<PAGE>  COVER
                                     FORM 10-Q

                                   UNITED STATES
                        SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C.  20549

(Mark One)

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

                    For the quarterly period ended June 30, 1999

                                    - OR -

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

             For the transition period from____________ to _______________

                          Commission file number 1-6146

                         UNION PACIFIC RAILROAD COMPANY
             (Exact name of Registrant as specified in its charter)

          DELAWARE                                      94-6001323
(State or other jurisdiction of                      (I.R.S. Employer
 incorporation or organization)                     Identification No.)

                     1416 DODGE STREET, OMAHA, NEBRASKA
                  (Address of principal executive offices)

                                    68179
                                  (Zip Code)

                               (402) 271-5000
            (Registrant's telephone number, including area code)

         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.

YES   X      NO   ____

     As of July 30, 1999, the Registrant had outstanding  7,130 shares of Common
Stock, $10 par value, and 620 shares of Class A Stock, $10 par value.

         THE REGISTRANT  MEETS THE CONDITIONS SET FORTH IN GENERAL  INSTRUCTIONS
H(1)(a) AND (b) OF FORM 10-Q AND IS THEREFORE  FILING THIS FORM WITH THE REDUCED
DISCLOSURE FORMAT.


<PAGE>  INDEX


                      UNION PACIFIC RAILROAD COMPANY
                                    INDEX


                        PART I.  FINANCIAL INFORMATION



                                                                    Page Number
Item 1:  Consolidated Financial Statements:
         STATEMENT OF CONSOLIDATED INCOME
              For the Three Months Ended June 30, 1999 and 1998.......     1

         STATEMENT OF CONSOLIDATED INCOME
              For the Six Months Ended June 30, 1999 and 1998.........     2

         STATEMENT OF CONSOLIDATED FINANCIAL POSITION
              At June 30, 1999 and December 31, 1998..................     3

         STATEMENT OF CONSOLIDATED CASH FLOWS
              For the Six Months Ended June 30, 1999 and 1998.........     4

         STATEMENT OF CHANGES IN COMMON STOCKHOLDERS' EQUITY
              For the Six Months Ended June 30, 1999..................     5

         NOTES TO CONSOLIDATED FINANCIAL STATEMENTS...................    6-10


Item 2:  Management's Narrative Analysis of the Results of Operations.   11-18




                        PART II.  OTHER INFORMATION


Item 1:  Legal Proceedings............................................     18

Item 6:  Exhibits and Reports on Form 8-K.............................     19

Signatures............................................................     20




<PAGE>  1



PART I - FINANCIAL INFORMATION

Item 1.  Consolidated Financial Statements

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
Statement of Consolidated Income (Unaudited)
Union Pacific Railroad Company and Consolidated Subsidiary
and Affiliate Companies
For the Three Months Ended June 30, 1999 and 1998
-------------------------------------------------------------------------------
                     Millions of Dollars, Except Ratios       1999       1998
-------------------------------------------------------------------------------
<S>                  <C>                                    <C>         <C>
Operating Revenues   Rail...................................$2,491      $2,317
                     ----------------------------------------------------------

Operating Expenses   Salaries, wages and employee benefits..   874         889
                     Equipment and other rents..............   304         344
                     Depreciation...........................   256         248
                     Fuel and utilities (Note 3)............   190         201
                     Materials and supplies.................   133         134
                     Casualty costs.........................    84         107
                     Other costs (Note 7)...................   213         511
                     ----------------------------------------------------------
                     Total.................................. 2,054       2,434
                     ----------------------------------------------------------
Income               Operating Income (Loss)................   437        (117)
                     Other income (Note 5)..................    17          50
                     Interest expense.......................  (155)       (147)
                     ----------------------------------------------------------
                     Income (Loss) before Income Taxes......   299        (214)
                     Income taxes...........................   (93)         92
                     ----------------------------------------------------------
                     Net Income (Loss)......................$  206      $ (122)
                     ----------------------------------------------------------
                     Ratio of Earnings to Fixed
                           Charges (Note 6).................   2.5           -
                     ----------------------------------------------------------
</TABLE>
The accompanying notes to the financial statements are an integral part of these
statements.

<PAGE>  2

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
Statement of Consolidated Income (Unaudited)
Union Pacific Railroad Company and Consolidated Subsidiary
and Affiliate Companies
For the Six Months Ended June 30, 1999 and 1998
-------------------------------------------------------------------------------
                     Millions of Dollars, Except Ratios       1999        1998
-------------------------------------------------------------------------------
<S>                  <C>                                    <C>         <C>
Operating Revenues   Rail...................................$4,970      $4,601
                     ---------------------------------------------------------

Operating Expenses   Salaries, wages and employee benefits.. 1,779       1,773
                     Equipment and other rents..............   615         700
                     Depreciation...........................   514         494
                     Fuel and utilities (Note 3)............   368         409
                     Materials and supplies.................   266         266
                     Casualty costs.........................   184         212
                     Other costs (Note 7)...................   443         811
                     ----------------------------------------------------------
                     Total.................................. 4,169       4,665
                     ----------------------------------------------------------
Income               Operating Income (Loss)................   801         (64)
                     Other income (Note 5)..................    40          69
                     Interest expense.......................  (311)       (282)
                     ----------------------------------------------------------
                     Income (Loss) before Income Taxes......   530        (277)
                     Income taxes...........................  (175)        123
                     ----------------------------------------------------------
                     Net Income (Loss)......................$  355      $ (154)
                     ----------------------------------------------------------
                     Ratio of Earnings to Fixed
                           Charges (Note 6).................   2.3         0.2
                     ----------------------------------------------------------
</TABLE>

The accompanying notes to the financial statements are an integral part of these
statements.

<PAGE>  3

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
Statement of Consolidated Financial Position (Unaudited)
Union Pacific Railroad Company and Consolidated Subsidiary
and Affiliate Companies
-------------------------------------------------------------------------------
                                                           June 30,     Dec.31,
                     Millions of Dollars                       1999        1998
-------------------------------------------------------------------------------
Assets
<S>                  <C>                                    <C>         <C>
Current Assets       Cash and temporary investments.........$    69     $    35
                     Accounts receivable (Note 3)...........    403         494
                     Inventories............................    334         337
                     Current deferred tax asset.............    130         130
                     Other current assets...................     89          85
                     ----------------------------------------------------------
                     Total..................................  1,025       1,081
                     ----------------------------------------------------------
Investments (Note 2) Investments in and advances to
                          affiliated companies..............    632         520
                     Other investments......................    124         171
                     ----------------------------------------------------------
                     Total..................................    756         691
                     ----------------------------------------------------------
Properties           Cost................................... 32,934      32,334
                     Accumulated depreciation............... (6,217)     (5,871)
                     ----------------------------------------------------------
                     Net.................................... 26,717      26,463
                     ----------------------------------------------------------
Other                Other assets...........................    142         122
                     ----------------------------------------------------------
                     Total Assets...........................$28,640     $28,357
-------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
                     ----------------------------------------------------------
Current Liabilities  Accounts payable.......................$   530     $   493
                     Accrued wages and vacation payable.....    432         380
                     Accrued casualty costs.................    351         364
                     Income and other taxes payable.........    268         297
                     Debt due within one year...............    210         178
                     Interest payable.......................    102         110
                     Other current liabilities (Note 2).....    643         730
                     ----------------------------------------------------------
                     Total..................................  2,536       2,552
                     ----------------------------------------------------------
Other Liabilities    Intercompany borrowing from UPC........  5,485       5,368
and Stockholders'    Third-party debt due after one year....  2,470       2,606
Equity               Deferred income taxes..................  6,920       6,759
                     Accrued casualty costs.................    978         928
                     Retiree benefit obligations............    750         737
                     Other long-term liabilities
                          (Notes 2 and 7)...................    621         781
                     Redeemable preference shares...........     26          27
                     Common  stockholders' equity (Page 5)..  8,854       8,599
                     ----------------------------------------------------------
                     Total Liabilities and
                          Stockholders' Equity..............$28,640     $28,357
</TABLE>

The accompanying notes to the financial statements are an integral part of these
statements.


