##### Table of Contents



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, 2003                                            
|  |  |                                                                                         
|  |  | - OR -                                                                                  
|  |  |                                                                                         
|o |  | 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
(State or other jurisdiction of
incorporation or organization) |  | 94-6001323
(I.R.S. Employer
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 o

Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).

YES o NO x

As of July 31, 2003, 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.





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TABLE OF CONTENTS



|                                                   |                                                                      |                                                                  |  |  |  |  |  | 
|-------------------------------------------------- | -------------------------------------------------------------------- | ---------------------------------------------------------------- |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION                     
|                                                   | Item 1. Consolidated Financial Statements                           
|                                                   |                                                                      | Consolidated Statements of Income                               
|                                                   |                                                                      | Consolidated Statements of Income                               
|                                                   |                                                                      | Consolidated Statements of Financial Position                   
|                                                   |                                                                      | Consolidated Statements of Cash Flows                           
|                                                   |                                                                      | Consolidated Statement of Changes in Common Shareholders Equity
|                                                   |                                                                      | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                      
|                                                   | Item 2. Managements Narrative Analysis of the Results of Operations
|                                                   | Item 3. Quantitative and Qualitative Disclosures About Market Risk  
|                                                   | Item 4. Controls and Procedures                                     
|PART II. OTHER INFORMATION                        
|                                                   | Item 1. Legal Proceedings                                           
|                                                   | Item 6. Exhibits and Reports on Form 8-K                            
|SIGNATURES                                        
|EXHIBIT INDEX                                     
|EX-12(a) Ratio of Earnings to Fixed Charges       
|EX-12(b) Ratio of Earnings to Fixed Charges       
|EX-31(a) Certification Pursuant to Rule 13a-14(a) 
|EX-31(b) Certification Pursuant to Rule 13a-14(a) 
|EX-32 Certifications Pursuant to 18 USC, Sec. 1350



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##### Table of Contents



TABLE OF CONTENTS
UNION PACIFIC RAILROAD COMPANY



|                                                                     |                                                                                                                     | PART I. FINANCIAL INFORMATION |    |             |  | 
|-------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------- | ----------------------------- | -- | ----------- |  | 
|                                                                     |                                                                                                                     |                               |    | Page Number
|                                                                     |                                                                                                                     |                               |    |            
|Item 1: Consolidated Financial Statements:                           |                                                                                                                     |                               |    |            
|                                                                     | CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
For the Three Months Ended June 30, 2003 and 2002                     |                               |    | 3           | 
|                                                                     | CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
For the Six Months Ended June 30, 2003 and 2002                       |                               |    | 4           | 
|                                                                     | CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
At June 30, 2003 (Unaudited) and December 31, 2002                    |                               |    | 5           | 
|                                                                     | CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
For the Six Months Ended June 30, 2003 and 2002                   |                               |    | 6           | 
|                                                                     | CONSOLIDATED STATEMENT OF CHANGES IN COMMON SHAREHOLDERS EQUITY
(Unaudited)
For the Six Months Ended June 30, 2003 |                               |    | 7           | 
|                                                                     | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)                                                              |                               |    | 8           | 
|Item 2: Managements Narrative Analysis of the Results of Operations |                                                                                                                     |                               | 13 |            
|Item 3: Quantitative and Qualitative Disclosures About Market Risk   |                                                                                                                     |                               | 19 |            
|Item 4: Controls and Procedures                                      |                                                                                                                     |                               | 19 |            
|                                                                     |                                                                                                                     | PART II. OTHER INFORMATION    |    |             |  | 
|Item 1: Legal Proceedings                                            |                                                                                                                     |                               | 20 |            
|Item 6: Exhibits and Reports on Form 8-K                             |                                                                                                                     |                               | 20 |            
|Signatures                                                           |                                                                                                                     |                               | 21 |            

2



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##### Table of Contents






PART I. FINANCIAL INFORMATION




Item 1. Consolidated Financial Statements




Consolidated Statements of Income (Unaudited)Union Pacific Railroad Company and Consolidated Subsidiary and
Affiliate Companies

|                                    |                                       |      |       |      |  |   |       |     | 
|----------------------------------- | ------------------------------------- | ---- | ----- | ---- |  | - | ----- | --- | 
|Millions of Dollars,                |                                       |      |       |      |  |   |       |    
|For the Three Months Ended June 30, |                                       | 2003 |       | 2002
|                                    |                                       |      |       |     
|Revenues                            |                                       | $    | 2,881 |      |  | $ | 2,808 |    
|Operating expenses:                 |                                       |      |       |      |  |   |       |    
|                                    | Salaries, wages and employee benefits |      |       | 933  |  |   |       | 893 | 
|                                    | Equipment and other rents             |      |       | 297  |  |   |       | 308 | 
|                                    | Depreciation                          |      |       | 251  |  |   |       | 283 | 
|                                    | Fuel and utilities                    |      |       | 323  |  |   |       | 269 | 
|                                    | Materials and supplies                |      |       | 99   |  |   |       | 123 | 
|                                    | Casualty costs                        |      |       | 104  |  |   |       | 96  | 
|                                    | Purchased services and other costs    |      |       | 292  |  |   |       | 238 | 
|                                    |                                       |      |       |      |  |   |       |    
|Total operating expenses            |                                       |      | 2,299 |      |  |   | 2,210 |    
|                                    |                                       |      |       |      |  |   |       |    
|Operating income                    |                                       |      | 582   |      |  |   | 598   |    
|Other income                        |                                       |      | 18    |      |  |   | 37    |    
|Interest expense                    |                                       |      | (124  | )    |  |   | (137  | )  
|                                    |                                       |      |       |      |  |   |       |    
|Income before income taxes          |                                       |      | 476   |      |  |   | 498   |    
|Income taxes                        |                                       |      | (181  | )    |  |   | (182  | )  
|                                    |                                       |      |       |      |  |   |       |    
|Net income                          |                                       | $    | 295   |      |  | $ | 316   |    
|                                    |                                       |      |       |      |  |   |       |    

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

3



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Consolidated Statements of Income (Unaudited)Union Pacific Railroad Company and Consolidated Subsidiary and Affiliate Companies

|                                                     |                                       |      |       |       |  |   |       |       | 
|---------------------------------------------------- | ------------------------------------- | ---- | ----- | ----- |  | - | ----- | ----- | 
|Millions of Dollars,                                 |                                       |      |       |       |  |   |       |      
|For the Six Months Ended June 30,                    |                                       | 2003 |       | 2002 
|                                                     |                                       |      |       |      
|Revenues                                             |                                       | $    | 5,606 |       |  | $ | 5,457 |      
|Operating expenses:                                  |                                       |      |       |       |  |   |       |      
|                                                     | Salaries, wages and employee benefits |      |       | 1,873 |  |   |       | 1,784 | 
|                                                     | Equipment and other rents             |      |       | 606   |  |   |       | 621   | 
|                                                     | Depreciation                          |      |       | 525   |  |   |       | 565   | 
|                                                     | Fuel and utilities                    |      |       | 675   |  |   |       | 493   | 
|                                                     | Materials and supplies                |      |       | 201   |  |   |       | 241   | 
|                                                     | Casualty costs                        |      |       | 204   |  |   |       | 181   | 
|                                                     | Purchased services and other costs    |      |       | 569   |  |   |       | 466   | 
|                                                     |                                       |      |       |       |  |   |       |      
|Total operating expenses                             |                                       |      | 4,653 |       |  |   | 4,351 |      
|                                                     |                                       |      |       |       |  |   |       |      
|Operating income                                     |                                       |      | 953   |       |  |   | 1,106 |      
|Other income                                         |                                       |      | 32    |       |  |   | 56    |      
|Interest expense                                     |                                       |      | (250  | )     |  |   | (276  | )    
|                                                     |                                       |      |       |       |  |   |       |      
|Income before income taxes                           |                                       |      | 735   |       |  |   | 886   |      
|Income taxes                                         |                                       |      | (273  | )     |  |   | (327  | )    
|                                                     |                                       |      |       |       |  |   |       |      
|Income before cumulative effect of accounting change |                                       |      | 462   |       |  |   | 559   |      
|Cumulative effect of accounting change, net of tax   |                                       |      | 274   |       |  |   |      |      
|                                                     |                                       |      |       |       |  |   |       |      
|Net income                                           |                                       | $    | 736   |       |  | $ | 559   |      
|                                                     |                                       |      |       |       |  |   |       |      

