger record. Net income increased 26 percent to $2.3 billion,

an all-time record. Diluted earnings per share grew to $4.54

in 2008, up 31 percent from 2007. Return on invested capital

improved 1.5 points from 2007 to 10.2 percent.

These fi nancial results were achieved in the face of declining

volume, down fi ve percent for the year. Weak housing, tight

credit markets, decreased auto and industrial production, lower

consumer spending and declining intermodal volumes at West

Coast ports all contributed to the decline. Fuel prices rose

steadily through the fi rst half of the year (peaking in July) before

decreasing sharply in the fourth quarter. Union Pacifi c’s average

diesel fuel price increased 39 percent to $3.15 per gallon,

The Year in Review - Financial Results

adding $1.1 billion in operating expense versus 2007. UP’s fuel

surcharge programs help offset the impact of higher fuel prices.

Approximately 85 percent of the Company’s business is covered

by some type of fuel surcharge program. The goal is to achieve

100 percent coverage.

During 2008, Union Pacifi c repurchased 22.2 million shares,

returning $1.5 billion to shareholders. As the year came to a close

and the economy faltered, repurchase activity slowed. Dividend

payments increased 23 percent during the year. Including

dividends paid, cash returned to shareholders exceeded $2 billion.

Financial Summary

Union Pacifi c Corporation 2008 2007 2006

Operating Revenues (millions) $17,970 $16,283 $15,578

Operating Income (millions) $4,075 $3,375 $2,884

Operating Ratio 77.3% 79.3% 81.5%

Operating Margin 22.7% 20.7% 18.5%

Employees (Average) 48,242 50,089 50,739

Average Fuel Price per Gallon Consumed $3.15 $2.27 $2.09

Cash Capital Expenditures (millions) $2,780 $2,496 $2,242

Long-Term Leases (millions) (a) $353 $516 $443

(a) Represents the net present value of long-term operating leases for new equipment.

Operating Ratio Improvement(Percent)

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Improving operational effi ciency is a critical goal for Union Pacifi c,

especially in the current economic environment. The Company is

focused on simplifying and streamlining rail operations across its

vast, complex network. Using resources effi ciently is essential to

improving service and shareholder value.

Process improvement, organizational effectiveness, technology

and capacity investment all improved network fl uidity and

increased customer satisfaction. Lower volumes also contributed

to the effi ciency improvements. System velocity increased 8

percent over 2007, and the Company’s service delivery index, a

composite metric of all customer commitments, set an all-time

record for the year, up nearly 11 percent over 2007. More effi cient

asset utilization reduced terminal dwell times by 1 percent and

lowered overall car inventories by 3 percent.

The Year in Review - Operations

Workforce productivity is key at Union Pacifi c, and in 2008 the

Company correlated its staffi ng levels with volume. For the year,

Gross Ton-Miles (GTMs) were 3 percent lower than 2007, and

the Company had 4 percent fewer employees. A high attrition rate

due to an aging workforce combined with increased effi ciency and

technology made these necessary staffi ng reductions possible.

The Company’s Unifi ed Plan streamlines segments of the

transportation plan. Enhancements to this ongoing program

produced more effi cient train processing at terminals during the

year. Additionally, targeted capital investments and continued

use of industrial engineering techniques increased capacity and

contributed to improved network fl uidity and asset utilization.

Operations Summary

Union Pacifi c Corporation 2008 2007 2006

Revenue Carloads (thousands) 9,261 9,733 9,852

Revenue Ton-Miles (billions) 563 562 565

Gross Ton-Miles (billions) 1,020 1,052 1,073

Average Train Speed (miles per hour) (a) 23.5 21.8 21.4

Average System Dwell (hours) (a) 24.9 25.1 27.2

Average Rail Car Inventory (a) 300,692 309,912 321,566

Fuel Consumed (millions of gallons) 1,229 1,326 1,372

GTMs per Employee (millions) 21.15 21.01 21.14

(a) As reported to the Association of American Railroads.

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The Year in Review - Operations

The Company modifi es its transportation plans to refl ect traffi c

patterns, customer demand and to take advantage of new

opportunities to improve effi ciency. For example, manifest business

carloads declined 7 percent over the past couple of years. Left

unchanged, this decrease would have meant running shorter trains

with little to no savings on crew expenses, fuel, or equipment

rents. Through the Unifi ed Plan’s evergreen process, average

manifest train length increased by three cars in 2007 and by two

cars in 2008 to leverage lower volumes into fewer train starts.

Similarly, coal carloadings increased 2 percent over the past two

years. Increasing the average coal train size by two cars in 2007

and one car in 2008 resulted in train starts essentially remaining

fl at.

Technology enables the Company to continually focus on

inventory management, using tools such as the Customer

Inventory Management System (CIMS). CIMS is a car demand

management process that matches the fl ow of rail cars to and

from customer locations with the track capacity at those locations.

This proactive approach to inventory control means fewer cars in

rail yards, which in turn decreases terminal dwell time, reduces

switching and congestion, and improves throughput. Technology

is also employed in the increased usage of distributed power

locomotives, adding to the effi ciency of locomotive and crew

resources and saving fuel.

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Despite the challenge of a weakening economy that resulted in a 5 percent decline in volume, Union Pacifi c’s freight revenue grew to a record $17.1 billion in 2008. The Company continued to create customer value through strategic investments, operating initiatives, process improvements and innovation.

The economic downturn hit the Automotive business particularly hard in 2008, as fi nished automobile volume dropped 23 percent and auto parts shipments declined 13 percent. Union Pacifi c is the leading vehicle transporter in the West, and this signifi cant shortfall of demand drove the decreases. Weakness in housing and construction markets held Industrial Products volume 6 percent below last year. Intermodal volumes declined 8 percent, as a portion of the international intermodal market is tied to the automotive and housing industries. Chemicals shipments ran at levels similar to 2007 through the fi rst eight months of 2008, then fi nished the year down 5 percent. The two major Gulf Coast hurricanes that disrupted customers’ facilities in late September, followed by the sharp downturn in the economy in the fourth quarter, led to the decline.

With strong worldwide demand for food and energy through most of 2008, Agricultural Products and Energy posted year-over-year volume growth. Agricultural Products grew 5 percent, as ethanol and its co-product, dried distiller grain with soluables (DDGS), increased 25 percent and grain exports were up 16 percent. Record coal tonnage from the SPRB in Wyoming drove Energy volume up 2 percent.

The Year in Review - Marketing

In 2008, UP benefi ted from a strong service performance, making it possible to capture growth opportunities. Combining service with innovation facilitates the launch of new products, such as adding a second California origin to the Produce Railexpress perishables service and pioneering vehicle co-loading in the automotive marketplace. Additionally, a number of intermodal service products were improved. Targeted capital investments over the past few years contributed to service improvement and increased value for customers. In 2008, UP reported record levels of customer satisfaction.

Pricing is a key part of the effort to earn an adequate return on investment. Core prices improved 6 percent in 2008, and the renegotiation of legacy contracts contributed to those gains. With 18 percent of revenue remaining in legacy contracts at the start of 2009, renegotiations will remain a signifi cant opportunity for future yield improvement.

Annual Summary by Quarter - Total Freight Revenue

2008 2007 2006

1st 2nd 3rd 4th Total 1st 2nd 3rd 4th Total 1st 2nd 3rd 4th Total

Freight Revenue (millions of dollars)

4,059 4,349 4,630 4,080 17,118 3,655 3,853 3,990 3,988 15,486 3,514 3,721 3,789 3,767 14,791

Revenue Ton-Miles (millions)

140,707 140,939 145,787 135,198 562,631 135,138 139,200 144,035 143,472 561,845 139,287 143,444 141,644 140,836 565,211

Revenue Carloads (thousands)

2,335 2,371 2,398 2,157 9,261 2,334 2,433 2,522 2,444 9,733 2,393 2,510 2,509 2,440 9,852

Average Revenue Per Car (dollars)

1,738 1,835 1,931 1,891 1,848 1,566 1,584 1,582 1,632 1,591 1,469 1,482 1,510 1,544 1,501

Pricing Opportunities(Percentage of revenue as of January 1, 2009)

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Safety

Safety is a core value at Union Pacifi c, affecting the Company’s

key constituents: employees, customers, shareholders and

the public. All employees are responsible for maintaining

safe working conditions and preventing personal injuries and

accidents. Demonstrating UP’s commitment to safety are the

tools and processes used to drive continuous improvement in

this critical area. In a multi-faceted approach, the Railroad uses

communication, engagement, technology, process improvement,

engineering and investment. These comprehensive efforts seek

to enhance employee training and engagement, increase public

education, make targeted capital investments, and take proactive

steps to eliminate or reduce safety risks.

Safety improved in 2008, with employee injury incident rates

declining 11 percent from 2007 to the lowest level ever.

Additionally, derailment incidents were reduced 14 percent.

With respect to public safety, a total of 435 grade crossings

were closed to reduce exposure to incidents. Throughout 2008,

the Railroad continued installing video cameras in its road

locomotives. Over 90 percent of road trains now have camera-

equipped locomotives in the lead position. These video cameras

allow Union Pacifi c to better analyze grade crossing conditions

and incidents, increasing safety for its employees and the public.

The number of grade crossing incidents decreased 18 percent

during the year, to the lowest number on record. Also, through

extensive public safety programs, trespasser incidents declined

9 percent.

Union Pacifi c’s goal is to further improve safety by expanding Total

Safety Culture (TSC) across the Company. TSC is a peer-to-peer

Safety and the Environment

Crossing Accidents per Million Train Miles

observation and feedback process, empowering employees to

support safe behavior and correct at-risk behaviors among co-

workers. Originally implemented in UP’s Mechanical Department,

this program is expanding and will include Train, Engine & Yard

employees across UP’s 21 service units. Preliminary results show

the 15 service units with TSC realized a safety improvement rate

two to three times greater than the six units without it.

Environment

Union Pacifi c is committed to protecting the environment now and

for future generations. As one of America’s largest transportation

companies, UP’s role is critical to the U.S. economy. It is also

critical that service be provided in a manner that protects the

country’s natural resources.

Railroads are the most fuel effi cient, environmentally friendly

mode of ground freight transportation, and Union Pacifi c is

committed to becoming even “greener”. Rails are nearly four times

more fuel effi cient than trucks, and Union Pacifi c is working to

further improve fuel effi ciency. An example of rail fuel effi ciency is

illustrated by examining fuel data for a Los Angeles to Houston

intermodal train. This train carried an average of 290 loaded

containers from Los Angeles to Houston (1,700 miles), consuming

nearly 16,000 gallons of fuel. If those 290 containers moved by

truck instead of rail, fuel consumption would increase to more

than 89,000 gallons. In this example, rail transportation saved over

73,000 gallons of fuel. One double-stack train can take up to 300

trucks off congested highways.

