Table	of	Contents

# UNITED	STATES

# SECURITIES	AND	EXCHANGE	COMMISSION

# (Mark	One)

ANNUAL	REPORT	PURSUANT	TO	SECTION	13	OR	15(d)	OF	THE

		SECURITIES	EXCHANGE	ACT	OF	1934

# For	the	fiscal	year	ended	December	31,	2011

[				] TRANSITION	REPORT	PURSUANT	TO	SECTION	13	OR	15(d)	OF	THE 		SECURITIES	EXCHANGE	ACT	OF	1934

# Commission	File	Number	1-6075

# UNION	PACIFIC	CORPORATION

(Exact	name	of	registrant	as	specified	in	its	charter)

(State	or	other	jurisdiction	of incorporation	or	organization)

# 1400	DOUGLAS	STREET,	OMAHA,	NEBRASKA

(Address	of	principal	executive	offices)

(Zip	Code)

(Registrant's	telephone	number,	including	area	code)

Securities	registered	pursuant	to	Section	12(b)	of	the	Act:

# Title	of	each	Class

# Common	Stock	(Par	Value	$2.50	per	share)

Name	of	each	exchange	on	which	registered New	York	Stock	Exchange,	Inc.

•Indicate	by	check	mark	if	the	registrant	is	a	well-known	seasoned	issuer,	as	defined	in	Rule	405	of	the	Securities	Act.

•Indicate	by	check	mark	if	the	registrant	is	not	required	to	file	reports	pursuant	to	Section	13	or	Section	15(d)	of	the	Act.

•Indicate	by	check	mark	whether	the	registrant	(1)	has	filed	all	reports	required	to	be	filed	by	Section	13	or	15(d)	of	the	Securities	Exchange	Act	of	1934 during	the	preceding	12	months	(or	for	such	shorter	period	that	the	registrant	was	required	to	file	such	reports),	and	(2)	has	been	subject	to	such	filing requirements	for	the	past	90	days.

•Indicate	by	check	mark	whether	the	registrant	has	submitted	electronically	and	posted	on	its	corporate	Website,	if	any,	every	Interactive	Data	File required	to	be	submitted	and	posted	pursuant	to	Rule	405	of	Regulation	S-T	(§232.405	of	this	chapter)	during	the	preceding	12	months	(or	for	such shorter	period	that	the	registrant	was	required	to	submit	and	post	such	files).

•Indicate	by	check	mark	if	disclosure	of	delinquent	filers	pursuant	to	Item	405	of	Regulation	S-K	(§229.405	of	this	chapter)	is	not	contained	herein,	and will	not	be	contained,	to	the	best	of	the	registrant's	knowledge,	in	definitive	proxy	or	information	statements	incorporated	by	reference	in	Part	III	of	this Form	10-K	or	any	amendment	to	this	Form	10-K.		þ

•Indicate	by	check	mark	whether	the	registrant	is	a	large	accelerated	filer,	an	accelerated	filer,	a	non-accelerated	filer,	or	a	smaller	reporting	company. See	the	definitions	of	"large	accelerated	filer,"	"accelerated	filer"	and	"smaller	reporting	company"	in	Rule	12b-2	of	the	Exchange	Act.

•Indicate	by	check	mark	whether	the	registrant	is	a	shell	company	(as	defined	in	Rule	12b-2	of	the	Act).

As	of	June	30,	2011,	the	aggregate	market	value	of	the	registrant's	Common	Stock	held	by	non-affiliates	(using	the	New	York	Stock	Exchange	closing price)	was	$50.7	billion.

The	number	of	shares	outstanding	of	the	registrant's	Common	Stock	as	of	January	27,	2012	was	480,067,865.

Documents	Incorporated	by	Reference	–	Portions	of	the	registrant's	definitive	Proxy	Statement	for	the	Annual	Meeting	of	Shareholders	to	be	held	on May	10,	2012,	are	incorporated	by	reference	into	Part	III	of	this	report.	The	registrant's	Proxy	Statement	will	be	filed	with	the	Securities	and	Exchange Commission	pursuant	to	Regulation	14A.

|  | UNION	PACIFIC	CORPORATION<br>TABLE	OF	CONTENTS |  |
| :--- | :--- | :--- |
|  | \t Chairman's\tLetter | 3 |
|  | \t Directors\tand\tSenior\tManagement | 4 |
|  | PART\tI |  |
| Item\t1. | \t Business | 5 |
| Item\t1A. | \t Risk\tFactors | 10 |
| Item\t1B. | \t Unresolved\tStaff\tComments | 13 |
| Item\t2. | \t Properties | 13 |
| Item\t3. | Legal\tProceedings | 16 |
| Item\t4. | \t Mine\tSafety\tDisclosures | 18 |
|  | \t Executive\tOfficers\tof\tthe\tRegistrant\tand\tPrincipal\tExecutive\tOfficers\tof\tSubsidiaries | 19 |
|  | PART\tII |  |
| Item\t5. | \t Market\tfor\tthe\tRegistrant's\tCommon\tEquity,\tRelated\tStockholder\tMatters,\tand\tIssuer\tPurchases\tof\tEquity\tSecurities | 20 |
| Item\t6. | \t Selected\tFinancial\tData | 22 |
| Item\t7. | \t Management's\tDiscussion\tand\tAnalysis\tof\tFinancial\tCondition\tand\tResults\tof\tOperations | 23 |
|  | \t Critical\tAccounting\tPolicies | 43 |
|  | \t Cautionary\tInformation | 48 |
| Item\t7A. | \t Quantitative\tand\tQualitative\tDisclosures\tAbout\tMarket\tRisk | 49 |
| Item\t8. | Financial\tStatements\tand\tSupplementary\tData | 50 |
|  | \t Report\tof\tIndependent\tRegistered\tPublic\tAccounting\tFirm | 51 |
| Item\t9. | \t Changes\tin\tand\tDisagreements\twith\tAccountants\ton\tAccounting\tand\tFinancial\tDisclosure | 84 |
| Item\t9A. | \t Controls\tand\tProcedures | 84 |
|  | \t Management's\tAnnual\tReport\ton\tInternal\tControl\tOver\tFinancial\tReporting | 85 |
|  | \t Report\tof\tIndependent\tRegistered\tPublic\tAccounting\tFirm | 86 |
| Item\t9B. | \t Other\tInformation | 87 |
|  | PART\tIII |  |
| Item\t10. | \t Directors,\tExecutive\tOfficers,\tand\tCorporate\tGovernance | 87 |
| Item\t11. | \t Executive\tCompensation | 87 |
| Item\t12. | \t Security\tOwnership\tof\tCertain\tBeneficial\tOwners\tand\tManagement\tand\tRelated\tStockholder\tMatters | 88 |
| Item\t13. | \t Certain\tRelationships\tand\tRelated\tTransactions\tand\tDirector\tIndependence | 88 |
| Item\t14. | \t Principal\tAccountant\tFees\tand\tServices | 88 |
|  | PART\tIV |  |
| Item\t15. | \t Exhibits,\tFinancial\tStatement\tSchedules | 89 |
|  | \t Signatures | 90 |
|  | \t Certifications | \t100 |

# Fellow	Shareholders:

Our	2011	results	demonstrated	the	capabilities	of	the	men	and	women	of	Union	Pacific	and	the	strength	of	our	unique	and	diverse	franchise,	contributing to	the	safest	and	most	profitable	year	in	Union	Pacific's	150-year	history.	Both	top	and	bottom	line	results	achieved	historic	milestones	and	generated record	earnings	of	$6.72	per	share	and	a	return	on	invested	capital	of	12.4	percent.	We	rewarded	shareholders	with	improved	financial	returns,	including a	58	percent	increase	in	the	quarterly	dividend	per	share	and	more	than	$1.4	billion	in	share	repurchases.	UP's	stock	price	reached	new	highs	in	2011, increasing	14	percent	and	outpacing	the	S&P	500	by	14	points	as	well.

We	accomplished	this	while	overcoming	many	challenges:	global	financial	market	turmoil,	ongoing	economic	uncertainty,	historic	flooding	in	the	Midwest and	extreme	drought	conditions	in	the	South.	Despite	these	challenges,	we	maintained	efficient	network	operations,	met	our	customer	commitments,	and continued	operating	a	safe	and	productive	railroad.

As	volumes	increased,	we	maintained	excellent	customer	service	and	achieved	many	new	safety	records.	With	Total	Safety	Culture	flourishing	across our	 company,	 employee	 injuries	 hit	 a	 record	 low	 in	 2011,	 capping	 a	 decade	 of	 significant	 improvement.	 Customers	 also	 rewarded	 us	 with	 record satisfaction	ratings,	clearly	valuing	our	service	offerings	and	the	efficiencies	we	provide	as	part	of	their	total	supply	chain.

Capital	investments	play	a	critical	role	in	meeting	the	long-term	demand	for	transportation.	In	2011,	we	invested	a	record	$3.2	billion	across	our	network. Over	half	was	spent	on	replacing	and	hardening	our	infrastructure	to	further	enhance	safety	and	reliability.	The	balance	was	invested	to	support	business growth.	Projects	large	and	small,	in	all	regions	where	we	operate,	will	enable	us	to	serve	our	customers	well	in	the	years	ahead.	This	level	of	investment is	supported	by	the	strong	financial	returns	we	generated	in	2011.

Public	officials	are	increasingly	aware	that	a	healthy,	efficient	rail	network	is	critical	to	our	country's	growing	need	for	a	strong	transportation	infrastructure. With	 public	 spending	 for	 infrastructure	 under	 pressure,	 the	 investments	 we	 are	 making	 will	 help	 our	 customers	 and	 our	 country	 compete	 in	 an increasingly	global	economy.	We	work	hard	to	make	sure	that	policy	makers	and	regulators	understand	the	relationship	between	financial	results	and investment	so	that	new	regulation	does	not	hinder	future	opportunity	for	our	customers.

As	we	focus	our	efforts	on	2012	and	beyond,	we	see	continued	prospects	for	growth	from	our	existing	customers,	along	with	new,	emerging	market opportunities.	Union	Pacific	plays	a	vital	role	in	the	global	supply	chain.	International	trade	currently	represents	one	third	of	our	revenue	base,	and	it	is growing.	An	increasing	U.S.	population	base	will	stimulate	long-term	demand	for	most	of	the	goods	we	carry.	As	the	only	railroad	to	serve	all	six	major gateways	to	Mexico,	we	are	in	an	excellent	position	to	benefit	from	expanding	U.S.	trade	with	Mexico.

With	the	development	of	new	and	improved	horizontal	drilling	techniques,	the	U.S.	has	seen	a	dramatic	expansion	of	drilling	activity	for	crude	oil	and natural	gas	at	various	shale	formations	around	the	country.	We're	extending	our	"energy	reach"	by	providing	an	efficient	rail-based	supply	chain	to support	the	ongoing	expansion	of	this	business.

Last	year	was	a	historic	milestone	that	set	the	stage	for	2012,	which	marks	150	years	of	history	for	Union	Pacific.	The	generations	who	came	before	us helped	build	a	nation,	and	today	Union	Pacific	continues	to	play	a	critical	role	in	helping	our	country	grow	and	prosper.	We're	making	significant	capital investments,	generating	 increasing	 financial	returns,	providing	 fuel	efficient	and	environmentally	responsible	 transportation,	and	creating	solid,	well- paying	jobs.	The	bar	has	been	raised	for	Union	Pacific	in	2012	and	our	prospects	have	never	been	better.	We	pay	tribute	to	our	45,000	employees, whose	innovation	and	teamwork	will	move	us	forward	to	even	greater	accomplishments	in	2012.

Chairman,	President	and

Chief	Executive	Officer

# BOARD	OF	DIRECTORS

Andrew	H.	Card,	Jr. Acting	Dean The	Bush	School	of Government	&	Public	Service, Texas	A&M	University Board	Committees:	Audit,	Finance

Erroll	B.	Davis,	Jr. Superintendent Atlanta	Public	Schools Board	Committees:	Compensation and	Benefits	(Chair),	Corporate Governance	and	Nominating

# Thomas	J.	Donohue

President	and

U.S.	Chamber	of	Commerce

Board	Committees:	Compensation

and	Benefits,	Corporate

Governance	and	Nominating

# Archie	W.	Dunham

Retired	Chairman

ConocoPhillips

Board	Committees:	Corporate Governance	and	Nominating, Finance

# SENIOR	MANAGEMENT

James	R.	Young Chairman,	President	and Chief	Executive	Officer

Union	Pacific	Corporation	and

Union	Pacific	Railroad	Company

# Charles	R.	Eisele

Senior	Vice	President–Strategic	Planning

# Lance	M.	Fritz

Executive	Vice	President–Operations

# J.	Michael	Hemmer

Senior	Vice	President–Law and	General	Counsel Union	Pacific	Corporation

# Mary	Sanders	Jones

Vice	President	and	Treasurer Union	Pacific	Corporation

# DIRECTORS	AND	SENIOR	MANAGEMENT

Judith	Richards	Hope Distinguished	Visitor	from	Practice and	Professor	of	Law Georgetown	University	Law	Center Board	Committees:	Audit	(Chair), Finance

Charles	C.	Krulak

General,	USMC,	Ret. President Birmingham–Southern	College Board	Committees:	Audit,	Finance

# Michael	R.	McCarthy

Chairman

McCarthy	Group,	LLC

Board	Committees:	Audit,	Finance

# Michael	W.	McConnell

General	Partner

Brown	Brothers	Harriman	&	Co.

Board	Committees:	Audit, Finance	(Chair)

Robert	M.	Knight,	Jr. Executive	Vice	President–Finance and	Chief	Financial	Officer

# John	J.	Koraleski

Executive	Vice	President–

Marketing	and	Sales

# D.	Lynn	Kelley

Vice	President–Continuous

Improvement

# Joseph	E.	O'Connor,	Jr.

Vice	President–Purchasing Union	Pacific	Railroad	Company

Patrick	J.	O'Malley

Vice	President–Taxes	and	General	Tax	Counsel Union	Pacific	Corporation

Thomas	F.	McLarty	III President McLarty	Associates Board	Committees:	Compensation and	Benefits,	Corporate Governance	and	Nominating

Steven	R.	Rogel Retired	Chairman Weyerhaeuser	Company Lead	Independent	Director Board	Committees:	Compensation and	Benefits,	Corporate Governance	and	Nominating	(Chair)

# Jose	H.	Villarreal

Advisor

Akin,	Gump,	Strauss,	Hauer	&	Feld,	LLP

James	R.	Young

Chief	Executive	Officer Union	Pacific	Corporation	and Union	Pacific	Railroad	Company

Michael	A.	Rock Vice	President–External	Relations Union	Pacific	Corporation

# Barbara	W.	Schaefer

Senior	Vice	President–Human	Resources	and

Secretary

Lynden	L.	Tennison

Senior	Vice	President	and Chief	Information	Officer

Jeffrey	P.	Totusek

Vice	President	and	Controller Union	Pacific	Corporation

Robert	W.	Turner

Senior	Vice	President– Corporate	Relations Union	Pacific	Corporation

William	R.	Turner Vice	President–Labor	Relations Union	Pacific	Railroad	Company

# PART	I

# Item	1.	Business

# GENERAL

Union	Pacific	Corporation	owns	one	of	America's	leading	transportation	companies.	Its	principal	operating	company,	Union	Pacific	Railroad	Company, links	23	states	in	the	western	two-thirds	of	the	country.	Union	Pacific	Railroad	Company	serves	many	of	the	fastest-growing	U.S.	population	centers, providing	a	fuel-efficient,	environmentally	responsible	and	safe	mode	of	freight	transportation.	Union	Pacific	Railroad	Company's	diversified	business	mix includes	 Agricultural	 Products,	 Automotive,	 Chemicals,	 Energy,	 Industrial	 Products	 and	 Intermodal.	 Union	 Pacific	 Railroad	 Company	 emphasizes excellent	customer	service	and	offers	competitive	routes	from	all	major	West	Coast	and	Gulf	Coast	ports	to	eastern	gateways.	Union	Pacific	Railroad Company	connects	with	Canada's	rail	systems	and	is	the	only	railroad	serving	all	six	major	gateways	to	Mexico,	making	it	North	America's	premier	rail franchise.

Union	Pacific	Corporation	was	incorporated	in	Utah	in	1969	and	maintains	its	principal	executive	offices	at	1400	Douglas	Street,	Omaha,	NE	68179.	The telephone	number	at	that	address	is	(402)	544-5000.	The	common	stock	of	Union	Pacific	Corporation	is	listed	on	the	New	York	Stock	Exchange	(NYSE) under	the	symbol	"UNP".

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

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

We	 have	 included	 the	 Chief	 Executive	 Officer	 (CEO)	 and	 Chief	 Financial	 Officer (CFO)	 certifications regarding	 our	 public	 disclosure required	 by Section	302	of	the	Sarbanes-Oxley	Act	of	2002	as	Exhibits	31(a)	and	(b)	to	this	report.

References	to	our	website	address	in	this	report,	including	references	in	Management's	Discussion	and	Analysis	of	Financial	Condition	and	Results	of Operations,	Item	7,	are	provided	as	a	convenience	and	do	not	constitute,	and	should	not	be	deemed,	an	incorporation	by	reference	of	the	information contained	on,	or	available	through,	the	website.	Therefore,	such	information	should	not	be	considered	part	of	this	report.

# OPERATIONS

The	Railroad,	along	with	its	subsidiaries	and	rail	affiliates,	is	our	one	reportable	operating	segment.	Although	revenue	is	analyzed	by	commodity	group, we	analyze	the	net	financial	results	of	the	Railroad	as	one	segment	due	to	the	integrated	nature	of	our	rail	network.	Additional	information	regarding	our business	and	operations,	including	revenue	and	financial	information	and	data	and	other	information	regarding	environmental	matters,	is	presented	in Risk	Factors,	Item	1A;	Legal	Proceedings,	Item	3;	Selected	Financial	Data,	Item	6;	Management's	Discussion	and	Analysis	of	Financial	Condition	and Results	of	Operations,	Item	7;	and	the	Financial	Statements	and	Supplementary	Data,	Item	8	(which	include	information	regarding	revenues,	statements of	income,	and	total	assets).

Operations	–	UPRR	is	a	Class	 I	railroad	operating	 in	 the	U.S.	We	have 31,898 route	 miles,	 linking	 Pacific	 Coast	 and	 Gulf	 Coast	 ports	 with	 the Midwest	and	eastern	U.S.	gateways	and	providing	several	corridors	to	key Mexican	 gateways.	 We	 serve	 the	 western	 two-thirds	 of	 the	 country	 and maintain	coordinated	schedules	with	other	rail	carriers	to	move	freight	to	and from	 the	Atlantic	Coast,	 the	Pacific	Coast,	 the	Southeast,	 the	Southwest, Canada,	and	Mexico.	Export	and	import	traffic	moves	through	Gulf	Coast and	Pacific	Coast	ports	and	across	the	Mexican	and	Canadian	borders.	Our freight	traffic	consists	of	bulk,	manifest,	and	premium	business.	Bulk	traffic	is primarily	coal,	grain,	rock,	or	soda	ash	in	unit	trains	–	trains	transporting	a single	 commodity	 from	 one	 source	 to	 one	 destination.	 Manifest	 traffic	 is individual	 carload	 or	 less	 than	 train-load	 business,	 including	 commodities 	such		as		lumber,		steel,		paper,		food

# 2011	Freight	Revenue

and	chemicals.	The	transportation	of	finished	vehicles,	intermodal	containers	and	truck	trailers	is	part	of	our	premium	business.	In	2011,	we	generated freight	revenues	totaling	$18.5	billion	from	the	following	six	commodity	groups:

Agricultural	–	Transportation	of	grains,	commodities	produced	from	these	grains,	and	food	and	beverage	products	generated	18%	of	the	Railroad's	2011 freight	revenue.	The	Company	accesses	most	major	grain	markets,	linking	the	Midwest	and	western	producing	areas	to	export	terminals	in	the	Pacific Northwest	and	Gulf	Coast	ports,	as	well	as	Mexico.	We	also	serve	significant	domestic	markets,	including	grain	processors,	animal	feeders	and	ethanol producers	in	the	Midwest,	West,	South	and	Rocky	Mountain	states.	Unit	trains,	which	transport	a	single	commodity	between	producers	and	export terminals	or	domestic	markets,	represent	nearly	40%	of	agricultural	shipments.

Automotive	–	We	are the	 largest	automotive	carrier	west	of	 the	Mississippi	River	and	operate	or	access	over	40	vehicle	distribution	centers.	The Railroad's	extensive	franchise	serves	vehicle	assembly	plants	and	connects	to	West	Coast	ports	and	the	Port	of	Houston	to	accommodate	both	import and	export	shipments.	In	addition	to	transporting	finished	vehicles,	UP	provides	expedited	handling	of	automotive	parts	in	both	boxcars	and	intermodal containers	destined	for	Mexico,	the	U.S.	and	Canada.	The	automotive	group	generated	8%	of	Union	Pacific's	freight	revenue	in	2011.	Finished	vehicles accounted	for	78%	of	this	revenue,	with	transportation	of	automotive	parts	and	materials	providing	the	remaining	22%.

Chemicals	–	Transporting	chemicals	generated	15%	of	our	freight	revenue	in	2011.	The	Railroad's	unique	franchise	serves	the	chemical	producing areas	along	the	Gulf	Coast,	where	roughly	two-thirds	of	the	Company's	chemical	business	originates,	terminates	or	travels.	Our	chemical	franchise	also accesses	chemical	producers	in	the	Rocky	Mountains	and	on	the	West	Coast.	The	Company's	chemical	shipments	include	three	broad	categories: Petrochemicals,	 Fertilizer	 and	 Soda	Ash.	 Petrochemicals	 include	 industrial	 chemicals,	 plastics,	 petroleum	 products,	 including	 crude	 oil	 from	 North Dakota,	and	liquid	petroleum	gases.	These	products	move	primarily	to	and	from	the	Gulf	Coast	region.	Fertilizer	movements	originate	in	the	Gulf	Coast region,	the	western	part	of	the	U.S.	and	Canada	for	delivery	to	major	agricultural	users	in	the	Midwest,	western	U.S.	and	abroad.	Soda	ash	originates	in southwestern	Wyoming	and	California,	destined	for	chemical	and	glass	producing	markets	in	North	America	and	abroad.

Energy	–	Coal	and	petroleum	coke	transportation	accounted	for	the	largest	share	of	our	freight	revenue,	22%	in	2011.	The	Railroad's	network	supports the	transportation	of	coal	and	petroleum	coke	to	utilities	and	industrial	facilities	throughout	the	U.S.	Through	interchange	gateways	and	ports,	UP's	reach extends	to	eastern	U.S.	utilities,	Mexico,	Europe	and	Asia.	Water	terminals	allow	the	Railroad	to	move	western	U.S.	coal	east	via	the	Mississippi	and	Ohio Rivers,	as	well	as	the	Great	Lakes.	Export	coal	moves	through	West	Coast	ports	to	Asia	and	through	Mississippi	River	and	Gulf	Coast	terminals	to Europe.	Coal	traffic	originating	in	the	Southern	Powder	River	Basin	(SPRB)	area	of	Wyoming	is	the	largest	segment	of	UP's	energy	business.

Industrial	 Products	–	Our	extensive	network	facilitates	the	movement	of	numerous	commodities	between	thousands	of	origin	and	destination	points throughout	North	America.	The	Industrial	Products	commodity	group	consists	of	several	categories,	including	construction	products,	metals,	minerals, paper,	 consumer	 goods,	 lumber	 and	 other	 miscellaneous	 products.	 In	 2011,	 this	 group	 generated	 17%	 of	 Union	 Pacific's	 total	 freight	 revenue. Commercial	and	highway	construction	drives	shipments	of	steel	and	construction	products,	consisting	of	rock,	cement	and	roofing	materials.	Industrial manufacturing	plants	receive	nonferrous	metals	and	industrial	minerals.	Paper	and	consumer	goods,	including	furniture	and	appliances,	move	to	major metropolitan	areas	for	consumers.	Lumber	shipments	originate	primarily	in	the	pacific	northwest	and	Canada	and	move	throughout	the	U.S.	for	use	in new	home	construction	and	repair	and	remodeling.

Intermodal	–	Our	Intermodal	business	includes	two	shipment	categories:	international	and	domestic.	International	business	consists	of	imported	and exported	container	traffic	that	mainly	passes	through	West	Coast	ports	served	by	UP's	extensive	terminal	network.	Domestic	business	includes	container and	trailer	traffic	picked	up	and	delivered	within	North	America	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	 these domestic	shipments.	Together,	international	and	domestic	business	generated	20%	of	UP's	2011	freight	revenue.

Seasonality	–	Some	of	the	commodities	we	carry	have	peak	shipping	seasons,	reflecting	either	or	both	the	nature	of	the	commodity,	such	as	certain agricultural	and	food	products	that	have	specific	growing	and	harvesting	seasons,	and	the	demand	cycle	for	the	commodity,	such	as	intermodal	traffic, which	generally	has	a	peak	shipping	season	during	the	third	quarter	to	meet	holiday-related	demand	for	consumer	goods	during	the	fourth	quarter.	The peak	shipping	seasons	for	these	commodities	can	vary	considerably	from	year	to	year	depending	upon	various	factors,	including	the	strength	of	domestic and	international	economies	and	currencies	and	the	strength	of	harvests	and	market	prices	for	agricultural	products.	In	response	to	an	annual	request delivered	by	the	Surface	Transportation	Board	(STB)	of	the	U.S.	Department	of	Transportation	(DOT)	to	all	of	the	Class	I	railroads	operating	in	the	U.S., we	issue	a	publicly	available	letter	during	the	third	quarter	detailing	our	plans	for	handling	traffic	during	the	third	and	fourth	quarters	and	providing	other information	requested	by	the	STB.

Working	Capital	–	At	December	31,	2011	and	2010,	we	had	a	working	capital	surplus.	This	reflects	a	strong	cash	position,	which	provides	enhanced liquidity	in	an	uncertain	economic	environment.	In	addition,	we	believe	we	have	adequate	access	to	capital	markets	to	meet	cash	requirements,	and	we have	sufficient	financial	capacity	to	satisfy	our	current	liabilities.

Competition	–	We	are	subject	to	competition	from	other	railroads,	motor	carriers,	ship	and	barge	operators,	and	pipelines.	Our	main	rail	competitor	is Burlington	Northern	Santa	Fe	Corporation.	Its	rail	subsidiary,	BNSF	Railway	Company	(BNSF),	operates	parallel	routes	in	many	of	our	main	traffic corridors.	In	addition,	we	operate	in	corridors	served	by	other	railroads	and	motor	carriers.	Motor	carrier	competition	exists	for	five	of	our	six	commodity groups	(excluding	energy).	Because	of	the	proximity	of	our	routes	to	major	inland	and	Gulf	Coast	waterways,	barges	can	be	particularly	competitive, especially	for	grain	and	bulk	commodities.	In	addition	to	price	competition,	we	face	competition	with	respect	to	transit	times	and	quality	and	reliability	of service.	While	we	must	build	or	acquire	and	maintain	our	rail	system,	trucks	and	barges	are	able	to	use	public	rights-of-way	maintained	by	public	entities. Any	future	improvements	or	expenditures	materially	increasing	the	quality	or	reducing	the	costs	of	these	alternative	modes	of	transportation,	or	legislation releasing	motor	carriers	from	their	size	or	weight	limitations,	could	have	a	material	adverse	effect	on	our	business.

Key	Suppliers	–	We	depend	on	two	key	domestic	suppliers	of	high	horsepower	locomotives.	Due	to	the	capital	intensive	nature	of	the	locomotive manufacturing	business	and	sophistication	of	this	equipment,	potential	new	suppliers	face	high	barriers	to	entry	in	this	industry.	Therefore,	if	one	of	these domestic	suppliers	discontinues	manufacturing	locomotives	for	any	reason,	including	insolvency	or	bankruptcy,	we	could	experience	a	significant	cost increase	and	risk	reduced	availability	of	the	locomotives	that	are	necessary	to	our	operations.	Additionally,	for	a	high	percentage	of	our	rail	purchases,	we utilize	 two	 suppliers	 (one	 domestic	 and	 one	 international)	 that	 meet	 our	 specifications.	 Rail	 is	 critical	 for	 both	 maintenance	 of	 our	 network	 and replacement	and	improvement	or	expansion	of	our	network	and	facilities.	Rail	manufacturing	also	has	high	barriers	to	entry,	and,	if	one	of	those	suppliers discontinues	operations	for	any	reason,	including	insolvency	or	bankruptcy,	we	could	experience	cost	increases	and	difficulty	obtaining	rail.

Employees	–	Approximately	86%	of	our	44,861	full-time-equivalent	employees	are	represented	by	14	major	rail	unions.	In	January	2010,	the	nation's largest	freight	railroads	began	the	current	round	of	negotiations	with	the	labor	unions.	Generally,	contract	negotiations	with	the	various	unions	take	place over	an	extended	period	of	time.	This	round	of	negotiations	was	no	exception.	In	September	2011,	the	rail	industry	reached	agreements	with	the	United Transportation	Union.	On	November	5,	2011,	a	Presidential	Emergency	Board	(PEB)	appointed	by	President	Obama	issued	recommendations	to	resolve the	disputes	between	the	U.S.	railroads	and	11	unions	that	had	not	yet	reached	agreements.	Since	then,	ten	unions	reached	agreements	with	the railroads,	all	of	them	generally	patterned	on	the	recommendations	of	the	PEB,	and	the	unions	subsequently	ratified	these	agreements.	The	railroad industry	 reached	 a	 tentative	 agreement	 with	 the	 Brotherhood	 of	 Maintenance	 of	 Way	 Employees	 (BMWE)	 on	 February	 2,	 2012,	 eliminating	 the immediate	threat	of	a	national	rail	strike.	The	BMWE	now	will	commence	ratification	of	this	tentative	agreement	by	its	members.

Railroad	Security	–	Operating	a	safe	and	secure	railroad	is	first	among	our	critical	priorities	and	is	a	primary	responsibility	of	all	our	employees.	This emphasis	helps	us	protect	the	public,	our	employees,	our	customers,	and	operations	across	our	rail	network.	Our	security	efforts	rely	upon	a	wide	variety of	measures	including	employee	training,	cooperation	with	our	customers,	training	of	emergency	responders,	and	partnerships	with	numerous	federal, state,	and	local	government	agencies.	While	federal	law	requires	us	to	protect	the	confidentiality	of	our	security	plans	designed	to	safeguard	against terrorism	and	other	security	incidents,	the	following	provides	a	general	overview	of	our	security	initiatives.

UPRR	Security	Measures	–	We	maintain	a	comprehensive	security	plan	designed	to	both	deter	and	to	respond	to	any	potential	or	actual	threats	as	they arise.	The	plan	includes	four	levels	of	alert	status,	each	with	its	own	set	of	countermeasures.	We	employ	our	own	police	force,	consisting	of	more	than 215	commissioned	and	highly-trained	officers.	Our	employees	also	undergo	recurrent	security	and	preparedness	training,	as	well	as	federally-mandated hazardous	 materials	 and	 security	 training.	 We	 regularly	 review	 the	 sufficiency	 of	 our	 employee	 training	 programs	 to	 identify	 ways	 to	 increase preparedness	and	to	improve	security.	We	maintain	the	capability	to	move	critical	operations	to	back-up	facilities	in	different	locations.

We	have	an	emergency	response	management	center,	which	operates	24	hours	a	day.	The	center	receives	reports	of	emergencies,	dangerous	or potentially	dangerous	conditions,	and	other	safety	and	security	issues	from	our	employees,	the	public,	and	law	enforcement	and	other	government officials.	In	cooperation	with	government	officials,	we	monitor	both	threats	and	public	events,	and,	as	necessary,	we	may	alter	rail	traffic	flow	at	times	of concern	to	minimize	risk	to	communities	we	serve	and	our	operations.	We	comply	with	the	hazardous	materials	routing	rules	and	other	requirements imposed	by	federal	law.	We	also	design	our	operating	plan	to	expedite	the	movement	of	hazardous	material	shipments	to	minimize	the	time	rail	cars remain	idle	at	yards	and	terminals	located	in	or	near	major	population	centers.	Additionally,	in	compliance	with	new	Transportation	Security	Agency regulations	that	took	effect	on	April	1,	2009,	we	deployed	new	information	systems	and	instructed	employees	in	tracking	and	documenting	the	handoff	of Rail	Security	Sensitive	Material	with	customers	and	interchange	partners.

We	also	have	established	a	number	of	our	own	innovative	safety	and	security-oriented	initiatives	ranging	from	various	investments	in	technology	to	The Officer	on	the	Train	program,	which	provides	local	law	enforcement	officers	with	the	opportunity	to	ride	with	train	crews	to	enhance	their	understanding	of railroad	operations	and	risks.	Our	staff	of	information	security	professionals	continually	assesses	cyber	security	risks	and	implements	mitigation	programs that	evolve	with	the	changing	technology	threat	environment.

Cooperation	with	Federal,	State,	and	Local	Government	Agencies	 –	We	work	closely	on	physical	and	cyber	security	initiatives	with	government	agencies ranging	from	the	DOT	and	the	Department	of	Homeland	Security	(DHS)	to	local	police	departments,	fire	departments,	and	other	first	responders.	In conjunction	with	DOT,	DHS,	and	other	railroads,	we	sponsor	Operation	Respond,	which	provides	first	responders	with	secure	links	to	electronic	railroad resources,	including	mapping	systems,	shipment	records,	and	other	essential	information	required	by	emergency	personnel	to	respond	to	accidents	and other	situations.	We	also	participate	in	the	National	Joint	Terrorism	Task	Force,	a	multi-agency	effort	established	by	the	U.S.	Department	of	Justice	and the	Federal	Bureau	of	Investigation	to	combat	and	prevent	terrorism.

We	work	with	the	Coast	Guard,	U.S.	Customs	and	Border	Protection	(CBP),	and	the	Military	Transport	Management	Command	to	monitor	shipments entering	the	UPRR	rail	network	at	U.S.	border	crossings	and	ports.	We	were	the	first	railroad	in	the	U.S.	to	be	named	a	partner	in	CBP's	Customs-Trade Partnership	Against	Terrorism,	a	partnership	designed	to	develop,	enhance,	and	maintain	effective	security	processes	throughout	the	global	supply chain.

Cooperation	with	Customers	and	Trade	Associations –	Along	with	other	railroads,	we	work	with	the	American	Chemistry	Council	to	train	more	than 200,000	emergency	responders	each	year.	We	work	closely	with	our	chemical	shippers	to	establish	plant	security	plans,	and	we	continue	to	take	steps	to more	closely	monitor	and	track	hazardous	materials	shipments.	In	cooperation	with	the	Federal	Railroad	Administration	(FRA)	and	other	railroads,	we	are also	working	to	develop	additional	improvements	to	tank	car	design	that	will	further	limit	the	risk	of	releases	of	hazardous	materials.

# GOVERNMENTAL	AND	ENVIRONMENTAL	REGULATION

Governmental	Regulation	–	Our	operations	are	subject	to	a	variety	of	federal,	state,	and	local	regulations,	generally	applicable	to	all	businesses.	(See also	the	discussion	of	certain	regulatory	proceedings	in	Legal	Proceedings,	Item	3.)

The	operations	of	the	Railroad	are	also	subject	to	the	regulatory	jurisdiction	of	the	STB.	The	STB	has	jurisdiction	over	rates	charged	on	certain	regulated rail	traffic;	common	carrier	service	of	regulated	traffic;	freight	car	compensation;	transfer,	extension,	or	abandonment	of	rail	lines;	and	acquisition	of control	of	rail	common	carriers.	The	STB	launched	wide-ranging	proceedings	to	explore	whether	to	expand	rail	regulation,	and	we	actively	participated. The	STB	has	not	yet	taken	further	action	and	denied	a	petition	seeking	one	form	of	"access"	regulation.	Additionally,	several	bills	were	introduced	in	the U.S.	Senate	in	early	2011	that	would	expand	the	regulatory	authority	of	the	STB	and	could	include	new	antitrust	provisions.	We	continue	to	monitor	these proposed	bills.

The	operations	of	the	Railroad	also	are	subject	to	the	regulations	of	the	FRA	and	other	federal	and	state	agencies.	On	January	12,	2010,	the	FRA	issued final	rules	governing	installation	of	Positive	Train	Control	(PTC)	by	the	end	of	2015.	Although	still	under	development,	PTC	is	a	collision	avoidance technology	 intended	 to	override	 locomotive	controls	and	stop	a	 train	before	an	accident.	The	FRA	acknowledged	 that	projected	costs	will	exceed projected	benefits	by	a	ratio	of	about	22	to	one,	and	we	estimate	that	our	costs	will	be	higher	than	the	FRA	assumed.	Congress	has	directed	the	FRA	to provide	an	early	report	by	March	1,	2012,	on	the	status	of	PTC	implementation,	which	is	in	advance	of	a	detailed	report	due	by	the	end	of	2012.	Through 2011,	we	have	invested	nearly	$400	million	in	the	development	of	PTC.

DOT,	the	Occupational	Safety	and	Health	Administration,	and	DHS,	along	with	other	federal	agencies,	have	jurisdiction	over	certain	aspects	of	safety, movement	of	hazardous	materials	and	hazardous	waste,	emissions	requirements,	and	equipment	standards.	The	Rail	Safety	Improvement	Act	of	2008, among	other	things,	revised	hours	of	service	rules	for	train	and	certain	other	railroad	employees,	mandated	implementation	of	PTC,	imposed	passenger service	requirements,	addressed	safety	at	rail	crossings,	increased	the	number	of	safety	related	employees	of	the	FRA,	and	increased	fines	that	may	be levied	against	railroads	for	safety	violations.	Additionally,	various	state	and	local	agencies	have	jurisdiction	over	disposal	of	hazardous	waste	and	seek	to regulate	movement	of	hazardous	materials	in	ways	not	preempted	by	federal	law.

Environmental	Regulation	–	We	are	subject	to	extensive	federal	and	state	environmental	statutes	and	regulations	pertaining	to	public	health	and	the environment.	 The	 statutes	 and	 regulations	 are	 administered	 and	 monitored	 by	 the	 Environmental	 Protection	Agency	 (EPA)	 and	 by	 various	 state environmental	agencies.	The	primary	laws	affecting	our	operations	are	the	Resource	Conservation	and	Recovery	Act,	regulating	the	management	and disposal	 of	 solid	 and	 hazardous	 wastes;	 the	 Comprehensive	 Environmental	 Response,	 Compensation,	 and	 Liability	Act,	 regulating	 the	 cleanup	 of contaminated	properties;	the	Clean	Air	Act,	regulating	air	emissions;	and	the	Clean	Water	Act,	regulating	waste	water	discharges.

Information	concerning	environmental	claims	and	contingencies	and	estimated	remediation	costs	is	set	forth	in	Management's	Discussion	and	Analysis	of Financial	 Condition	 and	 Results	 of	 Operations	 –	 Critical	Accounting	 Policies	 –	 Environmental,	 Item	 7	 and	 Note	 17	 to	 the	 Consolidated	 Financial Statements	in	Item	8,	Financial	Statements	and	Supplementary	Data.

# Item	1A.	Risk	Factors

The	information	set	forth	in	this	Item	1A	should	be	read	in	conjunction	with	the	rest	of	the	information	included	in	this	report,	including	Management's Discussion	and	Analysis	of	Financial	Condition	and	Results	of	Operations,	Item	7,	and	Financial	Statements	and	Supplementary	Data,	Item	8.

We	Must	Manage	Fluctuating	Demand	for	Our	Services	and	Network	Capacity 	–	If	there	is	significant	demand	for	our	services	that	exceeds	the	designed capacity	of	our	network,	we	may	experience	network	difficulties,	including	congestion	and	reduced	velocity,	that	could	compromise	the	level	of	service	we provide	to	our	customers.	This	level	of	demand	may	also	compound	the	impact	of	weather	and	weather-related	events	on	our	operations	and	velocity. Although	we	continue	to	improve	our	transportation	plan,	add	capacity,	and	improve	operations	at	our	yards	and	other	facilities,	we	cannot	be	sure	that these	measures	will	fully	or	adequately	address	any	service	shortcomings	resulting	from	demand	exceeding	our	planned	capacity.	We	may	experience other	operational	or	service	difficulties	related	to	network	capacity,	dramatic	and	unplanned	increases	or	decreases	of	demand	for	rail	service	with respect	to	one	or	more	of	our	commodity	groups,	or	other	events	that	could	have	a	negative	impact	on	our	operational	efficiency,	any	of	which	could	have a	material	adverse	effect	on	our	results	of	operations,	financial	condition,	and	liquidity.	In	the	event	that	we	experience	significant	reductions	of	demand for	rail	services	with	respect	to	one	or	more	of	our	commodity	groups,	we	may	experience	increased	costs	associated	with	resizing	our	operations, including	higher	unit	operating	costs	and	costs	for	the	storage	of	locomotives,	rail	cars,	and	other	equipment;	work-force	adjustments;	and	other	related activities,	which	could	have	a	material	adverse	effect	on	our	results	of	operations,	financial	condition,	and	liquidity.

We	Are	Subject	to	Significant	Governmental	Regulation 	–	We	are	subject	to	governmental	regulation	by	a	significant	number	of	federal,	state,	and	local authorities	covering	a	variety	of	health,	safety,	labor,	environmental,	economic	(as	discussed	below),	and	other	matters.	Many	laws	and	regulations require	us	to	obtain	and	maintain	various	licenses,	permits,	and	other	authorizations,	and	we	cannot	guarantee	that	we	will	continue	to	be	able	to	do	so. Our	failure	to	comply	with	applicable	laws	and	regulations	could	have	a	material	adverse	effect	on	us.	Governments	or	regulators	may	change	the legislative	or	regulatory	frameworks	within	which	we	operate	without	providing	us	any	recourse	to	address	any	adverse	effects	on	our	business,	including, without	limitation,	regulatory	determinations	or	rules	regarding	dispute	resolution,	business	relationships	with	other	railroads,	calculation	of	our	cost	of capital	or	other	inputs	relevant	to	computing	our	revenue	adequacy,	the	prices	we	charge,	and	costs	and	expenses.	Significant	legislative	activity	in Congress	or	regulatory	activity	by	the	STB	could	expand	regulation	of	railroad	operations	and	prices	for	rail	services,	which	could	reduce	capital	spending on	our	rail	network,	facilities	and	equipment	and	have	a	material	adverse	effect	on	our	results	of	operations,	financial	condition,	and	liquidity.	As	part	of the	Rail	Safety	Improvement	Act	of	2008,	railroad	carriers	must	implement	PTC	by	the	end	of	2015,	which	could	have	a	material	adverse	effect	on	our ability	to	make	other	capital	investments.	One	or	more	consolidations	of	Class	I	railroads	could	also	lead	to	increased	regulation	of	the	rail	industry.

We	Are	Required	to	Transport	Hazardous	Materials 	–	Federal	laws	require	railroads,	including	us,	to	transport	certain	hazardous	materials	regardless	of risk	or	potential	exposure	to	loss.	Any	rail	accident	or	other	incident	or	accident	on	our	network,	at	our	facilities,	or	at	the	facilities	of	our	customers involving	the	release	of	hazardous	materials,	including	toxic	inhalation	hazard	(or	TIH)	materials	such	as	chlorine,	could	involve	significant	costs	and claims	for	personal	injury,	property	damage,	and	environmental	penalties	and	remediation,	which	could	have	a	material	adverse	effect	on	our	results	of operations,	financial	condition,	and	liquidity.

We	May	Be	Affected	by	General	Economic	Conditions 	–	Prolonged	severe	adverse	domestic	and	global	economic	conditions	or	disruptions	of	financial and	credit	markets,	including	the	availability	of	short-	and	long-term	debt	financing,	may	affect	the	producers	and	consumers	of	the	commodities	we	carry and	may	have	a	material	adverse	effect	on	our	access	to	liquidity	and	our	results	of	operations	and	financial	condition.

We	Face	Competition	from	Other	Railroads	and	Other	Transportation	Providers 	–	We	face	competition	from	other	railroads,	motor	carriers,	ships,	barges, and	pipelines.	In	addition	to	price	competition,	we	face	competition	with	respect	to	transit	times	and	quality	and	reliability	of	service.	While	we	must	build or	acquire	and	maintain	our	rail	system,	trucks	and	barges	are	able	to	use	public	rights-of-way	maintained	by	public	entities.	Any	future	improvements	or expenditures	materially	increasing	the	quality	or	reducing	the	cost	of	alternative	modes	of	transportation,	or	legislation	releasing	motor	carriers	from	their size	or	weight	limitations,	could	have	a	material	adverse	effect	on	our	results	of	operations,	financial	condition,

and	liquidity.	Additionally,	any	future	consolidation	of	the	rail	industry	could	materially	affect	the	competitive	environment	in	which	we	operate.

