# 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,	2009

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

# 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)

(I.R.S.	Employer

Identification	No.)

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:

¡ 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.

¡ 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.

Large	accelerated	filer	þ					Accelerated	filer	¨					Non-accelerated	filer	¨					Smaller	reporting	company	¨

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

As	of	June	30,	2009,	the	aggregate	market	value	of	the	registrant's	Common	Stock	held	by	non-affiliates	(using	the	New	York	Stock	Exchange	closing	price)	was	$28.7 billion.

The	number	of	shares	outstanding	of	the	registrant's	Common	Stock	as	of	January	29,	2010	was	505,286,368.

Documents	Incorporated	by	Reference	–	Portions	of	the	registrant's	definitive	Proxy	Statement	for	the	Annual	Meeting	of	Shareholders	to	be	held	on	May	6,	2010, 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.

	 Certifications

# Fellow	Shareholders:

My	message	to	you	this	year	is	one	of	pride	in	what	your	company	has	achieved	and	optimism	for	what	lies	ahead.	Through	the	hard	work	and	dedication	of	our employees,	we	not	only	survived	the	worst	economic	downturn	since	the	Great	Depression,	but	came	through	it	a	stronger	company	well	positioned	for	future	success.

As	the	year	unfolded,	we	were	hoping	for	the	best,	but	planning	for	the	worst.	When	the	economy	continued	to	falter,	we	adapted	and	responded	with	a	continued	focus on	safety,	service,	innovative	approaches	to	productivity,	relentless	cost	control,	new	product	offerings,	and	disciplined	cash	management.	The	result	was	the	second highest	EPS	on	record,	an	all-time	low	operating	ratio,	a	strong	balance	sheet,	and	best-ever	performance	levels	in	safety	and	service.

Throughout	it	all,	we	never	lost	sight	of	the	important	role	Union	Pacific	plays	in	our	Nation's	economy.	Customers	struggling	with	declining	markets	sought	more economical	alternatives	to	ship	their	products,	and	we	were	there	to	provide	cost	effective,	energy	efficient,	and	environmentally	sound	transportation	solutions.	These are	the	hallmarks	of	the	U.S.	rail	system,	which	is	the	best	in	the	world	and	a	critical	part	of	our	country's	future	economic	growth	and	global	competitiveness.

As	our	Nation's	political	leaders	struggled	with	the	significant	challenges	of	restoring	economic	growth,	the	need	to	improve	America's	infrastructure	became	more	and more	obvious.	Most	of	these	leaders	recognize	the	need	for	a	healthy	freight	rail	system,	and	we	have	worked	hard	to	help	them	keep	this	a	national	priority.

The	next	several	years	should	bring	tremendous	opportunity	to	our	company.	Our	balance	of	international	and	domestic	business	gives	us	an	ability	to	be	a	part	of	any economic	growth,	regardless	of	where	it	starts	and	how	it	develops.	Business	levels	will	recover,	and	when	they	do,	we	have	the	operating	leverage	to	handle	that growth.

Perhaps	not	since	the	original	construction	of	Union	Pacific,	connecting	this	country	from	east	to	west,	have	we	been	better	positioned	to	fulfill	our	role	of	Building America.	Our	employees	embrace	this	role	and	know	that	their	economic	well-being	is	linked	to	the	company's	success.	Our	service	now	differentiates	us,	and	our franchise	is	unparalleled	and	cannot	be	replicated.	Our	core	strategy	of	safety,	service	and	value	is	sound	and	proven.	We	will	continue	to	invest	wisely	in	support	of	our strategy,	and	to	capitalize	on	opportunities	for	growth	driven	by	the	cost,	energy	and	environmental	advantages	of	rail.

Over	the	past	decade	and	a	half,	Union	Pacific	has	on	average	produced	double-digit	total	annual	returns	to	our	shareholders	that	have	outperformed	the	S&P	500. Opportunities	lie	ahead	to	continue	creating	significant	value	for	our	shareholders,	customers	and	country.	Together,	the	thousands	of	men	and	women	who	make	this company	great	stand	ready	to	seize	the	moment	and	make	it	even	greater.

Chairman,	President	and

Chief	Executive	Officer

# DIRECTORS	AND	SENIOR	MANAGEMENT

# BOARD	OF	DIRECTORS

# Andrew	H.	Card,	Jr.

Consultant	and	Professional Speaker Board	Committees:	Audit,	Finance

# Erroll	B.	Davis,	Jr.

# Chancellor

University	System	of	Georgia Board	Committees:	Compensation and	Benefits,	Corporate	Governance and	Nominating

# Thomas	J.	Donohue

President	and Chief	Executive	Officer U.S.	Chamber	of	Commerce Board	Committees:	Compensation and	Benefits	(Chair),	Corporate Governance	and	Nominating

# Archie	W.	Dunham

Retired	Chairman ConocoPhillips Board	Committees:	Finance	(Chair), Corporate	Governance	and Nominating

# SENIOR	MANAGEMENT

James	R.	Young Chairman,	President	and Chief	Executive	Officer

Union	Pacific	Corporation	and

Union	Pacific	Railroad	Company

# Dennis	J.	Duffy

Vice	Chairman–Operations

Charles	R.	Eisele

Senior	Vice	President–Strategic

Planning

# Bernard	R.	Gutschewski

Vice	President–Taxes

J.	Michael	Hemmer

Senior	Vice	President–Law and	General	Counsel Union	Pacific	Corporation

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. Former	Commandant	of	the United	States	Marine	Corps 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, Compensation	and	Benefits

Mary	Sanders	Jones

Vice	President	and	Treasurer Union	Pacific	Corporation

Robert	M.	Knight,	Jr.

Executive	Vice	President–Finance and	Chief	Financial	Officer

# John	J.	Koraleski

Executive	Vice	President–

Marketing	and	Sales

Richard	R.	McClish

Vice	President–Continuous

Improvement

Joseph	E.	O'Connor,	Jr.

Vice	President–Purchasing Union	Pacific	Railroad	Company

Michael	A.	Rock Vice	President–External	Relations 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 Board	Committees:	Corporate Governance	and	Nominating	(Chair), Compensation	and	Benefits

Jose	H.	Villarreal

Advisor Akin,	Gump,	Strauss,	Hauer	&	Feld, LLP Board	Committees:	Corporate Governance	and	Nominating,	Finance

# James	R.	Young

Chairman,	President	and Chief	Executive	Officer Union	Pacific	Corporation	and Union	Pacific	Railroad	Company

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

Robert	W.	Turner

Senior	Vice	President– Corporate	Relations

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	and	provides	Americans	with	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	for	our	2009	Annual	Report	on	Form	10-K and	our	2009	Quarterly	Reports	on	Form	10-Q	for	the	second	and	third	quarters;	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	United	States.	We	have approximately	32,094	route	miles,	linking	Pacific	Coast	and	Gulf	Coast	ports	with	the Midwest	and	eastern	United	States	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,	and	food.	The	transportation	of	finished	vehicles	and intermodal	containers	is	part	of	our	premium	business.	In	2009,	we	generated	freight revenues	totaling	$13.4	billion	from	the	following	six	commodity	groups:

# 2009	Freight	Revenue

Agricultural	–	Transporting	agricultural	products,	including	whole	grains,	commodities	produced	from	these	grains,	and	food	and	beverage	products,	provided	20%	of our	2009	freight	revenues.	With	access	to	most	major	grain	markets,	we	provide	a	critical	link	between	the	Midwest	and	western	producing	areas	and	export	terminals	in the	Pacific	Northwest	(the	PNW)	and	Gulf	ports,	as	well	as	Mexico.	Unit	trains	of	grain	efficiently	shuttle	between	producers	and	export	terminals	or	domestic	markets. We	also	serve	significant	domestic	markets,	including	grain	processors,	animal	feeders,	and	ethanol	producers	in	the	Midwest,	West,	South,	and	Rocky	Mountain	states. Primary	food	commodities	consist	of	a	variety	of	fresh	and	frozen	fruits	and	vegetables,	dairy	products,	and	beverages,	which	are	moved	to	major	U.S.	population centers	for	distribution	and	consumption.	Express	Lane	and	Produce	Unit	Train	compete	with	the	trucking	industry	by	providing	premium	perishable	services	that	move fruits	and	vegetables	from	the	PNW	and	California	to	destinations	in	the	East.	We	transport	frozen	meat	and	poultry	to	the	West	Coast	ports	for	export,	while	beverages, primarily	beer,	enter	the	U.S.	from	Mexico.

Automotive	–	We	are	the	largest	automotive	carrier	west	of	the	Mississippi	River,	serving	vehicle	assembly	plants	and	distributing	imported	vehicles	from	six	West Coast	ports	and	Houston.	We	off-load	finished	vehicles	at	38	vehicle	distribution	centers	for	delivery	by	truck	to	all	major	western	U.S.	cities.	In	addition	to	transporting finished	vehicles,	we	provide	expedited	handling	of	automotive	parts	in	both	boxcars	and	intermodal	containers	to	several	assembly	plants.	We	carry	automotive materials	bound	for	assembly	plants	in	Mexico,	the	U.S.,	and	Canada,	and	we	also	transport	finished	vehicles	from

manufacturing	facilities	in	Canada	and	Mexico.	In	2009,	transportation	of	finished	vehicles	and	automotive	materials	accounted	for	6%	of	our	freight	revenues.

Chemicals	–	Transporting	chemicals	provided	16%	of	our	freight	revenues	in	2009.	Our	franchise	enables	us	to	serve	the	chemical	producing	areas	along	the	Gulf	Coast, as	well	as	the	Rocky	Mountain	region.	Two-thirds	of	the	chemicals	business	consists	of	industrial	chemicals,	plastics,	and	liquid	petroleum	products.	In	addition	to transporting	plastics,	customers	also	use	our	storage-in-transit	yards	for	intermediate	storage	of	plastic	resins.	Soda	ash	shipments	originate	in	southwestern	Wyoming and	California	destined	primarily	for	glass	producing	markets	in	the	East,	the	West,	and	abroad.	Fertilizer	movements	originate	primarily	in	the	Gulf	Coast	region,	as well	as	the	West	and	Canada,	bound	for	major	agricultural	users	in	the	Midwest	and	the	western	U.S.

Energy	–	Coal	transportation	accounted	for	23%	of	our	2009	freight	revenues.	Our	transportation	network	allows	us	to	transport	coal	and	coke	to	utilities,	industrial facilities,	interchange	points,	and	water	terminals.	The	water	terminals	provide	access	to	the	West	and	Gulf	Coasts	for	export,	and	rail/barge	interchange	facilities	on	the Mississippi	and	Ohio	Rivers	and	the	Great	Lakes.	We	serve	mines	located	in	 the	Southern	Powder	River	Basin	of	Wyoming	(SPRB),	Colorado,	Utah,	southern Wyoming,	and	southern	Illinois.	SPRB	coal	represents	the	largest	growth	segment	of	the	market,	as	utilities	continue	to	favor	its	lower	cost	and	low-sulfur	content.

Industrial	Products	–	Our	extensive	network	enables	us	to	move	numerous	commodities	between	thousands	of	origin	and	destination	points	throughout	North	America. Lumber	shipments	originate	primarily	in	the	PNW	and	Canada	for	destinations	throughout	the	United	States	for	new	home	construction	and	repair	and	remodeling. Commercial	and	highway	construction	drives	shipments	of	steel	and	construction	products,	consisting	of	rock,	cement,	and	roofing	materials.	Paper	and	consumer goods,	including	furniture	and	appliances,	are	shipped	to	major	metropolitan	areas	for	consumers.	Nonferrous	metals	and	industrial	minerals	are	moved	for	industrial manufacturing.	In	addition,	we	provide	efficient	and	safe	transportation	for	government	entities	and	waste	companies.	In	2009,	transporting	industrial	products	provided 16%	of	our	freight	revenues.

Intermodal	–	Our	intermodal	business,	which	represented	19%	of	our	freight	revenues	in	2009,	includes	international	and	domestic	shipments.	International	business consists	of	imported	or	exported	container	traffic	that	arrives	at,	or	departs	from,	West	Coast	ports	via	ocean	vessel.	Domestic	business	includes	domestic	container	and trailer	traffic	for	major	retailers	and	other	U.S.	businesses	that	is	sold	through	intermodal	marketing	companies	(primarily	shipper	agents	and	consolidators)	and truckload	carriers.

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	of	agricultural	products.	In	response	 to	an	annual	request	delivered	by	 the	Surface	Transportation	Board	(STB)	of	 the	United	States Department	of	Transportation	(DOT)	to	all	of	the	Class	I	railroads	operating	in	the	U.S.,	we	issue	a	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,	2009,	we	had	a	working	capital	surplus,	which	reflects	our	decision	to	maintain	additional	cash	reserves	to	enhance	liquidity	in response	to	difficult	economic	conditions.	At	December	31,	2008,	we	had	a	working	capital	deficit.	Historically,	we	have	had	a	working	capital	deficit,	which	is common	in	our	industry	and	does	not	indicate	a	lack	of	liquidity.	We	maintain	adequate

resources	and,	when	necessary,	have	access	to	capital	to	meet	any	daily	and	short-term	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.

Equipment	Suppliers	–	We	depend	on	two	key	domestic	suppliers	of	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,	we	utilize	two	suppliers	of	rail	(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	85%	of	our	43,531	full-time-equivalent	employees	are	represented	by	14	major	rail	unions.	Current	labor	agreements	became	subject	to modification	on	January	1,	2010.	In	January	2010,	we	began	the	next	round	of	negotiations	with	the	unions.	Existing	agreements	remain	in	effect	and	will	continue	to remain	 in	 effect	 until	 new	 agreements	 are	 reached	 or	 the	 Railway	 Labor	Act's	 procedures	 (which	 include	 mediation,	 cooling-off	 periods,	 and	 the	 possibility	 of Presidential	intervention)	are	exhausted.	Contract	negotiations	with	the	various	unions	generally	take	place	over	an	extended	period	of	time,	and	we	rarely	experience work	stoppages	during	negotiations.

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	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	220	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	for	ways	to	increase	preparedness	and	to	improve	security.

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	near	high-risk	areas	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	(TSA)	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	(RSSM)	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.

Cooperation	 with	 Federal,	 State,	 and	 Local	 Government	 Agencies	–	We	work	closely	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	Justice	Department	and	the	Federal	Bureau	of	Investigation	to	combat	and	prevent	terrorism.

We	work	with	the	Coast	Guard,	U.S.	Customs	and	Border	Protection	(CBP,	formerly	the	U.S.	Customs	Service),	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	United	States	to	be	named	a	partner	in	CBP's Customs-Trade	Partnership	Against	Terrorism	(C-TPAT),	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	operations	of	the	Railroad	also	are	subject	to	the	regulations	of	the	FRA	and other	federal	and	state	agencies.	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.	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. We	expect	to	invest	approximately	$200	million	during	2010	in	the	development	of	PTC.	Additionally,	the

U.S.	Senate	will	consider	a	proposed	bill	in	2010	that	would	expand	the	regulatory	authority	of	the	STB	and	could	include	new	antitrust	provisions.	We	are	closely monitoring	this	proposed	legislation.

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,	movement	and	disposal	of	hazardous	waste,	emissions	requirements,	and	equipment	standards.	On	October	16,	2008,	President	Bush	signed	the Rail	Safety	Improvement	Act	of	2008	into	law,	which,	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	areas	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	15	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	Item	7,	Management's Discussion	and	Analysis	of	Financial	Condition	and	Results	of	Operations,	and	Item	8,	Financial	Statements	and	Supplementary	Data.

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	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,	and	costs	and	expenses. Significant	legislative	activity	in	Congress	could	expand	regulation	of	railroad	operations	and	prices	for	rail	services,	which	could	reduce	capital	spending	on	our	rail network,	facilities	and	equipment,	and	could	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.	In	addition	to	current	legislative	activity,	one	or	more	consolidations	of	Class	I	railroads	could	also	lead	to	increased	regulation	of	the	rail	industry.

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	results	of	operations, financial	condition,	and	liquidity.

We	Are	Required	to	Transport	Hazardous	Materials 	–	Federal	laws	require	railroads,	including	us,	to	transport	hazardous	materials	regardless	of	risk	or	potential exposure	of	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	certain	chlorine	compounds,	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	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	implement	new	technology,	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	we	experience	significant	disruption	or	failure	of	one	or	more	of	our	information	technology	systems,	including	computer	hardware,	software, and	communications	equipment,	we	could	experience	a	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.

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	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.

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.

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,	or	other	slowdowns	by	the	affected	workers.	If	unionized workers	were	to	engage	in	a	strike,	work	stoppage,	or	other	slowdown,	or	other	employees	were	to	become	unionized,	we	could	experience	a	significant	disruption	of our	operations	or	higher	ongoing	labor	costs,	either	of	which	could	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	and significantly	increase	our	costs	for	healthcare,	wages,	and	other	benefits,	which	could	have	a	material	adverse	impact	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.

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	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	sale	of	receivables	program	or	accessing	external	sources	of	short-	and	long-term	debt	financing	and significantly	increase	the	costs	associated	with	utilizing	a	sale	of	receivables	program	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.

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.

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	with	respect	to	locomotive	manufacturing.	Therefore,	if	one	of	these	domestic	suppliers	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	to	our operations.	Additionally,	we	utilize	two	suppliers	of	rail	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	approximately	32,094	route	miles.	We	own	26,223	miles	and	operate	on	the	remainder	pursuant	to	trackage	rights	or	leases.	The following	table	describes	track	miles	at	December	31,	2009	and	2008.

|  | 2009 | 2008 |
| :--- | :--- | :--- |
| Route | 32,094 | 32,012 |
| Other\tmain\tline | 6,584 | 6,510 |
| Passing\tlines\tand\tturnouts | 3,040 | 3,037 |
| Switching\tand\tclassification\tyard\tlines | 9,167 | 9,207 |
| Total\tmiles | 50,885 | 50,766 |

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.	The	HDC	moves	locomotives	and	trains,	manages	traffic	on	our	network,	and coordinates	interchanges	with	other	railroads.	Over	900	employees	currently	work	on-site	in	the	facility.

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;	dispatch	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:

|  |  | Annual	Lifts |
| :--- | :--- | :--- |
| Top\t10\tIntermodal\tTerminals | 2009 | 2008 |
| ICTF\t(Los\tAngeles),\tCalifornia | 453,000 | 619,000 |
| East\tLos\tAngeles,\tCalifornia | 372,000 | 383,000 |
| Global\tI\t(Chicago),\tIllinois | 306,000 | 291,000 |
| Global\tII\t(Chicago),\tIllinois | 284,000 | 299,000 |
| Marion\t(Memphis),\tTennessee | 265,000 | 360,000 |
| City\tof\tIndustry\t(Los\tAngeles),\tCalifornia | 254,000 | 206,000 |
| Lathrop\t(Stockton),\tCalifornia | 250,000 | 198,000 |
| Dallas,\tTexas | 233,000 | 294,000 |
| Oakland,\tCalifornia | 202,000 | 222,000 |
| Yard\tCenter\t(Chicago),\tIllinois | 199,000 | 227,000 |

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,	2009,	we	owned	or	leased	the	following units	of	equipment:

|  |  |  |  | Average |
| :--- | :--- | :--- | :--- | :--- |
| Locomotives | Owned | Leased | Total | Age\t(yrs.) |
| Road | 5,076 | 2,659 | 7,735 | 15.1 |
| Switching | 437 | 26 | 463 | 30.6 |
| Other | 97 | 55 | 152 | 22.4 |
| Total\tlocomotives | 5,610 | 2,740 | 8,350 | N/A |

|  |  |  |  | Average |
| :--- | :--- | :--- | :--- | :--- |
| Freight\tcars | Owned | Leased | Total | Age\t(yrs.) |
| Covered\thoppers | 12,764 | 20,024 | 32,788 | 30.1 |
| Open\thoppers | 12,615 | 4,936 | 17,551 | 30.2 |
| Gondolas | 6,730 | 6,374 | 13,104 | 27.3 |
| Boxcars | 5,891 | 2,312 | 8,203 | 27.1 |
| Refrigerated\tcars | 2,630 | 4,484 | 7,114 | 21.6 |
| Flat\tcars | 3,101 | 734 | 3,835 | 32.0 |
| Other | 104 | 498 | 602 | N/A |
| Total\tfreight\tcars | 43,835 | 39,362 | 83,197 | 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.

2009	Capital	Expenditures	–	During	2009,	we	made	capital	investments	totaling	$2.5	billion,	which	included	cash	spending	of	$2.4	billion	(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).	Our	capital	plan	 included the acquisition	of	127	locomotives	at	a	cost	of	$287	million.	We	financed	44	of	the	127	locomotives	with	a	value	of	$100	million	through	a	capital	lease	financing.

Infrastructure	Expansion	–	With	expected	long-term	growth	in	the	intermodal	market,	we	commenced	construction	of	a	new	intermodal	terminal	in	Joliet,	Illinois	in August	2009,	with	completion	of	the	initial	phase	scheduled	in	August	2010.	This	new	facility	will	support	customer	growth	by	increasing	the	Railroad's	international and	domestic	container	capacity	and	improving	rail	traffic	efficiencies	in	Chicago,	the	nation's	largest	rail	center.	Once	on	line,	customers	from	across	our	network	will benefit	from	the	Joliet	facility's	annual	capacity	of	500,000	ocean-going	containers.	The	integrated	facility	will	include	four	8,000-foot	working	tracks	plus	twelve 8,000-foot	support	tracks	to	stage	and	switch	rail	cars;	3,400	parking	stalls;	four	cranes;	an	advanced	yard	system	that	coordinates	all	movement	of	rail	cars,	trucks, trailers	and	containers	at	the	facility;	and	advanced	gate	technology	and	security	systems.

2010	Capital	Expenditures	–	In	2010,	we	expect	to	make	capital	investments	of	approximately	$2.5	billion,	including	expenditures	for	PTC,	which	may	be	revised	if business	conditions	or	new	 laws	or	regulations	affect	our	ability	 to	generate	sufficient	returns	on	 these	 investments.	See	discussion	of	our	2010	capital	plan	 in Management's	Discussion	and	Analysis	of	Financial	Condition	and	Results	of	Operations	–	2010	Outlook,	Item	7.

Equipment	Encumbrance	–	Equipment	with	a	carrying	value	of	approximately	$3.4	billion	and	$2.7	billion	at	December	31,	2009	and	2008,	respectively,	serves	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	EPA	considers	the	Railroad	a	potentially	responsible	party	for	the	Omaha	Lead	Site.	The	Omaha	Lead Site	consists	of	approximately	25	square	miles	of	residential	property	in	the	eastern	part	of	Omaha,	Nebraska,	allegedly	impacted	by	air	emissions	from	two	former	lead smelters/refineries.	One	refinery	was	operated	by	ASARCO.	The	EPA	identified	the	Railroad	as	a	potentially	responsible	party	because	more	than	60	years	ago	the Railroad	owned	land	that	was	leased	to	ASARCO.	The	Railroad	disputes	both	the	legal	and	technical	basis	of	the	EPA's	allegations.	It	has	nonetheless	engaged	in extensive	negotiations	with	the	EPA.	These	negotiations	reached	an	apparent	impasse.	The	EPA	issued	a	Unilateral	Administrative	Order	with	an	effective	date	of December	16,	2005,	directing	the	Railroad	to	implement	an	interim	remedy	at	the	site	at	an	estimated	cost	of	$50	million.	Failure	to	comply	with	the	order	without	just cause	could	subject	the	Railroad	to	penalties	of	up	to	$32,500	per	day	and	triple	the	EPA's	costs	in	performing	the	work.	The	Railroad	believes	it	has	just	cause	not	to comply	with	the	order,	but	it	offered	to	perform	some	of	the	work	specified	in	the	order	as	a	compromise.	On	August	5,	2009,	the	Railroad	received	a	Special	Notice Letter	from	EPA	directing	us	to	perform	environmental	remediation	at	approximately	9,000	residential	yards	in	Omaha	and	to	take	other	remedial	measures	as	part	of	a final	remedy.	The	Railroad	continues	to	contest	its	purported	liability	for	these	costs	but	has	submitted	an	offer	to	the	EPA	to	attempt	to	negotiate	a	resolution	of	the matter.	To	date,	the	EPA	has	rejected	all	of	the	Railroad's	offers	to	settle	or	resolve	this	matter.