Locomotive technology, engineer training, and employee

involvement are all being utilized to improve fuel consumption in

conjunction with operational enhancements that increase asset

utilization and network effi ciency. Improvements in 2008 enabled

the Company to reduce its fuel consumption rate by 4 percent,

saving approximately 58 million gallons of fuel versus 2007.

Union Pacifi c is also aggressively working to reduce locomotive

emissions. The U.S. Environmental Protection Agency (EPA)

has set fi ve tiers of locomotive emission standards, which are

progressively more stringent. These standards require continuing

reductions in locomotive exhaust emissions of nitrogen oxides,

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particulate matter and other pollutants. With more than two-

thirds of its road locomotives certifi ed under the existing EPA

tier standards, UP owns the cleanest fl eet in the nation. Further

improvements are on the horizon as the Company works with

manufacturers to fi eld-test new, high-horsepower locomotives that

surpass the EPA’s most stringent standards. UP is also retrofi tting

older locomotives with new emission-reduction equipment.

UP helped test and develop an ultra low-emissions switch

locomotive, the “Genset Switcher”. These units utilize “off-road”

truck–style diesel engines that are projected to reduce emissions

of nitrogen oxide by 80 percent and particulate matter by 90

percent. Additionally, these engines use as much as 37 percent

less fuel compared to current older switching locomotives. UP’s

commitment to, and operation of, the Genset resulted in the

company earning the 2008 CALSTART Blue Sky Merit Award. This

award recognizes outstanding contributions to clean air, energy

effi ciency and a cleaner transportation industry overall. Union

Pacifi c also partnered with the EPA on one-of-a-kind fi eld testing

to reduce emissions on older road and switch locomotives.

Safety and the Environment

Did you know...?

Trains are almost four times more fuel •

effi cient than trucks on a ton-mile basis.

If just 10 percent of the freight moved by •

highway were diverted to rail, the nation

could save as much as 1 billion gallons of

fuel annually.

Fuel effi ciency for U.S. railroads has •

increased by 86 percent since 1980.

One double-stack train can take up to •

300 trucks off congested highways.

Union Pacifi c has a comprehensive waste reduction and

recycling program that touches nearly every part of the Company.

Concerted efforts are made to address high-volume items such

as wooden track ties and used oil. When possible, wooden track

ties are refurbished for use elsewhere on the UP system or sold to

contractors. UP is also installing more concrete ties, which require

lower maintenance and generate less waste than wooden ties.

10

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Union Pacifi c’s vast network requires large capital commitments

each year in order to ensure and enhance operational safety,

expand capacity to meet the transportation needs of current and

future customers and improve operational effi ciency. Capital

investments include the replacement and improvement of track

and facilities, and the acquisition of new locomotives and freight

cars. In 2008, UP’s total capital investments were $3.1 billion,

including cash spending of $2.8 billion. The Company’s capital

can be broadly classifi ed into two categories: replacement capital

and growth capital. Replacement capital is spending required to

improve safety or replace current infrastructure, such as track,

facilities and equipment. Growth capital is targeted at future

needs of the Company and its customers, supporting both volume

expansion and effi ciency. Equipment acquisitions are included

within both of these capital categories. New equipment is needed

to add capacity to the network as well as to replace older, less

effi cient assets.

Replacement Capital

The Company spent approximately $1.7 billion replacing track

and facilities under its engineering replacement program in 2008.

This program included the installation of nearly 4.1 million ties

and 694 track miles of rail, providing safe and fl uid operations

and increasing network effi ciency through capital investments.

All together, UP spent approximately $2.2 billion in 2008 on

replacement capital.

In 2009, Union Pacifi c expects to spend around $1.7 billion in

engineering replacement, installing nearly 4.4 million ties and

over 850 track miles of rail. Additionally, the Company plans to

acquire 125 high-horsepower locomotives during the year. The

locomotives represent the fi nal tranche of a three-year purchasing

contract, and will replace older units that are at the end of their

useful life. Total replacement capital spending for 2009 should

approximate $2.1 billion.

Growth Capital

Union Pacifi c spent approximately $900 million on growth capital

in 2008. One of the Company’s key routes is the Sunset Corridor,

which runs between Los Angeles, CA and El Paso, TX. This heavily

traveled corridor carries about 20 percent of all traffi c operated by

the Railroad. UP added 45 miles of double track to the corridor in

Investing in Our Future

Capital Spending($ Billions)

2008, making it approximately 60 percent double tracked at year

end. Given the signifi cant decline in traffi c volume in late 2008

and early 2009, the Company scaled back the project spending.

Only 11 miles are scheduled for completion in 2009. During 2008,

a new intermodal facility at San Antonio, TX opened, and the

Company acquired property for the construction of an intermodal

facility in Joliet, IL.

An important part of Union Pacifi c’s franchise is its access to

the SPRB coal fi elds of northeastern Wyoming through a joint

line, which UP owns with the BNSF (the Joint Line). In 2007 the

fi nal sections of the Joint Line were triple tracked, and capacity

expansion continued in 2008 with 20 miles of quadruple track

added. Ten miles of triple track were also added to UP’s line into

the SPRB during 2008, and an additional 8 miles are scheduled

for 2009.

The Company also spent approximately $105 million on

technology to support growth during the year. Upgrades to

telecommunications and mainframe software systems, a new crew

dispatching system and advancement of positive train control were

the major technology spending initiatives in 2008.

In 2009, Union Pacifi c expects to spend approximately $500

million for growth capital. Capacity expansion on the Overland

Route, which runs between Oakland, CA and Chicago, IL, and the

Sunset Corridor is expected to continue during the year. Further

progress is anticipated on the Joliet, IL intermodal facility, and

technology spending is planned to upgrade information technology

systems and continue testing new operational technology such as

positive train control.

11

Track and Terminal Density

2008 Terminal Volumes

Major Classifi cation Yards Average Daily Volume/Cars

North Platte, Nebraska 2,500

North Little Rock, Arkansas 1,600

Proviso (Chicago), Illinois 1,500

Englewood (Houston), Texas 1,300

Fort Worth, Texas 1,300

Roseville, California 1,300

Livonia, Louisiana 1,200

West Colton, California 1,200

Pine Bluff, Arkansas 1,200

Neff (Kansas City), Missouri 1,000

Major Intermodal Terminals Annual Lifts

ICTF (Los Angeles), California 619,000

East Los Angeles, California 383,000

Marion (Memphis), Tennessee 360,000

Global 2 (Chicago), Illinois 299,000

Dallas, Texas 294,000

Global 1 (Chicago), Illinois 291,000

Seattle, Washington 228,000

Yard Center (Chicago), Illinois 227,000

Oakland, California 222,000

Englewood (Houston), Texas 207,000

Lane density based on carloadingsLine thickness depicts traffi c density

12

Railroads are very asset-intensive businesses, so economic

downturns and associated volume declines put effi ciency at the

forefront.

Cost Structure

In 2008, Union Pacifi c’s operating expenses totaled $13.9 billion,

with fuel and compensation comprising more than 60 percent of

the total. Approximately 30 percent of the total costs are linked to

quarterly volume changes. Expenses for train crews, locomotive

fuel and some short-term equipment costs fl uctuate directly

with business levels. In addition, changes in fuel prices impact

expenses, especially since the Railroad does not recover 100

percent of its annual fuel costs through surcharges and other cost

recovery mechanisms.

The Company’s costs that vary with volume increase to

approximately 50 percent of the total over a period of several

quarters. However, the key to expanding from 30 to 50 percent is

visibility with respect to future business levels. In an environment

of sustained lower volumes, the Railroad requires less mechanical

and engineering work, equipment and staff. Longer-term, over a

number of years, costs can be even more variable as the business

is sized to match volume levels.

Expense Initiatives

Resource Management

UP’s resources must be adequate to meet volume demand. In

2004, the Company experienced more demand than capacity.

Today the other extreme is seen - excess capacity. Although the

fi xed network is sized to handle roughly 200,000 weekly carloads,

fi rst quarter 2009 demand levels resulted in approximately

146,000 weekly carloads.

As volumes remain soft, the Company is acting aggressively to

align its resources with current demand levels by furloughing

employees and storing locomotives and freight cars. These idle

resources position Union Pacifi c to effi ciently handle the volumes

when freight demand recovers.

Management of train operations improved over the past several

years through continued implementation of the Unifi ed Plan

to simplify the network. The management of train crews also

changed. Limiting crew miles and staffi ng “cutback” engineers

allows more trains to run with the existing crew base, and provides

extra personnel trained as engineers to be available for immediate

use as volumes increase.

Ongoing cost reduction action must be taken while still protecting

service commitments. Excellent service is the key to entering

new, truck-competitive markets and increasing the value of rail

transportation for customers.

Project Operating Ratio

Project Operating Ratio (Project OR) is part of Union Pacifi c’s

ongoing effi ciency improvement efforts. This corporate-wide

initiative seeks to increase effi ciency, effectiveness and safety.

Project OR is helping the Railroad manage through the current

economic challenges, while positioning it for the long term.

Union Pacifi c employees use the principles of Project OR to

focus on driving higher returns. Employees are making changes to

improve overall effi ciency and effectiveness, and these changes

are expected to yield benefi ts for the Company now and in the

future.

2008 Operating Expenses

Short-Term Variable (�30% of Expenses)- Train Crews- Locomotive Fuel- Equipment Rents

Long-Term Variable (Increases to �50%)- Mechanical & Engineering Expense- Equipment Rents- Workforce Levels

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13

Commodity Profi le

Agricultural transportation, including whole grains, commodities

produced from these grains, and food and beverage products,

provided 18 percent of the Railroad’s 2008 freight revenue. With

access to most major grain markets, Union Pacifi c provides a

critical link between the Midwest and western producing areas

and export terminals in the PNW and Gulf Coast ports, as well as

Mexico. Unit shuttle trains transport a single commodity effi ciently

between producers and export terminals or domestic markets.

UP also serves signifi cant domestic markets, including grain

processors, animal feeders and ethanol producers in the Midwest,

West, South and Rocky Mountain states.

Union Pacifi c owns and operates the largest refrigerated boxcar

fl eet in the industry, providing a competitive advantage that

leverages the Company’s unique franchise. Produce Railexpress

and Express Lane are UP’s premium perishables service offerings.

Produce Railexpress carries fresh produce from the West Coast

to New York. Express Lane moves dairy products, canned goods,

wine, frozen foods and some fresh produce from the West

Coast to destinations in the East and Southeast. California and

Washington, the states directly served by these services, produce

over 60 percent of the nation’s fresh fruits and vegetables.