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

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Consolidated Statements of Financial PositionUnion Pacific Railroad Company and Consolidated Subsidiary and Affiliate Companies




|                                                  |                                                     |      |             |        |          |   |        |        |  
|------------------------------------------------- | --------------------------------------------------- | ---- | ----------- | ------ | -------- | - | ------ | ------ | -
|                                                  |                                                     |      | (Unaudited) |        |          |   |       
|                                                  |                                                     |      | Jun. 30,    |        | Dec. 31,
|Millions of Dollars                               |                                                     | 2003 |             | 2002  
|                                                  |                                                     |      |             |       
|Assets                                            |                                                     |      |             |        |          |   |        |       
|Current Assets                                    |                                                     |      |             |        |          |   |        |       
|                                                  | Cash and temporary investments                      |      | $           | 106    |          |   | $      | 110    |  
|                                                  | Accounts receivable, net                            |      |             | 493    |          |   |        | 529    |  
|                                                  | Inventories                                         |      |             | 279    |          |   |        | 277    |  
|                                                  | Current deferred income taxes                       |      |             | 281    |          |   |        | 281    |  
|                                                  | Other current assets                                |      |             | 215    |          |   |        | 189    |  
|                                                  |                                                     |      |             |        |          |   |        |       
|Total current assets                              |                                                     |      | 1,374       |        |          |   | 1,386  |       
|                                                  |                                                     |      |             |        |          |   |        |       
|Investments:                                      |                                                     |      |             |        |          |   |        |       
|                                                  | Investments in and advances to affiliated companies |      |             | 674    |          |   |        | 649    |  
|                                                  | Other investments                                   |      |             | 43     |          |   |        | 49     |  
|                                                  |                                                     |      |             |        |          |   |        |       
|Total investments                                 |                                                     |      | 717         |        |          |   | 698    |       
|                                                  |                                                     |      |             |        |          |   |        |       
|Properties:                                       |                                                     |      |             |        |          |   |        |       
|                                                  | Cost                                                |      |             | 37,681 |          |   |        | 36,821 |  
|                                                  | Accumulated depreciation                            |      |             | (7,726 | )        |   |        | (7,841 | )
|                                                  |                                                     |      |             |        |          |   |        |       
|Net properties                                    |                                                     |      | 29,955      |        |          |   | 28,980 |       
|                                                  |                                                     |      |             |        |          |   |        |       
|Other assets                                      |                                                     |      | 296         |        |          |   | 250    |       
|                                                  |                                                     |      |             |        |          |   |        |       
|Total assets                                      |                                                     | $    | 32,342      |        |          | $ | 31,314 |       
|                                                  |                                                     |      |             |        |          |   |        |       
|Liabilities and Common Shareholders Equity       |                                                     |      |             |        |          |   |        |       
|Current Liabilities:                              |                                                     |      |             |        |          |   |        |       
|                                                  | Accounts payable                                    |      | $           | 512    |          |   | $      | 416    |  
|                                                  | Accrued wages and vacation                          |      |             | 382    |          |   |        | 362    |  
|                                                  | Accrued casualty costs                              |      |             | 394    |          |   |        | 403    |  
|                                                  | Income and other taxes                              |      |             | 358    |          |   |        | 226    |  
|                                                  | Debt due within one year                            |      |             | 170    |          |   |        | 275    |  
|                                                  | Interest                                            |      |             | 65     |          |   |        | 71     |  
|                                                  | Other current liabilities                           |      |             | 469    |          |   |        | 537    |  
|                                                  |                                                     |      |             |        |          |   |        |       
|Total current liabilities                         |                                                     |      | 2,350       |        |          |   | 2,290  |       
|Intercompany borrowing from UPC                   |                                                     |      | 4,420       |        |          |   | 4,464  |       
|Third-party debt due after one year               |                                                     |      | 2,076       |        |          |   | 1,984  |       
|Deferred income taxes                             |                                                     |      | 9,114       |        |          |   | 8,823  |       
|Accrued casualty costs                            |                                                     |      | 609         |        |          |   | 658    |       
|Retiree benefits obligation                       |                                                     |      | 821         |        |          |   | 888    |       
|Other long-term liabilities                       |                                                     |      | 465         |        |          |   | 333    |       
|Redeemable Preference Shares                      |                                                     |      | 17          |        |          |   | 18     |       
|Commitments and contingencies                    
|Common shareholders equity                       |                                                     |      | 12,470      |        |          |   | 11,856 |       
|                                                  |                                                     |      |             |        |          |   |        |       
|Total liabilities and common shareholders equity |                                                     | $    | 32,342      |        |          | $ | 31,314 |       
|                                                  |                                                     |      |             |        |          |   |        |       

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

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Consolidated Statements of Cash Flows (Unaudited)
Union Pacific Railroad Company and Consolidated Subsidiary and Affiliate Companies

|                                                                                  |                                                |                   |       |      |      |   |       |      |      |  
|--------------------------------------------------------------------------------- | ---------------------------------------------- | ----------------- | ----- | ---- | ---- | - | ----- | ---- | ---- | -
|Millions of Dollars,                                                              |                                                |                   |       |      |      |   |       |     
|For the Six Months Ended June 30,                                                 |                                                | 2003              |       | 2002
|                                                                                  |                                                |                   |       |     
|Operating Activities                                                              |                                                |                   |       |      |      |   |       |     
|Net income                                                                        |                                                | $                 | 736   |      |      | $ | 559   |     
|Adjustments to reconcile net income to net cash provided by operating activities: |                                                |                   |       |      |      |   |       |     
|                                                                                  | Cumulative effect of accounting change         |                   |       | (274 | )    |   |       |     |     
|                                                                                  | Depreciation                                   |                   |       | 525  |      |   |       | 565  |     
|                                                                                  | Deferred income taxes                          |                   |       | 127  |      |   |       | 155  |     
|                                                                                  | Cash paid to fund pension plan                 |                   |       | (50  | )    |   |       |     |     
|                                                                                  | Other, net                                     |                   |       | (158 | )    |   |       | (163 | )   
|                                                                                  | Changes in current assets and liabilities, net |                   |       | 173  |      |   |       | (43  | )   
|                                                                                  |                                                |                   |       |      |      |   |       |     
|Cash
provided by operating activities                                             |                                                |                   | 1,079 |      |      |   | 1,073 |     
|                                                                                  |                                                |                   |       |      |      |   |       |     
|Investing Activities                                                              |                                                |                   |       |      |      |   |       |     
|Capital investments                                                               |                                                |                   | (863  | )    |      |   | (819  | )   
|Proceeds from asset sales                                                         |                                                |                   | 42    |      |      |   | 74    |     
|Other investing activities, net                                                   |                                                |                   | 97    |      |      |   | (26   | )   
|                                                                                  |                                                |                   |       |      |      |   |       |     
|Cash used in investing activities                                                 |                                                |                   | (724  | )    |      |   | (771  | )   
|                                                                                  |                                                |                   |       |      |      |   |       |     
|Financing Activities                                                              |                                                |                   |       |      |      |   |       |     
|Dividends paid to parent                                                          |                                                |                   | (116  | )    |      |   | (100  | )   
|Debt repaid                                                                       |                                                |                   | (199  | )    |      |   | (125  | )   
|Advances from affiliated companies                                                |                                                |                   | (44   | )    |      |   | (80   | )   
|                                                                                  |                                                |                   |       |      |      |   |       |     
|Cash
used in financing activities                                                 |                                                |                   | (359  | )    |      |   | (305  | )   
|                                                                                  |                                                |                   |       |      |      |   |       |     
|Net change in cash and temporary investments                                      |                                                |                   | (4    | )    |      |   | (3    | )   
|Cash and temporary investments at beginning of period                             |                                                |                   | 110   |      |      |   | 87    |     
|                                                                                  |                                                |                   |       |      |      |   |       |     
|Cash and temporary investments at end of period                                   |                                                | $                 | 106   |      |      | $ | 84    |     
|                                                                                  |                                                |                   |       |      |      |   |       |     
|Changes in Current Assets and Liabilities, Net                                    |                                                |                   |       |      |      |   |       |     
|Accounts receivable, net                                                          |                                                | $                 | 36    |      |      | $ | (65   | )   
|Inventories                                                                       |                                                |                   | (2    | )    |      |   | 14    |     
|Other current assets                                                              |                                                |                   | (26   | )    |      |   | (22   | )   
|Accounts, wages and vacation payable                                              |                                                |                   | 116   |      |      |   | 65    |     
|Other current liabilities                                                         |                                                |                   | 49    |      |      |   | (35   | )   
|                                                                                  |                                                |                   |       |      |      |   |       |     
|Total                                                                             |                                                | $                 | 173   |      |      | $ | (43   | )   
|                                                                                  |                                                |                   |       |      |      |   |       |     
|Supplemental cash flow information:                                               |                                                |                   |       |      |      |   |       |     
|                                                                                  | Non-cash locomotive lease financings           |                   | $     | 188  |      |   | $     | 126  |     
|                                                                                  | Cash (paid) received during the period for:    |                   |       |      |      |   |       |      |     
|                                                                                  |                                                | Interest          |       |      | (258 | ) |       |      | (293 | )
|                                                                                  |                                                | Income taxes, net |       |      | 5    |   |       |      | (123 | )
|                                                                                  |                                                |                   |       |      |      |   |       |     

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

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Consolidated Statement of Changes in Common Shareholders Equity (Unaudited)Union Pacific Railroad Company and Consolidated Subsidiary and Affiliate Companies