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.	The	amount	of	the	proposed penalty,	although	uncertain,	could	exceed	$100,000.

As	we	reported	in	our	Quarterly	Report	on	Form	10-Q	for	the	quarter	ended	June	30,	2008,	the	Railroad	received	notice	from	the	United	States	Department	of	Justice	on May	8,	2008,	indicating	its	intent	to	file	suit	for	civil	penalties	in	connection	with	a	March	6,	2005	derailment	near	Kamela,	Oregon.	The	derailment	resulted	in	the release	of	approximately	900	gallons	of	diesel	fuel	from	ruptured	fuel	tanks	of	derailed	refrigerator	cars.	Some	of	this	fuel	entered	Dry	Creek,	a	tributary	to	the	Grande Ronde	River.	While	the	amount	of	the	ultimate	penalty	is	uncertain,	it	could	exceed	$100,000.	Additionally,	on	June	9,	2009,	the	Oregon	Department	of	Environmental Quality	notified	the	Railroad	that	it	would	be	seeking	$40,000	in	civil	penalties	from	the	Railroad	under	state	law	in	connection	with	this	incident.

As	we	reported	in	our	Annual	Report	on	Form	10-K	for	2008,	the	Colorado	Department	of	Public	Health	and	Environment	issued	a	Notice	of	Violation/Cease	and Desist	Order	to	the	Railroad	on	April	26,	2007,	involving	certain	alleged	violations	of	the	Railroad's	stormwater	permits	at	its	Burnham	Shops	and	North	Yard	facilities in	Denver,	Colorado.	The	Order	required	the	Railroad,	among	other	things,	to	evaluate	the	effectiveness	of	the	best	management	practices	(BMPs)	that	were	in	place	to control	stormwater	and	pollutant	discharges	from	the	regulated	portions	of	those	facilities,	take	appropriate	remedial	actions,	implement	additional	BMPs	to	control	the discharge	of	pollutants	at	each	of	the	facilities,	and	report	the	results	of	its	evaluation	and	demonstrate	compliance	with	its	stormwater	permits	to	the	agency.	The Railroad	and	the	Colorado	Department	of	Public	Health	and	Environment	reached	an	agreement	during	the	fourth	quarter	of	2009	under	which	we	will	pay	a	penalty	of $106,808	to	resolve	these	matters.

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	United	States,	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

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	us	and	four	other	Class	I	railroads	in	the	U.S.	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	involve	plaintiffs	alleging	that	they	are	or	were	indirect	purchasers	of	rail	transportation	and	seek	to	represent	a	purported	class	of indirect	purchasers	of	rail	transportation	that	paid	fuel	surcharges.	These	complaints	have	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	anti-trust	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,	therefore,	that	case	has	moved	into	discovery.	On	December	31,	2008,	Judge Friedman	ruled	that	the	allegations	of	the	indirect	purchasers	based	upon	state	antitrust,	consumer	protection	and	unjust	enrichment	laws	must	be	dismissed.	He	also ruled,	however,	that	the	plaintiffs	can	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	are	appealing	Judge	Friedman's	ruling	to	the	U.S.	Court	of	Appeals	for	the	District	of	Columbia.

We	deny	the	allegations	that	our	fuel	surcharge	programs	violate	the	antitrust	laws	or	any	other	laws.	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.

# Item	4.	Submission	of	Matters	to	a	Vote	of	Security	Holders

No	matters	were	submitted	to	a	vote	of	security	holders	during	the	fourth	quarter	of	2009.

# 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,	as	of	February	1,	2010,	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>57 | Past	Five	Years<br>[1] |
| :--- | :--- | :--- | :--- |
| Robert\tM.\tKnight,\tJr. | Executive\tVice\tPresident\t–\tFinance\tand\tChief\tFinancial\tOfficer\tof\tUPC\tand\tthe\tRailroad | 52 | Current\tPosition |
| J.\tMichael\tHemmer | Senior\tVice\tPresident\t–\tLaw\tand\tGeneral\tCounsel\tof\tUPC\tand\tthe\tRailroad | 60 | Current\tPosition |
| Barbara\tW.\tSchaefer | Senior\tVice\tPresident\t–\tHuman\tResources\tand\tSecretary\tof\tUPC\tand\tthe\tRailroad | 56 | Current\tPosition |
| Jeffrey\tP.\tTotusek | Vice\tPresident\tand\tController\tof\tUPC\tand\tChief\tAccounting\tOfficer\tand\tController\tof\tthe\tRailroad | 51 | [2] |
| Dennis\tJ.\tDuffy | Vice\tChairman\t–\tOperations\tof\tthe\tRailroad | 59 | [3] |
| John\tJ.\tKoraleski | Executive\tVice\tPresident\t–\tMarketing\tand\tSales\tof\tthe\tRailroad | 59 | 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.	He	was	elected President	and	Chief	Operating	Officer	of	the	Railroad,	effective	February	1,	2004,	and	he	previously	was	Executive	Vice	President	–	Finance	of	UPC	and	Chief	Financial	Officer	of	the	Railroad.

[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.	Duffy	was	elected	to	his	current	position	effective	January	1,	2010.	He	previously	was	Executive	Vice	President	–	Operations	of	the	Railroad.

# 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	NYSE	under	the	symbol	"UNP".	On	May	28,	2008,	we	completed	a	two-for-one	stock	split,	effected	in	the	form	of	a	100%	stock dividend.	The	stock	split	entitled	all	shareholders	of	record	at	the	close	of	business	on	May	12,	2008,	to	receive	one	additional	share	of	our	common	stock,	par	value $2.50	per	share,	for	each	share	of	common	stock	held	on	that	date.	All	references	to	common	shares	and	per	share	information	have	been	restated	to	reflect	the	stock split	for	all	periods	presented.	The	following	table	presents	the	dividends	declared	and	the	high	and	low	closing	prices	of	our	common	stock	for	each	of	the	indicated quarters.

| 2009	-	Dollars	Per	Share | Q1 | Q2 | Q3 | Q4 |
| :--- | :--- | :--- | :--- | :--- |
| Dividends | $\t\t\t\t0.27 | $\t\t\t\t0.27 | $\t\t\t\t0.27 | $ \t\t\t\t0.27 |
| Common\tstock\tprice: |  |  |  |  |
| High | 54.66 | 55.45 | 64.75 | 66.73 |
| Low | 33.28 | 39.82 | 47.47 | 54.20 |
| 2008\t-\tDollars\tPer\tShare |  |  |  |  |
| Dividends | $0.22 | $0.22 | $0.27 | $0.27 |
| Common\tstock\tprice: |  |  |  |  |
| High | 65.29 | 82.76 | 85.80 | 71.78 |
| Low | 52.66 | 62.98 | 67.34 | 41.84 |

At	January	29,	2010,	there	were	505,286,368	shares	of	outstanding	common	stock	and	34,116	common	shareholders	of	record.	On	that	date,	the	closing	price	of	the common	stock	on	the	NYSE	was	$60.50.	We	have	paid	dividends	to	our	common	shareholders	during	each	of	the	past	110	years.	We	declared	dividends	totaling	$544 million	in	2009	and	$501	million	in	2008.	On	July	31,	2008,	we	increased	the	quarterly	dividend	to	$0.27	per	share,	payable	beginning	on	October	1,	2008,	to shareholders	of	record	on	August	29,	2008.	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	$11.7	billion	at	December	31,	2009,	from	$10.5	billion	at	December	31,	2008.	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	2010	comparable	to	2009.

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

|  |  | Peer | Dow | S&amp;P |
| :--- | :--- | :--- | :--- | :--- |
| Period | UPC | Group | Jones | 500 |
| 1\tYear\t(2009) | 36.6% | 31.1% | 18.6% | 26.5% |
| 3\tYear\t(2007-2009) | 46.0 | 33.5 | (5.5) | (15.9) |

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	Dow	Jones,	and	the	S&P	500.	The	graph	assumes	that	the	value	of	the	investment	in	the	common	stock	of	Union	Pacific	Corporation and	each	index	was	$100	on	December	31,	2004,	and	that	all	dividends	were	reinvested.

Purchases	of	Equity	Securities	–	During	2009,	we	repurchased	shares	of	our	common	stock	at	an	average	price	of	$55.48	solely	in	connection	with	transactions	with employees	under	equity	compensation	arrangements.	The	following	table	presents	common	stock	repurchases	during	each	month	for	the	fourth	quarter	of	2009:

|  |  |  | Total	Number	of	Shares | Maximum	Number	of |
| :--- | :--- | :--- | :--- | :--- |
|  | Total\tNumber | Average | Purchased\tas\tPart\tof\ta | Shares\tThat\tMay\tYet\tBe |
|  | of\tShares | Price\tPaid | Publicly\tAnnounced\tPlan | Purchased\tUnder\tthe |
| Period | Purchased\t[a] | Per\tShare | or\tProgram\t[b] | Plan\tor\tProgram\t[b] |
| Oct.\t1\tthrough\tOct.\t31 | 5,508 | $63.62 | — | 32,577,090 |
| Nov.\t1\tthrough\tNov.\t30 | 69,523 | 64.90 | — | 32,577,090 |
| Dec.\t1\tthrough\tDec.\t31 | 13,150 | 65.48 | — | 32,577,090 |
| Total | 88,181 | $64.91 | — | N/A |

[a] Total	number	of	shares	purchased	during	the	quarter	represents	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	January	30,	2007,	our	Board	of	Directors	authorized	us	to	repurchase	up	to	40	million	shares	of	our	common	stock	through	December	31,	2009.	On	May	1,	2008,	our	Board	of	Directors	authorized	additional repurchases	of	up	to	40	million	shares	of	our	common	stock	through	March	31,	2011.	We	did	not	repurchase	any	shares	under	this	publicly	announced	plan	during	2009.	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.

| 2009 | 2008 | 2007 | 2006 | 2005	[a] |
| :--- | :--- | :--- | :--- | :--- |
| $\t\t\t\t14,143 | $\t\t\t\t17,970 | $\t\t\t\t16,283 | $\t\t\t\t15,578 | $\t\t\t\t13,578 |
| 3,392 | 4,075 | 3,375 | 2,884 | 1,795 |
| 1,898 | 2,338 | 1,855 | 1,606 | 1,026 |
| 3.77 | 4.58 | 3.49 | 2.98 | 1.95 |
| 3.75 | 4.54 | 3.46 | 2.95 | 1.92 |
| 1.08 | 0.98 | 0.745 | 0.60 | 0.60 |
| 3,234 | 4,070 | 3,277 | 2,880 | 2,595 |
| (2,384) | (2,780) | (2,496) | (2,242) | (2,169) |
| - | (1,609) | (1,375) | - | - |
| $42,410 | $39,722 | $38,033 | $36,515 | $35,620 |
| 9,636 | 8,607 | 7,543 | 6,000 | 6,760 |
| 16,941 | 15,447 | 15,585 | 15,312 | 13,707 |
| 33.54 | 30.70 | 29.87 | 28.34 | 25.70 |
| $13,373 | $17,118 | $15,486 | $14,791 | $12,856 |
| 7,786 | 9,261 | 9,733 | 9,852 | 9,544 |
| 24.0 | 22.7 | 20.7 | 18.5 | 13.2 |
| 76.0 | 77.3 | 79.3 | 81.5 | 86.8 |
| 43.5 | 48.2 | 50.1 | 50.7 | 49.7 |
| $325.1 | $372.8 | $325.0 | $307.2 | $273.2 |
| 36.8 | 36.6 | 33.0 | 30.7 | 35.1 |
| 11.7 | 15.1 | 12.0 | 11.1 | 7.8 |

[a] 2005	net	income	includes	a	$118	million	tax	expense	reduction	to	reflect	a	reduction	in	the	estimated	deferred	income	tax	liability.

[b] Includes	fuel	surcharge	revenue	of	$605	million,	$2,323	million,	$1,478	million,	$1,619	million,	and	$963	million	for	2009,	2008,	2007,	2006,	and	2005,	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.

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

[d] 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.

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

[f] Debt	to	capital	is	determined	as	follows:	total	debt	divided	by	total	debt	plus	equity.

[g] 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	operating	segment.	Although	we	analyze	revenue	by	commodity	group,	we	analyze	the net	financial	results	of	the	Railroad	as	one	segment	due	to	the	integrated	nature	of	our	rail	network.

# EXECUTIVE	SUMMARY

•Safety	–	During	2009,	we	continued	our	positive,	multi-year	trend	in	safety	performance	by	setting	records	in	many	of	our	safety	metrics.	The	employee	injury incident	rate	per	200,000	man-hours	declined	12%	from	2008	to	its	lowest	level	ever.	Our	continued	focus	on	derailment	prevention	resulted	in	a	10%	reduction	in our	incident	rate	in	2009,	with	associated	costs	declining	3%.	With	respect	to	public	safety,	we	closed	353	grade	crossings	to	reduce	our	exposure	to	incidents.	We also	 continued	 installing	 video	 cameras	 on	 our	 road	 locomotives,	 which	 assist	 us	 in	 reviewing	 grade	 crossing	 incidents,	 and	 we	 now	 have	 camera-equipped locomotives	in	the	lead	position	of	over	95%	of	our	road	trains.	During	2009,	we	had	the	lowest	number	of	crossing	incidents	on	record,	and	the	rate	of	grade crossing	incidents	per	million	train	miles	decreased	11%.	Also,	we	have	implemented	extensive	trespass	reduction	programs,	and	trespasser	incidents	declined	28% during	the	year.	These	improvements	reflect	comprehensive	efforts	to	enhance	employee	training,	increase	public	education,	make	targeted	capital	investments,	and eliminate	or	reduce	safety	risks.

•Financial	Performance	–	In	2009,	we	generated	operating	income	of	$3.4	billion	despite	economic	conditions	that	significantly	reduced	demand	for	our	services across	almost	all	market	sectors.	While	a	16%	reduction	in	volume	drove	the	17%	decrease	in	operating	income,	core	pricing	gains,	improved	productivity,	and	cost savings	from	demand-driven	resource	adjustments	translated	into	an	all-time	record	operating	ratio	of	76.0%	for	2009,	outpacing	our	previous	record	of	77.3%	set	in 2008.	Net	income	of	$1.9	billion	declined	from	$2.3	billion	in	2008,	but	resulted	in	earnings	of	$3.75	per	diluted	share	for	2009,	surpassed	only	by	financial	results	in 2008.

•Freight	Revenues	–	Our	freight	revenues	declined	22%	year-over-year	to	$13.4	billion.	Freight	revenues	and	volumes	for	all	six	commodity	groups	decreased, reflecting	adverse	economic	conditions.	Overall,	volume	decreased	16%	in	2009,	with	the	largest	declines	in	automotive	and	industrial	products	shipments.	Lower fuel	surcharges	due	to	lower	fuel	prices	also	reduced	freight	revenues	for	the	year,	partially	offset	by	core	pricing	gains.	We	continued	to	focus	on	improving	the reinvestibility	of	our	business	and	we	have	repriced	approximately	85%	of	our	business	since	2004.

•	 Network	Operations	–	In	2009,	we	built	upon	operational	 improvements	achieved	during	2008	by	significantly	 improving	 the	fluidity	and	efficiency	of	our transportation	network,	setting	records	in	numerous	operational	metrics,	including	velocity,	average	terminal	dwell,	freight	car	utilization	and	service	delivery.	Lower volume	levels,	network	management	initiatives,	and	efforts	to	improve	asset	utilization	were	key	drivers	of	our	operational	improvement.	We	increased	average	train speed	by	16%	and	improved	car	utilization	by	8%	with	ongoing	enhancements	to	our	transportation	plan	and	continued	efforts	to	improve	train	processing	at	our terminals.	In	2009,	customer	satisfaction	 improved	 to	record	 levels,	surpassing	records	established	 in	2008,	an	 indication	 that	our	ongoing	efforts	 to	 improve operations	again	translated	into	better	customer	service.

•	 Asset	Utilization	–	In	response	to	economic	conditions	and	lower	revenue	in	2009,	we	implemented	productivity	initiatives	to	improve	efficiency	and	reduce	costs,	in addition	 to	 adjusting	 our	 resources	 to	 reflect	 lower	 demand.	Although	 varying	 throughout	 the	 year,	 our	 resource	 reductions	 included	 removing	 from	 service approximately	26%	of	our	road	locomotives	and	18%	of	our	freight	car	inventory	by	year	end.	We	also	reduced	shift	levels	at	most	rail	facilities	and	closed	or significantly	reduced	operations	in	30	of	our	114	principal	rail	yards.	These	demand-driven	resource	adjustments	and	our	productivity	initiatives	combined	to	reduce our	workforce	by	10%.

•Fuel	Prices	–	As	the	economy	worsened	during	the	third	and	fourth	quarters	of	2008,	fuel	prices	dropped	dramatically,	reaching	$33.87	per	barrel	in	December	2008, a	near	five-year	low.	Throughout	2009,	crude	oil	prices	generally	increased,	ending	the	year	around	$80	per	barrel.	Overall,	our	average	fuel	price	decreased	by	44% in	2009,	reducing	operating	expenses	by	$1.3	billion	compared	to	2008.	We	also	reduced	our	consumption	rate	by	4%	during	the	year,	saving	approximately 40	million	gallons	of	fuel.	The	use	of	newer,	more	fuel	efficient	locomotives;	increased	use	of	distributed	locomotive	power;	fuel	conservation	programs;	and improved	network	operations	and	asset	utilization	all	contributed	to	this	improvement.

•Free	Cash	Flow	–	Cash	generated	by	operating	activities	totaled	$3.2	billion,	yielding	free	cash	flow	of	$515	million	in	2009.	Free	cash	flow	is	defined	as	cash provided	by	operating	activities,	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	United	States	(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	of	Dollars | 2009 | 2008 | 2007 |
| :--- | :--- | :--- | :--- |
| Cash\tprovided\tby\toperating\tactivities | $\t\t\t\t3,234 | $\t\t\t\t4,070 | $\t\t\t\t3,277 |
| Cash\tused\tin\tinvesting\tactivities | (2,175) | (2,764) | (2,426) |
| Dividends\tpaid | (544) | (481) | (364) |
| Free\tcash\tflow | $515 | $825 | $487 |

•Safety	–	Operating	a	safe	railroad	benefits	our	employees,	our	customers,	our	shareholders,	and	the	public.	We	will	continue	using	a	multi-faceted	approach	to	safety, utilizing	technology,	risk	assessment,	quality	control,	and	training,	and	by	engaging	our	employees.	We	will	continue	implementing	Total	Safety	Culture	(TSC) throughout	our	operations.	TSC	is	designed	to	establish,	maintain,	reinforce,	and	promote	safe	practices	among	co-workers.	This	process	allows	us	to	identify	and implement	best	practices	for	employee	and	operational	safety.	Reducing	grade-crossing	incidents	is	a	critical	aspect	of	our	safety	programs,	and	we	will	continue	our efforts	to	maintain,	upgrade,	and	close	crossings;	install	video	cameras	on	locomotives;	and	educate	the	public	about	crossing	safety	through	our	own	programs, various	industry	programs,	and	other	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	 from	 year-to-year,	 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	will	also	continue	utilizing	industrial	engineering	techniques	to	improve	productivity.

•Fuel	Prices	–	Uncertainty	about	the	economy	makes	fuel	price	projections	difficult,	and	we	could	see	volatile	fuel	prices	during	the	year,	as	they	are	sensitive	to global	and	U.S.	domestic	demand,	refining	capacity,	geopolitical	issues	and	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	to	expand	our	fuel	conservation	efforts.

•	 Capital	Plan	–	In	2010,	we	plan	to	make	total	capital	investments	of	approximately	$2.5	billion,	including	expenditures	for	PTC,	which	may	be	revised	if	business conditions	or	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	(PTC)	–	In	response	to	a	legislative	mandate	to	implement	PTC	by	the	end	of	2015,	we	expect	to	spend	approximately	$200	million	during 2010	on	the	development	of	PTC.	We	currently	estimate	that	PTC	will	cost	us	approximately	$1.4	billion	to	implement	by	the	end	of	2015,	in	accordance	with	rules issued	by	the	FRA.	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.

•Financial	Expectations	–	We	remain	cautious	about	economic	conditions	but	expect	volume	to	increase	from	2009	levels.	In	addition,	we	anticipate	continued pricing	opportunities	and	further	productivity	improvements.

# RESULTS	OF	OPERATIONS

# Operating	Revenues

|  |  |  |  | %	Change | %	Change |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Millions\tof\tDollars | 2009 | 2008 | 2007 | 2009\tv\t2008 | 2008\tv\t2007 |
| Freight\trevenues | $\t\t\t\t13,373 | $\t\t\t\t17,118 | $\t\t\t\t15,486 | (22)% | 11% |
| Other\trevenues | 770 | 852 | 797 | (10) | 7 |
| Total | $14,143 | $17,970 | $16,283 | (21)% | 10% |

Freight	revenues	are	revenues	generated	by	transporting	freight	or	other	materials	from	our	six	commodity	groups.	Freight	revenues	vary	with	volume	(carloads)	and average	revenue	per	car	(ARC).	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	a	reduction	to	freight	revenues	based	on	the	actual	or	projected future	shipments.	We	recognize	freight	revenues	on	a	percentage-of-completion	basis	as	freight	moves	from	origin	to	destination.	We	allocate	freight	revenues	between reporting	periods	based	on	the	relative	transit	time	in	each	reporting	period	and	recognize	expenses	as	we	incur	them.

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

Freight	revenues	and	volume	levels	for	all	six	commodity	groups	decreased	during	2009,	reflecting	continued	economic	weakness.	We	experienced	the	largest	volume declines	in	automotive	and	industrial

products	shipments.	Lower	fuel	surcharges	due	to	lower	fuel	prices	also	reduced	freight	revenues	in	2009	compared	to	2008.	ARC	decreased	7%	during	the	full	year, driven	by	lower	fuel	cost	recoveries,	partially	offset	by	core	pricing	gain	of	approximately	5%.	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.

Freight	revenues	from	five	of	the	six	commodity	groups	increased	during	2008,	with	particularly	strong	growth	from	agricultural	and	energy	shipments.	While	revenues generated	from	chemical	and	industrial	products	shipments	grew	in	2008	compared	to	2007,	Hurricanes	Gustav	and	Ike	reduced	shipments	of	these	commodities. Revenues	generated	from	automotive	shipments	declined	versus	2007.	Greater	fuel	cost	recoveries	and	core	pricing	improvement	combined	to	increase	ARC	during 2008.	The	severe	economic	downturn	during	the	fourth	quarter	compounded	already	declining	volumes	experienced	during	the	first	nine	months	of	2008	due	to	ongoing weakness	in	certain	market	sectors.	As	a	result,	we	moved	fewer	intermodal,	automotive,	industrial	products,	and	chemical	shipments,	which	more	than	offset	volume growth	from	agricultural	and	energy	shipments.

Our	fuel	surcharge	programs	(excluding	index-based	contract	escalators	that	contain	some	provision	for	fuel)	generated	freight	revenues	of	$605	million,	$2.3	billion, and	$1.5	billion	in	2009,	2008,	and	2007,	respectively.	Declines	in	both	fuel	prices	and	volume	levels	drove	the	lower	fuel	surcharge	amounts	in	2009.	Fuel	surcharge revenues	are	not	comparable	across	years	due	to	implementation	of	new	mileage-based	fuel	surcharge	programs.	As	disclosed	in	our	2006	Annual	Report	on	Form	10- K,	the	STB	issued	a	decision	limiting	the	manner	in	which	U.S.	railroads	can	calculate	fuel	surcharges	on	traffic	regulated	by	the	STB.	In	April	2007,	we	converted regulated	traffic,	which	represents	approximately	22%	of	our	current	revenue	base,	to	mileage-based	fuel	surcharge	programs.	In	addition,	we	continue	to	convert portions	of	our	non-regulated	traffic	to	mileage-based	fuel	surcharge	programs.	At	the	time	of	introduction,	we	also	reset	the	base	fuel	price	at	which	the	new	mileage- based	fuel	surcharges	take	effect.	Resetting	the	fuel	price	at	which	the	fuel	surcharge	begins,	in	conjunction	with	rebasing	the	affected	transportation	rate	to	include	a portion	of	what	had	been	in	the	fuel	surcharge,	did	not	materially	change	our	freight	revenue	as	higher	base	rates	offset	lower	fuel	surcharge	revenue.

