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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)



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

For the quarterly period ended March 31, 2006

- OR -



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



| | For the transition period from  to
| | ----------------------------------

Commission file number 1-6075

UNION PACIFIC RAILROAD COMPANY

(Exact name of registrant as specified in its charter)



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

1400 DOUGLAS STREET, OMAHA, NEBRASKA

(Address of principal executive offices)

68179

(Zip Code)

(402) 544-5000

(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     ü    NO

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of the Act).

Large accelerated filer  Accelerated filer  Non-accelerated filer
    ü

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

YES        NO    ü

As of April 30, 2006, 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 INSTRUCTION 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

UNION PACIFIC RAILROAD COMPANY AND CONSOLIDATED SUBSIDIARY COMPANIES

PART I. FINANCIAL
INFORMATION



|                                                                                                                      |  |            
|--------------------------------------------------------------------------------------------------------------------- |  | -----------
|                                                                                                                      |  | Page Number
|Item 1. Consolidated Financial Statements:                                                                            |  |            
|                                                                                                                      | 
|CONSOLIDATED STATEMENTS OF INCOME (Unaudited)For the Three Months Ended March 31, 2006 and 2005                       |  | 3          
|                                                                                                                      | 
|CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (Unaudited)At March 31, 2006 and December 31, 2005                      |  | 4          
|                                                                                                                      | 
|CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)For the Three Months Ended March 31, 2006 and 2005                   |  | 5          
|                                                                                                                      | 
|CONSOLIDATED STATEMENT OF CHANGES IN COMMON SHAREHOLDERSEQUITY (Unaudited) For the Three Months Ended March 31, 2006 |  | 6          
|                                                                                                                      | 
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)                                                                |  | 7          
|                                                                                                                      | 
|Item 2.
Managements Discussion and Analysis of Financial Condition and Results of Operations                         |  | 15         
|                                                                                                                      | 
|Item 3.
Quantitative and Qualitative Disclosures About Market Risk                                                    |  | 22         
|                                                                                                                      | 
|Item 4.
Controls and Procedures                                                                                       |  | 22         
|                                                                                                                     
|PART II. OTHER INFORMATION                                                                                           
|                                                                                                                      | 
|Item 1.
Legal Proceedings                                                                                             |  | 23         
|                                                                                                                      | 
|Item 1A.
Risk Factors                                                                                                 |  | 23         
|                                                                                                                      | 
|Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds                                                   |  | 23         
|                                                                                                                      | 
|Item 3.
Defaults Upon Senior Securities                                                                               |  | 23         
|                                                                                                                      | 
|Item 4.
Submission of Matters to a Vote of Security Holders                                                           |  | 23         
|                                                                                                                      | 
|Item 5.
Other Information                                                                                             |  | 23         
|                                                                                                                      | 
|Item 6.
Exhibits                                                                                                      |  | 24         
|                                                                                                                      | 
|Signatures                                                                                                            |  | 25         
|                                                                                                                      | 
|Certifications                                                                                                        |  |            



2



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PART I. FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

Union Pacific Railroad Company and Consolidated Subsidiary Companies



|                                                          |  |   |       |   |  |   |       |  
|--------------------------------------------------------- |  | - | ----- | - |  | - | ----- | -
|Millions of
Dollars, For the Three Months Ended March 31, |  |   | 2006  |   |  |   | 2005  |  
|Operating revenues                                        |  | $ | 3,702 |   |  | $ | 3,144 |  
|                                                          |  |  
|Operating expenses:                                       |  |   |       |   |  |   |       |  
|Salaries, wages, and employee benefits                    |  |   | 1,108 |   |  |   | 1,079 |  
|Fuel and utilities                                        |  |   | 692   |   |  |   | 539   |  
|Equipment and other rents                                 |  |   | 367   |   |  |   | 352   |  
|Depreciation                                              |  |   | 303   |   |  |   | 289   |  
|Materials and supplies                                    |  |   | 164   |   |  |   | 135   |  
|Casualty costs                                            |  |   | 109   |   |  |   | 94    |  
|Purchased services and other
costs                        |  |   | 354   |   |  |   | 343   |  
|Total operating
expenses                                  |  |   | 3,097 |   |  |   | 2,831 |  
|Operating income                                          |  |   | 605   |   |  |   | 313   |  
|Other income                                              |  |   | 7     |   |  |   | 16    |  
|Interest expense                                          |  |   | (125  | ) |  |   | (122  | )
|Income before income taxes                                |  |   | 487   |   |  |   | 207   |  
|Income taxes                                              |  |   | (184  | ) |  |   | (78   | )
|Net income                                                |  | $ | 303   |   |  | $ | 129   |  

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



3



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CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (Unaudited)