|                                        |  |        |   |         |  |         |   |          |  |             |       |             |  |             |       |         |  |                             |      |         |  |                   |     |   |  |   |    |   |  |   |      |   |  |   |        |  
|--------------------------------------- |  | ------ | - | ------- |  | ------- | - | -------- |  | ----------- | ----- | ----------- |  | ----------- | ----- | ------- |  | --------------------------- | ---- | ------- |  | ----------------- | --- | - |  | - | -- | - |  | - | ---- | - |  | - | ------ | -
|                                        |  |        |   |         |  |         |   |          |  |             |       |             |  |             |       |         |  |                             |      |         |  |                   |     |   |  |   |    |   |  |   |      |   |  |   |        |  
|                                        |  |        |   |         |  |         |   |          |  |             |       |             |  |             |       |         |  |                             |      |         |  | Accumulated Other |     |   |  |   |    |   |  |  
|                                        |  |        |   |         |  |         |   |          |  |             |       |             |  |             |       |         |  | Comprehensive Income (Loss) |      |         |  |                  
|                                        |  |        |   |         |  |         |   |          |  |             |       |             |  |             |       |         |  |                             |      |         |  |                  
|                                        |  |        |   |         |  |         |   |          |  |             |       |             |  |             |       |         |  | Minimum                     |      | Foreign |  |                   |     |   |  |   |    |   |  |   |      |  
|Millions of Dollars,                    |  |        |   | [a]     |  |         |   | [b]      |  | Paid-       |       |             |  |             |       | Pension |  | Currency                    |      |         |  |                   |     |   |  |   |    |   |  |  
|For the Six Months Ended                |  | Common |   | Class A |  | in-     |   | Retained |  | Liability   |       | Translation |  | Derivative  |       |         |  |                             |      |         |  |                  
|June 30, 2003                           |  | Shares |   | Shares  |  | Surplus |   | Earnings |  | Adjustments |       | Adjustments |  | Adjustments |       | Total   |  | Total                      
|                                        |  |        |   |         |  |         |   |          |  |             |       |             |  |             |       |         |  |                            
|Balance at December 31, 2002            |  | $      |  |         |  | $       |  |          |  | $           | 4,782 |             |  | $           | 7,224 |         |  | $                           | (148 | )       |  | $                 | (9  | ) |  | $ | 7  |   |  | $ | (150 | ) |  | $ | 11,856 |  
|                                        |  |        |   |         |  |         |   |          |  |             |       |             |  |             |       |         |  |                             |      |         |  |                   |     |   |  |   |    |   |  |   |      |   |  |   |        |  
|Net income                              |  |        |  |         |  |         |  |          |  |             |      |             |  |             | 736   |         |  |                             |     |         |  |                   |    |   |  |   |   |   |  |   |     |   |  |   | 736    |  
|Other comprehensive loss,
net of tax[c] |  |        |  |         |  |         |  |          |  |             |      |             |  |             |      |         |  |                             |     |         |  |                   | (3  | ) |  |   | (3 | ) |  |   | (6   | ) |  |   | (6     | )
|                                        |  |        |   |         |  |         |   |          |  |             |       |             |  |             |       |         |  |                             |      |         |  |                   |     |   |  |   |    |   |  |   |      |   |  |   |        |  
|Comprehensive income                    |  |        |   |         |  |         |   |          |  |             |       |             |  |             |       |         |  |                             |      |         |  |                   |     |   |  |   |    |   |  |   |      |   |  |   | 730    |  
|Dividends declared                      |  |        |  |         |  |         |  |          |  |             |      |             |  |             | (116  | )       |  |                             |     |         |  |                   |    |   |  |   |   |   |  |   |     |   |  |   | (116   | )
|                                        |  |        |   |         |  |         |   |          |  |             |       |             |  |             |       |         |  |                             |      |         |  |                   |     |   |  |   |    |   |  |   |      |   |  |   |        |  
|Balance at June 30, 2003                |  | $      |  |         |  | $       |  |          |  | $           | 4,782 |             |  | $           | 7,844 |         |  | $                           | (148 | )       |  | $                 | (12 | ) |  | $ | 4  |   |  | $ | (156 | ) |  | $ | 12,470 |  
|                                        |  |        |   |         |  |         |   |          |  |             |       |             |  |             |       |         |  |                             |      |         |  |                   |     |   |  |   |    |   |  |   |      |   |  |   |        |  



| |  | [a] Common Stock, $10.00 par value; 9,200 shares authorized; 4,465 outstanding.
| |  | -------------------------------------------------------------------------------
|
| |  | [b] Class A Stock, $10.00 par value; 800 shares authorized; 388 outstanding.   
|
| |  | [c] Other comprehensive loss, net of tax of $3 million.                        

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

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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 an indirect
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 companies (collectively, UPRR, the
Company or the Railroad), operates various railroad and railroad-related
businesses. 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 Statement of Financial Position at December
31, 2002 is derived from audited financial statements. 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, 2002. The results of operations
for the three months and six months ended June 30, 2003 are not necessarily
indicative of the results for the entire year ending December 31, 2003.
Certain prior year amounts have been reclassified to conform to the 2003
financial statement presentation.

2.     Stock-Based Compensation The Company participates in the Corporations
stock incentive plans. At June 30, 2003, the Corporation had several
stock-based employee compensation plans. The Corporation accounts for those
plans under the recognition and measurement principles of APB Opinion No. 25,
Accounting for Stock Issued to Employees,and related Interpretations. No
stock option expense is reflected in net income as all options granted under
those plans had an exercise price equal to the market value of the Union
Pacific Corporation common stock on the date of grant. Stock-based employee
compensation expense related to restricted stock and other incentive plans is
reflected in net income. The following table illustrates the effect on net
income if the Company had applied the fair value recognition provisions of FASB
Statement No. 123, Accounting for Stock-Based
Compensation,to stock-based
employee compensation.

|                                                                                                                    |  |                    |     |                  |  |      |     |      |  |   |     |   |  |   |     |  
|------------------------------------------------------------------------------------------------------------------- |  | ------------------ | --- | ---------------- |  | ---- | --- | ---- |  | - | --- | - |  | - | --- | -
|                                                                                                                    |  | Three Months Ended |     | Six Months Ended
|                                                                                                                    |  | June 30,           |     | June 30,        
|                                                                                                                    |  |                    |     |                 
|Millions of Dollars                                                                                                 |  | 2003               |     | 2002             |  | 2003 |     | 2002
|                                                                                                                    |  |                    |     |                  |  |      |     |     
|Net income, as reported                                                                                             |  | $                  | 295 |                  |  | $    | 316 |      |  | $ | 736 |   |  | $ | 559 |  
|Stock-based employee
compensation expense
included in reported
net income, net of tax                               |  |                    | 2   |                  |  |      | 2   |      |  |   | 7   |   |  |   | 4   |  
|Total stock-based
employee compensation
expense determined
under fair value based
method for all awards,
net of tax |  |                    | (5  | )                |  |      | (6  | )    |  |   | (14 | ) |  |   | (11 | )
|                                                                                                                    |  |                    |     |                  |  |      |     |      |  |   |     |   |  |   |     |  
|Pro forma net income                                                                                                |  | $                  | 292 |                  |  | $    | 312 |      |  | $ | 729 |   |  | $ | 552 |  
|                                                                                                                    |  |                    |     |                  |  |      |     |      |  |   |     |   |  |   |     |  

The fair value of each option grant was estimated on the date of grant
using the Black-Scholes option-pricing model. The following were the
weighted-average assumptions for options granted during both the three months
and six months ended June 30, 2003: risk-free interest rates of 2.9%; dividend
yield of 1.5%; expected lives of 5 years; and volatility of 28.4%. Assumptions
for both the three months and six months ended June 30, 2002 were: risk-free
interest rates of 4.4%; dividend yield of 1.3%; expected lives of 5 years; and
volatility of 28.8%.

3.     Intercompany Relationship with UPC At June 30, 2003 and December 31, 2002,
the Railroad had $976 million and $904 million working capital deficit
balances, respectively, relating to UPCs management of its cash position. As
part of UPCs cash management activities, the Railroad advances excess cash
(cash available after satisfying all of the Railroads obligations and paying
dividends to UPC) to UPC. Dividends declared and paid to UPC by the Railroad
typically approximate the dividends that UPC declares to its shareholders;
however, there is no formal requirement to do so. The dividend declaration
between the Railroad and UPC is determined solely by the Railroads Board of
Directors. To the extent the Railroad requires additional cash for use in its
operations, UPC makes such funds available for borrowing by the Railroad.
Transactions between UPC and UPRR are treated as net intercompany borrowings in
the Consolidated Statements of Financial Position.

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The majority of the Railroads intercompany borrowings from UPC relate to
the acquisitions of the Chicago and North Western Transportation Company and
Southern Pacific Rail Corporation which were funded by UPC on behalf of the
Railroad. These acquisition costs were assumed by the Railroad in the form of
intercompany borrowings from UPC. The intercompany borrowings accrue interest
at an annual rate of 7.5%, which may be adjusted from time to time, and are
payable on demand. There are no restrictions on the amount the Railroad is
able to borrow from UPC. Intercompany borrowings are unsecured and rank
equally with all of the Railroads other unsecured indebtedness.

UPC provides the Company with various services, including strategic
planning, legal, treasury, accounting, auditing, insurance, human resources and
corporate affairs. In 2003, pursuant to a services agreement, UPC will continue
to provide services to the Company, and the Company will pay UPC its share of
the costs as determined by an independent review. Billings for these services
were $12 million and $27 million for the three months and six months ended June
30, 2003.

4. Financial Instruments

Strategy and Risk The Company and its subsidiaries use derivative financial
instruments in limited instances for other than trading purposes to manage risk
related to changes in fuel prices. The Company uses swaps, futures and/or
forward contracts to mitigate the downside risk of adverse price movements and
hedge the exposure to variable cash flows. The use of these instruments also
limits future benefits from favorable movements. The purpose of these programs
is to protect the Companys operating margins and overall profitability from
adverse fuel price changes.

The Company may also use swaptions to secure near-term swap prices.
Swaptions are swaps that are extendable past their base period at the option of
the counterparty. Swaptions do not qualify for hedge accounting treatment.

Market and Credit Risk The Company addresses market risk related to
derivative financial instruments by selecting instruments with value
fluctuations that highly correlate with the underlying item being hedged.
Credit risk related to derivative financial instruments, which is minimal, is
managed by requiring high credit standards for counterparties and periodic
settlements. At June 30, 2003, the Company has not been required to provide
collateral, nor has the Company received collateral relating to its hedging
activity.

Determination of Fair Value The fair values of the Companys derivative
financial instrument positions at June 30, 2003 and December 31, 2002, detailed
below, were determined based upon current fair values as quoted by recognized
dealers or developed based upon the present value of expected future cash flows
discounted at the applicable swap spread.

Fuel Strategy Fuel costs are a significant portion of the Companys total
operating expenses. As a result of the significance of fuel costs and the
historical volatility of fuel prices, the Company uses swaps, collars, futures
and/or forward contracts to mitigate the impact of adverse fuel price changes.