In	2009,	other	revenues	decreased	from	2008	due	primarily	to	lower	revenues	at	our	subsidiary	that	brokers	intermodal	and	automotive	services.	Accessorial	revenues also	decreased	in	2009	reflecting	lower	volume	levels	during	the	year.

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

| Freight	Revenues |  |  |  | %	Change | %	Change |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Millions\tof\tDollars | 2009 | 2008 | 2007 | 2009\tv\t2008 | 2008\tv\t2007 |
| Agricultural | $2,666 | $3,174 | $2,605 | (16)% | 22\t% |
| Automotive | 854 | 1,344 | 1,458 | (36) | (8) |
| Chemicals | 2,102 | 2,494 | 2,287 | (16) | 9 |
| Energy | 3,118 | 3,810 | 3,134 | (18) | 22 |
| Industrial\tProducts | 2,147 | 3,273 | 3,077 | (34) | 6 |
| Intermodal | 2,486 | 3,023 | 2,925 | (18) | 3 |
| Total | $\t\t\t\t13,373 | $\t\t\t\t17,118 | $\t\t\t\t15,486 | (22)% | 11\t% |

| Revenue	Carloads |  |  |  | %	Change | %	Change |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Thousands | 2009 | 2008 | 2007 | 2009\tv\t2008 | 2008\tv\t2007 |
| Agricultural | 865 | 947 | 902 | (9)% | 5\t% |
| Automotive | 465 | 667 | 826 | (30) | (19) |
| Chemicals | 761 | 885 | 928 | (14) | (5) |
| Energy | 2,021 | 2,348 | 2,299 | (14) | 2 |
| Industrial\tProducts | 899 | 1,249 | 1,325 | (28) | (6) |
| Intermodal | 2,775 | 3,165 | 3,453 | (12) | (8) |
| Total | 7,786 | 9,261 | 9,733 | (16)% | (5)% |

|  |  |  |  | %	Change | %	Change |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Average\tRevenue\tper\tCar | 2009 | 2008 | 2007 | 2009\tv\t2008 | 2008\tv\t2007 |
| Agricultural | $3,080 | $3,352 | $2,888 | (8)% | 16% |
| Automotive | 1,838 | 2,017 | 1,766 | (9) | 14 |
| Chemicals | 2,761 | 2,818 | 2,464 | (2) | 14 |
| Energy | 1,543 | 1,622 | 1,363 | (5) | 19 |
| Industrial\tProducts | 2,388 | 2,620 | 2,322 | (9) | 13 |
| Intermodal | 896 | 955 | 847 | (6) | 13 |
| Average | $\t\t\t\t1,718 | $\t\t\t\t1,848 | $\t\t\t\t1,591 | (7)% | 16% |

Agricultural	Products	–	Lower	volume	and	fuel	surcharges	decreased	agricultural	freight revenue	in	2009	versus	2008.	Price	improvements	partially	offset	these	declines.	Lower demand	in	both	export	and	domestic	markets	led	to	fewer	shipments	of	corn	and	feed grains,	down	11%	in	2009	compared	to	2008.	Weaker	worldwide	demand	also	reduced export	shipments	of	wheat	and	food	grains	in	2009	versus	2008.

# 2009	Agricultural	Revenue

Price	improvements,	fuel	surcharges,	and	volume	growth	generated	higher	agricultural freight	revenue	in	2008	versus	2007.	Strong	global	demand	for	grain	and	a	weak	dollar drove	higher	shipments	of	corn	and	feed	grains	and	shipments	of	wheat	and	food	grains for	 2008.	 Shipments	 of	 ethanol,	 a	 grain	 product	 used	 as	 an	 alternative	 fuel	 and	 fuel additive,	and	its	co-products	(primarily	livestock	feed)	also	increased.

Automotive	–	Declines	in	shipments	of	finished	vehicles	and	auto	parts	and	lower	fuel surcharges	reduced	freight	revenue	 in	2009	compared	 to	2008.	Vehicle	shipments were	down	35%	and	parts	were	down	24%.	Core	pricing	gains	partially	offset	these declines.	These	volume	declines	resulted	from	economic	conditions	that	reduced	sales and	vehicle	production.	In	addition,	two	major	domestic	automotive	manufacturers declared	 bankruptcy	 in	 the	 second	 quarter	 of	 2009,	 affecting	 production	 levels. Although	the	federal	Car	Allowance	Rebate	System	(the	"cash	for	clunkers"	program) helped	stimulate	vehicle	sales	and	shipments	in	the	third	quarter	of	2009,	production cuts	and	soft	demand	throughout	the	year	more	than	offset	the	program's	benefits.

# 2009	Automotive	Revenue

Double-digit	declines	in	shipments	of	both	finished	vehicles	and	auto		parts		drove freight		revenue	lower	in	2008	compared	to	2007.

Price	improvements	and	fuel	surcharges	partially	offset	these	lower	volumes.	The	manufacturers	experienced	poor	sales	and	reduced	vehicle	production	during	2008	due to	the	recessionary	economy,	which	in	turn	reduced	shipments	of	finished	vehicles	and	parts.	In	addition,	a	major	parts	supplier	strike	reduced	volume	levels	compared to	2007.	Shipments	of	finished	vehicles	decreased	23%	in	2008	versus	2007.

Chemicals	–	Reduced	volume	and	fuel	surcharges	decreased	freight	revenue	from chemical	shipments	in	2009	versus	2008.	Pricing	improvements	partially	offset	these declines.	Weak	market	conditions	reduced	shipments	of	industrial	chemicals	in	2009 compared	to	2008,	driving	volume	levels	down	16%.	High	inventories,	production curtailments,	and	delayed	purchases	combined	to	reduce	fertilizer	shipments	by	29% in	2009.	Additionally,	business	interruptions	resulting	from	Hurricanes	Gustav	and Ike	 lowered	 volume	 levels	 in	 the	 third	 quarter	 of	 2008,	 contributing	 to	 a	 more favorable	year-over-year	comparison.

# 2009	Chemicals	Revenue

Price	 improvements	 and	 increased	 fuel	 surcharges	 drove	 higher	 revenue	 from chemicals	shipments	during	2008,	which	were	partially	offset	by	a	decrease	in	volume levels	 compared	 to	 2007.	 Weak	 market	 conditions	 and	 business	 interruptions	 in chemical	producing	areas	resulting	from	Hurricanes	Gustav	and	Ike	all	contributed	to lower	industrial	chemicals	shipments.	Plastics	shipments	also	declined	in	part	due	to the	impact	of	Hurricanes	Gustav	and	Ike.

Energy	–	Lower	volume	and	fuel	surcharges	reduced	freight	revenue	from	energy	shipments in	 2009	 versus	 2008.	 Price	 increases	 partially	 offset	 these	 declines.	 Shipments	 from	 the Southern	 Powder	 River	 Basin	 of	 Wyoming	 (SPRB)	 and	 the	 Colorado	 and	 Utah	 mines decreased	 14%	 and	 25%,	 respectively,	 in	 2009	 compared	 to	 2008.	 Continued	 economic weakness	and	high	coal	 inventories	resulted	 in	reduced	demand	at	our	utility	customers, resulting	in	lower	volumes.	Production	problems	at	the	Colorado	and	Utah	mines	and	the loss	of	SPRB	customer	contracts	also	contributed	to	the	volume	declines.

# 2009	Energy	Revenue

Price	increases,	fuel	surcharges,	and	higher	volume	produced	revenue	growth	in	2008	versus 2007.	Shipments	from	the	SPRB	were	up	5%	compared	to	2007	despite	mine	flooding	and network	 interruptions	 caused	 by	 extensive	 flooding	 in	 the	 Midwest	 in	 June	 of	 2008. Conversely,	shipments	from	the	Colorado	and	Utah	mines	were	down	4%	in	2008	versus 2007,	due	to	mine	production	problems.

Industrial	Products	–	Reduced	volume	and	fuel	surcharges	resulted	in	lower	freight	revenue from	industrial	products	shipments	in	2009	versus	2008.	Price	improvements	partially	offset these	 declines.	 Weak	 demand	 and	 inventory	 reductions	 resulting	 from	 the	 economic downturn	drove	a	53%	decline	in	steel	shipments	in	2009	compared	to	2008.	The	continued weakness	in	the	housing	market	reduced	lumber	shipments,	while	surplus	production	and overall	market	uncertainty	resulted	in	lower	paper	and	newsprint	shipments	in	2009	versus 2008.	 In	 addition,	 cement	 and	 stone	 shipments	 declined	 during	 the	 year	 due	 to	 high inventories	and	weak	commercial	and	residential	construction	activity.

# 2009	Industrial	Products	Revenue

Price	 improvements	 and	 fuel	 surcharges	 contributed	 to	 higher	 freight	 revenue	 in	 2008 compared	to	2007.	Lower	volume	partially	offset	these	increases.	Continued	softening	of	the housing	market	and	weak	market	conditions	resulted	in	lower	lumber	shipments.	In	addition, cement	 and	 stone	 shipments	 declined	 due	 to	 a	 weak	 overall	 residential	 and	 commercial construction		market.		Business		interruptions		resulting		from

the	hurricanes	also	reduced	various	construction-related	shipments,	primarily	stone.	Conversely,	we	shipped	more	steel	in	2008	than	in	2007	as	the	weak	dollar	increased the	cost	of	steel	imports	during	most	of	the	year,	creating	a	strong	demand	for	domestic	steel.

Intermodal –	 Decreased	 volumes	 and	 fuel	 surcharges	 reduced	 freight	 revenue	 from intermodal	shipments	in	2009	versus	2008.	Volume	from	international	traffic	decreased	24% in	2009	compared	to	2008,	reflecting	economic	conditions,	continued	weak	imports	from Asia,	and	diversions	to	non-UPRR	served	ports.	Additionally,	continued	weakness	in	the domestic	housing	and	automotive	sectors	translated	into	weak	demand	in	large	sectors	of	the international	intermodal	market,	which	also	contributed	to	the	volume	decline.	Conversely, domestic	traffic	increased	8%	in	2009	compared	to	2008.	A	new	contract	with	Hub	Group, Inc.,	which	included	additional	shipments,	was	executed	in	the	second	quarter	of	2009	and more	than	offset	the	impact	of	weak	market	conditions	in	the	second	half	of	2009.

# 2009	Intermodal	Revenue

Price	increases	and	fuel	surcharges	generated	higher	revenue	in	2008,	partially	offset	by	lower	volume	levels.	International	traffic	declined	11%	in	2008,	reflecting continued	softening	of	imports	from	China	and	the	loss	of	a	customer	contract.	Notably,	the	peak	intermodal	shipping	season,	which	usually	starts	in	the	third	quarter, was	particularly	weak	in	2008.	Additionally,	continued	weakness	in	domestic	housing	and	automotive	sectors	translated	into	weak	demand	in	large	sectors	of	the international	intermodal	market,	which	also	contributed	to	lower	volumes.	Domestic	traffic	declined	3%	in	2008	due	to	the	loss	of	a	customer	contract	and	lower volumes	from	less-than-truckload	shippers.	Additionally,	the	flood-related	embargo	on	traffic	in	the	Midwest	during	the	second	quarter	hindered	intermodal	volume levels	in	2008.

Mexico	Business	–	Each	of	our	commodity	groups	include	revenue	from	shipments	to	and	from	Mexico.	Revenue	from	Mexico	business	decreased	26%	in	2009	versus 2008	to	$1.2	billion.	Volume	declined	in	five	of	our	six	commodity	groups,	down	19%	in	2009,	driven	by	32%	and	24%	reductions	in	industrial	products	and	automotive shipments,	respectively.	Conversely,	energy	shipments	increased	9%	in	2009	versus	2008,	partially	offsetting	these	declines.

Revenue	from	Mexico	business	increased	13%	to	$1.6	billion	in	2008	compared	to	2007.	Price	improvements	and	fuel	surcharges	contributed	to	these	increases,	partially offset	by	a	4%	decline	in	volume	in	2008	compared	to	2007.

# Operating	Expenses

|  |  |  |  | %	Change | %	Change |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Millions\tof\tDollars | 2009 | 2008 | 2007 | 2009\tv\t2008 | 2008\tv\t2007 |
| Compensation\tand\tbenefits | $\t\t\t\t4,063 | $\t\t\t\t4,457 | $\t\t\t\t4,526 | (9)% | (2)% |
| Fuel | 1,763 | 3,983 | 3,104 | (56) | 28 |
| Purchased\tservices\tand\tmaterials | 1,614 | 1,902 | 1,856 | (15) | 2 |
| Depreciation | 1,444 | 1,387 | 1,321 | 4 | 5 |
| Equipment\tand\tother\trents | 1,180 | 1,326 | 1,368 | (11) | (3) |
| Other | 687 | 840 | 733 | (18) | 15 |
| Total | $10,751 | $13,895 | $12,908 | (23)% | \t8% |

Operating	 expenses	 decreased	 $3.1	 billion	 in	 2009	 versus	 2008.	 Our	 fuel	 price	 per gallon	declined	44%	during	the	year,	decreasing	operating	expenses	by	$1.3	billion compared	to	2008.	Cost	savings	from	lower	volume,	productivity	improvements,	and better	resource	utilization	also	decreased	operating	expenses	in	2009.	In	addition,	lower casualty	 expense	 resulting	 primarily	 from	 improving	 trends	 in	 safety	 performance decreased	 operating	 expenses	 in	 the	 year.	 Conversely,	 wage	 and	 benefit	 inflation partially	offset	these	reductions.

# 2009	Operating	Expenses

Operating	expenses	increased	$987	million	in	2008.	Our	fuel	price	per	gallon	rose	39% during	the	year,	increasing	operating	expenses	by	$1.1	billion	compared	to	2007.	Wage, benefit,	 and	 materials	 inflation,	 higher	 depreciation,	 and	 costs	 associated	 with	 the January	 Cascade	 mudslide	 and	 Hurricanes	 Gustav	 and	 Ike	 also	 increased	 expenses during	 the	 year.	 Cost	 savings	 from	 productivity	 improvements,	 better	 resource utilization,	and	lower	volume	helped	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.	Lower	volume	and	productivity	initiatives	led	to	a	10%	decline	in	our	workforce	in	2009	compared	to	2008,	saving	$516	million	during	the	year. Conversely,	general	wage	and	benefit	inflation	increased	expenses,	partially	offsetting	these	savings.

Productivity	initiatives	in	all	areas,	combined	with	lower	volume,	led	to	a	4%	decline	in	our	workforce	for	2008,	saving	$227	million	compared	to	2007.	Conversely, general	wage	and	benefit	inflation	and	higher	pension	and	postretirement	benefits	increased	expenses	in	2008,	partially	offsetting	these	reductions.

Fuel	–	Fuel	includes	locomotive	fuel	and	gasoline	for	highway	and	non-highway	vehicles	and	heavy	equipment.	Lower	diesel	fuel	prices,	which	averaged	$1.75	per gallon	(including	taxes	and	transportation	costs)	in	2009	compared	to	$3.15	per	gallon	in	2008,	reduced	expenses	by	$1.3	billion.	Volume,	as	measured	by	gross	ton- miles,	decreased	17%	in	the	year,	lowering	expenses	by	$664	million	compared	to	2008.	Our	fuel	consumption	rate	improved	4%	in	2009,	resulting	in	$147	million	of cost	savings	versus	2008.	Newer,	more	fuel	efficient	locomotives	reflecting	locomotive	acquisitions	in	recent	years	and	the	impact	of	a	smaller	fleet	due	to	storage	of some	of	our	older	 locomotives;	 increased	use	of	distributed	 locomotive	power;	our	fuel	conservation	programs;	and	 improved	network	operations	all	drove	 this improvement.	Distributed	locomotive	power	is	the	practice	of	distributing	locomotives	throughout	a	train	rather	than	positioning	all	of	them	in	the	lead	resulting	in	safer and	more	efficient	train	operations.

Diesel	fuel	prices,	which	averaged	$3.15	per	gallon	(including	taxes	and	transportation	costs)	in	2008	compared	to	$2.27	per	gallon	in	2007,	increased	expenses	by	$1.1 billion.	A	4%	improvement	in	our	fuel	consumption	rate	resulted	in	$136	million	of	cost	savings	due	to	the	use	of	newer,	more	fuel	efficient	locomotives;	our	fuel conservation	programs;	improved	network	operations;	and	a	shift	in	commodity	mix,	primarily	due	to	growth	in	bulk	shipments.	Volume,	as	measured	by	gross	ton- miles,	decreased	3%	in	the	year,	lowering	expenses	by	$101	million	compared	to	2007.

Purchased	Services	and	Materials	–	Purchased	services	and	materials	expense	includes	the	costs	of	services	purchased	from	outside	contractors;	materials	used	to maintain	the	Railroad's	lines,	structures,	and	equipment;	costs	of	operating	facilities	jointly	used	by	UPRR	and	other	railroads;	transportation	and

lodging	for	train	crew	employees;	trucking	and	contracting	costs	for	intermodal	containers;	leased	automobile	maintenance	expenses;	and	tools	and	supplies.	Contract services	expense	(including	equipment	maintenance)	decreased	$138	million	in	2009	versus	2008	due	to	lower	volume	levels	and	a	favorable	year-over-year	comparison due	to	expenses	incurred	in	2008	resulting	from	Hurricanes	Gustav	and	Ike.	In	addition,	lower	volume	levels	drove	cost	reductions	of	$55	million	in	transportation	and lodging	costs	and	$27	million	in	expenses	associated	with	operating	jointly	owned	facilities	in	2009	versus	2008.	We	also	performed	fewer	locomotive	and	freight	car repairs	as	a	result	of	lower	volumes	and	having	portions	of	these	fleets	stored,	which	reduced	related	materials	expenses	by	$87	million	in	2009	versus	2008.	Clean-up and	restoration	expenses	related	to	the	Cascade	mudslide	in	January,	flooding	in	the	Midwest	in	June,	and	the	two	September	hurricanes	also	increased	expenses	in	2008, creating	a	favorable	year-over-year	comparison.

In	2008,	higher	contract	costs	(including	restoration	costs	related	to	the	January	Cascade	mudslide,	June	Midwest	flooding,	and	September	hurricanes)	increased expenses	$40	million	compared	to	2007.	Higher	material	costs	for	freight	car	wheel	sets	during	the	year	and	an	increase	in	the	number	of	wheel	sets	required	to	repair flood-damaged	freight	cars	also	contributed	to	higher	materials	expense	in	2008.	Conversely,	rail	scrap	proceeds	associated	with	our	rail	replacement	program	partially offset	these	increases	for	the	year.

Depreciation	–	The	majority	of	depreciation	relates	to	track	structure,	including	rail,	ties,	and	other	track	material.	A	higher	depreciable	asset	base,	reflecting	higher capital	spending	in	recent	years,	increased	depreciation	expense	in	2009	versus	2008.	Costs	also	increased	$34	million	in	2009	due	to	the	restructuring	of	certain locomotive	leases	(see	further	discussion	in	this	Item	7	under	Liquidity	and	Capital	Resources	–	Financing	Activities).	Lower	depreciation	rates	for	rail	and	other	track material	partially	offset	the	increases.	The	lower	rates,	which	became	effective	January	1,	2009,	resulted	from	longer	asset	lives	as	determined	by	service	life	studies	and reduced	track	usage	(based	on	lower	gross	ton-miles).

A	higher	depreciable	asset	base,	reflecting	higher	capital	spending	in	recent	years,	increased	depreciation	expense	in	2008	versus	2007.

Equipment	and	Other	Rents	–	Equipment	and	other	rents	expense	primarily	includes	rental	expense	that	the	Railroad	pays	for	freight	cars	owned	by	other	railroads	or private	companies;	freight	car,	intermodal,	and	locomotive	leases;	other	specialty	equipment	leases;	and	office	and	other	rentals.	Fewer	shipments	of	industrial	products and	 intermodal	 containers	 primarily	 contributed	 to	 the	 $85	 million	 reduction	 in	 our	 short-term	 freight	 car	 rental	 expense	 in	 2009	 versus	 2008.	 In	 addition,	 the restructuring	of	locomotive	leases	reduced	lease	expense	by	$52	million	in	2009	compared	to	2008	(see	further	discussion	in	this	Item	7	under	Liquidity	and	Capital Resources	–	Financing	Activities).	Lower	lease	expense	for	freight	cars,	intermodal	containers,	and	fleet	vehicles	also	decreased	costs	in	2009	versus	2008.

Fewer	shipments	of	finished	vehicles,	industrial	products	and	intermodal	containers	reduced	our	short	term	freight	car	rental	expense	by	$62	million	in	2008	compared	to 2007.	Lower	lease	expense	for	freight	cars,	intermodal	containers,	and	locomotives	also	decreased	costs.	Conversely,	lease	expense	for	fleet	vehicles	increased	costs	in 2008	compared	to	2007.

Other	–	Other	expenses	include	personal	injury,	freight	and	property	damage,	insurance,	environmental,	bad	debt,	state	and	local	taxes,	utilities,	telephone	and	cellular, employee	travel,	computer	software,	and	other	general	expenses.	Other	costs	were	lower	in	2009	compared	to	2008	driven	by	a	reduction	in	personal	injury	expense (including	asbestos-related	claims).	We	completed	actuarial	studies	of	personal	injury	expenses	in	both	the	second	and	fourth	quarters	of	2009	and	2008	and	annual reviews	of	asbestos-related	claims	in	both	years,	which	resulted	in	a	net	reduction	of	$55	million	in	casualty	expense	in	2009	versus	2008.	The	reduction	reflects improvements	in	our	safety	experience	and	lower	estimated	costs	to	resolve	claims.	In	addition,	the	year-over-year	comparison	was	favorably	impacted	by	$28	million due	to

an	adverse	development	with	respect	to	one	claim	in	2008	and	favorable	developments	in	three	cases	in	2009.	Other	costs	were	also	lower	in	2009	compared	to	2008, driven	by	a	decrease	in	expenses	for	freight	and	property	damages,	employee	travel,	and	utilities.	In	addition,	higher	bad	debt	expense	in	2008	due	to	the	uncertain impact	of	the	recessionary	economy	drove	a	favorable	year-over-year	comparison.	Conversely,	an	additional	expense	of	$30	million	related	to	a	transaction	with	Pacer International,	Inc.	and	higher	property	taxes	partially	offset	lower	costs	in	2009.

Other	costs	were	higher	in	2008	compared	to	2007	due	to	an	increase	in	bad	debts,	state	and	local	taxes,	loss	and	damage	expenses,	utility	costs,	and	other	miscellaneous expenses	totaling	$122	million.	Conversely,	personal	injury	costs	(including	asbestos-related	claims)	were	$8	million	lower	in	2008	compared	to	2007.	The	reduction reflects	improvements	in	our	safety	experience	and	lower	estimated	costs	to	resolve	claims	as	indicated	in	the	actuarial	studies	of	our	personal	injury	expense	and	annual reviews	of	asbestos-related	claims	in	both	2008	and	2007.	The	year-over-year	comparison	also	includes	the	negative	impact	of	adverse	development	associated	with	one claim	in	2008.	In	addition,	environmental	and	toxic	tort	expenses	were	$7	million	lower	in	2008	compared	to	2007.

# Non-Operating	Items

|  |  |  | %	Change | %	Change |
| :--- | :--- | :--- | :--- | :--- |
| 2009 | 2008 | 2007 | 2009\tv\t2008 | 2008\tv\t2007 |
| $\t\t\t\t195 | $92 | $\t\t\t\t116 | 112\t% | (21)% |
| (600) | (511) | (482) | 17 | 6 |
| (1,089) | (1,318) | (1,154) | (17) | 14 |

Other	Income	–	Other	income	increased	$103	million	in	2009	compared	to	2008	primarily	due	to	higher	gains	from	real	estate	sales,	which	included	the	$116	million pre-tax	gain	from	a	land	sale	to	the	Regional	Transportation	District	(RTD)	in	Colorado	and	lower	interest	expense	on	our	sale	of	receivables	program,	resulting	from lower	interest	rates	and	a	lower	outstanding	balance.	Reduced	rental	and	licensing	income	and	lower	returns	on	cash	investments,	reflecting	lower	interest	rates,	partially offset	these	increases.