Additionally, the Railroad transports frozen meat and poultry from

the Midwest and Mid-South to the West Coast for export.

Through alliances with other railroads, UP considers Canada and

Mexico important extensions of its domestic markets. Southbound

shipments of feed grains, wheat, soybean meal, DDGS and rice

comprise nearly 70 percent of Agricultural carloads to and from

Agricultural

Mexico. Shipments of beer account for most of the northbound

traffi c into the U.S.

2009 Market Drivers

Agricultural Products reported record revenue in 2008. Volumes

are expected to be lower in 2009 due to weaker export demand,

reduced animal feeding and less soybean processing.

Weaker U.S. and world economies, and more abundant non-U.S.

grain supplies softened the demand for food and bio-fuel based

goods produced in the U.S. Livestock inventories for the fi rst

quarter of 2009 were about 5 percent below the same period last

year. This reduction translates into less animal feeding of corn and

other protein-based feeds such as soybean meal.

Through March 2009, export corn sales for the fi rst seven

months of the 2008/2009 crop year came in 34 percent below

last year’s levels. Export wheat sales for the fi rst ten months of

the 2008/2009 crop year declined 23 percent year-over-year.

Although export soybeans for the fi rst seven months of the

2008/2009 crop year were 10 percent higher than last year,

soybean crushing for the fi rst six months of the 2008/2009 crop

year was 10 percent below the same period last year. The USDA

expects soybean crush to fi nish the 2008/2009 crop year down

9 percent from last year. At the same time, the overall UDSA

agricultural outlook calls for improved conditions in the last half

of 2009, and U.S. grain production is the key variable behind this

Agricultural Line Density Map

2008 Carloads

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14

Paul Hammes,VP & GM Agricultural

How has your team adjusted to the current economic situation?

Agricultural demand in the fi rst quarter of 2009 has been weak. Animal feeding, grain exports, soybean processing and ethanol production levels are all below industry projections. However, demand for these commodities should begin to increase in the last half of 2009. The key variable for 2009 is the number of acres of corn, soybeans and wheat that are planted, as well as the growing conditions. Union Pacifi c has adjusted to these lower volumes with improved service and resource availability, allowing us to secure additional refrigerated business for both meat exports and U.S. produce markets.

What is the biggest opportunity in your business group over the next 2 to 3 years?

Future opportunities will include continued development of our infrastructure to support ethanol production and growth in our Produce Railexpress Unit Train service. Corn-based ethanol demand should grow another 4.5 billion gallons per year (up 42 percent) by 2015 due to the government mandate. A good portion of the new demand will come from California and Texas. In 2010, when California extends its ethanol mandate from 5 to 10 percent, Union Pacifi c expects to see additional opportunities to supply corn to existing forward ethanol plants. These plants produce ethanol closer to consumption areas and account for more than 300 million gallons of annual production capacity. The Produce Railexpress service continues to build momentum in the produce markets of Washington and California while increasing its demand base into the Northeast. This consistent and truck-competitive service makes it a very viable product with strong growth potential.

Agricultural

expectation. While overall production levels in 2009 are projected

to be lower than 2008, the results should depict a more normal

year for grain volumes.

Ethanol is expected to deliver continued year-over-year volume

growth for Union Pacifi c. However, as the market begins to

mature, the annual growth rate should slow. As of March 2009, the

annualized rate of ethanol blending was about 5 percent below the

mandated levels of The Energy Independence and Security Act of

2007. As with grain markets, ethanol volumes are forecasted to

increase in the latter part of 2009.

Amid some of the overall economic uncertainty, the refrigerated

markets show opportunity. The Produce Railexpress service should

continue to grow in 2009, with a second California train starting.

Additional opportunities to transport frozen meat for export as well

as domestic produce are also anticipated.

Annual Summary by Quarter - Agricultural

2008 2007 2006



756 778 848 792 3,174 611 605 670 719 2,605 558 562 595 670 2,385


22,485 22,111 22,431 21,560 88,588 19,249 18,935 20,613 21,735 80,532 20,085 19,756 19,793 21,378 81,012


240 236 243 228 947 219 212 232 239 902 234 225 227 237 923


3,151 3,301 3,486 3,472 3,352 2,793 2,855 2,888 3,006 2,888 2,386 2,494 2,626 2,825 2,584

15

Commodity Profi le

Shipments of fi nished vehicles and automotive parts and materials

generated 8 percent of Union Pacifi c’s 2008 freight revenue.

Finished vehicles accounted for 77 percent of this revenue,

with the remaining 23 percent coming from the movement of

automotive parts and materials.

Union Pacifi c’s franchise provides excellent accessibility to all

major markets west of the Mississippi River for delivery of fi nished

vehicles to the manufacturers’ dealer networks. UP continues

to be the largest automotive carrier in the western U.S., directly

serving six vehicle assembly plants. Service is also provided to

38 automotive distribution facilities directly or through short line

railroads. Additionally, connections to six West Coast ports and

the Port of Houston accommodate both imported vehicles and

vehicles moving to and from Hawaii and Alaska. Union Pacifi c

also receives and delivers a signifi cant number of vehicles through

interchange with railroads in Mexico, Canada and the U.S.

U.S. new light vehicle sales declined to 13.2 million vehicles in

2008, down 18 percent from 2007 levels. North American light

vehicle production for the year was down 16 percent to 13.0

million units. UP’s fi nished vehicle shipment revenue declined

11 percent while carloads were off nearly 23 percent in 2008.

Although auto parts and materials volume decreased 13 percent

from 2007, pricing actions and increased fuel surcharges

increased revenue by 3 percent year-over-year.

Automotive

Union Pacifi c handled more than 75 percent of the automotive

carload business in the western U.S. in each of the last two

years. Changing dynamics among manufacturers in the industry is

expected to affect fi nished vehicle shipments as the manufacturers

work to keep or gain market share. The Domestic Big Three

incurred a market share loss during 2008. Collectively they hold

about 48 percent of the new light vehicle market share in the U.S.

Toyota, Nissan and other non-Detroit manufacturers have domestic

manufacturing capabilities and import a signifi cant number of

vehicles via West Coast ports. Union Pacifi c faces competition

from trucks for the fi nished vehicles imported through the West

Coast and destined for western automotive dealerships.

Nearly 44 percent of UP’s automotive shipments move either to

or from Mexico. This amount includes fi nished vehicle carloads as

well as parts and materials moving in intermodal or boxcar service.

Union Pacifi c handles more than 85 percent of all automotive

traffi c into and out of Mexico. During 2008, Mexico parts and

materials shipments decreased 10 percent while fi nished vehicle

moves decreased 8 percent.

UP launched new product offerings in 2008 with the new Unilevel

and AutoMax cars. The Unilevel railcars are designed to effi ciently

handle oversize products, while the AutoMax can convert from a

tri-level to a bi-level confi guration. The AutoMax’s ability to handle

different vehicle sizes positions Union Pacifi c to support future

vehicle market trends. Also, the Railroad introduced a long-term

vehicle storage program to help alleviate customers’ accumulating

inventory issues in today’s challenging market.

Automotive Line Density Map

2008 Carloads

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16

Julie Krehbiel,VP & GM Automotive


Although economic conditions are affecting automotive carloads, UP is well-positioned over the long term with a broad base of customers. With a signifi cantly weakened economy, it is very important to strengthen the automotive service network by improving transit times, ensuring consistency, and incorporating transportation effi ciencies into the delivered product. In 2008, gateway changes were made and product was shifted to more strategically placed auto ramps. The Railroad also leveraged its intermodal network to maintain customer service despite lower volumes. In addition, the fi rst ever interline co-load capability was launched with the Norfolk Southern (NS) by loading Chrysler and Ford vehicles together on the same railcars. This approach allows the original equipment manufacturers to reduce vehicle dwell time at the load and unload facilities. In fact, the Ford-Chrysler interline move is yielding a 20 percent reduction in origin dwell time. These efforts improve the Company’s economics and benefi ts customers as well.


Many of UP’s opportunities are for organic growth associated with the existing traffi c base. The Railroad holds a market share of more than 75 percent of all vehicles moving in the western U.S by rail. Our unparalleled automotive ramp network, including facilities in six of the top ten fastest growing U.S. states, is expected to facilitate market growth once the overall industry rebounds. Parts opportunities continue as production parts convert from over-the-road to intermodal and boxcar rail service. Union Pacifi c is also looking at non-traditional markets such as service parts, mini-cars and European manufacturers. We reallocated sales resources in late 2008 to focus on these areas as well as production parts, to offset the current vehicle market weakness. The co-load capability launched in 2008 is expected to facilitate expansion of our footprint in the used car arena through joint efforts with Insight Network Transportation, a UP subsidiary and used car transportation broker. For the long term, we also see signifi cant opportunities associated with vehicles assembled in China and India. We are positioning our network accordingly by aligning with key steamship lines, ports and transportation partners.

Automotive

2009 Market Drivers

U.S. light vehicle sales are expected to decline in 2009, continuing

a trend that began in 2005. Further, manufacturers’ extended

plant shutdowns and shift reductions are negatively impacting

production volumes. UP is primarily a destination hauler of fi nished

vehicles and has a diverse customer base that includes import

and transplant manufacturers, which helps mitigate the effects of

lower Domestic Big Three vehicle sales. Additionally, the Railroad

is engaged in monitoring the development of distribution plans for

imports from China and India. The Company is implementing an

active sales strategy for China to handle the expected import parts

and vehicle volume.

Participation by Chrysler and General Motors in the Troubled

Asset Relief Program (TARP) may have indirect consequences

for UP. Failure under this program could result in bankruptcy or

corporate restructuring. However, success may allow for the

continuation of current relationships and contracts, and, therefore,

Union Pacifi c is closely monitoring these matters.

Traffi c to and from Mexico is also expected to decline as the

fi nancial turmoil impacts the global economy. Shipping fi rms

continue to look for opportunities to improve asset utilization. UP is

seeking to develop import business which would access rail from

West Coast ports, bypassing the Panama Canal and subsequent

East Coast port originations.

UP is making infrastructure improvements across its system to

handle profi table traffi c growth. Improvements at Portland, OR,

Houston, TX, and Chicago, IL are directed at the automotive

business. Also, continued implementation of the vehicle inventory

dwell system will help ensure a high level of inventory accuracy

and effi cient asset utilization.

The Railroad capitalizes on its strong interline carrier alliances to

secure opportunities for automotive parts and materials. These

opportunities include boxcar direct and moves bundled with cross

dock truck-to-rail and rail-to-truck shipments.