<PAGE>  4
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
Statement of Consolidated Cash Flows (Unaudited)
Union Pacific Railroad Company and Consolidated Subsidiary
and Affiliate Companies
For the Six Months Ended June 30, 1999 and 1998
-------------------------------------------------------------------------------
                     Millions of Dollars                     1999         1998
-------------------------------------------------------------------------------
<S>                  <C>                                    <C>         <C>
Cash from Operations Net Income (Loss)......................$ 355       $  (154)
                     Non-cash charges to income:
                       Depreciation.........................  514           494
                       Deferred income taxes................  161          (124)
                       Other - net.......................... (161)         (149)
                     Changes in current assets and
                       liabilities..........................   74           (51)
                     ----------------------------------------------------------
                     Cash Provided by Operations............  943            16
                     ----------------------------------------------------------
Investing Activities Capital investments.................... (802)       (1,231)
                     Other - net (Note 2)...................  (21)           41
                     ----------------------------------------------------------
                     Cash Used in Investing Activities...... (823)       (1,190)
                     ----------------------------------------------------------
Equity and Financing Debt repaid ........................... (104)         (180)
Activities           Net financings.........................    -           380
                     Dividends paid to parent............... (100)         (220)
                     Advances from affiliated
                       companies - net......................  118         1,173
                     ----------------------------------------------------------
                     Cash Provided by (Used in) Equity
                       and Financing Activities.............  (86)        1,153
                     ----------------------------------------------------------
                     Net Change in Cash and
                       Temporary Investments................   34           (21)
                     Cash at Beginning of Period............   35            50
                     ----------------------------------------------------------
                     Cash at End of Period..................$  69       $    29
                     ----------------------------------------------------------
Change in Current    Accounts receivable....................$  91       $    88
Assets and           Inventories............................    3           (28)
Liabilities          Other current assets...................   (4)           57
                     Accounts, wages and vacation payable...   89           (84)
                     Debt due within one year...............   32           (68)
                     Other current liabilities.............. (137)          (16)
                     ----------------------------------------------------------
                     Total..................................$  74       $   (51)

</TABLE>

The accompanying notes to the financial statements are an integral part of these
statements.


<PAGE>  5
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Statement of Changes in Common Stockholders' Equity (Unaudited)
Union Pacific Railroad and Consolidated Subsidiary and Affiliate Companies
For the Six Months Ended June 30, 1999
------------------------------------------------------------------------------
                     Millions of Dollars
------------------------------------------------------------------------------
<S>                  <C>                                                <C>
Common Stock         Common stock, $10.00 par value
(Note 4)                 (authorized 9,200 shares) balance at
                         beginning and end of period
                         (4,465 shares issued)......................... $   -
                     ----------------------------------------------------------
Class A Stock        Class A Stock, $10.00 par value
(Note 4)                 (authorized 800 shares)balance at
                         beginning and end of period
                         (388 shares issued)..........................      -
                     ----------------------------------------------------------
Paid-in Surplus      Balance at beginning and end of period...........   4,782
                     ----------------------------------------------------------
Retained Earnings    Balance at beginning of period...................   3,817
                     Net Income.......................................     355
                     ----------------------------------------------------------
                     Total............................................   4,172
                     Dividends declared...............................    (100)
                     ----------------------------------------------------------
                     Balance at end of period.........................   4,072
                     ----------------------------------------------------------
                     Total Common Stockholders' Equity................. $8,854
</TABLE>

The accompanying notes to the financial statements are an integral part of these
statements.

<PAGE>  6


              UNION PACIFIC RAILROAD COMPANY AND CONSOLIDATED SUBSIDIARY
                            AND AFFILIATE COMPANIES

                       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   (Unaudited)


1.   Responsibilities  for Financial Statements - Union Pacific Railroad Company
     (the  Registrant),  a Class  I  railroad  incorporated  in  Delaware  and a
     wholly-owned  subsidiary of Union Pacific  Corporation  (the Corporation or
     UPC),   together  with  a  number  of   wholly-owned   and   majority-owned
     subsidiaries,  certain affiliates and various  minority-owned  terminal and
     bridge companies (collectively,  the Company or Railroad), operates various
     railroad and  railroad-related  businesses.  The Company's rail  operations
     include for all periods the operations of Union Pacific Railroad Company, a
     Utah  corporation  and predecessor to the Registrant  (UPRR),  and the rail
     operating  subsidiaries  of Southern  Pacific  Rail  Corporation  (Southern
     Pacific or SP) (see Note 4). The consolidated  financial  statements of the
     Company  are  unaudited  and reflect all  adjustments  (consisting  only of
     normal and recurring  adjustments)  that are, in the opinion of management,
     necessary for a fair  presentation of the financial  position and operating
     results for the  interim  periods  presented.  The  consolidated  financial
     statements  should be read in conjunction with the  consolidated  financial
     statements  and notes thereto  contained in the Company's  Annual Report on
     Form 10-K for the year ended  December 31, 1998.  The results of operations
     for the  three  and six  months  ended  June 30,  1999 are not  necessarily
     indicative  of the results for the year ending  December 31, 1999.  Certain
     1998  amounts  have been  reclassified  to  conform  to the 1999  financial
     statement presentation.

2.   Acquisitions

     Southern  Pacific - UPC consummated the acquisition of Southern  Pacific in
     September  1996. The  acquisition of SP was accounted for as a purchase and
     was fully  consolidated  into UPC's results in October 1996. The various SP
     rail-operating  subsidiaries were then subsequently legally merged with the
     Registrant.

     Merger  Consolidation  Activities - In connection  with the acquisition and
     continuing integration of UPRR and Southern Pacific's rail operations,  the
     Company is in the process of eliminating 5,200 duplicate  positions,  which
     are primarily employees involved in activities other than train, engine and
     yard  activities.  In addition,  the Company is relocating 4,700 positions,
     merging or disposing of redundant  facilities and disposing of certain rail
     lines.  The  Company is also  canceling  uneconomical  and  duplicative  SP
     contracts.