Union Pacific Railroad Company and Consolidated
Subsidiary Companies



|                                                                                            |  |               |   |  |                  |  
|------------------------------------------------------------------------------------------- |  | ------------- | - |  | ---------------- | -
|Millions of Dollars, Except Share and Per Share
Amounts                                     |  | March 31,2006 |   |  | December 31,2005 |  
|Assets                                                                                      |  |               |   |  |                  |  
|Current assets:                                                                             |  |               |   |  |                  |  
|Cash and cash equivalents                                                                   |  | $187          |   |  | $403             |  
|Accounts receivable, net                                                                    |  | 634           |   |  | 666              |  
|Materials and supplies                                                                      |  | 416           |   |  | 331              |  
|Current deferred income taxes                                                               |  | 286           |   |  | 288              |  
|Other current assets                                                                        |  | 158           |   |  | 144              |  
|Total current assets                                                                        |  | 1,681         |   |  | 1,832            |  
|Investments:                                                                                |  |               |   |  |                  |  
|Investments in and advances to affiliated companies                                         |  | 815           |   |  | 789              |  
|Other investments                                                                           |  | 15            |   |  | 17               |  
|Total investments                                                                           |  | 830           |   |  | 806              |  
|Properties:                                                                                 |  |               |   |  |                  |  
|Road                                                                                        |  | 34,314        |   |  | 33,812           |  
|Equipment                                                                                   |  | 7,686         |   |  | 7,675            |  
|Other                                                                                       |  | 180           |   |  | 182              |  
|Total cost                                                                                  |  | 42,180        |   |  | 41,669           |  
|Accumulated
depreciation                                                                    |  | (9,963        | ) |  | (9,711           | )
|Net properties                                                                              |  | 32,217        |   |  | 31,958           |  
|Other assets                                                                                |  | 500           |   |  | 465              |  
|Total assets                                                                                |  | $35,228       |   |  | $35,061          |  
|Liabilities and Common Shareholders
Equity                                                 |  |               |   |  |                  |  
|Current liabilities:                                                                        |  |               |   |  |                  |  
|Accounts payable                                                                            |  | $611          |   |  | $779             |  
|Accrued wages and vacation                                                                  |  | 399           |   |  | 408              |  
|Accrued casualty costs                                                                      |  | 408           |   |  | 403              |  
|Income and other taxes                                                                      |  | 353           |   |  | 241              |  
|Third-party debt due within one year                                                        |  | 143           |   |  | 146              |  
|Equipment rents payable                                                                     |  | 122           |   |  | 130              |  
|Other current
liabilities                                                                   |  | 458           |   |  | 507              |  
|Total current
liabilities                                                                   |  | 2,494         |   |  | 2,614            |  
|Intercompany borrowings from UPC                                                            |  | 5,156         |   |  | 5,083            |  
|Third-party debt due after one year                                                         |  | 1,553         |   |  | 1,597            |  
|Deferred income taxes                                                                       |  | 9,479         |   |  | 9,457            |  
|Accrued casualty costs                                                                      |  | 879           |   |  | 876              |  
|Retiree benefits obligation                                                                 |  | 847           |   |  | 855              |  
|Other long-term liabilities                                                                 |  | 616           |   |  | 602              |  
|Mandatorily redeemable preference shares                                                    |  | 11            |   |  | 11               |  
|Commitments and contingencies (See
note 8)                                                  |  |               |   |  |                  |  
|Total liabilities                                                                           |  | 21,035        |   |  | 21,095           |  
|Common shareholders equity:                                                                |  |               |   |  |                  |  
|Common stock, par value $10.00 per share, 9,200 shares authorized,
4,465 shares outstanding |  | -             |   |  | -                |  
|Class A stock, par value $10.00 per share, 800 shares authorized,
388 shares outstanding    |  | -             |   |  | -                |  
|Paid-in-surplus                                                                             |  | 4,782         |   |  | 4,782            |  
|Retained earnings                                                                           |  | 9,638         |   |  | 9,414            |  
|Accumulated other comprehensive
loss                                                        |  | (227          | ) |  | (230             | )
|Total common shareholders
equity                                                           |  | 14,193        |   |  | 13,966           |  
|Total liabilities and common
shareholders equity                                           |  | $35,228       |   |  | $35,061          |  

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



4



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CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