Additional growth opportunities exist with the Railroad

subsidiaries: Insight Network Logistics, Insight Network Transport

and Union Pacifi c Distribution Services (UPDS). These companies

offer supply chain logistic services for major automotive

manufacturers. Insight Network Transport is making inroads into

the used car remarketing area by providing management and

coordination services for vehicle auction companies and rental car

fi rms. Marketed jointly with UP’s rail services, these subsidiaries

can assist manufacturers in meeting customers’ changing

inventory needs and provide continued growth opportunities. In

fact, 2008 revenue in this area was up 20 percent from 2007, and

this growth trend is expected to continue in 2009 and beyond.

17

Automotive Facilities and Assembly Centers

Annual Summary by Quarter - Automotive

2008 2007 2006



363 352 324 305 1,344 354 387 348 369 1,458 358 390 325 354 1,427


3,890 3,646 3,278 3,169 13,983 4,330 4,685 4,250 4,217 17,482 4,661 4,994 4,143 4,521 18,319


188 176 153 150 667 201 221 201 203 826 210 225 191 208 834


1,930 2,005 2,114 2,040 2,017 1,759 1,754 1,729 1,823 1,766 1,705 1,737 1,697 1,698 1,710

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18

Commodity Profi le

Transporting chemicals provided 15 percent of Union Pacifi c’s

freight revenue in 2008. The Railroad’s franchise enables it to

serve the large chemical megaplex along the Gulf Coast, as

roughly two-thirds of the Company’s chemical business originates,

terminates or travels through this area. UP’s chemical franchise

also accesses chemical producers in the Rocky Mountains and on

the West Coast. The Company classifi es chemical shipments into

three broad categories: Petrochemicals, Fertilizer and Soda Ash.

Petrochemicals includes liquid and dry chemicals, plastics,

petroleum and liquid petroleum products, making up two-thirds

of UP’s chemical business. These products move primarily to and

from the Gulf Coast region. Barges, pipelines, and to a lesser

extent trucks, provide transportation alternatives for some of these

commodities.

The liquid and dry market consists of several dozen segments

of basic, intermediate and specialty chemicals produced by, and

shipped to, large and small customers. Strong demand from

industrial manufacturers is key to this market segment. Plastics

shipments support many vital sectors of the U.S. economy,

including the automotive, housing, and durable and disposable

consumer goods markets. UP is an important link in the plastics

supply-chain through its ownership and operation of storage-

in-transit (SIT) facilities. Plastics customers utilize railroad SIT

yards for intermediate storage of their plastic resins, and UP’s SIT

capacity exceeds that of any other railroad.

Chemicals

In 2008, strong pricing and increased fuel surcharges drove UP’s

petrochemicals’ average revenue per car up 14 percent, while

volume declined 8 percent year-over-year. Weak market conditions

and business interruptions resulting from Hurricanes Gustav and

Ike contributed to lower shipments.

Fertilizer movements originate in the Gulf Coast region, the

western part of the U.S. and Canada. Shipments are bound for

major agricultural users in the Midwest, western U.S. and abroad.

Fertilizer accounted for 21 percent of the Railroad’s chemical

business in 2008. In the fi rst three quarters of 2008, export potash

shipments through the Pacifi c Northwest and a robust planting

season for corn drove strong demand. A late fall harvest and

collapsing commodity prices in the fourth quarter partially offset

this strength. Volume for the year fi nished up 2 percent, while

strong price and increased fuel surcharges resulted in average

revenue per car growth of more than 15 percent year-over-year.

Soda ash represented 13 percent of chemical business in 2008.

Shipments of this product originate in southwestern Wyoming

and California for delivery to chemical and glass producing

markets in North America and abroad. UP directly serves Green

River, Wyoming, the world’s largest natural soda ash reserve

and producing region. During 2008, strength in export soda ash

demand offset softness in the domestic automotive and housing

production markets. In total, volume for the year was up a modest

1 percent over 2007.

Chemicals Line Density Map

2008 Carloads

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199

Diane Duren,VP & GM Chemicals


The team continues to deliver and look for additional opportunities to provide value for our customers. Over the last several years our customers have expressed satisfaction with our service. As we pursue new opportunities, it is imperative we continue meeting customer expectations through responsiveness and delivering the high quality service our customers depend on. This is particularly important as we make adjustments to our transportation plan in response to fl uctuating volumes. The Chemical team is actively working with the Operating department to evaluate proposed service changes and communicate them to our customers prior to implementation. We want to ensure that as Union Pacifi c adjusts to the changing business environment, we do so in a way that maintains service quality.


Over the next three years we expect further rationalization of North American chemical production, and continued development of international import and export markets. Many of the major chemical producers in North America are consolidating operations into the Gulf Coast region. Union Pacifi c’s chemical franchise is positioned to capitalize on these new business opportunities. Our ongoing investment in rail infrastructure throughout this region, as well as in other parts of the network, ensures our ability to support future growth.

Additionally, we are focused on designing services that address existing and emerging markets. By doing so, Union Pacifi c expects to effi ciently handle customer volumes when markets recover. Beyond that, we are working closely with our customers to identify supply chain effi ciencies that support long-term global competitiveness. One such example is investment in the soda ash market infrastructure at Green River, Wyoming.

Chemicals

2009 Market Drivers

The current state of the North American and global economy

presents signifi cant challenges for the plastics, liquid and dry

chemicals, and soda ash segments of the chemicals industry.

Production curtailment at major petrochemical facilities due to

reduced industrial demand and consumer spending is expected

to continue. Export demand for polyethylene and polypropylene

will likely remain low as UP expects world production to increase.

Shipments of domestic soda ash will continue to mirror demand

in the building and automotive markets. Demand for export soda

ash remains dependent on the global economy and rational global

sourcing.

More positively, sectors of the chemicals business related to

agriculture and energy are less impacted by the economic

slowdown and hold some promise for 2009. Strong corn

plantings, global demand for food and local fertilizer inventories

should drive volumes.

Overall, the widespread reduction of North American demand

across virtually all sectors of the economy directly affects chemical

producers. Companies are consolidating production from older,

less effi cient and geographically dispersed locations to more

effi cient mega-production facilities in the Gulf Coast. UP will seek

to capitalize on these market dynamics by continuing to deliver

on service and promoting the durability and strength of its value

proposition in this region.

Annual Summary by Quarter - Chemicals

2008 2007 2006



603 654 659 578 2,494 544 574 586 583 2,287 496 532 536 520 2,084


13,939 14,559 13,668 12,641 54,808 14,044 14,406 14,107 13,964 56,521 14,037 14,583 13,927 13,371 55,918


225 241 224 195 885 224 239 238 227 928 218 234 228 216 896


2,676 2,714 2,951 2,957 2,818 2,430 2,395 2,469 2,564 2,464 2,280 2,265 2,351 2,414 2,326

20

Commodity Profi le

Coal and petroleum coke transportation accounted for 22 percent

of Union Pacifi c’s freight revenue in 2008, the largest share of

revenue among UP’s six business teams. The Railroad’s franchise

supports the transportation of coal and coke to utilities, industrial

facilities, interchange points and water terminals. The water

terminals support shipments to eastern utilities located on the

Mississippi and Ohio Rivers and the Great Lakes. Union Pacifi c

also utilizes the same river network to support export coal to

Europe, along with the West Coast ports to support export coal to

Asia.

SPRB coal is the largest segment in UP’s energy business. In

2008, SPRB carloadings totaled 74 percent of UP-originated

coal volumes. The Railroad also moves high-BTU (British Thermal

Units), low sulfur bituminous coal from Colorado and Utah to

domestic utilities and industries. For 2008, Colorado/Utah coal

traffi c represented 16 percent of total coal volumes. The remaining

coal loadings originated in southern Wyoming’s Hanna Basin and

southern Illinois, and also included SPRB coal forwarded to UP

from another carrier.

Demand for coal held up throughout 2008, as domestic strength

and continued conversion to western coal was supplemented by

increased international demand for western U.S. bituminous coal.

Overall, coal carloadings were up 2 percent year-over-year. The

year began with a robust 6 percent fi rst quarter volume increase

fueled by strong demand and supply chain performance. Despite

heavy rain and SPRB mine fl ooding in May and widespread

Energy

Midwestern fl ooding in June, second quarter volume grew 2

percent. Although lingering effects of the Midwest fl ooding

continued into the third quarter, volume still rose 3 percent over

the prior year. Fourth quarter volume slipped 1 percent due

primarily to Colorado/Utah production problems.

With an emphasis on productivity initiatives, SPRB average train

size increased more than 1 percent to a record 15,488 tons per

train during 2008. An increase in average tons per car, as well

as a one-car increase in train length, drove the improvement. The

train length improvement was aided by track expansions at select

utilities to accommodate longer trains and improved North Platte

terminal operations in consistently fulfi lling train length targets.

UP set numerous volume records out of the SPRB in 2008.

Most notably, an all-time train loading record was set in August

with 1,190 trains. Between July and December, more than 1,100

coal trains were loaded each month. In addition to the train size

increase, SPRB annual records were established for trains

(13,212), tons (204.6 million) and carloads (1.73 million).

Colorado/Utah volume dipped 4 percent from 2007 levels due

largely to mine production and coal quality issues. These issues

included numerous longwall moves, high methane gas levels,

signifi cant geological shifts, poor coal quality caused by excessive

rock intrusions, and production delays caused by regulatory

safety concerns. However, in spite of these challenges, UP still

Energy Line Density Map

2008 Carloads

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21

Doug Glass,VP & GM Energy


While the current economic environment has affected coal traffi c levels less than other commodity lines, most industry veterans view this recession as one of the worst in recent memory. Lower industrial activity and some residential conservation reduced demand for electrical power in the fi rst quarter of 2009. However, Union Pacifi c still sees the long-term potential for conversion to western coal by power plants east of the Mississippi River. Additionally, higher BTU Colorado/Utah coal made inroads into the Central and Southeastern energy markets in late 2008 as eastern coal was being exported overseas. UP will continue to serve these markets under multi-year agreements even as changes in global demand reduced U.S. export coal business.

Velocity improvements over the last year strengthened the coal supply chain. Many utility customers added coal unloading capacity or increased trackage to accommodate larger trains and further improve coal deliveries. Customers continue to modernize their coal fl eets with all-aluminum railcars to increase carrying capacity and effi ciency. Additionally, the Railroad is implementing new technology to provide more precise train arrival and departure information to utilities. Incremental rail/barge capacity is also being built along the Mississippi River, which will benefi t interchange business with CSX and NS. Furthermore, this capacity will enable the Railroad to successfully meet the strong demand anticipated for western coal when the economy recovers.