Other	income	decreased	in	2008	compared	to	2007	due	to	lower	gains	from	real	estate	sales	and	decreased	returns	on	cash	investments	reflecting	lower	interest	rates. Higher	rental	and	licensing	income	and	lower	interest	expense	on	our	sale	of	receivables	program	partially	offset	the	decreases.

Interest	Expense	–	Interest	expense	increased	in	2009	versus	2008	due	primarily	to	higher	weighted-average	debt	levels.	In	2009,	the	weighted-average	debt	level	was $9.6	billion	(including	the	restructuring	of	locomotive	leases	in	May	of	2009),	compared	to	$8.3	billion	in	2008.	Our	effective	interest	rate	was	6.3%	in	2009,	compared to	6.1%	in	2008.

Interest	expense	increased	in	2008	versus	2007	due	to	a	higher	weighted-average	debt	level	of	$8.3	billion,	compared	to	$7.3	billion	in	2007.	A	lower	effective	interest rate	of	6.1%	in	2008,	compared	to	6.6%	in	2007,	partially	offset	the	effects	of	the	higher	weighted-average	debt	level.

Income	Taxes	–	Income	taxes	were	lower	in	2009	compared	to	2008,	driven	by	lower	pre-tax	income.	Our	effective	tax	rate	for	the	year	was	36.5%	compared	to	36.1% in	2008.

Income	taxes	were	higher	in	2008	compared	to	2007,	driven	by	higher	pre-tax	income.	Our	effective	tax	rates	were	36.1%	and	38.4%	in	2008	and	2007,	respectively.	The lower	effective	tax	rate	in	2008	resulted	from	several	reductions	in	tax	expense	related	to	federal	audits	and	state	tax	law	changes.	In	addition,	the	effective	tax	rate	in 2007	was	increased	by	Illinois	legislation	that	increased	deferred	tax	expense	in	the	third	quarter	of	2007.

# OTHER	OPERATING/PERFORMANCE	AND	FINANCIAL	STATISTICS

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

# Operating/Performance	Statistics

Included	in	the	table	below	are	Railroad	performance	measures	reported	to	the	AAR:

|  |  |  | %	Change | %	Change |
| :--- | :--- | :--- | :--- | :--- |
| 2009 | 2008 | 2007 | 2009\tv\t2008 | 2008\tv\t2007 |
| 27.3 | 23.5 | 21.8 | 16\t% | 8\t% |
| 24.8 | 24.9 | 25.1 | - | (1)% |
| 283.1 | 300.7 | 309.9 | (6)% | (3)% |
| 846.5 | 1,020.4 | 1,052.3 | (17)% | (3)% |
| 479.2 | 562.6 | 561.8 | (15)% | - |
| 76.0 | 77.3 | 79.3 | (1.3)pt | (2.0)pt |
| 43,531 | 48,242 | 50,089 | (10)% | (4)% |
| 88 | 83 | 79 | 5\tpt | 4\tpt |

Average	Train	Speed	–	Average	train	speed	is	calculated	by	dividing	train	miles	by	hours	operated	on	our	main	lines	between	terminals.	Lower	volume	levels,	ongoing network	management	initiatives,	and	productivity	improvements	contributed	to	16%	and	8%	improvements	in	average	train	speed	in	2009	and	2008,	respectively.

Average	Terminal	Dwell	Time	–	Average	terminal	dwell	time	is	the	average	time	that	a	rail	car	spends	at	our	terminals.	Lower	average	terminal	dwell	time	improves asset	utilization	and	service.	Average	terminal	dwell	time	improved	slightly	in	2009	compared	to	2008	and	improved	1%	in	2008	versus	2007.	Lower	volumes	combined with	initiatives	to	more	timely	deliver	rail	cars	to	our	interchange	partners	and	customers	improved	dwell	time	in	both	periods.

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	decreased	17%	and	15%	in	2009	compared	to	2008 due	to	a	16%	decrease	in	carloads.	Commodity	mix	changes	(notably	automotive	shipments,	which	were	30%	lower	in	2009	compared	to	2008)	drove	the	difference	in declines	between	gross	ton-miles	and	revenue	ton-miles.	Gross	ton-miles	decreased	3%,	while	revenue	ton-miles	were	flat	in	2008	compared	to	2007	with	commodity mix	changes	(notably	autos	and	coal)	explaining	the	variance	in	year	over	year	growth	between	the	two	metrics.

Operating	Ratio	–	Operating	ratio	is	defined	as	our	operating	expenses	as	a	percentage	of	operating	revenue.	Our	operating	ratios	improved	1.3	points	to	76.0%	in	2009 and	2.0	points	to	77.3%	in	2008.	Core	pricing	gains,	lower	fuel	prices,	network	management	initiatives,	and	improved	productivity	drove	the	improvement	in	2009	and more	than	offset	the	16%	volume	decline.	Price	increases,	fuel	cost	recoveries,	network	management	initiatives,	and	improved	productivity	drove	the	improvement	in 2008	and	more	than	offset	the	impact	of	higher	fuel	prices.

Employees	–	Productivity	initiatives	and	lower	volumes	reduced	employee	levels	10%	throughout	the	Company	in	2009	versus	2008	and	4%	in	2008	compared	to	2007. Fewer	train	and	engine	personnel	due

to	lower	volumes	and	network	initiatives,	combined	with	improved	productivity	within	the	support	organizations,	contributed	to	the	lower	full-time	equivalent	force levels.

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.	The	improvement	in	survey	results	in	2009	and	2008	generally	reflects	customer	recognition	of	our improving	service.

# Return	on	Average	Common	Shareholders'	Equity

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	the	Corporation's	long-term	capital	investments, and	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	a	reconciliation	from	return	on	average	common	shareholders'	equity	to	ROIC.	Our	2009	ROIC	decreased	2.0	points compared	to	2008	primarily	as	a	result	of	lower	earnings	and	higher	average	debt	and	equity	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	6.3%	at	December	31,	2009	and 8.0%	at	December	31,	2008.	The	lower	discount	rate	reflects	changes	to	interest	rates	and	our	current	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	the	Corporation's	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	a	reconciliation	from	debt	to	capital	to	adjusted	debt to	capital.	Our	December	31,	2009	debt	to	capital	ratios	increased	as	a	result	of	a	$921	million	net	increase	in	debt	from	December	31,	2008.	Equity	at	December	31, 2008,	was	reduced	by	$704	million	for	other	comprehensive	 losses.	Other	comprehensive	 losses	 in	2008	were	related	primarily	 to	pensions.	See	Note	9	 to	our consolidated	financial	statements	in	Item	8	for	more	information.

# LIQUIDITY	AND	CAPITAL	RESOURCES

As	of	December	31,	2009,	our	principal	sources	of	liquidity	included	cash,	cash	equivalents,	the	sale	of	certain	receivables,	and	our	revolving	credit	facility,	as	well	as the	availability	of	commercial	paper	and	other	sources	of	financing	through	the	capital	markets.	We	had	$1.9	billion	of	committed	credit	available	under	our	credit facility,	with	no	borrowings	outstanding	as	of	December	31,	2009.	We	did	not	make	any	borrowings	under	this	facility	during	2009.	The	value	of	the	outstanding undivided	interest	held	by	investors	under	the	sale	of	receivables	program	was	$400	million	as	of	December	31,	2009.	The	sale	of	receivables	program	is	subject	to certain	requirements,	including	maintenance	of	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	utilize	commercial	paper	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,	2009,	we	had	a	working	capital	surplus	of	approximately	$1.0	billion,	which	reflects	our	decision	to	maintain	additional	cash	reserves	to	enhance liquidity	in	response	to	difficult	economic	conditions.	At	December	31,	2008,	we	had	a	working	capital	deficit	of	approximately	$100	million.	Historically,	we	have	had a	working	capital	deficit,	which	is	common	in	our	industry	and	does	not	indicate	a	lack	of	liquidity.	We	maintain	adequate	resources	and,	when	necessary,	have	access	to capital	to	meet	any	daily	and	short-term	cash	requirements,	and	we	have	sufficient	financial	capacity	to	satisfy	our	current	liabilities.

| Millions	of	Dollars | 2009 | 2008 | 2007 |
| :--- | :--- | :--- | :--- |
| Cash\tprovided\tby\toperating\tactivities | $\t\t\t\t3,234 | $\t\t\t\t4,070 | $\t\t\t\t3,277 |
| Cash\tused\tin\tinvesting\tactivities | (2,175) | (2,764) | (2,426) |
| Cash\tused\tin\tfinancing\tactivities | (458) | (935) | (800) |
| Net\tchange\tin\tcash\tand\tcash\tequivalents | $601 | $371 | $51 |

# Operating	Activities

Lower	net	income	in	2009,	a	reduction	of	$184	million	in	the	outstanding	balance	of	our	accounts	receivable	securitization	program,	higher	pension	contributions	of	$72 million,	and	changes	to	working	capital	combined	to	decrease	cash	provided	by	operating	activities	compared	to	2008.	Higher	net	income	and	changes	in	working	capital combined	to	increase	cash	provided	by	operating	activities	in	2008	compared	to	2007.	In	addition,	accelerated	tax	deductions	enacted	in	2008	on	certain	new	operating assets	resulted	in	lower	income	tax	payments	in	2008	versus	2007.	Voluntary	pension	contributions	in	2008	totaling	$200	million	and	other	pension	contributions	of	$8 million	partially	offset	the	year-over-year	increase	versus	2007.

# Investing	Activities

Lower	capital	investments	and	higher	proceeds	from	asset	sales	drove	the	decrease	in	cash	used	in	investing	activities	in	2009	versus	2008.	Increased	capital	investments and	lower	proceeds	from	asset	sales	drove	the	increase	in	cash	used	in	investing	activities	in	2008	compared	to	2007.

The	tables	below	detail	cash	capital	investments	and	track	statistics	for	the	years	ended	December	31,	2009,	2008,	and	2007:

Capital	Plan	–	In	2010,	we	expect	our	total	capital	investments	to	be	approximately	$2.5	billion,	which	may	be	revised	if	business	conditions	or	new	laws	or	regulations affect	our	ability	to	generate	sufficient	returns	on	these	investments.	We	expect	approximately	73%	of	our	2010	capital	investments	will	replace	and	improve	existing capital	assets.	Major	investment	categories	include	replacing	and	improving	track	infrastructure;	increasing	network	and	terminal	capacity;	improving	locomotives	and freight	cars;	improving	technology,	including	investing	in	PTC;	and	other	capital	projects.	We	expect	to	fund	our	2010	cash	capital	investments	through	cash	generated from	operations,	the	sale	or	lease	of	various	operating	and	non-operating	properties,	issuance	of	long-term	debt,	and	cash	on	hand	at	December	31,	2009.	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	decreased	in	2009	versus	2008.	During	2009	we	did	not	repurchase	any	shares	under	our	common	stock	repurchase	program,	compared to	$1.6	billion	of	repurchases	in	2008.	Additionally,	debt	repayments	were	$337	million	lower	in	2009,	partially	offset	by	lower	new	debt	issuances	of	$1.4	billion	and higher	 dividend	 payments	 (we	 increased	 our	 dividend	 from	 $0.22	 per	 share	 to	 its	 current	 level	 of	 $0.27	 per	 share,	 effective	 in	 the	 third	 quarter	 of	 2008).	The restructuring	of	equipment	leases	also	generated	$87	million	in	cash	consideration,	further	contributing	to	the	decrease	(see	further	discussion	in	this	Item	7	under Liquidity	and	Capital	Resources	–	Financing	Activities).	Cash

used	in	financing	activities	increased	in	2008	versus	2007	due	to	higher	debt	repayments	of	$416	million,	an	increase	of	$234	million	for	the	repurchase	of	common shares	(see	further	discussion	of	common	shares	in	Market	for	the	Registrant's	Common	Equity,	Related	Stockholder	Matters,	and	Issuer	Purchases	of	Equity	Securities -	Purchases	of	Equity	Securities	Part	II,	Item	5)	and	an	increase	of	dividends	paid,	reflecting	a	higher	quarterly	dividend.	Higher	debt	issuances	of	$676	million	partially offset	these	increases.

Credit	Facilities	–	On	December	31,	2009,	we	had	$1.9	billion	of	credit	available	under	our	revolving	credit	facility	(the	facility).	The	facility	is	designated	for	general corporate	purposes	and	supports	the	issuance	of	commercial	paper.	We	did	not	draw	on	the	facility	during	2009.	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	borrowings	at	floating	rates	based	on	London Interbank	Offered	Rates,	plus	a	spread,	depending	upon	our	senior	unsecured	debt	ratings.	The	facility	requires	Union	Pacific	Corporation	to	maintain	a	debt-to-net- worth	coverage	ratio	as	a	condition	to	making	a	borrowing.	At	December	31,	2009,	and	December	31,	2008	(and	at	all	times	during	these	periods),	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,	2009,	the	debt-to-net-worth	coverage	ratio	allowed	us	to	carry	up	to $33.9	billion	of	debt	(as	defined	in	the	facility),	and	we	had	$10.4	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.	The	facility	will	expire	in	April	2012	in	accordance	with	its	terms,	and	we	currently	intend	to	replace	the	facility	with	a	substantially	similar	credit agreement	on	or	before	the	expiration	date,	which	is	consistent	with	our	past	practices	with	respect	to	our	credit	facilities.

At	December	31,	2009,	we	had	no	commercial	paper	outstanding.	Our	commercial	paper	balance	is	supported	by	our	revolving	credit	facility	but	does	not	reduce	the amount	of	borrowings	available	under	the	facility.	During	2009,	we	issued	$100	million	of	commercial	paper	and	repaid	$200	million.

At	December	31,	2009,	we	reclassified	as	long-term	debt	approximately	$320	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.	At	December	31,	2008,	we reclassified	as	long-term	debt	approximately	$400	million	of	debt	due	within	one	year	that	we	intended	to	refinance	at	that	time.

# Ratio	of	Earnings	to	Fixed	Charges

For	each	of	the	years	ended	December	31,	2009,	2008,	and	2007,	our	ratio	of	earnings	to	fixed	charges	was	4.9,	5.9,	and	5.1,	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	that,	under	certain	circumstances,	restricts	the	payment	of	cash	dividends	to our	shareholders.	The	amount	of	retained	earnings	available	for	dividends	was	$11.7	billion	and	$10.5	billion	at	December	31,	2009	and	2008,	respectively.

Stock	Split	–	On	May	28,	2008,	we	completed	a	two-for-one	stock	split,	effected	in	the	form	of	a	100%	stock	dividend.	The	stock	split	entitled	all	shareholders	of record	at	the	close	of	business	on	May	12,	2008,	to	receive	one	additional	share	of	our	common	stock,	par	value	$2.50	per	share,	for	each	share	of	common	stock	held on	that	date.

Share	Repurchase	Program	–	On	January	30,	2007,	our	Board	of	Directors	authorized	the	repurchase	of	up	to	40	million	shares	of	Union	Pacific	Corporation	common stock	through	the	end	of	2009.	On	May	1,	2008,	our	Board	of	Directors	authorized	the	repurchase	of	an	additional	40	million	common	shares	by	March	31,	2011. Management's	assessments	of	market	conditions	and	other	pertinent	facts	guide	the	timing	and	volume	of	all	repurchases.	During	2009,	we	did	not	repurchase	shares under	this	program.	In	2008,	we	repurchased	approximately	22	million	shares	at	an	aggregate	purchase	price	of	approximately	$1.5	billion.	These	shares	were	recorded in	treasury	stock	at	cost,	which	includes	any	applicable	commissions	and	fees.	If	we	elect	to	make	repurchases	of	our	common	stock	under	this	program	in	2010,	we expect	to	fund	such	repurchases	through	cash	generated	from	operations,	the	sale	or	lease	of	various	operating	and	non-operating	properties,	debt	issuances,	and	cash	on hand.

Shelf	Registration	Statement	and	Significant	New	Borrowings	–	Under	our	current	shelf	registration	statement,	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.	In	July	2008,	our	Board	of	Directors authorized	the	issuance	of	an	additional	$3	billion	of	debt	securities	under	our	shelf	registration.	At	December	31,	2009,	we	had	remaining	authority	to	issue	up	to	$2.25 billion	of	debt	securities.

During	2009,	we	issued	the	following	unsecured,	fixed-rate	debt	securities	under	our	current	shelf	registration:

The	net	proceeds	from	these	offerings	were	for	general	corporate	purposes,	including	the	repurchase	of	common	stock	pursuant	to	our	share	repurchase	program.	These debt	securities	include	change-of-control	provisions.

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	the	second	quarter	of	2009,	we	restructured	lease	agreements	for	813	locomotives	resulting	in	a	change	in	lease	classification	from	operating	to	capital.	As	part	of the	restructuring	arrangements,	we	received	$87	million	in	cash	consideration.	We	recorded	capital	lease	assets	of	approximately	$742	million	and	related	capital	lease obligations	totaling	approximately	$843	million.	Included	in	our	capital	lease	obligations	is	the	$87	million	in	cash	consideration	and	$14	million	of	accrued	operating lease

payables	that	were	reclassified	as	part	of	our	capital	lease	obligations.	Capital	lease	obligations	are	reported	in	our	Consolidated	Statements	of	Financial	Position	as	debt.

On	October	15,	2009,	we	entered	into	a	capital	lease	agreement	for	44	locomotives	with	a	total	equipment	cost	of	$100	million.	The	lessor	purchased	the	44	locomotives from	the	Corporation	and	subsequently	leased	the	locomotives	back	to	the	Railroad.	These	capital	lease	obligations	are	reported	in	our	Consolidated	Statements	of Financial	Position	as	debt	at	December	31,	2009.

# Off-Balance	Sheet	Arrangements,	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,	2009:

| Contractual	Obligations |  |  |  |  |  |  | After |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Millions\tof\tDollars | Total | 2010 | 2011 | 2012 | 2013 | 2014 | 2014 | Other |
| Debt\t[a] | $12,645 | $846 | $896 | $1,104 | $985 | $951 | $7,863 | $- |
| Operating\tleases | 5,312 | 576 | 570 | 488 | 425 | 352 | 2,901 | - |
| Capital\tlease\tobligations\t[b] | 2,975 | 290 | 292 | 247 | 256 | 267 | 1,623 | - |
| Purchase\tobligations\t[c] | 2,738 | 386 | 317 | 242 | 249 | 228 | 1,284 | 32 |
| Other\tpost\tretirement\tbenefits\t[d] | 435 | 41 | 42 | 43 | 43 | 44 | 222 | - |
| Income\ttax\tcontingencies\t[e] | 61 | 1 | - | - | - | - | - | 60 |
| Total\tcontractual\tobligations | $\t\t24,166 | $\t\t2,140 | $\t\t2,117 | $\t\t2,124 | $\t\t1,958 | $\t\t1,842 | $\t\t13,893 | $ \t\t92 |

[a] Excludes	capital	lease	obligations	of	$2,061	million,	unamortized	discount	of	$(110)	million,	and	market	value	adjustments	of	$15	million	for	debt	with	qualifying	hedges	that	are	recorded	as	liabilities	on	the Consolidated	Statements	of	Financial	Position.	Includes	an	interest	component	of	$4,763	million.

[b] Represents	total	obligations,	including	interest	component	of	$914	million.

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

[d] 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	as	no contributions	are	currently	required.

[e] Future	cash	flows	for	income	tax	contingencies	reflect	the	recorded	liability	for	unrecognized	tax	benefits,	including	interest	and	penalties,	as	of	December	31,	2009.	Where	we	can	reasonably	estimate	the	years	in which	these	liabilities	may	be	settled,	this	is	shown	in	the	table.	For	amounts	where	we	can	not	reasonably	estimate	the	year	of	settlement,	they	are	reflected	in	the	Other	column.

# Amount	of	Commitment	Expiration	per	Period

| Other	Commercial	Commitments |  |  |  |  |  |  | After |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Millions\tof\tDollars | Total | 2010 | 2011 | 2012 | 2013 | 2014 | 2014 |
| Credit\tfacilities\t[a] | $1,900 | $- | $- | $1,900 | $- | $- | $- |
| Sale\tof\treceivables\t[b] | 600 | 600 | - | - | - | - | - |
| Guarantees\t[c] | 416 | 29 | 76 | 24 | 8 | 214 | 65 |
| Standby\tletters\tof\tcredit\t[d] | 22 | 22 | - | - | - | - | - |
| Total\tcommercial\tcommitments | $\t\t2,938 | $\t\t\t\t651 | $\t\t\t\t\t\t76 | $\t\t\t\t\t\t1,924 | $\t\t8 | $\t\t\t\t\t\t\t\t214 | $\t\t\t\t65 |

[a] None	of	the	credit	facility	was	used	as	of	December	31,	2009.

[b] $400	million	of	the	sale	of	receivables	program	was	utilized	at	December	31,	2009.

[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,	2009.

# Off-Balance	Sheet	Arrangements

Sale	of	Receivables	–	The	Railroad	transfers	most	of	its	accounts	receivable	to	Union	Pacific	Receivables,	Inc.	(UPRI),	a	bankruptcy-remote	subsidiary,	as	part	of	a	sale of	receivables	facility.	UPRI	sells,	without	recourse	on	a	364-day	revolving	basis,	an	undivided	interest	in	such	accounts	receivable	to	investors.	The	total	capacity	to	sell undivided	interests	to	investors	under	the	facility	was	$600	million	and	$700	million	at	December	31,	2009	and	2008,	respectively.	The	value	of	the	outstanding undivided	interest	held	by	investors	under	the	facility	was	$400	million	and	$584	million	at	December	31,	2009	and	2008,	respectively.	During	2009,	UPRI	reduced	the outstanding	undivided	interest	held	by	investors	due	to	a	decrease	in	available	receivables.	The	value	of	the	undivided	interest	held	by	investors	is	not	included	in	our Consolidated	Financial	Statements.	The	value	of	the	undivided	interest	held	by	investors	was	supported	by	$817	million	and	$1,015	million	of	accounts	receivable	held by	UPRI	at	December	31,	2009	and	2008,	respectively.	At	December	31,	2009	and	2008,	the	value	of	the	interest	retained	by	UPRI	was	$417	million	and	$431	million, respectively.	This	retained	interest	is	included	in	accounts	receivable	in	our	Consolidated	Financial	Statements.	The	interest	sold	to	investors	is	sold	at	carrying	value, which	approximates	fair	value,	and	there	is	no	gain	or	loss	recognized	from	the	transaction.

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,	2009.	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	services	the	sold	receivables;	however,	the	Railroad	does	not	recognize	any	servicing	asset	or	liability,	as	the	servicing	fees	adequately	compensate	us	for these	responsibilities.	The	Railroad	collected	approximately	$13.8	billion	and	$17.8	billion	during	the	years	ended	December	31,	2009	and	2008,	respectively.	UPRI used	certain	of	these	proceeds	to	purchase	new	receivables	under	the	facility.

The	costs	of	the	sale	of	receivables	program	are	included	in	other	income	and	were	$9	million,	$23	million,	and	$35	million	for	2009,	2008,	and	2007,	respectively.	The costs	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	decrease	in	the	2009	costs	was	primarily	attributable	to	lower	commercial	paper	rates	and	a	decrease	in	the	outstanding	interest	held	by investors.

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	2009,	the	sale	of	receivables	facility	was	renewed	for	an	additional	364-day	period	at	comparable	terms	and	conditions,	although	the	capacity	to	sell	undivided interests	was	reduced	from	$700	million	to	$600	million.

See	further	discussion	in	this	Item	7	under	Other	Matters	–	Accounting	Pronouncements	for	information	about	recent	accounting	pronouncements	that	will	have	an impact	on	the	accounting	treatment	of	our	sale	of	receivables	program.

Guarantees	–	At	December	31,	2009,	we	were	contingently	liable	for	$416	million	in	guarantees.	We	have	recorded	a	liability	of	$3	million	and	$4	million	for	the	fair value	of	these	obligations	as	of	December	31,	2009	and	2008,	respectively.	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.

Inflation	–	The	cumulative	effect	of	long	periods	of	inflation	significantly	increases	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,	2009	and	2008,	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,	2009,	we	had	variable-rate	debt	representing	approximately	4%	of	our	total	debt.	If	variable	interest	rates	average	one	percentage	point	higher	in	2010 than	our	December	31,	2009	variable	rate,	which	was	approximately	2%,	our	interest	expense	would	increase	by	approximately	$4	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,	2009.