         To date the Company has severed 2,500  employees  and  relocated  4,100
     employees due to merger implementation activities. The Company recognized a
     $958 million  pre-tax  merger  liability  as part of the SP purchase  price
     allocation for costs associated with SP's portion of these  activities.  In
     addition,   the   Railroad   expects  to  incur  $130  million  in  pre-tax
     acquisition-related  costs  for  severing  or  relocating  UPRR  employees,
     disposing of certain UPRR facilities, training and equipment upgrading over
     the remainder of the merger implementation  period.  Earnings for the three
     months  ended June 30,  1999 and 1998  included  $8 million and $11 million
     after-tax,  respectively,  and for the six months  ended June 30,  1999 and
     1998  included  $17 million and $29 million  after-tax,  respectively,  for
     acquisition-related costs for UPRR consolidation activities.


<PAGE>  7



         The  components  of the merger  liability  as of June 30,  1999 were as
follows:
<TABLE>
<CAPTION>
     --------------------------------------------------------------------------
                                              Original    Cumulative    Current
     Millions of Dollars                      Reserve     Activity      Reserve
     --------------------------------------------------------------------------
     <S>                                          <C>          <C>        <C>
     Contractual obligations..................    $361         $361       $  -
     Severance costs..........................     343          261         82
     Contract cancellation fees and facility
         and line closure costs...............     145          125         20
     Relocation costs.........................     109           84         25
     --------------------------------------------------------------------------
     Total....................................    $958         $831       $127
     --------------------------------------------------------------------------
</TABLE>

     Merger  Liabilities - Merger liability activity reflected cash payments for
     merger   consolidation   activities  and  reclassification  of  contractual
     obligations from merger liabilities to contractual liabilities. The Company
     expects that the remaining  merger payments will be made over the course of
     the next three years as labor  negotiations  are completed and  implemented
     and related merger consolidation activities are finalized.

     Mexican  Railway  Concession - During 1997, the Company and a consortium of
     partners were granted a 50-year concession to operate the Pacific-North and
     Chihuahua  Pacific  lines in  Mexico  and a 25%  stake in the  Mexico  City
     Terminal  Company  at a  price  of $525  million.  The  consortium  assumed
     operational  control  of both lines in 1998.  In March  1999,  the  Company
     purchased an additional 13% ownership  interest for $87 million from one of
     its  partners.  The  Railroad  now  holds  a 26%  ownership  share  in  the
     consortium. The investment is accounted for under the equity method.

3.   Financial  Instruments - The Company uses derivative financial  instruments
     in limited  instances and for other than trading purposes to manage risk as
     it relates to fuel prices.  Where the Company has fixed fuel prices through
     the use of swaps,  futures or forward contracts,  the Company has mitigated
     the downside risk of adverse price and rate movements; however, it has also
     limited future gains from favorable movements.

     Credit  Risk  -  The  total  credit  risk  associated  with  the  Company's
     counterparties  was $45 million at June 30, 1999.  The Company has received
     collateral  relating to its hedging  activity  where the  concentration  of
     credit risk was substantial.

     Valuation - The fair market  values of the Company's  derivative  financial
     instrument positions at June 30, 1999 and December 31, 1998 were determined
     based upon current fair market  values as quoted by  recognized  dealers or
     developed  based upon the present value of future cash flows  discounted at
     the applicable U.S. treasury rate and swap spread.



<PAGE>  8


         The following is a summary of the Company's  financial  instruments  at
June 30, 1999 and December 31, 1998:
<TABLE>
<CAPTION>
     --------------------------------------------------------------------------
     Millions of Dollars                              June 30,     December 31,
     Except Percentages and Average Commodity Prices      1999            1998
     --------------------------------------------------------------------------
     Rail Fuel Hedging:
          <S>                                            <C>             <C>
          Fuel purchases hedged for 1999..............   $ 172           $ 343
          Percentage of forecasted 1999 fuel
             consumption hedged.......................      64%             64%
          Average price of 1999 hedges
             outstanding (per gallon) [a].............   $0.41           $0.41
          Fuel purchases hedged for 2000..............   $  65               -
          Percentage of forecasted 2000
             fuel consumption hedged..................      13%              -
          Average price of 2000 hedges
             outstanding (per gallon) [a].............   $0.39               -
     --------------------------------------------------------------------------
</TABLE>
      [a]Excludes taxes and transportation costs.

     The asset and liability  positions of the Company's  outstanding  financial
instruments at June 30, 1999 and December 31, 1998 are as follows:
<TABLE>
<CAPTION>
     --------------------------------------------------------------------------
                                                      June 30,     December 31,
     Millions of Dollars                                 1999             1998
     --------------------------------------------------------------------------
     <S>                                                  <C>           <C>
     Rail Fuel Hedging:
          Gross fair market asset position............    $45            $ -
          Gross fair market (liability) position......      -             (49)
     --------------------------------------------------------------------------
     Total asset (liability) position.................    $45            $(49)
     --------------------------------------------------------------------------
</TABLE>

         The Company's use of financial  instruments had the following impact on
     pre-tax income for the three and six months ended June 30, 1999 and 1998:

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
                                       Three Months Ended     Six Months Ended
                                       ----------------------------------------
                                       June 30,   June 30,   June 30,  June 30,
     Millions of Dollars                  1999       1998       1999      1998
     --------------------------------------------------------------------------
     <S>                                  <C>         <C>        <C>       <C>
     Reduction in Pre-Tax Income.....      -          $20        $19       $34
-------------------------------------------------------------------------------
</TABLE>

     Sale of  Receivables  - The Railroad  has sold,  on a revolving  basis,  an
     undivided  percentage  ownership  interest in a designated pool of accounts
     receivable to third parties  through a  bankruptcy-remote  subsidiary  (the
     Subsidiary).  The Subsidiary is  collateralized  by a $66 million note from
     the Registrant.  The amount of receivables  sold fluctuates  based upon the
     availability of the designated pool of receivables and is directly affected
     by  changing  business  volumes  and  credit  risks.  At June 30,  1999 and
     December 31, 1998,  accounts  receivable  are presented net of $576 million
     and $580 million, respectively, of receivables sold.

4.   Capital  Stock - The number of shares shown in the Common Stock  section of
     the Statement of Changes in Common  Stockholders' Equity on page 5 excludes
     2,665  shares of  Common  Stock  and 232  shares of Class A Stock  owned by
     Southern Pacific Rail  Corporation,  an affiliate of the Registrant,  whose
     results are included in the consolidated financial statements.