We	Rely	on	Technology	and	Technology	Improvements	in	Our	Business	Operations 	–	We	rely	on	information	technology	in	all	aspects	of	our	business.	If we	do	not	have	sufficient	capital	to	acquire	new	technology	or	if	we	are	unable	to	develop	or	implement	new	technology	such	as	PTC	or	the	latest	version of	our	transportation	control	systems,	we	may	suffer	a	competitive	disadvantage	within	the	rail	industry	and	with	companies	providing	other	modes	of transportation	service,	which	could	have	a	material	adverse	effect	on	our	results	of	operations,	financial	condition,	and	liquidity.	Additionally,	if	a	cyber attack	or	other	event	causes	significant	disruption	or	failure	of	one	or	more	of	our	information	technology	systems,	including	computer	hardware,	software, and	communications	equipment,	we	could	suffer	a	significant	service	interruption,	safety	failure,	security	breach,	or	other	operational	difficulties,	which could	have	a	material	adverse	impact	on	our	results	of	operations,	financial	condition,	and	liquidity.

Strikes	or	Work	Stoppages	Could	Adversely	Affect	Our	Operations	as	the	Majority	of	Our	Employees	Belong	to	Labor	Unions	and	Labor	Agreements 	– The	U.S.	Class	I	railroads	are	party	to	collective	bargaining	agreements	with	various	labor	unions.	Disputes	with	regard	to	the	terms	of	these	agreements or	our	potential	inability	to	negotiate	acceptable	contracts	with	these	unions	could	result	in,	among	other	things,	strikes,	work	stoppages,	slowdowns,	or lockouts,	which	could	cause	a	significant	disruption	of	our	operations	and	have	a	material	adverse	effect	on	our	results	of	operations,	financial	condition, and	liquidity.	Additionally,	future	national	labor	agreements,	or	renegotiation	of	labor	agreements	or	provisions	of	labor	agreements,	could	compromise our	service	reliability	or	significantly	increase	our	costs	for	health	care,	wages,	and	other	benefits,	which	could	have	a	material	adverse	impact	on	our results	of	operations,	financial	condition,	and	liquidity.

Severe	Weather	Could	Result	in	Significant	Business	Interruptions	and	Expenditures 	–	As	a	railroad	with	a	vast	network,	we	are	exposed	to	severe weather	conditions	and	other	natural	phenomena,	including	earthquakes,	hurricanes,	fires,	floods,	mudslides	or	landslides,	extreme	temperatures,	and significant	precipitation	that	may	cause	business	interruptions,	including	line	outages	on	our	rail	network,	that	can	adversely	affect	our	entire	rail	network and	result	in	increased	costs,	increased	liabilities,	and	decreased	revenue,	which	could	have	a	material	adverse	effect	on	our	results	of	operations, financial	condition,	and	liquidity.

We	May	Be	Subject	to	Various	Claims	and	Lawsuits	That	Could	Result	in	Significant	Expenditures 	–	As	a	railroad	with	operations	in	densely	populated urban	areas	and	other	cities	and	a	vast	rail	network,	we	are	exposed	to	the	potential	for	various	claims	and	litigation	related	to	labor	and	employment, personal	injury,	property	damage,	environmental	liability,	and	other	matters.	Any	material	changes	to	litigation	trends	or	a	catastrophic	rail	accident	or series	of	accidents	involving	any	or	all	of	property	damage,	personal	injury,	and	environmental	liability	could	have	a	material	adverse	effect	on	our	results of	operations,	financial	condition,	and	liquidity.

We	Are	Subject	to	Significant	Environmental	Laws	and	Regulations 	–	Due	to	the	nature	of	the	railroad	business,	our	operations	are	subject	to	extensive federal,	state,	and	local	environmental	laws	and	regulations	concerning,	among	other	things,	emissions	to	the	air;	discharges	to	waters;	handling,	storage, transportation,	and	disposal	of	waste	and	other	materials;	and	hazardous	material	or	petroleum	releases.	We	generate	and	transport	hazardous	and	non- hazardous	 waste	 in	 our	 operations,	 and	 we	 did	 so	 in	 our	 former	 operations.	 Environmental	 liability	 can	 extend	 to	 previously	 owned	 or	 operated properties,	leased	properties,	and	properties	owned	by	third	parties,	as	well	as	to	properties	we	currently	own.	Environmental	liabilities	have	arisen	and may	also	arise	from	claims	asserted	by	adjacent	landowners	or	other	third	parties	in	toxic	tort	litigation.	We	have	been	and	may	be	subject	to	allegations or	findings	that	we	have	violated,	or	are	strictly	liable	under,	these	laws	or	regulations.	We	could	incur	significant	costs	as	a	result	of	any	of	the	foregoing, and	we	may	be	required	to	incur	significant	expenses	to	investigate	and	remediate	known,	unknown,	or	future	environmental	contamination,	which	could have	a	material	adverse	effect	on	our	results	of	operations,	financial	condition,	and	liquidity.

We	May	Be	Affected	by	Climate	Change	and	Market	or	Regulatory	Responses	to	Climate	Change 	–	Climate	change,	including	the	impact	of	global warming,	could	have	a	material	adverse	effect	on	our	results	of	operations,	financial	condition,	and	liquidity.	Restrictions,	caps,	taxes,	or	other	controls	on emissions	of	greenhouse	gasses,	including	diesel	exhaust,	could	significantly	increase	our	operating	costs.	Restrictions	on	emissions	could	also	affect our	 customers	 that	 (a)	 use	 commodities	 that	 we	 carry	 to	 produce	 energy,	 (b)	 use	 significant	 amounts	 of	 energy	 in	 producing	 or	 delivering	 the commodities	we

carry,	or	(c)	manufacture	or	produce	goods	that	consume	significant	amounts	of	energy	or	burn	fossil	fuels,	including	chemical	producers,	farmers	and food	producers,	and	automakers	and	other	manufacturers.	Significant	cost	increases,	government	regulation,	or	changes	of	consumer	preferences	for goods	or	services	relating	to	alternative	sources	of	energy	or	emissions	reductions	could	materially	affect	the	markets	for	the	commodities	we	carry, which	in	turn	could	have	a	material	adverse	effect	on	our	results	of	operations,	financial	condition,	and	liquidity.	Government	incentives	encouraging	the use	 of	 alternative	 sources	 of	 energy	 could	 also	 affect	 certain	 of	 our	 customers	 and	 the	 markets	 for	 certain	 of	 the	 commodities	 we	 carry	 in	 an unpredictable	manner	that	could	alter	our	traffic	patterns,	including,	for	example,	the	impacts	of	ethanol	incentives	on	farming	and	ethanol	producers. Finally,	we	could	face	increased	costs	related	to	defending	and	resolving	legal	claims	and	other	litigation	related	to	climate	change	and	the	alleged	impact of	our	operations	on	climate	change.	Any	of	these	factors,	individually	or	in	operation	with	one	or	more	of	the	other	factors,	or	other	unforeseen	impacts	of climate	change	could	reduce	the	amount	of	traffic	we	handle	and	have	a	material	adverse	effect	on	our	results	of	operations,	financial	condition,	and liquidity.

The	Availability	of	Qualified	Personnel	Could	Adversely	Affect	Our	Operations 	–	Changes	in	demographics,	training	requirements,	and	the	availability	of qualified	personnel	could	negatively	affect	our	ability	to	meet	demand	for	rail	service.	Unpredictable	increases	in	demand	for	rail	services	and	a	lack	of network	fluidity	may	exacerbate	such	risks,	which	could	have	a	negative	impact	on	our	operational	efficiency	and	otherwise	have	a	material	adverse effect	on	our	results	of	operations,	financial	condition,	and	liquidity.

Rising	or	Elevated	Fuel	Costs	and	Whether	We	Are	Able	to	Mitigate	These	Costs	with	Fuel	Surcharges	Could	Materially	and	Adversely	Affect	Our Business	–	Fuel	costs	constitute	a	significant	portion	of	our	transportation	expenses.	Diesel	fuel	prices	are	subject	to	dramatic	fluctuations,	and	significant price	increases	could	have	a	material	adverse	effect	on	our	operating	results.	Although	we	currently	are	able	to	recover	a	significant	amount	of	our increased	fuel	expenses	through	revenue	from	fuel	surcharges,	we	cannot	be	certain	that	we	will	always	be	able	to	mitigate	rising	or	elevated	fuel	costs through	surcharges.	Future	market	conditions	or	legislative	or	regulatory	activities	could	adversely	affect	our	ability	to	apply	fuel	surcharges	or	adequately recover	increased	fuel	costs	through	fuel	surcharges.	International,	political,	and	economic	circumstances	affect	fuel	prices	and	supplies.	Weather	can also	affect	fuel	supplies	and	limit	domestic	refining	capacity.	If	a	fuel	supply	shortage	were	to	arise,	higher	fuel	prices	could,	despite	our	fuel	surcharge programs,	have	a	material	adverse	effect	on	our	results	of	operations,	financial	condition,	and	liquidity.

We	Utilize	Capital	Markets	–	Due	to	the	significant	capital	expenditures	required	to	operate	and	maintain	a	safe	and	efficient	railroad,	we	rely	on	the capital	markets	to	provide	some	of	our	capital	requirements.	We	utilize	long-term	debt	instruments,	bank	financing	and	commercial	paper	from	time-to- time,	and	we	pledge	certain	of	our	receivables.	Significant	instability	or	disruptions	of	the	capital	markets,	including	the	credit	markets,	or	deterioration	of our	financial	condition	due	to	internal	or	external	factors	could	restrict	or	prohibit	our	access	to,	and	significantly	increase	the	cost	of,	commercial	paper and	other	financing	sources,	including	bank	credit	facilities	and	the	issuance	of	long-term	debt,	including	corporate	bonds.	A	deterioration	of	our	financial condition	could	result	in	a	reduction	of	our	credit	rating	to	below	investment	grade,	which	could	prohibit	or	restrict	us	from	utilizing	our	current	receivables securitization	facility	or	accessing	external	sources	of	short-	and	long-term	debt	financing	and	significantly	increase	the	costs	associated	with	utilizing	the receivables	securitization	facility	and	issuing	both	commercial	paper	and	long-term	debt.

We	Are	Subject	to	Legislative,	Regulatory,	and	Legal	Developments	Involving	Taxes 	–	Taxes	are	a	significant	part	of	our	expenses.	We	are	subject	to U.S.	federal,	state,	and	foreign	income,	payroll,	property,	sales	and	use,	fuel,	and	other	types	of	taxes.	Changes	in	tax	rates,	enactment	of	new	tax	laws, revisions	of	tax	regulations,	and	claims	or	litigation	with	taxing	authorities	could	result	in	substantially	higher	taxes	and,	therefore,	could	have	a	material adverse	effect	on	our	results	of	operations,	financial	condition,	and	liquidity.

We	Are	Dependent	on	Certain	Key	Suppliers	of	Locomotives	and	Rail 	–	Due	to	the	capital	intensive	nature	and	sophistication	of	locomotive	equipment, potential	new	suppliers	face	high	barriers	to	entry.	Therefore,	if	one	of	the	domestic	suppliers	of	high	horsepower	locomotives	discontinues	manufacturing locomotives	 for	 any	 reason,	 including	 bankruptcy	 or	 insolvency,	 we	 could	 experience	 significant	 cost	 increases	 and	 reduced	 availability	 of	 the locomotives	that	are	necessary	for	our	operations.	Additionally,	for	a	high	percentage	of	our	rail	purchases,	we	utilize	two	suppliers	(one	domestic	and one	international)

that	meet	our	specifications.	Rail	is	critical	to	our	operations	for	rail	replacement	programs,	maintenance,	and	for	adding	additional	network	capacity,	new rail	and	storage	yards,	and	expansions	of	existing	facilities.	This	industry	similarly	has	high	barriers	to	entry,	and	if	one	of	these	suppliers	discontinues operations	 for	any	reason,	 including	bankruptcy	or	 insolvency,	we	could	experience	both	significant	cost	 increases	 for	rail	purchases	and	difficulty obtaining	sufficient	rail	for	maintenance	and	other	projects.

We	May	Be	Affected	by	Acts	of	Terrorism,	War,	or	Risk	of	War 	–	Our	rail	lines,	facilities,	and	equipment,	including	rail	cars	carrying	hazardous	materials, could	be	direct	targets	or	indirect	casualties	of	terrorist	attacks.	Terrorist	attacks,	or	other	similar	events,	any	government	response	thereto,	and	war	or risk	of	war	may	adversely	affect	our	results	of	operations,	financial	condition,	and	liquidity.	In	addition,	insurance	premiums	for	some	or	all	of	our	current coverages	could	increase	dramatically,	or	certain	coverages	may	not	be	available	to	us	in	the	future.

# Item	1B.	Unresolved	Staff	Comments

# None.

# Item	2.	Properties

We	employ	a	variety	of	assets	in	the	management	and	operation	of	our	rail	business.	Our	rail	network	covers	23	states	in	the	western	two-thirds	of	the U.S.

# TRACK

Our	rail	network	includes	31,898	route	miles.	We	own	26,027	miles	and	operate	on	the	remainder	pursuant	to	trackage	rights	or	leases.	The	following table	describes	track	miles	at	December	31,	2011	and	2010.

|  | 2011 | 2010 |
| :--- | :--- | :--- |
| Route | \t31,898 | \t31,953 |
| Other\tmain\tline | 6,644 | 6,596 |
| Passing\tlines\tand\tturnouts | 3,112 | 3,118 |
| Switching\tand\tclassification\tyard\tlines | 8,999 | 9,006 |
| Total\tmiles | \t50,653 | \t50,673 |

# HEADQUARTERS	BUILDING

We	maintain	our	headquarters	in	Omaha,	Nebraska.	The	facility	has	1.2	million	square	feet	of	space	for	approximately	4,000	employees	and	is	subject	to a	financing	arrangement.

# HARRIMAN	DISPATCHING	CENTER

The	 Harriman	 Dispatching	 Center	 (HDC),	 located	 in	 Omaha,	 Nebraska,	 is	 our	 primary	 dispatching	 facility.	 It	 is	 linked	 to	 regional	 dispatching	 and locomotive	management	facilities	at	various	locations	along	our	network.	HDC	employees	coordinate	moves	of	locomotives	and	trains,	manage	traffic	and train	crews	on	our	network,	and	coordinate	interchanges	with	other	railroads.	Over	900	employees	currently	work	on-site	in	the	facility.	In	the	event	of	a disruption	of	operations	at	HDC	due	to	a	cyber	attack,	flooding	or	severe	weather	or	other	event,	we	maintain	the	capability	to	conduct	critical	operations at	back-up	facilities	in	different	locations.

# RAIL	FACILITIES

In	 addition	 to	 our	 track	 structure,	 we	 operate	 numerous	 facilities,	 including	 terminals	 for	 intermodal	 and	 other	 freight;	 rail	 yards	 for	 train-building (classification	yards),	switching,	storage-in-transit	(the	temporary	storage	of	customer	goods	in	rail	cars	prior	to	shipment)	and	other	activities;	offices	to administer	and	manage	our	operations;	dispatching	centers	to	direct	traffic	on	our	rail	network;	crew	quarters	to	house	train	crews	along	our	network;	and shops	and	other	facilities	for	fueling,	maintenance,	and	repair	of	locomotives	and	repair	and	maintenance	of	rail	cars	and	other	equipment.	The	following tables	include	the	major	yards	and	terminals	on	our	system:

| Top	10	Intermodal	Terminals | 2011 | 2010 |
| :--- | :--- | :--- |
| ICTF\t(Los\tAngeles),\tCalifornia | \t432,000 | 450,000 |
| East\tLos\tAngeles,\tCalifornia | \t428,000 | 429,000 |
| Joliet\t(Global\t4),\tIllinois\t[a] | \t298,000 | 118,000 |
| Global\tI\t(Chicago),\tIllinois | \t295,000 | 317,000 |
| Marion\t(Memphis),\tTennessee | \t283,000 | 292,000 |
| Yard\tCenter\t(Chicago),\tIllinois | \t277,000 | 241,000 |
| Global\tII\t(Chicago),\tIllinois | \t273,000 | 342,000 |
| Dallas,\tTexas | \t261,000 | 280,000 |
| Mesquite,\tTexas | \t232,000 | 215,000 |
| LATC\t(Los\tAngeles),\tCalifornia | \t226,000 | 224,000 |

[a] New	terminal	completed	in	August	2010	with	an	annual	capacity	of	500,000	intermodal	containers.

# RAIL	EQUIPMENT

Our	equipment	includes	owned	and	leased	locomotives	and	rail	cars;	heavy	maintenance	equipment	and	machinery;	other	equipment	and	tools	in	our shops,	offices,	and	facilities;	and	vehicles	for	maintenance,	transportation	of	crews,	and	other	activities.	As	of	December	31,	2011,	we	owned	or	leased the	following	units	of	equipment:

|  |  |  |  | Average |
| :--- | :--- | :--- | :--- | :--- |
| Locomotives | Owned | Leased | Total | Age\t(yrs.) |
| Multiple\tpurpose | 5,082 | 2,550 | 7,632 | 16.8 |
| Switching | 401 | 25 | 426 | 32.0 |
| Other | 92 | 63 | 155 | 31.7 |
| Total\tlocomotives | 5,575 | 2,638 | 8,213 | N/A |

|  |  |  |  | Average |
| :--- | :--- | :--- | :--- | :--- |
| Freight\tcars | Owned | Leased | Total | Age\t(yrs.) |
| Covered\thoppers | \t12,672 | \t17,823 | \t30,495 | 26.6 |
| Open\thoppers | \t10,429 | 3,983 | \t14,412 | 31.5 |
| Gondolas | 6,487 | 5,074 | \t11,561 | 27.2 |
| Boxcars | 5,303 | 1,737 | 7,040 | 28.9 |
| Refrigerated\tcars | 2,494 | 4,302 | 6,796 | 23.6 |
| Flat\tcars | 2,764 | 914 | 3,678 | 34.1 |
| Other | 104 | 459 | 563 | N/A |
| Total\tfreight\tcars | \t40,253 | \t34,292 | \t74,545 | N/A |

|  |  |  |  | Average |
| :--- | :--- | :--- | :--- | :--- |
| Highway\trevenue\tequipment | Owned | Leased | Total | Age\t(yrs.) |
| Containers | \t17,231 | \t37,059 | \t54,290 | 5.7 |
| Chassis | 9,247 | \t27,931 | \t37,178 | 6.7 |
| Total\thighway\trevenue\tequipment | \t26,478 | \t64,990 | \t91,468 | N/A |

# CAPITAL	EXPENDITURES

Our	rail	network	requires	significant	annual	capital	 investments	 for	replacement,	 improvement,	and	expansion.	These	 investments	enhance	safety, support	the	transportation	needs	of	our	customers,	and	improve	our	operational	efficiency.	Additionally,	we	add	new	locomotives	and	freight	cars	to	our fleet	to	replace	older,	less	efficient	equipment,	to	support	growth	and	customer	demand,	and	to	reduce	our	impact	on	the	environment	through	the acquisition	of	more	fuel	efficient	and	low-emission	locomotives.

2011	Capital	Expenditures	–	During	2011,	we	made	capital	investments	totaling	$3.2	billion,	nearly	all	of	which	was	cash	spending.	(See	the	capital expenditures	table	in	Management's	Discussion	and	Analysis

of	Financial	Condition	and	Results	of	Operations	–	Liquidity	and	Capital	Resources	–	Financial	Condition,	Item	7.)

2012	 Capital	 Expenditures	 – In	 2012,	 we	 expect	 to	 make	 capital	 investments	 of	 approximately	 $3.6	 billion,	 including	 expenditures	 for	 PTC	 of approximately	$335	million.	We	may	revise	our	2012	capital	plan	if	business	conditions	warrant	or	if	new	laws	or	regulations	affect	our	ability	to	generate sufficient	returns	on	these	investments.	(See	discussion	of	our	2012	capital	plan	in	Management's	Discussion	and	Analysis	of	Financial	Condition	and Results	of	Operations	–	2012	Outlook,	Item	7.)

# OTHER

Equipment	Encumbrance	–	Equipment	with	a	carrying	value	of	approximately	$2.9	billion	and	$3.2	billion	at	December	31,	2011	and	2010,	respectively, served	as	collateral	for	capital	leases	and	other	types	of	equipment	obligations	in	accordance	with	the	secured	financing	arrangements	utilized	to	acquire such	railroad	equipment.

As	a	result	of	the	merger	of	Missouri	Pacific	Railroad	Company	(MPRR)	with	and	into	UPRR	on	January	1,	1997,	and	pursuant	to	the	underlying indentures	 for	 the	 MPRR	 mortgage	 bonds,	 UPRR	 must	 maintain	 the	 same	 value	 of	 assets	 after	 the	 merger	 in	 order	 to	 comply	 with	 the	 security requirements	of	the	mortgage	bonds.	As	of	the	merger	date,	the	value	of	the	MPRR	assets	that	secured	the	mortgage	bonds	was	approximately	$6.0 billion.	In	accordance	with	the	terms	of	the	indentures,	this	collateral	value	must	be	maintained	during	the	entire	term	of	the	mortgage	bonds	irrespective of	the	outstanding	balance	of	such	bonds.

Environmental	 Matters	 –	 Certain	 of	 our	 properties	 are	 subject	 to	 federal,	 state,	 and	 local	 laws	 and	 regulations	 governing	 the	 protection	 of	 the environment.	(See	discussion	of	environmental	issues	in	Business	–	Governmental	and	Environmental	Regulation,	Item	1,	and	Management's	Discussion and	Analysis	of	Financial	Condition	and	Results	of	Operations	–	Critical	Accounting	Policies	–	Environmental,	Item	7.)

# Item	3.	Legal	Proceedings

From	time	to	time,	we	are	involved	in	legal	proceedings,	claims,	and	litigation	that	occur	in	connection	with	our	business.	We	routinely	assess	our liabilities	and	contingencies	in	connection	with	these	matters	based	upon	the	latest	available	information	and,	when	necessary,	we	seek	input	from	our third-party	 advisors	 when	 making	 these	 assessments.	 Consistent	 with	 SEC	 rules	 and	 requirements,	 we	 describe	 below	 material	 pending	 legal proceedings	 (other	 than	 ordinary	 routine	 litigation	 incidental	 to	 our	 business),	 material	 proceedings	 known	 to	 be	 contemplated	 by	 governmental authorities,	other	proceedings	arising	under	federal,	state,	or	local	environmental	laws	and	regulations	(including	governmental	proceedings	involving potential	fines,	penalties,	or	other	monetary	sanctions	in	excess	of	$100,000),	and	such	other	pending	matters	that	we	may	determine	to	be	appropriate.

# ENVIRONMENTAL	MATTERS

As	we	reported	in	our	Annual	Report	on	Form	10-K	for	2005,	the	Illinois	Attorney	General's	office	filed	a	complaint	against	the	Railroad	in	the	Circuit Court	for	the	Twentieth	Judicial	Circuit	(St.	Clair	County)	for	injunctive	and	other	relief	on	November	28,	2005,	alleging	a	diesel	fuel	spill	from	an	above- ground	storage	tank	in	a	rail	yard	in	Dupo,	St.	Clair	County,	Illinois.	The	State	of	Illinois	seeks	to	enjoin	UPRR	from	further	violations	and	a	monetary penalty.	Union	Pacific	settled	this	matter	by	paying	the	State	of	Illinois	$34,000.

As	we	reported	 in	our	Quarterly	Report	on	Form	10-Q	 for	 the	quarter	ended	March	31,	2010,	we	received	notices	 from	EPA	Region	8	and	U.S. Department	of	Justice	(DOJ)	alleging	that	we	may	be	liable	under	federal	environmental	laws	for	violating	the	Clean	Water	Act	and	the	Oil	Pollution Prevention	Act	relating	to	derailments	and	spills	and	UPRR's	Spill	Prevention	Countermeasure	and	Control	Plans	and	its	Stormwater	Pollution	Prevention Plans	in	Colorado,	Utah,	and	Wyoming.	We	cannot	predict	the	ultimate	impact	of	these	proceedings	because	we	are	continuing	to	investigate	and negotiate	with	the	EPA	Region	8	and	DOJ.	The	amount	of	the	proposed	penalty,	although	uncertain,	could	exceed	$100,000.

We	received	notices	from	the	EPA	and	state	environmental	agencies	alleging	that	we	are	or	may	be	liable	under	federal	or	state	environmental	laws	for remediation	costs	at	various	sites	throughout	the	U.S.,

including	sites	on	the	Superfund	National	Priorities	List	or	state	superfund	lists.	We	cannot	predict	the	ultimate	impact	of	these	proceedings	and	suits because	of	the	number	of	potentially	responsible	parties	involved,	the	degree	of	contamination	by	various	wastes,	the	scarcity	and	quality	of	volumetric data	related	to	many	of	the	sites,	and	the	speculative	nature	of	remediation	costs.

Information	concerning	environmental	claims	and	contingencies	and	estimated	remediation	costs	is	set	forth	in	Management's	Discussion	and	Analysis	of Financial	Condition	and	Results	of	Operations	–	Critical	Accounting	Policies	–	Environmental,	Item	7.

# OTHER	MATTERS

Antitrust	Litigation	–	As	we	reported	in	our	Quarterly	Report	on	Form	10-Q	for	the	quarter	ended	June	30,	2007,	20	small	rail	shippers	(many	of	whom are	represented	by	the	same	law	firms)	filed	virtually	identical	antitrust	lawsuits	in	various	federal	district	courts	against	the	Railroad	and	four	other	Class	I railroads	in	the	U.S	(one	railroad	was	eventually	dropped	from	the	lawsuit).	The	original	plaintiff	filed	the	first	of	these	claims	in	the	U.S.	District	Court	in New	Jersey	on	May	14,	2007,	and	the	additional	plaintiffs	filed	claims	in	district	courts	in	various	states,	including	Florida,	Illinois,	Alabama,	Pennsylvania, and	the	District	of	Columbia.	These	suits	allege	that	the	named	railroads	engaged	in	price-fixing	by	establishing	common	fuel	surcharges	for	certain	rail traffic.

We	received	additional	complaints	following	the	initial	claim,	increasing	the	total	number	of	complaints	to	30.	In	addition	to	suits	filed	by	direct	purchasers of	rail	transportation,	a	few	of	the	suits	involved	plaintiffs	alleging	that	they	are	or	were	indirect	purchasers	of	rail	transportation	and	seeking	to	represent	a purported	class	of	indirect	purchasers	of	rail	transportation	that	paid	fuel	surcharges.	These	complaints	added	allegations	under	state	antitrust	and consumer	 protection	 laws.	 On	 November	 6,	 2007,	 the	 Judicial	 Panel	 on	 Multidistrict	 Litigation	 ordered	 that	 all	 of	 the	 rail	 fuel	 surcharge	 cases	 be transferred	 to	 Judge	 Paul	 Friedman	 of	 the	 U.S.	 District	 Court	 in	 the	 District	 of	 Columbia	 for	 coordinated	 or	 consolidated	 pretrial	 proceedings. Subsequently,	the	direct	purchaser	plaintiffs	and	the	indirect	purchaser	plaintiffs	filed	Consolidated	Amended	Class	Action	Complaints	against	UPRR	and three	other	Class	I	railroads.

One	additional	shipper	filed	a	separate	antitrust	suit	during	2008.	Subsequently,	the	shipper	voluntarily	dismissed	the	action	without	prejudice.

On	October	10,	2008,	Judge	Friedman	heard	oral	arguments	with	respect	to	the	defendant	railroads'	motions	to	dismiss.	In	a	ruling	on	November	7,	2008, Judge	Friedman	denied	the	motion	with	respect	to	the	direct	purchasers'	complaint,	and	pretrial	proceedings	are	underway	in	that	case,	the	status	of which	is	described	below.	On	December	31,	2008,	Judge	Friedman	dismissed	the	complaints	of	the	indirect	purchasers	based	upon	state	antitrust, consumer	protection,	and	unjust	enrichment	laws.	He	also	ruled,	however,	that	these	plaintiffs	could	proceed	with	their	claim	for	injunctive	relief	under	the federal	antitrust	laws,	which	is	identical	to	a	claim	by	the	direct	purchaser	plaintiffs.	The	indirect	purchasers	appealed	Judge	Friedman's	ruling	to	the	U.S. Court	of	Appeals	for	the	District	of	Columbia.	On	April	16,	2010,	the	U.S.	Court	of	Appeals	for	the	District	of	Columbia	affirmed	Judge	Friedman's	ruling dismissing	the	indirect	purchasers'	claims	based	on	various	state	laws.	On	December	13,	2010,	the	U.S.	Supreme	Court	denied	the	indirect	purchaser plaintiffs'	Petition	for	Certiorari.

With	respect	to	the	direct	purchasers'	complaint,	Judge	Friedman	conducted	a	two-day	hearing	on	October	6	and	7,	2010,	on	the	class	certification	issue and	the	railroad	defendants'	motion	to	exclude	evidence	of	interline	communications.	On	April	7,	2011,	Judge	Friedman	issued	an	order	deferring	any decision	on	class	certification	until	the	Supreme	Court	issued	its	decision	in	the	Wal-Mart	employment	discrimination	case.	The	Supreme	Court	issued	its decision	on	June	20,	2011,	and	Judge	Friedman	required	the	parties	to	confer	on	the	impact	of	the	Wal-Mart	decision.	Plaintiffs	and	the	defendant railroads	filed	briefs	in	August	and	early	September	stating	their	views	on	the	impact	of	the	Wal-Mart	case	on	class	certification	in	the	fuel	surcharge litigation.	The	decision	from	Judge	Friedman	regarding	class	certification	is	still	pending.

As	we	reported	in	our	Current	Report	on	Form	8-K,	filed	on	June	10,	2011,	the	Railroad	received	a	copy	of	a	complaint	filed	in	the	U.S.	District	Court	for the	District	of	Columbia	on	June	7,	2011,	by	Oxbow	Carbon	&	Minerals	LLC	and	related	entities	(Oxbow).	The	complaint	named	the	Railroad	and	one other	U.S.	Class	I	Railroad	as	defendants	and	alleged	that	the	named	railroads	engaged	in	price-fixing	and	monopolistic	practices	in	connection	with	fuel surcharge	programs	and	pricing	of	shipments	of	certain	commodities,	including	coal	and	petroleum	coke.	The	complaint	seeks	injunctive	relief	and payment	of

damages	of	over	$30	million,	and	other	unspecified	damages,	including	treble	damages.	Some	of	the	allegations	in	the	complaint	are	addressed	in	the existing	 fuel	 surcharge	 litigation	 referenced	 above.	 The	 complaint	 also	 includes	 additional	 unrelated	 allegations	 regarding	 alleged	 limitations	 on competition	for	shipments	of	Oxbow's	commodities.	Judge	Friedman,	who	presides	over	the	fuel	surcharge	matter	described	above,	also	presides	over this	matter.	The	parties	filed	briefs	and	answers	regarding	the	motions	to	dismiss	the	action	filed	by	the	defendant	railroads,	and	the	court's	decision regarding	this	motion	is	pending.

We	deny	the	allegations	that	our	fuel	surcharge	programs	violate	the	antitrust	laws	or	any	other	laws	and	deny	the	other	allegations	in	the	Oxbow complaint.	We	believe	that	these	lawsuits	are	without	merit,	and	we	will	vigorously	defend	our	actions.	Therefore,	we	currently	believe	that	these	matters will	not	have	a	material	adverse	effect	on	any	of	our	results	of	operations,	financial	condition,	and	liquidity.

U.S.	Customs	and	Border	Protection	(CBP)	Dispute	and	Litigation	 –	As	we	reported	in	our	Quarterly	Report	on	Form	10-Q	for	the	quarter	ended June	30,	2010,	CBP	directed	its	field	offices	to	issue	penalties	against	the	Railroad	beginning	in	December	2007	for	discoveries	of	illegal	drugs	in	freight cars	crossing	the	border	from	Mexico.	The	freight	cars	were	in	trains	delivered	by	Mexican	railroads	directly	to	CBP;	the	Railroad	received	the	trains	only after	CBP	inspected	them.	Additionally,	CBP	asserted	or	reinstated	previously	asserted	penalties	that	had	been	held	in	abeyance	while	the	Railroad	and CBP	pursued	a	collective	plan	to	address	drug	smuggling.	In	some	instances,	CBP	seized	freight	cars	in	which	drugs	were	found.	The	parties	resolved their	dispute	over	the	seized	freight	cars,	which	were	released	by	CBP	for	a	payment	by	the	Railroad	of	$40,000.	The	total	amount	of	fines	for	drug seizures	asserted	by	CBP	prior	to	June	1,	2011,	exceeded	$500	million.

On	July	22,	2011,	the	Railroad	and	the	Acting	Commissioner	of	CBP	signed	an	agreement	under	which	the	Railroad	does	not	pay	any	fines	but	commits to	participate	in,	and	provide	$50	million	to	fund,	a	major	initiative	to	enhance	border	and	supply	chain	security	for	rail	shipments	transiting	the	border	with Mexico.	CBP	will	reduce	all	fines	asserted	prior	to	June	1,	2011	(other	than	those	involved	in	the	Nebraska	litigation	discussed	below)	to	zero	on	a	pro rata	basis	as	the	Railroad	makes	expenditures	of	its	$50	million	commitment.	Under	the	agreement,	CBP	also	agrees	that	it	will	not	assert	penalties	for drugs	found	on	or	after	June	1,	2011,	for	a	period	of	five	years	unless	the	Railroad	fails	to	carry	out	the	agreement	or	the	Railroad	or	its	personnel	have specified	degrees	of	involvement	in	drug	smuggling.	The	agreement	does	not	compromise	the	position	of	either	party	regarding	the	validity	of	the	fines. CBP	maintains	its	position	that	the	fines	were	required	by	law,	while	the	Railroad	maintains	its	position	that	it	has	complied	with	all	laws.

As	previously	reported	in	our	disclosures	regarding	the	CBP	dispute	and	litigation,	the	Railroad	filed	a	complaint	in	the	U.S.	District	Court	for	the	District of	Nebraska	on	July	31,	2008,	asking	the	court	to	enter	(1)	a	judgment	declaring	that	CBP's	penalties	and	seizures	are	invalid	and	unenforceable	and (2)	preliminary	and	permanent	injunctions	prohibiting	CBP	from	enforcing	penalties	and	holding	seized	freight	cars	and	directing	CBP	to	refrain	from asserting	additional	penalties	and	from	making	future	equipment	seizures.	On	December	19,	2011,	the	District	Court	ruled	in	favor	of	the	Railroad,	finding that	the	CBP	acted	outside	of	its	authority	in	assessing	the	penalties.	The	court	also	entered	a	permanent	injunction	that	enjoins	CBP	from	taking	any action	against	the	Railroad	for	seizures	of	drugs	found	on	railcars	entering	the	U.S.	from	Mexico	over	which	the	Railroad	has	no	control.	The	amount	of fines	involved	in	the	Nebraska	litigation,	approximately	$38	million,	is	not	material	to	the	Railroad.	Therefore,	the	resolution	of	this	matter	will	not	have	a material	adverse	effect	on	any	of	our	results	of	operations,	financial	condition,	and	liquidity.

# Item	4.	Mine	Safety	Disclosures

Not	applicable.

# Executive	Officers	of	the	Registrant	and	Principal	Executive	Officers	of	Subsidiaries

The	Board	of	Directors	typically	elects	and	designates	our	executive	officers	on	an	annual	basis	at	the	board	meeting	held	in	conjunction	with	the	Annual Meeting	of	Shareholders,	and	they	hold	office	until	their	successors	are	elected.	Executive	officers	also	may	be	elected	and	designated	throughout	the year,	as	the	Board	of	Directors	considers	appropriate.	There	are	no	family	relationships	among	the	officers,	nor	any	arrangement	or	understanding between	any	officer	and	any	other	person	pursuant	to	which	the	officer	was	selected.	The	following	table	sets	forth	certain	information	current	as	of February	3,	2012,	relating	to	the	executive	officers.

| Name<br>James	R.	Young | Position<br>Chairman,	President	and	Chief	Executive	Officer	of	UPC	and	the	Railroad |  | Age<br>59 | Past	Five	Years<br>[1] |
| :--- | :--- | :--- | :--- | :--- |
| Robert\tM.\tKnight,\tJr. | Executive\tVice\tPresident\t–\tFinance\tand\tChief\tFinancial\tOfficer\tof\tUPC\tand\tthe\tRailroad |  | 54 | Current\tPosition |
| J.\tMichael\tHemmer | Senior\tVice\tPresident\t–\tLaw\tand\tGeneral\tCounsel\tof\tUPC\tand\tthe\tRailroad |  | 62 | Current\tPosition |
| Barbara\tW.\tSchaefer | Senior\tVice\tPresident\t–\tHuman\tResources\tand\tSecretary\tof\tUPC\tand\tthe\tRailroad |  | 58 | Current\tPosition |
| Jeffrey\tP.\tTotusek | Vice\t President\t and\t Controller\t of\t UPC\t and\t Chief\tAccounting\t Officer\t and\t Controller\t of | the |  |  |
|  | Railroad |  | 53 | [2] |
| Lance\tM.\tFritz | Executive\tVice\tPresident\t–\tOperations\tof\tthe\tRailroad |  | 49 | [3] |
| John\tJ.\tKoraleski | Executive\tVice\tPresident\t–\tMarketing\tand\tSales\tof\tthe\tRailroad |  | 61 | Current\tPosition |

[1] Mr.	Young	was	elected	Chief	Executive	Officer	and	President	of	UPC	and	the	Railroad	effective	January	1,	2006.	He	was	elected	to	the	additional	position	of	Chairman	effective	February	1, 2007.

[2] Mr.	Totusek	was	elected	to	his	current	position	effective	January	1,	2008.	He	previously	was	Assistant	Vice	President	–	Financial	Analysis	of	the	Railroad.

[3] Mr.	Fritz	was	elected	to	his	current	position	effective	September	1,	2010.	He	previously	was	Vice	President	–	Operations	of	the	Railroad,	effective	January	1,	2010.	Mr.	Fritz	previously	served as	Vice	President	–	Labor	Relations	effective	March	1,	2008,	Regional	Vice	President	–	South,	effective	July	1,	2006,	and	Regional	Vice	President	–	North,	effective	April	1,	2005.

# PART	II

# Item	5. Market	for	the	Registrant's	Common	Equity,	Related	Stockholder	Matters,	and	Issuer	Purchases	of	Equity	Securities

Our	common	stock	is	traded	on	the	New	York	Stock	Exchange	(NYSE)	under	the	symbol	"UNP".	The	following	table	presents	the	dividends	declared	and the	high	and	low	closing	prices	of	our	common	stock	for	each	of	the	indicated	quarters.

| 2011	-	Dollars	Per	Share | Q1 | Q2 | Q3 | Q4 |
| :--- | :--- | :--- | :--- | :--- |
| Dividends | \t\t $\t\t\t\t\t\t\t\t0.38\t\t\t\t $\t\t\t\t\t\t\t\t0.475\t\t\t\t $\t\t\t\t\t\t\t\t0.475\t\t\t\t $\t\t\t\t\t\t\t\t0.60 | \t\t $\t\t\t\t\t\t\t\t0.38\t\t\t\t $\t\t\t\t\t\t\t\t0.475\t\t\t\t $\t\t\t\t\t\t\t\t0.475\t\t\t\t $\t\t\t\t\t\t\t\t0.60 | \t\t $\t\t\t\t\t\t\t\t0.38\t\t\t\t $\t\t\t\t\t\t\t\t0.475\t\t\t\t $\t\t\t\t\t\t\t\t0.475\t\t\t\t $\t\t\t\t\t\t\t\t0.60 | \t\t $\t\t\t\t\t\t\t\t0.38\t\t\t\t $\t\t\t\t\t\t\t\t0.475\t\t\t\t $\t\t\t\t\t\t\t\t0.475\t\t\t\t $\t\t\t\t\t\t\t\t0.60 |
| Common\tstock\tprice: |  |  |  |  |
| High | 99.50 | 105.60 | 107.89 | 106.60 |
| Low | 90.66 | 92.80 | 79.58 | 77.73 |

| 2010	-	Dollars	Per	Share | Q1 | Q2 | Q3 | Q4 |
| :--- | :--- | :--- | :--- | :--- |
| Dividends | \t\t $0.27\t\t\t\t $ | 0.33\t\t\t\t $ | 0.33\t\t\t\t $ | 0.38 |
| Common\tstock\tprice: |  |  |  |  |
| High | 74.35 | 78.61 | 83.08 | 95.78 |
| Low | 60.41 | 65.99 | 66.84 | 79.32 |

At	January	27,	2012,	there	were	480,067,865	shares	of	common	stock	outstanding	and	33,061	common	shareholders	of	record.	On	that	date,	the	closing price	of	the	common	stock	on	the	NYSE	was	$114.90.	We	have	paid	dividends	to	our	common	shareholders	during	each	of	the	past	112	years.	We declared	dividends	totaling	$938	million	in	2011	and	$653	million	in	2010.	On	May	5,	2011,	we	increased	the	quarterly	dividend	to	$0.475	per	share, payable	beginning	on	July	1,	2011,	to	shareholders	of	record	on	May	31,	2011.	On	November	17,	2011,	we	again	increased	the	quarterly	dividend	to $0.60	per	share,	payable	beginning	January	2,	2012	to	shareholders	of	record	on	November	30,	2011.	We	are	subject	to	certain	restrictions	regarding retained	earnings	with	respect	to	the	payment	of	cash	dividends	to	our	shareholders.	The	amount	of	retained	earnings	available	for	dividends	increased	to $13.8	billion	at	December	31,	2011,	 from	$12.9	billion	at	December	31,	2010.	(See	discussion	of	 this	restriction	 in	Management's	Discussion	and Analysis	of	Financial	Condition	and	Results	of	Operations	–	Liquidity	and	Capital	Resources,	Item	7.)	We	do	not	believe	the	restriction	on	retained earnings	will	affect	our	ability	to	pay	dividends,	and	we	currently	expect	to	pay	dividends	in	2012.

Comparison	Over	One-	and	Three-Year	Periods	 –	The	following	table	presents	the	cumulative	total	shareholder	returns,	assuming	reinvestment	of dividends,	over	one-	and	 three-year	periods	 for	 the	Corporation	(UNP),	a	peer	group	 index	(comprised	of	CSX	Corporation	and	Norfolk	Southern Corporation),	the	Dow	Jones	Transportation	Index	(DJ	Trans),	and	the	Standard	&	Poor's	500	Stock	Index	(S&P	500).

Five-Year	 Performance	 Comparison	–	 The following	 graph	 provides	 an	 indicator	 of	 cumulative	 total	 shareholder	 returns	 for	 the	 Corporation	 as compared	to	the	peer	group	index	(described	above),	the	DJ	Trans,	and	the	S&P	500.	The	graph	assumes	that	$100	was	invested	in	the	common	stock of	Union	Pacific	Corporation	and	each	index	on	December	31,	2006	and	that	all	dividends	were	reinvested.

Purchases	of	Equity	Securities	–	During	2011,	we	repurchased	15,340,810	shares	of	our	common	stock	at	an	average	price	of	$96.08.	The	following table	presents	common	stock	repurchases	during	each	month	for	the	fourth	quarter	of	2011:

|  |  |  | Total	Number	of	Shares | Maximum	Number	of |
| :--- | :--- | :--- | :--- | :--- |
|  | Total\tNumber\tof | Average | Purchased\tas\tPart\tof\ta | Shares\tThat\tMay\tYet |
|  | Shares | Price\tPaid | Publicly\tAnnounced\tPlan | Be\tPurchased\tUnder\tthe\tPlan |
| Period | Purchased\t[a] | Per\tShare | or\tProgram\t[b] | or\tProgram\t[b] |
| Oct.\t1\tthrough\tOct.\t31 | 379,488 | 87.46 | 371,639 | 31,370,427 |
| Nov.\t1\tthrough\tNov.\t30 | 1,748,964 | 98.41 | 1,733,877 | 29,636,550 |
| Dec.\t1\tthrough\tDec.\t31 | 1,787,343 | 100.26 | 1,780,142 | 27,856,408 |
| Total | 3,915,795\t\t\t\t$ | 98.19 | 3,885,658 | N/A |

[a] Total	number	of	shares	purchased	during	the	quarter	includes	approximately	30,137	shares	delivered	or	attested	to	UPC	by	employees	to	pay	stock	option	exercise	prices,	satisfy	excess	tax withholding	obligations	for	stock	option	exercises	or	vesting	of	retention	units,	and	pay	withholding	obligations	for	vesting	of	retention	shares.