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,	2009,	and	amounts	to	an	increase	of	approximately	$774	million	to	the	fair	value	of	our	debt	at	December	31,	2009.	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	Financial	Accounting	Standards	Board (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	income/loss	until	the	hedged	item affects	earnings.	At	December	31,	2009	and	2008,	we	had	reductions	of	$3	million	and	$4	million,	respectively,	recorded	as	an	accumulated	other	comprehensive income/loss	that	is	being	amortized	on	a	straight-line	basis	through	September	30,	2014.	As	of	December	31,	2009	and	2008,	we	had	no	interest	rate	cash	flow	hedges outstanding.

Accounting	Pronouncements	–	In	January	2010,	the	FASB	issued	Accounting	Standards	Update	No.	2010-06,	Improving	Disclosures	about	Fair	Value	Measurements. The	Update	provides	amendments	to	FASB	ASC	820-10	that	require	entities	to	disclose	separately	the	amounts	of	significant	transfers	in	and	out	of	Level	1	and	Level	2 fair	value	measurements	and	describe	the	reasons	for	the	transfers.	In	addition	the	Update	requires	entities	to	present	separately	information	about	purchases,	sales, issuances,	and	settlements	in	the	reconciliation	for	fair	value	measurements	using	significant	unobservable	inputs	(Level	3).	The	disclosures	related	to	Level	1	and	Level 2	fair	value	measurements	are	effective	for	us	in	2010	and	the	disclosures	related	to	Level	3	fair	value	measurements	are	effective	for	us	in	2011.	The	Update	requires new	disclosures	only,	and	will	have	no	impact	on	our	consolidated	financial	position,	results	of	operations,	or	cash	flows.

In	June	2009,	the	FASB	issued	Statement	No.	166,	Accounting	for	Transfers	of	Financial	Assets—an	amendment	of	FASB	Statement	No.	140	(FAS	166).	FAS	166	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.	In	addition,	the	concept	of	a	qualifying	special-purpose	entity	is	no	longer	relevant	for	accounting	purposes. Therefore,	formerly	qualifying	special-purpose	entities	(as	defined	under	previous	accounting	standards)	should	be	evaluated	for	consolidation	by	reporting	entities	on and	after	the	effective	date	in	accordance	with	the	applicable	consolidation	guidance.	FAS	166	will	be	effective	for	us	beginning	in	2010.	After	adoption,	transfers	of undivided	interests	in	accounts	receivable	to	investors	under	our	sale	of	receivables	program	will	no	longer	qualify	for	sale	treatment,	but	rather	will	be	accounted	for	as secured	borrowings

in	our	Consolidated	Statements	of	Financial	Position.	We	are	still	evaluating	the	impact	on	our	Consolidated	Statements	of	Cash	Flows	related	to	the	adoption	of	this standard.	The	value	of	the	outstanding	undivided	interest	held	by	investors	under	our	sale	of	receivables	program	at	December	31,	2009	was	$400	million.

In	June	2009,	the	FASB	issued	Statement	No.	167,	Amendments	to	FASB	Interpretation	No.	46(R)	(FAS	167).	FAS	167	retains	the	scope	of	Interpretation	46(R), Consolidation	of	Variable	Interest	Entities,	with	the	addition	of	entities	previously	considered	qualifying	special-purpose	entities,	as	the	concept	of	these	entities	was eliminated	in	FASB	Statement	No.	166,	Accounting	for	Transfers	of	Financial	Assets—an	amendment	of	FASB	Statement	No.	140.	FAS	167	will	be	effective	for	us beginning	in	2010.	The	adoption	of	FAS	167	will	not	affect	our	consolidated	financial	position,	results	of	operations,	or	cash	flows.

In	June	2009,	the	FASB	issued	Statement	No.	168,	The	FASB	Accounting	Standards	Codification 	and	the	Hierarchy	of	Generally	Accepted	Accounting	Principles—a replacement	 of	 FASB	 Statement	 No.	 162 (FAS	 168).	 The	 Codification	 became	 the	 source	 of	 authoritative	 GAAP	 recognized	 by	 the	 FASB	 to	 be	 applied	 by nongovernmental	entities.	Rules	and	 interpretive	releases	of	 the	SEC	under	authority	of	federal	securities	 laws	are	also	sources	of	authoritative	GAAP	for	SEC registrants.	On	the	effective	date	of	FAS	168,	the	Codification	superseded	all	then-existing	non-SEC	accounting	and	reporting	standards.	All	other	nongrandfathered non-SEC	accounting	literature	not	included	in	the	Codification	became	nonauthoritative.	FAS	168	was	effective	for	financial	statements	issued	for	interim	and	annual periods	ending	after	September	15,	2009.	The	adoption	of	FAS	168	did	not	affect	our	consolidated	financial	position,	results	of	operations,	or	cash	flows. TM

In	May	2009,	 the	FASB	 issued	Statement	No.	165,	Subsequent	Events	(FAS	165)	(codified	as	FASB	ASC	855-10-50).	FAS	165	establishes	general	standards	of accounting	for	and	disclosures	of	events	that	occur	after	the	balance	sheet	date	but	before	financial	statements	are	issued	or	are	available	to	be	issued.	It	requires	the disclosure	of	the	date	through	which	an	entity	has	evaluated	subsequent	events	and	the	basis	for	that	date.	FAS	165	was	effective	for	interim	or	annual	financial	periods ending	after	June	15,	2009.	The	adoption	of	FAS	165	did	not	affect	our	consolidated	financial	position,	results	of	operations,	or	cash	flows.

In	April	2009,	the	FASB	issued	FSP	No.	FAS	107-1	and	APB	28-1,	Interim	Disclosures	about	Fair	Value	of	Financial	Instruments	(codified	as	FASB	ASC	820-10- 50).	This	FSP	amends	FASB	Statement	No.	107,	to	require	disclosures	about	fair	values	of	financial	instruments	for	interim	reporting	periods	as	well	as	in	annual financial	statements.	The	FSP	also	amends	APB	Opinion	No.	28	to	require	those	disclosures	in	summarized	financial	information	at	interim	reporting	periods.	This	FSP was	effective	for	interim	reporting	periods	ending	after	June	15,	2009.	The	adoption	of	this	FSP	did	not	affect	our	consolidated	financial	position,	results	of	operations, or	cash	flows.

In	December	2008,	the	FASB	issued	FSP	FAS	132(R)-1,	Employers'	Disclosure	about	Postretirement	Benefit	Plan	Assets	(codified	as	FASB	ASC	715-20-50),	which amended	Statement	132(R)	 to	require	more	detailed	disclosures	about	employers'	pension	plan	assets.	New	disclosures	 include	more	 information	on	 investment strategies,	major	categories	of	plan	assets,	concentrations	of	risk	within	plan	assets	and	valuation	techniques	used	to	measure	the	fair	value	of	plan	assets.	This	new standard	required	new	disclosures	only,	and	had	no	impact	on	our	consolidated	financial	position,	results	of	operations	or	cash	flows.	These	new	disclosures	are	included in	Note	5	to	the	Consolidated	Financial	Statements.

Change	in	Accounting	Principle	–	We	have	historically	accounted	for	rail	grinding	costs	as	a	capital	asset.	Beginning	in	the	first	quarter	of	2010,	we	will	change	our accounting	policy	for	rail	grinding	costs	from	a	capitalization	method,	under	which	we	have	capitalized	the	cost	of	rail	grinding	and	depreciated	such	capitalized	costs,	to a	direct	expense	method,	under	which	we	will	expense	rail	grinding	costs	as	incurred.	The	expense	as	incurred	method	is	preferable,	as	it	eliminates	the	subjectivity	in determining

the	period	of	benefit	associated	with	rail	grinding	over	which	to	depreciate	the	associated	capitalized	costs.	We	will	reflect	this	change	as	a	change	in	accounting principle	 from	 an	 acceptable	 accounting	 principle	 to	 a	 preferable	 accounting	 principle.	The	 application	 of	 this	 preferable	 accounting	 principle	 will	 be	 presented retrospectively	to	all	periods	presented	in	future	earnings	releases	and	SEC	filings.	When	the	accounting	principle	is	retrospectively	applied,	net	income	for	the	years ended	December	31,	2009,	2008,	and	2007	will	decrease	by	approximately	$8	million,	$3	million,	and	$7	million,	or	$0.01,	$0.01	and	$0.02	per	share,	respectively.	This change	in	accounting	principle	is	not	expected	to	have	a	material	impact	on	our	consolidated	financial	position,	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	third-party	actuaries	to	assist	us	in	measuring	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	13%	of	the	recorded	liability	related	to	asserted	claims, and	approximately	87%	related	to	unasserted	claims	at	December	31,	2009.	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	$545	million	to	$602	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:

Asbestos	–	We	are	a	defendant	in	a	number	of	lawsuits	in	which	current	and	former	employees	and	other	parties	allege	exposure	to	asbestos.	We	engage	a	third	party with	extensive	experience	in	estimating	resolution	costs	for	asbestos-related	claims	to	assist	us	in	assessing	our	potential	liability.	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.

•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,	2009.	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	$174	million	to	$189	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	2009,	we also	reassessed	estimated	insurance	recoveries.	We	have	recognized	an	asset	for	estimated	insurance	recoveries	at	December	31,	2009	and	2008.	Our	asbestos-related liability	activity	was	as	follows:

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	307	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	and	our	consultants	perform	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,	2009,	approximately	12%	of	our	environmental	 liability	was	discounted	at	3.4%,	while	approximately	13%	of	our	environmental	 liability	was discounted	at	3.5%	at	December	31,	2008.	Our	environmental	liability	activity	was	as	follows:

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),	which	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	life	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	2009,	the	estimated	service	lives	of	the	majority of	this	rail	ranged	from	14	years	to	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	$43	million.	If	the	estimated	useful	lives	of	all	depreciable	assets	were	decreased	by	one	year,	annual	depreciation	expense	would increase	by	approximately	$46	million.	Our	recent	depreciation	studies	have	resulted	in	changes	in	depreciation	rates	for	some	asset	classes,	which	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	life	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.

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	changes	in	tax	laws	are	not	anticipated.	Future	tax	law	changes,	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	$280	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	 about	 future	 events.	 The	 valuation	 allowance	 at	 December	 31,	 2009	 was	 $8	 million.	 There	 was	 no	 valuation	 allowance	 at December	31,	2008.

At	times,	we	may	claim	tax	benefits	that	may	be	challenged	by	a	tax	authority.	We	recognize	tax	benefits	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.	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	third-party	actuaries	to	assist	us	in	properly	measuring	the	liabilities	and	expenses	associated	with	providing pension	and	defined	contribution	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	healthcare	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.

•	 Healthcare	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	pension	and	OPEB	expense	for	2009	and	the	estimated	impact	on	2009	pension	and	OPEB	expense relative	to	a	change	in	those	assumptions:

| Assumptions | Pension | OPEB |
| :--- | :--- | :--- |
| Discount\trate | 6.25% | 6.25% |
| Expected\treturn\ton\tplan\tassets | 8.00% | N/A |
| Salary\tincrease | 3.50% | N/A |
| Healthcare\tcost\ttrend\trate: |  |  |
| Pre-65\tcurrent | N/A | 7.50% |
| Pre-65\tlevel\tin\t2028 | N/A | 4.50% |
| Post-65\tcurrent | N/A | 9.10% |
| Post-65\tlevel\tin\t2028 | N/A | 4.50% |

# 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	regarding	future economic	conditions,	our	ability	to	participate	in	future	economic	growth	and	create	value	for	our	shareholders,	and	future	capital	investments;	statements	regarding planned	 capital	 expenditures	 under	 the	 caption	 "2010	 Capital	 Expenditures"	 in	 Item	 2	 of	 Part	 I;	 statements	 regarding	 dividends	 in	 Item	 5	 and	 statements;	 and information	set	forth	under	the	captions	"2010	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;	 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 | Page |
| Report\tof\tIndependent\tRegistered\tPublic\tAccounting\tFirm | 56 |
| Consolidated\tStatements\tof\tIncome\nFor\tthe\tYears\tEnded\tDecember\t31,\t2009,\t2008,\tand\t2007 | 57 |
| Consolidated\tStatements\tof\tFinancial\tPosition\nAt\tDecember\t31,\t2009\tand\t2008 | 58 |
| Consolidated\tStatements\tof\tCash\tFlows\nFor\tthe\tYears\tEnded\tDecember\t31,\t2009,\t2008,\tand\t2007 | 59 |
| Consolidated\tStatements\tof\tChanges\tin\tCommon\tShareholders'\tEquity\nFor\tthe\tYears\tEnded\tDecember\t31,\t2009,\t2008,\tand\t2007 | 60 |
| Notes\tto\tthe\tConsolidated\tFinancial\tStatements | 61 |

# REPORT	OF	INDEPENDENT	REGISTERED	PUBLIC	ACCOUNTING	FIRM

Union	Pacific	Corporation,	its	Directors,	and	Shareholders:

We	have	audited	the	accompanying	consolidated	statements	of	financial	position	of	Union	Pacific	Corporation	and	Subsidiary	Companies	(the	Corporation)	as	of December	31,	2009	and	2008,	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,	2009.	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,	2009	and	2008,	and	the	results	of	their	operations	and	their	cash	flows	for	each	of	the	three	years	in	the	period	ended	December	31,	2009, 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,	2009,	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	5,	2010,	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, | 2009 | 2008 | 2007 |
| :--- | :--- | :--- | :--- |
| Operating\trevenues: |  |  |  |
| Freight\trevenues | $\t\t\t\t13,373 | $\t\t\t\t17,118 | $\t\t\t\t15,486 |
| Other\trevenues | 770 | 852 | 797 |
| Total\toperating\trevenues | 14,143 | 17,970 | 16,283 |
| Operating\texpenses: |  |  |  |
| Compensation\tand\tbenefits | 4,063 | 4,457 | 4,526 |
| Fuel | 1,763 | 3,983 | 3,104 |
| Purchased\tservices\tand\tmaterials | 1,614 | 1,902 | 1,856 |
| Depreciation | 1,444 | 1,387 | 1,321 |
| Equipment\tand\tother\trents | 1,180 | 1,326 | 1,368 |
| Other | 687 | 840 | 733 |
| Total\toperating\texpenses | 10,751 | 13,895 | 12,908 |
| Operating\tincome | 3,392 | 4,075 | 3,375 |
| Other\tincome\t(Note\t6) | 195 | 92 | 116 |
| Interest\texpense | (600) | (511) | (482) |
| Income\tbefore\tincome\ttaxes | 2,987 | 3,656 | 3,009 |
| Income\ttaxes\t(Note\t7) | (1,089) | (1,318) | (1,154) |
| Net\tincome | $1,898 | $2,338 | $1,855 |
| Share\tand\tPer\tShare\t(Note\t8) |  |  |  |
| Earnings\tper\tshare\t-\tbasic | $3.77 | $4.58 | $3.49 |
| Earnings\tper\tshare\t-\tdiluted | $3.75 | $4.54 | $3.46 |
| Weighted\taverage\tnumber\tof\tshares\t-\tbasic | 503.0 | 510.6 | 531.9 |
| Weighted\taverage\tnumber\tof\tshares\t-\tdiluted | 505.8 | 515.0 | 536.8 |
| Dividends\tdeclared\tper\tshare | $1.08 | $0.98 | $0.745 |

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

# CONSOLIDATED	STATEMENTS	OF	FINANCIAL	POSITION

| Millions	of	Dollars,	as	of	December	31, | 2009 | 2008 |
| :--- | :--- | :--- |
| Assets |  |  |
| Current\tassets: |  |  |
| Cash\tand\tcash\tequivalents | $1,850 | $1,249 |
| Accounts\treceivable | 666 | 594 |
| Materials\tand\tsupplies | 475 | 450 |
| Current\tdeferred\tincome\ttaxes\t(Note\t7) | 339 | 276 |
| Other\tcurrent\tassets | 350 | 244 |
| Total\tcurrent\tassets | 3,680 | 2,813 |
| Investments | 1,036 | 974 |
| Net\tproperties\t(Note\t10) | 37,428 | 35,701 |
| Other\tassets | 266 | 234 |
| Total\tassets | $\t\t\t\t42,410 | $\t\t\t\t39,722 |
| Liabilities\tand\tCommon\tShareholders'\tEquity |  |  |
| Current\tliabilities: |  |  |
| Accounts\tpayable\tand\tother\tcurrent\tliabilities\t(Note\t11) | $2,470 | $2,560 |
| Debt\tdue\twithin\tone\tyear\t(Note\t13) | 212 | 320 |
| Total\tcurrent\tliabilities | 2,682 | 2,880 |
| Debt\tdue\tafter\tone\tyear\t(Note\t13) | 9,636 | 8,607 |
| Deferred\tincome\ttaxes\t(Note\t7) | 11,130 | 10,282 |
| Other\tlong-term\tliabilities | 2,021 | 2,506 |
| Commitments\tand\tcontingencies\t(Note\t15) |  |  |
| Total\tliabilities | 25,469 | 24,275 |
| Common\tshareholders'\tequity\t(Note\t3): |  |  |
| Common\tshares,\t$2.50\tpar\tvalue,\t800,000,000\tauthorized; |  |  |
| 553,497,981\tand\t552,775,812\tissued;\t505,039,952\tand\t503,225,705\toutstanding,\trespectively | 1,384 | 1,382 |
| Paid-in-surplus | 3,968 | 3,949 |
| Retained\tearnings | 15,167 | 13,813 |
| Treasury\tstock | (2,924) | (2,993) |
| Accumulated\tother\tcomprehensive\tloss\t(Note\t9) | (654) | (704) |
| Total\tcommon\tshareholders'\tequity | 16,941 | 15,447 |
| Total\tliabilities\tand\tcommon\tshareholders'\tequity | $42,410 | $39,722 |

# CONSOLIDATED	STATEMENTS	OF	CASH	FLOWS

| Millions	of	Dollars,	for	the	Years	Ended	December	31, | 2009 | 2008 | 2007 |
| :--- | :--- | :--- | :--- |
| Operating\tActivities |  |  |  |
| Net\tincome | $1,898 | $2,338 | $1,855 |
| Adjustments\tto\treconcile\tnet\tincome\tto\tcash\tprovided\tby\toperating\tactivities: |  |  |  |
| Depreciation | 1,444 | 1,387 | 1,321 |
| Deferred\tincome\ttaxes\tand\tunrecognized\ttax\tbenefits | 723 | 547 | 332 |
| Net\tgain\ton\tnon-operating\tasset\tdisposition | (162) | (41) | (52) |
| Other\toperating\tactivities,\tnet | (376) | 89 | (207) |
| Changes\tin\tcurrent\tassets\tand\tliabilities: |  |  |  |
| Accounts\treceivable,\tnet | (72) | 38 | 47 |
| Materials\tand\tsupplies | (25) | 3 | (58) |
| Other\tcurrent\tassets | (106) | 51 | (104) |
| Accounts\tpayable\tand\tother\tcurrent\tliabilities | (90) | (342) | 143 |
| Cash\tprovided\tby\toperating\tactivities | 3,234 | 4,070 | 3,277 |
| Investing\tActivities |  |  |  |
| Capital\tinvestments | (2,384) | (2,780) | (2,496) |
| Proceeds\tfrom\tasset\tsales | 187 | 93 | 122 |
| Acquisition\tof\tequipment\tpending\tfinancing | (100) | (388) | (621) |
| Proceeds\tfrom\tsale\tof\tassets\tfinanced | 100 | 388 | 621 |
| Other\tinvesting\tactivities,\tnet | 22 | (77) | (52) |
| Cash\tused\tin\tinvesting\tactivities | (2,175) | (2,764) | (2,426) |
| Financing\tActivities |  |  |  |
| Debt\tissued | 843 | 2,257 | 1,581 |
| Common\tshare\trepurchases\t(Note\t16) | - | (1,609) | (1,375) |
| Debt\trepaid | (871) | (1,208) | (792) |
| Dividends\tpaid | (544) | (481) | (364) |
| Other\tfinancing\tactivities,\tnet | 114 | 106 | 150 |
| Cash\tused\tin\tfinancing\tactivities | (458) | (935) | (800) |
| Net\tchange\tin\tcash\tand\tcash\tequivalents | 601 | 371 | 51 |
| Cash\tand\tcash\tequivalents\tat\tbeginning\tof\tyear | 1,249 | 878 | 827 |
| Cash\tand\tcash\tequivalents\tat\tend\tof\tyear | $1,850 | $1,249 | $878 |
| Supplemental\tCash\tFlow\tInformation |  |  |  |
| Non-cash\tinvesting\tand\tfinancing\tactivities: |  |  |  |
| Capital\tlease\tfinancings | $842 | $175 | $82 |
| Cash\tdividends\tdeclared\tbut\tnot\tyet\tpaid | 132 | 132 | 112 |
| Capital\tinvestments\taccrued\tbut\tnot\tyet\tpaid | 96 | 93 | 126 |
| Settlement\tof\tcurrent\tliabilities\tfor\tdebt | 14 | - | - |
| Common\tshares\trepurchased\tbut\tnot\tyet\tpaid | - | - | 82 |
| Cash\tpaid\tduring\tthe\tyear\tfor: |  |  |  |
| Interest,\tnet\tof\tamounts\tcapitalized | $(578) | $(500) | $(467) |
| Income\ttaxes,\tnet\tof\trefunds | (452) | (699) | (839) |

# CONSOLIDATED	STATEMENTS	OF	CHANGES	IN	COMMON	SHAREHOLDERS'	EQUITY

| Millions	of	Dollars | Common | Treasury | Common | Paid-in- | Retained | Treasury | AOCI |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Thousands\tof\tShares | Shares | Shares | Shares | Surplus | Earnings | Stock | [a] | Total |
| Balance\tat\tJanuary\t1,\t2007\t(Note\t3) | 551.9 | (11.6) | $1,381 | $3,943 | $10,517 | $(394) | $(142) | $15,305 |
| Comprehensive\tincome: |  |  |  |  |  |  |  |  |
| Net\tincome |  |  | - | - | 1,855 | - | - | 1,855 |
| Other\tcomp.\tincome |  |  | - | - | - | - | 68 | 68 |
| Total\tcomp.\tincome\t(Note\t9) |  |  | - | - | 1,855 | - | 68 | 1,923 |
| Conversion,\tstock\toption |  |  |  |  |  |  |  |  |
| \t\t\t\t\texercises,\tforfeitures,\tand\tother | 0.4 | 6.2 | - | (17) | - | 227 | - | 210 |
| Share\trepurchases\t(Note\t16) | - | (25.2) | - | - | - | (1,457) | - | (1,457) |
| Cash\tdividends\tdeclared |  |  |  |  |  |  |  |  |
| ($0.745\tper\tshare) | - | - | - | - | (396) | - | - | (396) |
| Balance\tat\tDecember\t31,\t2007\t(Note\t3) | 552.3 | (30.6) | $1,381 | $3,926 | $11,976 | $(1,624) | $(74) | $15,585 |
| Comprehensive\tincome: |  |  |  |  |  |  |  |  |
| Net\tincome |  |  | - | - | 2,338 | - | - | 2,338 |
| Other\tcomp.\tincome/(loss) |  |  | - | - | - | - | (630) | (630) |
| Total\tcomp.\tincome\t(Note\t9) |  |  | - | - | 2,338 | - | (630) | 1,708 |
| Conversion,\tstock\toption |  |  |  |  |  |  |  |  |
| \t\t\t\t\texercises,\tforfeitures,\tand\tother | 0.5 | 3.2 | 1 | 23 | - | 158 | - | 182 |
| Share\trepurchases\t(Note\t16) | - | (22.2) | - | - | - | (1,527) | - | (1,527) |
| Cash\tdividends\tdeclared |  |  |  |  |  |  |  |  |
| ($0.98\tper\tshare) | - | - | - | - | (501) | - | - | (501) |
| Balance\tat\tDecember\t31,\t2008 | 552.8 | (49.6) | $1,382 | $3,949 | $13,813 | $(2,993) | $(704) | $15,447 |
| Comprehensive\tincome: |  |  |  |  |  |  |  |  |
| Net\tincome |  |  | - | - | 1,898 | - | - | 1,898 |
| Other\tcomp.\tincome |  |  | - | - | - | - | 50 | 50 |
| Total\tcomp.\tincome\t(Note\t9) |  |  | - | - | 1,898 | - | 50 | 1,948 |
| Conversion,\tstock\toption\n\t\t\t\t\texercises,\tforfeitures,\tand\tother | 0.7 | 1.1 | 2 | 19 | - | 69 | - | 90 |
| Share\trepurchases\t(Note\t16) | - | - | - | - | - | - | - | - |
| Cash\tdividends\tdeclared |  |  |  |  |  |  |  |  |
| ($1.08\tper\tshare) | - | - | - | - | (544) | - | - | (544) |
| Balance\tat\tDecember\t31,\t2009 | 553.5 | (48.5) | $1,384 | $3,968 | $15,167 | $(2,924) | $(654) | $16,941 |

[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	United	States.	We	have	32,094	route	miles,	linking	Pacific	Coast	and	Gulf	Coast	ports with	the	Midwest	and	eastern	United	States	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	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	revenues	are	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	revenue	by	commodity	group:

| Millions	of	Dollars | 2009 | 2008 | 2007 |
| :--- | :--- | :--- | :--- |
| Agricultural | $\t\t\t\t2,666 | $\t\t\t\t3,174 | $\t\t\t\t2,605 |
| Automotive | 854 | 1,344 | 1,458 |
| Chemicals | 2,102 | 2,494 | 2,287 |
| Energy | 3,118 | 3,810 | 3,134 |
| Industrial\tProducts | 2,147 | 3,273 | 3,077 |
| Intermodal | 2,486 | 3,023 | 2,925 |
| Total\tfreight\trevenues | $13,373 | $17,118 | $15,486 |
| Other\trevenues | 770 | 852 | 797 |
| Total\toperating\trevenues | $14,143 | $17,970 | $16,283 |

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

Basis	of	Presentation	–	The	Consolidated	Financial	Statements	are	presented	in	accordance	with	accounting	principles	generally	accepted	in	the	United	States	of America	(GAAP)	as	codified	in	the	Financial	Accounting	Standards	Board	(FASB)	Accounting	Standards	Codification	(ASC).