<PAGE>  9



5.   Other Income - Other income included the following for the three months and
     six months ended June 30, 1999 and 1998:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
     Millions of Dollars                             Three Months Ended
                                              ---------------------------------
                                              June 30, 1999       June 30, 1998
     --------------------------------------------------------------------------
     <S>                                             <C>                 <C>
     Net gain on asset dispositions...........       $ 7                 $29
     Rental income............................        13                  12
     Interest income..........................         2                   4
     Other - net..............................        (5)                  5
     --------------------------------------------------------------------------
     Total....................................       $17                 $50
     --------------------------------------------------------------------------

     --------------------------------------------------------------------------
     Millions of Dollars                               Six Months Ended
                                              ---------------------------------
                                              June 30, 1999       June 30, 1998
     --------------------------------------------------------------------------
     Net gain on asset dispositions...........       $18                 $43
     Rental income............................        25                  23
     Interest income..........................         4                   7
     Other - net..............................        (7)                 (4)
     --------------------------------------------------------------------------
     Total....................................       $40                 $69
     --------------------------------------------------------------------------
</TABLE>

6.   Ratio of Earnings to Fixed Charges - The ratio of earnings to fixed charges
     has been computed on a consolidated  basis.  Earnings  represent net income
     (loss) less equity in undistributed earnings of unconsolidated  affiliates,
     plus income taxes and fixed  charges.  Fixed  charges  represent  interest,
     amortization of debt discount and the estimated  interest portion of rental
     charges.  For the three and six months ended June 30, 1998,  fixed  charges
     exceeded   earnings  by  approximately   $224  million  and  $296  million,
     respectively.

7.   Commitments  and  Contingencies  - There are  various  claims and  lawsuits
     pending against the Company. The Company is also subject to Federal,  state
     and  local  environmental  laws and  regulations,  pursuant  to which it is
     currently  participating in the  investigation  and remediation of numerous
     sites. In addition, the Company also periodically enters into financial and
     other commitments and guarantees in connection with its businesses, and has
     retained  certain  contingent  liabilities upon the disposition of formerly
     owned operations.

         It is not possible at this time for the Company to determine  fully the
     effect  of any or  all  unasserted  claims  on its  consolidated  financial
     condition;  however, to the extent possible, where unasserted claims can be
     estimated and where such claims are  considered  probable,  the Company has
     recorded a liability.  The Company does not expect that any known lawsuits,
     claims, environmental costs, commitments or guarantees will have a material
     adverse effect on its consolidated financial condition. Certain potentially
     significant  contingencies  relating to the Company's business are detailed
     below:

     Customer  Claims - Certain  customers  have  submitted  claims for  damages
     related to  shipments  delayed by the  Railroad  as a result of  congestion
     problems  during 1997 and 1998,  and certain  customers have filed lawsuits
     seeking relief related to such delays.  The nature of the damages sought by
     claimants includes,  but is not limited to, contractual liquidated damages,
     freight  loss or damage,  alternative  transportation  charges,  additional
     production  costs,  lost  business  and lost  profits.  In  addition,  some
     customers  have asserted that they have the right to cancel  contracts as a
     result of alleged material breaches of such contracts by the Railroad.  The
     Company has made no additional provisions for such claims in 1999.

<PAGE> 10


     Shareholder  Lawsuits - UPC and certain of its officers and directors  (who
     are also directors of the Registrant) are defendants in two purported class
     actions that have been consolidated  into one proceeding.  The consolidated
     complaint alleges,  among other things,  that the Corporation  violated the
     Federal  securities  laws by failing to disclose  material facts and making
     materially  false  and  misleading   statements   concerning  the  service,
     congestion  and safety  problems  encountered  following the  Corporation's
     acquisition of Southern  Pacific in 1996. These lawsuits were filed in late
     1997 in the United States District Court for the Northern District of Texas
     and seek to recover  unspecified  amounts of damages.  Management  believes
     that the  plaintiffs'  claims are without  merit and intends to defend them
     vigorously.  The  defendants  have moved to dismiss  this  action,  and the
     motion has been fully briefed and is awaiting a decision by the Court.

         In  addition to the class  action  litigation,  a purported  derivative
     action  was  filed on  behalf  of the  Corporation  and the  Registrant  in
     September 1998 in the District Court for Tarrant County,  Texas,  naming as
     defendants the then-current and certain former directors of the Corporation
     and the Registrant  and, as nominal  defendants,  the  Corporation  and the
     Registrant.  The derivative  action alleges,  among other things,  that the
     named directors  breached their fiduciary duties to the Corporation and the
     Registrant  by  approving  and  implementing  the Southern  Pacific  merger
     without  informing  themselves  of its  impact or  ensuring  that  adequate
     controls  were put in place and by causing UPC and the  Registrant  to make
     misrepresentations about the Registrant's service problems to the financial
     markets and regulatory  authorities.  The Corporation's  Board of Directors
     established a special litigation  committee consisting of three independent
     directors to review the plaintiff's allegations and determine whether it is
     in UPC's best  interest  to pursue  them.  The  committee  has  unanimously
     concluded that further  prosecution  of the derivative  action on behalf of
     the  Corporation  and the  Registrant is not in the best interest of either
     such company.  Accordingly, the Corporation and the Registrant have filed a
     motion  with the Court to dismiss the  derivative  action.  The  individual
     defendants  also believe that these claims are without  merit and intend to
     defend them vigorously.

8.   Accounting   Pronouncements  -  In  June  1998,  the  Financial  Accounting
     Standards  Board  issued  Statement  No. 133,  "Accounting  for  Derivative
     Instruments  and  Hedging  Activities"  (FAS  133),  that  would  have been
     effective January 1, 2000. In June 1999, the Financial Accounting Standards
     Board issued Statement No. 137, "Accounting for Derivatives Instruments and
     Hedging  Activities-Deferral  of the Effective  Date of FASB  Statement No.
     133" delaying the effective date for  implementing  FAS 133 to fiscal years
     beginning after June 15, 2000.  While management is still in the process of
     determining  the full effect FAS 133 will have on the  Company's  financial
     statements,  management  has  determined  that  FAS 133 will  increase  the
     volatility of the  Company's  asset,  liability  and equity  (comprehensive
     income)  positions as the change in the fair market value of all  financial
     instruments the Company uses for fuel hedging  purposes will, upon adoption
     of FAS 133, be recorded in the  Company's  Statement of Financial  Position
     (See Note 3). In addition, to the extent fuel hedges are ineffective due to
     pricing  differentials  resulting  from the  geographic  dispersion  of the
     Company's  operations,  income  statement  recognition  of the  ineffective
     portion  of the  hedge  position  will be  required.  Management  does  not
     anticipate  that the final adoption of FAS 133 will have a material  impact
     on the Company's consolidated financial statements.


<PAGE> 11


Item 2.    Management's Narrative Analysis of the Results of Operations


          UNION PACIFIC RAILROAD COMPANY AND CONSOLIDATED SUBSIDIARY
                          AND AFFILIATE COMPANIES
                           RESULTS OF OPERATIONS

Service  Issues - The results of operations of Union  Pacific  Railroad  Company
(Registrant) together with its wholly-owned and majority-owned  subsidiaries and
certain affiliates  (collectively,  the Company or the Railroad),  for the three
and six months ended June 30, 1998 were  adversely  affected by congestion  that
began in the third quarter of 1997.  However,  service recovery efforts resulted
in significant  improvements in operating and financial results beginning in the
latter half of 1998 and continuing into the first half of 1999.

           Three Months Ended June 30, 1999 Compared to June 30, 1998

Net Income - The  Railroad  reported  net income of $206  million for the second
quarter of 1999 compared to a 1998 net loss of $122 million.  Increased earnings
resulted  primarily  from improved  operations  and service levels and achieving
benefits from the SP merger.