Repricing expiring legacy contracts at levels that support reinvestment in the railroad’s energy business represents the largest single fi nancial opportunity over the next 2 to 3 years. Contracts for over 15 percent of the Railroad’s coal business will expire by the end of 2011.

On the business development side, eight new coal plants are under construction in Union Pacifi c’s territory, with four new plants recently completed and fi ve plants under development. Some of the proposed plants would use advanced carbon capture technology and set new standards for power plant construction. In fact, the CO2 environmental footprint of these plants is projected to be at, or better than, a natural gas fi red plant. The captured CO2 at these plants could be used in secondary oil recovery or eventually sequestered in safe, underground caverns. Additionally, these new plants could yield business opportunities beyond coal, such as the inbound transportation of the chemicals used to reduce NOX and SOX emissions, and the outbound movement of the captured CO2.

Energy

established train size productivity records in 2008 for tons per

train (10,989), tons per car (110.5), and cars per train (99.4).

The largest volume of UP’s petroleum coke traffi c originates on the

Gulf Coast. Other key areas include Oklahoma, Kansas, Wyoming

and California. Shipments are transported to destinations such

as Texas, California and Louisiana. Petroleum coke is a source of

high sulfur fuel for electricity generation, and is used by industrial

customers in the production of aluminum, steel and cement. The

decline in overall industrial production, particularly in the cement

industry, caused coke shipments to decrease 6 percent versus

2007, while average revenue per car increased 17 percent.

Powder River Basin (PRB) Economic Advantage

On a cost per million BTU basis, the PRB consistently remains a

low cost energy alternative in North America. Among the domestic

coal regions, PRB coal is about one-third as expensive as eastern

options and is equal to Rocky Mountain coal for the lowest sulfur

content. PRB coal competes with natural gas prices as low as

$3.25 per million BTU in most markets.

2009 Market Drivers

Reaching last year’s record-setting volume performance is not

expected in 2009. Strong supply chain performance in 2008,

along with greatly reduced electrical demand associated with

the recession, has contributed to above normal coal inventories

entering 2009. Manufacturing plant closings in the automobile

and aluminum industries lowered industrial electrical demand,

while conservation and an increase in foreclosures and vacant

homes reduced residential electricity demand. Additionally, despite

success in legacy contract renegotiations in 2008, some SPRB

business shifted away from UP.

22

Coal-Fired Units Under Construction

Annual Summary by Quarter - Energy

2008 2007 2006



857 919 1,051 983 3,810 731 761 824 818 3,134 697 729 766 757 2,949


63,334 61,748 67,887 65,393 258,362 60,005 60,657 65,133 65,613 251,408 60,075 62,426 62,982 63,669 249,152


582 561 615 590 2,348 551 551 600 597 2,299 550 575 584 587 2,296


1,473 1,639 1,709 1,664 1,622 1,326 1,381 1,374 1,368 1,363 1,266 1,268 1,312 1,291 1,285

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23

Commodity Profi le

The Railroad’s extensive network enables the Industrial Products

group to move numerous commodities between thousands of

shippers and customers throughout North America. In 2008,

Industrial Products provided 19 percent of Union Pacifi c’s total

freight revenue.

Lumber shipments originate primarily in the PNW and Canada

for destinations throughout the U.S. for new home construction

and repair and remodeling markets. Commercial and highway

construction drive shipments of steel and construction products,

consisting of rock, cement and roofi ng. Shipments of paper and

consumer goods, including furniture and appliances, move to

major metropolitan areas for consumers. Industrial manufacturing

plants receive shipments of nonferrous metals and industrial

minerals. In addition, the Railroad provides effi cient and safe

transportation for government entities and waste companies.

Demand is driven by macro-economic factors such as industrial

production and housing starts. In 2008, U.S. industrial production

declined 2 percent and housing starts fell 33 percent, contributing

to a 6 percent decrease in carloads for the Industrial Products

group. Pricing actions and fuel surcharges increased average

revenue per car growth by 13 percent for the year, more than

offsetting volume declines. As a result, Industrial Products revenue

increased 6 percent in 2008.

Industrial Products

Fewer housing starts, surplus production and general market

uncertainty drove weak lumber volumes in 2008. Lumber

carloadings decreased by 26 percent and revenue fell by 15

percent year-over-year.

Steel and scrap steel carloadings increased 8 percent in 2008

versus 2007, due to domestic market strength. Specifi cally,

international prices exceeded domestic, in part due to the weak

U.S. dollar, and service centers restocked from low inventory

levels. Price increases and fuel surcharges drove a 22 percent

revenue increase year-over-year.

Soft residential, commercial and highway construction reduced

stone volume by 6 percent in 2008 versus 2007. However, price

increases and fuel surcharges yielded a 4 percent increase in total

revenue.

Volumes of non-metallic minerals grew in 2008. Increases in

natural gas drilling activity presented business opportunities in

fracturing sand (frac sand) and barite, driving a 6 percent increase

in non-metallic mineral volume. Price and fuel surcharges pushed

average revenue per car up 15 percent, resulting in revenue

growth of 21 percent.

Industrial Products Line Density Map

2008 Carloads

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24

Eric Butler,VP & GM Industrial Products


We are aggressively designing new products and prospecting with non-traditional and even non-direct rail served customers using our UPDS based network extension strategy. While there is clearly signifi cant softness in our core businesses of lumber, steel and aggregates, we are seeing growth in our emerging markets businesses, such as wind energy components.


It is diffi cult to see the end of the current economic downturn. However, we believe that in the next 2 to 3 years, all of our major markets will be operating at more normal volumes, indicative of typical economic activity. Additionally, UP’s record-setting customer service levels and the favorable economics of rail are expected to yield growth opportunities in both new and existing markets.

Industrial Products

2009 Market Drivers

With housing starts expected to decline somewhat from already

low levels and reduced overall economic activity impacting many of

the markets, Industrial Products faces an uphill battle. Weakness

in autos, housing, and residential, commercial, and highway

construction, as well as tight credit, reduced consumer spending

and the strengthening U.S. dollar are expected to adversely impact

markets such as lumber, stone, cement, sheet and structural steel,

ferrous scrap, aluminum and appliances.

However, the Railroad recently began the short haul movement of

uranium tailings for the Department of Energy. The arrangement

falls under the Moab Uranium Mill Tailings Remedial Action

(UMTRA) Project. The movement of 16 million tons of tailings

approximately 30 miles to a permanent disposal site in southern

Utah is expected to take several years to complete.

Union Pacifi c is also working with customers, associations and

a variety of state and federal agencies to identify and act upon

any opportunities related to stimulus funding coming from the

American Recovery and Reinvestment Act of 2009.

Annual Summary by Quarter - Industrial Products

2008 2007 2006



773 877 906 717 3,273 741 805 789 742 3,077 762 813 820 740 3,135


17,507 19,138 18,648 15,421 70,714 18,516 19,974 18,908 17,711 75,109 21,740 22,055 20,785 18,428 83,008


304 346 329 270 1,249 318 349 339 319 1,325 365 386 370 325 1,446


2,540 2,537 2,747 2,662 2,620 2,331 2,308 2,327 2,324 2,322 2,084 2,110 2,215 2,273 2,167

25

Commodity Profi le

UP’s Intermodal business represented 18 percent of freight

revenue in 2008, and includes international and domestic

shipments. International business consists of imported container

traffi c that arrives at West Coast ports via ocean carriers for

destinations throughout the United States. Domestic business

includes domestic container and trailer traffi c for intermodal

marketing companies (primarily shipper agents and logistics

companies), as well as truckload carriers. Less-than-truckload and

package carriers with time-sensitive business requirements are

also an important part of domestic shipments.

International imports and exports move in 20, 40 or 45 foot

shipping containers through ports on the West Coast. The majority

of domestic shipments move in 48 or 53 foot containers or trailers

to and from points within the U.S., Canada and Mexico.

Union Pacifi c’s key East/West intermodal lanes run between the

West Coast and Chicago, Texas, and interchange connections to

the eastern U.S. The Company’s key North/South intermodal lanes

operate between Los Angeles and the Pacifi c Northwest, as well

as Chicago and the upper Midwest and points south in Texas and

Mexico. UP accesses all six Mexican gateways and serves most

of the major metropolitan areas in the western two-thirds of the

U.S. Nearly all routes are competitive with other railroads and are

comparable to shipping distances on the highway network.

In 2008, total Intermodal volumes declined 8 percent year-over-

year due to a faltering economy and the related impact on global

Intermodal

shipping. However, pricing actions and fuel surcharges increased

revenue 3 percent. International intermodal revenue grew 4

percent on 11 percent less volume. Domestic intermodal revenue

also grew 4 percent on a volume decline of 3 percent.

Overall, Intermodal average revenue per box increased 13 percent

in 2008. Domestic average revenue per box improved 7 percent

and international shipments increased 17 percent per box.

Legacy contract repricing, ongoing contract escalations and fuel

surcharges drove these increases.

Union Pacifi c continues to offer truck-competitive, priority rail

service in key lanes to encourage the conversion of highway

business to intermodal. During periods of volatile fuel costs,

shippers increasingly look to rail as the cost-competitive alternative

to trucks.

Union Pacifi c’s service continued to improve during 2008,

providing customers consistent and reliable transit. An important

project for Union Pacifi c is the double tracking of the Sunset

Corridor, which ended the year at 60 percent complete. The

added network fl exibility provided by this project improves service,

and the added capacity will support future growth.

Intermodal Line Density Map

2008 Units

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26

John Kaiser,VP & GM Intermodal


We increased our focus on growing the overall intermodal market through truckload conversion. A down economy forces shippers to lower costs, and converting from truck to intermodal helps accomplish this objective.

Union Pacifi c Intermodal continues to add and expand service offerings that provide reliable, truck-competitive and environmentally friendly service. The capital investments made in our intermodal network over the past few years are paying off with best-ever service and reliability metrics. We have recently enhanced our train schedules to provide truck-competitive service between Los Angeles and Chicago, Dallas, Memphis and Seattle. We’ve also added refrigerated service in several lanes.

We are also expanding the number of locations served. We recently opened a new ramp in San Antonio, TX. This intermodal facility enhances our ability to attract highway freight in target markets in Texas, along the Mexican/U.S. border and within the interior of Mexico. Further, we opened a ramp in Tacoma, WA, which positions us to capture business for the large domestic warehouse market in the PNW.