[b] On	April	1,	2011,	our	Board	of	Directors	authorized	the	repurchase	of	up	to	40	million	shares	of	our	common	stock	by	March	31,	2014.	These	repurchases	may	be	made	on	the	open	market	or through	other	transactions.	Our	management	has	sole	discretion	with	respect	to	determining	the	timing	and	amount	of	these	transactions.

# Item	6.	Selected	Financial	Data

The	following	table	presents	as	of,	and	for	the	years	ended,	December	31,	our	selected	financial	data	for	each	of	the	last	five	years.	The	selected financial	data	should	be	read	in	conjunction	with	Management's	Discussion	and	Analysis	of	Financial	Condition	and	Results	of	Operations,	Item	7,	and with	the	Financial	Statements	and	Supplementary	Data,	Item	8.	The	information	below	is	not	necessarily	indicative	of	future	financial	condition	or	results of	operations.

| Carloads,	Employee	Statistics,	and	Ratios | 2011 | 2010 | 2009 | 2008 | 2007 |
| :--- | :--- | :--- | :--- | :--- | :--- |
| For\tthe\tYear\tEnded\tDecember\t31 |  |  |  |  |  |
| Operating\trevenues\t[a] | \t\t$\t\t\t\t19,557 | \t\t$\t\t\t\t16,965 | \t\t$\t\t\t\t14,143 | \t\t$\t\t\t\t17,970 | \t\t$\t\t\t\t16,283 |
| Operating\tincome | 5,724 | 4,981 | 3,379 | 4,070 | 3,364 |
| Net\tincome | 3,292 | 2,780 | 1,890 | 2,335 | 1,848 |
| Earnings\tper\tshare\t-\tbasic\t[b] | 6.78 | 5.58 | 3.76 | 4.57 | 3.47 |
| Earnings\tper\tshare\t-\tdiluted\t[b] | 6.72 | 5.53 | 3.74 | 4.53 | 3.44 |
| Dividends\tdeclared\tper\tshare\t[b] | 1.93 | 1.31 | 1.08 | 0.98 | 0.745 |
| Cash\tprovided\tby\toperating\tactivities | 5,873 | 4,105 | 3,204 | 4,044 | 3,248 |
| Cash\tused\tin\tinvesting\tactivities | (3,119) | (2,488) | (2,145) | (2,738) | (2,397) |
| Cash\tused\tin\tfinancing\tactivities | (2,623) | (2,381) | (458) | (935) | (800) |
| Cash\tused\tfor\tcommon\tshare\trepurchases | (1,418) | (1,249) | - | (1,609) | (1,375) |
| At\tDecember\t31 |  |  |  |  |  |
| Total\tassets | \t\t$45,096 | \t\t$43,088 | \t\t$42,184 | \t\t$39,509 | \t\t$37,825 |
| Long-term\tobligations | 23,201 | 22,373 | 22,701 | 21,314 | 19,328 |
| Debt\tdue\tafter\tone\tyear | 8,697 | 9,003 | 9,636 | 8,607 | 7,543 |
| Common\tshareholders'\tequity | 18,578 | 17,763 | 16,801 | 15,315 | 15,456 |
| Equity\tper\tcommon\tshare\t[c] | 38.71 | 36.14 | 33.27 | 30.43 | 29.62 |
| Additional\tData |  |  |  |  |  |
| Freight\trevenues\t[a] | \t\t$18,508 | \t\t$16,069 | \t\t$13,373 | \t\t$17,118 | \t\t$15,486 |
| Revenue\tcarloads\t(units)\t(000) | 9,072 | 8,815 | 7,786 | 9,261 | 9,733 |
| Operating\tmargin\t(%)\t[d] | 29.3 | 29.4 | 23.9 | 22.6 | 20.7 |
| Operating\tratio\t(%)\t[d] | 70.7 | 70.6 | 76.1 | 77.4 | 79.3 |
| Average\temployees\t(000) | 44.9 | 42.9 | 43.5 | 48.2 | 50.1 |
| Operating\trevenues\tper\temployee\t(000) | \t\t$435.6 | \t\t$395.5 | \t\t$325.1 | \t\t$372.8 | \t\t$325.0 |
| Financial\tRatios\t(%) |  |  |  |  |  |
| Debt\tto\tcapital\t[e] | 32.4 | 34.2 | 37.0 | 36.8 | 33.2 |
| Return\ton\taverage\tcommon | 18.1 | 16.1 | 11.8 | 15.2 | 12.1 |

[a] Includes	fuel	surcharge	revenue	of	$2,243	million,	$1,237	million,	$605	million,	$2,323	million,	and	$1,478	million	for	2011,	2010,	2009,	2008,	and	2007,	respectively,	which	partially	offsets increased	operating	expenses	for	fuel.	Fuel	surcharge	revenue	is	not	comparable	from	year	to	year	due	to	implementation	of	new	mileage-based	fuel	surcharge	programs	in	each	respective year.	(See	further	discussion	in	Management's	Discussion	and	Analysis	of	Financial	Condition	and	Results	of	Operations	–	Results	of	Operations	–	Operating	Revenues,	Item	7.)

[b] Earnings	per	share	and	dividends	have	been	restated	to	reflect	the	May	28,	2008	stock	split.

[c] 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	reflect	the May	28,	2008	stock	split.

[d] Operating	margin	is	defined	as	operating	income	divided	by	operating	revenues.	Operating	ratio	is	defined	as	operating	expenses	divided	by	operating	revenues.

[e] Debt	to	capital	is	determined	as	follows:	total	debt	divided	by	total	debt	plus	common	shareholders'	equity.

[f] Return	on	average	common	shareholders'	equity	is	determined	as	follows:	Net	income	divided	by	average	common	shareholders'	equity.

# Item	7.	Management's	Discussion	and	Analysis	of	Financial	Condition	and	Results	of	Operations

The	following	discussion	should	be	read	in	conjunction	with	the	Consolidated	Financial	Statements	and	applicable	notes	to	the	Financial	Statements	and Supplementary	Data,	 Item	8,	and	 other	 information	 in	 this	 report,	 including	 Risk	 Factors	 set	 forth	 in	 Item	 1A	 and	 Critical	Accounting	 Policies	 and Cautionary	Information	at	the	end	of	this	Item	7.

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

# EXECUTIVE	SUMMARY

•	 Safety	–	We	continued	improving	safety	in	2011	and	set	records	in	nearly	all	of	our	safety	metrics.	The	employee	injury	incident	rate	per 200,000	man-hours	declined	12%	from	2010.	These	results	reflect	our	continuing	implementation	of	Total	Safety	Culture	(TSC),	an	employee engagement	initiative	designed	to	establish,	maintain,	reinforce	and	promote	safety	practices	among	co-workers,	along	with	increased	risk identification,	coaching	and	enhanced	training.	Our	use	of	laser,	ultrasound	and	acoustic	vibration	monitoring	to	identify	potential	wheel	and axle	failures	before	they	occur	reduced	our	equipment	incident	rate	to	9.89	per	million	train	miles,	another	best	ever	result.	With	respect	to public	safety,	we	closed	269	grade	crossings	 in	2011	 to	reduce	our	exposure	 to	 incidents	and	continued	using	video	cameras	on	our locomotives	to	assist	in	reviewing	grade	crossing	incidents.	We	now	have	camera-equipped	locomotives	in	the	lead	position	on	over	97%	of our	through-freight	trains.	During	2011,	the	rate	of	grade	crossing	incidents	per	million	train	miles	decreased	9%	from	2010,	matching	our record	low	for	this	measure.	Overall,	our	2011	safety	results	reflect	our	continued	focus	on	the	safety	of	our	employees,	our	customers	and the	public.

•Financial	Performance	–	In	2011,	we	continued	our	record-setting	trend	by	generating	operating	income	of	$5.7	billion,	a	15%	increase	over 2010.	Improved	pricing	and	3%	volume	growth,	partially	offset	by	inflation	and	weather-related	costs,	drove	this	increase.	Our	operating	ratio for	2011	was	70.7%,	only	slightly	behind	last	year's	record	of	70.6%.	Net	income	of	$3.3	billion	surpassed	our	previous	milestone	set	in	2010, translating	into	earnings	of	$6.72	per	diluted	share	for	2011.

•Freight	Revenues	–	Our	freight	revenues	grew	15%	year-over-year	to	$18.5	billion.	Freight	revenues	for	all	six	commodity	groups	increased while	volume	increased	in	all	groups	except	intermodal,	which	declined	2%.	Overall,	volume	increased	3%	in	2011,	with	particularly	strong growth	in	chemicals,	industrial	products,	and	automotive	shipments.	Higher	fuel	surcharges	(due	to	higher	fuel	prices,	volume	growth,	and new	fuel	surcharge	provisions	in	renegotiated	contracts)	and	core	pricing	gains	also	drove	the	growth	in	freight	revenue	in	2011	compared	to 2010.

•	 Network	Operations	–	Weather	impacted	our	operations	more	significantly	in	2011	than	2010,	including	blizzards	affecting	the	Southwest and	Midwest,	particularly	the	Chicago	area,	historic	Midwestern	floods	and	severe	heat	and	drought	in	our	Southern	Region.	We	deployed resources	to	address	these	adverse	conditions	and	maintained	reliable	network	operations.	As	reported	to	the	Association	of	American Railroads	(AAR),	average	train	speed	decreased	2%	in	2011	compared	to	2010,	reflecting	the	weather	challenges,	in	addition	to	increased carloadings	and	changes	in	traffic	mix.	Average	terminal	dwell	time	increased	3%	due	to	the	same	factors	that	affected	train	speed	along	with a	more	active	track	replacement	program,	which	can	adversely	affect	operations.	Average	rail	car	inventory	decreased	slightly,	despite	a	3% increase	in	volume,	reflecting	our	efforts	to	adjust	our	freight	car	fleet	to	match	operating	performance	and	demand.	Despite	these	operating challenges,	 we	 established	 a	 new	 record	 in	 our	 customer	 satisfaction	 index	 in	 2011,	 an	 indication	 that	 our	 ongoing	 efforts	 to	 improve operations	translated	into	value	for	our	customers.

•Fuel	Prices	–	The	2011	barrel	price	averaged	almost	20%	higher	than	2010,	peaking	in	April,	as	the	global	economy	strengthened	and	the U.S.	dollar	weakened.	Our	average	diesel	fuel	price	per	gallon	rose	21%	from	January	to	December	of	2011,	due	to	higher	prices	for	crude oil	and	conversion	spreads.	Compared	to	2010,	our	price	per	gallon	of	diesel	fuel	consumed	increased	36%,	driving	operating	expenses	up $922	million	(excluding	any	impact	from	year-over-year	volume),	which	accounted	for	almost	half	of	the	total	increase	in	operating	cost. Higher	traffic	volume	accounted	for

nearly	all	of	the	remaining	increase	in	fuel	expense,	reflecting	a	relatively	flat	year-over-year	fuel	consumption	rate.

•Free	Cash	Flow	–	Cash	generated	by	operating	activities	totaled	$5.9	billion,	yielding	record	free	cash	flow	of	$1.9	billion	in	2011.	Free	cash flow	is	defined	as	cash	provided	by	operating	activities	(adjusted	for	the	reclassification	of	our	receivables	securitization	facility),	less	cash used	in	investing	activities	and	dividends	paid.

Free	cash	flow	is	not	considered	a	financial	measure	under	accounting	principles	generally	accepted	in	the	U.S.	(GAAP)	by	SEC	Regulation G	and	Item	10	of	SEC	Regulation	S-K.	We	believe	free	cash	flow	is	important	in	evaluating	our	financial	performance	and	measures	our ability	to	generate	cash	without	additional	external	financings.	Free	cash	flow	should	be	considered	in	addition	to,	rather	than	as	a	substitute for,	cash	provided	by	operating	activities.	The	following	table	reconciles	cash	provided	by	operating	activities	(GAAP	measure)	to	free	cash flow	(non-GAAP	measure):

| Millions | 2011 | 2010 | 2009 |
| :--- | :--- | :--- | :--- |
| Cash\tprovided\tby\toperating\tactivities | \t\t $\t\t\t\t5,873 | \t\t $\t\t\t\t4,105 | \t\t $\t\t\t\t3,204 |
| Receivables\tsecuritization\tfacility\t[a] | - | 400 | 184 |
| Cash\tprovided\tby\toperating\tactivities |  |  |  |
| adjusted\tfor\tthe\treceivables\tsecuritization\tfacility | 5,873 | 4,505 | 3,388 |
| Cash\tused\tin\tinvesting\tactivities | (3,119) | (2,488) | (2,145) |
| Dividends\tpaid | (837) | (602) | (544) |
| Free\tcash\tflow | \t\t $1,917 | \t\t $1,415 | \t\t $699 |

[a] Effective	January	1,	2010,	a	new	accounting	standard	required	us	to	account	for	receivables	transferred	under	our	receivables	securitization	facility	as	secured	borrowings	in our	Consolidated	Statements	of	Financial	Position	and	as	financing	activities	in	our	Consolidated	Statements	of	Cash	Flows.	The	receivables	securitization	facility	is	included	in our	free	cash	flow	calculation	to	adjust	cash	provided	by	operating	activities	as	though	our	receivables	securitization	facility	had	been	accounted	for	under	the	new	accounting standard	for	all	periods	presented.

•	 Safety	 –	 Operating	 a	 safe	 railroad	 benefits	 our	 employees,	 our	 customers,	 our	 shareholders,	 and	 the	 communities	 we	 serve.	 We	 will continue	using	a	multi-faceted	approach	to	safety,	utilizing	technology,	risk	assessment,	quality	control,	training	and	employee	engagement and	targeted	capital	investments.	We	will	continue	using	and	expanding	the	application	of	TSC	throughout	our	operations.	This	process allows	us	to	identify	and	implement	best	practices	for	employee	and	operational	safety.	Derailment	prevention	and	the	reduction	of	grade crossing	incidents	are	critical	aspects	of	our	safety	programs.	We	will	continue	our	efforts	to	increase	rail	detection;	maintain	and	close crossings;	install	video	cameras	on	locomotives;	and	educate	the	public	and	law	enforcement	agencies	about	crossing	safety	through	a combination	of	our	own	programs	(including	risk	assessment	strategies),	various	industry	programs	and	local	community	activities.

•Transportation	Plan	–	To	build	upon	our	success	in	recent	years,	we	will	continue	evaluating	traffic	flows	and	network	logistic	patterns, which	can	be	quite	dynamic,	 to	 identify	additional	opportunities	 to	simplify	operations,	remove	network	variability,	and	 improve	network efficiency	and	asset	utilization.	We	plan	to	adjust	manpower	and	our	locomotive	and	rail	car	fleets	to	meet	customer	needs	and	put	us	in	a position	to	handle	demand	changes.	We	also	will	continue	utilizing	industrial	engineering	techniques	to	improve	productivity	and	network fluidity.

•Fuel	Prices	–	Uncertainty	about	the	economy	makes	projections	of	fuel	prices	difficult.	We	again	could	see	volatile	fuel	prices	during	the year,	as	they	are	sensitive	to	global	and	U.S.	domestic	demand,	refining	capacity,	geopolitical	events,	weather	conditions	and	other	factors. To	reduce	the	impact	of	fuel	price	on	earnings,	we	will	continue	to	seek	recovery	from	our	customers	through	our	fuel	surcharge	programs and	expand	our	fuel	conservation	efforts.

•	 Capital	Plan	–	In	2012,	we	plan	to	make	total	capital	investments	of	approximately	$3.6	billion,	including	expenditures	for	Positive	Train Control	(PTC),	which	may	be	revised	if	business	conditions	warrant	or	if	new	laws	or	regulations	affect	our	ability	to	generate	sufficient returns	on	these	investments.	(See	further	discussion	in	this	Item	7	under	Liquidity	and	Capital	Resources	–	Capital	Plan.)

•	 Positive	Train	Control	–	In	response	to	a	legislative	mandate	to	implement	PTC	by	the	end	of	2015,	we	expect	to	spend	approximately	$335 million	during	2012	on	developing	and	deploying	PTC.	We	currently	estimate	that	PTC	in	accordance	with	implementing	rules	issued	by	the Federal	Rail	Administration	(FRA)	will	cost	us	approximately	$2	billion	by	the	end	of	2015.	This	includes	costs	for	installing	the	new	system along	our	tracks,	upgrading	locomotives	to	work	with	the	new	system,	and	adding	digital	data	communication	equipment	so	all	the	parts	of the	system	can	communicate	with	each	other.	During	2012,	we	plan	to	continue	testing	the	technology	to	evaluate	its	effectiveness.

•Financial	Expectations	–	We	are	cautious	about	the	economic	environment	but	anticipate	slow	but	steady	volume	growth	that	will	exceed 2011	levels.	Coupled	with	price,	on-going	network	improvements	and	operational	productivity	initiatives,	we	expect	earnings	that	exceed	2011 earnings.

# RESULTS	OF	OPERATIONS

# Operating	Revenues

|  |  |  | %	Change | %	Change |
| :--- | :--- | :--- | :--- | :--- |
| 2011 | 2010 | 2009 | 2011\tv\t2010 | 2010\tv\t2009 |
| \t\t$\t\t\t\t18,508\t\t\t\t$\t\t\t\t16,069\t\t\t\t$\t\t\t\t13,373 | \t\t$\t\t\t\t18,508\t\t\t\t$\t\t\t\t16,069\t\t\t\t$\t\t\t\t13,373 | \t\t$\t\t\t\t18,508\t\t\t\t$\t\t\t\t16,069\t\t\t\t$\t\t\t\t13,373 | 15% | 20% |
| 1,049 | 896 | 770 | 17 | 16 |
| \t\t$19,557\t\t\t\t$ | 16,965\t\t\t\t$ | 14,143 | 15% | 20% |

We	generate	freight	revenues	by	transporting	freight	or	other	materials	from	our	six	commodity	groups.	Freight	revenues	vary	with	volume	(carloads)	and average	revenue	per	car	(ARC).	Changes	in	price,	traffic	mix	and	fuel	surcharges	drive	ARC.	We	provide	some	of	our	customers	with	contractual incentives	for	meeting	or	exceeding	specified	cumulative	volumes	or	shipping	to	and	from	specific	locations,	which	we	record	as	reductions	to	freight revenues	based	on	the	actual	or	projected	future	shipments.	We	recognize	freight	revenues	as	shipments	move	from	origin	to	destination.	We	allocate freight	revenues	between	reporting	periods	based	on	the	relative	transit	time	in	each	reporting	period	and	recognize	expenses	as	we	incur	them.

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

Freight	revenues	for	all	six	commodity	groups	increased	during	2011	compared	to	2010,	while	volume	increased	in	all	except	intermodal.	Increased demand	in	many	market	sectors,	with	particularly	strong	growth	in	chemical,	industrial	products,	and	automotive	shipments	for	the	year,	generated	the increases.	ARC	increased	12%,	driven	by	higher	fuel	cost	recoveries	and	core	pricing	gains.	Fuel	cost	recoveries	include	fuel	surcharge	revenue	and	the impact	of	resetting	the	base	fuel	price	for	certain	traffic,	which	is	described	below	in	more	detail.	Higher	fuel	prices,	volume	growth,	and	new	fuel surcharge	provisions	in	renegotiated	contracts	all	combined	to	increase	revenues	from	fuel	surcharges.

Freight	revenues	and	volume	levels	for	all	six	commodity	groups	increased	during	2010	as	a	result	of	economic	improvement	in	many	market	sectors.	We experienced	 particularly	 strong	 volume	 growth	 in	 automotive,	 intermodal,	 and	 industrial	 products	 shipments.	 Core	 pricing	 gains	 and	 higher	 fuel surcharges	also	increased	freight	revenues	and	drove	a	6%	improvement	in	ARC.

Our	fuel	surcharge	programs	(excluding	index-based	contract	escalators	that	contain	some	provision	for	fuel)	generated	freight	revenues	of	$2.2	billion, $1.2	billion,	and	$605	million	in	2011,	2010,	and	2009,	respectively.	Higher	fuel	prices,	volume	growth,	and	new	fuel	surcharge	provisions	in	contracts renegotiated	during	the	year	increased	fuel	surcharge	amounts	in	2011	and	2010.	Furthermore,	for	certain	periods	during	2009,	fuel	prices	dropped below	the	base	at	which	our	mileage-based	fuel	surcharge	begins,	which	resulted	in	no	fuel	surcharge	recovery	for	associated	shipments	during	those periods.	Additionally,	fuel	surcharge	revenue	is	not	entirely	comparable	to	prior	periods	as	we	continue	to	convert	portions	of	our	non-regulated	traffic	to mileage-based	fuel	surcharge	programs.

In	2011,	other	revenues	increased	from	2010	due	primarily	to	higher	revenues	at	our	subsidiaries	that	broker	intermodal	and	automotive	services.

In	2010,	other	revenues	increased	from	2009	due	primarily	to	higher	revenues	at	our	subsidiaries	that	broker intermodal	and	automotive	services. Assessorial	revenues	also	increased	in	2010	reflecting	higher	volume	levels	during	the	year.

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

|  |  |  | %	Change | %	Change |
| :--- | :--- | :--- | :--- | :--- |
| 2011 | 2010 | 2009 | 2011\tv\t2010 | 2010\tv\t2009 |
| \t\t$3,324\t\t\t\t$ | 3,018\t\t\t\t$ | 2,666 | 10% | 13% |
| 1,510 | 1,271 | 854 | 19 | 49 |
| 2,815 | 2,425 | 2,102 | 16 | 15 |
| 4,084 | 3,489 | 3,118 | 17 | 12 |
| 3,166 | 2,639 | 2,147 | 20 | 23 |
| 3,609 | 3,227 | 2,486 | 12 | 30 |
| \t\t$\t\t\t\t18,508\t\t\t\t$\t\t\t\t16,069\t\t\t\t$\t\t\t\t13,373 | \t\t$\t\t\t\t18,508\t\t\t\t$\t\t\t\t16,069\t\t\t\t$\t\t\t\t13,373 | \t\t$\t\t\t\t18,508\t\t\t\t$\t\t\t\t16,069\t\t\t\t$\t\t\t\t13,373 | 15% | 20% |

|  |  |  | %	Change | %	Change |
| :--- | :--- | :--- | :--- | :--- |
| 2011 | 2010 | 2009 | 2011\tv\t2010 | 2010\tv\t2009 |
| 934 | 918 | 865 | 2% | 6% |
| 653 | 611 | 465 | 7 | 31 |
| 921 | 844 | 761 | 9 | 11 |
| 2,164 | 2,056 | 2,021 | 5 | 2 |
| 1,146 | 1,073 | 899 | 7 | 19 |
| 3,254 | 3,313 | 2,775 | (2) | 19 |
| 9,072 | 8,815 | 7,786 | 3% | 13% |

|  |  |  | %	Change | %	Change |
| :--- | :--- | :--- | :--- | :--- |
| 2011 | 2010 | 2009 | 2011\tv\t2010 | 2010\tv\t2009 |
| \t\t$3,561\t\t\t\t$ | 3,286\t\t\t\t$ | 3,080 | 8% | 7% |
| 2,311 | 2,082 | 1,838 | 11 | 13 |
| 3,055 | 2,874 | 2,761 | 6 | 4 |
| 1,888 | 1,697 | 1,543 | 11 | 10 |
| 2,762 | 2,461 | 2,388 | 12 | 3 |
| 1,109 | 974 | 896 | 14 | 9 |
| \t\t$\t\t\t\t\t\t2,040\t\t\t\t$ | 1,823\t\t\t\t$\t\t\t\t\t\t1,718 | 1,823\t\t\t\t$\t\t\t\t\t\t1,718 | 12% | 6% |

[a] Each	intermodal	container	or	trailer	equals	one	carload.

Agricultural	Products	–	 Fuel	 surcharges,	 price	 improvements	 and	 modest volume	growth	increased	agricultural	freight	revenue	in	2011	versus	2010. The	federal	mandate	for	higher	levels	of	ethanol	in	the	nation's	fuel	supply and	new	business	increased	shipments	of	ethanol	by	10%	in	2011	versus 2010.	Strong	export	demand	for	U.S.	wheat	via	Gulf	ports	in	the	first	half	of 2011	 was	 the	 primary	 driver	 of	 a	 6%	 increase	 in	 wheat	 and	 food	 grains shipments	for	2011	compared	to	2010,	despite	a	19%	decrease	in	shipments in	the	second	half	of	2011	when	U.S.	grain	exports	declined.	Poor	wheat production	in	some	foreign	markets	drove	the	export	demand	during	the	first six	months	of	the	year.

# 2011	Agricultural	Revenue

Higher	volume,	fuel	surcharges,	and	price	improvements	increased	agricultural	freight	revenue	in	2010	versus	2009.	Increased	shipments	from	the Midwest	to	export	ports	in	the	Pacific	Northwest	combined	with	heightened	demand	in	Mexico	drove	higher	corn	and	feed	grain	shipments	in	2010. Increased	corn	and	feed	grain	shipments	into	ethanol	plants	in	California	and	Idaho	and	continued	growth	in	ethanol	shipments	also	contributed	to	this increase.	In	2009,	some	ethanol	plants	temporarily	ceased	operations	due	to	lower	ethanol	margins,	which	contributed	to	the	favorable	year-over-year comparison.	In	addition,	strong	export	demand	for	U.S.	wheat	via	the	Gulf	ports	increased	shipments	of	wheat	and	food	grains	compared	to	2009. Declines	in	domestic	wheat	and	food	shipments	partially	offset	the	growth	in	export	shipments.	New	business	in	feed	and	animal	protein	shipments	also increased	agricultural	shipments	in	2010	compared	to	2009.

Automotive –	 Higher	 volume,	 core	 pricing	 gains	 and	 fuel	 surcharges improved	 automotive	 freight	 revenue	 from	 2010	 levels.	 Although	 higher production	and	sales	levels	during	2011	contributed	to	volume	growth,	the disaster	in	Japan	partially	offset	the	increase	in	shipments.	The	disruption caused	by	 this	event	reduced	parts	shipments	 in	 the	second	quarter	and shipments	of	international	vehicles	in	the	second	and	third	quarters.	Finished autos	shipments	were	up	7%	in	2011	from	2010,	aided	by	a	14%	increase	in the	fourth	quarter	as	the	U.S.	light-vehicle	sales	rate	was	the	highest	since the	second	quarter	of	2008.

# 2011	Automotive	Revenue

Increases	of	37%	and	24%	in	shipments	of	finished	vehicles	and	automotive	parts	in	2010,	respectively,	combined	with	core	pricing	gains	and	fuel surcharges,	improved	automotive	freight	revenue	from	relatively	weak	2009	levels.	Economic	conditions	in	2009	led	to	poor	auto	sales	and	reduced vehicle	production,	which	in	turn	reduced	shipments	of	finished	vehicles	and	parts	during	the	year.

Chemicals –	 Volume	 gains,	 fuel	 surcharges	 and	 price	 improvements increased	freight	revenue	from	chemicals	in	2011	versus	2010.	In	mid-2010, we	began	moving	crude	oil	shipments	from	the	Bakken	formation	in	North Dakota	to	facilities	in	Louisiana.	This	new	business,	along	with	shipments from	the	Eagle	Ford	shale	formation	in	south	Texas,	contributed	to	a	37% increase	in	shipments	of	petroleum	products	during	2011.	Strong	domestic demand	 and	 robust	 spring	 planting	 increased	 fertilizer	 shipments	 by	 9% versus	2010.	Additionally,	 improving	market	conditions	 increased	demand for	industrial	chemicals	during	2011,	driving	volume	levels	up	versus	2010.

# 2011	Chemicals	Revenue

Higher	volume,	price	 improvements,	and	 fuel	surcharges	 increased	 freight	revenue	 from	chemicals	 in	2010	versus	2009.	Reduced	 inventories	and purchases	delayed	from	2009	increased	fertilizer	shipments	by	30%	in	2010.	A	modest	rebound	in	market	conditions	and	more	normalized	inventory levels	increased	demand	for	industrial	chemicals	during	the	year,	driving	volume	levels	up	8%	versus	2009.	In	addition,	shipments	of	soda	ash	increased 12%	as	continued	strong	export	demand	outpaced	weak	2009	export	demand.

Energy	–	Core	pricing	gains,	higher	fuel	surcharges,	and	increased	volume grew	energy	freight	revenue	from	2010	levels.	Shipments	of	coal	from	the Southern	 Powder	 River	 Basin	 (SPRB)	 were	 up	 5%	 in	 2011	 compared	 to 2010,	reflecting	new	business	to	Wisconsin	facilities	and	the	start-up	of	a new	power	plant	near	Waco,	Texas.	Completion	of	a	year-long	equipment relocation	 process	 at	 one	 of	 the	 mines	 in	 the	 third	 quarter	 of	 2011	 and minimal	production	problems	elsewhere	improved	shipments	from	Colorado and	Utah	by	3%	in	2011	versus	2010.	These	gains,	along	with	increased exports	to	Europe	and	Asia,	offset	first	half	production	problems	and	weak demand	from	eastern	coal	utilities.

# 2011	Energy	Revenue

Core	pricing	gains,	higher	fuel	surcharges	and	modest	volume	growth	increased	freight	revenue	from	energy	shipments	in	2010	compared	to	2009. Shipments	from	the	SPRB	were	up	4%,	driven	by	higher	demand	resulting	from	improved	economic	conditions,	warmer	summer	weather,	and	more efficient	deliveries	(higher	tons	per	car	and	increased	train	size).	Higher	inventory	levels	carried	over	from	2009	partially	offset	this	demand	increase. Shipments	from	Colorado	and	Utah	mines	were	down	8%	in	2010	versus	2009	due	to	mine	production	interruptions	and	increased	competition	from	other low	cost	 fuel	options	(natural	gas	and	eastern	coal),	weaker	demand	 from	our	 industrial	customers,	and	high	 inventories	at	some	utility	customer locations.

Industrial	Products	–	Increased	volume,	fuel	surcharges,	and	core	pricing improvement	 increased	 freight	 revenue	 from	 industrial	 products	 in	 2011 versus	2010.	Shipments	of	non-metallic	minerals	(primarily	frac	sand)	grew in	response	to	a	dramatic	rise	in	horizontal	drilling	activity	for	natural	gas	and oil,	while	steel	shipments	increased	due	to	higher	demand	for	steel	coils	and plate	for	automotive	and	pipe	production.	In	addition,	an	increase	in	iron	ore export	 business	 to	 China	 also	 drove	 volume	 growth.	 Conversely,	 lower commercial	construction	activity	reduced	stone,	sand	and	gravel	shipments in	2011	compared	to	2010.

# 2011	Industrial	Products	Revenue

Volume	gains,	core	pricing	improvement,	and	higher	fuel	surcharges	increased	freight	revenue	from	industrial	products	in	2010	versus	2009.	A	federal government	remediation	program	involving	removal	of	uranium	mill	tailings	from	a	Moab,	Utah,	site	drove	an	increase	in	short-haul	hazardous	waste shipments	versus	2009.	Shipments	under	this	program	began	modestly	during	the	second	quarter	of	2009.	Steel	shipments	also	increased	due	to improving	economic	conditions,	while	shipments	of	non-metallic	minerals	(primarily	frac	sand)	grew	in	response	to	more	drilling	for	natural	gas.	Stone, sand	and	gravel	shipments	grew	in	2010	compared	to	2009	as	increased	oil	drilling	more	than	offset	the	decline	in	commercial	construction	activity.

Intermodal	–	Fuel	surcharge	gains,	including	better	contract	provisions	for fuel	 cost	 recovery,	 and	 pricing	 improvements,	 partially	 offset	 by	 lower volume,	 increased	 freight	 revenue	 from	 intermodal	 shipments	 in	 2011 compared	to	2010.	Volume	from	international	traffic	decreased	5%	in	2011 versus	 2010,	 driven	 by	 softer	 economic	 conditions,	 reflected	 in	 a	 muted international	peak	shipping	season,	which	usually	starts	in	the	third	quarter, and	the	loss	of	a	customer	contract.	Conversely,	conversions	from	truck	to rail	 and	 recovering	 consumer	 demand	 offset	 competition	 for	 domestic shipments,	resulting	in	a	2%	volume	increase	in	domestic	shipments	during 2011.

# 2011	Intermodal	Revenue

Increased	volume,	higher	fuel	surcharges	(including	new	recovery	provisions	in	contracts	renegotiated	in	2010),	and	pricing	gains	drove	the	increase	in freight	 revenue	 from	 intermodal	 shipments	 in	 2010	 compared	 to	 2009.	 Domestic	 and	 international	 traffic	 increased	 from	 2009	 levels,	 reflecting improvements	 in	 economic	 conditions.	 International	 volumes	 grew	 in	 response	 to	 continued	 inventory	 restocking	 and	 higher	 consumer	 demand. Domestic	shipments	increased	as	a	result	of	conversions	from	truck	to	rail	fueled	by	improved	service.	A	new	contract	with	Hub	Group,	Inc.,	which included	additional	shipments,	was	executed	in	the	second	quarter	of	2009	and	contributed	to	the	increase	in	domestic	shipments.

Mexico	Business	–	Each	of	our	commodity	groups	includes	revenue	from	shipments	to	and	from	Mexico.	Revenue	from	Mexico	business	increased	16% to	$1.8	billion	in	2011	versus	2010.	Volume	levels	increased	9%	in	aggregate	versus	2010,	with	particularly	strong	growth	in	automotive	and	industrial products.	Energy	was	the	one	commodity	group	that	declined	as	one	of	our	customers	conducted	a	supplier	contract	renewal	during	the	year,	shifting transportation	modes	from	rail	to	truck	during	the	process.

Revenue	from	Mexico	business	increased	30%	in	2010	versus	2009	to	$1.6	billion.	Volume	levels	for	all	six	commodity	groups	increased,	up	25%	in aggregate	versus	2009,	with	particularly	strong	growth	in	automotive,	industrial	products,	and	intermodal	shipments.

# Operating	Expenses

|  |  |  | %	Change | %	Change |
| :--- | :--- | :--- | :--- | :--- |
| 2011 | 2010 | 2009 | 2011\tv\t2010 | 2010\tv\t2009 |
| \t\t$4,681\t\t\t\t$ | 4,314\t\t\t\t$ | 4,063 | 9% | 6% |
| 3,581 | 2,486 | 1,763 | 44 | 41 |
| 2,005 | 1,836 | 1,644 | 9 | 12 |
| 1,617 | 1,487 | 1,427 | 9 | 4 |
| 1,167 | 1,142 | 1,180 | 2 | (3) |
| 782 | 719 | 687 | 9 | 5 |
| \t\t$\t\t\t\t13,833\t\t\t\t$\t\t\t\t11,984\t\t\t\t$\t\t\t\t10,764 | \t\t$\t\t\t\t13,833\t\t\t\t$\t\t\t\t11,984\t\t\t\t$\t\t\t\t10,764 | \t\t$\t\t\t\t13,833\t\t\t\t$\t\t\t\t11,984\t\t\t\t$\t\t\t\t10,764 | 15% | 11% |

Operating	expenses	increased	$1.8	billion	in	2011	versus	2010.	Our	fuel	price per	gallon	rose	36%	during	2011,	accounting	for	$922	million	of	the	increase. Wage	and	benefit	inflation,	volume-related	costs,	depreciation,	and	property taxes	also	contributed	to	higher	expenses.	Expenses	increased	$20	million	for costs	related	to	the	flooding	in	the	Midwest	and	$18	million	due	to	the	impact of	severe	heat	and	drought	in	the	South,	primarily	Texas.	Cost	savings	from productivity	improvements	and	better	resource	utilization	partially	offset	these increases.	A	$45	million	one-time	payment	relating	to	a	transaction	with	CSX Intermodal,	Inc	(CSXI)	increased	operating	expenses	during	the	first	quarter of	 2010,	 which	 favorably	 affects	 the	 comparison	 of	 operating	 expenses	 in 2011	to	those	in	2010.

# 2011	Operating	Expenses

Operating	expenses	increased	$1.2	billion	in	2010	versus	2009.	Our	fuel	price	per	gallon	increased	31%	during	the	year,	accounting	for	$566	million	of the	 increase.	 Wage	 and	 benefit	 inflation,	 depreciation,	 volume-related	 costs,	 and	 property	 taxes	 also	 contributed	 to	 higher	 expenses	 during	 2010 compared	to	2009.	Cost	savings	from	productivity	improvements	and	better	resource	utilization	partially	offset	these	increases.

Compensation	and	Benefits	–	Compensation	and	benefits	include	wages,	payroll	taxes,	health	and	welfare	costs,	pension	costs,	other	postretirement benefits,	and	incentive	costs.	A	combination	of	general	wage	and	benefit	inflation,	volume-related	expenses,	higher	training	costs	associated	with	new hires,	additional	crew	costs	due	to	speed	restrictions	caused	by	the	Midwest	flooding	and	heat	and	drought	in	the	South,	and	higher	pension	expense drove	the	increase	during	2011	compared	to	2010.

General	wage	and	benefit	inflation	increased	costs	by	approximately	$190	million	in	2010	compared	to	2009.	Volume-related	expenses	and	higher	equity and	incentive	compensation	also	drove	costs	up	during	the	year.	Workforce	levels	declined	1%	in	2010	compared	to	2009	as	network	efficiencies	and ongoing	productivity	initiatives	enabled	us	to	effectively	handle	the	13%	increase	in	volume	levels	with	fewer	employees.

Fuel	–	Fuel	includes	locomotive	fuel	and	gasoline	for	highway	and	non-highway	vehicles	and	heavy	equipment.	Higher	locomotive	diesel	fuel	prices, which	averaged	$3.12	(including	taxes	and	transportation	costs)	in	2011,	compared	to	$2.29	per	gallon	in	2010,	increased	expenses	by	$922	million.	In addition,	 higher	 gasoline	 prices	 for	 highway	 and	 non-highway	 vehicles	 also	 increased	 year-over-year.	 Volume,	 as	 measured	 by	 gross	 ton-miles, increased	5%	in	2011	versus	2010,	driving	expense	up	by	$122	million.

Higher	diesel	fuel	prices,	which	averaged	$2.29	per	gallon	(including	taxes	and	transportation	costs)	in	2010	compared	to	$1.75	per	gallon	in	2009, increased	expenses	by	$566	million.	Volume,	as	measured	by	gross	ton-miles,	increased	10%	in	2010	versus	2009,	driving	fuel	expense	up	by	$166 million.	Conversely,	the	use	of	newer,	more	fuel	efficient	locomotives,	our	fuel	conservation	programs	and	efficient	network	operations	drove	a	3% improvement	in	our	fuel	consumption	rate	in	2010,	resulting	in	$40	million	of	cost	savings	versus	2009	at	the	2009	average	fuel	price.

Purchased	Services	and	Materials	–	Expense	for	purchased	services	and	materials	includes	the	costs	of	services	purchased	from	outside	contractors	and other	service	providers	(including	equipment	maintenance	and	contract	expenses	 incurred	by	our	subsidiaries	 for	external	 transportation	services); materials	 used	 to	 maintain	 the	 Railroad's	 lines,	 structures,	 and	 equipment;	 costs	 of	 operating	 facilities	 jointly	 used	 by	 UPRR	 and	 other	 railroads; transportation	and	lodging	for	train	crew	employees;	trucking	and	contracting	costs	for	intermodal	containers;	leased	automobile	maintenance	expenses; and	tools	and	supplies.	Expenses	for	contract	services	increased	$106	million	in	2011	versus	2010,	driven	by	volume-related	external	transportation services	 incurred	by	our	subsidiaries,	and	various	other	 types	of	contractual	services,	 including	 flood-related	repairs,	mitigation	and	 improvements. Volume-related	crew	 transportation	and	 lodging	costs,	as	well	as	expenses	associated	with	 jointly	owned	operating	 facilities,	also	 increased	costs compared	to	2010.	In	addition,	an	increase	in	locomotive	maintenance	materials	used	to	prepare	a	portion	of	our	locomotive	fleet	for	return	to	active service	due	to	increased	volume	and	additional	capacity	for	weather	related	issues	and	warranty	expirations	increased	expenses	in	2011.

A	 $148	 million	 increase	 in	 costs	 for	 contract	 services	 drove	 the	 higher	 expenses	 in	 2010	 versus	 2009.	 Volume-related	 trucking	 and	 lift	 costs	 for intermodal	containers	and	crew	transportation	and	lodging	costs	also	increased	costs	from	2009.	In	addition,	an	increase	in	locomotive	maintenance materials	used	to	prepare	a	portion	of	our	locomotive	fleet	for	return	to	active	service	increased	expenses	during	the	year	compared	to	2009.	Conversely, a	decrease	in	freight	car	maintenance	activity	during	2010	drove	lower	freight	car	material	costs,	partially	offsetting	the	cost	increases	versus	2009.

Depreciation	–	The	majority	of	depreciation	relates	to	road	property,	including	rail,	ties,	ballast,	and	other	track	material.	A	higher	depreciable	asset	base, reflecting	ongoing	capital	spending,	increased	depreciation	expense	in	2011	compared	to	2010.	Higher	depreciation	rates	for	rail	and	other	track	material also	contributed	to	the	increase.	The	higher	rates,	which	became	effective	January	1,	2011,	resulted	primarily	from	increased	track	usage	(based	on higher	gross	ton-miles	in	2010).

A	higher	depreciable	asset	base,	reflecting	higher	capital	spending	in	recent	years,	increased	depreciation	expense	in	2010	compared	to	2009.	Costs also	increased	$25	million	in	2010	due	to	the	restructuring	of	certain	locomotive	leases	in	the	second	quarter	of	2009.	Lower	depreciation	rates	for	rail and	other	track	material	partially	offset	the	increases.	The	lower	rates,	which	became	effective	January	1,	2010,	resulted	from	reduced	track	usage (based	on	lower	gross	ton-miles	in	2009).

Equipment	and	Other	Rents	–	Equipment	and	other	rents	expense	primarily	includes	rental	expense	that	the	Railroad	pays	for	freight	cars	owned	by other	railroads	or	private	companies;	freight	car,	intermodal,	and	locomotive	leases;	and	office	and	other	rent	expenses.	Costs	increased	in	2011	versus 2010	as	higher	short-term	freight	car	rental	expense	and	container	lease	expense	offset	lower	freight	car	and	locomotive	lease	expense.

Short-term	freight	car	rental	expense	increased	in	2010	compared	to	2009,	reflecting	increased	shipments	of	finished	vehicles	and	intermodal	containers. Increased	lease	expenses	for	containers	also	drove	the	increase.	Conversely,	lower	lease	expense	for	freight	cars	and	locomotives	decreased	costs compared	to	2009.	The	restructuring	of	locomotive	leases	(completed	in	May	2009)	also	reduced	lease	expense	by	$36	million	in	2010	compared	to 2009.

Other	–	Other	expenses	include	personal	injury,	freight	and	property	damage,	destruction	of	equipment,	insurance,	environmental,	bad	debt,	state	and local	taxes,	utilities,	telephone	and	cellular,	employee	travel,	computer	software,	and	other	general	expenses.	Higher	property	taxes,	casualty	costs associated	with	destroyed	equipment,	damaged	freight	and	property	and	environmental	costs	increased	other	costs	in	2011	compared	to	2010.	A	one- time	payment	of	$45	million	in	the	first	quarter	of	2010	related	to	a	transaction	with	CSXI	and	continued	improvement	in	our	safety	performance	and	lower estimated	liability	for	personal	injury,	which	reduced	our	personal	injury	expense	year-over-year,	partially	offset	increases	in	other	costs.

Other	costs	were	higher	in	2010	compared	to	2009,	driven	by	higher	property	taxes	and	the	$45	million	one-time	payment	in	the	first	quarter	of	2010 related	to	a	transaction	with	CSXI.	A	$30	million	payment	in	2009	to	Pacer	International,	Inc.	and	lower	expenses	for	freight	and	property	damages partially	offset	 these	 increases	 in	comparing	2009	with	2010.	 In	addition,	personal	 injury	expense	was	 lower	 in	2010	compared	 to	2009,	reflecting continued	improvement	in	our	personal	injury	incident	rate	and	lower	settlement	costs	per	claim.	The	change	in	asbestos-related	claim	expenses	in	2010 versus	2009	offset

the	lower	personal	injury	costs.	As	a	result	of	our	2009	annual	review	of	asbestos-related	costs,	we	reduced	expenses	by	$25	million,	thus	driving	the unfavorable	variance	in	2010.

# Non-Operating	Items

Other	Income	–	Other	income	increased	in	2011	versus	2010	due	to	higher	gains	from	real	estate	sales,	lower	environmental	costs	associated	with	non- operating	properties	and	the	comparative	impact	of	premiums	paid	for	early	redemption	of	long-term	debt	in	the	first	quarter	of	2010.