The following is a summary of the Companys derivative financial
instruments at June 30, 2003 and December 31, 2002:

|                                |                                                           |          |   |          |  |  |   |      | 
|------------------------------- | --------------------------------------------------------- | -------- | - | -------- |  |  | - | ---- | 
|Millions,                       |                                                           | Jun. 30, |   | Dec. 31,
|Except Average Commodity Prices |                                                           | 2003     |   | 2002    
|                                |                                                           |          |   |         
|Fuel hedging/swaptions:         |                                                           |          |   |          |  |  |   |     
|                                | Number of gallons hedged for 2002 [a]                     |          |   |         |  |  |   | 552  | 
|                                | Average price of 2002 hedges (per gallon) [b]             |          | $ |         |  |  | $ | 0.56 | 
|                                | Number of gallons hedged for the remainder of 2003 [c]    |          |   | 44       |  |  |   | 88   | 
|                                | Average price of 2003 hedges outstanding (per gallon) [b] |          | $ | 0.58     |  |  | $ | 0.58 | 
|                                |                                                           |          |   |          |  |  |   |     



| |  | [a] Fuel hedges expired December 31, 2002. Fuel hedges included the swap portion of a swaption with a base term expiring
December 31, 2002.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | [b] Excluding taxes, transportation costs and regional pricing spreads.                                                                    
|
| |  | [c] Fuel hedges which are in effect during 2003. These hedges expire December 31, 2003.                                                    

The fair value asset positions of the Companys outstanding derivative
financial instruments at June 30, 2003 and December 31, 2002 were as follows:

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|                                |                                       |      |          |      |          |   |    |    | 
|------------------------------- | ------------------------------------- | ---- | -------- | ---- | -------- | - | -- | -- | 
|                                |                                       |      | Jun. 30, |      | Dec. 31,
|Millions of Dollars             |                                       | 2003 |          | 2002
|                                |                                       |      |          |     
|Fuel hedging:                   |                                       |      |          |      |          |   |    |   
|                                | Gross fair value asset position       |      | $        | 8    |          |   | $  | 12 | 
|                                | Gross fair value (liability) position |      |          |     |          |   |    |   | 
|                                |                                       |      |          |      |          |   |    |   
|Total fair value asset position |                                       | $    | 8        |      |          | $ | 12 |   
|                                |                                       |      |          |      |          |   |    |   

Fuel hedging positions will be reclassified from accumulated other
comprehensive income to fuel expense over the life of the hedge as fuel is
consumed.

The Companys use of derivative financial instruments had the following
impact on pre-tax income for the three months and six months ended June 30,
2003 and 2002:

|                                                      |  |                |   |                |  |      |   |      |  |   |    |  |  |   |    | 
|----------------------------------------------------- |  | -------------- | - | -------------- |  | ---- | - | ---- |  | - | -- |  |  | - | -- | 
|                                                      |  | Three Months   |   | Six Months    
|                                                      |  | Ended June 30, |   | Ended June 30,
|                                                      |  |                |   |               
|Millions of Dollars                                   |  | 2003           |   | 2002           |  | 2003 |   | 2002
|                                                      |  |                |   |                |  |      |   |     
|Decrease (increase) in fuel expense from fuel hedging |  | $              | 3 |                |  | $    | 6 |      |  | $ | 11 |  |  | $ |   | 
|Decrease in fuel expense from fuel swaptions          |  |                |  |                |  |      | 3 |      |  |   |   |  |  |   | 13 | 
|                                                      |  |                |   |                |  |      |   |      |  |   |    |  |  |   |    | 
|Decrease in operating expenses                        |  |                | 3 |                |  |      | 9 |      |  |   | 11 |  |  |   | 13 | 
|Increase in other income, net from fuel swaptions     |  |                |  |                |  |      |  |      |  |   |   |  |  |   | 3  | 
|                                                      |  |                |   |                |  |      |   |      |  |   |    |  |  |   |    | 
|Increase in pre-tax income                            |  | $              | 3 |                |  | $    | 9 |      |  | $ | 11 |  |  | $ | 16 | 
|                                                      |  |                |   |                |  |      |   |      |  |   |    |  |  |   |    | 

Through June 30, 2003, the Company had recorded less than $1 million for
fuel hedging ineffectiveness.

Sale of Receivables The Railroad has sold, on a 364-day revolving basis, an
undivided percentage ownership interest in a designated pool of accounts
receivable to third parties through a bankruptcy-remote subsidiary.
Receivables are sold at carrying value, which approximates fair value. The
third parties have designated the Railroad to service the sold receivables.
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. Payments collected from sold receivables can be
reinvested in new receivables on behalf of the buyers. Should the
Corporations credit rating fall below investment grade, the amount of
receivables sold would be reduced, and in certain cases, the buyers have the
right to discontinue this reinvestment, thus requiring the Railroad to fund the
receivables. At June 30, 2003 and December 31, 2002, accounts receivable are
presented net of $590 million and $600 million of receivables sold,
respectively. On August 7, 2003, the sale of receivables program was renewed
for one year without any significant term changes.

5.     Capital Stock The number of shares shown in the Common Stock section of
the Consolidated
Statement of Changes in Common Shareholders Equity excludes 2,665 shares of
Common Stock and 232 shares of Class A Stock owned by Southern Pacific, an
affiliate of the Registrant, whose results are included in the Companys
Consolidated Financial Statements.

6.     Other Income Other income included the following for the three months and
six months ended June 30, 2003 and 2002:

|                                             |  |                |     |                |  |      |     |      |  |   |     |   |  |   |     |  
|-------------------------------------------- |  | -------------- | --- | -------------- |  | ---- | --- | ---- |  | - | --- | - |  | - | --- | -
|                                             |  | Three Months   |     | Six Months    
|                                             |  | Ended June 30, |     | Ended June 30,
|                                             |  |                |     |               
|Millions of Dollars                          |  | 2003           |     | 2002           |  | 2003 |     | 2002
|                                             |  |                |     |                |  |      |     |     
|Net gain on non-operating asset dispositions |  | $              | 14  |                |  | $    | 33  |      |  | $ | 24  |   |  | $ | 41  |  
|Rental income                                |  |                | 13  |                |  |      | 15  |      |  |   | 25  |   |  |   | 26  |  
|Interest income                              |  |                | 1   |                |  |      | 3   |      |  |   | 2   |   |  |   | 4   |  
|Other, net                                   |  |                | (10 | )              |  |      | (14 | )    |  |   | (19 | ) |  |   | (15 | )
|                                             |  |                |     |                |  |      |     |      |  |   |     |   |  |   |     |  
|Total                                        |  | $              | 18  |                |  | $    | 37  |      |  | $ | 32  |   |  | $ | 56  |  
|                                             |  |                |     |                |  |      |     |      |  |   |     |   |  |   |     |  

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7. Commitments and Contingencies

Unasserted Claims There are various claims and lawsuits pending against the
Company and certain of its subsidiaries, in addition to unasserted claims. It
is not possible at this time for the Company to determine fully the effect of
all such claims on its consolidated financial condition, results of operations
or liquidity; 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 or
claims, including unasserted claims, will have a material adverse effect on its
consolidated financial condition, results of operations or liquidity.

Personal Injury and Occupational Illness The cost of injuries to employees
and others related to Railroad activities is charged to expense based on
actuarial estimates of the ultimate cost and number of incidents each year.
The three month and six month expenses for the Companys personal
injury-related events were $63 million and $121 million in 2003 and $60 million
and $116 million in 2002, respectively. As of June 30, 2003, the Company had a
liability of $618 million accrued for personal injury costs, of which $272
million was recorded as a current liability. The Railroad has additional
amounts accrued for claims related to certain occupational illnesses.
Compensation for Railroad work-related accidents is governed by the Federal
Employers Liability Act (FELA). Under FELA, damages are assessed based on a
finding of fault through litigation or out-of-court settlements. The Railroad
offers a comprehensive variety of services and rehabilitation programs for
employees who are injured at work.

Environmental The Company generates and transports hazardous and nonhazardous
waste in its current operations and has done so in its former operations, and
it is subject to federal, state and local environmental laws and regulations.
The Company has identified approximately 415 sites at which it is or may be
liable for remediation costs associated with alleged contamination or for
violations of environmental requirements. This includes 53 sites that are the
subject of actions taken by the U.S. government, 28 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, the Companys ultimate environmental liability may include costs
relating to other parties, in addition to costs relating to its own activities
at each site.

When an environmental issue has been identified with respect to the
property owned, leased or otherwise used in the conduct of the Companys
business, the Company and its external consultants perform environmental
assessments on such property. The Company expenses the cost of the assessments
as incurred. The Company accrues the cost of remediation where its obligation
is probable and such costs can be reasonably estimated.

As of June 30, 2003, the Company had a liability of $197 million accrued
for future environmental costs, of which $60 million was recorded in current
liabilities as accrued casualty costs. The liability includes future costs for
remediation and restoration of sites, as well as for 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 Company believes that it has adequately accrued for its ultimate share of
costs at sites subject to joint and several liability. However, the ultimate
liability for remediation is difficult to determine because of the number of
potentially responsible parties involved, 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/or the speculative nature of remediation
costs. The Company expects to pay out the majority of the June 30, 2003
environmental liability over the next five years, funded by cash generated from
operations. The impact of current obligations is not expected to have a
material adverse effect on the results of operations, financial condition or
liquidity of the Company.

Other Matters The Company periodically enters into financial and other
commitments in connection with its businesses. It is not possible at this time
for the Company to determine fully the effect of all unasserted claims on its
consolidated financial condition, results of operations or liquidity; 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, contingent liabilities or guarantees will have a material adverse
effect on its consolidated financial condition, results of operations or
liquidity.