The biggest opportunity over the next few years comes from moving legacy contract volumes to market rates. This pricing opportunity will provide Union Pacifi c with the returns required to continue expanding capacity for future growth. Long-term investments to expand track and terminal capacity serving the Sunset Corridor are expected to allow Union Pacifi c to capitalize on the fast growing markets across the Sunbelt and the Southeast. Continued expansion of trade with Asia and conversion of highway freight are expected to drive long-term growth opportunities.

Intermodal

2009 Market Drivers

The current economic situation is likely to present challenges in

2009. Imports are projected to decrease from 2008, and the

Railroad expects international volume to struggle for most of the

year, with the potential for a slight increase during peak season in

the fourth quarter. On the domestic side, conversions from truck

are expected to drive growth. In both markets UP anticipates

continued pricing opportunities.

The Company is moving forward with service initiatives and capital

expenditures to both support current volumes and provide for

future growth. Network service improvements, additional capacity

projects and close communication with ocean carriers, domestic

shippers and interchange partners enable UP to operate effi ciently

with current volumes.

27

Intermodal Terminals

Annual Summary by Quarter - Intermodal

2008 2007 2006



707 769 842 705 3,023 674 721 773 757 2,925 643 695 747 726 2,811


19,552 19,737 19,875 17,014 76,178 18,994 20,543 21,024 20,232 80,793 18,689 19,630 20,014 19,469 77,802


796 811 834 724 3,165 821 861 912 859 3,453 816 865 909 867 3,457


889 947 1,010 974 955 821 838 846 883 847 789 803 821 838 813

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28

Commodity Profi le

Union Pacifi c’s franchise provides the most effi cient rail route

between markets in Mexico, the U.S. and Canada, serving all

six major gateways to Mexico and connecting directly to the

two largest Mexican railroads. UP exchanges approximately

58 percent of shipments to and from Mexico with Kansas City

Southern de Mexico (KCSM) and the remaining 42 percent with

Ferrocarril Mexicano (Ferromex or FXE). Union Pacifi c has a 26

percent ownership interest in Ferromex. Trucks are the dominant

transportation mode in Mexico’s freight transportation market,

which exceeds $7 billion annually.

The Mexico market includes a broad range of commodities from

raw materials to fi nished goods. Historically, Automotive was the

largest commodity group by both revenue and volume. Although

Automotive is still the largest group by volume, Agricultural

Products generated the most revenue from Mexico traffi c in 2007

and 2008. Union Pacifi c works closely with both Mexican railroads

to capture opportunities created by the North American Free

Trade Agreement (NAFTA). The Mexican railroads continue making

substantial investments in track structure, equipment and facilities

to improve service, equipment utilization, safety and damage

prevention, which ultimately should enable them to capture more

market share from trucks.

In 2008, revenue from shipments to and from Mexico increased 13

percent over 2007 to a record $1.6 billion, refl ecting the impact

of pricing improvements and fuel surcharges. At the same time,

volume decreased 4 percent year-over-year. All business groups

Mexico

reported increased revenue versus 2007. Agricultural Products

revenue grew 14 percent, despite a 2 percent volume decline.

DDGS revenue increased 19 percent with a 2 percent volume

increase. Corn and feed grains revenue increased 13 percent

while volume decreased 1 percent year-over-year. Revenue for

Industrial Products grew 10 percent, driven by volume increases in

metallic minerals and steel, offsetting a 7 percent decline in overall

volume. Automotive revenue increased 7 percent over 2007,

while volumes declined 9 percent. Chemicals revenue grew 10

percent primarily from growth in plastics and liquid/dry chemicals.

Chemicals volume, however, decreased 3 percent. Intermodal

revenue increased 13 percent with volume up 3 percent.

Historically, a majority of UP’s business in this market involved

southbound shipments to Mexico. However, over the last three

years northbound shipments grew due to increased manufacturing

located in Mexico. Northbound shipments now make up about 47

percent of revenue from Mexico operations. The largest volume of

commodities shipped from Mexico in 2008 included assembled

autos and auto parts, beer and food products, intermodal, steel,

cement and consumer goods like appliances. These six commodity

groups represented approximately 94 percent of northbound

revenue. Southbound traffi c from the U.S. to Mexico is much

more diversifi ed. Corn, dry feed ingredients, autos and auto parts,

intermodal, meals and oils, steel and newsprint shipments make

up about 73 percent of southbound revenue with the remainder

spread across the Company’s six commodity groups.

2009 Market Drivers

Union Pacifi c expects that 2009 will be a challenging year

economically both in the U.S. and Mexico. Consequently, volumes

Mexico Line Density Map

2008 Carloads

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29

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Percent of Carloads at Border Crossings

Bernardo Ayala,VP Mexico Markets


Several aspects of UP’s unique franchise should help UP weather the current economic situation. Among them are a strong and experienced sales force strategically based in different areas of Mexico and the U.S., a fl uid and effi cient network and service-oriented processes that deliver high customer satisfaction levels. With these key elements in place, the Company can successfully take on the current challenges, retain its existing customer base and continue growing the business.


Mexico is still a strong target for Foreign Direct Investment. Existing industries are expanding capacity and building new facilities. In addition, the Mexican railroads continue to upgrade and add capacity to the current infrastructure to improve rail traffi c handling. Therefore, as markets develop, UP can leverage its value proposition and service offering to capture new business.

Mexico

for all commodities are expected to decline, especially those tied

to the auto industry. The slowdown in automotive production

is likely to have a negative impact on the chemical business,

specifi cally plastics and similar products. Increased Mexican

consumption of domestic crops and a lower count of animals on

feed should reduce agriculture exports to Mexico. Additionally,

housing market conditions signifi cantly affect volumes of clay,

sands, tile and other construction materials to and from Mexico.

However, UP could experience some positive volume offset in

construction materials later in 2009 due to demand resulting from

stimulus-funded infrastructure projects in the U.S. and Mexico.

While existing economic conditions call for a conservative 2009

outlook, UP remains optimistic about the longer term. Current

strategies focus on new business development and core price

improvement. These strategies, in conjunction with maintaining

an effi cient and fl uid network, support an expectation of retaining

current business and potentially generating growth. Foreign

investment in Mexico is forecast to continue throughout 2009

and the current outlook suggests that markets such as the

“maquiladora” industry, renewable energy, steel and coal should

trend upwards.

Concern about the Mexican political climate is due primarily to

the government’s escalated efforts against drug-related crimes.

However, rail operations across the border remain fl uid. It appears

that the Mexican government will continue waging a strong

campaign against drugs. The U.S. government supports these

efforts, as demonstrated through plans such as the “Merida

Initiative”, which seeks to reduce growing drug traffi cking and other

criminal activities on the two countries’ mutual border.

30

SELECTED FINANCIAL DATA Union Pacifi c Corporation

Millions of dollars, except per share amounts, carloads, employee statistics and ratios

For the year ended December 31, 2008 2007 2006 2005 (a) 2004 (b) Operating revenues (c) $17,970 $16,283 $15,578 $13,578 $12,215 Operating income 4,075 3,375 2,884 1,795 1,295 Net income 2,338 1,855 1,606 1,026 604

Earnings per share - basic (d): 4.58 3.49 2.98 1.95 1.17 Earnings per share - diluted (d): 4.54 3.46 2.95 1.92 1.15 Dividends declared per share (d) 0.98 0.745 0.60 0.60 0.60 Cash provided by operating activities 4,070 3,277 2,880 2,595 2,257

At December 31 Total assets $39,722 $38,033 $36,515 $35,620 $34,596 Debt due after one year 8,607 7,543 6,000 6,760 7,981 Common shareholders’ equity 15,447 15,585 15,312 13,707 12,655 Equity per common share (e) 30.70 29.87 28.34 25.70 24.29

Additonal Data Freight revenues (c) $17,118 $15,486 $14,791 $12,856 $11,575 Revenue carloads (000) 9,261 9,733 9,852 9,544 9,458 Operating margin (%) (f) 22.7 20.7 18.5 13.2 10.6 Operating ratio (%) (f) 77.3 79.3 81.5 86.8 89.4 Employees (average 000) 48.2 50.1 50.7 49.7 48.3 Operating revenues per employee (000) $372.8 $325.0 $307.2 $273.2 $252.9

Financial Ratios (%) Debt to capital (g) 36.6 33.0 30.7 35.1 39.1 Return on average common shareholders’ equity (h) 15.1 12.0 11.1 7.8 4.8

(a) 2005 net income includes a $118 million tax expense reduction to refl ect a reduction in the estimated deferred income tax liability.(b) 2004 operating income and net income includes a $247 million pre-tax ($154 million after-tax) charge for unasserted asbestos-related claims.(c) Includes fuel surcharge revenue which partially offsets increased operating expenses for fuel. 2007 and 2008 fuel surcharge revenue is not comparable to prior periods due to implementation of new mileage-based fuel surcharge programs in each respective year. See 2008 SEC Form 10-K for more information.(d) Earnings per share and dividends have been restated to refl ect the May 28, 2008 stock split.(e) Equity per common share is calculated as follows: common shareholders’ equity divided by common shares issued less treasury shares outstanding. Shares have been adjusted to refl ect the May 28, 2008 stock split.(f) Operating margin is defi ned as operating income divided by operating revenues. Operating ratio is defi ned as operating expenses divided by operating revenues.(g) Debt to capital is determined as follows: total debt divided by total debt plus equity.(h) Return on average common shareholders’ equity is determined as follows: Net income divided by average common shareholders’ equity.