Operating  Revenues - Operating  revenues  increased $174 million (8%) to $2,491
million in 1999, reflecting the Railroad's continued recovery from 1998 results.
Second quarter 1999 results were adversely  impacted by an estimated $40 million
reduction  in  commodity  revenue  due to the  impact  on  rail  traffic  of the
implementation of the joint acquisition of Conrail, which primarily affected the
Railroad's  automotive and industrial traffic, and the Railroad's planned 10-day
maintenance  outage on its central  corridor,  which  primarily  affected energy
traffic from the Powder River Basin (PRB).  Commodity  revenue  increased 8% and
carloads  increased 6% as all  commodity  lines showed  improvements  over 1998.
Average revenue per car (ARC) improved 2% over 1998 to $1,151.

      The following  table  summarizes the  quarter-over-quarter  change in rail
commodity revenue (CR):

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
Carloads in Thousands, Commodity Revenues in Millions of Dollars
             Three Months Ended June 30, 1999  Change vs.1998  % Change vs.1998
             --------------------------------  --------------  ----------------
                Cars     ARC         CR        Cars ARC   CR    Cars   ARC   CR
-------------------------------------------------------------------------------
<S>              <C>   <C>        <C>           <C> <C>  <C>    <C>   <C>  <C>
Agricultural...  214   $1,536     $ 328         21  $23  $ 38   11%    2%   13%
Automotive.....  184    1,492       275         19   19    32   12     1    13
Chemicals......  233    1,701       395          7    9    12    3     1     3
Energy.........  448    1,188       533         21   45    45    5     4     9
Industrial.....  353    1,345       475         11  (17)    8    3    (1)    2
Intermodal.....  681      624       426         38   34    46    6     6    12
-------------------------------------------------------------------------------
Total..........2,113   $1,151    $2,432        117  $23  $181    6%    2%    8%
-------------------------------------------------------------------------------
</TABLE>

Agricultural - Carloads  increased 11%,  leading to a commodity  revenue gain of
$38 million  (13%) over 1998.  Stronger  exports  and  improved  service  levels
resulted in volume increases in wheat (19%), corn (21%) and beverages (22%). ARC
increased  2%,  primarily the result of increased  long-haul  export moves and a
price increase on wheat movements.

Automotive - Commodity  revenues were up $32 million  (13%),  driven mainly by a
12% increase in  carloadings.  Strong  domestic  production and  improvements in
cycle   times,   partially   offset  by  the  impact  on  rail  traffic  of  the
implementation  of the joint  acquisition  of Conrail,  as well as the  negative

<PAGE> 12

impact  in the  second  quarter  of  1998  of a  strike  against  a  major  auto
manufacturer,  helped to drive a 13% improvement in finished vehicle volumes and
a 10%  improvement  in  parts  volumes.  ARC  increased  1%  per  car  due  to a
combination of product mix and price increases.

Chemicals - Carloadings and commodity revenue  increased 3% over 1998.  Improved
service  levels and recovery in demand drove  increases in plastics,  liquid and
dry  chemicals  and  phosphorous  moves.  These gains were  partially  offset by
declines in soda ash caused by the adverse  impact on demand  resulting from the
Asian  currency  crisis,  lower  sulfur  moves  resulting  from a slow  down  in
production in response to weak demand,  and a decline in demand for  fertilizers
resulting from depressed demand for U.S. farm  commodities.  ARC improved 1% due
to  favorable  product  mix,  reflecting  traffic  improvements  in  longer-haul
plastics and fewer shorter-haul petroleum moves.

Energy - Carloads increased 5%, resulting in a $45 million increase in commodity
revenue.  ARC  improved as a result of an increase in  longer-haul  PRB traffic,
combined  with a 4% increase in tons per car.  Volumes  increased as a result of
longer  trains and more trains per day out of the PRB and improved  service from
Colorado and Utah mines,  offset by a planned 10-day  maintenance  outage in the
central corridor in June 1999.

Industrial - Carloadings increased 3% and commodity revenue increased $8 million
(2%) to $475  million.  Volume  increases  resulted  from  stronger  demand  and
improved cycle times.  Traffic gains occurred in lumber, stone and cement due to
strong  construction  demand.  Recyclables grew due to new business.  Gains were
partially offset by decreased steel loadings due to higher imports of low-priced
foreign  steel,  which  reduced U.S.  production,  and lost volumes from a major
steel producer who filed for  bankruptcy.  ARC declined 1% due to an unfavorable
mix of long- and short-haul business.

Intermodal - Commodity  revenue  increased $46 million (12%) to $426 million and
carloadings  increased  6%.  Results were  positively  affected by strong demand
resulting  from  growth in imports  from Asia,  service  improvements  and a new
premium  service  offering.  These gains were  partially  offset by a decline in
exports  to Asia due to the  Asian  economic  crisis.  ARC  increased  6% due to
positive mix shifts (longer-haul shipments) and demand driven price increases.

Operating  Expenses - Operating  expenses decreased $380 million (16%) to $2,054
million in 1999.  A large  portion  of the  decrease  relates to a $250  million
expense in the second quarter of 1998 for the  resolution  of  customer  claims.
Improvements in service and increased  benefits from the SP merger helped reduce
quarter-over-quarter operating expenses.

Salaries,  wages and employee  benefits - Labor  expenses  were $15 million (2%)
lower than 1998, as higher rail volumes and wage inflation were more than offset
by merger consolidation benefits and productivity improvements.

Equipment  and other rents - Rent  expense  decreased  $40 million  (12%) versus
1998,  due primarily to an improvement  in cycle time,  which  decreased to 12.6
days in 1999  compared to 16.4 days in 1998,  and lower  prices for private tank
cars,  intermodal  equipment  and  other  leased  equipment.  Most of the  price
decrease  was related to a more  favorable  mix of  equipment,  as well as lower
rates resulting from  deregulation of equipment rates.  These  improvements were
partially offset by higher volume as carloads increased 6% quarter-over-quarter.


<PAGE> 13


Depreciation - Depreciation expense grew by $8 million or 3% to $256 million due
to the  Railroad's  capital  spending in the last half of 1998 and first half of
1999,  partially  offset by lower overall  depreciation  rates for equipment and
track assets resulting from the most recent periodic depreciation study required
by the Surface  Transportation  Board of the U.S.  Department of  Transportation
(STB).

Fuel and  utilities - Fuel and  utilities  expenses  were down $11 million or 5%
from 1998,  reflecting lower fuel prices and improved  consumption  rates, which
were  partially  offset by higher  volume.  An 8%  increase in  gross-ton  miles
quarter-over-quarter added volume-related fuel costs of $14 million versus 1998.
Prices were down 7 cents per gallon to 56 cents,  saving $23  million.  The fuel
consumption  rate of 1.39 gallons per thousand  gross-ton miles improved 2% from
last year, lowering fuel costs by another $4 million. The Railroad hedged 69% of
its second quarter fuel  consumption in 1999, which increased fuel costs by less
than a million dollars, or .1 cent per gallon. Expected fuel consumption for the
remaining  six months of 1999 is 64% hedged at an average of 55 cents per gallon
(including taxes, transportation charges and regional pricing spreads).