At June 30, 2003, the Company had unconditional purchase obligations of
$180 million for the acquisition of locomotives as part of the Companys
multi-year capital asset acquisition plan. In addition, the Company was
contingently liable for $332 million in guarantees and $28 million in letters
of credit at June 30, 2003. These contingent guarantees were entered into in
the normal course of business and include guaranteed obligations of

11



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affiliated operations. The Company is not aware of any existing event of default, which
would require it to satisfy these guarantees.

8.     Accounting Pronouncements In January 2003, the FASB issued Interpretation
No. 46, Consolidation of Variable Interest Entities (FIN 46). FIN 46
requires a variable interest entity to be consolidated by a company if that
company is subject to a majority of the risk of loss from the variable interest
entitys activities or entitled to receive a majority of the entitys residual
returns or both. FIN 46 also requires disclosures about variable interest
entities that a company is not required to consolidate but in which it has a
significant variable interest. The consolidation requirements of FIN
46 apply immediately to variable interest entities created after January 31,
2003. The consolidation requirements apply to the Company for existing
entities on July 1, 2003. As described in note 10 to the Consolidated
Financial Statements, Item 8, in the Annual Report on Form 10-K, the Railroad
has a synthetic operating lease arrangement to finance a new headquarters
building, which falls within the guidance of FIN 46. In June 2003, the
Railroad restructured the synthetic lease resulting in no effect to the
Consolidated Financial Statements due to the adoption of FIN 46.

In November 2002, the FASB issued Interpretation No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others (FIN 45). FIN 45 elaborates on the
disclosure requirements to be made by a guarantor about its obligations under
certain guarantees it has issued. It also clarifies that the guarantor is
required to recognize, at the inception of a guarantee, a liability for the
fair value of the obligation undertaken in issuing the guarantee. FIN 45 is
effective for guarantees issued or modified after December 31, 2002, and the
disclosure requirements are effective for financial statements for periods
ending after December 15, 2002.

In conjunction with the restructuring of the synthetic lease of the new
headquarters building as described in note 10 to the Union Pacific
Corporations Consolidated Financial Statements, Item 8, in the Annual Report
on Form 10-K, the Company has guaranteed a residual value equal to 85% of the
total construction related costs. At June 30, 2003, the Companys guarantee
related to the building was $79 million. The guarantee will be approximately
$220 million upon completion of the building. In accordance with FIN 45, the
Company recorded a liability of approximately $8 million in June 2003 related
to the fair value of this guarantee.

On April 30, 2003, the FASB issued Statement No. 149, Amendment of
Statement 133 on Derivative Instruments and Hedging Activities (FAS 149). FAS
149 amends FAS 133 for derivative instruments, including certain derivative
instruments embedded in other contracts and for hedging activities. FAS 149
also amends certain other existing pronouncements. It will require contracts
with comparable characteristics to be accounted for similarly. FAS 149 is
effective for the Company for contracts entered into or modified after June 30,
2003. Management believes that FAS 149 will not have a material impact on the
Companys Consolidated Financial Statements.

On May 15, 2003, the FASB issued Statement No. 150, Accounting for
Certain Financial Instruments with Characteristics of both Liabilities and
Equity (FAS 150). FAS 150 establishes standards for classification and
measurement of certain financial instruments with characteristics of both
liabilities and equity. FAS 150 will have no impact on the Company.

9.     Cumulative Effect of Accounting Change Surface Transportation Board (STB)
accounting rules require that railroads accrue the cost of removing track
structure over the expected useful life of these assets. Railroads
historically used this prescribed accounting for reports filed with both the
STB and SEC. In August 2001, the FASB issued Statement No. 143, Accounting
for Asset Retirement Obligations (FAS 143). This statement was effective for
the Company beginning January 1, 2003, and prohibits the accrual of removal
costs unless there is a legal obligation to remove the track structure at the
end of its life. The Company concluded that it did not have a legal obligation
to remove the track structure, and therefore, under generally accepted
accounting principles, the Company could not accrue the cost of removal in
advance. Reports filed with the SEC will reflect the expense of removing these
assets in the period in which they are removed. For STB reporting requirements
only, the Company will continue to follow the historical method of accruing in
advance, as prescribed by the STB. FAS 143 also requires the Company to record
a liability for legally obligated asset retirement costs associated with
tangible long-lived assets. In the first quarter of 2003, the Company recorded
income from a cumulative effect of accounting change, related to the adoption
of FAS 143, of $274 million, net of tax of $167 million. The accounting change
had no effect on the Companys liquidity. Had the change been retroactively
applied, the change would have had an immaterial impact on net income.

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

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

Three Months and Six Months Ended June 30, 2003 Compared to
Three Months and Six Months Ended June 30, 2002

Union Pacific Railroad Company (the Registrant), a Class I railroad
incorporated in Delaware and an indirect 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 companies (collectively, UPRR, the Company or Railroad),
operates various railroad and railroad-related businesses.

A copy of this Quarterly Report on Form 10-Q, as well as the Companys
2002 Annual Report on Form 10-K, current reports on Form 8-K and any amendments
to those reports are available free of charge on the Internet at Union Pacific
Corporations website at www.up.com/investors. Additionally, the Corporations
corporate governance materials, including Board Committee charters, governance
guidelines and policies and codes of conduct and ethics for directors, officers
and employees may also be found on the Internet at the Corporations website at
www.up.com/investors.

Critical Accounting Policies and Estimates

The Companys discussion and analysis of its financial condition and results of
operations are based upon its Consolidated Financial Statements, which have
been prepared in accordance with accounting principles generally accepted in
the United States of America. The preparation of these financial statements
requires estimation and judgment that affect the reported amounts of revenues,
expenses, assets and liabilities. The Company bases its estimates on
historical experience and on various other assumptions that are believed to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. If these estimates differ materially
from actual results, the impact on the Consolidated Financial Statements may be
material. The Companys critical accounting policies are available in the
Companys 2002 Annual Report on Form 10-K, Item 7.

Net Income Rail operations reported net income of $295 million in the second
quarter of 2003 compared to net income of $316 million in 2002, a decrease of
$21 million (7%). Year-to-date net income was $736 million. Excluding the
cumulative effect of accounting change, year-to-date net income decreased $97
million (17%) to $462 million, compared to 2002 net income of $559 million.
The decrease in both periods resulted primarily from higher fuel prices, wage
and benefit inflation, volume-related costs and lower gains from real estate
sales, partially offset by 3% operating revenue growth, lower depreciation
expense, lower interest expense and cost control efforts.

Operating Revenues Operating revenue is comprised of commodity revenue and
other revenues. Other revenues primarily include subsidiary revenue from
various companies that are wholly owned or majority owned by the Railroad,
revenue from the Chicago commuter rail operations and accessorial revenue
earned due to customer detainment of Railroad owned or controlled equipment.
Second quarter rail commodity revenues increased $65 million (2%) to $2.8
billion compared to 2002. Second quarter revenue carloads were flat compared
to a year ago, with positive growth in the Energy and Industrial Products
commodity groups. Average revenue per car for the period increased 3% to
$1,193 driven by pricing gains, fuel surcharges, index-based contract
escalators and positive mix. Year-to-date rail commodity revenues grew 2% to
$5.4 billion compared to 2002. Revenue carloads were flat and average revenue
per car showed a 2% increase to $1,190 when compared to a year ago. Other
revenues increased $8 million (7%) to $117 million in the second quarter
compared to a year ago and increased $25 million (12%) year-to-date when
compared to 2002 as a result of higher subsidiary revenue and demurrage.

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The following tables summarize the year-over-year changes in rail
commodity revenue, revenue carloads and average revenue per car by commodity
type:

|                   |        |      |   |                   |     |                     |  |      |    |                  |       |                     |   |       |       |  |   |       |       |  |  |   |   |   |  | 
|------------------ | ------ | ---- | - | ----------------- | --- | ------------------- |  | ---- | -- | ---------------- | ----- | ------------------- | - | ----- | ----- |  | - | ----- | ----- |  |  | - | - | - |  | 
|                   |        |      |   |                   |     |                     |  |      |    |                  |       |                     |   |      
|                   |        |      |   |                   |     |                     |  |      |    |                  |       |                     |   |       |       |  |   |       |       |  |  |   |   |   |  | 
|Three Months Ended |        |      |   |                   |     |                     |  |      |    | Six Months Ended |       |                     |   |      
|June 30,           |        | %    |   | Commodity Revenue |     | June 30,            |  | %   
|2003               |        | 2002 |   | Change            |     | Millions of Dollars |  | 2003 |    | 2002             |       | Change             
|                   |        |      |   |                   |     |                     |  |      |    |                  |       |                    
|                   | $      | 374  |   | $                 | 354 |                     |  |      | 6  | %                |       | Agricultural        |   | $     | 747   |  |   | $     | 723   |  |  |   | 3 | %
|                   |        | 320  |   |                   | 326 |                     |  |      | (2 | )                |       | Automotive          |   |       | 622   |  |   |       | 608   |  |  |   | 2 |  
|                   |        | 393  |   |                   | 402 |                     |  |      | (2 | )                |       | Chemicals           |   |       | 787   |  |   |       | 787   |  |  |   |  |  
|                   |        | 602  |   |                   | 570 |                     |  |      | 6  |                  |       | Energy              |   |       | 1,163 |  |   |       | 1,152 |  |  |   | 1 |  
|                   |        | 561  |   |                   | 533 |                     |  |      | 5  |                  |       | Industrial Products |   |       | 1,071 |  |   |       | 1,007 |  |  |   | 6 |  
|                   |        | 514  |   |                   | 514 |                     |  |      |   |                  |       | Intermodal          |   |       | 981   |  |   |       | 969   |  |  |   | 1 |  
|                   |        |      |   |                   |     |                     |  |      |    |                  |       |                     |   |       |       |  |   |       |       |  |  |  
|                   | $2,764 |      | $ | 2,699             |     |                     |  | 2    | %  |                  | Total |                     | $ | 5,371 |       |  | $ | 5,246 |       |  |  | 2 | %
|                   |        |      |   |                   |     |                     |  |      |    |                  |       |                     |   |       |       |  |   |       |       |  |  |  