Union Pacific Railroad Company and Consolidated Subsidiary
Companies



|                                                                                  |  |   |      |   |  |   |      |  
|--------------------------------------------------------------------------------- |  | - | ---- | - |  | - | ---- | -
|Millions of
Dollars, For the Three Months Ended March 31,                         |  |   | 2006 |   |  |   | 2005 |  
|Operating Activities                                                              |  |   |      |   |  |   |      |  
|Net income                                                                        |  | $ | 303  |   |  | $ | 129  |  
|Adjustments to reconcile net income to net cash provided by operating
activities: |  |   |      |   |  |   |      |  
|Depreciation                                                                      |  |   | 303  |   |  |   | 289  |  
|Deferred income taxes                                                             |  |   | 34   |   |  |   | 40   |  
|Net gain from non-operating asset sales                                           |  |   | (6   | ) |  |   | (14  | )
|Other, net                                                                        |  |   | (53  | ) |  |   | (14  | )
|Changes in current assets and
liabilities, net                                    |  |   | (184 | ) |  |   | -    |  
|Cash provided by operating
activities                                             |  |   | 397  |   |  |   | 430  |  
|Investing Activities                                                              |  |   |      |   |  |   |      |  
|Capital investments                                                               |  |   | (549 | ) |  |   | (476 | )
|Proceeds from asset sales                                                         |  |   | 13   |   |  |   | 24   |  
|Other investing activities,
net                                                   |  |   | (21  | ) |  |   | (37  | )
|Cash used in investing
activities                                                 |  |   | (557 | ) |  |   | (489 | )
|Financing Activities                                                              |  |   |      |   |  |   |      |  
|Dividends paid to parent                                                          |  |   | (79  | ) |  |   | (78  | )
|Debt repaid                                                                       |  |   | (50  | ) |  |   | (53  | )
|Intercompany
borrowings                                                           |  |   | 73   |   |  |   | 31   |  
|Cash used in financing
activities                                                 |  |   | (56  | ) |  |   | (100 | )
|Net change in cash and cash equivalents                                           |  |   | (216 | ) |  |   | (159 | )
|Cash and cash equivalents at
beginning of year                                    |  |   | 403  |   |  |   | 236  |  
|Cash and cash equivalents at end of
period                                        |  | $ | 187  |   |  | $ | 77   |  
|Changes in Current Assets and Liabilities, Net                                    |  |   |      |   |  |   |      |  
|Accounts receivable, net                                                          |  | $ | 32   |   |  | $ | (37  | )
|Materials and supplies                                                            |  |   | (85  | ) |  |   | (27  | )
|Other current assets                                                              |  |   | (14  | ) |  |   | 49   |  
|Accounts, wages and vacation payable                                              |  |   | (177 | ) |  |   | 11   |  
|Other current
liabilities                                                         |  |   | 60   |   |  |   | 4    |  
|Total                                                                             |  | $ | (184 | ) |  | $ | -    |  
|Supplemental cash flow information:                                               |  |   |      |   |  |   |      |  
|Cash paid during the period for:                                                  |  |   |      |   |  |   |      |  
|Interest                                                                          |  | $ | (144 | ) |  | $ | (135 | )
|Income taxes, net                                                                 |  |   | (1   | ) |  |   | (3   | )

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



5



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CONSOLIDATED STATEMENT OF CHANGES IN COMMON SHAREHOLDERS EQUITY (Unaudited)

Union Pacific Railroad
Company and Consolidated Subsidiary Companies



|                           |  |              |  |               |  |             |  |              |  |                 |  |                  |   |  |                                              |   |  |                           |   |  |                |   |  |         |  
|-------------------------- |  | ------------ |  | ------------- |  | ----------- |  | ------------ |  | --------------- |  | ---------------- | - |  | -------------------------------------------- | - |  | ------------------------- | - |  | -------------- | - |  | ------- | -
|                           |  |              |  |               |  |             |  |              |  |                 |  |                  |   |  | Accumulated OtherComprehensive Income/(Loss) |   |  |                           |  
|Millions of Dollars        |  | CommonShares |  | Class AShares |  | CommonStock |  | Class AStock |  | Paid-in-Surplus |  | RetainedEarnings |   |  | MinimumPensionLiabilityAdj.                  |   |  | ForeignCurrencyTrans.Adj. |   |  | DerivativeAdj. |   |  | Total   |  
|Balance at Jan. 1, 2006    |  | 4,465        |  | 388           |  | $-          |  | $-           |  | $4,782          |  | $9,414           |   |  | $(211                                        | ) |  | $ (13                     | ) |  | $ (6           | ) |  | $13,966 |  
|Comprehensive income:      |  |              |  |               |  |             |  |              |  |                 |  |                  |   |  |                                              |   |  |                           |   |  |                |   |  |         |  
|Net income                 |  |              |  |               |  | -           |  | -            |  | -               |  | 303              |   |  | -                                            |   |  | -                         |   |  | -              |   |  | 303     |  
|Other comp. income [a]     |  |              |  |               |  | -           |  | -            |  | -               |  | -                |   |  | 2                                            |   |  | 1                         |   |  | -              |   |  | 3       |  
|Total comprehensive
income |  |              |  |               |  | -           |  | -            |  | -               |  | 303              |   |  | 2                                            |   |  | 1                         |   |  | -              |   |  | 306     |  
|Dividends declared         |  | -            |  | -             |  | -           |  | -            |  | -               |  | (79              | ) |  | -                                            |   |  | -                         |   |  | -              |   |  | (79     | )
|Balance at March 31, 2006  |  | 4,465        |  | 388           |  | $-          |  | $-           |  | $4,782          |  | $9,638           |   |  | $(209                                        | ) |  | $(12                      | ) |  | $ (6           | ) |  | $14,193 |  