Materials  and supplies - Materials  and supplies  expense  decreased $1 million
(1%) from 1998. Lower material costs for roadway machines and work equipment and
lower material freight charges more than offset an increase in locomotive repair
material needed for units being removed from storage.

Casualty costs - Casualty costs declined $23 million (21%) from 1998,  primarily
due to the  effect  of  lower  than  expected  settlement  costs.  In  addition,
insurance  costs and costs for repairs on cars from other  railroads  were lower
quarter-over-quarter.

Other costs - Other costs  decreased $298 million (58%) from 1998,  reflecting a
$250 million  expense  recorded in 1998 for the  resolution of customer  claims,
lower state and local taxes  (primarily  sales and property  taxes) and benefits
resulting from the continuing integration of Southern Pacific operations.

Operating  Income - Operating  income  increased $554 million to $437 million in
1999.  Both  periods  included the impact of one-time  merger-related  costs for
severance,  relocation  and  training of  employees  ($13  million  reduction in
operating income in 1999 and $17 million reduction in operating income in 1998).
The operating  ratio for the second quarter of 1999 was 82.5%,  22.5  percentage
points better than 1998's 105.0% operating ratio.

Non-Operating  Items - Other income decreased $33 million (66%),  reflecting the
impact in the second quarter of 1998 of the sale of the SP headquarters building
and an insurance  recovery for 1997 flood damage.  Interest expense increased $8
million,  the result of higher average debt levels.  Income taxes increased $185
million to a $93 million expense,  reflecting higher income before income taxes,
partially offset by settlements related to prior tax years.

            Six Months Ended June 30, 1999 Compared to June 30, 1998

Net Income - The Railroad operations reported net income of $355 million for the
six months  ended June 30,  1999  compared  to a 1998 net loss of $154  million.
Increased  earnings  resulted  primarily  from improved  operations  and service
levels and achieving benefits from the SP merger.

Operating  Revenues - Operating  revenues  increased $369 million (8%) to $4,970
million in 1999, reflecting the Railroad's continued recovery from 1998 results.
1999 revenues were adversely  impacted by an estimated $40 million  reduction in
commodity revenue due to the impact on rail traffic of the implementation of the

<PAGE> 14


joint acquisition of Conrail, which primarily impacted automotive and industrial
traffic,  and the Railroad's  planned 10-day  maintenance  outage on its central
corridor,  which primarily affected energy traffic from the PRB. Carloadings for
the first six months of 1999 were 6% higher than 1998.  Average  revenue per car
(ARC) improved 2% over 1998 to $1,162.

      The following table summarizes the year-over-year change in rail commodity
revenue (CR):
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
Carloads in Thousands, Commodity Revenues in Millions of Dollars
             Six Months Ended June 30,1999   Change vs.1998    % Change vs.1998
             -----------------------------   --------------    ----------------
                  Cars     ARC        CR     Cars  ARC   CR    Cars   ARC    CR
-------------------------------------------------------------------------------
<S>                <C>   <C>       <C>       <C>   <C>  <C>     <C>   <C>    <C>
Agricultural.....  437   $1,544    $  675     43   $ 6  $ 70    11%    -%    12%
Automotive.......  354    1,492       528     30    31    55     9     2     12
Chemicals........  458    1,741       796      9    20    23     2     1      3
Energy...........  925    1,185     1,097     56    52   112     6     5     11
Industrial.......  680    1,359       924     24   (12)   24     4    (1)     3
Intermodal.......1,307      622       814     65    26    73     5     4     10
-------------------------------------------------------------------------------
Total............4,161   $1,162    $4,834    227   $24  $357     6%    2%     8%
-------------------------------------------------------------------------------
</TABLE>

Agricultural - Carloads  increased 11%,  leading to a commodity  revenue gain of
$70 million  (12%) over 1998.  Stronger  exports  and  improved  service  levels
resulted in volume increases in wheat, corn and beverages.  ARC remained flat as
longer  hauls in meals and oils and a price  increase  on wheat  movements  were
offset by a shift in corn  movements  to  shorter-haul  Gulf Coast moves  versus
longer-haul Pacific Northwest moves.

Automotive - Commodity  revenue was up $55 million (12%),  driven mainly by a 9%
increase in carloadings.  Strong domestic production,  and improvements in cycle
times,  partially offset by the impact on rail traffic of the  implementation of
the joint  acquisition of Conrail,  model  changeovers and a plant shut down, as
well  as  the  negative  impact  in  1998  of a  strike  against  a  major  auto
manufacturer,  resulted in year-over-year increases in both finished vehicle and
parts volumes.  ARC increased 2% per car due to a combination of product mix and
price increases.

Chemicals - Carloadings and commodity revenue increased 2% and 3%, respectively,
over 1998.  Improved  service  levels and recovery in demand drove  increases in
plastics,  liquid and dry  chemicals  and  phosphorous  moves.  These gains were
partially  offset by declines in soda ash caused by the adverse impact on demand
resulting from the Asian currency  crisis,  lower sulfur moves  resulting from a
slow down in production in response to weak demand,  and a decline in demand for
fertilizers  resulting  from  depressed  demand for U.S. farm  commodities.  ARC
improved 1% due to favorable  product mix,  reflecting  traffic  improvements in
longer-haul plastics and fewer shorter-haul petroleum and export sulfur moves.

Energy  -  Carloads  increased  6%,  resulting  in a $112  million  increase  in
commodity revenue.  ARC also improved $52 per car (5%) year-over-year  resulting
from changes in traffic mix as longer-haul PRB traffic  increased.  Increases in
the number of PRB trains per day,  tons per car and average  train length helped
to improve 1999 PRB business  versus  1998.  PRB traffic was reduced  during the
Rail unit's planned 10-day  maintenance  outage in June 1999.  Colorado and Utah
volumes also increased due to improved service.

Industrial  -  Carloadings  increased 4% and  commodity  revenue  increased  $24
million (3%) to $924 million. Volume increases resulted from stronger demand and
improved cycle times.  Traffic gains occurred in lumber, stone and cement due to
strong construction demand, and recyclables grew due to new business. Gains were
partially offset by decreased steel loadings due to higher imports of low-priced
foreign  steel,  which  reduced U.S.  production,  and lost volumes from a major
steel producer who filed for  bankruptcy.  ARC declined 1% due to an unfavorable
mix of long- and short-haul business.

<PAGE> 15

Intermodal - Commodity  revenue  increased $73 million (10%) to $814 million and
carloadings  increased  5%.  Results were  affected  positively by strong demand
resulting  from  growth in imports  from Asia,  service  improvements  and a new
premium  service  offering.  These gains were  partially  offset by a decline in
exports  to Asia due to the  Asian  economic  crisis.  ARC  increased  4% due to
positive mix shifts (longer-haul shipments) and demand driven price increases.

Operating  Expenses - Operating  expenses decreased $496 million (11%) to $4,169
million  in 1999.  A large  portion  of the  decrease  relates  to the impact of
expense in 1998 for the resolution of customer  claims.  Improvements in service
and increased  benefits  from the SP merger  helped to drive the  year-over-year
decrease in operating expenses.