|                   |       |      |  |                  |     |           |  |      |    |                  |       |                     |  |       |       |  |  |       |       |  |  |   |    |    |  | 
|------------------ | ----- | ---- |  | ---------------- | --- | --------- |  | ---- | -- | ---------------- | ----- | ------------------- |  | ----- | ----- |  |  | ----- | ----- |  |  | - | -- | -- |  | 
|                   |       |      |  |                  |     |           |  |      |    |                  |       |                     |  |       |       |  |  |       |       |  |  |   |    |    |  | 
|Three Months Ended |       |      |  |                  |     |           |  |      |    | Six Months Ended |       |                     |  |      
|June 30,           |       | %    |  | Revenue Carloads |     | June 30,  |  | %   
|2003               |       | 2002 |  | Change           |     | Thousands |  | 2003 |    | 2002             |       | Change             
|                   |       |      |  |                  |     |           |  |      |    |                  |       |                    
|                   |       | 206  |  |                  | 210 |           |  |      | (2 | %)               |       | Agricultural        |  |       | 420   |  |  |       | 427   |  |  |   | (2 | %)
|                   |       | 214  |  |                  | 219 |           |  |      | (2 | )                |       | Automotive          |  |       | 421   |  |  |       | 412   |  |  |   | 2  |   
|                   |       | 226  |  |                  | 233 |           |  |      | (3 | )                |       | Chemicals           |  |       | 445   |  |  |       | 450   |  |  |   | (1 | ) 
|                   |       | 537  |  |                  | 520 |           |  |      | 3  |                  |       | Energy              |  |       | 1,058 |  |  |       | 1,065 |  |  |   | (1 | ) 
|                   |       | 382  |  |                  | 373 |           |  |      | 3  |                  |       | Industrial Products |  |       | 722   |  |  |       | 698   |  |  |   | 4  |   
|                   |       | 752  |  |                  | 771 |           |  |      | (2 | )                |       | Intermodal          |  |       | 1,445 |  |  |       | 1,452 |  |  |   |   |   
|                   |       |      |  |                  |     |           |  |      |    |                  |       |                     |  |       |       |  |  |       |       |  |  |  
|                   | 2,317 |      |  | 2,326            |     |           |  |     |    |                  | Total |                     |  | 4,511 |       |  |  | 4,504 |       |  |  |  |   
|                   |       |      |  |                  |     |           |  |      |    |                  |       |                     |  |       |       |  |  |       |       |  |  |  

|                   |       |      |   |                 |  |          |  |      |   |                  |                     |        |   |       |  |  |   |       |  |  |  |   |   |  |  | 
|------------------ | ----- | ---- | - | --------------- |  | -------- |  | ---- | - | ---------------- | ------------------- | ------ | - | ----- |  |  | - | ----- |  |  |  | - | - |  |  | 
|                   |       |      |   |                 |  |          |  |      |   |                  |                     |        |   |       |  |  |   |       |  |  |  |   |   |  |  | 
|Three Months Ended |       |      |   |                 |  |          |  |      |   | Six Months Ended |                     |        |   |      
|June 30,           |       | %    |   | Average Revenue |  | June 30, |  | %   
|2003               |       | 2002 |   | Change          |  | Per Car  |  | 2003 |   | 2002             |                     | Change
|                   |       |      |   |                 |  |          |  |      |   |                  |                     |       
|$                  | 1,817 |      | $ | 1,681           |  |          |  | 8    | % |                  | Agricultural        |        | $ | 1,778 |  |  | $ | 1,691 |  |  |  | 5 | %
|                   | 1,494 |      |   | 1,486           |  |          |  | 1    |   |                  | Automotive          |        |   | 1,478 |  |  |   | 1,475 |  |  |  |  |  
|                   | 1,743 |      |   | 1,728           |  |          |  | 1    |   |                  | Chemicals           |        |   | 1,769 |  |  |   | 1,749 |  |  |  | 1 |  
|                   | 1,120 |      |   | 1,095           |  |          |  | 2    |   |                  | Energy              |        |   | 1,099 |  |  |   | 1,081 |  |  |  | 2 |  
|                   | 1,466 |      |   | 1,429           |  |          |  | 3    |   |                  | Industrial Products |        |   | 1,481 |  |  |   | 1,444 |  |  |  | 3 |  
|                   | 684   |      |   | 667             |  |          |  | 3    |   |                  | Intermodal          |        |   | 679   |  |  |   | 668   |  |  |  | 2 |  
|                   |       |      |   |                 |  |          |  |      |   |                  |                     |        |   |       |  |  |   |       |  |  |  |  
|$                  | 1,193 |      | $ | 1,160           |  |          |  | 3    | % |                  | Total               |        | $ | 1,190 |  |  | $ | 1,165 |  |  |  | 2 | %
|                   |       |      |   |                 |  |          |  |      |   |                  |                     |        |   |       |  |  |   |       |  |  |  |  

Agricultural- Revenue increased 6% in the second quarter and 3% for the
year-to-date period of 2003 over the comparable periods in 2002, as a 2%
decline in carloads in both periods was more than offset by an increase in
average revenue per car. Ethanol shipments increased due to heightened demand
for the fuel additive. Market demand for feed grains to domestic and Pacific
Northwest export locations also improved. Canned and packaged shipments
increased due to greater demand and new business. Partially offsetting the
revenue gains were volume and revenue declines for domestic and export wheat,
meals and oils and feed grains exports to gulf ports. Average revenue per car
increased due to the positive mix impact of longer average length of haul
shipments, as well as price increases and fuel surcharges.

Automotive- Revenue declined 2% for the second quarter but increased 2% for
the year-to-date period of 2003 over the comparable periods in 2002. The trend
in year-over-year sales growth for domestic manufacturers experienced in the
first quarter reversed in the second quarter, as the softening economy weakened
demand for finished vehicles and forced production cuts. Market share gains for
finished vehicle and materials shipments partially offset these declines.
Average revenue per car increased 1% in the second quarter but was flat for the
year-to-date period as price increases were offset by the mix impact of
disproportionate growth in materials shipments, which move at a lower average
revenue per car than finished vehicles.

Chemicals- Revenue decreased 2% for the second quarter and was flat for the
year-to-date period of 2003 over the comparable periods of 2002, as declining
carloads in both periods were partially offset by an increase in average
revenue per car. Reduced plastics volume led the decline in carloads in both
periods, as the soft economy combined with higher input costs caused producers
to lower inventories and reduce shipments. Increased market demand for

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domestic and export soda ash partially offset the decline. Average revenue per car
increased 1% for both the three months and six months ended June 30, 2003
compared to 2002, due to a mix shift towards longer average length of haul, in
addition to price increases and fuel surcharges.

Energy- Revenue increased 6% for the second quarter and 1% for the
year-to-date period of 2003 over the comparable periods of 2002. First quarter
volume declined due to the absence of export traffic from the Colorado and Utah
mining regions, which Japan is now sourcing from other Far Eastern producers.
In addition, a severe snowstorm in March caused an estimated loss of 71 trains
out of the Southern Powder River Basin and Colorado and Utah mining regions. In
the second quarter, strong utility demand due to lower inventories resulted in
a 3% increase in carloads. Average revenue per car increased 2% in both
periods, primarily due to index-based contract escalators.

Industrial Products- Revenue increased 5% for the second quarter and 6% for
the year-to-date period of 2003 over the comparable periods of 2002, due to
increases in carloads and average revenue per carload. The volume increase was
led by shipments of military equipment and ammunition in support of the war
effort. Steel and scrap shipments increased as the weakening dollar created
higher domestic and export demand for U.S. produced steel, augmented by market
share gains. Demand for paperboard, partially due to lower inventories, also
contributed to volume gains. Average revenue per car increased 3% in both
periods, primarily due to price increases and fuel surcharges.

Intermodal- Revenue was flat for the second quarter and increased 1% for the
year-to-date period of 2003 over the comparable periods of 2002, as a decline
in carloads in the second quarter was more than offset by an increase in
average revenue per car. Domestic revenue grew 6% in the second quarter and 7%
in the first half of the year. International revenue decreased in the second
quarter and first half of the year due to penetration losses, partially offset
by strong first quarter market growth. Average revenue per car for the three
and six month periods increased due to fuel surcharges and price increases.

Mexico Business- Included in the rail commodity revenue reported above is
Mexican related revenue, which increased 2% to $225 million for the second
quarter and was flat at $431 million for the year-to-date period of 2003 over
the comparable periods of 2002. Business gains were led by increased steel and
scrap shipments to and from Mexico. Reduced corn exports partially offset the
increase, as the Mexican government delayed the issue of corn export permits
for 2003 until late in the first quarter.

Operating Expenses- Second quarter operating expenses increased $89 million
(4%) to $2.3 billion compared to 2002. Year-to-date operating expenses
increased $302 million (7%). Expenses in both periods were negatively impacted
by higher fuel prices, inflation, severance and volume-related costs, which
were partially offset by lower depreciation expense, productivity improvements
and cost control measures.