Other	income	decreased	in	2010	versus	2009	due	to	lower	gains	from	real	estate	sales	(the	second	quarter	of	2009	included	a	$116	million	pre-tax	gain from	a	land	sale	to	the	Regional	Transportation	District	in	Colorado)	and	premiums	paid	for	early	debt	redemption.

Interest	Expense	–	Interest	expense	decreased	in	2011	versus	2010	due	to	a	lower	weighted-average	debt	level	of	$9.2	billion	versus	$9.7	billion.	The effective	interest	rate	was	6.2%	in	both	2011	and	2010.

Interest	expense	was	flat	in	2010	compared	to	2009	due	to	a	modestly	higher	weighted-average	debt	level	of	$9.7	billion,	compared	to	$9.6	billion	in 2009,	offset	by	a	lower	effective	interest	rate	of	6.2%	in	2010,	compared	to	6.3%	in	2009.

Income	Taxes	–	Higher	pre-tax	income	increased	income	taxes	in	2011	compared	to	2010.	Our	effective	tax	rate	remained	relatively	flat	at	37.5%	in	2011 compared	to	37.3%	in	2010.

Income	taxes	were	higher	in	2010	compared	to	2009,	primarily	driven	by	higher	pre-tax	income.	Our	effective	tax	rate	for	the	year	was	37.3%	compared to	36.4%	in	2009.

# OTHER	OPERATING/PERFORMANCE	AND	FINANCIAL	STATISTICS

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

# Operating/Performance	Statistics

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

Average	Train	Speed	–	Average	train	speed	is	calculated	by	dividing	train	miles	by	hours	operated	on	our	main	lines	between	terminals.	The	severe	heat and	drought	in	the	South,	combined	with	extreme	winter	weather	in	February	and	severe	Midwest	flooding,	had	a	greater	impact	than	weather	events	in 2010.	These	weather	challenges,	in	addition	to	increased	carloadings	and	traffic	mix	changes,	drove	the	2%	decline	in	2011	compared	to	2010.	Overall, we	continued	operating	a	fluid	and	efficient	network	during

2011,	effectively	handling	the	3%	increase	in	carloads.	Maintenance	activities	and	weather	disruptions,	combined	with	higher	volume	levels,	led	to	a	4% decrease	in	average	train	speed	in	2010	compared	to	a	record	set	in	2009.

Average	Terminal	Dwell	Time	–	Average	terminal	dwell	time	is	the	average	time	that	a	rail	car	spends	at	our	terminals.	Lower	average	terminal	dwell	time improves	asset	utilization	and	service.	Average	terminal	dwell	time	increased	3%	in	2011	compared	to	2010.	Additional	volume,	weather	challenges, track	replacement	programs,	and	a	shift	of	traffic	mix	to	more	manifest	shipments,	which	require	additional	terminal	processing,	all	contributed	to	the increase.	Average	terminal	dwell	time	increased	2%	in	2010	compared	to	2009,	driven	in	part	by	our	network	plan	to	increase	the	length	of	numerous trains	to	improve	overall	efficiency,	which	resulted	in	higher	terminal	dwell	time	for	some	cars.

Average	Rail	Car	Inventory	–	Average	rail	car	inventory	is	the	daily	average	number	of	rail	cars	on	our	lines,	including	rail	cars	in	storage.	Lower	average rail	car	inventory	reduces	congestion	in	our	yards	and	sidings,	which	increases	train	speed,	reduces	average	terminal	dwell	time,	and	improves	rail	car utilization.	Average	rail	car	inventory	decreased	slightly	in	2011	compared	to	2010,	as	we	continued	to	adjust	the	size	of	our	freight	car	fleet.	Average	rail car	 inventory	 decreased	 3%	 in	 2010	 compared	 to	 2009,	 while	 we	 handled	 a	 13%	 increase	 in	 carloads	 during	 the	 period	 compared	 to	 2009.	 We maintained	more	freight	cars	off-line	and	retired	a	number	of	old	freight	cars,	which	drove	the	decrease.

Gross	and	Revenue	Ton-Miles	–	Gross	ton-miles	are	calculated	by	multiplying	the	weight	of	loaded	and	empty	freight	cars	by	the	number	of	miles	hauled. Revenue	ton-miles	are	calculated	by	multiplying	the	weight	of	freight	by	the	number	of	tariff	miles.	Gross	and	revenue-ton-miles	increased	5%	in	2011 compared	to	2010,	driven	by	a	3%	increase	in	carloads	and	mix	changes	to	heavier	commodity	groups,	notably	a	5%	increase	in	energy	shipments. Gross	and	revenue-ton-miles	increased	10%	and	9%,	respectively,	in	2010	compared	to	2009	due	to	a	13%	increase	in	carloads.	Commodity	mix changes	(notably	automotive	shipments)	drove	the	variance	in	year-over-year	growth	between	gross	ton-miles,	revenue	ton-miles	and	carloads.

Operating	Ratio	–	Operating	ratio	is	our	operating	expenses	reflected	as	a	percentage	of	operating	revenue.	Our	operating	ratio	increased	0.1	points	to 70.7%	in	2011	versus	2010.	Higher	fuel	prices,	inflation	and	weather	related	costs,	partially	offset	by	core	pricing	gains	and	productivity	initiatives,	drove the	increase.	Our	operating	ratio	improved	5.5	points	to	70.6%	in	2010	and	1.3	points	to	76.1%	in	2009.	Efficiently	leveraging	volume	increases,	core pricing	gains,	and	productivity	initiatives	drove	the	improvement	in	2010	and	more	than	offset	the	impact	of	higher	fuel	prices	during	the	year.

Employees	–	Employee	levels	were	up	5%	in	2011	versus	2010,	driven	by	a	3%	increase	in	volume	levels,	a	higher	number	of	trainmen,	engineers,	and yard	employees	receiving	training	during	the	year,	and	increased	work	on	capital	projects.	Employee	levels	were	down	1%	in	2010	compared	to	2009 despite	a	13%	increase	in	volume	levels.	We	leveraged	the	additional	volumes	through	network	efficiencies	and	other	productivity	initiatives.	In	addition, we	successfully	managed	the	growth	of	our	full-time-equivalent	train	and	engine	force	levels	at	a	rate	less	than	half	of	our	carload	growth	in	2010.	All other	operating	functions	and	support	organizations	reduced	their	full-time-equivalent	force	levels,	benefiting	from	continued	productivity	initiatives.

Customer	Satisfaction	Index	–	Our	customer	satisfaction	survey	asks	customers	to	rate	how	satisfied	they	are	with	our	performance	over	the	last	12 months	on	a	variety	of	attributes.	A	higher	score	indicates	higher	customer	satisfaction.	We	believe	that	improvement	in	survey	results	in	2011	generally reflects	customer	recognition	of	our	service	quality	supported	by	our	capital	investment	program.

# Return	on	Average	Common	Shareholders'	Equity

# Return	on	Invested	Capital	as	Adjusted	(ROIC)

| Millions,	Except	Percentages | 2011 | 2010 | 2009 |
| :--- | :--- | :--- | :--- |
| Net\tincome | \t\t $3,292 | \t\t $2,780 | \t\t $1,890 |
| Add:\tInterest\texpense | 572 | 602 | 600 |
| Add:\tInterest\ton\tpresent\tvalue\tof\toperating\tleases | 208 | 222 | 232 |
| Add:\tReceivable\tsecuritization\tfees | - | - | 9 |
| Less:\tTaxes\ton\tinterest | (293) | (307) | (306) |
| Net\toperating\tprofit\tafter\ttaxes\tas\tadjusted\t(a) | \t\t $3,779 | \t\t $3,297 | \t\t $2,425 |
| Average\tequity | \t\t $18,171 | \t\t $\t\t\t\t17,282 | \t\t $\t\t\t\t16,058 |
| Add:\tAverage\tdebt | 9,074 | 9,545 | 9,388 |
| Add:\tAverage\tvalue\tof\tsold\treceivables | - | 200 | 492 |
| Add:\tAverage\tpresent\tvalue\tof\toperating\tleases | 3,350 | 3,574 | 3,681 |
| Average\tinvested\tcapital\tas\tadjusted\t(b) | \t\t $\t\t\t\t30,595 | \t\t $30,601 | \t\t $29,619 |
| Return\ton\tinvested\tcapital\tas\tadjusted\t(a/b) | 12.4% | 10.8% | 8.2% |

ROIC	is	considered	a	non-GAAP	financial	measure	by	SEC	Regulation	G	and	Item	10	of	SEC	Regulation	S-K,	and	may	not	be	defined	and	calculated	by other	companies	 in	 the	same	manner.	We	believe	 this	measure	 is	 important	 in	evaluating	 the	efficiency	and	effectiveness	of	our	 long-term	capital investments.	In	addition,	we	currently	use	ROIC	as	a	performance	criteria	in	determining	certain	elements	of	equity	compensation	for	our	executives. ROIC	should	be	considered	in	addition	to,	rather	than	as	a	substitute	for,	other	information	provided	in	accordance	with	GAAP.	The	most	comparable GAAP	 measure	 is	 Return	 on	Average	 Common	 Shareholders'	 Equity.	 The	 tables	 above	 provide	 reconciliations	 from	 return	 on	 average	 common shareholders'	equity	to	ROIC.	Our	2011	ROIC	improved	1.6	points	compared	to	2010,	primarily	as	a	result	of	higher	earnings	and	lower	debt	levels.

# Debt	to	Capital	/	Adjusted	Debt	to	Capital

Adjusted	debt	to	capital	is	a	non-GAAP	financial	measure	under	SEC	Regulation	G	and	Item	10	of	SEC	Regulation	S-K.	We	believe	this	measure	is important	to	management	and	investors	in	evaluating	the	total	amount	of	leverage	in	our	capital	structure,	including	off-balance	sheet	lease	obligations, which	 we	 generally	 incur	 in	 connection	 with	 financing	 the	 acquisition	 of	 locomotives	 and	 freight	 cars	 and	 certain	 facilities.	 Operating	 leases	 were discounted	using	6.2%	at	December	31,	2011	and	December	31,	2010.	The	discount	rate	reflects	current	interest	rates	and	financing	costs.	We	monitor the	ratio	of	adjusted	debt	to	capital	as	we	manage	our	capital	structure	to	balance	cost-effective	and	efficient	access	to	the	capital	markets	with	our overall	cost	of	capital.	Adjusted	debt	to	capital	should	be	considered	in	addition	to,	rather	than	as	a	substitute	for,	debt	to	capital.	The	tables	above provide	reconciliations	from	debt	to	capital	to	adjusted	debt	to	capital.	Our	December	31,	2011	debt	to	capital	ratios	decreased	as	a	result	of	a	$336 million	net	decrease	in	debt	from	December	31,	2010.

# LIQUIDITY	AND	CAPITAL	RESOURCES

As	of	December	31,	2011,	our	principal	sources	of	liquidity	included	cash,	cash	equivalents,	our	receivables	securitization	facility,	and	our	revolving	credit facility,	as	well	as	the	availability	of	commercial	paper	and	other	sources	of	financing	through	the	capital	markets.	We	had	$1.8	billion	of	committed	credit available	under	our	credit	facility,	with	no	borrowings	outstanding	as	of	December	31,	2011.	We	did	not	make	any	borrowings	under	this	facility	during 2011.	The	value	of	the	outstanding	undivided	interest	held	by	investors	under	the	receivables	securitization	facility	was	$100	million	as	of	December	31, 2011,	and	is	included	in	our	Consolidated	Statements	of	Financial	Position	as	debt	due	after	one	year.	The	receivables	securitization	facility	obligates	us to	maintain	an	investment	grade	bond	rating.	If	our	bond	rating	were	to	deteriorate,	it	could	have	an	adverse	impact	on	our	liquidity.	Access	to	commercial paper	as	well	as	other	capital	market	financings	is	dependent	on	market	conditions.	Deterioration	of	our	operating	results	or	financial	condition	due	to internal	or	external	factors	could	negatively	impact	our	ability	to	access	capital	markets	as	a	source	of	liquidity.	Access	to	liquidity	through	the	capital markets	is	also	dependent	on	our	financial	stability.	We	expect	that	we	will	continue	to	have	access	to	liquidity	by	issuing	bonds	to	public	or	private investors	based	on	our	assessment	of	the	current	condition	of	the	credit	markets.

At	December	31,	2011	and	2010,	we	had	a	working	capital	surplus.	This	reflects	a	strong	cash	position,	which	provides	enhanced	liquidity	in	an	uncertain economic	environment.	In	addition,	we	believe	we	have	adequate	access	to	capital	markets	to	meet	cash	requirements,	and	we	have	sufficient	financial capacity	to	satisfy	our	current	liabilities.

| Cash	Flows |  |  |  |
| :--- | :--- | :--- | :--- |
| Millions | 2011 | 2010 | 2009 |
| Cash\tprovided\tby\toperating\tactivities | \t\t $5,873 | \t\t $4,105 | \t\t $3,204 |
| Cash\tused\tin\tinvesting\tactivities | \t\t\t\t(3,119) | \t\t\t\t(2,488) | \t\t\t\t(2,145) |
| Cash\tused\tin\tfinancing\tactivities | (2,623) | (2,381) | (458) |
| Net\tchange\tin\tcash\tand\tcash\tequivalents | \t\t $131 | \t\t $(764)\t\t\t\t $ | 601 |

# Operating	Activities

Higher	net	income	and	lower	cash	income	tax	payments	in	2011	increased	cash	provided	by	operating	activities	compared	to	2010.	The	Tax	Relief, Unemployment	Insurance	Reauthorization,	and	Job	Creation	Act	of	2010,	enacted	in	December	2010,	provided	for	100%	bonus	depreciation	for	qualified investments	made	during	2011,	and	50%	bonus	depreciation	for	qualified	investments	made	during	2012.	As	a	result	of	the	Act,	the	Company	deferred	a substantial	portion	of	its	2011	income	tax	expense.	This	deferral	decreased	2011	income	tax	payments,	thereby	contributing	to	the	positive	operating cash	flow.	In	future	years,	however,	additional	cash	will	be	used	to	pay	income	taxes	that	were	previously	deferred.	In	addition,	the	adoption	of	a	new accounting	standard	in	January	of	2010	changed	the	accounting	treatment	for	our	receivables	securitization	facility	from	a	sale	of	undivided	interests (recorded	as	an	operating	activity)	to	a	secured	borrowing	(recorded	as	a	financing	activity),	which	decreased	cash	provided	by	operating	activities	by $400	million	in	2010.	Higher	net	income	in	2010	increased	cash	provided	by	operating	activities	compared	to	2009.

# Investing	Activities

Higher	capital	investments	partially	offset	by	higher	proceeds	from	asset	sales	in	2011	drove	the	increase	in	cash	used	in	investing	activities	compared	to 2010.	Higher	capital	investments	and	lower	proceeds	from	asset	sales	in	2010	drove	the	increase	in	cash	used	in	investing	activities	compared	to	2009.

The	tables	below	detail	cash	capital	investments	and	track	statistics	for	the	years	ended	December	31,	2011,	2010,	and	2009:

| Millions | 2011 | 2010 | 2009 |
| :--- | :--- | :--- | :--- |
| Rail\tand\tother\ttrack\tmaterial | \t\t $697\t\t\t\t $ | 626\t\t\t\t $ | 614 |
| Ties | 403 | 444 | 449 |
| Ballast | 220 | 190 | 208 |
| Other\t[a] | 382 | 365 | 338 |
| Total\troad\tinfrastructure\treplacements | 1,702 | 1,625 | 1,609 |
| Line\texpansion\tand\tother\tcapacity\tprojects | 311 | 122 | 162 |
| Commercial\tfacilities | 111 | 227 | 193 |
| Total\tcapacity\tand\tcommercial\tfacilities | 422 | 349 | 355 |
| Locomotives\tand\tfreight\tcars | 675 | 330 | 272 |
| Positive\ttrain\tcontrol | 229 | 84 | 28 |
| Technology\tand\tother | 148 | 94 | 90 |

[a]				Other	includes	bridges	and	tunnels,	signals,	other	road	assets,	and	road	work	equipment.

Capital	Plan	–	In	2012,	we	expect	our	total	capital	investments	to	be	approximately	$3.6	billion,	which	may	be	revised	if	business	conditions	warrant	or	if new	laws	or	regulations	affect	our	ability	to	generate	sufficient	returns	on	these	investments.	We	expect	that	over	50%	of	our	2012	capital	investments will	 replace	 and	 improve	 existing	 capital	 assets.	 Major	 investment	 categories	 include	 replacing	 and	 improving	 track	 infrastructure;	 upgrading	 our locomotive,	freight	car	and	container	fleet,	including	acquisition	of	200	locomotives	and	1,800	freight	cars	including	large	covered	hoppers,	gondolas,	and small	covered	hoppers;	improving	technology,	including	investing	in	PTC;	and	other	capital	projects.	Additionally,	we	will	continue	to	increase	our	network and	 terminal	capacity;	 for	example,	 to	balance	 terminal	capacity	with	mainline	capacity	being	added	by	our	double-tracking	project	on	 the	Sunset Corridor,	we	are	constructing	a	rail	facility	at	Santa	Teresa,	New	Mexico,	that	initially	will	include	a	run-through	and	fueling	facility	and	an	intermodal ramp.

We	expect	to	fund	our	2012	cash	capital	investments	by	using	some	or	all	of	the	following:	cash	generated	from	operations,	proceeds	from	the	sale	or lease	of	various	operating	and	non-operating	properties,	proceeds	from	the	issuance	of	long-term	debt,	and	cash	on	hand.	Our	annual	capital	plan	is	a critical	component	of	our	long-term	strategic	plan,	which	we	expect	will	enhance	the	long-term	value	of	the	Corporation	for	our	shareholders	by	providing sufficient	resources	to	(i)	replace	and	improve	our	existing	track	infrastructure	to	provide	safe	and	fluid	operations,	(ii)	increase	network	efficiency	by adding	or	improving	facilities	and	track,	and	(iii)	make	investments	that	meet	customer	demand	and	take	advantage	of	opportunities	for	long-term	growth.

# Financing	Activities

Cash	used	in	financing	activities	increased	in	2011	versus	2010.	Higher	dividend	payments	in	2011	of	$837	million	compared	to	$602	million	in	2010, reflecting	our	increased	dividend	rate	and	the	repurchase	of	$1.4	billion	of	our	common	stock,	a	$169	million	increase	from	2010	repurchases,	drove	the increase.	We	used	less	cash	to	reduce	outstanding	debt	in	2011,	which	partially	offset	this	increase.	Cash	used	in	financing	activities	increased	in	2010 versus	2009.	During	2010,	we	repurchased	$1.2	billion	of	shares	under	our	common	stock	repurchase	program,	compared	to	no	repurchases	in	2009. Additionally,	our	net	debt	reduction	in	2010	was	$518	million	compared	to	$28	million	in	2009,	which	also	contributed	to	the	increase	in	cash	used	in financing	activities	in	2010.

Credit	Facilities	–	During	the	second	quarter	of	2011,	we	replaced	our	$1.9	billion	revolving	credit	facility,	which	was	scheduled	to	expire	in	April	2012, with	a	new	$1.8	billion	facility	that	expires	in	May	2015	(the	facility).	The	facility	is	based	on	substantially	similar	terms	as	those	in	the	previous	credit facility.	On	December	31,	2011,	we	had	$1.8	billion	of	credit	available	under	the	facility,	which	is	designated	for	general	corporate	purposes	and	supports the	issuance	of	commercial	paper.	We	did	not	draw	on	either	facility	during	2011.	Commitment	fees	and	interest	rates	payable	under	the	facility	are similar	to	fees	and	rates	available	to	comparably	rated,	investment-grade	borrowers.	The	facility	allows	for	borrowings	at	floating	rates	based	on	London Interbank	Offered	Rates,	plus	a	spread,	depending	upon	our	senior	unsecured	debt	ratings.	The	facility	requires	the	Corporation	to	maintain	a	debt-to- net-worth	coverage	ratio	as	a	condition	to	making	a	borrowing.	At	December	31,	2011,	and	December	31,	2010	(and	at	all	times	during	the	year),	we were	in	compliance	with	this	covenant.

The	definition	of	debt	used	for	purposes	of	calculating	the	debt-to-net-worth	coverage	ratio	includes,	among	other	things,	certain	credit	arrangements, capital	leases,	guarantees	and	unfunded	and	vested	pension	benefits	under	Title	IV	of	ERISA.	At	December	31,	2011,	the	debt-to-net-worth	coverage ratio	allowed	us	to	carry	up	to	$37.2	billion	of	debt	(as	defined	in	the	facility),	and	we	had	$9.5	billion	of	debt	(as	defined	in	the	facility)	outstanding	at	that date.	Under	our	current	capital	plans,	we	expect	to	continue	to	satisfy	the	debt-to-net-worth	coverage	ratio;	however,	many	factors	beyond	our	reasonable control	(including	the	Risk	Factors	in	Item	1A	of	this	report)	could	affect	our	ability	to	comply	with	this	provision	in	the	future.	The	facility	does	not	include any	other	financial	restrictions,	credit	rating	triggers	(other	than	rating-dependent	pricing),	or	any	other	provision	that	could	require	us	to	post	collateral. The	facility	also	includes	a	$75	million	cross-default	provision	and	a	change-of-control	provision.

During	2011,	we	did	not	issue	or	repay	any	commercial	paper	and,	at	December	31,	2011	and	2010,	we	had	no	commercial	paper	outstanding.	Our revolving	credit	facility	supports	outstanding	commercial	paper	balances,	which	do	not	reduce	the	amount	of	borrowings	available	under	the	facility.

At	December	31,	2011	and	2010,	we	reclassified	as	long-term	debt	approximately	$100	million	of	debt	due	within	one	year	that	we	intend	to	refinance. This	reclassification	reflected	our	ability	and	intent	to	refinance	any	short-term	borrowings	and	certain	current	maturities	of	long-term	debt	on	a	long-term basis.

# Ratio	of	Earnings	to	Fixed	Charges

For	each	of	the	years	ended	December	31,	2011,	2010,	and	2009,	our	ratio	of	earnings	to	fixed	charges	was	8.4,	6.9,	and	4.9,	respectively.	The	ratio	of earnings	to	fixed	charges	was	computed	on	a	consolidated	basis.	Earnings	represent	income	from	continuing	operations,	less	equity	earnings	net	of distributions,	plus	fixed	charges	and	income	taxes.	Fixed	charges	represent	interest	charges,	amortization	of	debt	discount,	and	the	estimated	amount representing	the	interest	portion	of	rental	charges.	(See	Exhibit	12	to	this	report	for	the	calculation	of	the	ratio	of	earnings	to	fixed	charges.)

# Common	Shareholders'	Equity

Dividend	Restrictions	–	Our	revolving	credit	facility	includes	a	debt-to-net	worth	covenant	(discussed	in	the	Credit	Facilities	section	above)	that,	under certain	circumstances,	restricts	the	payment	of	cash	dividends	to	our	shareholders.	The	amount	of	retained	earnings	available	for	dividends	was	$13.8 billion	and	$12.9	billion	at	December	31,	2011	and	2010,	respectively.

Share	Repurchase	Program	–	The	shares	repurchased	in	2010	and	the	first	quarter	of	2011,	shown	in	the	table	below,	were	repurchased	under	our repurchase	program	that	expired	on	March	31,	2011.	Effective	April	1,	2011,	our	Board	of	Directors	authorized	the	repurchase	of	40	million	shares	of	our common	stock	by	March	31,	2014,	replacing	our	previous	repurchase	program.	The	shares	repurchased	in	the	second,	third,	and	fourth	quarters	of	2011, shown	in	the	table	below,	were	purchased	under	the	new	program.	As	of	December	31,	2011,	we	repurchased	a	total	of	$5.7	billion	of	our	common	stock since	the	commencement	of	purchases	under	our	repurchase	programs.

|  | Number	of	Shares	Purchased | Number	of	Shares	Purchased | Average	Price	Paid | Average	Price	Paid |
| :--- | :--- | :--- | :--- | :--- |
|  | 2011 | 2010 | 2011 | 2010 |
| First\tquarter | 2,636,178 | - | \t\t$94.10\t\t\t\t$ | - |
| Second\tquarter | 3,576,399 | 6,496,400 | 100.75 | 71.74 |
| Third\tquarter | 4,681,535 | 7,643,400 | 91.45 | 73.19 |
| Fourth\tquarter | 3,885,658 | 2,500,596 | 98.16 | 89.39 |
| Total | \t\t\t 14,779,770 | \t\t\t16,640,396 | \t\t$\t\t\t\t95.94\t\t\t\t$ | 75.06 |
| Remaining\tnumber\tof\tshares\tthat\tmay\tyet\tbe\trepurchased |  |  |  | \t\t\t 27,856,408 |

Management's	assessments	of	market	conditions	and	other	pertinent	facts	guide	the	timing	and	volume	of	all	repurchases.	We	expect	to	fund	any	share repurchases	under	this	program	through	cash	generated	from	operations,	the	sale	or	lease	of	various	operating	and	non-operating	properties,	debt issuances,	and	cash	on	hand.	Repurchased	shares	are	recorded	in	treasury	stock	at	cost,	which	includes	any	applicable	commissions	and	fees.

Shelf	 Registration	 Statement	 and	 Significant	 New	 Borrowings 	 –	 Under	 our	 current	 shelf registration,	 we	 may	 issue,	 from	 time	 to	 time,	 any combination	of	debt	securities,	preferred	stock,	common	stock,	or	warrants	for	debt	securities	or	preferred	stock	in	one	or	more	offerings.	We	have	no immediate	plans	to	issue	equity	securities;	however,	we	will	continue	to	explore	opportunities	to	replace	existing	debt	or	access	capital	through	issuances of	debt	securities	under	our	shelf	registration,	and,	therefore,	we	may	issue	additional	debt	securities	at	any	time.

During	2011,	we	issued	the	following	unsecured,	fixed-rate	debt	securities	under	our	current	shelf	registration:

The	 net	 proceeds	 from	 the	 offering	 were	 used	 for	 general	 corporate	 purposes,	 including	 the	 repurchase	 of	 common	 stock	 pursuant	 to	 our	 share repurchase	program.	These	debt	securities	include	change-of-control	provisions.	At	December	31,	2011,	we	had	remaining	authority	to	issue	up	to	$2.0 billion	of	debt	securities	under	our	shelf	registration.

During	the	third	quarter	of	2011,	we	renegotiated	and	extended	for	three	years	on	substantially	similar	terms	a	$100	million	floating-rate	term	loan,	which will	mature	on	August	5,	2016.

Debt	Exchange	–	On	June	23,	2011,	we	exchanged	$857	million	of	various	outstanding	notes	and	debentures	due	between	2013	and	2019	(Existing Notes)	for	$750	million	of	4.163%	notes	(New	Notes)	due	July	15,	2022,	plus	cash	consideration	of	approximately	$267	million	and	$17	million	for	accrued and	unpaid	interest	on	the	Existing	Notes.	The	cash	consideration	was	recorded	as	an	adjustment	to	the	carrying	value	of	debt,	and	the	balance	of	the unamortized	discount	and	issue	costs	from	the	Existing	Notes	is	being	amortized	as	an	adjustment	of	interest	expense	over	the	term	of	the	New	Notes. No	gain	or	loss	was	recognized	as	a	result	of	the	exchange.	Costs	related	to	the	debt	exchange	that	were	payable	to	parties	other	than	the	debt	holders totaled	approximately	$6	million	and	were	included	in	interest	expense	during	the	year	ended	December	31,	2011.

The	following	table	lists	the	outstanding	notes	and	debentures	that	were	exchanged:

On	July	14,	2010,	we	exchanged	$376	million	of	7.875%	notes	due	in	2019	(Existing	Notes)	for	5.78%	notes	(New	Notes)	due	July	15,	2040,	plus	cash consideration	of	approximately	$96	million	and	$15	million	for	accrued	and	unpaid	interest	on	the	Existing	Notes.	The	cash	consideration	was	recorded	as an	adjustment	to	the	carrying	value	of	debt,	and	the	balance	of	the	unamortized	discount	and	issue	costs	from	the	Existing	Notes	is	being	amortized	as an	adjustment	of	interest	expense	over	the	term	of	the	New	Notes.	There	was	no	gain	or	loss	recognized	as	a	result	of	the	exchange.	Costs	related	to the	debt	exchange	that	were	payable	to	parties	other	than	the	debtholders	totaled	approximately	$2	million	and	were	included	in	interest	expense	during the	third	quarter.

Debt	Redemptions	–	On	December	19,	2011,	we	redeemed	the	remaining	$175	million	of	our	6.5%	notes	due	April	15,	2012,	and	all	$300	million	of	our outstanding	6.125%	notes	due	January	15,	2012.	The	redemptions	resulted	in	an	early	extinguishment	charge	of	$5	million.	On	March	22,	2010,	we redeemed	$175	million	of	our	6.5%	notes	due	April	15,	2012.	The	redemption	resulted	in	an	early	extinguishment	charge	of	$16	million	in	the	first	quarter of	2010.	On	November	1,	2010,	we	redeemed	all	$400	million	of	our	outstanding	6.65%	notes	due	January	15,	2011.	The	redemption	resulted	in	a	$5 million	early	extinguishment	charge.

Receivables	 Securitization	 Facility	–	 On	 January	 1,	 2010,	 we	 adopted	Accounting	 Standards	 Update	 No.	 2009-16,	 Accounting for	 Transfers	 of Financial	Assets (ASU	 2009-16).	ASU	 2009-16	 limits	 the	 circumstances	 in	 which	 transferred	 financial	 assets	 can	 be	 derecognized	 and	 requires enhanced	disclosures	regarding	transfers	of	financial	assets	and	a	transferor's	continuing	involvement	with	transferred	financial	assets.	As	a	result,	we no	longer	account	for	the	value	of	the	outstanding	undivided	interest	held	by	investors	under	our	receivables	securitization	facility	as	a	sale.	In	addition, transfers	of	receivables	occurring	on	or	after	January	1,	2010,	are	reflected	as	debt	issued	in	our	Consolidated	Statements	of	Cash	Flows	and	recognized as	debt	due	after	one	year	in	our	Consolidated	Statements	of	Financial	Position.

Under	the	receivables	securitization	facility,	the	Railroad	sells	most	of	its	accounts	receivable	to	Union	Pacific	Receivables,	Inc.	(UPRI),	a	bankruptcy- remote	subsidiary.	UPRI	may	subsequently	transfer,	without	recourse	on	a	364-day	revolving	basis,	an	undivided	interest	in	eligible	accounts	receivable to	 investors.	 The	 total	 capacity	 to	 transfer	 undivided	 interests	 to	 investors	 under	 the	 facility	 was	 $600	 million	 at	 December	 31,	 2011	 and	 2010, respectively.	The	value	of	the	outstanding	undivided	interest	held	by	investors	under	the	facility	was	$100	million	at	both	December	31,	2011	and	2010. The	value	of	the	undivided	interest	held	by	investors	was	supported	by	$1.1	billion	and	$960	million	of	accounts	receivable	at	December	31,	2011	and 2010,	respectively.	At	December	31,	2011	and	2010,	the	value	of	the	interest	retained	by	UPRI	was	$1.1	billion	and	$960	million,	respectively.	This retained	interest	is	included	in	accounts	receivable,	net	in	our	Consolidated	Statements	of	Financial	Position.

The	value	of	the	outstanding	undivided	interest	held	by	investors	could	fluctuate	based	upon	the	availability	of	eligible	receivables	and	is	directly	affected by	 changing	 business	 volumes	 and	 credit	 risks,	 including	 default	 and	 dilution.	 If	 default	 or	 dilution	 ratios	 increase	 one	 percent,	 the	 value	 of	 the outstanding	undivided	interest	held	by	investors	would	not	change	as	of	December	31,	2011.	Should	our	credit	rating	fall	below	investment	grade,	the value	of	the	outstanding	undivided	interest	held	by	investors	would	be	reduced,	and,	in	certain	cases,	the	investors	would	have	the	right	to	discontinue the	facility.

The	Railroad	collected	approximately	$18.8	billion	and	$16.3	billion	of	receivables	during	the	years	ended	December	31,	2011	and	2010,	respectively. UPRI	used	certain	of	these	proceeds	to	purchase	new	receivables	under	the	facility.

The	costs	of	the	receivables	securitization	facility	include	interest,	which	will	vary	based	on	prevailing	commercial	paper	rates,	program	fees	paid	to banks,	commercial	paper	issuing	costs,	and	fees	for	unused	commitment	availability.	The	costs	of	the	receivables	securitization	facility	are	included	in interest	expense	and	were	$4	million	and	$6	million	for	2011	and	2010,	respectively.	Prior	to	adoption	of	the	new	accounting	standard,	the	costs	of	the receivables	securitization	facility	were	included	in	other	income	and	were	$9	million	for	2009.

The	investors	have	no	recourse	to	the	Railroad's	other	assets,	except	for	customary	warranty	and	indemnity	claims.	Creditors	of	the	Railroad	do	not	have recourse	to	the	assets	of	UPRI.

In	August	2011,	the	receivables	securitization	facility	was	renewed	for	an	additional	364-day	period	at	comparable	terms	and	conditions.

# Contractual	Obligations	and	Commercial	Commitments

As	 described	 in	 the	 notes	 to	 the	 Consolidated	 Financial	 Statements	 and	 as	 referenced	 in	 the	 tables	 below,	 we	 have	 contractual	 obligations	 and commercial	commitments	 that	may	affect	our	 financial	condition.	Based	on	our	assessment	of	 the	underlying	provisions	and	circumstances	of	our contractual	obligations	and	commercial	commitments,	including	material	sources	of	off-balance	sheet	and	structured	finance	arrangements,	other	than the	risks	that	we	and	other	similarly	situated	companies	face	with	respect	to	the	condition	of	the	capital	markets	(as	described	in	Item	1A	of	Part	II	of	this report),	there	is	no	known	trend,	demand,	commitment,	event,	or	uncertainty	that	is	reasonably	likely	to	occur	that	would	have	a	material	adverse	effect on	our	consolidated	results	of	operations,	 financial	condition,	or	 liquidity.	 In	addition,	our	commercial	obligations,	 financings,	and	commitments	are customary	transactions	that	are	similar	to	those	of	other	comparable	corporations,	particularly	within	the	transportation	industry.

The	following	tables	identify	material	obligations	and	commitments	as	of	December	31,	2011:

| Contractual	Obligations |  |  |  |  |  |  | After |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Millions | Total | 2012 | 2013 | 2014 | 2015 | 2016 | 2016 | Other |
| Debt\t[a] | \t $12,516\t\t\t $ | 538\t\t\t $ | 852 | \t $887 | \t $615 | \t $652 | \t $8,972 | \t $- |
| Operating\tleases\t[b] | 4,528 | 525 | 489 | 415 | 372 | 347 | 2,380 | - |
| Capital\tlease\tobligations\t[c] | 2,559 | 297 | 269 | 276 | 276 | 262 | 1,179 | - |
| Purchase\tobligations\t[d] | 5,137 | 2,598 | 568 | 560 | 276 | 245 | 858 | 32 |
| Other\tpost\tretirement\tbenefits\t[e] | 249 | 26 | 26 | 26 | 26 | 26 | 119 | - |
| Income\ttax\tcontingencies\t[f] | 107 | 31 | - | - | - | - | - | 76 |
| Total\tcontractual\tobligations | \t $\t\t25,096\t\t\t $\t\t4,015\t\t\t $\t\t2,204 | \t $\t\t25,096\t\t\t $\t\t4,015\t\t\t $\t\t2,204 | \t $\t\t25,096\t\t\t $\t\t4,015\t\t\t $\t\t2,204 | \t $\t\t2,164 | \t $\t\t1,565 | \t $\t\t1,532 | \t $\t\t13,508 | \t $\t\t108 |

[a] Excludes	capital	lease	obligations	of	$1,874	million	and	unamortized	discount	of	$364	million.	Includes	an	interest	component	of	$5,120	million.

[b] Includes	leases	for	locomotives,	freight	cars,	other	equipment,	and	real	estate.

[c] Represents	total	obligations,	including	interest	component	of	$685	million.

[d] Purchase	obligations	include	locomotive	maintenance	contracts;	purchase	commitments	for	fuel	purchases,	locomotives,	ties,	ballast,	and	rail;	and	agreements	to	purchase	other	goods	and services.	For	amounts	where	we	cannot	reasonably	estimate	the	year	of	settlement,	they	are	reflected	in	the	Other	column.

[e] Includes	estimated	other	post	retirement,	medical,	and	life	insurance	payments	and	payments	made	under	the	unfunded	pension	plan	for	the	next	ten	years.	No	amounts	are	included	for	funded pension	obligations	as	no	contributions	are	currently	required.

[f] Future	cash	flows	for	income	tax	contingencies	reflect	the	recorded	liability	for	unrecognized	tax	benefits,	including	interest	and	penalties,	as	of	December	31,	2011.	Where	we	can	reasonably estimate	the	years	in	which	these	liabilities	may	be	settled,	this	is	shown	in	the	table.	For	amounts	where	we	cannot	reasonably	estimate	the	year	of	settlement,	they	are	reflected	in	the	Other column.

# Amount	of	Commitment	Expiration	per	Period

| Other	Commercial	Commitments |  |  |  |  |  |  | After |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Millions | Total | 2012 | 2013 | 2014 | 2015 | 2016 | 2016 |
| Credit\tfacilities\t[a] | \t\t$1,800\t\t\t\t$ | -\t\t\t\t\t$ | -\t\t\t\t\t$ | -\t\t\t\t\t$ | 1,800 | \t\t$-\t\t\t\t\t$ | - |
| Receivables\tsecuritization\tfacility\t[b] | 600 | 600 | - | - | - | - | - |
| Guarantees\t[c] | 325 | 18 | 8 | 214 | 12 | 13 | 60 |
| Standby\tletters\tof\tcredit\t[d] | 24 | 24 | - | - | - | - | - |
| Total\tcommercial\tcommitments | \t\t$\t\t\t\t2,749\t\t\t\t$\t\t\t\t642 | \t\t$\t\t\t\t2,749\t\t\t\t$\t\t\t\t642 | \t\t$\t\t\t\t\t\t\t\t8 | \t\t$\t\t\t\t214 | \t\t$\t\t\t\t1,812 | \t\t$\t\t\t\t\t\t\t\t13 | \t\t$\t\t\t\t\t\t\t\t60 |

[a] None	of	the	credit	facility	was	used	as	of	December	31,	2011.

[b] $100	million	of	the	receivables	securitization	facility	was	utilized	at	December	31,	2011,	which	is	accounted	for	as	debt.	The	full	program	matures	in	August	2012.

[c] Includes	guaranteed	obligations	related	to	our	headquarters	building,	equipment	financings,	and	affiliated	operations.

[d] None	of	the	letters	of	credit	were	drawn	upon	as	of	December	31,	2011.

# Off-Balance	Sheet	Arrangements

Guarantees	–	At	December	31,	2011,	we	were	contingently	liable	for	$325	million	in	guarantees.	We	have	recorded	a	liability	of	$3	million	for	the	fair value	of	these	obligations	as	of	December	31,	2011	and	2010.	We	entered	into	these	contingent	guarantees	in	the	normal	course	of	business,	and	they include	guaranteed	obligations	related	to	our	headquarters	building,	equipment	financings,	and	affiliated	operations.	The	final	guarantee	expires	in	2022. We	are	not	aware	of	any	existing	event	of	default	that	would	require	us	to	satisfy	these	guarantees.	We	do	not	expect	that	these	guarantees	will	have	a material	adverse	effect	on	our	consolidated	financial	condition,	results	of	operations,	or	liquidity.

Labor	Agreements	–	In	January	2010,	the	nation's	largest	freight	railroads	began	the	current	round	of	negotiations	with	the	labor	unions.	Generally, contract	negotiations	with	the	various	unions	take	place	over	an	extended	period	of	time.	This	round	of	negotiations	was	no	exception.	In	September 2011,	 the	 rail	 industry	 reached	 agreements	 with	 the	 United	Transportation	 Union.	 On	 November	 5,	 2011,	 a	 Presidential	 Emergency	 Board	 (PEB) appointed	by	President	Obama	issued	recommendations	to	resolve	the	disputes	between	the	U.S.	railroads	and	11	unions	that	had	not	yet	reached agreements.	Since	then,	ten	unions	reached	agreements	with	the	railroads,	all	of	them	generally	patterned	on	the	recommendations	of	the	PEB,	and	the unions	subsequently	ratified	 these	agreements.	The	railroad	 industry	reached	a	 tentative	agreement	with	 the	Brotherhood	of	Maintenance	of	Way Employees	(BMWE)	on	February	2,	2012,	eliminating	the	immediate	threat	of	a	national	rail	strike.	The	BMWE	now	will	commence	ratification	of	this tentative	agreement	by	its	members.

Inflation	–	Long	periods	of	inflation	significantly	increase	asset	replacement	costs	for	capital-intensive	companies.	As	a	result,	assuming	that	we	replace all	operating	assets	at	current	price	levels,	depreciation	charges	(on	an	inflation-adjusted	basis)	would	be	substantially	greater	than	historically	reported amounts.

Derivative	Financial	Instruments	–	We	may	use	derivative	financial	instruments	in	limited	instances	to	assist	in	managing	our	overall	exposure	to fluctuations	in	interest	rates	and	fuel	prices.	We	are	not	a	party	to	leveraged	derivatives	and,	by	policy,	do	not	use	derivative	financial	instruments	for speculative	purposes.	Derivative	financial	instruments	qualifying	for	hedge	accounting	must	maintain	a	specified	level	of	effectiveness	between	the hedging	instrument	and	the	item	being	hedged,	both	at	inception	and	throughout	the	hedged	period.	We	formally	document	the	nature	and	relationships between	the	hedging	instruments	and	hedged	items	at	inception,	as	well	as	our	risk-management	objectives,	strategies	for	undertaking	the	various	hedge transactions,	and	method	of	assessing	hedge	effectiveness.	Changes	in	the	fair	market	value	of	derivative	financial	instruments	that	do	not	qualify	for hedge	accounting	are	charged	to	earnings.	We	may	use	swaps,	collars,	futures,	and/or	forward	contracts	to	mitigate	the	risk	of	adverse	movements	in interest	rates	and	fuel	prices;	however,	the	use	of	these	derivative	financial	instruments	may	limit	future	benefits	from	favorable	price	movements.

Market	and	Credit	Risk	–	We	address	market	risk	related	to	derivative	financial	instruments	by	selecting	instruments	with	value	fluctuations	that	highly correlate	with	the	underlying	hedged	item.	We	manage	credit	risk	related	to	derivative	financial	instruments,	which	is	minimal,	by	requiring	high	credit standards	for	counterparties	and	periodic	settlements.	At	December	31,	2011	and	2010,	we	were	not	required	to	provide	collateral,	nor	had	we	received collateral,	relating	to	our	hedging	activities.

Determination	of	Fair	Value	–	We	determine	the	fair	values	of	our	derivative	financial	instrument	positions	based	upon	current	fair	values	as	quoted	by recognized	dealers	or	the	present	value	of	expected	future	cash	flows.

Sensitivity	Analyses	–	The	sensitivity	analyses	that	follow	illustrate	the	economic	effect	that	hypothetical	changes	in	interest	rates	could	have	on	our results	of	operations	and	financial	condition.	These	hypothetical	changes	do	not	consider	other	factors	that	could	impact	actual	results.

At	December	31,	2011,	we	had	variable-rate	debt	representing	approximately	2.3%	of	our	total	debt.	If	variable	interest	rates	average	one	percentage point	higher	in	2012	than	our	December	31,	2011	variable	rate,	which	was	approximately	1.2%,	our	interest	expense	would	increase	by	approximately	$2 million.	This	amount	was	determined	by	considering	the	impact	of	the	hypothetical	interest	rate	on	the	balances	of	our	variable-rate	debt	at	December	31, 2011.

Market	risk	for	fixed-rate	debt	is	estimated	as	the	potential	increase	in	fair	value	resulting	from	a	hypothetical	one	percentage	point	decrease	in	interest rates	as	of	December	31,	2011,	and	amounts	to	an	increase	of	approximately	$924	million	to	the	fair	value	of	our	debt	at	December	31,	2011.	We estimated	the	fair	values	of	our	fixed-rate	debt	by	considering	the	impact	of	the	hypothetical	interest	rates	on	quoted	market	prices	and	current	borrowing rates.