Salaries,  wages and employee  benefits - Labor  expenses were $6 million higher
than 1998, a result of higher  volumes and wage  inflation  that were  partially
offset by merger consolidation benefits and productivity improvements.

Equipment  and other rents - Rent  expense  decreased  $85 million  (12%) versus
1998, due primarily to  improvements  in cycle time and lower prices,  partially
offset by higher volume as carloads increased 6% year-over-year.

Depreciation -  Depreciation  expense grew by $20 million or 4% to $514 million,
due to the Railroad's  capital  spending in the last half of 1998 and first half
of 1999,  partially offset by lower overall depreciation rates for equipment and
track assets resulting from the most recent periodic depreciation study required
by the STB. The Railroad  spent over $2 billion on capital  projects in 1998 and
over $800 million on capital projects during the first six months of 1999.

Fuel and  utilities - Fuel and  utilities  expenses were down $41 million or 10%
from 1998,  reflecting lower fuel prices and improved  consumption  rates, which
were  partially  offset by higher  volume.  The Railroad  hedged 70% of its fuel
consumption for the first six months of 1999,  which increased fuel costs by $19
million.

Materials and supplies - Materials and supplies expense remained  unchanged from
the first six months of 1998 at $266 million.  Lower  material costs for roadway
machines and work equipment,  lower material  freight charges and higher credits
received for parts  rebuilt,  offset an increase in locomotive  repair  material
needed for units being removed from storage.

Casualty costs - Casualty costs declined $28 million (13%) from 1998,  primarily
due to the  effect  of  lower  than  expected  settlement  costs.  In  addition,
insurance  costs and costs for repairs on cars from other  railroads  were lower
year-over-year.

Other costs - Other costs decreased $368 million (45%) from 1998, reflecting the
impact on 1998 results from expense for the resolution of customer claims, lower
state  and local  taxes  (primarily  sales  and  property  taxes)  and  benefits
resulting from the continuing integration of Southern Pacific operations.

Operating  Income - Operating  income  increased $865 million to $801 million in
1999.  Both  periods  included the impact of one-time  merger-related  costs for
severance,  relocation  and  training of  employees  ($28  million  reduction in
operating income in 1999 and $46 million reduction in operating income in 1998).
The operating ratio for the first six months of 1999 was 83.9%,  17.5 percentage
points better than 1998's 101.4% operating ratio.

<PAGE> 16

Non-Operating  Items - Other income decreased $29 million (42%),  reflecting the
impact in the second quarter of 1998 of the sale of the SP headquarters building
and an insurance recovery for 1997 flood damage.  Interest expense increased $29
million,  the result of higher average debt levels.  Income taxes increased $298
million to a $175 million expense  reflecting higher income before income taxes,
partially offset by settlements related to prior years.

                               OTHER MATTERS

Commitments and  Contingencies  - There are various claims and lawsuits  pending
against the Company and certain of its  subsidiaries.  In addition,  the Company
and  its  subsidiaries   are  subject  to  various  Federal,   state  and  local
environmental  laws and are currently  participating  in the  investigation  and
remediation  of  various  sites.  A  discussion  of  certain  claims,  lawsuits,
guarantees  and  contingencies  is set  forth  in  Note  7 to  the  Consolidated
Financial Statements, which is incorporated herein by reference.

Accounting  Pronouncements  - In June 1998, the Financial  Accounting  Standards
Board issued  Statement No. 133,  "Accounting  for  Derivative  Instruments  and
Hedging Activities" (FAS 133), that would be effective January 1, 2000. In June,
1999,  the  Financial  Accounting  Standards  Board  issued  Statement  No. 137,
"Accounting for Derivatives  Instruments and Hedging  Activities-Deferral of the
Effective  Date of FASB  Statement  No. 133"  delaying  the  effective  date for
implementing  FAS 133 to fiscal  years  beginning  after  June 15,  2000.  While
management is still in the process of  determining  the full effect FAS 133 will
have on the Company's financial  statements,  management has determined that FAS
133 will increase the  volatility of the Company's  asset,  liability and equity
(comprehensive  income)  positions as the change in the fair market value of all
financial  instruments  the Company uses for fuel hedging  purposes  will,  upon
adoption  of FAS 133,  be  recorded  in the  Company's  Statement  of  Financial
Position  (See Note 3). In addition,  to the extent fuel hedges are  ineffective
due to pricing  differentials  resulting from the  geographic  dispersion of the
Company's operations, income statement recognition of the ineffective portion of
the hedge position will be required.  Management  does not  anticipate  that the
final  adoption  of  FAS  133  will  have a  material  impact  on the  Company's
consolidated financial statements.

Year 2000 - The Year 2000  (Y2K)  compliance  project  at the  Company  includes
software  (internally  developed  and  purchased),  hardware and embedded  chips
inside   equipment  and  machinery.   The  Company's   enterprise-wide   project
encompasses  computer  systems  and  equipment  in multiple  data  centers and a
telecommunications  network spread over 23 states. Equipment containing embedded
computer chips includes locomotives, automated train switching systems, computer
aided  train  dispatching  systems,  signaling  systems,   computerized  fueling
stations,  weigh-in-motion  scales, cranes, lifts, PBX systems,  elevators,  and
computerized  monitoring systems throughout the Company. The Y2K project started
with research in 1994 and an impact  analysis of the Company's  mainframe  COBOL
systems in 1995. The Y2K project has been a high priority since then.

     The  Company's  Y2K  Project is  divided  into five  major  initiatives  as
follows:

Mainframe  Systems - These systems have been converted,  tested and deemed to be
Y2K compliant as of December 31, 1998.  Periodic  audits are planned during 1999
to ensure these systems remain Y2K compliant.

Client Server Systems - All critical  client server systems have been converted,
tested, and deemed to be Y2K compliant as of December 31, 1998. The non-critical
client server systems were deemed to be Y2K compliant as of June 30, 1999.

<PAGE> 17

User Department  Developed Systems - These systems consist of both mainframe and
PC-based systems developed by internal user departments. All of the systems were
deemed to be Y2K compliant as of June 30, 1999.

Vendor Supplied and Embedded Systems - These systems consist of  vendor-supplied
software,  desktop,  mainframe  and server  hardware,  databases  and  operating
systems,  as well as equipment and machinery with embedded systems.  One hundred
percent of the  identified  critical  suppliers of these systems have  indicated
that they have a  comprehensive  Year 2000 plan.  To help assure  safety and Y2K
compliance,  the Company is testing  selected  critical  software,  hardware and
embedded  systems,  even if the vendor has already  certified  the product.  The
Company is sharing  information on the compliance and testing of safety critical
components  common to the industry with the  cooperation  of the  Association of
American Railroads.

Electronic Commerce Systems - These systems consist of all electronic  exchanges
of  information   with  customers,   vendors,   other  railroads  and  financial
institutions.  The railroad  industry has agreed on a standard  4-digit year for
all electronic data interchange (EDI). The Railroad can now transmit and receive
the new EDI standard  that  involves a 4-digit  year.  The Company is conducting
additional  Y2K testing with  customers and trading  partners  using current and
older versions of EDI transactions in 1999.