Salaries, Wages and Employee Benefits- Salaries, wages and employee benefits
increased $40 million (4%) in the second quarter of 2003 compared to 2002.
Year-to-date, wage and benefit expenses rose $89 million (5%). Increases were
driven by inflation, the adoption of FAS 143 (see note 9 to the Consolidated
Financial Statements), protection costs and severance costs. The adoption of
FAS 143 accounted for $29 million and $57 million of the increases for the
second quarter and year-to-date, respectively. A 2% reduction in employee force
levels in both periods and improvements in productivity partially offset the
effects of inflation and protection costs. Protection cost represents the
differential payment when the wage earned for active employment is lower than
an employees protected rate of pay. An individuals protected rate is
imposed by the Surface Transportation Board for employees adversely affected by
a merger or is established by collective bargaining agreements in other cases.

Equipment and Other Rents- Equipment and other rents primarily includes rental
expense UPRR pays for freight cars owned by other railroads or private
companies; freight car, intermodal and locomotive leases; other specialty
equipped vehicle leases; and office and other rentals. Expenses decreased $11
million (4%) in the second quarter compared to 2002 and $15 million (2%)
year-to-date. The second quarter decrease was due primarily to lower car hire
receipt levels in 2002 and reduced rental prices for private freight cars,
partially offset by higher leased car expenses. Equipment and other rents
decreased year-to-date due to lower rental prices for private cars and a
reduction in lease expenses in the first quarter of 2003, partially offset by
higher locomotive lease expense. The higher locomotive lease expenses are due
to UPRRs increased leasing of new, more reliable and fuel efficient
locomotives. These new locomotives replaced older, non-leased models in the
fleet, which helped reduce expenses for depreciation, labor, materials and fuel
during the period.

Depreciation- The majority of depreciation expense relates to track structure,
including rail, ties and other track material. Depreciation expense decreased
$32 million (11%) in the second quarter and $40 million (7%) year-to-date over
2002. The adoption of FAS 143 (see note 9 to the Consolidated Financial
Statements) decreased depreciation expense in the second quarter by $25 million
and $49 million year-to-date. Additionally,

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implementation of the recent depreciation study required and approved by the Surface Transportation Board
resulted in reduced depreciation rates for certain track assets, lowering
depreciation expense by $25 million for the first six months of 2003.
Conversely, capital spending in recent years has increased depreciation
expense. Full year capital spending totaled $1.8 billion in 2002 and $1.7
billion in 2001.

Fuel and Utilities- Fuel and utilities is comprised of locomotive fuel,
utilities other than telephone, gasoline and other fuels. Expenses increased
$54 million (20%) in the second quarter and $182 million (37%) year-to-date
2003 compared to a year ago. The increase was driven by higher fuel prices
minimally offset by a lower fuel consumption rate, as measured by gallons
consumed per thousand gross ton miles. Fuel prices averaged 88 cents per
gallon in the second quarter of 2003 compared to 72 cents per gallon in the
second quarter of 2002 (price includes taxes and transportation costs).
Year-to-date, fuel prices averaged 94 cents per gallon compared to 67 cents per
gallon in 2002. Higher fuel prices in 2003 resulted in a $54 million increase
in fuel expense in the second quarter and $179 million increase year-to-date
compared to 2002. The lower consumption rate decreased fuel expense by $7
million in the second quarter and $10 million year-to-date. A 2% increase in
gross ton miles for the second quarter and a 1% increase year-to-date resulted
in additional fuel expense of $5 million and $6 million, respectively. The
Railroad hedged approximately 7% of its fuel consumption for the second
quarter, which decreased fuel costs by $3 million. Gasoline, utilities and
propane expenses increased $2 million in the second quarter and $7 million
year-to-date primarily due to higher fuel prices.

Materials and Supplies- Materials used for the maintenance of the Railroads
lines, structures and equipment is the principal component of materials and
supplies expense. Office, small tools and other supplies along with the costs
of freight services purchased to ship company materials are also included.
Expenses decreased $24 million (20%) in the second quarter and $40 million
(17%) year-to-date, primarily due to the adoption of FAS 143, cost control
measures, fewer locomotive repairs as well as a partial shift to more
locomotive contracting.

Casualty Costs- The largest component of casualty costs is personal injury
expense. Freight and property damage, insurance, environmental matters and
occupational illness expense are also included in casualty costs. Costs
increased $8 million (8%) in the second quarter compared to 2002 and $23
million (13%) year-to-date due to higher insurance costs, personal injury
expense and expenses associated with destruction of foreign equipment.

Purchased Services and Other Costs- Purchased services and other costs include
the costs of services purchased from outside contractors, state and local
taxes, net 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, telephone and cellular expense, employee travel expense and computer
and other general expenses. Expenses increased $54 million (23%) in the second
quarter and $103 million (22%) year-to-date when compared to last year. In the
second quarter of 2003, higher expenses were driven by increased spending for
contract services, higher expenses for jointly operated facilities and
increased state and local taxes. Expenses increased year-to-date primarily due
to increased contract services, higher state and local taxes and increased
intermodal volume costs in the first quarter.

Operating Income Second quarter operating income decreased $16 million to
$582 million while operating income year-to-date declined $153 million (14%) to
$953 million. The operating margin for the second quarter was 20.2%, compared
to 21.3% in 2002. The year-to-date operating margin was 17.0% compared to
20.3% a year ago.

Non-Operating Items- Interest expense decreased $13 million (9%) in the second
quarter and $26 million (9%) year-to-date due to lower average debt levels and
lower weighted-average interest rates in 2003. Second quarter other income
decreased $19 million (51%) due to lower gains from real estate sales in 2003.
Other income year-to-date decreased $24 million (43%) in 2003 compared to 2002
primarily due to lower gains from real estate sales, losses from foreign
currency transactions related to the dividend received from Grupo Ferroviario
Mexicano, S.A. de C.V. and the absence of favorable fuel swaptions in 2003.
Income taxes decreased $1 million (1%) in the second quarter compared to 2002
and $54 million (17%) year-to-date due to lower pre-tax income.

OTHER MATTERS

Intercompany Relationship with UPC At June 30, 2003 and December 31, 2002,
the Railroad had $976 million and $904 million working capital deficit
balances, respectively, relating to UPCs management of its cash position. As
part of UPCs cash management activities, the Railroad advances excess cash
(cash available after satisfying all of the Railroads obligations and paying
dividends to UPC) to UPC. Dividends declared and paid to UPC by the Railroad
typically approximate the dividends that UPC declares to its shareholders;
however, there is no formal requirement to do so. The dividend declaration
between the Railroad and UPC is determined solely by the

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Railroads Board of
Directors. To the extent the Railroad requires additional cash for use in its
operations, UPC makes such funds available for borrowing by the Railroad.
Transactions between UPC and UPRR are treated as net intercompany borrowings in
the Consolidated Statements of Financial Position.

The majority of the Railroads intercompany borrowings from UPC relate to
the acquisitions of the Chicago and North Western Transportation Company and
Southern Pacific Rail Corporation which were funded by UPC on behalf of the
Railroad. These acquisition costs were assumed by the Railroad in the form of
intercompany borrowings from UPC. The intercompany borrowings accrue
interest at a rate of 7.5%, which may be adjusted from time to time, and are
payable on demand. There are no restrictions on the amount the Railroad is
able to borrow from UPC. Intercompany borrowings are unsecured and rank
equally with all of the Railroads other unsecured indebtedness.

UPC provides the Company with various services, including strategic
planning, legal, treasury, accounting, auditing, insurance, human resources and
corporate affairs. In 2003, pursuant to a services agreement, UPC will continue
to provide services to the Company, and the Company will pay UPC its share of
the costs as determined by an independent review. Billings for these services
were $12 million and $27 million for the three months and six months ended June
30, 2003.

Commitments and Contingencies There are various claims and lawsuits pending
against the Company and certain of its subsidiaries. The Company is also
subject to various federal, state and local environmental laws and regulations,
pursuant to which it is currently participating in the investigation and
remediation of various sites. A discussion of certain claims, lawsuits,
contingent liabilities and guarantees is set forth in note 7 to the
Consolidated Financial Statements, which discussion is incorporated herein by
reference.

Ratio of Earnings to Fixed Charges For the three months and six months ended
June 30, 2003, the Companys ratio of earnings to fixed charges was 3.4 for
both periods, compared to 4.3 and 3.9 for the three months and six months ended
June 30, 2002. The ratio of earnings to fixed charges has been computed on a
consolidated basis. Earnings represent income before cumulative effect of
accounting change, less equity in undistributed earnings of unconsolidated
affiliates, 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.

Pensions During the first quarter of 2003, the Company decreased its assumed
rate of return on pension plan assets from 9% to 8%. This assumption change
will result in an increase to 2003 pension expense of $14 million. During the
first six months of 2003, the Railroad voluntarily contributed $50 million to
its pension plan.

Accounting Pronouncements In January 2003, the FASB issued Interpretation No.
46, Consolidation of Variable Interest Entities (FIN 46). FIN 46 requires a
variable interest entity to be consolidated by a company if that company is
subject to a majority of the risk of loss from the variable interest entitys
activities or entitled to receive a majority of the entitys residual returns
or both. FIN 46 also requires disclosures about variable interest entities
that a company is not required to consolidate but in which it has a significant
variable interest. The consolidation requirements of FIN 46 apply immediately
to variable interest entities created after January 31, 2003. The
consolidation requirements apply to the Company for existing entities on July
1, 2003. As described in note 10 to the Consolidated Financial Statements,
Item 8, in the Annual Report on Form 10-K, the Railroad has a synthetic
operating lease arrangement to finance a new headquarters building, which falls
within the guidance of FIN 46. In June 2003, the Railroad restructured the
synthetic lease resulting in no effect to the Consolidated Financial Statements
due to the adoption of FIN 46.

In November 2002, the FASB issued Interpretation No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others (FIN 45). FIN 45 elaborates on the
disclosure requirements to be made by a guarantor about its obligations under
certain guarantees it has issued. It also clarifies that the guarantor is
required to recognize, at the inception of a guarantee, a liability for the
fair value of the obligation undertaken in issuing the guarantee. FIN 45 is
effective for guarantees issued or modified after December 31, 2002, and the
disclosure requirements are effective for financial statements for periods
ending after December 15, 2002.