Interest	Rate	Fair	Value	Hedges	–	We	manage	our	overall	exposure	to	fluctuations	in	interest	rates	by	adjusting	the	proportion	of	fixed	and	floating	rate debt	instruments	within	our	debt	portfolio	over	a	given	period.	We	generally	manage	the	mix	of	fixed	and	floating	rate	debt	through	the	issuance	of targeted	amounts	of	each	as	debt	matures	or	as	we	require	incremental	borrowings.	We	employ	derivatives,	primarily	swaps,	as	one	of	the	tools	to	obtain the	targeted	mix.	In	addition,	we	also	obtain	flexibility	in	managing	interest	costs	and	the	interest	rate	mix	within	our	debt	portfolio	by	evaluating	the issuance	of	and	managing	outstanding	callable	fixed-rate	debt	securities.

Swaps	allow	us	to	convert	debt	from	fixed	rates	to	variable	rates	and	thereby	hedge	the	risk	of	changes	in	the	debt's	fair	value	attributable	to	the	changes in	interest	rates.	We	account	for	swaps	as	fair	value	hedges	using	the	short-cut	method	as	allowed	by	the	Derivatives	and	Hedging	Topic	of	the	FASB Accounting	Standards	Codification	(ASC);	therefore,	we	do	not	record	any	ineffectiveness	within	our	Consolidated	Financial	Statements.

Interest	Rate	Cash	Flow	Hedges	–	We	report	changes	in	the	fair	value	of	cash	flow	hedges	in	accumulated	other	comprehensive	loss	until	the	hedged item	affects	earnings.	At	December	31,	2011	and	2010,	we	recorded	reductions	of	$2	million	and	$3	million,	respectively,	as	an	accumulated	other comprehensive	loss	that	is	being	amortized	on	a	straight-line	basis	through	September	30,	2014.	As	of	December	31,	2011	and	2010,	we	had	no	interest rate	cash	flow	hedges	outstanding.

Recently	Issued	Accounting	Pronouncements	–	In	June	2011,	the	FASB	issued	Accounting	Standards	Update	No.	2011-05, Comprehensive	Income (Topic	220):	Presentation	of	Comprehensive	Income	(ASU	2011-05).	ASU	2011-05	will	require	companies	to	present	the	components	of	net	income	and other	comprehensive	income	either	as	one	continuous	statement	or	as	two	consecutive	statements.	It	eliminates	the	option	to	present	components	of other	comprehensive	income	as	part	of	the	statement	of	changes	in	stockholders'	equity.	The	standard	does	not	change	the	items	which	must	be reported	in	other	comprehensive	income,	how	such	items	are	measured	or	when	they	must	be	reclassified	to	net	income.	This	standard	is	effective	for interim	and	annual	periods	beginning	after	December	15,	2011.	Because	this	ASU	impacts	presentation	only,	it	will	have	no	effect	on	our	financial condition,	results	of	operations	or	cash	flows.

Asserted	and	Unasserted	Claims	–	Various	claims	and	lawsuits	are	pending	against	us	and	certain	of	our	subsidiaries.	We	cannot	fully	determine	the effect	of	all	asserted	and	unasserted	claims	on	our	consolidated	results	of	operations,	financial	condition,	or	liquidity;	however,	to	the	extent	possible, where	asserted	and	unasserted	claims	are	considered	probable	and	where	such	claims	can	be	reasonably

estimated,	we	have	recorded	a	liability.	We	do	not	expect	that	any	known	lawsuits,	claims,	environmental	costs,	commitments,	contingent	liabilities,	or guarantees	will	have	a	material	adverse	effect	on	our	consolidated	results	of	operations,	financial	condition,	or	liquidity	after	taking	into	account	liabilities and	insurance	recoveries	previously	recorded	for	these	matters.

Indemnities	–	Our	maximum	potential	exposure	under	indemnification	arrangements,	including	certain	tax	indemnifications,	can	range	from	a	specified dollar	amount	to	an	unlimited	amount,	depending	on	the	nature	of	the	transactions	and	the	agreements.	Due	to	uncertainty	as	to	whether	claims	will	be made	or	how	they	will	be	resolved,	we	cannot	reasonably	determine	the	probability	of	an	adverse	claim	or	reasonably	estimate	any	adverse	liability	or	the total	maximum	exposure	under	these	indemnification	arrangements.	We	do	not	have	any	reason	to	believe	that	we	will	be	required	to	make	any	material payments	under	these	indemnity	provisions.

Climate	Change	–	Although	climate	change	could	have	an	adverse	impact	on	our	operations	and	financial	performance	in	the	future	(see	Risk	Factors under	Item	1A	of	this	report),	we	are	currently	unable	to	predict	the	manner	or	severity	of	such	impact.	However,	we	continue	to	take	steps	and	explore opportunities	to	reduce	the	impact	of	our	operations	on	the	environment,	including	investments	in	new	technologies,	using	training	programs	to	reduce fuel	consumption,	and	changing	our	operations	to	increase	fuel	efficiency.

# CRITICAL	ACCOUNTING	POLICIES

Our	Consolidated	Financial	Statements	have	been	prepared	in	accordance	with	GAAP.	The	preparation	of	these	financial	statements	requires	estimation and	judgment	that	affect	the	reported	amounts	of	revenues,	expenses,	assets,	and	liabilities.	We	base	our	estimates	on	historical	experience	and	on various	other	assumptions	that	we	believe	are	reasonable	under	the	circumstances,	the	results	of	which	form	the	basis	for	making	judgments	about	the carrying	values	of	assets	and	liabilities	that	are	not	readily	apparent	from	other	sources.	The	following	critical	accounting	policies	are	a	subset	of	our significant	accounting	policies	described	in	Note	2	to	the	Financial	Statements	and	Supplementary	Data,	Item	8.	These	critical	accounting	policies	affect significant	areas	of	our	financial	statements	and	involve	judgment	and	estimates.	If	these	estimates	differ	significantly	from	actual	results,	the	impact	on our	Consolidated	Financial	Statements	may	be	material.

Personal	Injury	–	The	cost	of	personal	injuries	to	employees	and	others	related	to	our	activities	is	charged	to	expense	based	on	estimates	of	the	ultimate cost	and	number	of	incidents	each	year.	We	use	an	actuarial	analysis	to	measure	the	expense	and	liability,	including	unasserted	claims.	The	Federal Employers'	Liability	Act	(FELA)	governs	compensation	for	work-related	accidents.	Under	FELA,	damages	are	assessed	based	on	a	finding	of	fault through	litigation	or	out-of-court	settlements.	We	offer	a	comprehensive	variety	of	services	and	rehabilitation	programs	for	employees	who	are	injured	at work.

Our	personal	injury	liability	is	discounted	to	present	value	using	applicable	U.S.	Treasury	rates.	Approximately	89%	of	the	recorded	liability	related	to asserted	claims,	and	approximately	11%	related	 to	unasserted	claims	at	December	31,	2011.	Because	of	 the	uncertainty	surrounding	 the	ultimate outcome	of	personal	injury	claims,	it	is	reasonably	possible	that	future	costs	to	settle	these	claims	may	range	from	approximately	$368	million	to	$404 million.	We	record	an	accrual	at	the	low	end	of	the	range	as	no	amount	of	loss	is	more	probable	than	any	other.	Our	personal	injury	liability	activity	was	as follows:

| Millions | 2011 | 2010 | 2009 |
| :--- | :--- | :--- | :--- |
| Beginning\tbalance | \t\t $426 | \t\t $545 | \t\t $621 |
| Current\tyear\taccruals | 118 | 155 | 174 |
| Changes\tin\testimates\tfor\tprior\tyears | (71) | (101) | (95) |
| Payments | \t\t\t\t(105) | \t\t\t\t(173) | \t\t\t\t(155) |
| Ending\tbalance\tat\tDecember\t31 | \t\t $368 | \t\t $426 | \t\t $545 |
| Current\tportion,\tending\tbalance\tat\tDecember\t31 | \t\t $103 | \t\t $\t\t140 | \t\t $\t\t158 |

Our	personal	injury	claims	activity	was	as	follows:

|  | 2011 | 2010 | 2009 |
| :--- | :--- | :--- | :--- |
| Open\tclaims,\tbeginning\tbalance | 3,151 | 3,500 | 4,079 |
| New\tclaims | 2,781 | 2,843 | 3,012 |
| Settled\tor\tdismissed\tclaims | \t(3,063) | \t(3,192) | \t(3,591) |
| Open\tclaims,\tending\tbalance\tat\tDecember\t31 | 2,869 | 3,151 | 3,500 |

Asbestos	–	We	are	a	defendant	in	a	number	of	lawsuits	in	which	current	and	former	employees	and	other	parties	allege	exposure	to	asbestos.	We assess	our	potential	liability	using	a	statistical	analysis	of	resolution	costs	for	asbestos-related	claims.	This	liability	is	updated	annually	and	excludes future	defense	and	processing	costs.	The	liability	for	resolving	both	asserted	and	unasserted	claims	was	based	on	the	following	assumptions:

•The	ratio	of	future	claims	by	alleged	disease	would	be	consistent	with	historical	averages	adjusted	for	inflation.

•The	number	of	claims	filed	against	us	will	decline	each	year.

•The	average	settlement	values	for	asserted	and	unasserted	claims	will	be	equivalent	to	historical	averages.

•The	percentage	of	claims	dismissed	in	the	future	will	be	equivalent	to	historical	averages.

Our	 liability	 for	 asbestos-related	 claims	 is	 not	 discounted	 to	 present	 value	 due	 to	 the	 uncertainty	 surrounding	 the	 timing	 of	 future	 payments. Approximately	21%	of	the	recorded	liability	related	to	asserted	claims,	and	approximately	79%	related	to	unasserted	claims	at	December	31,	2011. Because	of	the	uncertainty	surrounding	the	ultimate	outcome	of	asbestos-related	claims,	it	is	reasonably	possible	that	future	costs	to	settle	these	claims may	range	from	approximately	$147	million	to	$159	million.	We	record	an	accrual	at	the	low	end	of	the	range	as	no	amount	of	loss	is	more	probable	than any	other.	In	conjunction	with	the	liability	update	performed	in	2011,	we	also	reassessed	estimated	insurance	recoveries.	We	have	recognized	an	asset for	estimated	insurance	recoveries	at	December	31,	2011	and	2010.

Our	asbestos-related	liability	activity	was	as	follows:

| Millions | 2011 | 2010 | 2009 |
| :--- | :--- | :--- | :--- |
| Beginning\tbalance | \t\t $\t\t\t\t162 | \t\t $\t\t\t\t174 | \t\t $\t\t\t\t213 |
| Accruals/(credits) | (5) | (1) | (25) |
| Payments | (10) | (11) | (14) |
| Ending\tbalance\tat\tDecember\t31 | \t\t $147 | \t\t $162 | \t\t $174 |
| Current\tportion,\tending\tbalance\tat\tDecember\t31 | \t\t $8 | \t\t $12 | \t\t $13 |

|  | 2011 | 2010 | 2009 |
| :--- | :--- | :--- | :--- |
| Open\tclaims,\tbeginning\tbalance | 1,437 | 1,670 | 1,867 |
| New\tclaims | 235 | 216 | 249 |
| Settled\tor\tdismissed\tclaims | (381) | (449) | (446) |
| Open\tclaims,\tending\tbalance\tat\tDecember\t31 | 1,291 | 1,437 | 1,670 |

We	believe	that	our	estimates	of	liability	for	asbestos-related	claims	and	insurance	recoveries	are	reasonable	and	probable.	The	amounts	recorded	for asbestos-related	liabilities	and	related	insurance	recoveries	were	based	on	currently	known	facts.	However,	future	events,	such	as	the	number	of	new claims	to	be	filed	each	year,	average	settlement	costs,	and	insurance	coverage	issues,	could	cause	the	actual	costs	and	insurance	recoveries	to	be higher	or	lower	than	the	projected	amounts.	Estimates	also	may	vary	in	the	future	if	strategies,	activities,	and	outcomes	of	asbestos	litigation	materially change;	federal	and	state	laws	governing	asbestos	litigation	increase	or	decrease	the	probability	or	amount	of

compensation	of	claimants;	and	there	are	material	changes	with	respect	to	payments	made	to	claimants	by	other	defendants.

Environmental	–	We	are	subject	to	federal,	state,	and	local	environmental	laws	and	regulations.	We	identified	285	sites	at	which	we	are	or	may	be	liable for	remediation	costs	associated	with	alleged	contamination	or	for	violations	of	environmental	requirements.	This	includes	32	sites	that	are	the	subject	of actions	taken	by	the	U.S.	government,	17	of	which	are	currently	on	the	Superfund	National	Priorities	List.	Certain	federal	legislation	imposes	joint	and several	liability	for	the	remediation	of	identified	sites;	consequently,	our	ultimate	environmental	liability	may	include	costs	relating	to	activities	of	other parties,	in	addition	to	costs	relating	to	our	own	activities	at	each	site.

When	we	identify	an	environmental	issue	with	respect	to	property	owned,	leased,	or	otherwise	used	in	our	business,	we	perform,	with	the	assistance	of our	consultants,	environmental	assessments	on	the	property.	We	expense	the	cost	of	the	assessments	as	incurred.	We	accrue	the	cost	of	remediation where	our	obligation	is	probable	and	we	can	reasonably	estimate	such	costs.	We	do	not	discount	our	environmental	liabilities	when	the	timing	of	the anticipated	cash	payments	is	not	fixed	or	readily	determinable.	At	December	31,	2011,	less	than	1%	of	our	environmental	liability	was	discounted	at 2.0%,	while	approximately	5%	of	our	environmental	liability	was	discounted	at	2.8%	at	December	31,	2010.	Our	environmental	liability	activity	was	as follows:

[a]				Payments	include	$25	million	to	resolve	the	Omaha	Lead	Site	liability.

Our	environmental	site	activity	was	as	follows:

|  | 2011 | 2010 | 2009 |
| :--- | :--- | :--- | :--- |
| Open\tsites,\tbeginning\tbalance | 294 | 307 | 339 |
| New\tsites | 51 | 44 | 49 |
| Closed\tsites | (60) | (57) | (81) |
| Open\tsites,\tending\tbalance\tat\tDecember\t31 | 285 | 294 | 307 |

The	liability	includes	future	costs	for	remediation	and	restoration	of	sites,	as	well	as	ongoing	monitoring	costs,	but	excludes	any	anticipated	recoveries from	third	parties.	Cost	estimates	are	based	on	information	available	for	each	site,	financial	viability	of	other	potentially	responsible	parties,	and	existing technology,	laws,	and	regulations.	The	ultimate	liability	for	remediation	is	difficult	to	determine	because	of	the	number	of	potentially	responsible	parties, site-specific	cost	sharing	arrangements	with	other	potentially	responsible	parties,	the	degree	of	contamination	by	various	wastes,	the	scarcity	and	quality of	volumetric	data	related	to	many	of	the	sites,	and	the	speculative	nature	of	remediation	costs.	Estimates	of	liability	may	vary	over	time	due	to	changes in	federal,	state,	and	local	laws	governing	environmental	remediation.	Current	obligations	are	not	expected	to	have	a	material	adverse	effect	on	our consolidated	results	of	operations,	financial	condition,	or	liquidity.

Property	and	Depreciation	–	Our	railroad	operations	are	highly	capital	intensive,	and	our	large	base	of	homogeneous,	network-type	assets	turns	over on	a	continuous	basis.	Each	year	we	develop	a	capital	program	for	the	replacement	of	assets	and	for	the	acquisition	or	construction	of	assets	that	enable us	to	enhance	our	operations	or	provide	new	service	offerings	to	customers.	Assets	purchased	or	constructed	throughout	the	year	are	capitalized	if	they meet	applicable	minimum	units	of	property	criteria.	Properties	and	equipment	are	carried	at	cost	and	are	depreciated	on	a	straight-line	basis	over	their estimated	 service	 lives,	 which	 are	 measured	 in	 years,	 except	 for	 rail	 in	 high-density	 traffic	 corridors	 (i.e.,	 all	 rail	 lines	 except	 for	 those	 subject	 to abandonment,	yard	and	switching	tracks,	and	electronic	yards)	for	which	lives	are	measured	in	millions	of	gross	tons	per	mile	of	track.	We	use	the	group method	of	depreciation	in	which	all	items	with	similar	characteristics,	use,	and	expected	lives	are	grouped	together	in	asset	classes,

and	are	depreciated	using	composite	depreciation	rates.	The	group	method	of	depreciation	treats	each	asset	class	as	a	pool	of	resources,	not	as	singular items.	We	currently	have	more	than	60	depreciable	asset	classes,	and	we	may	increase	or	decrease	the	number	of	asset	classes	due	to	changes	in technology,	asset	strategies,	or	other	factors.

We	determine	the	estimated	service	lives	of	depreciable	railroad	property	by	means	of	depreciation	studies.	We	perform	depreciation	studies	at	least every	three	years	for	equipment	and	every	six	years	for	track	assets	(i.e.,	rail	and	other	track	material,	ties,	and	ballast)	and	other	road	property.	Our depreciation	studies	take	into	account	the	following	factors:

•	 Statistical	analysis	of	historical	patterns	of	use	and	retirements	of	each	of	our	asset	classes;

•	 Evaluation	of	any	expected	changes	in	current	operations	and	the	outlook	for	continued	use	of	the	assets;

•	 Evaluation	of	technological	advances	and	changes	to	maintenance	practices;	and

•	 Expected	salvage	to	be	received	upon	retirement.

For	rail	in	high-density	traffic	corridors,	we	measure	estimated	service	lives	in	millions	of	gross	tons	per	mile	of	track.	It	has	been	our	experience	that	the lives	of	rail	in	high-density	traffic	corridors	are	closely	correlated	to	usage	(i.e.,	the	amount	of	weight	carried	over	the	rail).	The	service	lives	also	vary based	on	rail	weight,	rail	condition	(e.g.,	new	or	secondhand),	and	rail	type	(e.g.,	straight	or	curve).	Our	depreciation	studies	for	rail	in	high	density	traffic corridors	consider	each	of	these	factors	in	determining	the	estimated	service	lives.	For	rail	in	high-density	traffic	corridors,	we	calculate	depreciation	rates annually	by	dividing	the	number	of	gross	ton-miles	carried	over	the	rail	(i.e.,	the	weight	of	loaded	and	empty	freight	cars,	locomotives	and	maintenance	of way	equipment	transported	over	the	rail)	by	the	estimated	service	lives	of	the	rail	measured	in	millions	of	gross	tons	per	mile.	Rail	in	high-density	traffic corridors	accounts	for	approximately	70	percent	of	the	historical	cost	of	rail	and	other	track	material.	Based	on	the	number	of	gross	ton-miles	carried	over our	rail	 in	high	density	 traffic	corridors	during	2011,	 the	estimated	service	 lives	of	 the	majority	of	 this	 rail	 ranged	 from	 approximately	 15	 years	 to approximately	30	years.	For	all	other	depreciable	assets,	we	compute	depreciation	based	on	the	estimated	service	lives	of	our	assets	as	determined from	the	analysis	of	our	depreciation	studies.	Changes	in	the	estimated	service	lives	of	our	assets	and	their	related	depreciation	rates	are	implemented prospectively.

Estimated	service	lives	of	depreciable	railroad	property	may	vary	over	time	due	to	changes	in	physical	use,	technology,	asset	strategies,	and	other factors	that	will	have	an	impact	on	the	retirement	profiles	of	our	assets.	We	are	not	aware	of	any	specific	factors	that	are	reasonably	likely	to	significantly change	the	estimated	service	lives	of	our	assets.	Actual	use	and	retirement	of	our	assets	may	vary	from	our	current	estimates,	which	would	impact	the amount	of	depreciation	expense	recognized	in	future	periods.

Changes	in	estimated	useful	lives	of	our	assets	due	to	the	results	of	our	depreciation	studies	could	significantly	impact	future	periods'	depreciation expense	and	have	a	material	impact	on	our	Consolidated	Financial	Statements.	If	the	estimated	useful	lives	of	all	depreciable	assets	were	increased	by one	 year,	 annual	 depreciation	 expense	 would	 decrease	 by	 approximately	 $50	 million.	 If	 the	 estimated	 useful	 lives	 of	 all	 depreciable	 assets	 were decreased	by	one	year,	annual	depreciation	expense	would	increase	by	approximately	$53	million.	Our	recent	depreciation	studies	have	resulted	in changes	in	depreciation	rates	for	some	asset	classes,	but	did	not	significantly	affect	our	annual	depreciation	expense.

Under	group	depreciation,	the	historical	cost	(net	of	salvage)	of	depreciable	property	that	is	retired	or	replaced	in	the	ordinary	course	of	business	is charged	to	accumulated	depreciation	and	no	gain	or	loss	is	recognized.	The	historical	cost	of	certain	track	assets	is	estimated	using	(i)	inflation	indices published	by	the	Bureau	of	Labor	Statistics	and	(ii)	the	estimated	useful	lives	of	the	assets	as	determined	by	our	depreciation	studies.	The	indices	were selected	because	they	closely	correlate	with	the	major	costs	of	the	properties	comprising	the	applicable	track	asset	classes.	Because	of	the	number	of estimates	inherent	in	the	depreciation	and	retirement	processes	and	because	it	is	impossible	to	precisely	estimate	each	of	these	variables	until	a	group of	property	is	completely	retired,	we	continually	monitor	the	estimated	service	lives	of	our	assets	and	the	accumulated	depreciation	associated	with	each asset	class	to	ensure	our	depreciation	rates	are	appropriate.	In	addition,	we	determine	if	the	recorded	amount	of	accumulated	depreciation	is	deficient	(or in	excess)	of	the	amount	indicated	by	our	depreciation	studies.	Any	deficiency	(or	excess)	is	amortized	as	a	component	of	depreciation	expense	over	the remaining	service	lives	of	the	applicable	classes	of	assets.

For	retirements	of	depreciable	railroad	properties	that	do	not	occur	in	the	normal	course	of	business,	a	gain	or	loss	may	be	recognized	if	the	retirement meets	each	of	the	following	three	conditions:	(i)	is	unusual,	(ii)	is	material	in	amount,	and	(iii)	varies	significantly	from	the	retirement	profile	identified through	our	depreciation	studies.	During	the	last	three	fiscal	years,	no	gains	or	losses	were	recognized	due	to	the	retirement	of	depreciable	railroad properties.	A	gain	or	loss	is	recognized	in	other	income	when	we	sell	land	or	dispose	of	assets	that	are	not	part	of	our	railroad	operations.

Income	Taxes	–	We	account	for	income	taxes	by	recording	taxes	payable	or	refundable	for	the	current	year	and	deferred	tax	assets	and	liabilities	for	the expected	 future	 tax	 consequences	 of	 events	 that	 have	 been	 recognized	 in	 our	 financial	 statements	 or	 tax	 returns.	 These	 expected	 future	 tax consequences	are	measured	based	on	current	tax	law;	the	effects	of	future	tax	legislation	are	not	anticipated.	Future	tax	legislation,	such	as	a	change	in the	corporate	tax	rate,	could	have	a	material	impact	on	our	financial	condition,	results	of	operations,	or	liquidity.	For	example,	a	1%	increase	in	future income	tax	rates	would	increase	our	deferred	tax	liability	by	approximately	$320	million.

When	appropriate,	we	record	a	valuation	allowance	against	deferred	tax	assets	to	reflect	that	these	tax	assets	may	not	be	realized.	In	determining whether	a	valuation	allowance	is	appropriate,	we	consider	whether	it	is	more	likely	than	not	that	all	or	some	portion	of	our	deferred	tax	assets	will	not	be realized,	based	on	management's	judgments	using	available	evidence	for	purposes	of	estimating	whether	future	taxable	income	will	be	sufficient	to realize	a	deferred	tax	asset.	In	2011	and	2010,	there	were	no	valuation	allowances.

We	recognize	tax	benefits	that	are	more	likely	than	not	to	be	sustained	upon	examination	by	tax	authorities.	The	amount	recognized	is	measured	as	the largest	amount	of	benefit	that	is	greater	than	50	percent	likely	to	be	realized	upon	settlement.	A	liability	for	"unrecognized	tax	benefits"	is	recorded	for	any tax	benefits	claimed	in	our	tax	returns	that	do	not	meet	these	recognition	and	measurement	standards.

Pension	and	Other	Postretirement	Benefits	–	We	use	an	actuarial	analysis	to	measure	the	liabilities	and	expenses	associated	with	providing	pension and	medical	and	life	insurance	benefits	(OPEB)	to	eligible	employees.	In	order	to	use	actuarial	methods	to	value	the	liabilities	and	expenses,	we	must make	several	assumptions.	The	critical	assumptions	used	to	measure	pension	obligations	and	expenses	are	the	discount	rate	and	expected	rate	of	return on	pension	assets.	For	OPEB,	the	critical	assumptions	are	the	discount	rate	and	health	care	cost	trend	rate.

We	evaluate	our	critical	assumptions	at	least	annually,	and	selected	assumptions	are	based	on	the	following	factors:

•	 Discount	rate	is	based	on	a	Mercer	yield	curve	of	high	quality	corporate	bonds	(rated	AA	by	a	recognized	rating	agency)	for	which	the	timing and	amount	of	cash	flows	matches	our	plans'	expected	benefit	payments.

•	 Expected	return	on	plan	assets	is	based	on	our	asset	allocation	mix	and	our	historical	return,	taking	into	consideration	current	and	expected market	conditions.

•	 Health	care	cost	trend	rate	is	based	on	our	historical	rates	of	inflation	and	expected	market	conditions.

The	following	tables	present	the	key	assumptions	used	to	measure	net	periodic	pension	and	OPEB	cost/(benefit)	for	2011	and	the	estimated	impact	on 2011	net	periodic	pension	and	OPEB	cost/(benefit)	relative	to	a	change	in	those	assumptions:

| Assumptions | Pension | OPEB |
| :--- | :--- | :--- |
| Discount\trate | 5.35% | \t5.01% |
| Expected\treturn\ton\tplan\tassets | 7.50% | N/A |
| Compensation\tincrease | 4.48% | N/A |
| Health\tcare\tcost\ttrend\trate: |  |  |
| Pre-65\tcurrent | N/A | \t7.07% |
| Pre-65\tlevel\tin\t2028 | N/A | \t4.50% |

| Sensitivities | Increase	in	Expense | Increase	in	Expense |
| :--- | :--- | :--- |
| Millions | Pension | OPEB |
| 0.25%\tdecrease\tin\tdiscount\trate | $\t\t\t\t\t7 | $\t\t\t\t\t\t\t\t- |
| 0.25%\tincrease\tin\tcompensation\tscale | $3 | N/A |
| 0.25%\tdecrease\tin\texpected\treturn\ton\tplan\tassets | $6 | N/A |
| 1%\tincrease\tin\thealth\tcare\tcost\ttrend\trate | N/A | $2 |

The	following	table	presents	the	net	periodic	pension	and	OPEB	cost/(benefit)	for	the	years	ended	December	31:

| Millions | 2012 | 2011 | 2010 | 2009 |
| :--- | :--- | :--- | :--- | :--- |
| Net\tperiodic\tpension\tcost | \t\t $\t\t\t\t\t\t\t\t88\t\t\t\t $\t\t\t\t\t\t\t\t78 | \t\t $\t\t\t\t\t\t\t\t88\t\t\t\t $\t\t\t\t\t\t\t\t78 | \t\t $\t\t\t\t\t\t\t\t51 | \t\t $\t\t\t\t\t\t\t\t54 |
| Net\tperiodic\tOPEB\tcost/(benefit) | 11 | (6) | (14) | (12) |

Our	net	periodic	pension	cost	is	expected	to	increase	to	approximately	$88	million	in	2012	from	$78	million	in	2011.	The	increase	is	driven	mainly	by	a decrease	in	the	discount	rate	to	4.54%,	Our	net	periodic	OPEB	expense	is	expected	to	increase	to	approximately	$11	million	in	2012	from	$(6)	million benefit	in	2011.	The	increase	in	our	net	periodic	OPEB	cost	is	primarily	driven	by	a	decrease	in	the	amortization	of	prior	service	credits	from	accumulated other	comprehensive	income.

# CAUTIONARY	INFORMATION

Certain	statements	in	this	report,	and	statements	in	other	reports	or	information	filed	or	to	be	filed	with	the	SEC	(as	well	as	information	included	in	oral statements	or	other	written	statements	made	or	to	be	made	by	us),	are,	or	will	be,	forward-looking	statements	as	defined	by	the	Securities	Act	of	1933 and	the	Securities	Exchange	Act	of	1934.	These	forward-looking	statements	and	information	include,	without	limitation,	(A)	statements	in	the	Chairman's letter	preceding	Part	I;	statements	regarding	planned	capital	expenditures	under	the	caption	"2012	Capital	Expenditures"	in	Item	2	of	Part	I;	statements regarding	dividends	in	Item	5;	and	statements	and	information	set	forth	under	the	captions	"2012	Outlook"	and	"Liquidity	and	Capital	Resources"	in	this Item	7,	and	(B)	any	other	statements	or	information	in	this	report	(including	information	incorporated	herein	by	reference)	regarding:	expectations	as	to financial	 performance,	 revenue	 growth	 and	 cost	 savings;	 the	 time	 by	 which	 goals,	 targets,	 or	 objectives	 will	 be	 achieved;	 projections,	 predictions, expectations,	 estimates,	 or	 forecasts	 as	 to	 our	 business,	 financial	 and	 operational	 results,	 future	 economic	 performance,	 and	 general	 economic conditions;	expectations	as	to	operational	or	service	performance	or	improvements;	expectations	as	to	the	effectiveness	of	steps	taken	or	to	be	taken	to improve	operations	and/or	service,	including	capital	expenditures	for	infrastructure	improvements	and	equipment	acquisitions,	any	strategic	business acquisitions,	and	modifications	to	our	transportation	plans	(including	statements	set	forth	in	Item	2	as	to	expectations	related	to	our	planned	capital expenditures);	expectations	as	to	existing	or	proposed	new	products	and	services;	expectations	as	to	the	impact	of	any	new	regulatory	activities	or legislation	on	our	operations	or	financial	results;	estimates	of	costs	relating	to	environmental	remediation	and	restoration;	estimates	and	expectations regarding	tax	matters;	expectations	that	claims,	litigation,	environmental	costs,	commitments,	contingent	liabilities,	labor	negotiations	or	agreements,	or other	matters	will	not	have	a	material	adverse	effect	on	our	consolidated	results	of	operations,	financial	condition,	or	liquidity	and	any	other	similar expressions	concerning	matters	that	are	not	historical	facts.	Forward-looking	statements	may	be	identified	by	their	use	of	forward-looking	terminology, such	 as	 "believes,"	 "expects,"	 "may,"	 "should,"	 "would,"	 "will,"	 "intends,"	 "plans,"	 "estimates,"	 "anticipates,"	 "projects"	 and	 similar	 words,	 phrases	 or expressions.

Forward-looking	statements	should	not	be	read	as	a	guarantee	of	future	performance	or	results,	and	will	not	necessarily	be	accurate	indications	of	the times	that,	or	by	which,	such	performance	or	results	will	be	achieved.	Forward-looking	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	and	information.	Forward-looking	statements and	information	reflect	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	influence or	control.	The	Risk	Factors	in	Item	1A	of	this	report	could	affect	our	future	results	and	could	cause	those	results	or	other	outcomes	to	differ	materially from	those	expressed	or	implied	in	any	forward-looking	statements	or

information.	To	the	extent	circumstances	require	or	we	deem	it	otherwise	necessary,	we	will	update	or	amend	these	risk	factors	in	a	Form	10-Q,	Form	8- K	or	subsequent	Form	10-K.	All	forward-looking	statements	are	qualified	by,	and	should	be	read	in	conjunction	with,	these	Risk	Factors.

Forward-looking	statements	speak	only	as	of	the	date	the	statement	was	made.	We	assume	no	obligation	to	update	forward-looking	information	to	reflect 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.

# Item	7A.	Quantitative	and	Qualitative	Disclosures	about	Market	Risk

Information	concerning	market	risk	sensitive	instruments	is	set	forth	under	Management's	Discussion	and	Analysis	of	Financial	Condition	and	Results	of Operations	–	Other	Matters,	Item	7.

# Item	8.	Financial	Statements	and	Supplementary	Data

| Item	8.	Financial	Statements	and	Supplementary	Data |  |
| :--- | :--- |
| Index\tto\tConsolidated\tFinancial\tStatements | \tPage |
| Report\tof\tIndependent\tRegistered\tPublic\tAccounting\tFirm | 51 |
| Consolidated\tStatements\tof\tIncome\nFor\tthe\tYears\tEnded\tDecember\t31,\t2011,\t2010,\tand\t2009 | 52 |
| Consolidated\tStatements\tof\tFinancial\tPosition\nAt\tDecember\t31,\t2011\tand\t2010 | 53 |
| Consolidated\tStatements\tof\tCash\tFlows\nFor\tthe\tYears\tEnded\tDecember\t31,\t2011,\t2010,\tand\t2009 | 54 |
| Consolidated\tStatements\tof\tChanges\tin\tCommon\tShareholders'\tEquity\nFor\tthe\tYears\tEnded\tDecember\t\t31,\t2011,\t2010,\tand\t2009 | 55 |
| Notes\tto\tthe\tConsolidated\tFinancial\tStatements | 56 |

# REPORT	OF	INDEPENDENT	REGISTERED	PUBLIC	ACCOUNTING	FIRM

To	the	Board	of	Directors	and	Shareholders	of	Union	Pacific	Corporation:

We	 have	 audited	 the	 accompanying	 consolidated	 statements	 of	 financial	 position	 of	 Union	 Pacific	 Corporation	 and	 Subsidiary	 Companies	 (the Corporation)	as	of	December	31,	2011	and	2010,	and	the	related	consolidated	statements	of	income,	changes	in	common	shareholders'	equity,	and	cash flows	for	each	of	the	three	years	in	the	period	ended	December	31,	2011.	Our	audits	also	included	the	financial	statement	schedule	listed	in	the	Table	of Contents	at	Part	IV,	Item	15.	These	financial	statements	and	financial	statement	schedule	are	the	responsibility	of	the	Corporation's	management.	Our responsibility	is	to	express	an	opinion	on	the	consolidated	financial	statements	and	financial	statement	schedule	based	on	our	audits.

We	conducted	our	audits	in	accordance	with	the	standards	of	the	Public	Company	Accounting	Oversight	Board	(United	States).	Those	standards	require that	we	plan	and	perform	the	audit	to	obtain	reasonable	assurance	about	whether	the	financial	statements	are	free	of	material	misstatement.	An	audit includes	examining,	on	a	test	basis,	evidence	supporting	the	amounts	and	disclosures	in	the	financial	statements.	An	audit	also	includes	assessing	the accounting	principles	used	and	significant	estimates	made	by	management,	as	well	as	evaluating	the	overall	financial	statement	presentation.	We	believe that	our	audits	provide	a	reasonable	basis	for	our	opinion.

In	our	opinion,	such	consolidated	financial	statements	present	fairly,	in	all	material	respects,	the	financial	position	of	Union	Pacific	Corporation	and Subsidiary	Companies	as	of	December	31,	2011	and	2010,	and	the	results	of	their	operations	and	their	cash	flows	for	each	of	the	three	years	in	the period	ended	December	31,	2011,	in	conformity	with	accounting	principles	generally	accepted	in	the	United	States	of	America.	Also,	in	our	opinion,	such financial	statement	schedule,	when	considered	in	relation	to	the	basic	consolidated	financial	statements	taken	as	a	whole,	presents	fairly,	in	all	material respects,	the	information	set	forth	therein.

We	have	also	audited,	in	accordance	with	the	standards	of	the	Public	Company	Accounting	Oversight	Board	(United	States),	the	Corporation's	internal control	over	financial	reporting	as	of	December	31,	2011,	based	on	the	criteria	established	in	Internal	Control	—	Integrated	Framework	issued	by	the Committee	of	Sponsoring	Organizations	of	the	Treadway	Commission	and	our	report	dated	February	3,	2012	expressed	an	unqualified	opinion	on	the Corporation's	internal	control	over	financial	reporting.

Omaha,	Nebraska

# CONSOLIDATED	STATEMENTS	OF	INCOME

# Union	Pacific	Corporation	and	Subsidiary	Companies

| for	the	Years	Ended	December	31, | 2011 | 2010 | 2009 |
| :--- | :--- | :--- | :--- |
| Operating\trevenues: |  |  |  |
| Freight\trevenues | \t\t $\t\t\t\t\t\t\t\t18,508 | \t\t $\t\t\t\t\t\t\t\t16,069 | \t\t $\t\t\t\t\t\t\t\t13,373 |
| Other\trevenues | 1,049 | 896 | 770 |
| Total\toperating\trevenues | 19,557 | 16,965 | 14,143 |
| Operating\texpenses: |  |  |  |
| Compensation\tand\tbenefits | 4,681 | 4,314 | 4,063 |
| Fuel | 3,581 | 2,486 | 1,763 |
| Purchased\tservices\tand\tmaterials | 2,005 | 1,836 | 1,644 |
| Depreciation | 1,617 | 1,487 | 1,427 |
| Equipment\tand\tother\trents | 1,167 | 1,142 | 1,180 |
| Other | 782 | 719 | 687 |
| Total\toperating\texpenses | 13,833 | 11,984 | 10,764 |
| Operating\tincome | 5,724 | 4,981 | 3,379 |
| Other\tincome\t(Note\t6) | 112 | 54 | 195 |
| Interest\texpense | (572) | (602) | (600) |
| Income\tbefore\tincome\ttaxes | 5,264 | 4,433 | 2,974 |
| Income\ttaxes\t(Note\t7) | (1,972) | (1,653) | (1,084) |
| Net\tincome | \t\t $3,292 | \t\t $2,780 | \t\t $1,890 |
| Share\tand\tPer\tShare\t(Note\t8): |  |  |  |
| Earnings\tper\tshare\t-\tbasic | \t\t $6.78 | \t\t $5.58 | \t\t $3.76 |
| Earnings\tper\tshare\t-\tdiluted | \t\t $6.72 | \t\t $5.53 | \t\t $3.74 |
| Weighted\taverage\tnumber\tof\tshares\t-\tbasic | 485.7 | 498.2 | 503.0 |
| Weighted\taverage\tnumber\tof\tshares\t-\tdiluted | 489.8 | 502.9 | 505.8 |
| Dividends\tdeclared\tper\tshare | \t\t $1.93 | \t\t $1.31 | \t\t $1.08 |

The	accompanying	notes	are	an	integral	part	of	these	Consolidated	Financial	Statements.