Subsequent	Events	Evaluation	–	We	evaluated	the	effects	of	all	subsequent	events	through	February	5,	2010,	the	date	of	this	report,	which	is	concurrent	with	the	date we	file	this	report	with	the	U.S.	Securities	and	Exchange	Commission	(SEC).

# 2.	Significant	Accounting	Policies

Change	in	Accounting	Principle	–	We	have	historically	accounted	for	rail	grinding	costs	as	a	capital	asset.	Beginning	in	the	first	quarter	of	2010,	we	will	change	our accounting	policy	for	rail	grinding	costs

from	a	capitalization	method,	under	which	we	have	capitalized	the	cost	of	rail	grinding	and	depreciated	such	capitalized	costs,	to	a	direct	expense	method,	under	which we	will	expense	rail	grinding	costs	as	incurred.	The	expense	as	incurred	method	is	preferable,	as	it	eliminates	the	subjectivity	in	determining	the	period	of	benefit associated	with	rail	grinding	over	which	to	depreciate	the	associated	capitalized	costs.	We	will	reflect	this	change	as	a	change	in	accounting	principle	from	an	acceptable accounting	principle	to	a	preferable	accounting	principle.	The	application	of	this	preferable	accounting	principle	will	be	presented	retrospectively	to	all	periods	presented in	future	earnings	releases	and	SEC	filings.	When	the	accounting	principle	is	retrospectively	applied,	net	income	for	the	years	ended	December	31,	2009,	2008,	and	2007 will	decrease	by	approximately	$8	million,	$3	million,	and	$7	million,	or	$0.01,	$0.01	and	$0.02	per	share,	respectively.	This	change	in	accounting	principle	is	not expected	to	have	a	material	impact	on	our	consolidated	financial	position,	results	of	operations,	or	cash	flows.

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.

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	–	See	Note	10.

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	on	a	percentage-of-completion	basis	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	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.

Financial	Instruments	–	The	carrying	value	of	our	non-derivative	financial	instruments	approximates	fair	value.	The	fair	value	of	our	derivative	financial	instruments	is generally	determined	by	reference	to	market	values	as	quoted	by	recognized	dealers	or	developed	based	upon	the	present	value	of	expected	future	cash	flows.

We	periodically	use	derivative	financial	instruments,	for	other	than	trading	purposes,	to	manage	risk	related	to	changes	in	fuel	prices	and	interest	rates.

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	(see	Note	5)	and	to	our	interest	rate	fair	value	hedges	(see	Note	12).

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	vest.

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.

Information	regarding	stock-based	compensation	appears	in	the	table	below:

| Millions	of	Dollars | 2009 | 2008 | 2007 |
| :--- | :--- | :--- | :--- |
| Stock-based\tcompensation,\tbefore\ttax: |  |  |  |
| Stock\toptions | $\t\t\t\t19 | $\t\t\t\t25 | $ \t\t\t\t21 |
| Retention\tawards | 39 | 40 | 23 |
| Total\tstock-based\tcompensation,\tbefore\ttax | $58 | $65 | $44 |
| Total\tstock-based\tcompensation,\tafter\ttax | $36 | $40 | $27 |
| Excess\ttax\tbenefits\tfrom\tequity\tcompensation\tplans | $10 | $54 | $76 |

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.

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.

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	changes in	tax	laws	are	not	anticipated.	Future	tax	law	changes,	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	about	future	events.

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,	salary	increases,	employee	turnover	rates,	anticipated	mortality	rates,	and	expected	future	healthcare	costs.	The	assumptions	used	by	us	are based	on	our	historical	experience	as	well	as	current	facts	and	circumstances.	We	use	third-party	actuaries	to	assist	us	in	properly	measuring	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	third-party	actuaries	to	assist	us	in	properly	measuring	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	an external	consulting	firm	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.

# 3.	Stock	Split

On	May	28,	2008,	we	completed	a	two-for-one	stock	split,	effected	in	the	form	of	a	100%	stock	dividend.	The	stock	split	entitled	all	shareholders	of	record	at	the	close of	business	on	May	12,	2008,	to	receive	one	additional	share	of	our	common	stock,	par	value	$2.50	per	share,	for	each	share	of	common	stock	held	on	that	date.	All references	to	common	shares	and	per	share	amounts	have	been	restated	to	reflect	the	stock	split	for	all	periods	presented.

# 4.	Stock	Options	and	Other	Stock	Plans

We	have	100,962	options	outstanding	under	the	1993	Stock	Option	and	Retention	Stock	Plan	of	Union	Pacific	Corporation	(1993	Plan).	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	options	or	awards	of	retention shares	and	units	under	these	plans.

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	shares	of	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. As	of	December	31,	2009,	18,000	restricted	shares	were	outstanding	under	the	Directors	Plan	and	292,000	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,	2009,	3,366,230	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,	2009,	8,939,710	and	3,778,997	retention	shares	and	stock	units	were	outstanding	under	the	2004	Plan.

Stock	Options	–	We	estimate	the	fair	value	of	our	stock	option	awards	using	the	Black-Scholes	option	pricing	model.	Groups	of	employees	and	non-employee	directors that	have	similar	historical	and	expected	exercise	behavior	are	considered	separately	for	valuation	purposes.	The	table	below	shows	the	annual	weighted-average assumptions	used	for	valuation	purposes:

| Weighted-Average	Assumptions | 2009 | 2008 | 2007 |
| :--- | :--- | :--- | :--- |
| Risk-free\tinterest\trate | 1.9% | 2.8% | 4.9% |
| Dividend\tyield | 2.3% | 1.4% | 1.4% |
| Expected\tlife\t(years) | 5.1 | 5.3 | 4.7 |
| Volatility | 31.3% | 22.2% | 20.9% |
| Weighted-average\tgrant-date\tfair\tvalue\tof\toptions\tgranted | $\t\t\t\t11.33 | $\t\t\t\t13.35 | $\t\t\t\t11.19 |

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	2009	is	presented	below:

|  |  | Weighted- | Weighted-Average | Aggregate |
| :--- | :--- | :--- | :--- | :--- |
|  | Shares | Average | Remaining | Intrinsic\tValue |
|  | (thous.) | Exercise\tPrice | Contractual\tTerm | (millions) |
| Outstanding\tat\tJanuary\t1,\t2009 | 11,983 | $\t\t\t\t40.81 | 5.6\tyrs. | $\t\t\t\t108 |
| Granted | 1,865 | 47.28 | N/A | N/A |
| Exercised | (1,130) | 34.86 | N/A | N/A |
| Forfeited\tor\texpired | (19) | 57.06 | N/A | N/A |
| Outstanding\tat\tDecember\t31,\t2009 | 12,699 | $\t\t\t\t42.27 | 5.5\tyrs. | $\t\t\t\t275 |
| Vested\tor\texpected\tto\tvest |  |  |  |  |
| at\tDecember\t31,\t2009 | 12,599 | $\t\t\t\t42.19 | 5.5\tyrs. | $\t\t\t\t274 |
| Options\texercisable\tat\tDecember\t31,\t2009 | 9,385 | $\t\t\t\t38.84 | 4.4\tyrs. | $\t\t\t\t235 |

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,	2009	are	subject	to	performance	or	market-based	vesting	conditions.

At	December	31,	2009,	there	was	$22	million	of	unrecognized	compensation	expense	related	to	nonvested	stock	options,	which	is	expected	to	be	recognized	over	a weighted-average	period	of	1.2	years.	Additional	information	regarding	stock	option	exercises	appears	in	the	table	below:

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	2009	were	as	follows:

|  | Shares | Weighted-Average |
| :--- | :--- | :--- |
|  | (thous.) | Grant-Date\tFair\tValue |
| Nonvested\tat\tJanuary\t1,\t2009 | 2,015 | $\t\t\t\t49.39 |
| Granted | 988 | 47.43 |
| Vested | (243) | 32.84 |
| Forfeited | (41) | 51.58 |
| Nonvested\tat\tDecember\t31,\t2009 | 2,719 | $\t\t\t\t50.13 |

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,	2009,	there	was	$64 million	of	total	unrecognized	compensation	expense	related	to	nonvested	retention	awards,	which	is	expected	to	be	recognized	over	a	weighted-average	period	of 1.8	years.

Performance	Retention	Awards	–	In	February	2009,	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	January	2007	and	2008,	including	using	annual	return	on	invested	capital	(ROIC)	as	the performance	measure.	Additionally,	a	change	was	made	to	an	underlying	assumption	used	in	connection	with	calculating	a	component	of	ROIC.	A	lower	discount	rate (an	assumed	interest	rate)	will	be	used	in	both	the	numerator	and	denominator	when	calculating	the	present	value	of	our	future	operating	lease	payments	to	reflect changes	to	interest	rates	and	our	financing	costs.	This	rate	will	be	consistent	with	the	methodology	used	to	calculate	our	adjusted	debt-to-capital	ratio.	We	will	use	this new	discount	rate	to	calculate	ROIC	in	connection	with	determining	awards	of	performance	stock	units	granted	in	2009.	For	performance	stock	units	granted	in	2007	and 2008,	we	will	continue	calculating	ROIC	with	the	methodology	and	assumptions	in	effect	when	the	performance	stock	units	were	granted.	See	calculation	of	ROIC	in Management's	Discussion	and	Analysis	of	Financial	Condition	and	Results	of	Operations	–	Other	Operating/Performance	and	Financial	Statistics	–	Return	on	Invested Capital	as	Adjusted	(ROIC),	Item	7.

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	2009	grant	were	as	follows:

Changes	in	our	performance	retention	awards	during	2009	were	as	follows:

| Changes	in	our	performance	retention	awards	during	2009	were	as	follows: |  |  |
| :--- | :--- | :--- |
|  | Shares | Weighted-Average |
|  | (thous.) | Grant-Date\tFair\tValue |
| Nonvested\tat\tJanuary\t1,\t2009 | 873 | $\t\t\t\t50.70 |
| Granted | 449 | 47.28 |
| Vested | (240) | 43.23 |
| Forfeited | (22) | 53.86 |
| Nonvested\tat\tDecember\t31,\t2009 | 1,060 | $\t\t\t\t50.88 |

At	December	31,	2009,	there	was	$22	million	of	total	unrecognized	compensation	expense	related	to	nonvested	performance	retention	awards,	which	is	expected	to	be recognized	over	a	weighted-average	period	of	1.3	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	defined	contribution	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	 will	 receive	 a	 contribution	 to	 a	 Health Reimbursement	Account,	which	can	be	used	to	pay	eligible	out-of-pocket	medical	expenses.	The	impact	of	the	plan	amendment	is	reflected	in	the	projected	benefit obligation	(PBO)	at	December	31,	2009.

# 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	PBO	and	the	fair	value	of	the	plan	assets.	The	PBO	is	the	present	value	of	benefits	earned	to	date	by	plan	participants,	including the	effect	of	assumed	future	salary	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	salary	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	are	as	follows	for	the	years	ended	December	31:

| Funded	Status | Pension | Pension | OPEB | OPEB |
| :--- | :--- | :--- | :--- | :--- |
| Millions\tof\tDollars | 2009 | 2008 | 2009 | 2008 |
| Projected\tBenefit\tObligation |  |  |  |  |
| Projected\tbenefit\tobligation\tat\tbeginning\tof\tyear | $\t\t\t\t2,272 | $\t\t\t\t2,112 | $\t\t\t\t418 | $\t\t\t\t326 |
| Service\tcost | 38 | 34 | 2 | 3 |
| Interest\tcost | 140 | 137 | 18 | 24 |
| Plan\tamendments | - | - | (78) | (9) |
| Actuarial\tloss\t(gain) | 140 | 132 | (21) | 101 |
| Gross\tbenefits\tpaid | (142) | (143) | (25) | (27) |
| Projected\tbenefit\tobligation\tat\tend\tof\tyear | $2,448 | $2,272 | $314 | $418 |
| Plan\tAssets |  |  |  |  |
| Fair\tvalue\tof\tplan\tassets\tat\tbeginning\tof\tyear | $1,543 | $2,058 | $- | $- |
| Actual\treturn\ton\tplan\tassets | 350 | (592) | - | - |
| Voluntary\tfunded\tpension\tplan\tcontributions | 280 | 200 | - | - |
| Other\tfunded\tpension\tplan\tcontributions | - | 8 | - | - |
| Non-qualified\tplan\tbenefit\tcontributions | 13 | 12 | 25 | 27 |
| Gross\tbenefits\tpaid | (142) | (143) | (25) | (27) |
| Fair\tvalue\tof\tplan\tassets\tat\tend\tof\tyear | $2,044 | $1,543 | $- | $- |
| Funded\tstatus\tat\tend\tof\tyear | $(404) | $(729) | $(314) | $(418) |

Amounts	recognized	in	the	statement	of	financial	position	as	of	December	31,	2009	and	2008	consist	of:

|  | Pension | Pension | OPEB | OPEB |
| :--- | :--- | :--- | :--- | :--- |
| Millions\tof\tDollars | 2009 | 2008 | 2009 | 2008 |
| Noncurrent\tassets | $1 | $- | $- | $- |
| Current\tliabilities | (13) | (12) | (28) | (30) |
| Noncurrent\tliabilities | (392) | (717) | (286) | (388) |
| Net\tamounts\trecognized\tat\tend\tof\tyear | $(404) | $(729) | $(314) | $(418) |

Pre-tax	amounts	recognized	in	accumulated	other	comprehensive	income/(loss)	as	of	December	31,	2009	consist	of:

| Millions	of	Dollars | Pension | OPEB | Total |
| :--- | :--- | :--- | :--- |
| Prior\tservice\t(cost)/credit | $(7) | $146 | $139 |
| Net\tactuarial\tloss | (942) | (140) | (1,082) |
| Total | $(949) | $6 | $(943) |

| Millions	of	Dollars | Pension | OPEB | Total |
| :--- | :--- | :--- | :--- |
| Prior\tservice\t(cost)/credit | $(12) | $111 | $99 |
| Net\tactuarial\tloss | (1,023) | (172) | (1,195) |
| Total | $(1,035) | $(61) | $(1,096) |

Other	pre-tax	changes	recognized	in	other	comprehensive	income	during	2009,	2008	and	2007	were	as	follows:

|  | Pension | Pension | Pension |  | OPEB |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Millions\tof\tDollars | \t 2009 | \t 2008 | \t 2007 | \t 2009 | \t 2008 | \t 2007 |
| Prior\tservice\tcredit | $- | $-\t\t\t $- | $-\t\t\t $- | $(78) | $(9) | $(10) |
| Net\tactuarial\t(gain)/loss | (51) | 875 | (73) | (21) | 101 | (32) |
| Amortization\tof: |  |  |  |  |  |  |
| Prior\tservice\tcost/(credit) | (5) | (6) | (6) | 44 | 34 | 33 |
| Actuarial\tloss | (30) | (10) | (18) | (12) | (13) | (8) |
| Total | $(86) | $859 | $(97) | $(67) | $113 | $(17) |

Amounts	included	in	accumulated	other	comprehensive	income	expected	to	be	amortized	into	net	periodic	cost	(benefit)	during	2010:

| Millions	of	Dollars | Pension | OPEB | Total |
| :--- | :--- | :--- | :--- |
| Prior\tservice\tcost\t(credit) | $4 | $(44) | $ (40) |
| Net\tactuarial\tloss | 43 | 13 | 56 |
| Total | $47 | $(31) | $16 |

Underfunded	Accumulated	Benefit	Obligation	–	The	accumulated	benefit	obligation	(ABO)	is	the	present	value	of	benefits	earned	to	date,	assuming	no	future	salary growth.	The	underfunded	accumulated	benefit	obligation	represents	the	difference	between	the	ABO	and	the	fair	value	of	plan	assets.	At	December	31,	2008,	the	only pension	plan	that	was	underfunded	was	our	non-qualified	(supplemental)	plan,	which	is	not	funded	by	design.	At	December	31,	2009,	the	non-qualified	(supplemental) plan	ABO	was	$229	million.	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:

| Millions	of	Dollars | 2009 | 2008 |
| :--- | :--- | :--- |
| Projected\tbenefit\tobligation | $(2,431) | $(2,272) |
| Accumulated\tbenefit\tobligation | $(2,389) | $(2,201) |
| Fair\tvalue\tof\tplan\tassets | 2,026 | 1,543 |
| Underfunded\taccumulated\tbenefit\tobligation | $(363) | $(658) |

The	ABO	for	all	defined	benefit	pension	plans	was	$2.4	billion	and	$2.2	billion	at	December	31,	2009	and	2008,	respectively.

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

|  | Pension | Pension | OPEB | OPEB |
| :--- | :--- | :--- | :--- | :--- |
| Percentages | 2009 | 2008 | 2009 | 2008 |
| Discount\trate | 5.90% | 6.25% | 5.55% | 6.25% |
| Salary\tincrease | 3.45% | 3.50% | N/A | N/A |
| Health\tcare\tcost\ttrend\trate\tfor\tnext\tyear\t(employees\tunder\t65) | N/A | N/A | 7.50% | 6.60% |
| Health\tcare\tcost\ttrend\trate\tfor\tnext\tyear\t(employees\tover\t65) | N/A | N/A | 9.10% | 9.40% |
| Ultimate\thealth\tcare\tcost\ttrend\trate | N/A | N/A | 4.50% | 4.50% |
| Year\tultimate\ttrend\trate\treached | N/A | N/A | 2028 | 2028 |

# 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 | Pension | Pension | OPEB | OPEB | OPEB |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Millions\tof\tDollars | 2009 | 2008 | 2007 | 2009 | 2008 | 2007 |
| Net\tPeriodic\tBenefit\tCost: |  |  |  |  |  |  |
| Service\tcost | $38 | $34 | $34 | $2 | $3 | $3 |
| Interest\tcost | 140 | 137 | 124 | 18 | 24 | 20 |
| Expected\treturn\ton\tplan\tassets | (159) | (152) | (144) | - | - | - |
| Amortization\tof: |  |  |  |  |  |  |
| Prior\tservice\tcost/(credit) | 5 | 6 | 6 | (44) | (35) | (33) |
| Actuarial\tloss | 30 | 10 | 18 | 12 | 13 | 8 |
| Net\tperiodic\tbenefit\tcost/(benefit) | $54 | $35 | $38 | $(12) | $5 | $(2) |

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

| Pension | Pension | Pension | OPEB | OPEB | OPEB |
| :--- | :--- | :--- | :--- | :--- | :--- |
| 2009 | 2008 | 2007 | 2009 | 2008 | 2007 |
| 6.25% | 6.50% | 6.00% | 6.25% | 6.50% | 6.00% |
| 8.00% | 8.00% | 8.00% | N/A | N/A | N/A |
| 3.50% | 3.50% | 3.00% | N/A | N/A | N/A |
| N/A | N/A | N/A | 7.50% | 8.00% | 9.00% |
| N/A | N/A | N/A | 9.10% | 10.00% | 11.00% |
| N/A | N/A | N/A | 4.50% | 5.00% | 5.00% |
| N/A | N/A | N/A | 2028 | 2013 | 2013 |

For	2009	and	2008,	the	discount	rate	was	based	on	a	Mercer	yield	curve	of	high	quality	corporate	bonds	with	cash	flows	matching	our	plans'	expected	benefit	payments. For	2007,	the	discount	rate	was	based	on	a	hypothetical	portfolio	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	(loss)	on	pension	plan	assets,	net	of	fees,	was	approximately	23%	in	2009,	(30)%	in	2008,	and	9%	in	2007.

Assumed	healthcare	cost	trend	rates	have	a	significant	effect	on	the	expense	and	liabilities	reported	for	healthcare	plans.	The	assumed	healthcare	cost	trend	rate	is	based on	historical	rates	and	expected	market	conditions.	A	one-percentage	point	change	in	the	assumed	healthcare	cost	trend	rates	would	have	the	following	effects	on	OPEB:

|  | One	%	pt. | One	%	pt. |
| :--- | :--- | :--- |
| Millions\tof\tDollars | Increase | Decrease |
| Effect\ton\ttotal\tservice\tand\tinterest\tcost\tcomponents | $1 | $(1) |
| Effect\ton\taccumulated\tbenefit\tobligation | 9 | (8) |

# Cash	Contributions

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

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	2009	were	voluntary	and	were	made	with	cash	generated	from	operations.

The	OPEB	plans	are	not	funded	and	are	not	subject	to	any	minimum	regulatory	funding	requirements.	Benefit	payments	for	each	year	represent	claims	paid	for	medical and	life	insurance,	and	we	anticipate	our	2010	OPEB	payments	will	be	made	from	cash	generated	from	operations.

# Benefit	Payments

The	following	table	details	expected	benefit	payments	for	the	years	2010	through	2019:

| Millions	of	Dollars | Pension | OPEB |
| :--- | :--- | :--- |
| 2010 | $139 | $28 |
| 2011 | 144 | 28 |
| 2012 | 149 | 28 |
| 2013 | 155 | 28 |
| 2014 | 162 | 28 |
| Years\t2015\t-2019 | 885 | 130 |

# Asset	Allocation	Strategy

Our	pension	plan	asset	allocation	at	December	31,	2009	and	2008,	and	target	allocation	for	2010,	are	as	follows:

|  | Target | Percentage	of	Plan	Assets | Percentage	of	Plan	Assets |
| :--- | :--- | :--- | :--- |
|  | Allocation |  | December\t31, |
|  | 2010 | 2009 | 2008 |
| Equity\tsecurities | 47%\tto\t63% | 61% | 68% |
| Debt\tsecurities | 30%\tto\t40% | 31 | 23 |
| Real\testate | 2%\tto\t8% | 4 | 6 |
| Commodities | 4%\tto\t6% | 4 | 3 |
| Total |  | 100% | 100% |

The	investment	strategy	for	pension	plan	assets	is	to	maintain	a	broadly	diversified	portfolio	designed	to	achieve	our	target	of	an	average	long-term	rate	of	return	of	8%. While	we	believe	we	can	achieve	a	long-term	average	rate	of	return	of	8%,	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	dampens	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,	with	The	Northern	Trust	Company.	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	plan's	assets	in high	quality	debt	securities.	The	average	credit	rating	of	the	debt	portfolio	exceeded	A+	as	of	December	31,	2009	and	2008.	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	and	5	years	at December	31,	2009	and	2008,	respectively.	The	weighted-average	maturity	increased	significantly	in	2009	as	a	new	long-term	bond	allocation	was	added	to	the investment	portfolio.	This	new	long-term	bond	allocation	was	established	primarily	to	mitigate	funding	status	risk	associated	with	potential	interest	rate	changes.