In conjunction with the restructuring of the synthetic lease of the new
headquarters building as described in note 10 to the Union Pacific
Corporations Consolidated Financial Statements, Item 8, in the Annual Report
on Form 10-K, the Company has guaranteed a residual value equal to 85% of the
total construction related costs. At June 30, 2003, the Companys guarantee
related to the building was $79 million. The guarantee will be

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approximately $220 million upon completion of the building. In accordance with FIN 45, the
Company recorded a liability of approximately $8 million in June 2003 related
to the fair value of this guarantee.

On April 30, 2003, the FASB issued Statement No. 149, Amendment of
Statement 133 on Derivative Instruments and Hedging Activities (FAS 149). FAS
149 amends FAS 133 for derivative instruments, including certain derivative
instruments embedded in other contracts and for hedging activities. FAS 149
also amends certain other existing pronouncements. It will require contracts
with comparable characteristics to be accounted for similarly. FAS 149 is
effective for the Company for contracts entered into or modified after June 30,
2003. Management believes that FAS 149 will not have a material impact on the
Companys Consolidated Financial Statements.

On May 15, 2003, the FASB issued Statement No. 150, Accounting for
Certain Financial Instruments with Characteristics of both Liabilities and
Equity (FAS 150). FAS 150 establishes standards for classification and
measurement of certain financial instruments with characteristics of both
liabilities and equity. FAS 150 will have no impact on the Company.

CAUTIONARY INFORMATION

Certain statements in this report are, and statements in other material filed
or to be filed 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) 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 include, without limitation, statements regarding:
expectations as to operational improvements; expectations as to cost savings,
revenue growth and earnings; the time by which certain objectives will be
achieved; estimates of costs relating to environmental remediation and
restoration; proposed new products and services; expectations that claims,
lawsuits, environmental costs, commitments, contingent liabilities, labor
negotiations or agreements, or other matters will not have a material adverse
effect on the Companys consolidated financial position, results of operations
or liquidity; and statements concerning projections, predictions, expectations,
estimates or forecasts as to the Companys business, financial and operational
results, and future economic performance, statements of managements goals and
objectives and other similar expressions concerning matters that are not
historical facts.

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 information is based on information available at the time
and/or managements good faith belief with respect to future events, and is
subject to risks and uncertainties that could cause actual performance or
results to differ materially from those expressed in the statements.

Important factors that could affect the Companys future results and could
cause those results or other outcomes to differ materially from those expressed
or implied in the forward-looking statements include, but are not limited to:



| |  |  | whether the Company is fully successful in implementing their
financial and operational initiatives;                                                          
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | industry competition, conditions, performance and
consolidation;                                                                                              
|
| |  |  | legislative and regulatory developments, including possible
enactment of new tax rates and possible enactment of initiatives to
re-regulate the rail industry;
|
| |  |  | natural events such as severe weather, fire, floods and earthquakes;                                                                                          
|
| |  |  | the effects of adverse general economic conditions, both within the United States and globally;                                                               
|
| |  |  | any adverse economic or operational repercussions from
terrorist activities and any governmental response thereto;                                            
|
| |  |  | war or risk of war;                                                                                                                                           
|
| |  |  | changes in fuel prices;                                                                                                                                       

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| |  |  | changes in labor costs;                                                                                                                                                                                                            
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | labor stoppages; and                                                                                                                                                                                                               
|
| |  |  | the outcome of claims and litigation, including those related
to environmental contamination, personal injuries, and occupational
illnesses arising from hearing loss, repetitive motion and exposure
to asbestos and diesel fumes.

Forward-looking statements speak only as of the date the statement was
made. 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. If the Company does update one or more
forward-looking statements, no inference should be drawn that the Company will
make additional updates with respect thereto or with respect to other
forward-looking statements.




Item 3. Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes in market risk from the information
provided in Item 7A. Quantitative and Qualitative Disclosures About Market
Risk of the Companys Annual Report on Form 10-K for the year ended December
31, 2002.




Item 4. Controls and Procedures

As of the end of the period covered by this report, the Company carried out an
evaluation, under the supervision and with the participation of the Companys
management, including the Companys Chief Executive Officer (CEO) and Chief
Financial Officer (CFO), of the effectiveness of the design and operation of
the Companys disclosure controls and procedures pursuant to Exchange Act Rule
13a-15. Based upon that evaluation, the CEO and the CFO concluded that, as of
the end of the period covered by this report, the Companys disclosure controls
and procedures are effective in alerting them, in a timely manner, to material
information relating to the Company (including its consolidated subsidiaries)
required to be included in the Companys periodic SEC filings.

Additionally, as of the end of the period covered by this report, the CEO
and CFO determined that there have been no changes to the Companys internal
control over financial reporting that have materially affected, or are
reasonably likely to materially affect, the Companys internal control over
financial reporting.

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PART II. OTHER INFORMATION




Item 1. Legal Proceedings

ENVIRONMENTAL MATTERS

The Company and its affiliates have received notices from the EPA and state
environmental agencies alleging that they are or may be liable under certain
federal or state environmental laws for remediation costs at various sites
throughout the United States, including sites which are on the Superfund
National Priorities List or state superfund lists. Although specific claims
have been made by the EPA and state regulators with respect to some of these
sites, the ultimate impact of these proceedings and suits by third parties
cannot be predicted at this time 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/or
the speculative nature of remediation costs. Nevertheless, at many of the
superfund sites, the Company believes it will have little or no exposure
because no liability should be imposed under applicable law, one or more other
financially able parties generated all or most of the contamination, or a
settlement of the Companys exposure has been reached although regulatory
proceedings at the sites involved have not been formally terminated.

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  Other Matters -
Environmental Costs, Item 2, and in note 7 to the Consolidated Financial
Statements, Item 1.

OTHER MATTERS

As previously reported, Western Resources, Inc. (Western) filed a
complaint on January 24, 2000, in the U.S. District Court for the District of
Kansas alleging that UPRR and The Burlington Northern and Santa Fe Railway
Company (BNSF) materially breached their service obligations under the
transportation contract to deliver coal in a timely manner to Westerns Jeffrey
Energy Center. The original complaint sought recovery of consequential damages
and termination of the contract, excusing Western from further performance. In
an amended complaint filed September 1, 2000, Western claimed the right to
retroactive termination and added a claim for restitution. The matter went to
trial before a jury on August 20, 2002. On September 12, 2002, the jury
returned a verdict finding that the contract had not been breached by the
railroads, and the judgment dismissing the case was entered by the court on
September 16, 2002. Western filed a motion for new trial on September 30, 2002,
which was denied by the court on March 6, 2003. Western filed notice of its
intent to appeal the verdict to the 10th Circuit Court of Appeals on April 4,
2003. Briefing will be completed by the end of the fourth quarter of 2003.
Oral argument before a panel of the 10th Circuit Court of Appeals may then be
scheduled. UPRR and BNSF will vigorously defend this appeal.




Item 6. Exhibits and Reports on Form 8-K



| | (a) |  | Exhibits                                                                                                                                  
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | Exhibits are listed in the exhibit index on page 22.                                                                                      
|
| | (b) |  | Reports on Form 8-K                                                                                                                       
|
| |     |  | On April 24, 2003, the Registrant furnished a Current Report on Form 8-K
announcing UPCs financial results for the first quarter of 2003.
|
| |     |  | On July 24, 2003, the Registrant furnished a Current Report on Form 8-K
announcing UPCs financial results for the second quarter of 2003.

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##### Table of Contents






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 14, 2003 |  |                                                                                                                                      
|                      
|                       |  | UNION PACIFIC RAILROAD COMPANY
(Registrant)                                                                                          
|                      
|                       |  |                                                                                                                                      
|                      
|                       |  | By /s/ James R. YoungJames R. Young,
Chief Financial Officer
(Principal Financial Officer)                                           
|                      
|                       |  |                                                                                                                                      
|                      
|                       |  | By /s/ Richard J. PutzRichard J. Putz,
Chief Accounting Officer and Controller
(Chief Accounting Officer and
Duly Authorized Officer)

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##### Table of Contents






UNION PACIFIC RAILROAD COMPANY
EXHIBIT INDEX

|                                   |  |                                                                                                                                                                  
|---------------------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No.                        |  | Description                                                                                                                                                      
|                                   |  |                                                                                                                                                                  
|Exhibits Filed with this Statement
|                                  
|12(a)                              |  | Ratio of Earnings to Fixed Charges for the Three Months
Ended June 30, 2003 and 2002.                                                                            
|12(b)                              |  | Ratio of Earnings to Fixed Charges for the Six Months
Ended June 30, 2003 and 2002.                                                                              
|31(a)                              |  | Certification Pursuant to Rule 13a-14(a) of the Exchange
Act, as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002  Richard K. Davidson.        
|31(b)                              |  | Certification Pursuant to Rule 13a-14(a) of the Exchange
Act, as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002  James R. Young.             
|32                                 |  | Certifications Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002  Richard K. Davidson and James R. Young.

|                                   |  |                                                                                                                                                                                                                                
|---------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibits Incorporated by Reference
|                                  
|3(a)                               |  | Amended Certificate of Incorporation of the Registrant,
effective as of February 1, 1998, is incorporated herein
by reference to Exhibit 3(a) to the Companys Annual
Report on Form 10-K for the year ended December 31,
1998.
|3(b)                               |  | By-laws of the Registrant, as amended effective as of
November 19, 1998, are incorporated herein by reference
to Exhibit 3(b) to the Companys Annual Report on Form
10-K for the year ended December 31, 1998.                

22