# CONSOLIDATED	STATEMENTS	OF	FINANCIAL	POSITION

| as	of	December	31, | 2011 | 2010 |
| :--- | :--- | :--- |
| Assets |  |  |
| Current\tassets: |  |  |
| Cash\tand\tcash\tequivalents | $1,217 | $1,086 |
| Accounts\treceivable,\tnet\t(Note\t10) | 1,401 | 1,184 |
| Materials\tand\tsupplies | 614 | 534 |
| Current\tdeferred\tincome\ttaxes\t(Note\t7) | 306 | 261 |
| Other\tcurrent\tassets | 189 | 367 |
| Total\tcurrent\tassets | 3,727 | 3,432 |
| Investments | 1,175 | 1,137 |
| Net\tproperties\t(Note\t11) | 39,934 | 38,253 |
| Other\tassets | 260 | 266 |
| Total\tassets | $45,096 | $43,088 |
| Liabilities\tand\tCommon\tShareholders'\tEquity |  |  |
| Current\tliabilities: |  |  |
| Accounts\tpayable\tand\tother\tcurrent\tliabilities\t(Note\t12) | $3,108 | $2,713 |
| Debt\tdue\twithin\tone\tyear\t(Note\t14) | 209 | 239 |
| Total\tcurrent\tliabilities | 3,317 | 2,952 |
| Debt\tdue\tafter\tone\tyear\t(Note\t14) | 8,697 | 9,003 |
| Deferred\tincome\ttaxes\t(Note\t7) | 12,368 | 11,557 |
| Other\tlong-term\tliabilities | 2,136 | 1,813 |
| Commitments\tand\tcontingencies\t(Notes\t16\tand\t17) |  |  |
| Total\tliabilities | 26,518 | 25,325 |
| Common\tshareholders'\tequity: |  |  |
| Common\tshares,\t$2.50\tpar\tvalue,\t800,000,000\tauthorized; |  |  |
| 554,270,763\tand\t553,931,181\tissued;\t479,929,530\tand\t491,565,880 |  |  |
| outstanding,\trespectively | 1,386 | 1,385 |
| Paid-in-surplus | 4,031 | 3,985 |
| Retained\tearnings | 19,508 | 17,154 |
| Treasury\tstock | (5,293) | (4,027) |
| Accumulated\tother\tcomprehensive\tloss\t(Note\t9) | (1,054) | (734) |
| Total\tcommon\tshareholders'\tequity | 18,578 | 17,763 |
| Total\tliabilities\tand\tcommon\tshareholders'\tequity | $\t\t\t\t\t\t\t\t45,096 | $\t\t\t\t\t\t\t\t43,088 |

# CONSOLIDATED	STATEMENTS	OF	CASH	FLOWS

| Millions,	for	the	Years	Ended	December	31, | 2011 | 2010 | 2009 |
| :--- | :--- | :--- | :--- |
| Operating\tActivities |  |  |  |
| Net\tincome | \t\t $\t\t\t\t\t\t\t\t3,292 | \t\t $\t\t\t\t\t\t\t\t2,780 | \t\t $\t\t\t\t\t\t\t\t1,890 |
| Adjustments\tto\treconcile\tnet\tincome\tto\tcash\tprovided\tby\toperating\tactivities: |  |  |  |
| Depreciation | 1,617 | 1,487 | 1,427 |
| Deferred\tincome\ttaxes\tand\tunrecognized\ttax\tbenefits | 986 | 672 | 718 |
| Net\tgain\ton\tnon-operating\tasset\tdispositions | (43) | (25) | (162) |
| Other\toperating\tactivities,\tnet | (255) | (458) | (376) |
| Changes\tin\tcurrent\tassets\tand\tliabilities: |  |  |  |
| Accounts\treceivable,\tnet | (217) | (518) | (72) |
| Materials\tand\tsupplies | (80) | (59) | (25) |
| Other\tcurrent\tassets | 178 | (17) | (106) |
| Accounts\tpayable\tand\tother\tcurrent\tliabilities | 395 | 243 | (90) |
| Cash\tprovided\tby\toperating\tactivities | 5,873 | 4,105 | 3,204 |
| Investing\tActivities |  |  |  |
| Capital\tinvestments | (3,176) | (2,482) | (2,354) |
| Proceeds\tfrom\tasset\tsales | 108 | 67 | 187 |
| Acquisition\tof\tequipment\tpending\tfinancing | (85) | - | (100) |
| Proceeds\tfrom\tsale\tof\tassets\tfinanced | 85 | - | 100 |
| Other\tinvesting\tactivities,\tnet | (51) | (73) | 22 |
| Cash\tused\tin\tinvesting\tactivities | (3,119) | (2,488) | (2,145) |
| Financing\tActivities |  |  |  |
| Common\tshare\trepurchases\t(Note\t18) | (1,418) | (1,249) | - |
| Dividends\tpaid | (837) | (602) | (544) |
| Debt\trepaid | (690) | (1,412) | (871) |
| Debt\tissued | 486 | 894 | 843 |
| Debt\texchange | (272) | (98) | - |
| Other\tfinancing\tactivities,\tnet | 108 | 86 | 114 |
| Cash\tused\tin\tfinancing\tactivities | (2,623) | (2,381) | (458) |
| Net\tchange\tin\tcash\tand\tcash\tequivalents | 131 | (764) | 601 |
| Cash\tand\tcash\tequivalents\tat\tbeginning\tof\tyear | 1,086 | 1,850 | 1,249 |
| Cash\tand\tcash\tequivalents\tat\tend\tof\tyear | \t\t $1,217 | \t\t $1,086 | \t\t $1,850 |
| Supplemental\tCash\tFlow\tInformation |  |  |  |
| Non-cash\tinvesting\tand\tfinancing\tactivities: |  |  |  |
| Cash\tdividends\tdeclared\tbut\tnot\tyet\tpaid | \t\t $284 | \t\t $183 | \t\t $132 |
| Capital\tlease\tfinancings | 154 | - | 842 |
| Capital\tinvestments\taccrued\tbut\tnot\tyet\tpaid | 147 | 125 | 96 |
| Settlement\tof\tcurrent\tliabilities\tfor\tdebt | - | - | 14 |
| Cash\tpaid\tduring\tthe\tyear\tfor: |  |  |  |
| Interest,\tnet\tof\tamounts\tcapitalized | \t\t $(572)\t\t\t\t $ | (614)\t\t\t\t $ | (578) |
| Income\ttaxes,\tnet\tof\trefunds | (625) | (936) | (452) |

# CONSOLIDATED	STATEMENTS	OF	CHANGES	IN	COMMON	SHAREHOLDERS'	EQUITY

|  | Common | Treasury | Common | Paid-in- | Retained | Treasury | AOCI |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Millions | Shares | Shares | Shares | Surplus | Earnings | Stock | [a] | Total |
| Balance\tat\tJanuary\t1,\t2009 | 552.8 | (49.6) | \t $\t\t1,382\t\t\t\t $ 3,949\t\t\t\t $13,681\t\t\t\t\t $(2,993)\t\t\t\t $ | \t $\t\t1,382\t\t\t\t $ 3,949\t\t\t\t $13,681\t\t\t\t\t $(2,993)\t\t\t\t $ | \t $\t\t1,382\t\t\t\t $ 3,949\t\t\t\t $13,681\t\t\t\t\t $(2,993)\t\t\t\t $ | \t $\t\t1,382\t\t\t\t $ 3,949\t\t\t\t $13,681\t\t\t\t\t $(2,993)\t\t\t\t $ | (704)\t\t\t\t $15,315 | (704)\t\t\t\t $15,315 |
| Comprehensive\tincome: |  |  |  |  |  |  |  |  |
| Net\tincome |  |  | - | - | 1,890 | - | - | 1,890 |
| Other\tcomp.\tincome |  |  | - | - | - | - | 50 | 50 |
| Total\tcomp.\tincome\t(Note\t9) |  |  |  |  |  |  |  | 1,940 |
| Conversion,\tstock\toption |  |  |  |  |  |  |  |  |
| exercises,\tforfeitures,\tand\tother | 0.7 | 1.1 | 2 | 19 | - | 69 | - | 90 |
| Share\trepurchases\t(Note\t18) | - | - | - | - | - | - | - | - |
| Cash\tdividends\tdeclared |  |  |  |  |  |  |  |  |
| ($1.08\tper\tshare) | - | - | - | - | (544) | - | - | (544) |
| Balance\tat\tDecember\t31,\t2009 | 553.5 | (48.5) | \t $\t\t1,384\t\t\t\t $ 3,968\t\t\t\t $15,027\t\t\t\t\t $(2,924)\t\t\t\t $ | \t $\t\t1,384\t\t\t\t $ 3,968\t\t\t\t $15,027\t\t\t\t\t $(2,924)\t\t\t\t $ | \t $\t\t1,384\t\t\t\t $ 3,968\t\t\t\t $15,027\t\t\t\t\t $(2,924)\t\t\t\t $ | \t $\t\t1,384\t\t\t\t $ 3,968\t\t\t\t $15,027\t\t\t\t\t $(2,924)\t\t\t\t $ | (654)\t\t\t\t $16,801 | (654)\t\t\t\t $16,801 |
| Comprehensive\tincome: |  |  |  |  |  |  |  |  |
| Net\tincome |  |  | - | - | 2,780 | - | - | 2,780 |
| Other\tcomp.\tloss |  |  | - | - | - | - | (80) | (80) |
| Total\tcomp.\tincome\t(Note\t9) |  |  |  |  |  |  |  | 2,700 |
| Conversion,\tstock\toption |  |  |  |  |  |  |  |  |
| exercises,\tforfeitures,\tand\tother | 0.4 | 2.8 | 1 | 17 | - | 146 | - | 164 |
| Share\trepurchases\t(Note\t18) | - | (16.6) | - | - | - | (1,249) | - | (1,249) |
| Cash\tdividends\tdeclared |  |  |  |  |  |  |  |  |
| ($1.31\tper\tshare) | - | - | - | - | (653) | - | - | (653) |
| Balance\tat\tDecember\t31,\t2010 | 553.9 | (62.3) | \t $\t\t1,385\t\t\t\t $ 3,985\t\t\t\t $17,154\t\t\t\t\t $(4,027)\t\t\t\t $ | \t $\t\t1,385\t\t\t\t $ 3,985\t\t\t\t $17,154\t\t\t\t\t $(4,027)\t\t\t\t $ | \t $\t\t1,385\t\t\t\t $ 3,985\t\t\t\t $17,154\t\t\t\t\t $(4,027)\t\t\t\t $ | \t $\t\t1,385\t\t\t\t $ 3,985\t\t\t\t $17,154\t\t\t\t\t $(4,027)\t\t\t\t $ | (734)\t\t\t\t $17,763 | (734)\t\t\t\t $17,763 |
| Comprehensive\tincome: |  |  |  |  |  |  |  |  |
| Net\tincome |  |  | - | - | 3,292 | - | - | 3,292 |
| Other\tcomp.\tloss |  |  | - | - | - | - | (320) | (320) |
| Total\tcomp.\tincome\t(Note\t9) |  |  |  |  |  |  |  | 2,972 |
| Conversion,\tstock\toption |  |  |  |  |  |  |  |  |
| exercises,\tforfeitures,\tand\tother | 0.4 | 2.7 | 1 | 46 | - | 152 | - | 199 |
| Share\trepurchases\t(Note\t18) | - | (14.8) | - | - | - | (1,418) | - | (1,418) |
| Cash\tdividends\tdeclared |  |  |  |  |  |  |  |  |
| ($1.93\tper\tshare) | - | - | - | - | (938) | - | - | (938) |
| Balance\tat\tDecember\t31,\t2011 | 554.3 | (74.4)\t\t\t\t $ | 1,386\t\t\t\t $ 4,031\t\t\t\t $19,508\t\t\t\t\t $(5,293)\t\t\t\t $(1,054)\t\t\t\t $18,578 | 1,386\t\t\t\t $ 4,031\t\t\t\t $19,508\t\t\t\t\t $(5,293)\t\t\t\t $(1,054)\t\t\t\t $18,578 | 1,386\t\t\t\t $ 4,031\t\t\t\t $19,508\t\t\t\t\t $(5,293)\t\t\t\t $(1,054)\t\t\t\t $18,578 | 1,386\t\t\t\t $ 4,031\t\t\t\t $19,508\t\t\t\t\t $(5,293)\t\t\t\t $(1,054)\t\t\t\t $18,578 | 1,386\t\t\t\t $ 4,031\t\t\t\t $19,508\t\t\t\t\t $(5,293)\t\t\t\t $(1,054)\t\t\t\t $18,578 | 1,386\t\t\t\t $ 4,031\t\t\t\t $19,508\t\t\t\t\t $(5,293)\t\t\t\t $(1,054)\t\t\t\t $18,578 |

[a] AOCI	=	Accumulated	Other	Comprehensive	Income/(Loss)	(Note	9)

# NOTES	TO	THE	CONSOLIDATED	FINANCIAL	STATEMENTS

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

# 1.	Nature	of	Operations

Operations	and	Segmentation	–	We	are	a	Class	I	railroad	that	operates	in	the	U.S.	Our	network	includes	31,898	route	miles,	linking	Pacific	Coast	and Gulf	Coast	ports	with	the	Midwest	and	eastern	U.S.	gateways	and	providing	several	corridors	to	key	Mexican	gateways.	We	own	26,027	miles	and operate	on	the	remainder	pursuant	to	trackage	rights	or	leases.	We	serve	the	western	two-thirds	of	the	country	and	maintain	coordinated	schedules	with other	rail	carriers	for	the	handling	of	freight	to	and	from	the	Atlantic	Coast,	the	Pacific	Coast,	the	Southeast,	the	Southwest,	Canada,	and	Mexico.	Export and	import	traffic	is	moved	through	Gulf	Coast	and	Pacific	Coast	ports	and	across	the	Mexican	and	Canadian	borders.

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

| Millions | 2011 | 2010 | 2009 |
| :--- | :--- | :--- | :--- |
| Agricultural | \t\t $3,324\t\t\t\t $ | 3,018\t\t\t\t $ | 2,666 |
| Automotive | 1,510 | 1,271 | 854 |
| Chemicals | 2,815 | 2,425 | 2,102 |
| Energy | 4,084 | 3,489 | 3,118 |
| Industrial\tProducts | 3,166 | 2,639 | 2,147 |
| Intermodal | 3,609 | 3,227 | 2,486 |
| Total\tfreight\trevenues | \t\t $18,508\t\t\t\t $ | 16,069\t\t\t\t $ | 13,373 |
| Other\trevenues | 1,049 | 896 | 770 |
| Total\toperating\trevenues | \t\t $\t\t\t\t19,557\t\t\t\t $\t\t\t\t16,965\t\t\t\t $\t\t\t\t14,143 | \t\t $\t\t\t\t19,557\t\t\t\t $\t\t\t\t16,965\t\t\t\t $\t\t\t\t14,143 | \t\t $\t\t\t\t19,557\t\t\t\t $\t\t\t\t16,965\t\t\t\t $\t\t\t\t14,143 |

Although	our	revenues	are	principally	derived	from	customers	domiciled	in	the	U.S.,	the	ultimate	points	of	origination	or	destination	for	some	products transported	by	us	are	outside	the	U.S.

Basis	of	Presentation	–	The	Consolidated	Financial	Statements	are	presented	in	accordance	with	accounting	principles	generally	accepted	in	the	U.S. (GAAP)	as	codified	in	the	Financial	Accounting	Standards	Board	(FASB)	Accounting	Standards	Codification	(ASC).	Certain	prior	year	amounts	have been	disaggregated	to	provide	more	detail	and	conform	to	the	current	period	financial	statement	presentation.

# 2.	Significant	Accounting	Policies

Principles	of	Consolidation	–	The	Consolidated	Financial	Statements	include	the	accounts	of	Union	Pacific	Corporation	and	all	of	its	subsidiaries. Investments	in	affiliated	companies	(20%	to	50%	owned)	are	accounted	for	using	the	equity	method	of	accounting.	All	intercompany	transactions	are eliminated.	We	currently	have	no	less	than	majority-owned	investments	that	require	consolidation	under	variable	interest	entity	requirements.

Cash	and	Cash	Equivalents	–	Cash	equivalents	consist	of	investments	with	original	maturities	of	three	months	or	less.

Accounts	 Receivable	 –	Accounts receivable	 includes	 receivables	 reduced	 by	 an	 allowance	 for	 doubtful	 accounts.	 The	 allowance	 is	 based	 upon historical	 losses,	 credit	 worthiness	 of	 customers,	 and	 current	 economic	 conditions.	 Receivables	 not	 expected	 to	 be	 collected	 in	 one	 year	 and	 the associated	allowances	are	classified	as	other	assets	in	our	Consolidated	Statements	of	Financial	Position.

Investments	–	Investments	represent	our	investments	in	affiliated	companies	(20%	to	50%	owned)	that	are	accounted	for	under	the	equity	method	of accounting	and	investments	in	companies	(less	than	20%	owned)	accounted	for	under	the	cost	method	of	accounting.

Materials	and	Supplies	–	Materials	and	supplies	are	carried	at	the	lower	of	average	cost	or	market.

Property	and	Depreciation	–	Properties	and	equipment	are	carried	at	cost	and	are	depreciated	on	a	straight-line	basis	over	their	estimated	service	lives, which	are	measured	in	years,	except	for	rail	in	high-density	traffic	corridors	(i.e.,	all	rail	lines	except	for	those	subject	to	abandonment,	yard	and	switching tracks,	and	electronic	yards),	for	which	lives	are	measured	in	millions	of	gross	tons	per	mile	of	track.	We	use	the	group	method	of	depreciation	in	which	all items	with	similar	characteristics,	use,	and	expected	lives	are	grouped	together	in	asset	classes,	and	are	depreciated	using	composite	depreciation	rates. The	group	method	of	depreciation	treats	each	asset	class	as	a	pool	of	resources,	not	as	singular	items.	We	determine	the	estimated	service	lives	of depreciable	railroad	assets	by	means	of	depreciation	studies.	Under	the	group	method	of	depreciation,	no	gain	or	loss	is	recognized	when	depreciable property	is	retired	or	replaced	in	the	ordinary	course	of	business.

Impairment	 of	 Long-lived	 Assets	 –	 We review	 long-lived	 assets,	 including	 identifiable	 intangibles,	 for	 impairment	 when	 events	 or	 changes	 in circumstances	indicate	that	the	carrying	amount	of	an	asset	may	not	be	recoverable.	If	impairment	indicators	are	present	and	the	estimated	future undiscounted	cash	flows	are	less	than	the	carrying	value	of	the	long-lived	assets,	the	carrying	value	is	reduced	to	the	estimated	fair	value	as	measured by	the	discounted	cash	flows.

Revenue	Recognition	–	We	recognize	freight	revenues	as	freight	moves	from	origin	to	destination.	The	allocation	of	revenue	between	reporting	periods is	based	on	the	relative	transit	time	in	each	reporting	period	with	expenses	recognized	as	incurred.	Other	revenues,	which	include	revenues	earned	by our	subsidiaries,	revenues	from	our	commuter	rail	operations,	and	accessorial	revenue,	are	recognized	as	service	is	performed	or	contractual	obligations are	met.	Customer	incentives,	which	are	primarily	provided	for	shipping	a	specified	cumulative	volume	or	shipping	to/from	specific	locations,	are	recorded as	a	reduction	to	operating	revenues	based	on	actual	or	projected	future	customer	shipments.

Translation	of	Foreign	Currency	–	Our	portion	of	the	assets	and	liabilities	related	to	foreign	investments	are	translated	into	U.S.	dollars	at	the	exchange rates	in	effect	at	the	balance	sheet	date.	Revenue	and	expenses	are	translated	at	the	average	rates	of	exchange	prevailing	during	the	year.	Unrealized gains	or	losses	are	reflected	within	common	shareholders'	equity	as	accumulated	other	comprehensive	income	or	loss.

Fair	Value	Measurements	–	We	use	a	fair	value	hierarchy	that	prioritizes	the	inputs	to	valuation	techniques	used	to	measure	fair	value	into	three	broad levels.	The	level	in	the	fair	value	hierarchy	within	which	the	fair	value	measurement	in	its	entirety	falls	is	determined	based	on	the	lowest	level	input	that is	significant	to	the	fair	value	measurement	in	its	entirety.	These	levels	include:

Level	1:	Quoted	market	prices	in	active	markets	for	identical	assets	or	liabilities.

Level	2:	Observable	market-based	inputs	or	unobservable	inputs	that	are	corroborated	by	market	data.

Level	3:	Unobservable	inputs	that	are	not	corroborated	by	market	data.

We	have	applied	fair	value	measurements	to	our	pension	plan	assets.

Stock-Based	Compensation	–	We	have	several	stock-based	compensation	plans	under	which	employees	and	non-employee	directors	receive	stock options,	nonvested	retention	shares,	and	nonvested	stock	units.	We	refer	to	the	nonvested	shares	and	stock	units	collectively	as	"retention	awards".	We have	elected	to	issue	treasury	shares	to	cover	option	exercises	and	stock	unit	vestings,	while	new	shares	are	issued	when	retention	shares	are	granted.

We	measure	and	recognize	compensation	expense	for	all	stock-based	awards	made	to	employees	and	directors,	including	stock	options.	Compensation expense	is	based	on	the	calculated	fair	value	of	the	awards	as	measured	at	the	grant	date	and	is	expensed	ratably	over	the	service	period	of	the	awards (generally	the	vesting	period).	The	fair	value	of	retention	awards	is	the	closing	stock	price	on	the	date	of	grant,	while	the	fair	value	of	stock	options	is determined	by	using	the	Black-Scholes	option	pricing	model.

Earnings	Per	Share	–	Basic	earnings	per	share	are	calculated	on	the	weighted-average	number	of	common	shares	outstanding	during	each	period. Diluted	earnings	per	share	include	shares	issuable	upon	exercise	of	outstanding	stock	options	and	stock-based	awards	where	the	conversion	of	such instruments	would	be	dilutive.

Income	Taxes	–	We	account	for	income	taxes	by	recording	taxes	payable	or	refundable	for	the	current	year	and	deferred	tax	assets	and	liabilities	for	the expected	 future	 tax	 consequences	 of	 events	 that	 have	 been	 recognized	 in	 our	 financial	 statements	 or	 tax	 returns.	 These	 expected	 future	 tax consequences	are	measured	based	on	current	tax	law;	the	effects	of	future	tax	legislation	are	not	anticipated.	Future	tax	legislation,	such	as	a	change	in the	corporate	tax	rate,	could	have	a	material	impact	on	our	financial	condition,	results	of	operations,	or	liquidity.

When	appropriate,	we	record	a	valuation	allowance	against	deferred	tax	assets	to	reflect	that	these	tax	assets	may	not	be	realized.	In	determining whether	a	valuation	allowance	is	appropriate,	we	consider	whether	it	is	more	likely	than	not	that	all	or	some	portion	of	our	deferred	tax	assets	will	not	be realized,	based	on	management's	judgments	using	available	evidence	for	purposes	of	estimating	whether	future	taxable	income	will	be	sufficient	to realize	a	deferred	tax	asset.

Pension	and	Postretirement	Benefits	–	We	incur	certain	employment-related	expenses	associated	with	pensions	and	postretirement	health	benefits. In	order	to	measure	the	expense	associated	with	these	benefits,	we	must	make	various	assumptions	including	discount	rates	used	to	value	certain liabilities,	expected	return	on	plan	assets	used	to	fund	these	expenses,	compensation	increases,	employee	turnover	rates,	anticipated	mortality	rates, and	expected	future	health	care	costs.	The	assumptions	used	by	us	are	based	on	our	historical	experience	as	well	as	current	facts	and	circumstances. We	use	an	actuarial	analysis	to	measure	the	expense	and	liability	associated	with	these	benefits.

Personal	Injury	–	The	cost	of	injuries	to	employees	and	others	on	our	property	is	charged	to	expense	based	on	estimates	of	the	ultimate	cost	and number	of	incidents	each	year.	We	use	an	actuarial	analysis	to	measure	the	expense	and	liability.	Our	personal	injury	liability	is	discounted	to	present value	using	applicable	U.S.	Treasury	rates.	Legal	fees	and	incidental	costs	are	expensed	as	incurred.

Asbestos	 –	We	estimate	a	liability	for	asserted	and	unasserted	asbestos-related	claims	based	on	an	assessment	of	the	number	and	value	of	those claims.	We	use	a	statistical	analysis	to	assist	us	in	properly	measuring	our	potential	liability.	Our	liability	for	asbestos-related	claims	is	not	discounted	to present	value	due	to	the	uncertainty	surrounding	the	timing	of	future	payments.	Legal	fees	and	incidental	costs	are	expensed	as	incurred.

Environmental	–	When	environmental	issues	have	been	identified	with	respect	to	property	currently	or	formerly	owned,	leased,	or	otherwise	used	in	the conduct	of	our	business,	we	and	our	consultants	perform	environmental	assessments	on	such	property.	We	expense	the	cost	of	the	assessments	as incurred.	We	accrue	the	cost	of	remediation	where	our	obligation	is	probable	and	such	costs	can	be	reasonably	estimated.	We	do	not	discount	our environmental	 liabilities	when	 the	 timing	of	 the	anticipated	cash	payments	 is	not	 fixed	or	readily	determinable.	Legal	 fees	and	 incidental	costs	are expensed	as	incurred.

Use	 of	 Estimates	 –	Our	 Consolidated	 Financial	 Statements	 include	 estimates	 and	 assumptions	 regarding	 certain	 assets, liabilities, revenue,	 and expenses	and	the	disclosure	of	certain	contingent	assets	and	liabilities.	Actual	future	results	may	differ	from	such	estimates.

# 3.	Recently	Issued	Accounting	Pronouncements

In	 June	 2011,	 the	 FASB	 issued	Accounting	 Standards	 Update	 No.	 2011-05, Comprehensive Income	 (Topic	 220):	 Presentation	 of	 Comprehensive Income	(ASU	2011-05).	ASU	2011-05	will	require	companies	to	present	the	components	of	net	income	and	other	comprehensive	income	either	as	one continuous	statement	or	as	two	consecutive	statements.	It	eliminates	the	option	to	present	components	of	other	comprehensive	income	as	part	of	the statement	of	changes	in	stockholders'	equity.	The	standard

does	not	change	the	items	which	must	be	reported	in	other	comprehensive	income,	how	such	items	are	measured	or	when	they	must	be	reclassified	to net	income.	This	standard	is	effective	for	interim	and	annual	periods	beginning	after	December	15,	2011.	Because	this	ASU	impacts	presentation	only,	it will	have	no	effect	on	our	financial	condition,	results	of	operations	or	cash	flows.

# 4.	Stock	Options	and	Other	Stock	Plans

There	are	7,140	restricted	shares	outstanding	under	the	1992	Restricted	Stock	Plan	for	Non-Employee	Directors	of	Union	Pacific	Corporation.	We	no longer	grant	awards	of	restricted	shares	under	this	plan.

In	April	2000,	the	shareholders	approved	the	Union	Pacific	Corporation	2000	Directors	Plan	(Directors	Plan)	whereby	1,100,000	shares	of	our	common stock	were	reserved	for	issuance	to	our	non-employee	directors.	Under	the	Directors	Plan,	each	non-employee	director,	upon	his	or	her	initial	election	to the	Board	of	Directors,	receives	a	grant	of	2,000	retention	shares	or	retention	stock	units.	Prior	to	December	31,	2007,	each	non-employee	director received	annually	an	option	to	purchase	at	fair	value	a	number	of	shares	of	our	common	stock,	not	to	exceed	10,000	shares	during	any	calendar	year, determined	by	dividing	60,000	by	1/3	of	the	fair	market	value	of	one	share	of	our	common	stock	on	the	date	of	such	Board	of	Directors	meeting,	with	the resulting	quotient	rounded	up	or	down	to	the	nearest	50	shares.	In	September	2007,	the	Board	of	Directors	eliminated	the	annual	payment	of	options	for 2008	and	all	future	years.	As	of	December	31,	2011,	18,000	restricted	shares	and	219,900	options	were	outstanding	under	the	Directors	Plan.

The	 Union	 Pacific	 Corporation	 2001	 Stock	 Incentive	 Plan	 (2001	 Plan)	 was	 approved	 by	 the	 shareholders	 in	April	 2001.	The	 2001	 Plan	 reserved 24,000,000	shares	of	our	common	stock	for	issuance	to	eligible	employees	of	the	Corporation	and	its	subsidiaries	in	the	form	of	non-qualified	options, incentive	stock	options,	retention	shares,	stock	units,	and	incentive	bonus	awards.	Non-employee	directors	were	not	eligible	for	awards	under	the	2001 Plan.	As	of	December	31,	2011,	545,696	options	were	outstanding	under	the	2001	Plan.	We	no	longer	grant	any	stock	options	or	other	stock	or	unit awards	under	this	plan.

The	Union	Pacific	Corporation	2004	Stock	Incentive	Plan	(2004	Plan)	was	approved	by	shareholders	in	April	2004.	The	2004	Plan	reserved	42,000,000 shares	of	our	common	stock	for	issuance,	plus	any	shares	subject	to	awards	made	under	the	2001	Plan	and	the	1993	Plan	that	were	outstanding	on April	16,	2004,	and	became	available	for	regrant	pursuant	to	the	terms	of	the	2004	Plan.	Under	the	2004	Plan,	non-qualified	options,	stock	appreciation rights,	retention	shares,	stock	units,	and	incentive	bonus	awards	may	be	granted	to	eligible	employees	of	the	Corporation	and	its	subsidiaries.	Non- employee	directors	are	not	eligible	for	awards	under	the	2004	Plan.	As	of	December	31,	2011,	6,276,021	options	and	3,760,260	retention	shares	and stock	units	were	outstanding	under	the	2004	Plan.

Stock-Based	Compensation	–	We	have	several	stock-based	compensation	plans	under	which	employees	and	non-employee	directors	receive	stock options,	nonvested	retention	shares,	and	nonvested	stock	units.	We	refer	to	the	nonvested	shares	and	stock	units	collectively	as	"retention	awards".	We have	elected	to	issue	treasury	shares	to	cover	option	exercises	and	stock	unit	vestings,	while	new	shares	are	issued	when	retention	shares	are	granted. Information	regarding	stock-based	compensation	appears	in	the	table	below:

| Stock	options | $				18 | $				17					 $				19 | $				17					 $				19 |
| :--- | :--- | :--- | :--- |
| Retention\tawards | 64 | 57 | 39 |
| Total\tstock-based\tcompensation,\tbefore\ttax | \t\t $82\t\t\t\t\t $ | 74\t\t\t\t\t $ | 58 |
| Excess\ttax\tbenefits\tfrom\tequity\tcompensation\tplans | \t\t $83\t\t\t\t\t $ | 51\t\t\t\t\t $ | 10 |

Stock	Options	–	We	estimate	the	fair	value	of	our	stock	option	awards	using	the	Black-Scholes	option	pricing	model.	The	table	below	shows	the	annual weighted-average	assumptions	used	for	valuation	purposes:

The	risk-free	rate	is	based	on	the	U.S.	Treasury	yield	curve	in	effect	at	the	time	of	grant;	the	dividend	yield	is	calculated	as	the	ratio	of	dividends	paid	per share	of	common	stock	to	the	stock	price	on	the	date	of	grant;	the	expected	life	is	based	on	historical	and	expected	exercise	behavior;	and	volatility	is based	on	the	historical	volatility	of	our	stock	price	over	the	expected	life	of	the	option.

A	summary	of	stock	option	activity	during	2011	is	presented	below:

|  |  |  | Weighted-Average | Aggregate |
| :--- | :--- | :--- | :--- | :--- |
|  | Shares | Weighted-Average | Remaining | Intrinsic\tValue |
|  | (thous.) | Exercise\tPrice | Contractual\tTerm | (millions) |
| Outstanding\tat\tJanuary\t1,\t2011 | 9,815 | $\t\t\t\t44.77 | 5.2\tyrs. | $\t\t\t\t470 |
| Granted | 618 | 93.60 |  |  |
| Exercised | \t\t\t(3,340) | 37.97 | N/A | N/A |
| Forfeited\tor\texpired | (51) | 61.00 | N/A | N/A |
| Outstanding\tat\tDecember\t31,\t2011 | 7,042 | $\t\t\t\t52.16 | 5.5\tyrs. | $\t\t\t\t379 |
| Vested\tor\texpected\tto\tvest\tat\tDecember\t31,\t2011 | 6,953 | $\t\t\t\t51.96 | 5.5\tyrs. | $\t\t\t\t374 |
| Options\texercisable\tat\tDecember\t31,\t2011 | 5,399 | $\t\t\t\t47.16 | 4.7\tyrs. | $\t\t\t\t317 |

Stock	options	are	granted	at	the	closing	price	on	the	date	of	grant,	have	ten-year	contractual	terms,	and	vest	no	later	than	three	years	from	the	date	of grant.	None	of	the	stock	options	outstanding	at	December	31,	2011	are	subject	to	performance	or	market-based	vesting	conditions.

At	December	31,	2011,	there	was	$16	million	of	unrecognized	compensation	expense	related	to	nonvested	stock	options,	which	is	expected	to	be recognized	over	a	weighted-average	period	of	0.7	years.	Additional	information	regarding	stock	option	exercises	appears	in	the	table	below:

| Millions | 2011 | 2010 | 2009 |
| :--- | :--- | :--- | :--- |
| Intrinsic\tvalue\tof\tstock\toptions\texercised | \t\t $\t\t\t\t\t\t\t\t209\t\t\t\t\t $\t\t\t\t\t\t\t\t150 | \t\t $\t\t\t\t\t\t\t\t209\t\t\t\t\t $\t\t\t\t\t\t\t\t150 | \t\t $\t\t\t\t\t\t\t\t29 |
| Cash\treceived\tfrom\toption\texercises | 137 | 114 | 39 |
| Treasury\tshares\trepurchased\tfor\temployee\tpayroll\ttaxes | (53) | (31) | (8) |
| Tax\tbenefit\trealized\tfrom\toption\texercises | 80 | 57 | 11 |
| Aggregate\tgrant-date\tfair\tvalue\tof\tstock\toptions\tvested | 19 | 19 | 29 |

Retention	Awards	–	The	fair	value	of	retention	awards	is	based	on	the	closing	price	of	the	stock	on	the	grant	date.	Dividends	and	dividend	equivalents are	paid	to	participants	during	the	vesting	periods.

Changes	in	our	retention	awards	during	2011	were	as	follows:

|  | Shares | Weighted-Average |
| :--- | :--- | :--- |
|  | (thous.) | Grant-Date\tFair\tValue |
| Nonvested\tat\tJanuary\t1,\t2011 | \t 2,638 | $\t\t\t\t\t\t\t\t54.01 |
| Granted | 528 | 93.68 |
| Vested | (532) | 48.69 |
| Forfeited | (78) | 57.72 |
| Nonvested\tat\tDecember\t31,\t2011 | \t 2,556 | $\t\t\t\t\t\t\t\t63.20 |

Retention	awards	are	granted	at	no	cost	to	the	employee	or	non-employee	director	and	vest	over	periods	lasting	up	to	four	years.	At	December	31,	2011, there	was	$62	million	of	total	unrecognized	compensation	expense	related	to	nonvested	retention	awards,	which	is	expected	to	be	recognized	over	a weighted-average	period	of	1.5	years.

Performance	Retention	Awards	–	In	February	2011,	our	Board	of	Directors	approved	performance	stock	unit	grants.	Other	than	different	performance targets,	the	basic	terms	of	these	performance	stock	units	are	identical	to	those	granted	in	February	2009	and	February	2010,	including	using	annual return	on	invested	capital	(ROIC)	as	the	performance	measure.	We	define	ROIC	as	net	operating	profit	adjusted	for	interest	expense	(including	interest on	the	present	value	of	operating	leases)	and	taxes	on	interest	divided	by	average	invested	capital	adjusted	for	the	present	value	of	operating	leases.

Stock	units	awarded	to	selected	employees	under	these	grants	are	subject	to	continued	employment	for	37	months	and	the	attainment	of	certain	levels	of ROIC.	We	expense	the	fair	value	of	the	units	that	are	probable	of	being	earned	based	on	our	forecasted	ROIC	over	the	3-year	performance	period.	We measure	the	fair	value	of	these	performance	stock	units	based	upon	the	closing	price	of	the	underlying	common	stock	as	of	the	date	of	grant,	reduced	by the	present	value	of	estimated	future	dividends.	Dividend	equivalents	are	paid	to	participants	only	after	the	units	are	earned.

The	assumptions	used	to	calculate	the	present	value	of	estimated	future	dividends	related	to	the	February	2011	grant	were	as	follows:

Changes	in	our	performance	retention	awards	during	2011	were	as	follows:

|  | Shares | Weighted-Average |
| :--- | :--- | :--- |
|  | (thous.) | Grant-Date\tFair\tValue |
| Nonvested\tat\tJanuary\t1,\t2011 | \t 1,151 | $\t\t\t\t\t\t\t\t53.93 |
| Granted | 376 | 89.87 |
| Vested | (195) | 60.16 |
| Forfeited | (128) | 58.89 |
| Nonvested\tat\tDecember\t31,\t2011 | \t 1,204 | $\t\t\t\t\t\t\t\t63.62 |

At	December	31,	2011,	there	was	$29	million	of	total	unrecognized	compensation	expense	related	to	nonvested	performance	retention	awards,	which	is expected	 to	 be	 recognized	 over	 a	 weighted-average	 period	 of	 1.1	 years.	A	 portion	 of	 this	 expense	 is	 subject	 to	 achievement	 of	 the	 ROIC	 levels established	for	the	performance	stock	unit	grants.

# 5.	Retirement	Plans

# Pension	and	Other	Postretirement	Benefits

Pension	Plans	–	We	provide	defined	benefit	retirement	 income	 to	eligible	non-union	employees	 through	qualified	and	non-qualified	(supplemental) pension	plans.	Qualified	and	non-qualified	pension	benefits	are	based	on	years	of	service	and	the	highest	compensation	during	the	latest	years	of employment,	with	specific	reductions	made	for	early	retirements.

Other	Postretirement	Benefits	(OPEB)	–	We	provide	medical	and	life	insurance	benefits	for	eligible	retirees.	These	benefits	are	funded	as	medical	claims and	life	insurance	premiums	are	paid.

# Plan	Amendment

Effective	January	1,	2010,	Medicare-eligible	retirees	who	are	enrolled	in	the	Union	Pacific	Retiree	Medical	Program	received	a	contribution	to	a	Health Reimbursement	Account,	which	can	be	used	to	pay	eligible	out-of-pocket	medical	expenses.

# Funded	Status

We	are	required	by	GAAP	to	separately	recognize	the	overfunded	or	underfunded	status	of	our	pension	and	OPEB	plans	as	an	asset	or	liability.	The funded	 status	 represents	 the	 difference	 between	 the	 projected	 benefit	 obligation	 (PBO)	 and	 the	 fair	 value	 of	 the	 plan	 assets.	 Our	 non-qualified (supplemental)	pension	plan	is	unfunded	by	design.	The	PBO	of	the	pension	plans	is	the	present	value	of	benefits	earned	to	date	by	plan	participants, including	the	effect	of	assumed	future	compensation	increases.	The	PBO	of	the	OPEB	plan	is	equal	to	the	accumulated	benefit	obligation,	as	the	present value	of	the	OPEB	liabilities	is	not	affected	by	compensation	increases.	Plan	assets	are	measured	at	fair	value.	We	use	a	December	31	measurement date	for	plan	assets	and	obligations	for	all	our	retirement	plans.

Changes	in	our	PBO	and	plan	assets	were	as	follows	for	the	years	ended	December	31:

| Funded	Status | Pension |  | OPEB |  |
| :--- | :--- | :--- | :--- | :--- |
| Millions | 2011 | 2010 | 2011 | 2010 |
| Projected\tBenefit\tObligation |  |  |  |  |
| Projected\tbenefit\tobligation\tat\tbeginning\tof\tyear | \t\t $2,759\t\t\t\t\t $ | 2,448 | \t\t $318 | \t\t $314 |
| Service\tcost | 40 | 34 | 2 | 2 |
| Interest\tcost | 145 | 143 | 15 | 16 |
| Plan\tamendments | - | - | 10 | (6) |
| Actuarial\tloss | 377 | 281 | 15 | 16 |
| Gross\tbenefits\tpaid | (156) | (147) | (24) | (24) |
| Projected\tbenefit\tobligation\tat\tend\tof\tyear | \t\t $\t\t\t\t3,165 | \t\t $\t\t\t\t2,759 | \t\t $\t\t\t\t\t\t336 | \t\t $\t\t\t\t\t\t318 |
| Plan\tAssets |  |  |  |  |
| Fair\tvalue\tof\tplan\tassets\tat\tbeginning\tof\tyear | \t\t $2,404 | \t\t $2,044 | \t\t $-\t\t\t\t\t $ | - |
| Actual\treturn\ton\tplan\tassets | 42 | 294 | - | - |
| Voluntary\tfunded\tpension\tplan\tcontributions | 200 | 200 | - | - |
| Non-qualified\tplan\tbenefit\tcontributions | 15 | 13 | 24 | 24 |
| Gross\tbenefits\tpaid | (156) | (147) | (24) | (24) |
| Fair\tvalue\tof\tplan\tassets\tat\tend\tof\tyear | \t\t $\t\t\t\t2,505\t\t\t\t\t $ | 2,404 | \t\t $-\t\t\t\t\t $ | - |
| Funded\tstatus\tat\tend\tof\tyear | \t\t $(660)\t\t\t\t $ | (355)\t\t\t\t $ | (336)\t\t\t\t $ | (318) |

Amounts	recognized	in	the	statement	of	financial	position	as	of	December	31,	2011	and	2010	consist	of:

Pre-tax	amounts	recognized	in	accumulated	other	comprehensive	income/(loss)	as	of	December	31,	2011	and	2010	consist	of:

|  | 2011 |  |  | 2010 |  |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Pension | OPEB | Total | Pension | OPEB | Total |
| \t\t$(1)\t\t\t\t$ | 63 | \t\t$62 | \t\t$(3)\t\t\t\t$ | 106 | \t\t$103 |
| \t\t\t\t(1,503) | \t\t\t\t(146) | \t\t\t\t(1,649) | \t\t\t\t(1,059) | \t\t\t\t(142) | \t\t\t\t(1,201) |
| \t\t$(1,504)\t\t\t\t$ | (83)\t\t\t\t$ | (1,587)\t\t\t\t$ | (1,062)\t\t\t\t$ | (36)\t\t\t\t$ | (1,098) |

Other	pre-tax	changes	recognized	in	other	comprehensive	income	during	2011,	2010	and	2009	were	as	follows:

|  |  | Pension |  |  | OPEB |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Millions | 2011 | 2010 | 2009 | 2011 | 2010 | 2009 |
| Prior\tservice\tcost/(credit) | \t\t $-\t\t\t\t\t $ | -\t\t\t\t\t $ | -\t\t\t\t\t $ | 10\t\t\t\t\t $ | (6)\t\t\t\t $ | (78) |
| Net\tactuarial\t(gain)/loss | 515 | 165 | (51) | 14 | 16 | (21) |
| Amortization\tof: |  |  |  |  |  |  |
| Prior\tservice\tcost/(credit) | (2) | (3) | (5) | 34 | 45 | 44 |
| Actuarial\tloss | (71) | (49) | (30) | (11) | (13) | (12) |
| Total | \t\t $\t\t\t\t442\t\t\t\t\t $\t\t\t\t113\t\t\t\t\t $\t\t\t\t(86)\t\t\t\t $\t\t\t\t47\t\t\t\t\t $\t\t\t\t42\t\t\t\t\t $\t\t\t\t(67) | \t\t $\t\t\t\t442\t\t\t\t\t $\t\t\t\t113\t\t\t\t\t $\t\t\t\t(86)\t\t\t\t $\t\t\t\t47\t\t\t\t\t $\t\t\t\t42\t\t\t\t\t $\t\t\t\t(67) | \t\t $\t\t\t\t442\t\t\t\t\t $\t\t\t\t113\t\t\t\t\t $\t\t\t\t(86)\t\t\t\t $\t\t\t\t47\t\t\t\t\t $\t\t\t\t42\t\t\t\t\t $\t\t\t\t(67) | \t\t $\t\t\t\t442\t\t\t\t\t $\t\t\t\t113\t\t\t\t\t $\t\t\t\t(86)\t\t\t\t $\t\t\t\t47\t\t\t\t\t $\t\t\t\t42\t\t\t\t\t $\t\t\t\t(67) | \t\t $\t\t\t\t442\t\t\t\t\t $\t\t\t\t113\t\t\t\t\t $\t\t\t\t(86)\t\t\t\t $\t\t\t\t47\t\t\t\t\t $\t\t\t\t42\t\t\t\t\t $\t\t\t\t(67) | \t\t $\t\t\t\t442\t\t\t\t\t $\t\t\t\t113\t\t\t\t\t $\t\t\t\t(86)\t\t\t\t $\t\t\t\t47\t\t\t\t\t $\t\t\t\t42\t\t\t\t\t $\t\t\t\t(67) |

Amounts	included	in	accumulated	other	comprehensive	income	expected	to	be	amortized	into	net	periodic	cost	(benefit)	during	2012:

Underfunded	Accumulated	Benefit	Obligation	–	The	accumulated	benefit	obligation	(ABO)	is	the	present	value	of	benefits	earned	to	date,	assuming	no future	compensation	growth.	The	underfunded	accumulated	benefit	obligation	represents	the	difference	between	the	ABO	and	the	fair	value	of	plan assets.	At	December	31,	2011	and	2010,	the	non-qualified	(supplemental)	plan	ABO	was	$284	million	and	$257	million,	respectively.	The	PBO,	ABO,	and fair	value	of	plan	assets	for	pension	plans	with	accumulated	benefit	obligations	in	excess	of	the	fair	value	of	the	plan	assets	were	as	follows	for	the	years ended	December	31:

| Underfunded	Accumulated	Benefit	Obligation |  |  |
| :--- | :--- | :--- |
| Millions | 2011 | 2010 |
| Projected\tbenefit\tobligation | $3,165 | $2,741 |
| Accumulated\tbenefit\tobligation | $\t\t\t\t(3,050) | $\t\t\t\t(2,663) |
| Fair\tvalue\tof\tplan\tassets | 2,505 | 2,385 |
| Underfunded\taccumulated\tbenefit\tobligation | $(545) | $(278) |

The	ABO	for	all	defined	benefit	pension	plans	was	$3.0	billion	and	$2.7	billion	at	December	31,	2011	and	2010,	respectively.

Assumptions	–	The	weighted-average	actuarial	assumptions	used	to	determine	benefit	obligations	at	December	31:

# Expense

Both	pension	and	OPEB	expense	are	determined	based	upon	the	annual	service	cost	of	benefits	(the	actuarial	cost	of	benefits	earned	during	a	period) and	the	interest	cost	on	those	liabilities,	less	the	expected	return	on	plan	assets.	The	expected	long-term	rate	of	return	on	plan	assets	is	applied	to	a calculated	value	of	plan	assets	that	recognizes	changes	in	fair	value	over	a	five-year	period.	This	practice	is	intended	to	reduce	year-to-year	volatility	in pension	expense,	but	it	can	have	the	effect	of	delaying	the	recognition	of	differences	between	actual	returns	on	assets	and	expected	returns	based	on long-term	rate	of	return	assumptions.	Differences	in	actual	experience	in	relation	to	assumptions	are	not	recognized	in	net	income	immediately,	but	are deferred	and,	if	necessary,	amortized	as	pension	or	OPEB	expense.

The	components	of	our	net	periodic	pension	and	OPEB	cost/(benefit)	were	as	follows	for	the	years	ended	December	31:

|  |  | Pension |  |  | OPEB |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Millions | 2011 | 2010 | 2009 | 2011 | 2010 | 2009 |
| Net\tPeriodic\tBenefit\tCost: |  |  |  |  |  |  |
| Service\tcost | \t\t$40 | \t\t$34 | \t\t$38 | \t\t$2 | \t\t$2 | \t\t$2 |
| Interest\tcost | 145 | 143 | 140 | 15 | 16 | 18 |
| Expected\treturn\ton\tplan\tassets | \t\t\t\t(180) | \t\t\t\t(178) | \t\t\t\t(159) | - | - | - |
| Amortization\tof: |  |  |  |  |  |  |
| Prior\tservice\tcost/(credit) | 2 | 3 | 5 | \t\t\t\t(34) | (45) | (44) |
| Actuarial\tloss | 71 | 49 | 30 | 11 | 13 | 12 |
| Net\tperiodic\tbenefit\tcost/(benefit) | \t\t$78 | \t\t$51 | \t\t$54 | \t\t$(6)\t\t\t\t$\t\t\t\t(14)\t\t\t\t$\t\t\t\t(12) | \t\t$(6)\t\t\t\t$\t\t\t\t(14)\t\t\t\t$\t\t\t\t(12) | \t\t$(6)\t\t\t\t$\t\t\t\t(14)\t\t\t\t$\t\t\t\t(12) |

Assumptions	–	The	weighted-average	actuarial	assumptions	used	to	determine	expense	were	as	follows	for	the	years	ended	December	31:

|  |  | Pension |  |  | OPEB |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Percentages | 2011 | 2010 | 2009 | 2011 | 2010 | 2009 |
| Discount\trate | \t\t\t5.35%\t\t\t\t\t5.90%\t\t\t\t\t6.25%\t\t\t\t\t5.01%\t\t\t\t\t5.55% | \t\t\t5.35%\t\t\t\t\t5.90%\t\t\t\t\t6.25%\t\t\t\t\t5.01%\t\t\t\t\t5.55% | \t\t\t5.35%\t\t\t\t\t5.90%\t\t\t\t\t6.25%\t\t\t\t\t5.01%\t\t\t\t\t5.55% | \t\t\t5.35%\t\t\t\t\t5.90%\t\t\t\t\t6.25%\t\t\t\t\t5.01%\t\t\t\t\t5.55% | \t\t\t5.35%\t\t\t\t\t5.90%\t\t\t\t\t6.25%\t\t\t\t\t5.01%\t\t\t\t\t5.55% | \t6.25% |
| Expected\treturn\ton\tplan\tassets | \t\t\t7.50%\t\t\t\t\t8.00%\t\t\t\t\t8.00% | \t\t\t7.50%\t\t\t\t\t8.00%\t\t\t\t\t8.00% | \t\t\t7.50%\t\t\t\t\t8.00%\t\t\t\t\t8.00% | N/A | N/A | N/A |
| Compensation\tincrease | \t\t\t4.48%\t\t\t\t\t3.45%\t\t\t\t\t3.50% | \t\t\t4.48%\t\t\t\t\t3.45%\t\t\t\t\t3.50% | \t\t\t4.48%\t\t\t\t\t3.45%\t\t\t\t\t3.50% | N/A | N/A | N/A |
| Health\tcare\tcost\ttrend\trate\t(employees\tunder\t65) | N/A | N/A | N/A\t\t\t\t\t7.07%\t\t\t\t\t7.24% | N/A\t\t\t\t\t7.07%\t\t\t\t\t7.24% | N/A\t\t\t\t\t7.07%\t\t\t\t\t7.24% | \t7.50% |
| Health\tcare\tcost\ttrend\trate\t(employees\tover\t65) | N/A | N/A | N/A | N/A | N/A | \t9.10% |
| Ultimate\thealth\tcare\tcost\ttrend\trate | N/A | N/A | N/A\t\t\t\t\t4.50%\t\t\t\t\t4.50% | N/A\t\t\t\t\t4.50%\t\t\t\t\t4.50% | N/A\t\t\t\t\t4.50%\t\t\t\t\t4.50% | \t4.50% |
| Year\tultimate\ttrend\treached | N/A | N/A | N/A | 2028 | 2028 | 2028 |

The	discount	rate	was	based	on	a	yield	curve	of	high	quality	corporate	bonds	with	cash	flows	matching	our	plans'	expected	benefit	payments.	The expected	return	on	plan	assets	is	based	on	our	asset	allocation	mix	and	our	historical	return,	taking	into	account	current	and	expected	market	conditions. The	actual	return	on	pension	plan	assets,	net	of	fees,	was	approximately	2%	in	2011,	14%	in	2010,	and	23%	in	2009.