The	investment	of	pension	plan	assets	in	securities	issued	by	Union	Pacific	is	specifically	prohibited	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	mutual	funds,	unit	trusts,	and	other	commingled	funds	registered	with	the	Securities	and Exchange	Commission.	Mutual	fund	and	unit	trust	shares	are	traded	actively	on	public	exchanges.	The	share	prices	for	mutual	funds	and	unit	trusts	are	published	at	the close	of	each	business	day.	Holdings	of	mutual	funds	and	unit	trusts	are	classified	as	Level	1	investments.	Other	registered	commingled	funds	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	other registered	commingled	funds	are	classified	as	Level	2	investments.

U.S.	Government	Securities	–	U.S.	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.	U.S.	Government Securities	are	classified	as	Level	2	investments.

Corporate	Bonds	&	Debentures	–	Corporate	bonds	and	debentures	consist	of	fixed	income	securities	issued	by	U.S.	and	non-U.S.	corporations.	These	assets	are valued	using	a	bid	evaluation	process	with	bid	data	provided	by	independent	pricing	sources.	Corporate	bonds	&	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.	Common	and	preferred	shares	are traded	actively	on	exchanges	and	price	quotes	for	these	shares	are	readily	available.	Holdings	of	corporate	stock	are	classified	as	Level	1	investments.

Venture	Capital	and	Partnerships	–	This	investment	category	is	comprised	primarily	of	interests	in	limited	partnerships	that	invest	in	privately-held	companies	or privately-held	real	estate	assets.	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	property	appraisals,	application	of	public	market	multiples	to	private	company	cash	flows, utilization	of	market	 transactions	 that	provide	valuation	 information	for	comparable	companies,	and	other	methods.	Holdings	of	 limited	partnership	 interests	are classified	as	Level	3	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.

This	category	also	holds	a	small	amount	of	public	securities	distributed	by	the	partnerships.	These	public	securities	are	classified	as	Level	1	investments.

Real	Estate	–	Most	of	the	real	estate	investments	are	partnership	interests	and	are	therefore	included	in	the	Venture	Capital	and	Partnerships	category.	This	category pertains	to	the	real	estate	investments	held	in	less	commonly	used	structures	such	as	private	real	estate	investment	trusts	and	pooled	separate	accounts.	Asset	valuations for	the	assets	held	in	these	structures	are	valued	in	a	manner	similar	to	that	used	for	partnership	investments.	As	with	the	limited	partnership	interests,	the	valuations	for the	holdings	in	these	structures	are	not	based	on	readily	observable	inputs.	Interests	in	private	real	estate	investment	funds	and	pooled	separate	accounts	are	classified	as Level	3	investments.

Common	Trust	Funds	–	Common	trust	funds	are	comprised	of	shares	or	units	in	commingled	funds	that	are	not	publicly	traded.	The	underlying	assets	in	these	funds (equity	securities,	fixed	income	securities,	and	commodity-related	securities)	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.

Other	Investments	 –	The	 category includes	 several	 miscellaneous	 assets	 such	 as	 commodity	 hedge	 fund	 investments.	 Some	 of	 these	 investments	 have	 directly observable	values	and	are	classified	as	Level	1	investments,	but	the	majority	of	these	investments	have	valuations	that	are	based	on	observable	inputs	and	are	classified as	Level	2	investments.

As	of	December	31,	2009,	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\tof\tDollars | (Level\t1) | (Level\t2) | (Level\t3) | Total |
| Plan\tnet\tassets: |  |  |  |  |
| Temporary\tcash\tinvestments | $\t\t\t\t\t\t\t\t9 | $\t\t\t\t\t\t\t\t\t\t\t\t- | $\t\t\t\t\t\t\t\t\t- | $\t\t\t\t9 |
| Registered\tinvestment\tcompanies | 8 | 176 | - | 184 |
| U.S.\tgovernment\tsecurities | - | 131 | - | 131 |
| Corporate\tbonds\t&amp;\tdebentures | - | 284 | - | 284 |
| Corporate\tstock | 479 | 6 | - | 485 |
| Venture\tcapital\tand\tpartnerships | - | 94 | 206 | 300 |
| Real\testate | - | - | 14 | 14 |
| Common\ttrust\tfunds | - | 574 | - | 574 |
| Other\tinvestments | 3 | 27 | - | 30 |
| Total\tplan\tnet\tassets\tat\tfair\tvalue | $\t\t\t\t499 | $\t\t\t\t1,292 | $\t\t\t\t220 | 2,011 |
| Other\tassets\t[a] |  |  |  | 33 |
| Total\tplan\tnet\tassets |  |  |  | $\t\t\t\t2,044 |

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

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

|  | Venture |  |  |
| :--- | :--- | :--- | :--- |
|  | Capital\tand | Real |  |
| Millions\tof\tDollars | Partnerships | Estate | Total |
| Beginning\tbalance\t-\tJanuary\t1,\t2009 | $\t\t\t\t218 | $\t\t\t\t21 | $\t\t\t\t239 |
| Realized\tgains/(losses) | 3 | - | 3 |
| Unrealized\tgains/(losses) | (38) | (9) | (47) |
| Purchases,\tissuances,\t&amp;\tsettlements | 23 | 2 | 25 |
| Ending\tbalance\t-\tDecember\t31,\t2009 | $\t\t\t\t206 | $\t\t\t\t14 | $\t\t\t\t220 |

# Other	Retirement	Programs

Thrift	Plan	–	We	provide	a	defined	contribution	plan	(thrift	plan)	to	eligible	non-union	employees	and	make	matching	contributions	to	the	thrift	plan.	We	match	50 cents	for	each	dollar	contributed	by	employees	up	to	the	first	six	percent	of	compensation	contributed.	Our	thrift	plan	contributions	were	$14	million	in	2009,	2008	and 2007.

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	$562	million	in	2009,	$620	million	in	2008,	and	$616	million	in	2007.

Collective	Bargaining	Agreements	–	Under	collective	bargaining	agreements,	we	provide	certain	postretirement	healthcare	and	life	insurance	benefits	for	eligible union	employees.	Premiums	under	the	plans	are	expensed	as	incurred	and	amounted	to	$48	million	in	2009,	$49	million	in	2008,	and	$40	million	in	2007.

# 6.	Other	Income

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

| Millions	of	Dollars | 2009 | 2008 | 2007 |
| :--- | :--- | :--- | :--- |
| Rental\tincome | $\t\t\t\t73 | $\t\t\t\t87 | $\t\t\t\t68 |
| Net\tgain\ton\tnon-operating\tasset\tdispositions | 162 | 41 | 52 |
| Interest\tincome | 5 | 21 | 50 |
| Sale\tof\treceivables\tfees | (9) | (23) | (35) |
| Non-operating\tenvironmental\tcosts\tand\tother | (36) | (34) | (19) |
| Total | $\t\t\t\t195 | $\t\t\t\t92 | $\t\t\t\t116 |

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	involves	a	33-mile	industrial	lead	track	in	Boulder,	Colorado.

# 7.	Income	Taxes

Components	of	income	tax	expense/(benefit)	were	as	follows	for	the	years	ended	December	31:

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

In	2007,	the	State	of	Illinois	enacted	legislation	that	changed	how	we	determine	the	amount	of	our	income	subject	to	Illinois	tax.	This	legislation	increased	our	2007 deferred	tax	expense	by	$27	million.	In	January	of	2008,	Illinois	enacted	technical	corrections	legislation	that	made	additional	changes	in	how	we	determine	the	amount of	our	income	subject	to	Illinois	tax.	This	legislation	reduced	our	2008	deferred	tax	expense	by	$16	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	liabilities	relate	to	differences	between	the	tax	bases	and	financial	reporting	amounts	of	our	land	and	depreciable	property, due	to	accelerated	tax	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	of	Dollars | 2009 | 2008 |
| :--- | :--- | :--- |
| Net\tcurrent\tdeferred\tincome\ttax\tasset | $(339) | $(276) |
| Property | 10,494 | 10,006 |
| State\ttaxes,\tnet\tof\tfederal\tbenefits | 726 | 675 |
| Other | (90) | (399) |
| Net\tlong-term\tdeferred\tincome\ttax\tliabilities | 11,130 | 10,282 |
| Net\tdeferred\tincome\ttax\tliability | $\t\t\t\t10,791 | $\t\t\t\t10,006 |

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	about	future	events.	Our	total	valuation	allowance	at	December	31,	2009	was	$8	million.	There	was	no	valuation	allowance	at December	31,	2008.

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	of	Dollars | 2009 | 2008 |
| :--- | :--- | :--- |
| Unrecognized\ttax\tbenefits\tat\tJanuary\t1 | $\t\t\t\t26 | $\t\t\t\t161 |
| Increases\tfor\tpositions\ttaken\tin\tcurrent\tyear | 18 | 10 |
| Increases\tfor\tpositions\ttaken\tin\tprior\tyears | 50 | 1 |
| Decreases\tfor\tpositions\ttaken\tin\tprior\tyears | (28) | (23) |
| Settlements\twith\ttaxing\tauthorities | (3) | (55) |
| Increases\t(decreases)\tfor\tinterest\tand\tpenalties | 3 | (68) |
| Lapse\tof\tstatutes\tof\tlimitations | (5) | - |
| Unrecognized\ttax\tbenefits\tat\tDecember\t31 | $\t\t\t\t61 | $\t\t\t\t26 |

A	portion	of	our	unrecognized	tax	benefits	would,	if	recognized,	reduce	our	effective	tax	rate.	The	remaining	unrecognized	tax	benefits	relate	to	tax	positions	for	which only	the	timing	of	the	benefit	is	uncertain.	Recognition	of	these	tax	benefits	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:

| Millions	of	Dollars | 2009 | 2008 |
| :--- | :--- | :--- |
| Unrecognized\ttax\tbenefits\tthat\twould\treduce\tthe\teffective\ttax\trate | $\t\t\t\t86 | $\t\t\t\t79 |
| Unrecognized\ttax\tbenefits\tthat\twould\tnot\treduce\tthe\teffective\ttax\trate | (25) | (53) |
| Total\tunrecognized\ttax\tbenefits | $\t\t\t\t61 | $\t\t\t\t26 |

We	recognize	interest	and	penalties	as	part	of	income	tax	expense.	Total	accrued	liabilities	for	interest	and	penalties	were	$13	million	and	$10	million	at	December	31, 2009	and	2008,	respectively.	Total	interest	and	penalties	recognized	as	part	of	income	tax	expense	(benefit)	were	$(11)	million	for	2009,	$(9)	million	for	2008,	and	$3 million	for	2007.

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.	Some	interest	calculations	remain	open	back	to	1986.	The	IRS	has	completed	its	examinations	and	issued	notices	of	deficiency	for	tax	years	1999	through 2006.	We	disagree	with	many	of	their	proposed	adjustments,	and	we	are	at	IRS	Appeals	for	these	years.	The	IRS	is	examining	the	Corporation's	federal	income	tax returns	for	2007	and	2008.	Several	state	tax	authorities	are	examining	our	state	income	tax	returns	for	tax	years	2003	through	2006.

We	filed	interest	refund	claims	in	2007	for	years	1986	through	1994,	and	we	received	refunds	of	$12	million	in	2008.	In	2008,	we	signed	a	closing	agreement	resolving all	tax	matters	at	IRS	Appeals	for	tax	years	1995	through	1998.	In	connection	with	the	settlement,	in	2008	we	paid	the	IRS	$52	million	of	tax	and	$67	million	of	interest. We	filed	interest	refund	claims	in	2009	for	years	1995-1998,	and	received	refunds	of	$17	million	in	October	of	2009.	The	audit	settlement	and	interest	refund	claims	had only	immaterial	effects	on	our	income	tax	expense	for	2008	and	2009.

We	expect	that	our	unrecognized	tax	benefits	will	increase	in	the	next	12	months	as	2010	tax	positions	are	added	and	we	accrue	interest.	We	do	not	anticipate	any significant	settlements	during	2010;	however,	it	is	reasonably	possible	that	some	state	tax	disputes	may	be	resolved,	which	could	reduce	unrecognized	tax	benefits	by	up to	$10	million.	Of	the	$61	million	balance	at	December	31,	2009,	$1	million	is	classified	as	current	in	the	Consolidated	Statement	of	Financial	Position.

# 8.	Earnings	Per	Share

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

| Millions	of	Dollars,	Except	Per	Share	Amounts | 2009 | 2008 | 2007 |
| :--- | :--- | :--- | :--- |
| Net\tincome | $\t\t\t\t1,898 | $\t\t\t\t2,338 | $\t\t\t\t1,855 |
| Weighted-average\tnumber\tof\tshares\toutstanding: |  |  |  |
| Basic | 503.0 | 510.6 | 531.9 |
| Dilutive\teffect\tof\tstock\toptions | 1.5 | 3.4 | 4.2 |
| Dilutive\teffect\tof\tretention\tshares\tand\tunits | 1.3 | 1.0 | 0.7 |
| Diluted | 505.8 | 515.0 | 536.8 |
| Earnings\tper\tshare\t–\tbasic | $\t\t\t\t3.77 | $\t\t\t\t4.58 | $\t\t\t\t3.49 |
| Earnings\tper\tshare\t–\tdiluted | $\t\t\t\t3.75 | $\t\t\t\t4.54 | $\t\t\t\t3.46 |

Common	stock	options	totaling	4.6	million,	1.0	million,	and	0.8	million	for	2009,	2008,	and	2007,	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	of	Dollars | 2009 | 2008 | 2007 |
| :--- | :--- | :--- | :--- |
| Net\tincome | $ \t\t\t\t1,898 | $\t\t\t\t2,338 | $\t\t\t\t1,855 |
| Other\tcomprehensive\tincome/(loss): |  |  |  |
| Defined\tbenefit\tplans | 44 | (604) | 65 |
| Foreign\tcurrency\ttranslation | 6 | (26) | 2 |
| Derivatives | - | - | 1 |
| Total\tother\tcomprehensive\tincome/(loss)\t[a] | 50 | (630) | 68 |
| Total\tcomprehensive\tincome | $1,948 | $1,708 | $1,923 |

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

|  | Dec.	31, | Dec.	31, |
| :--- | :--- | :--- |
| Millions\tof\tDollars | 2009 | 2008 |
| Defined\tbenefit\tplans | $ \t\t\t\t(615) | $(659) |
| Foreign\tcurrency\ttranslation | (35) | (41) |
| Derivatives | (4) | (4) |
| Total | $ \t\t\t\t(654) | $\t\t\t\t(704) |

# 10.	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	of	Dollars,	Except	Percentages |  | Accumulated | Net	Book | Depreciation |
| :--- | :--- | :--- | :--- | :--- |
| As\tof\tDecember\t31,\t2009 | Cost | Depreciation | Value | Rate\tfor\t2009 |
| Land | $\t\t\t\t4,891 | $\t\t\t\tN/A | $\t\t\t\t4,891 | N/A |
| Road: |  |  |  |  |
| Rail\tand\tother\ttrack\tmaterial\t[a] | 11,926 | 4,530 | 7,396 | 3.6% |
| Ties | 7,254 | 1,767 | 5,487 | 2.7% |
| Ballast | 3,841 | 869 | 2,972 | 2.9% |
| Other\t[b] | 12,988 | 2,237 | 10,751 | 2.4% |
| Total\troad | 36,009 | 9,403 | 26,606 | 2.9% |
| Equipment: |  |  |  |  |
| Locomotives | 6,156 | 2,470 | 3,686 | 5.0% |
| Freight\tcars | 1,885 | 1,015 | 870 | 4.2% |
| Work\tequipment\tand\tother | 168 | 32 | 136 | 3.6% |
| Total\tequipment | 8,209 | 3,517 | 4,692 | 4.8% |
| Technology\tand\tother | 477 | 204 | 273 | 12.5% |
| Construction\tin\tprogress | 966 | - | 966 | N/A |
| Total | $\t\t\t\t50,552 | $\t\t\t\t13,124 | $37,428 | N/A |

| Millions	of	Dollars,	Except	Percentages |  | Accumulated | Net	Book | Depreciation |
| :--- | :--- | :--- | :--- | :--- |
| As\tof\tDecember\t31,\t2008 | Cost | Depreciation | Value | Rate\tfor\t2008 |
| Land | $\t\t\t\t4,861 | $\t\t\t\tN/A | $\t\t\t\t4,861 | N/A |
| Road: |  |  |  |  |
| Rail\tand\tother\ttrack\tmaterial\t[a] | 11,366 | 4,263 | 7,103 | 4.2% |
| Ties | 6,827 | 1,626 | 5,201 | 2.7% |
| Ballast | 3,635 | 789 | 2,846 | 2.9% |
| Other\t[b] | 12,520 | 2,044 | 10,476 | 2.3% |
| Total\troad | 34,348 | 8,722 | 25,626 | 3.1% |
| Equipment: |  |  |  |  |
| Locomotives | 5,157 | 2,243 | 2,914 | 4.7% |
| Freight\tcars | 1,985 | 1,033 | 952 | 4.1% |
| Work\tequipment\tand\tother | 158 | 29 | 129 | 3.6% |
| Total\tequipment | 7,300 | 3,305 | 3,995 | 4.5% |
| Technology\tand\tother | 468 | 187 | 281 | 12.7% |
| Construction\tin\tprogress | 938 | - | 938 | N/A |
| Total | $\t\t\t\t47,915 | $\t\t\t\t12,214 | $\t\t\t\t35,701 | N/A |

[a] Includes	a	weighted-average	composite	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),	which	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	life	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.

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	life	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.

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	road	infrastructure	assets	(program	projects),	which	is	typically	performed	by	our	employees,	and	for track	line	expansion	(capacity	projects).	Costs	that	are	directly	attributable	or	overhead	costs	that	relate	directly	to	capital	projects	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.	These	costs	are	allocated	using	appropriate	statistical	bases.

General	and	administrative	expenditures	are	expensed	as	incurred.	Normal	repairs	and	maintenance	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.

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.

# 11.	Accounts	Payable	and	Other	Current	Liabilities

|  | Dec.	31, | Dec.	31, |
| :--- | :--- | :--- |
| Millions\tof\tDollars | 2009 | 2008 |
| Accounts\tpayable | $\t\t\t\t612 | $\t\t\t\t629 |
| Accrued\twages\tand\tvacation | 339 | 367 |
| Accrued\tcasualty\tcosts | 379 | 390 |
| Income\tand\tother\ttaxes | 224 | 207 |
| Dividends\tand\tinterest | 347 | 328 |
| Equipment\trents\tpayable | 89 | 93 |
| Other | 480 | 546 |
| Total\taccounts\tpayable\tand\tother\tcurrent\tliabilities | $\t\t\t\t2,470 | $\t\t\t\t2,560 |

# 12.	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.

The	following	is	a	summary	of	our	interest	rate	derivatives	qualifying	as	fair	value	hedges:

We	recognized	the	fair	value	as	a	Level	2	valuation.	A	Level	2	valuation	is	defined	as	observable	market-based	inputs	or	unobservable	inputs	that	are	corroborated	by market	data.

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

| Millions	of	Dollars | 2009 | 2008 | 2007 |
| :--- | :--- | :--- | :--- |
| (Increase)/decrease\tin\tinterest\texpense\tfrom\tinterest\trate\thedging | $\t\t\t\t8 | $\t\t\t\t1 | $\t\t\t\t(8) |
| (Increase)/decrease\tin\tfuel\texpense\tfrom\tfuel\tderivatives | - | 1 | (1) |
| Increase/(decrease)\tin\tpre-tax\tincome | $\t\t\t\t8 | $\t\t\t\t2 | $\t\t\t\t(9) |

Fair	Value	of	Debt	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,	2009,	the	fair	value

of	 total	debt	was	$10.8	billion,	approximately	$945	million	more	 than	 the	carrying	value.	At	December	31,	2008,	 the	fair	value	of	 total	debt	was	$8.7	billion, approximately	$247	million	less	than	the	carrying	value.	At	both	December	31,	2009	and	2008,	approximately	$320	million	of	fixed-rate	debt	securities	contained	call provisions	that	allowed	us	to	retire	the	debt	instruments	prior	to	final	maturity,	with	the	payment	of	fixed	call	premiums,	or	in	certain	cases,	at	par.

See	Note	17	to	the	Consolidated	Financial	Statements	for	information	about	recent	accounting	pronouncements	that	will	have	an	impact	on	the	accounting	treatment	of our	sale	of	receivables	program.

Total	debt	as	of	December	31,	2009	and	2008,	net	of	interest	rate	swaps	designated	as	fair	value	hedges,	is	summarized	below:

| Millions	of	Dollars | 2009 | 2008 |
| :--- | :--- | :--- |
| Notes\tand\tdebentures,\t3.0%\tto\t7.9%\tdue\tthrough\t2054\t[a] | $\t\t\t\t7,277 | $\t\t\t\t6,934 |
| Capitalized\tleases,\t4.7%\tto\t9.5%\tdue\tthrough\t2028 | 2,061 | 1,270 |
| Equipment\tobligations,\t6.2%\tto\t7.8%\tdue\tthrough\t2031 | 219 | 255 |
| Tax-exempt\tfinancings,\t2.5%\tto\t5.7%\tdue\tthrough\t2026 | 182 | 185 |
| Commercial\tpaper | - | 100 |
| Floating\trate\tterm\tloan,\tdue\tthrough\t2013 | 100 | 100 |
| Medium-term\tnotes,\t9.2%\tto\t10.0%\tdue\tthrough\t2020 | 61 | 61 |
| Mortgage\tbonds,\t4.8%\tdue\tthrough\t2030 | 58 | 58 |
| Other | - | 76 |
| Unamortized\tdiscount | (110) | (112) |
| Total\tdebt\t[a] | 9,848 | 8,927 |
| Less\tcurrent\tportion | (212) | (320) |
| Total\tlong-term\tdebt | $\t\t\t\t9,636 | $\t\t\t\t8,607 |

[a] 2009	and	2008	included	a	write-up	of	$15	million	and	$19	million,	respectively,	due	to	market	value	adjustments	for	debt	with	qualifying	fair	value	hedges	that	are	recorded	on	the	Consolidated	Statements	of Financial	Position.

Debt	Maturities	–	The	following	table	presents	aggregate	debt	maturities	as	of	December	31,	2009,	excluding	market	value	adjustments.

| Millions	of	Dollars |  |
| :--- | :--- |
| 2010 | $\t\t\t\t532 |
| 2011 | 619 |
| 2012 | 824 |
| 2013 | 775 |
| 2014 | 798 |
| Thereafter | 6,300 |
| Total\tdebt | $\t\t\t\t9,848 |

As	 of	 December	 31,	 2009,	 we	 have	 reclassified	 as	 long-term	 debt	 approximately	 $320	 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.	At December	31,	2008,	we	reclassified	as	long-term	debt	approximately	$400	million	of	debt	due	within	one	year	that	we	intended	to	refinance	at	that	time.

Mortgaged	Properties	–	Equipment	with	a	carrying	value	of	approximately	$3.4	billion	and	$2.7	billion	at	December	31,	2009	and	2008,	respectively,	serves	as collateral	for	capital	leases	and	other	types	of	equipment	obligations	in	accordance	with	the	secured	financing	arrangements	utilized	to	acquire	such	railroad	equipment.

Credit	Facilities	–	On	December	31,	2009,	we	had	$1.9	billion	of	credit	available	under	our	revolving	credit	facility	(the	facility).	The	facility	is	designated	for	general corporate	purposes	and	supports	the	issuance	of	commercial	paper.	We	did	not	draw	on	the	facility	during	2009.	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	us	to	maintain	a	debt-to-net-worth	coverage	ratio	as	a condition	to	making	a	borrowing.	At	December	31,	2009,	and	December	31,	2008	(and	at	all	times	during	these	periods),	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,	2009,	the	debt-to-net-worth	coverage	ratio	allowed	us	to	carry	up	to $33.9	billion	of	debt	(as	defined	in	the	facility),	and	we	had	$10.4	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.	The	facility	will	expire	in	April	2012	in	accordance	with	its	term,	and	we	currently	intend	to	replace	the	facility	with	a	substantially	similar	credit agreement	on	or	before	the	expiration	date,	which	is	consistent	with	our	past	practices	with	respect	to	our	credit	facilities.