     In an effort to ensure that interfacing  systems will operate  successfully
in the year 2000 the  Company is  conducting  integrated  testing of  individual
systems  already deemed to be Y2K compliant.  Although the formal testing period
is scheduled to be completed in September 1999, additional  verification testing
will continue through December 1999.

     For each of these  initiatives,  seven major categories of events have been
identified  for  contingency   plans.  These  categories  are  (1)  key  data  -
integrity/loss,    (2)   critical   software,   (3)   critical   hardware,   (4)
communications, (5) critical supplies and suppliers, (6) facilities, and (7) key
personnel.  The contingency plans also include a Y2K command center that will be
staffed 24 hours a day in the fourth quarter of 1999 and  continuing  into early
2000 for any problems that might occur due to Y2K. The staff will be composed of
technical experts to fix or advise what to fix if systems fail and knowledgeable
representatives  from each  business  unit.  Contingency  plans  continue  to be
developed and will be refined and adjusted throughout 1999.

     As of June 30, 1999,  100% of the  Company's  systems have been  converted,
tested,  and deemed to be Y2K compliant.  Costs to convert the Company's systems
are expensed as incurred. As of June 30, 1999, more than 90% of the costs of the
Y2K project, estimated to be $46 million (pre-tax) in total, have been expensed.
Although the Company believes its systems will be successfully modified, failure
by it,  or by those  from  whom the  Company  purchases  equipment,  or by other
entities with whom the Company exchanges data, or on whom it relies for data, to
successfully  modify their  systems,  could  materially  impact  operations  and
financial results in the year 2000.

                           CAUTIONARY INFORMATION

Certain information included in this report contains,  and other materials filed
or to be filed by the Company with the  Securities  and Exchange  Commission (as
well as information included in oral statements or other written statements made
or to  be  made  by  the  Company)  contain  or  will  contain,  forward-looking
statements within the meaning of the Securities Act of 1933, as amended, and the
Securities Exchange Act of 1934, as amended.  Such  forward-looking  information
may include,  without  limitation,  statements  that the Company does not expect
that claims, lawsuits, environmental costs, commitments, contingent liabilities,
labor  negotiations or other matters will have a material  adverse effect on its
consolidated  financial condition,  results of operations or liquidity and other

<PAGE> 18

similar  expressions  concerning  matters  that are not  historical  facts,  and
projections or predictions as to the Company's financial or operational results.
Such forward-looking information is or will be based on information available at
that time, and is or will be subject to risks and uncertainties that could cause
actual  results to differ  materially  from those  expressed in the  statements.
Important factors that could cause such differences include, but are not limited
to, whether the Company is fully  successful in  implementing  its financial and
operational  initiatives;  regaining its  customers who switched to  alternative
transportation  arrangements during the service crisis; industry competition and
performance, and legislative and/or regulatory developments; natural events such
as severe  weather,  floods and  earthquakes;  the  effects  of adverse  general
economic conditions; changes in fuel prices; labor stoppages; the impact of year
2000 systems problems; the outcome of shipper claims related to congestion;  and
claims arising from environmental  investigations or proceedings and other types
of  claims  and  litigation.   The  Company  assumes  no  obligation  to  update
forward-looking information to reflect actual results, changes in assumptions or
changes in other factors affecting forward-looking information.

PART II.  OTHER INFORMATION

Item 1.  Legal Proceedings

The  discussion of certain legal  proceedings  affecting the  Registrant  and/or
certain of its subsidiaries  set forth in Note 7 to the  Consolidated  Financial
Statements included in Item 1 of Part I of this Report is incorporated herein by
reference.  In  addition  to  those  matters,  the  following  proceedings,   or
developments  in proceedings  presently  pending,  arose or occurred  during the
second quarter of 1999.

Bottleneck  Proceedings  - As reported in the  Railroad's  Annual Report on Form
10-K for the year ended December 31, 1998 and Quarterly  Report on Form 10-Q for
the quarter  period  ended  March 31,  1999,  the U.S.  Court of Appeals for the
Eighth Circuit  entered an order on February 10, 1999 affirming a prior decision
by the  STB.  The  STB  decision  generally  reaffirmed  its  existing  position
regarding  the  obligation  of rail  carriers  to provide  rates for  bottleneck
segments  (lines of  railroad  that are  served by a single  railroad  between a
junction  and  an  exclusively-served   shipper  facility),  and  dismissed  two
complaint  proceedings  filed  by  shippers  challenging  a class  rate  for the
movement of coal to which UPRR and a predecessor were parties. On April 23, 1999
the Eighth Circuit denied a petition for rehearing  filed by two of the shippers
involved in the complaint proceeding.  On July 19, 1999 the Western Coal Traffic
League filed a petition for a writ of certiorari  in the United  States  Supreme
Court.

Environmental  Matters - As reported in the  Railroad's  1998 10-K, the Railroad
was named as a defendant in a criminal  misdemeanor  action brought by the State
of  California,  and both  the  California  Department  of Fish and Game and the
United States Environmental Protection Agency (USEPA) were seeking penalties, as
the result of a diesel fuel spill at Norden, California in February 1997. In the
second quarter,  the Railroad  settled the cases with the State of California by
payment of  $180,000.  The  Railroad  and the USEPA have reached an agreement in
principle  to settle that case for payment of  $125,000,  subject to the USEPA's
customary public comment procedures.


<PAGE> 19


Item 6.  Exhibits and Reports on Form 8-K

         (a)  Exhibits

                  12(a)   -  Computation of Ratio of Earnings to Fixed Charges
                             for the Three Months Ended June 30, 1999
                  12(b)   -  Computation of Ratio of Earnings to Fixed Charges
                             for the Six Months Ended June 30, 1999
                  27      -  Financial data schedule.

         (b)  Reports on Form 8-K

              On April 22, 1999, the  Registrant  filed a Current Report on Form
              8-K announcing  UPC's  financial  results for the first quarter of
              1999.


<PAGE>  SIGNATURE


                              SIGNATURES


Pursuant  to the  requirements  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.


Dated:     August 13, 1999


                                         UNION PACIFIC RAILROAD COMPANY
                                         (Registrant)


                                          By  /S/ James R. Young
                                          ----------------------
                                              James R. Young
                                              Senior Vice President-Finance
                                              (Chief Accounting Officer
                                              and Duly Authorized Officer)


                                          By  /s/ Richard J. Putz
                                          -----------------------
                                              Richard J. Putz
                                              Assistant Vice President and
                                              Controller
                                              (Duly Authorized Officer)



<PAGE>  EXHIBIT INDEX


          UNION PACIFIC RAILROAD COMPANY AND CONSOLIDATED SUBSIDIARY
                           AND AFFILIATE COMPANIES
                                 EXHIBIT INDEX



    Exhibit No.      Description of Exhibits Filed with this Statement

       12(a)         Computation of Ratio of Earnings to Fixed Charges
                     for the Three Months Ended June 30, 1999

       12(b)         Computation of Ratio of Earnings to Fixed Charges
                     for the Six Months Ended June 30, 1999

        27           Financial Data Schedule