Assumed	health	care	cost	trend	rates	have	a	significant	effect	on	the	expense	and	liabilities	reported	for	health	care	plans.	The	assumed	health	care	cost trend	rate	is	based	on	historical	rates	and	expected	market	conditions.	The	2012	assumed	health	care	cost	trend	rate	for	employees	under	65	is	6.91%.	It is	assumed	the	rate	will	decrease	gradually	to	an	ultimate	rate	of	4.5%	in	2028	and	will	remain	at	that	level.	A	one-percentage	point	change	in	the assumed	health	care	cost	trend	rates	would	have	the	following	effects	on	OPEB:

# Cash	Contributions

The	following	table	details	our	cash	contributions	for	the	qualified	pension	plans	and	the	benefit	payments	for	the	non-qualified	(supplemental)	pension and	OPEB	plans:

| Millions | Qualified | Non-qualified | OPEB |
| :--- | :--- | :--- | :--- |
| 2010 | \t\t $\t\t\t\t\t\t\t\t200 | 13 | 24 |
| 2011 | 200 | 15 | 24 |

Our	policy	with	respect	to	funding	the	qualified	plans	is	to	fund	at	least	the	minimum	required	by	law	and	not	more	than	the	maximum	amount	deductible for	tax	purposes.	All	contributions	made	to	the	qualified	pension	plans	in	2011	were	voluntary	and	were	made	with	cash	generated	from	operations.

The	non-qualified	pension	and	OPEB	plans	are	not	funded	and	are	not	subject	to	any	minimum	regulatory	funding	requirements.	Benefit	payments	for each	year	represent	supplemental	pension	payments	and	claims	paid	for	medical	and	life	insurance.	We	anticipate	our	2012	supplemental	pension	and OPEB	payments	will	be	made	from	cash	generated	from	operations.

# Benefit	Payments

The	following	table	details	expected	benefit	payments	for	the	years	2012	through	2021:

| Millions | Pension | OPEB |
| :--- | :--- | :--- |
| 2012 | $\t\t\t\t158 | $26 |
| 2013 | 161 | 26 |
| 2014 | 166 | 26 |
| 2015 | 171 | 26 |
| 2016 | 176 | 26 |
| Years\t2017\t-\t2021 | 957 | \t\t\t\t119 |

# Asset	Allocation	Strategy

Our	pension	plan	asset	allocation	at	December	31,	2011	and	2010,	and	target	allocation	for	2012,	are	as	follows:

| Our	pension	plan	asset	allocation	at	December	31,	2011	and	2010,	and	target	allocation	for	2012,	are	as	follows: |  |  |  |
| :--- | :--- | :--- | :--- |
|  | Target | Percentage\tof\tPlan\tAssets | December\t31, |
|  | \t\t Allocation\t2012 | 2011 | 2010 |
| Equity\tsecurities | 47%\tto\t63% | 58% | 60% |
| Debt\tsecurities | 30%\tto\t40% | 32 | 31 |
| Real\testate | 2%\tto\t\t\t8% | 5 | 4 |
| Commodities | 4%\tto\t\t\t6% | 5 | 5 |
| Total |  | 100% | 100% |

The	investment	strategy	for	pension	plan	assets	is	to	maintain	a	broadly	diversified	portfolio	designed	to	achieve	our	target	average	long-term	rate	of return	of	7.5%.	While	we	believe	we	can	achieve	a	long-term	average	rate	of	return	of	7.5%,	we	cannot	be	certain	that	the	portfolio	will	perform	to	our expectations.	Assets	 are	 strategically	 allocated	 among	 equity,	 debt,	 and	 other	 investments	 in	 order	 to	 achieve	 a	 diversification	 level	 that	 reduces fluctuations	in	investment	returns.	Asset	allocation	target	ranges	for	equity,	debt,	and	other	portfolios	are	evaluated	at	least	every	three	years	with	the assistance	of	an	independent	external	consulting	firm.	Actual	asset	allocations	are	monitored	monthly,	and	rebalancing	actions	are	executed	at	least quarterly,	if	needed.

The	pension	plan	investments	are	held	in	a	Master	Trust.	The	majority	of	pension	plan	assets	are	invested	in	equity	securities	because	equity	portfolios have	historically	provided	higher	returns	 than	debt	and	other	asset	classes	over	extended	 time	horizons	and	are	expected	 to	do	so	 in	 the	 future. Correspondingly,	equity	investments	also	entail	greater	risks	than	other	investments.	Equity	risks	are	balanced	by	investing	a	significant	portion	of	the plans'	assets	in	high	quality	debt	securities.	The	average	credit	rating	of	the	debt	portfolio	exceeded	A+	as	of	December	31,	2011	and	2010.	The	debt portfolio	is	also	broadly	diversified	and	invested	primarily	in	U.S.	Treasury,	mortgage,	and	corporate	securities.	The	weighted-average	maturity	of	the	debt portfolio	was	12	years	at	both	December	31,	2011	and	2010.

The	investment	of	pension	plan	assets	in	securities	issued	by	Union	Pacific	is	specifically	prohibited	by	the	plan	for	both	the	equity	and	debt	portfolios, other	than	through	index	fund	holdings.

# Fair	Value	Measurements

The	pension	plan	assets	are	valued	at	fair	value.	The	following	is	a	description	of	the	valuation	methodologies	used	for	the	investments	measured	at	fair value,	including	the	general	classification	of	such	instruments	pursuant	to	the	valuation	hierarchy.

Temporary	Cash	Investments	–	These	investments	consist	of	U.S.	dollars	and	foreign	currencies	held	in	master	trust	accounts	at	The	Northern	Trust Company.	Foreign	currencies	held	are	reported	in	terms	of	U.S.	dollars	based	on	currency	exchange	rates	readily	available	in	active	markets.	These temporary	cash	investments	are	classified	as	Level	1	investments.

Registered Investment	 Companies	 –	 Registered Investment	 Companies	 are	 real	 estate	 investments,	 non-U.S.	 stock	 investments,	 and	 bond investments	registered	with	the	Securities	and	Exchange	Commission.	The	real	estate	investments	and	non-U.S.	stock	investments	are	traded	actively on	public	exchanges.	The	share	prices	for	these	investments	are	published	at	the	close	of	each	business	day.	Holdings	of	real	estate	investments	and non-U.S.	stock	investments	are	classified	as	Level	1	investments.	The	bond	investments	are	not	traded	publicly,	but	the	underlying	assets	(stocks	and bonds)	held	in	these	funds	are	traded	on	active	markets	and	the	prices	for	these	assets	are	readily	observable.	Holdings	in	bond	investments	are classified	as	Level	2	investments.

Federal	Government	Securities	–	Federal	Government	Securities	consist	of	bills,	notes,	bonds,	and	other	fixed	income	securities	issued	directly	by	the U.S.	Treasury	or	by	government-sponsored	enterprises.	These	assets	are	valued	using	a	bid	evaluation	process	with	bid	data	provided	by	independent pricing	sources.	Federal	Government	Securities	are	classified	as	Level	2	investments.

Bonds	&	Debentures	–	Bonds	and	debentures	consist	of	fixed	income	securities	issued	by	U.S.	and	non-U.S.	corporations	as	well	as	state	and	local governments.	These	assets	are	valued	using	a	bid	evaluation	process	with	bid	data	provided	by	independent	pricing	sources.	Corporate,	state,	and municipal	bonds	and	debentures	are	classified	as	Level	2	investments.

Corporate	Stock	–	This	investment	category	consists	of	common	and	preferred	stock	issued	by	U.S.	and	non-U.S.	corporations.	Most	common	shares are	traded	actively	on	exchanges	and	price	quotes	for	these	shares	are	readily	available.	Common	stock	is	classified	as	a	Level	1	investment.	Preferred shares	included	in	this	category	are	valued	using	a	bid	evaluation	process	with	bid	data	provided	by	independent	pricing	sources.	Preferred	stock	is classified	as	a	Level	2	investment.

Venture	Capital	and	Buyout	Partnerships	–	This	investment	category	is	comprised	of	interests	in	limited	partnerships	that	invest	in	privately-held companies.	Due	to	the	private	nature	of	the	partnership	investments,	pricing	inputs	are	not	readily	observable.	Asset	valuations	are	developed	by	the general	partners	that	manage	the	partnerships.	These	valuations	are	based	on	the	application	of	public	market

multiples	to	private	company	cash	flows,	market	transactions	that	provide	valuation	information	for	comparable	companies,	and	other	methods.	Holdings of	limited	partnership	interests	are	classified	as	Level	3	investments.

Real	Estate	Partnerships	and	Funds	–	Most	of	the	real	estate	investments	are	partnership	interests	similar	to	those	described	in	the	Venture	Capital and	Buyout	Partnerships	category.	This	category	also	includes	real	estate	investments	held	in	less	commonly	used	structures	such	as	private	real	estate investment	trusts	and	pooled	separate	accounts.	Valuations	for	the	holdings	in	this	category	are	not	based	on	readily	observable	inputs	and	are	primarily derived	from	property	appraisals.	Interests	in	private	real	estate	partnerships,	investment	funds	and	pooled	separate	accounts	are	classified	as	Level	3 investments.

Common	Trust	and	Other	Funds	–	Common	trust	funds	are	comprised	of	shares	or	units	in	commingled	funds	that	are	not	publicly	traded.	The underlying	assets	in	these	funds	(U.S.	stock	funds,	non-U.S.	stock	funds,	commodity	funds,	and	short	term	investment	funds)	are	publicly	traded	on exchanges	 and	 price	 quotes	 for	 the	 assets	 held	 by	 these	 funds	 are	 readily	 available.	 Holdings	 of	 common	 trust	 funds	 are	 classified	 as	 Level	 2 investments.

This	category	also	includes	an	investment	in	a	limited	liability	company	that	invests	in	publicly-traded	convertible	securities.	The	limited	liability	company investment	is	a	fund	that	invests	in	both	long	and	short	positions	in	convertible	securities,	stocks,	and	fixed	income	securities.	The	underlying	securities held	by	the	fund	are	traded	actively	on	exchanges	and	price	quotes	for	these	investments	are	readily	available.	Interest	in	the	limited	liability	company	is classified	as	a	Level	2	investment.

Other	Investments	 –	This	 category	 includes	 several	 miscellaneous	 assets	 such	 as	 commodity	 hedge fund investments.	These investments	 have valuations	that	are	based	on	observable	inputs	and	are	classified	as	Level	2	investments.

As	of	December	31,	2011,	the	pension	plan	assets	measured	at	fair	value	on	a	recurring	basis	were	as	follows:

|  | Quoted	Prices | Significant |  |  |
| :--- | :--- | :--- | :--- | :--- |
|  | in\tActive | Other | Significant |  |
|  | Markets\tfor | Observable | Unobservable |  |
|  | Identical\tInputs | Inputs | Inputs |  |
| Millions | (Level\t1) | (Level\t2) | (Level\t3) | Total |
| Plan\tassets: |  |  |  |  |
| Temporary\tcash\tinvestments | \t\t\t\t\t\t\t\t\t\t$22 | \t\t\t\t$-\t\t\t\t\t\t\t\t\t\t\t$ | -\t\t\t\t\t$ | 22 |
| Registered\tinvestment\tcompanies | 8 | 280 | - | 288 |
| U.S.\tgovernment\tsecurities | - | 155 | - | 155 |
| Corporate\tbonds\t&amp;\tdebentures | - | 343 | - | 343 |
| Corporate\tstock | 547 | 8 | - | 555 |
| Venture\tcapital\tand\tbuyout\tpartnerships | - | - | 184 | 184 |
| Real\testate\tpartnerships\tand\tfunds | - | - | 126 | 126 |
| Common\ttrust\tand\tother\tfunds | - | 815 | - | 815 |
| Other\tinvestments | - | 29 | - | 29 |
| Total\tplan\tassets\tat\tfair\tvalue | \t\t\t\t\t\t\t\t\t\t$577 | \t\t\t\t$1,630 | \t\t\t\t\t\t\t\t$310 | 2,517 |
| Other\tassets\t[a] |  |  |  | (12) |
| Total\tplan\tassets |  |  | \t\t$\t\t\t\t2,505 | \t\t$\t\t\t\t2,505 |

[a] Other	assets	include	accrued	receivables	and	pending	broker	settlements.

As	of	December	31,	2010,	the	pension	plan	assets	measured	at	fair	value	on	a	recurring	basis	were	as	follows:

|  | Quoted	Prices | Significant |  |  |
| :--- | :--- | :--- | :--- | :--- |
|  | in\tActive | Other | Significant |  |
|  | Markets\tfor | Observable | Unobservable |  |
|  | Identical\tInputs | Inputs | Inputs |  |
| Millions | (Level\t1) | (Level\t2) | (Level\t3) | Total |
| Plan\tassets: |  |  |  |  |
| Temporary\tcash\tinvestments | \t\t\t\t\t\t\t\t\t\t$23 | \t\t\t\t$-\t\t\t\t\t\t\t\t\t\t\t$ | -\t\t\t\t\t$ | 23 |
| Registered\tinvestment\tcompanies | 9 | 259 | - | 268 |
| U.S.\tgovernment\tsecurities | - | 142 | - | 142 |
| Corporate\tbonds\t&amp;\tdebentures | - | 311 | - | 311 |
| Corporate\tstock | 573 | 7 | - | 580 |
| Venture\tcapital\tand\tbuyout\tpartnerships | - | - | 169 | 169 |
| Real\testate\tpartnerships\tand\tfunds | - | - | 99 | 99 |
| Common\ttrust\tand\tother\tfunds | - | 776 | - | 776 |
| Other\tinvestments | - | 29 | - | 29 |
| Total\tplan\tassets\tat\tfair\tvalue | \t\t\t\t\t\t\t\t\t\t$605\t\t\t\t\t\t\t$ | 1,524\t\t\t\t\t\t\t\t\t\t\t$ | 268 | 2,397 |
| Other\tassets\t[a] |  |  |  | 7 |
| Total\tplan\tassets |  |  | \t\t$\t\t\t\t2,404 | \t\t$\t\t\t\t2,404 |

For	the	years	ended	December	31,	2011	and	2010,	there	were	no	significant	transfers	in	or	out	of	Levels	1,	2,	or	3.

The	following	table	presents	a	reconciliation	of	the	beginning	and	ending	balances	of	the	fair	value	measurements	using	significant	unobservable	inputs (Level	3	investments)	during	2011:

|  | Venture	Capital | Real	Estate |  |
| :--- | :--- | :--- | :--- |
|  | and\tBuyout | Partnerships |  |
| Millions | Partnerships | and\tFunds | Total |
| Beginning\tbalance\t-\tJanuary\t1,\t2011 | \t\t\t\t\t\t\t\t$169 | \t\t\t\t$99 | \t\t $\t\t\t\t\t\t268 |
| Realized\tgain/(loss) | 8 | (1) | 7 |
| Unrealized\tgain | 13 | 16 | 29 |
| Purchases | 22 | 27 | 49 |
| Sales | (28) | (15) | (43) |
| Ending\tbalance\t-\tDecember\t31,\t2011 | \t\t\t\t\t\t\t\t$184 | \t\t\t\t$126\t\t\t\t\t $ | 310 |

The	following	table	presents	a	reconciliation	of	the	beginning	and	ending	balances	of	the	fair	value	measurements	using	significant	unobservable	inputs (Level	3	investments)	during	2010:

# Other	Retirement	Programs

401(k)/Thrift	 Plan	 –	 We	 provide	 a	 defined	 contribution	 plan	 (401(k)/thrift	 plan)	 to	 eligible	 non-union	 employees	 for	 whom	 we	 make	 matching contributions.	We	match	50	cents	for	each	dollar	contributed	by	employees	up	to	the	first	six	percent	of	compensation	contributed.	Our	plan	contributions were	$14	million	in	2011,	$13	million	in	2010	and	$14	million	in	2009.

Railroad	Retirement	System	–	All	Railroad	employees	are	covered	by	the	Railroad	Retirement	System	(the	System).	Contributions	made	to	the	System are	expensed	as	incurred	and	amounted	to	approximately	$600	million	in	2011,	$566	million	in	2010,	and	$562	million	in	2009.

Collective	Bargaining	Agreements	 –	 Under	 collective	 bargaining	 agreements,	 we	 participate	 in	 multi-employer	 benefit	 plans	 that	 provide	 certain postretirement	health	care	and	life	insurance	benefits	for	eligible	union	employees.	Premiums	paid	under	these	plans	are	expensed	as	incurred	and amounted	to	$66	million	in	2011,	$60	million	in	2010,	and	$48	million	in	2009.

# 6.	Other	Income

Other	income	included	the	following	for	the	years	ended	December	31:

| Millions | 2011 | 2010 | 2009 |
| :--- | :--- | :--- | :--- |
| Rental\tincome | \t\t $80 | \t\t $84 | \t\t $73 |
| Net\tgain\ton\tnon-operating\tasset\tdispositions | 43 | 25 | 162 |
| Interest\tincome | 3 | 4 | 5 |
| Early\textinguishment\tof\tdebt | (5) | (21) | - |
| Non-operating\tenvironmental\tcosts\tand\tother | (9) | (38) | (45) |
| Total | \t\t $\t\t\t\t\t\t\t\t112 | \t\t $\t\t\t\t\t\t\t\t54 | \t\t $\t\t\t\t\t\t\t\t195 |

In	June	of	2009,	we	completed	a	$118	million	sale	of	land	to	the	Regional	Transportation	District	(RTD)	in	Colorado,	resulting	in	a	$116	million	pre-tax gain.	The	agreement	with	the	RTD	involved	a	33-mile	industrial	lead	track	in	Boulder,	Colorado.

# 7.	Income	Taxes

Components	of	income	tax	expense	were	as	follows	for	the	years	ended	December	31:

| Millions | 2011 | 2010 | 2009 |
| :--- | :--- | :--- | :--- |
| Current\ttax\texpense: |  |  |  |
| Federal | \t\t $862\t\t\t\t $ | 862 | \t\t $316 |
| State | 124 | 119 | 50 |
| Total\tcurrent\ttax\texpense | 986 | 981 | 366 |
| Deferred\ttax\texpense: |  |  |  |
| Federal | 894 | 550 | 650 |
| State | 70 | 97 | 30 |
| Total\tdeferred\ttax\texpense | 964 | 647 | 680 |
| Unrecognized\ttax\tbenefits: |  |  |  |
| Federal | 11 | 26 | 39 |
| State | 11 | (1) | (1) |
| Total\tunrecognized\ttax\tbenefits\texpense/(benefits) | 22 | 25 | 38 |
| Total\tincome\ttax\texpense | \t\t $\t\t\t\t1,972\t\t\t\t $\t\t\t\t1,653 | \t\t $\t\t\t\t1,972\t\t\t\t $\t\t\t\t1,653 | \t\t $\t\t\t\t1,084 |

For	the	years	ended	December	31,	reconciliations	between	statutory	and	effective	tax	rates	are	as	follows:

| Tax	Rate	Percentages | 2011 | 2010 | 2009 |
| :--- | :--- | :--- | :--- |
| Federal\tstatutory\ttax\trate | \t35.0% | \t35.0% | \t35.0% |
| State\tstatutory\trates,\tnet\tof\tfederal\tbenefits | 3.1 | 3.1 | 3.2 |
| Deferred\ttax\tadjustments | (0.5) | (0.3) | (0.8) |
| Tax\tcredits | (0.5) | (0.7) | (0.8) |
| Other | 0.4 | 0.2 | (0.2) |
| Effective\ttax\trate | \t37.5% | \t37.3% | \t36.4% |

In	February	of	2011,	Arizona	enacted	legislation	that	will	decrease	the	state's	corporate	tax	rate.	This	reduced	our	deferred	tax	expense	by	$14	million	in the	first	quarter	of	2011.

In	February	of	2009,	California	enacted	legislation	that	changed	how	we	determine	the	amount	of	income	subject	to	California	tax.	This	change	reduced our	2009	deferred	tax	expense	by	$14	million.

Deferred	tax	assets	and	liabilities	are	recorded	for	the	expected	future	tax	consequences	of	events	that	are	reported	in	different	periods	for	financial reporting	and	income	tax	purposes.	The	majority	of	our	deferred	tax	assets	relate	to	deductions	that	already	have	been	claimed	for	financial	reporting purposes	but	not	for	tax	purposes.	The	majority	of	our	deferred	tax	liabilities	relate	to	differences	between	the	tax	bases	and	financial	reporting	amounts of	our	land	and	depreciable	property,	due	to	accelerated	tax	depreciation	(including	bonus	depreciation),	revaluation	of	assets	in	purchase	accounting transactions,	and	differences	in	capitalization	methods.

Deferred	income	tax	(liabilities)/assets	were	comprised	of	the	following	at	December	31:

| Millions | 2011 | 2010 |
| :--- | :--- | :--- |
| Deferred\tincome\ttax\tliabilities: |  |  |
| Property | $\t\t\t\t(13,312) | $\t\t\t\t(12,581) |
| Other | (207) | (178) |
| Total\tdeferred\tincome\ttax\tliabilities | (13,519) | (12,759) |
| Deferred\tincome\ttax\tassets: |  |  |
| Accrued\tcasualty\tcosts | 259 | 300 |
| Debt\tand\tleases | 365 | 452 |
| Retiree\tbenefits | 342 | 223 |
| Credits | 197 | 197 |
| Other | 294 | 291 |
| Total\tdeferred\tincome\ttax\tasset | $1,457 | $1,463 |
| Net\tdeferred\tincome\ttax\tliability | $(12,062) | $(11,296) |
| Current\tportion\tof\tdeferred\ttaxes | $306 | $261 |
| Non-current\tportion\tof\tdeferred\ttaxes | (12,368) | (11,557) |
| Net\tdeferred\tincome\ttax\tliability | $(12,062) | $(11,296) |

Tax	benefits	are	recognized	only	 for	 tax	positions	 that	are	more	 likely	 than	not	 to	be	sustained	upon	examination	by	 tax	authorities.	The	amount recognized	is	measured	as	the	largest	amount	of	benefit	that	is	greater	than	50	percent	likely	to	be	realized	upon	settlement.	Unrecognized	tax	benefits are	tax	benefits	claimed	in	our	tax	returns	that	do	not	meet	these	recognition	and	measurement	standards.

A	reconciliation	of	changes	in	unrecognized	tax	benefits	liabilities/(assets)	from	the	beginning	to	the	end	of	the	reporting	period	is	as	follows:

| Millions | 2011 | 2010 | 2009 |
| :--- | :--- | :--- | :--- |
| Unrecognized\ttax\tbenefits\tat\tJanuary\t1 | \t\t $\t\t\t\t86 | \t\t $\t\t\t\t61 | \t\t $\t\t\t\t26 |
| Increases\tfor\tpositions\ttaken\tin\tcurrent\tyear | 9 | 38 | 18 |
| Increases\tfor\tpositions\ttaken\tin\tprior\tyears | 81 | 11 | 50 |
| Decreases\tfor\tpositions\ttaken\tin\tprior\tyears | (30) | (22) | (28) |
| Payments\tto\tand\tsettlements\twith\ttaxing\tauthorities | (27) | (4) | (3) |
| Increases/(decreases)\tfor\tinterest\tand\tpenalties | (9) | 5 | 3 |
| Lapse\tof\tstatutes\tof\tlimitations | (3) | (3) | (5) |
| Unrecognized\ttax\tbenefits\tat\tDecember\t31 | \t\t $107 | \t\t $86 | \t\t $61 |

We	recognize	interest	and	penalties	as	part	of	income	tax	expense.	Total	accrued	liabilities	for	interest	and	penalties	were	$10	million	and	$19	million	at December	31,	2011	and	2010,	respectively.	Total	interest	and	penalties	recognized	as	part	of	income	tax	expense	(benefit)	were	$10	million	for	2011,	$6 million	for	2010,	and	$(11)	million	for	2009.

Internal	Revenue	Service	(IRS)	examinations	have	been	completed	and	settled	 for	all	years	prior	 to	1999,	and	 the	statute	of	 limitations	bars	any additional	 tax	 assessments.	 Interest	 calculations	 may	 remain	 open	 for	 years	 prior	 to	 1999.	 In	 the	 second	 quarter	 of	 2011,	 the	 IRS	 completed	 its examination	and	issued	a	notice	of	deficiency	for	tax	years	2007	and	2008.	The	IRS	has	now	completed	its	examinations	and	issued	notices	of	deficiency for	tax	years	1999	through	2008.	We	disagree	with	many	of	their	proposed	adjustments,	and	we	are	at	IRS	Appeals	for	these	years.	Additionally,	several state	tax	authorities	are	examining	our	state	income	tax	returns	for	years	2003	through	2008.

In	the	third	quarter	of	2011,	we	reached	an	agreement	in	principle	with	the	IRS	to	resolve	all	of	the	issues	related	to	tax	years	1999	through	2004,	except for	calculations	of	interest.	We	anticipate	signing	a	closing	agreement	with	the	IRS	within	the	next	12	months.	Once	formalized,	this	agreement	should result	in	an	immaterial	reduction	of	income	tax	expense.	Based	on	this	agreement	in	principle,	we	made	a	payment	of	$45	million,	consisting	of	$27 million	of	tax	and	$18	million	of	interest,	to	partially	cover	the	amounts	due	for	these	years.

We	expect	our	unrecognized	tax	benefits	to	decrease	significantly	in	the	next	12	months.	Of	the	$107	million	balance	at	December	31,	2011,	$31	million is	classified	as	current	in	the	Consolidated	Statement	of	Financial	Position,	in	anticipation	of	a	settlement	of	the	1999-2004	tax	years,	as	well	as	a reasonable	possibility	that	some	state	tax	disputes	will	be	resolved	in	2012.

The	portion	of	our	unrecognized	tax	benefits	that	relates	to	permanent	changes	in	tax	and	interest	would	reduce	our	effective	tax	rate,	if	recognized.	The remaining	unrecognized	tax	benefits	relate	to	tax	positions	for	which	only	the	timing	of	the	benefit	is	uncertain.	Recognition	of	the	tax	benefits	with uncertain	timing	would	reduce	our	effective	tax	rate	only	through	a	reduction	of	accrued	interest	and	penalties.	The	unrecognized	tax	benefits	that	would reduce	our	effective	tax	rate	are	as	follows:

# 8.	Earnings	Per	Share

The	following	table	provides	a	reconciliation	between	basic	and	diluted	earnings	per	share	for	the	years	ended	December	31:

| Millions,	Except	Per	Share	Amounts | 2011 | 2010 | 2009 |
| :--- | :--- | :--- | :--- |
| Net\tincome | \t\t $\t\t\t\t3,292\t\t\t\t\t $\t\t\t\t2,780\t\t\t\t\t $\t\t\t\t1,890 | \t\t $\t\t\t\t3,292\t\t\t\t\t $\t\t\t\t2,780\t\t\t\t\t $\t\t\t\t1,890 | \t\t $\t\t\t\t3,292\t\t\t\t\t $\t\t\t\t2,780\t\t\t\t\t $\t\t\t\t1,890 |
| Weighted-average\tnumber\tof\tshares\toutstanding: |  |  |  |
| Basic | 485.7 | 498.2 | 503.0 |
| Dilutive\teffect\tof\tstock\toptions | 2.6 | 3.3 | 1.5 |
| Dilutive\teffect\tof\tretention\tshares\tand\tunits | 1.5 | 1.4 | 1.3 |
| Diluted | 489.8 | 502.9 | 505.8 |
| Earnings\tper\tshare\t–\tbasic | \t\t $6.78 | \t\t $5.58 | \t\t $3.76 |
| Earnings\tper\tshare\t–\tdiluted | \t\t $6.72\t\t\t\t\t $ | 5.53\t\t\t\t\t $ | 3.74 |

Common	stock	options	totaling	0.6	million,	0.3	million,	and	4.6	million	for	2011,	2010,	and	2009,	respectively,	were	excluded	from	the	computation	of diluted	earnings	per	share	because	the	exercise	prices	of	these	options	exceeded	the	average	market	price	of	our	common	stock	for	the	respective periods,	and	the	effect	of	their	inclusion	would	be	anti-dilutive.

# 9.	Comprehensive	Income/(Loss)

Comprehensive	income/(loss)	was	as	follows:

| Millions | 2011 | 2010 | 2009 |
| :--- | :--- | :--- | :--- |
| Net\tincome | \t\t $\t\t\t\t3,292\t\t\t\t\t $\t\t\t\t2,780\t\t\t\t\t $\t\t\t\t1,890 | \t\t $\t\t\t\t3,292\t\t\t\t\t $\t\t\t\t2,780\t\t\t\t\t $\t\t\t\t1,890 | \t\t $\t\t\t\t3,292\t\t\t\t\t $\t\t\t\t2,780\t\t\t\t\t $\t\t\t\t1,890 |
| Other\tcomprehensive\tincome/(loss): |  |  |  |
| Defined\tbenefit\tplans | (301) | (88) | 44 |
| Foreign\tcurrency\ttranslation | (20) | 7 | 6 |
| Derivatives | 1 | 1 | - |
| Total\tother\tcomprehensive\tincome/(loss)\t[a] | (320) | (80) | 50 |

The	after-tax	components	of	accumulated	other	comprehensive	loss	were	as	follows:

|  | Dec.	31, | Dec.	31, |
| :--- | :--- | :--- |
| Millions | 2011 | 2010 |
| Defined\tbenefit\tplans | $\t\t\t\t(1,004) | $\t\t\t\t(703) |
| Foreign\tcurrency\ttranslation | (48) | (28) |
| Derivatives | (2) | (3) |
| Total | $(1,054) | $(734) |

# 10.	Accounts	Receivable

Accounts	receivable	includes	freight	and	other	receivables	reduced	by	an	allowance	for	doubtful	accounts.	The	allowance	is	based	upon	historical	losses, credit	worthiness	of	customers,	and	current	economic	conditions.	At	December	31,	2011	and	2010,	our	accounts	receivable	were	reduced	by	$9	million and	$5	million,	respectively.	Receivables	not	expected	to	be	collected	in	one	year	and	the	associated	allowances	are	classified	as	other	assets	in	our Consolidated	Statements	of	Financial	Position.	At	December	31,	2011	and	2010,	receivables	classified	as	other	assets	were	reduced	by	allowances	of $41	million	and	$51	million,	respectively.

# 11.	Properties

The	following	tables	list	the	major	categories	of	property	and	equipment,	as	well	as	the	weighted-average	composite	depreciation	rate	for	each	category:

| Millions,	Except	Percentages<br>As	of	December	31,	2011 | Cost | Accumulated<br>Depreciation | Net	Book<br>Value | Depreciation<br>Rate	for	2011 |
| :--- | :--- | :--- | :--- | :--- |
| Land | \t\t$5,098 | $\t\t\t\t\t\t\tN/A\t\t\t\t\t$ | 5,098 | N/A |
| Road: |  |  |  |  |
| Rail\tand\tother\ttrack\tmaterial\t[a] | 12,461 | 4,592 | 7,869 | 3.3% |
| Ties | 7,987 | 2,028 | 5,959 | 2.9% |
| Ballast | 4,178 | 1,008 | 3,170 | 3.0% |
| Other\t[b] | 14,118 | 2,502 | 11,616 | 2.6% |
| Total\troad | 38,744 | 10,130 | 28,614 | 2.9% |
| Equipment: |  |  |  |  |
| Locomotives | 6,502 | 3,003 | 3,499 | 5.7% |
| Freight\tcars | 1,957 | 1,061 | 896 | 3.5% |
| Work\tequipment\tand\tother | 529 | 57 | 472 | 6.5% |
| Total\tequipment | 8,988 | 4,121 | 4,867 | 5.3% |
| Technology\tand\tother | 610 | 259 | 351 | 12.3% |
| Construction\tin\tprogress | 1,004 | - | 1,004 | N/A |
| Total | \t\t$\t\t\t\t54,444 | $\t\t14,510\t\t\t\t\t$\t\t\t\t39,934 | $\t\t14,510\t\t\t\t\t$\t\t\t\t39,934 | N/A |

| Millions,	Except	Percentages<br>As	of	December	31,	2010 | Cost | Accumulated<br>Depreciation | Net	Book<br>Value | Depreciation<br>Rate	for	2010 |
| :--- | :--- | :--- | :--- | :--- |
| Land | \t\t$4,984 | $\t\t\t\t\t\t\tN/A\t\t\t\t\t$ | 4,984 | N/A |
| Road: |  |  |  |  |
| Rail\tand\tother\ttrack\tmaterial\t[a] | 11,992 | 4,458 | 7,534 | 3.1% |
| Ties | 7,631 | 1,858 | 5,773 | 2.8% |
| Ballast | 4,011 | 944 | 3,067 | 3.0% |
| Other\t[b] | 13,634 | 2,376 | 11,258 | 2.5% |
| Total\troad | 37,268 | 9,636 | 27,632 | 2.8% |
| Equipment: |  |  |  |  |
| Locomotives | 6,136 | 2,699 | 3,437 | 5.6% |
| Freight\tcars | 1,886 | 1,040 | 846 | 3.6% |
| Work\tequipment\tand\tother | 305 | 39 | 266 | 4.0% |
| Total\tequipment | 8,327 | 3,778 | 4,549 | 5.1% |
| Technology\tand\tother | 565 | 241 | 324 | 13.2% |
| Construction\tin\tprogress | 764 | - | 764 | N/A |
| Total | \t\t$51,908 | $\t\t13,655\t\t\t\t\t$ | 38,253 | N/A |

[a] Includes	a	weighted-average	composite	depreciation	rate	for	rail	in	high-density	traffic	corridors	as	discussed	below.

[b] Other	includes	grading,	bridges	and	tunnels,	signals,	buildings,	and	other	road	assets.

Property	and	Depreciation	–	Our	railroad	operations	are	highly	capital	intensive,	and	our	large	base	of	homogeneous,	network-type	assets	turns	over on	a	continuous	basis.	Each	year	we	develop	a	capital	program	for	the	replacement	of	assets	and	for	the	acquisition	or	construction	of	assets	that	enable us	to	enhance	our	operations	or	provide	new	service	offerings	to	customers.	Assets	purchased	or	constructed	throughout	the	year	are	capitalized	if	they meet	applicable	minimum	units	of	property	criteria.	Properties	and	equipment	are	carried	at	cost	and	are	depreciated	on	a	straight-line	basis	over	their estimated	 service	 lives,	 which	 are	 measured	 in	 years,	 except	 for	 rail	 in	 high-density	 traffic	 corridors	 (i.e.,	 all	 rail	 lines	 except	 for	 those	 subject	 to abandonment,	yard	and	switching	tracks,	and	electronic	yards)	for	which	lives	are	measured	in	millions	of	gross	tons	per	mile	of	track.	We	use	the	group method	of	depreciation	in

which	 all	 items	 with	 similar	 characteristics,	 use,	 and	 expected	 lives	 are	 grouped	 together	 in	 asset	 classes,	 and	 are	 depreciated	 using	 composite depreciation	rates.	The	group	method	of	depreciation	treats	each	asset	class	as	a	pool	of	resources,	not	as	singular	items.	We	currently	have	more	than 60	depreciable	asset	classes,	and	we	may	increase	or	decrease	the	number	of	asset	classes	due	to	changes	in	technology,	asset	strategies,	or	other factors.

We	determine	the	estimated	service	lives	of	depreciable	railroad	assets	by	means	of	depreciation	studies.	We	perform	depreciation	studies	at	least	every three	 years	 for	 equipment	 and	 every	 six	 years	 for	 track	 assets	 (i.e.,	 rail	 and	 other	 track	 material,	 ties,	 and	 ballast)	 and	 other	 road	 property.	 Our depreciation	studies	take	into	account	the	following	factors:

For	rail	in	high-density	traffic	corridors,	we	measure	estimated	service	lives	in	millions	of	gross	tons	per	mile	of	track.	It	has	been	our	experience	that	the lives	of	rail	in	high-density	traffic	corridors	are	closely	correlated	to	usage	(i.e.,	the	amount	of	weight	carried	over	the	rail).	The	service	lives	also	vary based	on	rail	weight,	rail	condition	(e.g.,	new	or	secondhand),	and	rail	type	(e.g.,	straight	or	curve).	Our	depreciation	studies	for	rail	in	high	density	traffic corridors	consider	each	of	these	factors	in	determining	the	estimated	service	lives.	For	rail	in	high-density	traffic	corridors,	we	calculate	depreciation	rates annually	by	dividing	the	number	of	gross	ton-miles	carried	over	the	rail	(i.e.,	the	weight	of	loaded	and	empty	freight	cars,	locomotives	and	maintenance	of way	equipment	transported	over	the	rail)	by	the	estimated	service	lives	of	the	rail	measured	in	millions	of	gross	tons	per	mile.	For	all	other	depreciable assets,	we	compute	depreciation	based	on	 the	estimated	service	 lives	of	our	assets	as	determined	 from	 the	analysis	of	our	depreciation	studies. Changes	in	the	estimated	service	lives	of	our	assets	and	their	related	depreciation	rates	are	implemented	prospectively.

For	retirements	of	depreciable	railroad	properties	that	do	not	occur	in	the	normal	course	of	business,	a	gain	or	loss	may	be	recognized	if	the	retirement meets	each	of	the	following	three	conditions:	(i)	is	unusual,	(ii)	is	material	in	amount,	and	(iii)	varies	significantly	from	the	retirement	profile	identified through	our	depreciation	studies.	A	gain	or	loss	is	recognized	in	other	income	when	we	sell	land	or	dispose	of	assets	that	are	not	part	of	our	railroad operations.

When	we	purchase	an	asset,	we	capitalize	all	costs	necessary	to	make	the	asset	ready	for	its	intended	use.	However,	many	of	our	assets	are	self- constructed.	A	large	portion	of	our	capital	expenditures	is	for	replacement	of	existing	track	assets	and	other	road	properties,	which	is	typically	performed by	our	employees,	and	for	track	line	expansion	and	other	capacity	projects.	Costs	that	are	directly	attributable	to	capital	projects	(including	overhead costs)	are	capitalized.	Direct	costs	that	are	capitalized	as	part	of	self-constructed	assets	include	material,	labor,	and	work	equipment.	Indirect	costs	are capitalized	if	they	clearly	relate	to	the	construction	of	the	asset.

General	and	administrative	expenditures	are	expensed	as	incurred.	Normal	repairs	and	maintenance,	including	rail	grinding,	are	also	expensed	as incurred,	while	costs	incurred	that	extend	the	useful	life	of	an	asset,	improve	the	safety	of	our	operations	or	improve	operating	efficiency	are	capitalized. These	costs

are	allocated	using	appropriate	statistical	bases.	Total	expense	for	repairs	and	maintenance	incurred	was	$2.2	billion	for	2011,	$2.0	billion	for	2010,	and $1.9	billion	for	2009.

Assets	held	under	capital	leases	are	recorded	at	the	lower	of	the	net	present	value	of	the	minimum	lease	payments	or	the	fair	value	of	the	leased	asset at	the	inception	of	the	lease.	Amortization	expense	is	computed	using	the	straight-line	method	over	the	shorter	of	the	estimated	useful	lives	of	the	assets or	the	period	of	the	related	lease.

# 12.	Accounts	Payable	and	Other	Current	Liabilities

|  | Dec.	31, | Dec.	31, |
| :--- | :--- | :--- |
| Millions | 2011 | 2010 |
| Accounts\tpayable | $819 | $677 |
| Income\tand\tother\ttaxes | 482 | 337 |
| Accrued\twages\tand\tvacation | 363 | 357 |
| Dividends\tpayable | 284 | 183 |
| Accrued\tcasualty\tcosts | 249 | 325 |
| Interest\tpayable | 197 | 200 |
| Equipment\trents\tpayable | 90 | 86 |
| Other | 624 | 548 |
| Total\taccounts\tpayable\tand\tother\tcurrent\tliabilities | $\t\t\t\t3,108 | $\t\t\t\t2,713 |

# 13.	Financial	Instruments

Strategy	and	Risk	–	We	may	use	derivative	financial	instruments	in	limited	instances	for	other	than	trading	purposes	to	assist	in	managing	our	overall exposure	to	fluctuations	in	interest	rates	and	fuel	prices.	We	are	not	a	party	to	leveraged	derivatives	and,	by	policy,	do	not	use	derivative	financial instruments	for	speculative	purposes.	Derivative	financial	instruments	qualifying	for	hedge	accounting	must	maintain	a	specified	level	of	effectiveness between	the	hedging	instrument	and	the	item	being	hedged,	both	at	inception	and	throughout	the	hedged	period.	We	formally	document	the	nature	and relationships	between	the	hedging	instruments	and	hedged	items	at	inception,	as	well	as	our	risk-management	objectives,	strategies	for	undertaking	the various	hedge	transactions,	and	method	of	assessing	hedge	effectiveness.	Changes	in	the	fair	market	value	of	derivative	financial	instruments	that	do not	qualify	for	hedge	accounting	are	charged	to	earnings.	We	may	use	swaps,	collars,	futures,	and/or	forward	contracts	to	mitigate	the	risk	of	adverse movements	in	interest	rates	and	fuel	prices;	however,	the	use	of	these	derivative	financial	instruments	may	limit	future	benefits	from	favorable	interest rate	and	fuel	price	movements.

Swaps	allow	us	to	convert	debt	from	fixed	rates	to	variable	rates	and	thereby	hedge	the	risk	of	changes	in	the	debt's	fair	value	attributable	to	the	changes in	interest	rates.	We	account	for	swaps	as	fair	value

hedges	using	the	short-cut	method;	therefore,	we	do	not	record	any	ineffectiveness	within	our	Consolidated	Financial	Statements.

On	February	25,	2010,	we	elected	to	terminate	an	interest	rate	swap	agreement	with	a	notional	amount	of	$250	million	prior	to	the	scheduled	maturity and	received	cash	of	$20	million	(which	is	comprised	of	$16	million	for	the	fair	value	of	the	swap	that	was	terminated	and	$4	million	of	accrued	but	unpaid interest	receivable).	We	designated	the	swap	agreement	as	a	fair	value	hedge,	and	as	such	the	unamortized	adjustment	to	debt	for	the	change	in	fair value	of	the	swap	remains	classified	as	debt	due	after	one	year	in	our	Consolidated	Statements	of	Financial	Position	and	will	be	amortized	as	a	reduction to	interest	expense	through	April	15,	2012.	As	of	December	31,	2011	and	2010,	we	do	not	have	any	interest	rate	fair	value	hedges	outstanding.

Earnings	Impact	–	Our	use	of	derivative	financial	instruments	had	the	following	impact	on	pre-tax	income	for	the	years	ended	December	31:

| Millions | 2011 | 2010 | 2009 |
| :--- | :--- | :--- | :--- |
| Decrease\tin\tinterest\texpense\tfrom\tinterest\trate\thedging | \t\t $\t\t\t\t\t\t\t\t-\t\t\t\t\t $\t\t\t\t\t\t\t\t2 | \t\t $\t\t\t\t\t\t\t\t-\t\t\t\t\t $\t\t\t\t\t\t\t\t2 | \t\t\t $\t\t\t\t\t\t\t\t8 |
| Increase\tin\tpre-tax\tincome | \t\t $\t\t\t\t\t\t\t\t-\t\t\t\t\t $\t\t\t\t\t\t\t\t2 | \t\t $\t\t\t\t\t\t\t\t-\t\t\t\t\t $\t\t\t\t\t\t\t\t2 | \t\t $\t\t\t\t\t\t\t\t8 |

Fair	Value	of	Financial	Instruments	–	The	fair	value	of	our	short-	and	long-term	debt	was	estimated	using	quoted	market	prices,	where	available,	or current	borrowing	rates.	At	December	31,	2011,	the	fair	value	of	total	debt	was	$10.5	billion,	approximately	$1.6	billion	more	than	the	carrying	value.	At December	31,	2010,	the	fair	value	of	total	debt	was	$10.4	billion,	approximately	$1.2	billion	more	than	the	carrying	value.	At	December	31,	2011	and 2010,	approximately	$303	million	of	fixed-rate	debt	securities	contained	call	provisions	that	allow	us	to	retire	the	debt	instruments	prior	to	final	maturity, with	the	payment	of	fixed	call	premiums,	or	in	certain	cases,	at	par.	The	fair	value	of	our	cash	equivalents	approximates	their	carrying	value	due	to	the short-term	maturities	of	these	instruments.