31

CONSOLIDATED STATEMENTS OF INCOMEUnion Pacifi c Corporation

In millions (except per share), (unaudited), for the year ended December 31, 2008 1 2 3 4 Total YearOperating Revenues Freight Revenues $4,059 $4,349 $4,630 $4,080 $17,118 Operating Revenues 211 219 216 206 852 Total Operating Revenues $4,270 $4,568 $4,846 $4,286 $17,970 Operating Expenses Compensation and Benefi ts 1,132 1,101 1,123 1,101 4,457 Fuel 957 1,159 1,135 732 3,983 Purchased Services and Materials 469 494 481 458 1,902 Depreciation 340 346 348 353 1,387 Equipment and Other Rents 342 338 326 320 1,326 Other 242 199 218 181 840 Total Operating Expenses 3,482 3,637 3,631 3,145 13,895 Operating Income 788 931 1,215 1,141 4,075

Other Income - Net 25 19 23 25 92 Interest Expense (126) (128) (130) (127) (511)Income Before Income Taxes 687 822 1,108 1,039 3,656 Income Tax Expense (244) (291) (405) (378) (1,318)Net Income $443 $531 $703 $661 $2,338

Basic Earnings Per Share $0.86 $1.03 $1.39 $1.31 $4.58 Diluted Earnings Per Share $0.85 $1.02 $1.38 $1.31 $4.54

Weighted Average Number of Shares - Basic 518.4 514.3 506.6 503.2 510.6 Weighted Average Number of Shares - Diluted 522.8 519.0 511.3 506.5 515.0

Dividends Declared per Share $0.22 $0.22 $0.27 $0.27 $0.98 Operating Ratio 81.5% 79.6% 74.9% 73.4% 77.3%Effective Tax Rate 35.5% 35.4% 36.6% 36.4% 36.1%

In millions (except per share), (unaudited), for the year ended December 31, 2007 1 2 3 4 Total YearOperating Revenues Freight Revenues $3,655 $3,853 $3,990 $3,988 $15,486 Operating Revenues 194 193 201 209 797 Total Operating Revenues $3,849 $4,046 $4,191 $4,197 $16,283 Operating Expenses Compensation and Benefi ts 1,165 1,145 1,095 1,121 4,526 Fuel 662 753 786 903 3,104 Purchased Services and Materials 443 478 479 456 1,856 Depreciation 325 327 332 337 1,321 Equipment and Other Rents 339 354 342 333 1,368 Other 196 202 152 183 733 Total Operating Expenses 3,130 3,259 3,186 3,333 12,908 Operating Income 719 787 1,005 864 3,375

Other Income - Net 15 36 25 40 116 Interest Expense (113) (120) (124) (125) (482)Income Before Income Taxes 621 703 906 779 3,009 Income Tax Expense (235) (257) (374) (288) (1,154)Net Income 386 446 532 491 1,855Basic Earnings Per Share (a) $0.71 $0.83 $1.01 $0.94 $3.49 Diluted Earnings Per Share (a) $0.71 $0.82 $1.00 $0.93 $3.46

Weighted Average Number of Shares - Basic (a) 541.1 536.4 523.5 523.5 531.9 Weighted Average Number of Shares - Diluted (a) 545.6 541.5 531.4 528.6 536.8

Dividends Declared per Share (a) $0.175 $0.175 $0.175 $0.22 $0.745 Operating Ratio 81.3% 80.5% 76.0% 79.4% 79.3%Effective Tax Rate 37.8% 36.6% 41.3% 37.0% 38.4%

Refer to the Union Pacifi c Corporation 2008 SEC Form 10-K for additional information, including audited fi nancial statements and related footnotes.(a) Earnings per share and dividends have been restated to refl ect the May 28, 2008 stock split. Shares have also been adjusted to refl ect the split.

32

CONSOLIDATED STATEMENTS OF FINANCIAL POSITIONUnion Pacifi c Corporation

In millions of dollars, as of December 31, 2008 2007

Assets Current Assets Cash and Cash Equivalents ............................................................................................. $1,249 $878

Accounts Receivable, Net ................................................................................................ 594 632

Materials and Supplies .................................................................................................... 450 453

Current Deferred Income Taxes ...................................................................................... 276 336

Other Current Assets ....................................................................................................... 244 295

Total Current Assets ............................................................................................................ 2,813 2,594

Investments ............................................................................................................................. 974 923

Properties

Land.................................................................................................................................. 4,861 4,760

Road ................................................................................................................................. 34,348 32,210

Equipment ....................................................................................................................... 7,300 7,308

Other ................................................................................................................................ 1,406 1,376

Total Cost ......................................................................................................................... 47,915 45,654

Accumulated Depreciation ............................................................................................. (12,214) (11,496)

Net Properties ...................................................................................................................... 35,701 34,158 Other Assets ......................................................................................................................... 234 358 Total Assets ........................................................................................................................... $39,722 $38,033

Liabilities and Common Shareholders’ EquityCurrent Liabilities Accounts Payable ............................................................................................................. $629 $732

Accrued Wages and Vacation .......................................................................................... 367 394

Accrued Casualty Costs ................................................................................................... 390 371

Income and Other Taxes ................................................................................................. 207 343

Dividends and Interest .................................................................................................... 328 284

Debt Due Within One Year ............................................................................................. 320 139

Equipment Rents Payable ................................................................................................ 93 103

Other Current Liabilities ................................................................................................. 546 675

Total Current Liabilities ...................................................................................................... 2,880 3,041

Debt Due After One Year................................................................................................. 8,607 7,543

Deferred Income Taxes .................................................................................................... 10,282 10,050

Other Long-Term Liabilities ........................................................................................... 2,506 1,814

Total Liabilities .................................................................................................................... 24,275 22,448

Common Shareholders’ Equity Common Shares, $2.50 par value, 800,000,000 and 500,000,000 authorized;

552,775,812 and 276,162,141 issued;

503,225,705 and 260,869,647 outstanding, respectively ........................................... 1,382 690

Paid-in-surplus ................................................................................................................ 3,949 3,926

Retained Earnings ............................................................................................................ 13,813 12,667

Treasury Stock .................................................................................................................. (2,993) (1,624)

Accumulated Other Comprehensive Loss ...................................................................... (704) (74)

Common Shareholders’ Equity ....................................................................................... 15,447 15,585

Total Liabilities and Common Shareholders’ Equity ................................................. $39,722 $38,033

Refer to the 2008 Union Pacifi c Corporation SEC Form 10-K for additional information.

33

CONSOLIDATED STATEMENTS OF CASH FLOWUnion Pacifi c Corporation

In millions of dollars, for the years ended December 31, 2008 2007Operating Activities Net Income ...................................................................................................................... $2,338 $1,855 Adjustments to Reconcile Net Income to Cash Provided by Operating Activities: Depreciation ................................................................................................................ 1,387 1,321 Deferred Income Taxes and Unrecognized Tax Benefi ts........................................... 547 332 Stock-based Compensation Expense ......................................................................... 65 44 Net Gain from Asset Sales .......................................................................................... (41) (52) Other Operating Activities, Net ................................................................................. 24 (251) Changes in Current Assets and Liabilities, Net ......................................................... (250) 28 Cash Provided by Operating Activities ....................................................................... 4,070 3,277 Investing Activities Capital Investments ......................................................................................................... (2,780) (2,496) Proceeds from Asset Sales ............................................................................................... 93 122 Acquisition of Equipment Pending Financing ............................................................... (388) (621) Proceeds from Sale of Assets Financed ........................................................................... 388 621 Other Investing Activities, Net ........................................................................................ (77) (52) Cash Used in Investing Activities ................................................................................ (2,764) (2,426)Financing Activities Debt Issued ...................................................................................................................... 2,257 1,581 Common Share Repurchases .......................................................................................... (1,609) (1,375) Debt Repaid ..................................................................................................................... (1,208) (792) Dividends Paid ................................................................................................................. (481) (364) Cash Received for Option Excercises .............................................................................. 83 132 Treasury Shares Repurchased for Employee Payroll Taxes ............................................ (28) (61) Excess Tax Benefi ts from Equity Compensation Plans .................................................. 54 76 Other Financing Activities, Net ...................................................................................... (3) 3 Cash Used in Financing Activities ............................................................................... (935) (800)Net Change in Cash and Cash Equivalents ............................................................................ 371 51 Cash and Cash Equivalents at Beginning of Year .................................................................. 878 827Cash and Cash Equivalents at End of Year ......................................................................... $1,249 $878 Changes in Current Assets and Liabilities Accounts Receivable, Net ................................................................................................ $38 $47 Materials and Supplies .................................................................................................... 3 (58) Other Current Assets ....................................................................................................... 51 (104) Accounts Payable and Other Current Liabilities ............................................................ (342) 143 Changes In Current Assets and Liabilities .................................................................. $(250) $28 Supplemental Cash Flow Information Non-Cash Investing and Financing Activities: Capital Lease Financings ................................................................................................. 175 82 Cash Dividends Declared but not yet Paid ..................................................................... 132 112 Capital Investments Accrued but not yet Paid ............................................................... $93 $126 Common Shares Repurchased but not yet Paid............................................................. - 82 Cash Paid During the Year For: Interest, Net of Amounts Capitalized ........................................................................ (500) (467) Income Taxes, Net of Refunds .................................................................................... (699) (839)

Refer to the Union Pacifi c Corporation 2008 SEC Form 10-K for more information.

34

FINANCIAL AND OPERATING STATISTICSUnion Pacifi c Corporation

(unaudited), for periods ended December 31, 2008 2007 Full FullFinancial and Revenue Statistics 1 2 3 4 Year 1 2 3 4 Year

Operating Revenues (millions) $4,270 $4,568 $4,846 $4,286 $17,970 $3,849 $4,046 $4,191 $4,197 $16,283

Operating Expenses (millions) $3,482 $3,637 $3,631 $3,145 $13,895 $3,130 $3,259 $3,186 $3,333 $12,908

Operating Ratio (%) 81.5 79.6 74.9 73.4 77.3 81.3 80.5 76.0 79.4 79.3

Operating Margin (%) 18.5 20.4 25.1 26.6 22.7 18.7 19.5 24.0 20.6 20.7

Compensation and

Benefi ts (millions) $1,132 $1,101 $1,123 $1,101 $4,457 $1,165 $1,145 $1,095 $1,121 $4,526

Compensation and

Benefi ts/Op. Rev. (%) 26.5 24.1 23.2 25.7 24.8 30.3 28.3 26.1 26.7 27.8

Freight Revenues/ Employee (thousands) $82.7 $89.3 $95.8 $87.0 $354.8 $72.0 $75.9 $79.7 $81.8 $309.2

Fuel Expense (millions) $957 $1,159 $1,135 $732 $3,983 $662 $753 $786 $903 $3,104

Avg. Fuel Price Per Gallon (a) $2.84 $3.60 $3.70 $2.46 $3.15 $1.93 $2.20 $2.32 $2.62 $2.27

Freight Revenues (millions) $4,059 $4,349 $4,630 $4,080 $17,118 $3,655 $3,853 $3,990 $3,988 $15,486

Average Revenue Per Car $1,738 $1,835 $1,931 $1,891 $1,848 $1,566 $1,583 $1,582 $1,632 $1,591

Freight Revenues/ Revenue Ton-Mile (cents) 2.88 3.09 3.18 3.02 3.04 2.71 2.77 2.77 2.78 2.76

Effective Tax Rate (%) 35.5 35.4 36.6 36.4 36.1 37.8 36.6 41.3 37.0 38.4

Debt to Capital (%) (b) 36.6 33.0

Adjusted Debt to Capital (%) (c) 47.4 44.1

Operating Statistics

Revenue Carloads (thousands) 2,335 2,371 2,398 2,157 9,261 2,334 2,433 2,522 2,444 9,733

Revenue Ton-Miles (billions) 141 141 146 135 563 135 139 144 143 562

Gross Ton-Miles (billions) 257 257 262 244 1,020 255 261 270 267 1,052

Average Train Speed (mph) (d) 22.2 22.8 23.7 25.1 23.5 21.7 21.6 21.5 22.3 21.8

Average System Dwell (hours) (d) 25.2 24.5 24.4 25.3 24.9 25.3 24.7 25.2 25.4 25.1

Average Rail Car Inventory (d) 306,342 303,129 300,391 292,856 300,692 309,579 310,663 311,791 307,682 309,912

Fuel Consumed (millions of gallons) 330 313 297 289 1,229 332 332 329 333 1,326

Employees (average) 49,073 48,693 48,324 46,877 48,242 50,771 50,755 50,060 48,770 50,089

GTMs per Employee (millions) 5.24 5.28 5.43 5.20 21.15 5.02 5.14 5.39 5.48 21.01

Refer to the Union Pacifi c Corporation 2008 SEC Form 10-K for additional information. (a) Including taxes and transportation costs (b) Debt to capital is computed as follows: total debt divided by total debt plus equity. (c) Lease adjusted debt to capital is computed as follows: total debt plus net present value of operating leases plus sale of receivables plus unfunded pension and OPEB divided by total debt plus equity plus net present value of operating leases plus sale of receivables. (d) As reported to the Association of American Railroads.