At	December	31,	2009,	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.	During	2009,	we	issued	$100	million	of	commercial	paper	and	repaid	$200	million.

Shelf	Registration	Statement	and	Significant	New	Borrowings	–	Under	our	current	shelf	registration	statement,	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.	At	December	31,	2009,	we	had	remaining	authority	from our	Board	of	Directors	to	issue	up	to	$2.25	billion	of	debt	securities	under	our	shelf	registration.

During	the	second	quarter	of	2009,	we	restructured	lease	agreements	for	813	locomotives	resulting	in	a	change	in	lease	classification	from	operating	to	capital.	As	part	of the	restructuring	arrangements,	we	received	$87	million	in	cash	consideration.	We	recorded	capital	lease	assets	of	approximately	$742	million	and	related	capital	lease obligations	totaling	approximately	$843	million.	Included	in	our	capital	lease	obligations	is	the	$87	million	in	cash	consideration	and	$14	million	of	accrued	operating lease	payables	that	were	reclassified	as	part	of	our	capital	lease	obligations.	Capital	lease	obligations	are	reported	in	our	Consolidated	Statements	of	Financial	Position	as debt.

We	lease	certain	locomotives,	freight	cars,	and	other	property.	The	Consolidated	Statement	of	Financial	Position	as	of	December	31,	2009	and	2008	included	$2,754 million,	net	of	$927	million	of	accumulated	depreciation,	and	$2,024	million,	net	of	$869	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,	2009	were	as	follows:

|  | Operating | Capital |
| :--- | :--- | :--- |
| Millions\tof\tDollars | Leases | Leases |
| 2010 | $576 | $290 |
| 2011 | 570 | 292 |
| 2012 | 488 | 247 |
| 2013 | 425 | 256 |
| 2014 | 352 | 267 |
| Later\tyears | 2,901 | 1,623 |
| Total\tminimum\tlease\tpayments | $\t\t\t\t5,312 | $\t\t\t\t2,975 |
| Amount\trepresenting\tinterest | N/A | (914) |
| Present\tvalue\tof\tminimum\tlease\tpayments | N/A | $2,061 |

The	majority	of	capital	lease	payments	relate	to	locomotives.	Rent	expense	for	operating	leases	with	terms	exceeding	one	month	was	$686	million	in	2009,	$747	million in	2008,	and	$810	million	in	2007.	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.

# 15.	Commitments	and	Contingencies

| Millions	of	Dollars | 2009 | 2008 | 2007 |
| :--- | :--- | :--- | :--- |
| Beginning\tbalance | $ \t\t\t\t621 | $ \t\t\t\t593 | $\t\t\t\t631 |
| Accruals | 79 | 201 | 165 |
| Payments | (155) | (173) | (203) |
| Ending\tbalance\tat\tDecember\t31 | $545 | $621 | $593 |
| Current\tportion,\tending\tbalance\tat\tDecember\t31 | $158 | $186 | $204 |

| Millions	of	Dollars | 2009 | 2008 | 2007 |
| :--- | :--- | :--- | :--- |
| Beginning\tbalance | $ \t\t\t\t213 | $ \t\t\t\t265 | $\t\t\t\t302 |
| Accruals/(credits) | (25) | (42) | (20) |
| Payments | (14) | (10) | (17) |
| Ending\tbalance\tat\tDecember\t31 | $174 | $213 | $265 |
| Current\tportion,\tending\tbalance\tat\tDecember\t31 | $13 | $12 | $11 |

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.

| Millions	of	Dollars | 2009 | 2008 | 2007 |
| :--- | :--- | :--- | :--- |
| Beginning\tbalance | $ \t\t\t\t209 | $ \t\t\t\t209 | $\t\t\t\t210 |
| Accruals | 49 | 46 | 41 |
| Payments | (41) | (46) | (42) |
| Ending\tbalance\tat\tDecember\t31 | $217 | $209 | $209 |
| Current\tportion,\tending\tbalance\tat\tDecember\t31 | $82 | $58 | $63 |

# 16.	Share	Repurchase	Program

On	January	30,	2007,	our	Board	of	Directors	authorized	the	repurchase	of	up	to	40	million	shares	of	Union	Pacific	Corporation	common	stock	through	the	end	of	2009. On	May	1,	2008,	our	Board	of	Directors	authorized	the	repurchase	of	an	additional	40	million	common	shares	by	March	31,	2011.	As	of	December	31,	2009,	we	have repurchased	a	total	of	$3	billion	of	Union	Pacific	Corporation	common	stock	since	the	original	repurchase	plan	was	authorized.	Management's	assessments	of	market conditions	and	other	pertinent	facts	guide	the	timing	and	volume	of	all	repurchases.	If	we	elect	to	make	repurchases	of	our	common	stock	under	this	program	in	2010, we	expect	to	fund	such	repurchases	through	cash	generated	from	operations,	the	sale	or	lease	of	various	operating	and	non-operating	properties,	debt	issuances,	and	cash on	hand.

|  | Number	of	Shares	Purchased	[a] | Number	of	Shares	Purchased	[a] | Average	Price	Paid	[a] | Average	Price	Paid	[a] |
| :--- | :--- | :--- | :--- | :--- |
|  | 2009 | 2008 | 2009 | 2008 |
| First\tquarter | - | 6,512,278 | $\t\t\t\t- | $\t\t\t\t61.83 |
| Second\tquarter | - | 6,337,197 | - | 75.83 |
| Third\tquarter | - | 5,943,111 | - | 74.85 |
| Fourth\tquarter | - | 3,383,282 | - | 58.72 |
| Total | - | 22,175,868 | $\t\t\t\t- | $\t\t\t\t68.84 |
| Remaining\tnumber\tof\tshares\tthat\tmay\tyet\tbe\trepurchased\t[a] |  |  |  | 32,577,090 |

[a] All	share	numbers	and	prices	have	been	restated	to	reflect	the	stock	split	completed	on	May	28,	2008	(see	Note	3).

# 17.	Accounting	Pronouncements

In	 January	 2010,	 the	 FASB	 issued	 Accounting	 Standards	 Update	 No.	 2010-06,	Improving	 Disclosures about	 Fair	 Value	 Measurements.	The	 Update	 provides amendments	 to	FASB	ASC	820-10	 that	require	entities	 to	disclose	separately	 the	amounts	of	significant	 transfers	 in	and	out	of	Level	1	and	Level	2	fair	value measurements	and	describe	the	reasons	for	the	transfers.	In	addition	the	Update	requires	entities	to	present	separately	information	about	purchases,	sales,	issuances,	and settlements	in	the	reconciliation	for	fair	value	measurements	using	significant	unobservable	inputs	(Level	3).	The	disclosures	related	to	Level	1	and	Level	2	fair	value measurements	are	effective	for	us	in	2010	and	the	disclosures	related	to	Level	3	fair	value	measurements	are	effective	for	us	in	2011.	The	Update	requires	new disclosures	only,	and	will	have	no	impact	on	our	consolidated	financial	position,	results	of	operations,	or	cash	flows.

In	June	2009,	the	FASB	issued	Statement	No.	166,	Accounting	for	Transfers	of	Financial	Assets—an	amendment	of	FASB	Statement	No.	140	(FAS	166).	FAS	166	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.	In	addition,	the	concept	of	a	qualifying	special-purpose	entity	is	no	longer	relevant	for	accounting	purposes. Therefore,	formerly	qualifying	special-purpose	entities	(as	defined	under	previous	accounting	standards)	should	be	evaluated	for	consolidation	by	reporting	entities	on and	after	the	effective	date	in	accordance

with	the	applicable	consolidation	guidance.	FAS	166	will	be	effective	for	us	beginning	in	2010.	After	adoption,	transfers	of	undivided	interests	in	accounts	receivable	to investors	under	our	sale	of	receivables	program	will	no	longer	qualify	for	sale	treatment,	but	rather	will	be	accounted	for	as	secured	borrowings	in	our	Consolidated Statements	of	Financial	Position.	We	are	still	evaluating	the	impact	on	our	Consolidated	Statements	of	Cash	Flows	related	to	the	adoption	of	this	standard.	The	value	of the	outstanding	undivided	interest	held	by	investors	under	our	sale	of	receivables	program	at	December	31,	2009	was	$400	million.

# 18.	Selected	Quarterly	Data	(Unaudited)

# Millions	of	Dollars,	Except	Per	Share	Amounts

# 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	have	been	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	have	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,	2009.	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,	2009,	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,	2009,	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,	2009,	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,	2009	of	the	Corporation	and	our	report	dated	February	5,	2010	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	2009,	Outstanding	Equity	Awards	at	2009	Fiscal	Year-End,	Option	Exercises	and	Stock	Vested	in Fiscal	Year	2009,	Pension	Benefits	at	2009	Fiscal	Year-End,	Nonqualified	Deferred	Compensation	at	2009	Fiscal	Year-End,	Potential	Payments	Upon	Termination	or Change	in	Control	and	Director	Compensation	in	Fiscal	Year	2009	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	 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	Union	Pacific	Corporation	common	stock	may	be	issued	as	of	December	31,	2009.

|  |  |  | Number	of	securities |
| :--- | :--- | :--- | :--- |
|  |  |  | remaining\tavailable\tfor |
|  | Number\tof\tsecurities |  | future\tissuance\tunder |
|  | to\tbe\tissued\tupon | Weighted-average | equity\tcompensation |
|  | exercise\tof | exercise\tprice\tof | plans\t(excluding |
|  | outstanding\toptions, | outstanding\toptions, | securities\treflected\tin |
|  | warrants\tand\trights | warrants\tand\trights | column\t(a)) |
| Plan\tCategory | (a) | (b) | (c) |
| Equity\tcompensation\tplans\tapproved\tby\tsecurity\tholders | 14,571,145\t[1] | $\t\t\t\t42.26\t[2] | 33,559,150 |
| Total | 14,571,145 | $\t\t\t\t42.26 | 33,559,150 |

[1] Includes	1,872,243	retention	units	that	do	not	have	an	exercise	price.	Does	not	include	1,931,894	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	55.

# (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	103.	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	5 	day	of	February,	2010. th

	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	5 	day	of	February,	2010,	by	the	following	persons	on behalf	of	the	registrant	and	in	the	capacities	indicated.

# PRINCIPAL	EXECUTIVE	OFFICER

DIRECTORS:

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

Michael	R.	McCarthy* Michael	W.	McConnell* Thomas	F.	McLarty	III* Steven	R.	Rogel* Jose	H.	Villarreal*

*	By	/s/	Thomas	E.	Whitaker

								Thomas	E.	Whitaker,	Attorney-in-fact

| Millions	of	Dollars,	for	the	Years	Ended	December	31, | 2009 | 2008 | 2007 |
| :--- | :--- | :--- | :--- |
| Allowance\tfor\tdoubtful\taccounts: |  |  |  |
| Balance,\tbeginning\tof\tperiod | $105 | $75 | $99 |
| Charges/(reduction)\tto\texpense | 2 | 23 | (7) |
| Net\trecoveries/(write-offs) | (37) | 7 | (17) |
| Balance,\tend\tof\tperiod | $70 | $105 | $75 |
| Allowance\tfor\tdoubtful\taccounts\tare\tpresented\tin\tthe\tConsolidated\tStatements\tof\tFinancial\tPosition\tas\tfollows: |  |  |  |
| Current | $3 | $10 | $3 |
| Long-term | 67 | 95 | 72 |
| Balance,\tend\tof\tperiod | $70 | $105 | $75 |
| Accrued\tcasualty\tcosts: |  |  |  |
| Balance,\tbeginning\tof\tperiod | $1,206 | $1,170 | $1,277 |
| Charges\tto\texpense | 199 | 322 | 328 |
| Cash\tpayments\tand\tother\treductions | (319) | (286) | (435) |
| Balance,\tend\tof\tperiod | $1,086 | $1,206 | $1,170 |
| Accrued\tcasualty\tcosts\tare\tpresented\tin\tthe\tConsolidated |  |  |  |
| Statements\tof\tFinancial\tPosition\tas\tfollows: |  |  |  |
| Current | $379 | $390 | $371 |
| Long-term | 707 | 816 | 799 |
| Balance,\tend\tof\tperiod | $\t\t\t1,086 | $1,206 | $1,170 |

# Exhibit	Index

32 Certifications	Pursuant	to	18	U.S.C.	Section	1350,	as	Adopted	pursuant	to	Section	906	of	the	Sarbanes-Oxley	Act	of	2002	-	James	R.	Young	and Robert	M.	Knight,	Jr.

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,	2009 (filed	with	the	SEC	on	February	5,	2010),	is	formatted	in	XBRL	and	submitted	electronically	herewith:	(i)	Consolidated	Statements	of	Income	for the	years	ended	December	31,	2009,	2008	and	2007,	(ii)	Consolidated	Statements	of	Financial	Position	at	December	31,	2009	and	December	31, 2008,	(iii)	Consolidated	Statements	of	Cash	Flows	for	the	years	ended	December	31,	2009,	2008	and	2007,	(iv)	Consolidated	Statements	of	Changes in	 Common	 Shareholders'	 Equity	 for	 the	 years	 ended	 December	 31,	 2009,	 2008	 and	 2007,	 and	 (v)	 the	 Notes	 to	 the	 Consolidated	 Financial Statements,	tagged	as	blocks	of	text.

# Incorporated	by	Reference

3(a) 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.

3(b) Revised	 Articles	 of	 Incorporation	 of	 UPC,	 as	 amended	 through	 May	 1,	 2008,	 are incorporated	 herein	 by reference to	 Exhibit	 3(a) to the Corporation's	Quarterly	Report	on	Form	10-Q	for	the	quarter	ended	September	30,	2008.

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).

4(b) Indenture,	dated	as	of	April	1,	1999,	between	UPC	and	The	Bank	of	New	York,	as	successor	to	JP	Morgan	Chase	Bank,	formerly	The	Chase Manhattan	Bank,	as	Trustee,	is	incorporated	herein	by	reference	to	Exhibit	4.2	to	UPC's	Registration	Statement	on	Form	S-3	(No.	333-75989).

4(c) Form	of	Debt	Security	(Note)	is	incorporated	herein	by	reference	to	Exhibit	4.1	to	the	Corporation's	Current	Report	on	Form	8-K,	dated	February 20,	2009.

4(d) Form	of	Debt	Security	(Note)	is	incorporated	herein	by	reference	to	Exhibit	4.2	to	the	Corporation's	Current	Report	on	Form	8-K,	dated	February 20,	2009.

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(b) Form	of	Stock	Unit	Agreement	for	Executives	dated	February	5,	2009	is	incorporated	herein	by	reference	to	Exhibit	10(b)	to	the	Corporation's Annual	Report	on	Form	10-K	for	the	year	ended	December	31,	2008.

10(c) Supplemental	Thrift	Plan	(409A	Non-Grandfathered	Component)	of	Union	Pacific	Corporation,	effective	as	of	January	1,	2009	is	incorporated herein	by	reference	to	Exhibit	10(c)	to	the	Corporation's	Annual	Report	on	Form	10-K	for	the	year	ended	December	31,	2008.

10(d) Supplemental	Thrift	Plan	(409A	Grandfathered	Component)	of	Union	Pacific	Corporation,	as	amended	and	restated	in	its	entirety,	effective	as	of January	1,	2009	is	incorporated	herein	by	reference	to	Exhibit	10(d)	to	the	Corporation's	Annual	Report	on	Form	10-K	for	the	year	ended	December 31,	2008.

10(e) Supplemental	Pension	Plan	for	Officers	and	Managers	(409A	Non-Grandfathered	Component)	of	Union	Pacific	Corporation	and	Affiliates,	as amended	and	restated	in	its	entirety	effective	as	of	January	1,	1989,	including	all	amendments	adopted	through	January	1,	2009	is	incorporated herein	by	reference	to	Exhibit	10(e)	to	the	Corporation's	Annual	Report	on	Form	10-K	for	the	year	ended	December	31,	2008.

10(f) Supplemental	Pension	Plan	for	Officers	and	Managers	(409A	Grandfathered	Component)	of	Union	Pacific	Corporation	and	Affiliates,	as	amended and	restated	in	its	entirety	effective	as	of	January	1,	1989,	including	all	amendments	adopted	through	January	1,	2009	is	incorporated	herein	by reference	to	Exhibit	10(f)	to	the	Corporation's	Annual	Report	on	Form	10-K	for	the	year	ended	December	31,	2008.

10(g) Union	Pacific	Corporation	Executive	Incentive	Plan,	effective	May	5,	2005,	amended	and	restated	effective	January	1,	2009	is	incorporated	herein by	reference	to	Exhibit	10(g)	to	the	Corporation's	Annual	Report	on	Form	10-K	for	the	year	ended	December	31,	2008.

10(h) Deferred	Compensation	Plan	(409A	Non-Grandfathered	Component)	of	Union	Pacific	Corporation,	effective	as	January	1,	2009	is	incorporated herein	by	reference	to	Exhibit	10(h)	to	the	Corporation's	Annual	Report	on	Form	10-K	for	the	year	ended	December	31,	2008.

10	(i) Deferred	Compensation	Plan	(409A	Grandfathered	Component)	of	Union	Pacific	Corporation,	as	amended	and	restated	in	its	entirety,	effective	as January	1,	2009	is	incorporated	herein	by	reference	to	Exhibit	10(i)	to	the	Corporation's	Annual	Report	on	Form	10-K	for	the	year	ended	December 31,	2008.

10(j) Union	Pacific	Corporation	2000	Directors	Plan,	effective	as	of	April	21,	2000,	as	amended	November	16,	2006,	January	30,	2007	and	January	1, 2009	is	incorporated	herein	by	reference	to	Exhibit	10(j)	to	the	Corporation's	Annual	Report	on	Form	10-K	for	the	year	ended	December	31,	2008.

10(k) Union	Pacific	Corporation	Stock	Unit	Grant	and	Deferred	Compensation	Plan	for	the	Board	of	Directors	(409A	Non-Grandfathered	Component), effective	as	of	January	1,	2009	is	incorporated	herein	by	reference	to	Exhibit	10(k)	to	the	Corporation's	Annual	Report	on	Form	10-K	for	the	year ended	December	31,	2008.

10(l) Union	Pacific	Corporation	Stock	Unit	Grant	and	Deferred	Compensation	Plan	for	the	Board	of	Directors	(409A	Grandfathered	Component),	as amended	and	restated	in	its	entirety,	effective	as	of	January	1,	2009	is	incorporated	herein	by	reference	to	Exhibit	10(l)	to	the	Corporation's	Annual Report	on	Form	10-K	for	the	year	ended	December	31,	2008.

10(m) Union	Pacific	Corporation	2004	Stock	Incentive	Plan,	originally	effective	as	of	April	16,	2004	and	amended	and	restated	effective	September	23, 2009	is	incorporated	herein	by	reference	to	Exhibit	10	to	the	Corporation's	Quarterly	Report	on	Form	10-Q	for	the	quarter	ended	September	30, 2009.

10(n) Union	Pacific	Corporation	Key	Employee	Continuity	Plan,	dated	as	of	November	16,	2000,	as	amended	and	restated	effective	as	of	January	1,	2009 is	incorporated	herein	by	reference	to	Exhibit	10(n)	to	the	Corporation's	Annual	Report	on	Form	10-K	for	the	year	ended	December	31,	2008.

10(o) 2006	Long	Term	Plan	Amended	and	Restated	Stock	Unit	Agreement	is	incorporated	herein	by	reference	to	Exhibit	10(o)	to	the	Corporation's Annual	Report	on	Form	10-K	for	the	year	ended	December	31,	2008.

10(p) 2007	Long	Term	Plan	Amended	and	Restated	Stock	Unit	Agreement	is	incorporated	herein	by	reference	to	Exhibit	10(p)	to	the	Corporation's Annual	Report	on	Form	10-K	for	the	year	ended	December	31,	2008.

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

10(r) The	1993	Stock	Option	and	Retention	Stock	Plan	of	UPC,	as	amended	November	16,	2006,	is	incorporated	herein	by	reference	to	Exhibit	10	to	the Corporation's	Quarterly	Report	on	Form	10-Q	for	the	quarter	ended	March	31,	2007.

10(s) UPC	2001	Stock	Incentive	Plan,	as	amended	November	16,	2006,	is	incorporated	herein	by	reference	to	Exhibit	10(e)	to	the	Corporation's	Annual Report	on	Form	10-K	for	the	year	ended	December	31,	2006.

10(t) Amended	and	Restated	Registration	Rights	Agreement,	dated	as	of	July	12,	1996,	among	UPC,	UP	Holding	Company,	Inc.,	Union	Pacific	Merger Co.	and	Southern	Pacific	Rail	Corporation	(SP)	is	incorporated	herein	by	reference	to	Annex	J	to	the	Joint	Proxy	Statement/Prospectus	included	in Post-Effective	Amendment	No.	2	to	UPC's	Registration	Statement	on	Form	S-4	(No.	33-64707).

10(u) Agreement,	dated	September	25,	1995,	among	UPC,	UPRR,	Missouri	Pacific	Railroad	Company	(MPRR),	SP,	Southern	Pacific	Transportation Company	(SPT),	The	Denver	&	Rio	Grande	Western	Railroad	Company	(D&RGW),	St.	Louis	Southwestern	Railway	Company	(SLSRC)	and SPCSL	Corp.	(SPCSL),	on	the	one	hand,	and	Burlington	Northern	Railroad	Company	(BN)	and	The	Atchison,	Topeka	and	Santa	Fe	Railway Company	(Santa	Fe),	on	the	other	hand,	is	incorporated	by	reference	to	Exhibit	10.11	to	UPC's	Registration	Statement	on	Form	S-4	(No.	33- 64707).

10(v) Supplemental	Agreement,	dated	November	18,	1995,	between	UPC,	UPRR,	MPRR,	SP,	SPT,	D&RGW,	SLSRC	and	SPCSL,	on	the	one	hand,	and BN	and	Santa	Fe,	on	the	other	hand,	is	incorporated	herein	by	reference	to	Exhibit	10.12	to	UPC's	Registration	Statement	on	Form	S-4	(No.	33- 64707).

10(w) 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(z) Form	of	Non-Qualified	Stock	Option	Agreement	for	Executives	is	incorporated	herein	by	reference	to	Exhibit	10(a)	to	the	Corporation's	Quarterly Report	on	Form	10-Q	for	the	quarter	ended	September	30,	2004.

10(aa) 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(bb) Form	of	Stock	Unit	Agreement	for	Executives	is	incorporated	herein	by	reference	to	Exhibit	10(b)	to	the	Corporation's	Quarterly	Report	on	Form 10-Q	for	the	quarter	ended	September	30,	2004.

10(cc) Form	of	Non-Qualified	Stock	Option	Agreement	for	Directors	is	incorporated	herein	by	reference	to	Exhibit	10(d)	to	the	Corporation's	Quarterly Report	on	Form	10-Q	for	the	quarter	ended	September	30,	2004.

10(dd) Form	of	Stock	Unit	Agreement	for	Executives	is	incorporated	herein	by	reference	to	Exhibit	10(b)	to	the	Corporation's	Annual	Report	on	Form	10- K	for	the	year	ended	December	31,	2005.

10(ee) Form	of	Non-Qualified	Stock	Option	Agreement	for	Executives	is	incorporated	herein	by	reference	to	Exhibit	10(c)	to	the	Corporation's	Annual Report	on	Form	10-K	for	the	year	ended	December	31,	2005.

10(ff) Executive	Incentive	Plan	(2005)	–	Deferred	Compensation	Program,	dated	December	21,	2005	is	incorporated	herein	by	reference	to	Exhibit	10(g) to	the	Corporation's	Annual	Report	on	Form	10-K	for	the	year	ended	December	31,	2005.

99 U.S.	$1,900,000,000	5-year	revolving	credit	agreement,	dated	as	of	April	20,	2007, is incorporated	herein	by	reference to	Exhibit	99 to the Corporation's	Quarterly	Report	on	Form	10-Q	for	the	quarter	ended	June	30,	2007.



Question: what percent of total material obligations and commitments as of december 31 , 2009 are operating leases?
Calculation: leases_2010 = 5312
leases_total = 24166
percent_leases = leases_2010 / leases_total
answer = percent_leases * 100
Answer: 22%