Total	debt	as	of	December	31,	2011	and	2010,	net	of	interest	rate	swaps	designated	as	fair	value	hedges,	is	summarized	below:

| Millions | 2011 | 2010 |
| :--- | :--- | :--- |
| Notes\tand\tdebentures,\t3.0%\tto\t7.9%\tdue\tthrough\t2054 | $6,801 | $6,886 |
| Capitalized\tleases,\t4.0%\tto\t9.3%\tdue\tthrough\t2028 | 1,874 | 1,909 |
| Equipment\tobligations,\t6.2%\tto\t8.1%\tdue\tthrough\t2031 | 147 | 183 |
| Tax-exempt\tfinancings,\t5.0%\tto\t5.7%\tdue\tthrough\t2026 | 159 | 162 |
| Floating\trate\tterm\tloan,\tdue\tthrough\t2016 | 100 | 100 |
| Receivables\tsecuritization\tfacility\t(Note\t10) | 100 | 100 |
| Mortgage\tbonds,\t4.8%\tdue\tthrough\t2030 | 57 | 58 |
| Medium-term\tnotes,\t9.2%\tto\t10.0%\tdue\tthrough\t2020 | 32 | 42 |
| Unamortized\tdiscount | (364) | (198) |
| Total\tdebt | 8,906 | 9,242 |
| Less:\tcurrent\tportion | (209) | (239) |
| Total\tlong-term\tdebt | $\t\t\t\t\t\t8,697 | $\t\t\t\t\t\t9,003 |

Debt	Maturities	–	The	following	table	presents	aggregate	debt	maturities	as	of	December	31,	2011,	excluding	market	value	adjustments:

As	of	both	December	31,	2011	and	December	31,	2010,	we	have	reclassified	as	long-term	debt	approximately	$100	million	of	debt	due	within	one	year that	we	intend	to	refinance.	This	reclassification	reflects	our	ability	and	intent	to	refinance	any	short-term	borrowings	and	certain	current	maturities	of long-term	debt	on	a	long-term	basis.

Mortgaged	Properties	–	Equipment	with	a	carrying	value	of	approximately	$2.9	billion	and	$3.2	billion	at	December	31,	2011	and	2010,	respectively, served	as	collateral	for	capital	leases	and	other	types	of	equipment	obligations	in	accordance	with	the	secured	financing	arrangements	utilized	to	acquire such	railroad	equipment.

During	2011,	we	did	not	issue	or	repay	any	commercial	paper	and,	at	December	31,	2011,	we	had	no	commercial	paper	outstanding.	Outstanding commercial	paper	balances	are	supported	by	our	revolving	credit	facility	but	do	not	reduce	the	amount	of	borrowings	available	under	the	facility.

Dividend	Restrictions	–	Our	revolving	credit	facility	includes	a	debt-to-net	worth	covenant	(discussed	in	the	Credit	Facilities	section	above)	that,	under certain	circumstances,	restricts	the	payment	of	cash

dividends	to	our	shareholders.	The	amount	of	retained	earnings	available	for	dividends	was	$13.8	billion	and	$12.9	billion	at	December	31,	2011	and 2010,	respectively.

Debt	Exchange	–	On	June	23,	2011,	we	exchanged	$857	million	of	various	outstanding	notes	and	debentures	due	between	2013	and	2019	(Existing Notes)	for	$750	million	of	4.163%	notes	(New	Notes)	due	July	15,	2022,	plus	cash	consideration	of	approximately	$267	million	and	$17	million	for	accrued and	unpaid	interest	on	the	Existing	Notes.	The	cash	consideration	was	recorded	as	an	adjustment	to	the	carrying	value	of	debt,	and	the	balance	of	the unamortized	discount	and	issue	costs	from	the	Existing	Notes	is	being	amortized	as	an	adjustment	of	interest	expense	over	the	term	of	the	New	Notes. No	gain	or	loss	was	recognized	as	a	result	of	the	exchange.	Costs	related	to	the	debt	exchange	that	were	payable	to	parties	other	than	the	debt	holders totaled	approximately	$6	million	and	were	included	in	interest	expense	during	2011.

The	redemptions	resulted	in	an	early	extinguishment	charge	of	$5	million.	On	March	22,	2010,	we	redeemed	$175	million	of	our	6.5%	notes	due	April	15, 2012.	The	redemption	resulted	in	an	early	extinguishment	charge	of	$16	million	in	the	first	quarter	of	2010.	On	November	1,	2010,	we	redeemed	all	$400 million	of	our	outstanding	6.65%	notes	due	January	15,	2011.	The	redemption	resulted	in	a	$5	million	early	extinguishment	charge.

Receivables	Securitization	Facility	–	As	of	December	31,	2011	and	2010,	we	have	recorded	$100	million	as	secured	debt	under	our	receivables securitization	facility.	(See	further	discussion	of	our	receivables	securitization	facility	in	Note	10).

# 15.	Variable	Interest	Entities

We	have	entered	into	various	lease	transactions	in	which	the	structure	of	the	leases	contain	variable	interest	entities	(VIEs).	These	VIEs	were	created solely	for	the	purpose	of	doing	lease	transactions	(principally	involving	railroad	equipment	and	facilities,	including	our	headquarters	building)	and	have	no other	activities,	assets	or	liabilities	outside	of	the	lease	transactions.	Within	these	lease	arrangements,	we	have	the	right	to	purchase	some	or	all	of	the assets	at	fixed	prices.	Depending	on	market	conditions,	fixed-price	purchase	options	available	in	the	leases	could	potentially	provide	benefits	to	us; however,	these	benefits	are	not	expected	to	be	significant.

We	maintain	and	operate	the	assets	based	on	contractual	obligations	within	the	lease	arrangements,	which	set	specific	guidelines	consistent	within	the railroad	industry.	As	such,	we	have	no	control	over	activities	that	could	materially	impact	the	fair	value	of	the	leased	assets.	We	do	not	hold	the	power	to direct	the	activities	of	the	VIEs	and,	therefore,	do	not	control	the	ongoing	activities	that	have	a	significant	impact	on	the	economic	performance	of	the VIEs.	Additionally,	we	do	not	have	the	obligation	to	absorb	losses	of	the	VIEs	or	the	right	to	receive	benefits	of	the	VIEs	that	could	potentially	be significant	to	the	VIEs.

We	are	not	considered	to	be	the	primary	beneficiary	and	do	not	consolidate	these	VIEs	because	our	actions	and	decisions	do	not	have	the	most significant	effect	on	the	VIE's	performance	and	our	fixed-price	purchase	price	options	are	not	considered	to	be	potentially	significant	to	the	VIE's.	The future	minimum	lease	payments	associated	with	the	VIE	leases	totaled	$3.9	billion	as	of	December	31,	2011.

We	lease	certain	locomotives,	freight	cars,	and	other	property.	The	Consolidated	Statement	of	Financial	Position	as	of	December	31,	2011	and	2010 included	$2,458	million,	net	of	$915	million	of	accumulated	depreciation,	and	$2,520	million,	net	of	$901	million	of	accumulated	depreciation,	respectively, for	properties	held	under	capital	leases.	A	charge	to	income	resulting	from	the	depreciation	for	assets	held	under	capital	leases	is	included	within depreciation	 expense	 in	 our	 Consolidated	 Statements	 of	 Income.	 Future	 minimum	 lease	 payments	 for	 operating	 and	 capital	 leases	 with	 initial	 or remaining	non-cancelable	lease	terms	in	excess	of	one	year	as	of	December	31,	2011,	were	as	follows:

|  | Operating | Capital |
| :--- | :--- | :--- |
| Millions | Leases | Leases |
| 2012 | $525 | $297 |
| 2013 | 489 | 269 |
| 2014 | 415 | 276 |
| 2015 | 372 | 276 |
| 2016 | 347 | 262 |
| Later\tyears | 2,380 | 1,179 |
| Total\tminimum\tlease\tpayments | $\t\t\t\t4,528 | $\t\t\t\t2,559 |
| Amount\trepresenting\tinterest | N/A | (685) |
| Present\tvalue\tof\tminimum\tlease\tpayments | N/A | $1,874 |

The	majority	of	capital	lease	payments	relate	to	locomotives.	Rent	expense	for	operating	leases	with	terms	exceeding	one	month	was	$637	million	in 2011,	$624	million	in	2010,	and	$686	million	in	2009.	When	cash	rental	payments	are	not	made	on	a	straight-line	basis,	we	recognize	variable	rental expense	on	a	straight-line	basis	over	the	lease	term.	Contingent	rentals	and	sub-rentals	are	not	significant.

# 17.	Commitments	and	Contingencies

Asserted	and	Unasserted	Claims	–	Various	claims	and	lawsuits	are	pending	against	us	and	certain	of	our	subsidiaries.	We	cannot	fully	determine	the effect	of	all	asserted	and	unasserted	claims	on	our	consolidated	results	of	operations,	financial	condition,	or	liquidity;	however,	to	the	extent	possible, where	asserted	and	unasserted	claims	are	considered	probable	and	where	such	claims	can	be	reasonably	estimated,	we	have	recorded	a	liability.	We	do not	expect	that	any	known	lawsuits,	claims,	environmental	costs,	commitments,	contingent	liabilities,	or	guarantees	will	have	a	material	adverse	effect	on our	consolidated	results	of	operations,	financial	condition,	or	liquidity	after	taking	into	account	liabilities	and	insurance	recoveries	previously	recorded	for these	matters.

Our	personal	injury	liability	is	discounted	to	present	value	using	applicable	U.S.	Treasury	rates.	Approximately	89%	of	the	recorded	liability	related	to asserted	claims,	and	approximately	11%	related	 to	unasserted	claims	at	December	31,	2011.	Because	of	 the	uncertainty	surrounding	 the	ultimate outcome	of	personal	injury	claims,	it	is	reasonably	possible	that	future	costs	to	settle	these	claims	may	range	from	approximately	$368	million	to	$404 million.	We	record	an	accrual	at	the	low	end	of	the	range	as	no	amount	of	loss	is	more	probable	than	any	other.	Estimates	can	vary	over	time	due	to evolving	trends	in	litigation.

Our	personal	injury	liability	activity	was	as	follows:

| Millions | 2011 | 2010 | 2009 |
| :--- | :--- | :--- | :--- |
| Beginning\tbalance | \t\t $426 | \t\t $545 | \t\t $621 |
| Current\tyear\taccruals | 118 | 155 | 174 |
| Changes\tin\testimates\tfor\tprior\tyears | (71) | (101) | (95) |
| Payments | \t\t\t\t(105) | \t\t\t\t(173) | \t\t\t\t(155) |
| Ending\tbalance\tat\tDecember\t31 | \t\t $368 | \t\t $426 | \t\t $545 |
| Current\tportion,\tending\tbalance\tat\tDecember\t31 | \t\t $103 | \t\t $140 | \t\t $158 |

Our	 liability	 for	 asbestos-related	 claims	 is	 not	 discounted	 to	 present	 value	 due	 to	 the	 uncertainty	 surrounding	 the	 timing	 of	 future	 payments. Approximately	21%	of	the	recorded	liability	related	to	asserted	claims	and	approximately	79%	related	to	unasserted	claims	at	December	31,	2011. Because	of	the	uncertainty	surrounding	the	ultimate	outcome	of	asbestos-related	claims,	it	is	reasonably	possible	that	future	costs	to	settle	these	claims may	range	from	approximately	$147	million	to	$159	million.	We	record	an	accrual	at	the	low	end	of	the	range	as	no	amount	of	loss	is	more	probable	than any	other.	In	conjunction	with	the	liability	update	performed	in	2010,	we	also	reassessed	estimated	insurance	recoveries.	We	have	recognized	an	asset for	estimated	insurance	recoveries	at	December	31,	2011	and	2010.

| Millions | 2011 | 2010 | 2009 |
| :--- | :--- | :--- | :--- |
| Beginning\tbalance | \t\t $162 | \t\t $174 | \t\t $213 |
| Accruals/(credits) | (5) | (1) | (25) |
| Payments | (10) | (11) | (14) |
| Ending\tbalance\tat\tDecember\t31 | \t\t $\t\t\t\t147 | \t\t $\t\t\t\t162 | \t\t $\t\t\t\t174 |
| Current\tportion,\tending\tbalance\tat\tDecember\t31 | \t\t $8 | \t\t $12 | \t\t $13 |

We	have	insurance	coverage	for	a	portion	of	the	costs	incurred	to	resolve	asbestos-related	claims,	and	we	have	recognized	an	asset	for	estimated insurance	recoveries	at	December	31,	2011	and	2010.

We	believe	that	our	estimates	of	liability	for	asbestos-related	claims	and	insurance	recoveries	are	reasonable	and	probable.	The	amounts	recorded	for asbestos-related	liabilities	and	related	insurance	recoveries	were	based	on	currently	known	facts.	However,	future	events,	such	as	the	number	of	new claims	filed	each	year,	average	settlement	costs,	and	insurance	coverage	issues,	could	cause	the	actual	costs	and	insurance	recoveries	to	be	higher	or lower	than	the	projected	amounts.	Estimates	also	may	vary	in	the	future	if	strategies,	activities,	and	outcomes	of	asbestos	litigation	materially	change; federal	and	state	laws	governing	asbestos	litigation	increase	or	decrease	the	probability	or	amount	of	compensation	of	claimants;	and	there	are	material changes	with	respect	to	payments	made	to	claimants	by	other	defendants.

Environmental	Costs	–	We	are	subject	to	federal,	state,	and	local	environmental	laws	and	regulations.	We	have	identified	285	sites	at	which	we	are	or may	be	liable	for	remediation	costs	associated	with	alleged	contamination	or	for	violations	of	environmental	requirements.	This	includes	32	sites	that	are the	subject	of	actions	taken	by	the	U.S.	government,	17	of	which	are	currently	on	the	Superfund	National	Priorities	List.	Certain	federal	legislation imposes	joint	and	several	liability	for	the	remediation	of	identified	sites;	consequently,	our	ultimate	environmental	liability	may	include	costs	relating	to activities	of	other	parties,	in	addition	to	costs	relating	to	our	own	activities	at	each	site.

When	we	identify	an	environmental	issue	with	respect	to	property	owned,	leased,	or	otherwise	used	in	our	business,	we	perform,	with	assistance	of	our consultants,	environmental	assessments	on	the	property.	We	expense	the	cost	of	the	assessments	as	incurred.	We	accrue	the	cost	of	remediation	where our	 obligation	 is	 probable	 and	 such	 costs	 can	 be	 reasonably	 estimated.	 We	 do	 not	 discount	 our	 environmental	 liabilities	 when	 the	 timing	 of	 the anticipated	cash	payments	is	not	fixed	or	readily	determinable.	At	December	31,	2011,	less	than	1%	of	our	environmental	liability	was	discounted	at 2.0%,	while	approximately	5%	of	our	environmental	liability	was	discounted	at	2.8%	at	December	31,	2010.

Our	environmental	liability	activity	was	as	follows:

| Millions | 2011	[a] | 2010 | 2009 |
| :--- | :--- | :--- | :--- |
| Beginning\tbalance | \t\t $213 | \t\t $217 | \t\t $209 |
| Accruals | 29 | 57 | 49 |
| Payments | (70) | (61) | (41) |
| Ending\tbalance\tat\tDecember\t31 | \t\t $\t\t\t\t172 | \t\t $\t\t\t\t213 | \t\t $\t\t\t\t217 |
| Current\tportion,\tending\tbalance\tat\tDecember\t31 | \t\t $50 | \t\t $74 | \t\t $82 |

The	environmental	liability	includes	future	costs	for	remediation	and	restoration	of	sites,	as	well	as	ongoing	monitoring	costs,	but	excludes	any	anticipated recoveries	from	third	parties.	Cost	estimates	are	based	on	information	available	for	each	site,	financial	viability	of	other	potentially	responsible	parties, and	 existing	 technology,	 laws,	 and	 regulations.	 The	 ultimate	 liability	 for	 remediation	 is	 difficult	 to	 determine	 because	 of	 the	 number	 of	 potentially responsible	parties,	site-specific	cost	sharing	arrangements	with	other	potentially	responsible	parties,	the	degree	of	contamination	by	various	wastes,	the scarcity	and	quality	of	volumetric	data	related	to	many	of	the	sites,	and	the	speculative	nature	of	remediation	costs.	Estimates	of	liability	may	vary	over time	due	to	changes	in	federal,	state,	and	local	laws	governing

environmental	remediation.	Current	obligations	are	not	expected	to	have	a	material	adverse	effect	on	our	consolidated	results	of	operations,	financial condition,	or	liquidity.

Gain	Contingency	–	UPRR	and	Santa	Fe	Pacific	Pipelines	(SFPP,	a	subsidiary	of	Kinder	Morgan	Energy	Partners,	L.P.)	currently	are	engaged	in	a proceeding	to	resolve	the	fair	market	rent	payable	to	UPRR	under	a	10-year	agreement	commencing	on	January	1,	2004	for	pipeline	easements	on UPRR	rights-of-way	(Union	Pacific	Railroad	Company	vs.	Santa	Fe	Pacific	Pipelines,	Inc.,	SFPP,	L.P.,	Kinder	Morgan	Operating	L.P.	"D"	Kinder	Morgan G.P.,	Inc.,	et	al.,	Superior	Court	of	the	State	of	California	for	the	County	of	Los	Angeles,	filed	July	28,	2004 ).	In	February	2007,	a	trial	began	to	resolve this	issue,	and,	on	September	28,	2011,	the	judge	issued	a	tentative	Statement	of	Decision,	which	concluded	that	SFPP	may	owe	back	rent	to	UPRR	for the	years	2004	through	2011.	SFPP	has	filed	objections	to	the	Statement	of	Decision.	UPRR	filed	a	motion	for	an	entry	of	judgment,	which	is	scheduled for	hearing	on	or	about	February	3,	2012,	along	with	post-judgment	motions	on	interest	and	attorneys	fees.	A	favorable	final	judgment	may	materially affect	our	results	of	operations	in	the	period	of	any	monetary	recoveries;	however,	due	to	the	uncertainty	regarding	the	amount	and	timing	of	any recovery,	we	consider	this	a	gain	contingency	and	no	amounts	are	reflected	in	the	Condensed	Consolidated	Financial	Statements	as	of	December	31, 2011.

# 18.	Share	Repurchase	Program

The	shares	repurchased	in	2010	and	the	first	quarter	of	2011,	shown	in	the	table	below,	were	repurchased	under	our	authorized	repurchase	program that	expired	on	March	31,	2011.	Effective	April	1,	2011,	our	Board	of	Directors	authorized	the	repurchase	of	40	million	shares	of	our	common	stock	by March	31,	2014,	replacing	our	previous	repurchase	program.	The	shares	repurchased	in	the	second,	third,	and	fourth	quarters	of	2011,	shown	in	the table	below,	were	purchased	under	the	new	program.	As	of	December	31,	2011,	we	repurchased	a	total	of	$5.7	billion	of	our	common	stock	since	the commencement	of	our	repurchase	programs.

|  | Number	of	Shares	Purchased | Number	of	Shares	Purchased |  | Average	Price	Paid |
| :--- | :--- | :--- | :--- | :--- |
|  | 2011 | 2010 | 2011 | 2010 |
| First\tquarter | 2,636,178 | \t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t- | \t\t$\t\t\t\t\t\t94.10 | \t\t$- |
| Second\tquarter | 3,576,399 | 6,496,400 | 100.75 | 71.74 |
| Third\tquarter | 4,681,535 | 7,643,400 | 91.45 | 73.19 |
| Fourth\tquarter | 3,885,658 | 2,500,596 | 98.16 | 89.39 |
| Total | 14,779,770 | 16,640,396 | \t\t$95.94 | \t\t$75.06 |
| Remaining\tnumber\tof\tshares\tthat\tmay\tyet\tbe\trepurchased |  |  |  | \t\t\t\t27,856,408 |

# 19.	Selected	Quarterly	Data	(Unaudited)

# Millions,	Except	Per	Share	Amounts

| 2011 | Mar.	31 | Jun.	30 | Sep.	30 | Dec.	31 |
| :--- | :--- | :--- | :--- | :--- |
| Operating\trevenues | \t\t $\t\t\t\t4,490\t\t\t\t $\t\t\t\t4,858\t\t\t\t $\t\t\t\t5,101\t\t\t\t $\t\t\t\t5,108 | \t\t $\t\t\t\t4,490\t\t\t\t $\t\t\t\t4,858\t\t\t\t $\t\t\t\t5,101\t\t\t\t $\t\t\t\t5,108 | \t\t $\t\t\t\t4,490\t\t\t\t $\t\t\t\t4,858\t\t\t\t $\t\t\t\t5,101\t\t\t\t $\t\t\t\t5,108 | \t\t $\t\t\t\t4,490\t\t\t\t $\t\t\t\t4,858\t\t\t\t $\t\t\t\t5,101\t\t\t\t $\t\t\t\t5,108 |
| Operating\tincome | 1,137 | 1,392 | 1,578 | 1,617 |
| Net\tincome | 639 | 785 | 904 | 964 |
| Net\tincome\tper\tshare: |  |  |  |  |
| Basic | 1.31 | 1.61 | 1.87 | 2.01 |
| Diluted | 1.29 | 1.59 | 1.85 | 1.99 |

| 2010 | Mar.	31 | Jun.	30 | Sep.	30 | Dec.	31 |
| :--- | :--- | :--- | :--- | :--- |
| Operating\trevenues | \t\t $3,965\t\t\t\t $ | 4,182\t\t\t\t $ | 4,408\t\t\t\t $ | 4,410 |
| Operating\tincome | 988 | 1,279 | 1,401 | 1,313 |
| Net\tincome | 516 | 711 | 778 | 775 |
| Net\tincome\tper\tshare: |  |  |  |  |
| Basic | 1.02 | 1.42 | 1.58 | 1.58 |
| Diluted | 1.01 | 1.40 | 1.56 | 1.56 |

# Item	9.	Changes	in	and	Disagreements	with	Accountants	on	Accounting	and	Financial	Disclosure

# Item		9A.	Controls	and	Procedures

As	of	the	end	of	the	period	covered	by	this	report,	the	Corporation	carried	out	an	evaluation,	under	the	supervision	and	with	the	participation	of	the Corporation's	management,	including	the	Corporation's	Chief	Executive	Officer	(CEO)	and	Executive	Vice	President	–	Finance	and	Chief	Financial Officer	(CFO),	of	the	effectiveness	of	the	design	and	operation	of	the	Corporation's	disclosure	controls	and	procedures	pursuant	to	Exchange	Act	Rules 13a-15	and	15d-15.	In	designing	and	evaluating	the	disclosure	controls	and	procedures,	management	recognized	that	any	controls	and	procedures,	no matter	how	well	designed	and	operated,	can	provide	only	reasonable	assurance	of	achieving	the	desired	control	objectives.	Based	upon	that	evaluation, the	CEO	and	the	CFO	concluded	that,	as	of	the	end	of	the	period	covered	by	this	report,	the	Corporation's	disclosure	controls	and	procedures	were effective	to	provide	reasonable	assurance	that	information	required	to	be	disclosed	in	our	Exchange	Act	reports	is	recorded,	processed,	summarized	and reported	within	the	time	periods	specified	by	the	SEC,	and	that	such	information	is	accumulated	and	communicated	to	management,	including	the	CEO and	CFO,	as	appropriate,	to	allow	timely	decisions	regarding	required	disclosure.

Additionally,	 the	CEO	and	CFO	determined	 that	 there	were	no	changes	 to	 the	Corporation's	 internal	control	over	 financial	reporting	(as	defined	 in Exchange	Act	Rules	13a-15(f)	and	15d-15(f))	during	 the	 last	 fiscal	quarter	 that	materially	affected,	or	are	reasonably	 likely	 to	materially	affect,	 the Corporation's	internal	control	over	financial	reporting.

# MANAGEMENT'S	ANNUAL	REPORT	ON	INTERNAL	CONTROL	OVER	FINANCIAL	REPORTING

The	management	of	Union	Pacific	Corporation	and	Subsidiary	Companies	(the	Corporation)	is	responsible	for	establishing	and	maintaining	adequate internal	control	over	 financial	reporting	(as	defined	 in	Exchange	Act	Rules	13a-15(f)	and	15d-15(f)).	The	Corporation's	 internal	control	system	was designed	to	provide	reasonable	assurance	to	the	Corporation's	management	and	Board	of	Directors	regarding	the	preparation	and	fair	presentation	of published	financial	statements.

All	internal	control	systems,	no	matter	how	well	designed,	have	inherent	limitations.	Therefore,	even	those	systems	determined	to	be	effective	can provide	only	reasonable	assurance	with	respect	to	financial	statement	preparation	and	presentation.

The	Corporation's	management	assessed	the	effectiveness	of	the	Corporation's	internal	control	over	financial	reporting	as	of	December	31,	2011.	In making	this	assessment,	it	used	the	criteria	set	forth	by	the	Committee	of	Sponsoring	Organizations	of	the	Treadway	Commission	(COSO)	in	Internal Control	–	Integrated	Framework.	Based	on	our	assessment,	management	believes	that,	as	of	December	31,	2011,	the	Corporation's	internal	control	over financial	reporting	is	effective	based	on	those	criteria.

The	Corporation's	independent	registered	public	accounting	firm	has	issued	an	attestation	report	on	the	effectiveness	of	the	Corporation's	internal	control over	financial	reporting.	This	report	appears	on	the	next	page.

We	 have	 audited	 the	 internal	 control	 over	 financial	 reporting	 of	 Union	 Pacific	 Corporation	 and	 Subsidiary	 Companies	 (the	 Corporation)	 as	 of December	31,	2011,	based	on	criteria	established	in	Internal	Control	—	Integrated	Framework	issued	by	the	Committee	of	Sponsoring	Organizations	of the	Treadway	Commission.	The	Corporation's	management	is	responsible	for	maintaining	effective	internal	control	over	financial	reporting	and	for	its assessment	of	the	effectiveness	of	internal	control	over	financial	reporting,	included	in	the	accompanying	Management's	Annual	Report	on	Internal Control	Over	Financial	Reporting.	Our	responsibility	is	to	express	an	opinion	on	the	Corporation's	internal	control	over	financial	reporting	based	on	our audit.

We	conducted	our	audit	in	accordance	with	the	standards	of	the	Public	Company	Accounting	Oversight	Board	(United	States).	Those	standards	require that	we	plan	and	perform	the	audit	to	obtain	reasonable	assurance	about	whether	effective	internal	control	over	financial	reporting	was	maintained	in	all material	respects.	Our	audit	included	obtaining	an	understanding	of	internal	control	over	financial	reporting,	assessing	the	risk	that	a	material	weakness exists,	 testing	 and	 evaluating	 the	 design	 and	 operating	 effectiveness	 of	 internal	 control	 based	 on	 the	 assessed	 risk,	 and	 performing	 such	 other procedures	as	we	considered	necessary	in	the	circumstances.	We	believe	that	our	audit	provides	a	reasonable	basis	for	our	opinion.

A	company's	internal	control	over	financial	reporting	is	a	process	designed	by,	or	under	the	supervision	of,	the	company's	principal	executive	and principal	financial	officers,	or	persons	performing	similar	functions,	and	effected	by	the	company's	board	of	directors,	management,	and	other	personnel to	provide	reasonable	assurance	regarding	 the	reliability	of	 financial	reporting	and	 the	preparation	of	 financial	statements	 for	external	purposes	 in accordance	with	generally	accepted	accounting	principles.	A	company's	internal	control	over	financial	reporting	includes	those	policies	and	procedures that	(1)	pertain	to	the	maintenance	of	records	that,	in	reasonable	detail,	accurately	and	fairly	reflect	the	transactions	and	dispositions	of	the	assets	of	the company;	(2)	provide	reasonable	assurance	that	transactions	are	recorded	as	necessary	to	permit	preparation	of	financial	statements	in	accordance	with generally	accepted	accounting	principles,	and	that	receipts	and	expenditures	of	the	company	are	being	made	only	in	accordance	with	authorizations	of management	and	directors	of	the	company;	and	(3)	provide	reasonable	assurance	regarding	prevention	or	timely	detection	of	unauthorized	acquisition, use,	or	disposition	of	the	company's	assets	that	could	have	a	material	effect	on	the	financial	statements.

Because	of	the	inherent	limitations	of	internal	control	over	financial	reporting,	including	the	possibility	of	collusion	or	improper	management	override	of controls,	material	misstatements	due	to	error	or	fraud	may	not	be	prevented	or	detected	on	a	timely	basis.	Also,	projections	of	any	evaluation	of	the effectiveness	of	the	internal	control	over	financial	reporting	to	future	periods	are	subject	to	the	risk	that	the	controls	may	become	inadequate	because	of changes	in	conditions,	or	that	the	degree	of	compliance	with	the	policies	or	procedures	may	deteriorate.

In	our	opinion,	the	Corporation	maintained,	in	all	material	respects,	effective	internal	control	over	financial	reporting	as	of	December	31,	2011,	based	on the	criteria	established	in	Internal	Control	—	Integrated	Framework	issued	by	the	Committee	of	Sponsoring	Organizations	of	the	Treadway	Commission.

We	have	also	audited,	in	accordance	with	the	standards	of	the	Public	Company	Accounting	Oversight	Board	(United	States),	the	consolidated	financial statements	and	financial	statement	schedule	as	of	and	for	the	year	ended	December	31,	2011	of	the	Corporation	and	our	report	dated	February	3,	2012 expressed	an	unqualified	opinion	on	those	financial	statements	and	financial	statement	schedule.

# Item	9B.	Other	Information

# PART	III

# Item	10.	Directors,	Executive	Officers,	and	Corporate	Governance

# (a) Directors	of	Registrant.

Information	as	to	the	names,	ages,	positions	and	offices	with	UPC,	terms	of	office,	periods	of	service,	business	experience	during	the	past	five years	and	certain	other	directorships	held	by	each	director	or	person	nominated	to	become	a	director	of	UPC	is	set	forth	in	the	Election	of	Directors segment	of	the	Proxy	Statement	and	is	incorporated	herein	by	reference.

Information	concerning	our	Audit	Committee	and	the	independence	of	its	members,	along	with	information	about	the	audit	committee	financial expert(s)	serving	on	the	Audit	Committee,	is	set	forth	in	the	Audit	Committee	segment	of	the	Proxy	Statement	and	is	incorporated	herein	by reference.

# (b) Executive	Officers	of	Registrant.

Information	concerning	the	executive	officers	of	UPC	and	its	subsidiaries	is	presented	in	Part	I	of	this	report	under	Executive	Officers	of	the Registrant	and	Principal	Executive	Officers	of	Subsidiaries.

# (c) Section	16(a)	Compliance.

Information	concerning	compliance	with	Section	16(a)	of	the	Securities	Exchange	Act	of	1934	is	set	forth	in	the	Section	16(a)	Beneficial	Ownership Reporting	Compliance	segment	of	the	Proxy	Statement	and	is	incorporated	herein	by	reference.

(d) Code	of	Ethics	for	Chief	Executive	Officer	and	Senior	Financial	Officers	of	Registrant.

The	Board	of	Directors	of	UPC	has	adopted	the	UPC	Code	of	Ethics	for	the	Chief	Executive	Officer	and	Senior	Financial	Officers	(the	Code).	A copy	of	the	Code	may	be	found	on	the	Internet	at	our	website	www.up.com/investors/governance.	We	intend	to	disclose	any	amendments	to	the Code	or	any	waiver	from	a	provision	of	the	Code	on	our	website.

# Item	11.	Executive	Compensation

Information	concerning	compensation	received	by	our	directors	and	our	named	executive	officers	is	presented	in	the	Compensation	Discussion	and Analysis,	Summary	Compensation	Table,	Grants	of	Plan-Based	Awards	 in	Fiscal	Year	2011,	Outstanding	Equity	Awards	at	2011	Fiscal	Year-End, Option	Exercises	and	Stock	Vested	in	Fiscal	Year	2011,	Pension	Benefits	at	2011	Fiscal	Year-End,	Nonqualified	Deferred	Compensation	at	2011	Fiscal Year-End,	Potential	Payments	Upon	Termination	or	Change	in	Control	and	Director	Compensation	in	Fiscal	Year	2011	segments	of	the	Proxy	Statement and	is	incorporated	herein	by	reference.	Additional	information	regarding	compensation	of	directors,	including	Board	committee	members,	is	set	forth	in the	By-Laws	of	UPC	and	the	Stock	Unit	Grant	and	Deferred	Compensation	Plan	for	the	Board	of	Directors,	both	of	which	are	included	as	exhibits	to	this report.	Information	regarding	the	Compensation	and	Benefits	Committee	is	set	forth	in	the	Compensation	Committee	Interlocks	and	Insider	Participation and	Compensation	Committee	Report	segments	of	the	Proxy	Statement	and	is	incorporated	herein	by	reference.

# Item	12.	Security	Ownership	of	Certain	Beneficial	Owners	and	Management	and	Related	Stockholder	Matters

Information	as	 to	 the	number	of	shares	of	our	equity	securities	beneficially	owned	by	each	of	our	directors	and	nominees	 for	director,	our	named executive	officers,	our	directors	and	executive	officers	as	a	group,	and	certain	beneficial	owners	 is	set	 forth	 in	 the	Security	Ownership	of	Certain Beneficial	Owners	and	Management	segment	of	the	Proxy	Statement	and	is	incorporated	herein	by	reference.

The	following	table	summarizes	the	equity	compensation	plans	under	which	UPC	common	stock	may	be	issued	as	of	December	31,	2011:

|  | Number	of	securities |  | future	issuance	under |
| :--- | :--- | :--- | :--- |
|  | to\tbe\tissued\tupon | Weighted-average | equity\tcompensation |
|  | exercise\tof | exercise\tprice\tof | plans\t(excluding |
|  | outstanding\toptions, | outstanding\toptions, | securities\treflected\tin |
| Plan\tCategory | warrants\tand\trights | warrants\tand\t\trights | column\t(a)) |
| Equity\tcompensation\tplans\tapproved |  |  |  |
| by\tsecurity\tholders | 8,826,830\t\t\t\t[1] | $52.15\t\t\t\t[2] | 32,374,343 |
| Total | 8,826,830\t\t\t\t\t\t\t\t\t\t\t\t\t$ | 52.15 | 32,374,343 |

[1] Includes	1,785,213	retention	units	that	do	not	have	an	exercise	price.	Does	not	include	2,000,187	retention	shares	that	have	been	issued	and	are	outstanding.

[2] Does	not	include	the	retention	units	or	retention	shares	described	above	in	footnote	1.

# Item	13.	Certain	Relationships	and	Related	Transactions	and	Director	Independence

Information	on	related	transactions	is	set	forth	in	the	Certain	Relationships	and	Related	Transactions	and	Compensation	Committee	Interlocks	and Insider	Participation	segments	of	the	Proxy	Statement	and	is	incorporated	herein	by	reference.	We	do	not	have	any	relationship	with	any	outside	third party	that	would	enable	such	a	party	to	negotiate	terms	of	a	material	transaction	that	may	not	be	available	to,	or	available	from,	other	parties	on	an	arm's- length	basis.

Information	regarding	the	independence	of	our	directors	is	set	forth	in	the	Director	Independence	segment	of	the	Proxy	Statement	and	is	incorporated herein	by	reference.

# Item		14.	Principal	Accountant	Fees	and	Services

Information	concerning	the	fees	billed	by	our	independent	registered	public	accounting	firm	and	the	nature	of	services	comprising	the	fees	for	each	of	the two	most	recent	fiscal	years	in	each	of	the	following	categories:	(i)	audit	fees,	(ii)	audit-related	fees,	(iii)	tax	fees,	and	(iv)	all	other	fees,	is	set	forth	in	the Independent	Registered	Public	Accounting	Firm's	Fees	and	Services	segment	of	the	Proxy	Statement	and	is	incorporated	herein	by	reference.

Information	 concerning	 our	Audit	 Committee's	 policies	 and	 procedures	 pertaining	 to	 pre-approval	 of	 audit	 and	 non-audit	 services	 rendered	 by	 our independent	 registered	 public	 accounting	 firm	 is	 set	 forth	 in	 the	Audit	 Committee	 segment	 of	 the	 Proxy	 Statement	 and	 is	 incorporated	 herein	 by reference.

# PART	IV

# Item	15.	Exhibits,	Financial	Statement	Schedules

(a) Financial	Statements,	Financial	Statement	Schedules,	and	Exhibits:

# (1) Financial	Statements

The	financial	statements	filed	as	part	of	this	filing	are	listed	on	the	index	to	the	Financial	Statements	and	Supplementary	Data,	Item	8,	on page	50.

# (2) Financial	Statement	Schedules

# Schedule	II	-	Valuation	and	Qualifying	Accounts

Schedules	not	listed	above	have	been	omitted	because	they	are	not	applicable	or	not	required	or	the	information	required	to	be	set	forth therein	is	included	in	the	Financial	Statements	and	Supplementary	Data,	Item	8,	or	notes	thereto.

# (3) Exhibits

Exhibits	 are	 listed	 in	 the	 exhibit	 index	 beginning	 on	 page	 92.	 The	 exhibits	 include	 management	 contracts,	 compensatory	 plans	 and arrangements	required	to	be	filed	as	exhibits	to	the	Form	10-K	by	Item	601	(10)	(iii)	of	Regulation	S-K.

# SIGNATURES

Pursuant	to	the	requirements	of	Section	13	or	15(d)	of	the	Securities	Exchange	Act	of	1934,	the	registrant	has	duly	caused	this	report	to	be	signed	on	its behalf	by	the	undersigned,	thereunto	duly	authorized,	on	this	3 	day	of	February,	2012. rd

# 						Chairman,	President,	Chief

# 						Executive	Officer,	and	Director

Pursuant	to	the	requirements	of	the	Securities	Exchange	Act	of	1934,	this	report	has	been	signed	below,	on	this	3 	day	of	February,	2012,	by	the following	persons	on	behalf	of	the	registrant	and	in	the	capacities	indicated. rd

# PRINCIPAL	EXECUTIVE	OFFICER

# DIRECTORS:

Andrew	H.	Card,	Jr.* Erroll	B.	Davis,	Jr.* Thomas	J.	Donohue* Archie	W.	Dunham* Judith	Richards	Hope*

| Millions,	for	the	Years	Ended	December	31, | 2011 | 2010 | 2009 |
| :--- | :--- | :--- | :--- |
| Allowance\tfor\tdoubtful\taccounts: |  |  |  |
| Balance,\tbeginning\tof\tperiod | \t\t $56 | \t\t $70 | \t\t $105 |
| Charges/(reduction)\tto\texpense | – | (6) | 2 |
| Net\trecoveries/(write-offs) | (6) | (8) | (37) |
| Balance,\tend\tof\tperiod | \t\t $50 | \t\t $56 | \t\t $70 |
| Allowance\tfor\tdoubtful\taccounts\tare\tpresented\tin\tthe |  |  |  |
| Consolidated\tStatements\tof\tFinancial\tPosition\tas\tfollows: |  |  |  |
| Current | \t\t $9 | \t\t $5 | \t\t $3 |
| Long-term | 41 | 51 | 67 |
| Balance,\tend\tof\tperiod | \t\t $50 | \t\t $56 | \t\t $70 |
| Accrued\tcasualty\tcosts: |  |  |  |
| Balance,\tbeginning\tof\tperiod | \t\t $\t\t\t\t\t\t905 | \t\t $\t\t\t\t1,086 | \t\t $\t\t\t\t1,206 |
| Charges\tto\texpense | 110 | 186 | 199 |
| Cash\tpayments\tand\tother\treductions | (237) | (367) | (319) |
| Balance,\tend\tof\tperiod | \t\t $778 | \t\t $905 | \t\t $1,086 |
| Accrued\tcasualty\tcosts\tare\tpresented\tin\tthe |  |  |  |
| Consolidated\tStatements\tof\tFinancial\tPosition\tas\tfollows: |  |  |  |
| Current | \t\t $249 | \t\t $325 | \t\t $379 |
| Long-term | 529 | 580 | 707 |
| Balance,\tend\tof\tperiod | \t\t $778 | \t\t $905 | \t\t $1,086 |

# Exhibit	Index

101 eXtensible	 Business	 Reporting	 Language	 (XBRL)	 documents	 submitted	 electronically: 101.INS (XBRL	 Instance Document), 101.SCH (XBRL	 Taxonomy	 Extension	 Schema	 Document), 101.CAL (XBRL	 Calculation	 Linkbase Document),	 101.LAB	 (XBRL	Taxonomy	 Label	 Linkbase	 Document),	 101.DEF	 (XBRL	Taxonomy	 Definition	 Linkbase Document)	 and	 101.PRE	 (XBRL	 Taxonomy	 Presentation	 Linkbase	 Document).	 The	 following	 financial	 and	 related information	from	Union	Pacific	Corporation's	Annual	Report	on	Form	10-K	for	the	year	ended	December	31,	2011	(filed with	 the	 SEC	 on	 February	 3,	 2012),	 is	 formatted	 in	 XBRL	 and	 submitted	 electronically	 herewith:	 (i)	 Consolidated Statements	 of	 Income	 for	 the	 years	 ended	 December	 31,	 2011,	 2010	 and	 2009,	 (ii)	 Consolidated	 Statements	 of Financial	Position	at	December	31,	2011	and	December	31,	2010,	(iii)	Consolidated	Statements	of	Cash	Flows	for	the years	ended	December	31,	2011,	2010	and	2009,	(iv)	Consolidated	Statements	of	Changes	in	Common	Shareholders' Equity	 for	 the	 years	 ended	 December	 31,	 2011,	 2010	 and	 2009,	 and	 (v)	 the	 Notes	 to	 the	 Consolidated	 Financial Statements.

# Incorporated	by	Reference

Restated	Articles	of	Incorporation	of	UPC,	as	amended	and	restated	through	June	27,	2011,	are	incorporated	herein	by reference	to	Exhibit	3(a)	to	the	Corporation's	Quarterly	Report	on	Form	10-Q	for	the	quarter	ended	June	30,	2011.

3(b) By-Laws	 of	 UPC,	 as	 amended,	 effective	 May	 14,	 2009,	 are incorporated	 herein	 by reference to	 Exhibit	 3.2 to the Corporation's	Current	Report	on	Form	8-K	dated	May	15,	2009. 4(a) Indenture,	dated	as	of	December	20,	1996,	between	UPC	and	Wells	Fargo	Bank,	National	Association,	as	successor	to Citibank,	N.A.,	as	Trustee,	is	incorporated	herein	by	reference	to	Exhibit	4.1	to	UPC's	Registration	Statement	on	Form	S- 3	(No.	333-18345).

Certain	instruments	evidencing	long-term	indebtedness	of	UPC	are	not	filed	as	exhibits	because	the	total	amount	of securities	authorized	under	any	single	such	instrument	does	not	exceed	10%	of	the	Corporation's	total	consolidated assets.	UPC	agrees	to	furnish	the	Commission	with	a	copy	of	any	such	instrument	upon	request	by	the	Commission.

10(u) The	 Pension	 Plan	 for	 Non-Employee	 Directors	 of	 UPC,	 as	 amended	 January	 25,	 1996,	 is	 incorporated	 herein	 by reference	to	Exhibit	10(w)	to	the	Corporation's	Annual	Report	on	Form	10-K	for	the	year	ended	December	31,	1995.

10(x) Form	 of	 2009	 Long	 Term	 Plan	 Stock	 Unit	 Agreement	 is	 incorporated	 herein	 by reference to	 Exhibit	 10(a) to the Corporation's	Annual	Report	on	Form	10-K	for	the	year	ended	December	31,	2008.

10(y) Form	 of	 2010	 Long	 Term	 Plan	 Stock	 Unit	 Agreement	 is	 incorporated	 herein	 by reference to	 Exhibit	 10(a) to the Corporation's	Annual	Report	on	Form	10-K	for	the	year	ended	December	31,	2009.



Question: what was the percentage change in free cash flow from 2001 to 2011?
Answer: 35%