35

NON-GAAP DEFINITIONS

Management believes certain non-GAAP measures provide an alternative presentation of the results that more accurately refl ect

on-going Company operations. These measures should be considered in addition to, not a substitute for, the reported GAAP

results.

Free Cash Flow

Cash provided by operating activities, less cash used in investing activities, less dividends paid. Management believes this is

an important measure in evaluating our fi nancial performance and measures our ability to generate cash without incurring

additional external fi nancings.

Return on Invested Capital

Net income plus interest expense, plus sale of receivables fees, plus interest on present value of leases, less taxes on interest divided

by average equity plus average debt plus average sale of receivables plus average present value of leases. Management believes this

is an important measure for evaluating the effi ciency and effectiveness of the Corporation’s long term capital investments, and

we currently use ROIC as a performance criteria in determining certain elements of compensation for our executive offi cers and

senior management.

Debt to Capital

Total debt divided by total debt plus equity. Management believes this is an important measure in evaluating our balance sheet

strength and is important in managing our credit ratios and fi nancing relationships.

Adjusted Debt to Capital

Total debt plus net present value of operating leases plus value of sold receivables plus after-tax unfunded pension and OPEB

obligation divided by total debt plus net present value of operating leases plus value of sold receivables plus after-tax unfunded

pension and OPEB obligation plus equity. Operating leases were discounted using 6.2% at March 31, 2009 and 8.0% at March 31,

2008, respectively. The lower discount rate refl ects changes to interest rates and our current fi nancing costs. Management believes

this is an important measure in evaluating the total amount of leverage in our capital structure including off-balance sheet

obligations.

36

FREE CASH FLOW AND CONSOLIDATED STATEMENT OF CASH FLOWSReconciliation to GAAP

(In millions of dollars, except for percentages) unaudited

2008 2007 2006Cash Provided by Operating Activities $4,070 $3,227 $2,880 Cash Used in Investing Activities (2,764) (2,426) (2,042)Dividends Paid (481) (364) (322)Free Cash Flow $825 $437 $516

CONSOLIDATED STATEMENTS OF CASH FLOW Operating Activities: 2008 2007 2006Net Income $2,338 $1,855 $1,606 Depreciation 1,387 1,321 1,237 Deferred Income Taxes 547 332 235 Other - Net (202) (231) (198)Cash Provided by Operating Activities 4,070 3,277 2,880 Investing Activities: Capital Investments (2,780) (2,496) (2,242)Other - Net 16 70 200 Cash Used in Investing Activities (2,764) (2,426) (2,042)Financing Activities: Debt Issued 2,257 1,581 - Common Shares Repurchased (1,609) (1,375) - Debt Repaid (1,208) (792) (657)Dividends Paid (481) (364) (322)Other - Net 106 150 195

Cash Used in Financing Activities (935) (800) (784)Net Change in Cash and Cash Equivalents $371 $51 $54

RETURN ON INVESTED CAPITAL (ROIC)

Net Income $2,338 $1,855 $1,606 Add: Interest Expense 511 482 477 Add: Sale of Receivables Fees 23 35 33 Add: Interest on Present Value of Operating Leases 299 292 268 Less: Taxes on Interest and Fees (301) (310) (283)Net Operating Profi t After Tax as Adjusted (a) $2,870 $2,354 $2,101 Average Equity $15,516 $15,448 $14,510 Add: Average Debt 8,305 7,232 7,098 Add: Average Value of Sold Receivables 592 600 600 Add: Average Present Value of Operating Leases 3,737 3,648 3,349 Average Invested Capital as Adjusted (b) $28,150 $26,928 $25,557 Return on Invested Capital as Adjusted (a/b) 10.2% 8.7% 8.2%

37

DEBT TO CAPITAL/ADJUSTED DEBT TO CAPITALReconciliation to GAAP

(In millions of dollars except percentages)

2008 2007 2006Debt (a) $8,927 $7,682 $6,780 Equity 15,447 15,585 15,312 Capital (b) $24,374 $23,267 $22,092 Debt to Capital (a/b) 36.6% 33.0% 30.7% 2008 2007 2006Debt $8,927 $7,682 $6,780 Value of Sold Receivables 584 600 600 Net Present Value of Operating Leases 3,690 3,783 3,513 Unfunded Pension and OPEB 733 234 317 Adjusted Debt (a) $13,934 $12,299 $11,210 Equity 15,447 15,585 15,312 Adjusted Capital (b) $29,381 $27,884 $26,522

Adjusted Debt to Capital (a/b) 47.4% 44.1% 42.3%

38

2005 INCOME TAX ADJUSTMENTReconciliation to GAAP

(In millions of dollars except earnings per share)

Management believes certain non-GAAP measures provide an alternative presentation of the results that more accurately refl ect on-going Company operations. 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 refl ects on-going Company operations, without the distorting effects of the income tax expense reduction item. These measures should be considered in addition to, not a substitute for, the reported GAAP results.

Full Year 2005 Results As Reported Income Tax Adjustment

Operating Revenue $13,578 $13,578 Operating Expenses 11,783 11,783 Operating Income 1,795 1,795 Operating Margin 13.2% 13.2%Operating Ratio 86.8% 86.8%Other Income - Net 145 145 Interest Expense (504) (504)Income Before Income Taxes 1,436 1,436 Income Tax Expense (410) (528)Net Income $1,026 $908 Diluted Earnings Per Share $3.85 $3.41 Diluted Earnings Per Share - Restated for May 28, 2008 Stock Split $1.92 $1.71

Third Quarter 2005 Results As Reported Income Tax Adjustment

Operating Revenue $3,461 $3,461 Operating Expenses 2,980 2,980 Operating Income 481 481 Operating Margin 13.9% 13.9%Operating Ratio 86.1% 86.1%Other Income - Net 42 42 Interest Expense (124) (124)Income Before Income Taxes 399 399 Income Tax Expense (30) (148)Net Income $369 $251 Diluted Earnings Per Share $1.38 $0.94Diluted Earnings Per Share - Restated for May 28, 2008 Stock Split $0.69 $0.47

(a) Income tax expense reduction of $118 million after-tax taken in third quarter 2005Note: Totals may not foot due to rounding

(a)

(a)

39

Cautionary Information

The 2008 Analyst “Fact Book” provides additional explanatory

information regarding Union Pacifi c that may not be

available, included or directly derived from information in

the Company’s Annual Report. The information provided is

supplemental in nature and is not, and should not be construed

as, better than that available in the Company’s publicly

available reports fi led with the SEC. Additionally, some of the

information in the Fact Book is derived from the Company’s

audited fi nancial statements, but the Fact Book and its contents

have not been, and should not be considered, audited.

This Fact Book includes statements and information regarding

future expectations or results of the Company that are not

historical facts. These statements and information are, or will

be, forward looking as defi ned by the federal securities laws.

Forward looking statements and information can be identifi ed

by use of forward looking terminology (and derivations

thereof), such as “believes”, “expects”, “may”, “should”, “will”,

“would”, “intends”, “plans”, “estimates”, “anticipates”, “projects”

and other words or phrases of similar intent. Forward looking

statements and information generally include statements

and information included under sections of this Fact Book

entitled “Safety and the Environment”, “Investing in Our

Future”, “Expense Initiatives” and “2009 Market Drivers”, and

specifi cally include statements and information regarding: the

Company’s expectations or forecasts with respect to general

economic conditions in the U.S. and the world; the Company’s

fi nancial and operational performance; increases of the

Company’s earnings; demand for the Company’s rail service;

the continued ability of the Company to increase prices; plans

or expectations regarding contract renegotiations; improving

customer service; enhancing profi tability; volume and revenue

growth; effi ciency improvements and increasing returns;

improving asset utilization; the effectiveness or growth of

new and newer services; total amount of capital investments;

completion and effectiveness of capacity expansion and other

capital investments, and other investments in upgrading or

adding signals and facilities; returns on capital investments;

improvements regarding safety of our operations and

equipment; effectiveness of the Unifi ed Plan and other

initiatives, such as projects involving the Lean management

process and Project OR; the impact of adjusting to the

economy; and business operations over the next 2 to 3 years.

Forward-looking statements and information 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 statements and information are subject to risks and

uncertainties that could cause actual performance or results to

differ materially from those expressed in the statements.

Forward-looking statements and information refl ect the good

faith consideration by management of currently available

information, and may be based on underlying assumptions

believed to be reasonable under the circumstances. However,

such information and assumptions (and, therefore, such

forward-looking statements and information) are or may

be subject to variables or unknown or unforeseeable events

or circumstances over which management has little or no

infl uence or control. The Risk Factors in Item 1A of the

Company’s Annual Report on Form 10-K, fi led on February

6, 2009, could affect our future results and could cause those

results or other outcomes to differ materially from those

expressed or implied in the forward-looking statements and

information. This Fact Book should be read in consideration

of these Risk Factors. To the extent circumstances require or

the Company deems it otherwise necessary, the Company will

update or amend these Risk Factors in subsequent Annual

Reports, periodic reports on Form 10-Q or current reports on

Form 8-K.

Forward-looking statements speak only as of the date the

statement was made. We assume no obligation to update

forward-looking information to refl ect actual results, changes

in assumptions or changes in other factors affecting forward-

looking information. If we do update one or more forward-

looking statements, no inference should be drawn that we will

make additional updates with respect thereto or with respect to

other forward-looking statements.

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