|[a] | Net of tax of $1.
|--- | -----------------



---

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



6



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UNION PACIFIC RAILROAD COMPANY AND CONSOLIDATED SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

For purposes of this report, unless the context otherwise requires, all references herein to the Company, we, us, and
our mean Union Pacific Railroad Company and Consolidated Subsidiary Companies.

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, operates various railroad and railroad-related businesses. Our Consolidated Financial Statements are unaudited and reflect all adjustments (consisting only of normal and recurring adjustments) that are,
in the opinion of management, necessary for their fair presentation in conformity with accounting principles generally accepted in the United States of America. Our Consolidated Statement of Financial Position at December 31, 2005 is derived
from audited financial statements. This quarterly report on Form 10-Q should be read in conjunction with our Consolidated Financial Statements and notes thereto contained in our 2005 annual report on Form 10-K. The results of operations for the
three months ended March 31, 2006 are not necessarily indicative of the results for the entire year ending December 31, 2006. Certain prior year amounts have been reclassified to conform to the 2006 Consolidated Financial Statement
presentation. These reclassifications were not material, individually or in aggregate.

2.    Stock-Based
Compensation  We participate in the Corporations stock incentive programs. The Corporation has several stock-based compensation plans under which our employees receive stock options, nonvested retention shares, and nonvested stock
units. We refer to the nonvested shares and stock units collectively as retention awards. There were 18 million shares authorized and available for grant as stock-based compensation at March 31, 2006.

We adopted Financial Accounting Standards Board (FASB) Statement No. 123(R), Share-Based Payment (FAS 123(R)), on
January 1, 2006. FAS 123(R) requires us to measure and recognize compensation expense for all stock-based awards made to employees, including stock options. Compensation expense is based on the calculated fair value of the awards as measured at
the grant date and is expensed ratably over the service period of the awards (generally the vesting period). The fair value of retention awards is the stock price on the date of grant, while the fair value of stock options is determined by using the
Black-Scholes option pricing model. We elected to use the modified prospective transition method as permitted by FAS 123(R) and did not restate financial results for prior periods. Furthermore, because the impact of implementing a policy of netting
estimated forfeitures against compensation expense was immaterial, no cumulative effect resulted.

As a result of the
adoption of FAS 123(R), we recognized expense for stock options in the first quarter of 2006, in addition to retention awards, which were expensed prior to 2006. Before taxes, stock-based compensation expense was $3 million for stock options and $4
million for retention awards.

Prior to the adoption of FAS 123(R), we applied APB 25 to account for stock-based awards.
The following table details the effect on net income had compensation expense for all of our stock-based awards, including stock options, been recorded in the first quarter of 2005 based on the fair value method under FASB Statement No. 123,
Accounting for Stock-Based Compensation.



|                                                                                                                        |  |                                  |  
|----------------------------------------------------------------------------------------------------------------------- |  | -------------------------------- | -
|Millions of Dollars                                                                                                     |  | Three Months EndedMarch 31, 2005 |  
|Net income, as reported                                                                                                 |  | $129                             |  
|Stock-based employee compensation expense included in reported net
income, net of tax                                   |  | 2                                |  
|Total stock-based employee
compensation expense determined under fair value based method for all awards, net of tax [a] |  | (11                              | )
|Pro forma net income                                                                                                    |  | $120                             |  



|[a] | Stock options for executives granted in 2002 and 2003 included a reload feature. This reload feature allowed executives to exercise their options using shares
of Union Pacific Corporation common stock that they already owned and obtain a new grant of options in the amount of the shares used for exercise plus any shares withheld for tax purposes. The reload feature of these option grants could only be
exercised if the price of our common stock increased at least 20% from the price at the time of the reload grant. During the first quarter of 2005, reload option grants represented $6 million of the pro forma expense noted above. There were no
reload option grants during 2006 as stock options exercised after January 1, 2006 are not eligible for the reload feature.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



7



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



|                                                          |  |   |       |   |  |   |       |  
|--------------------------------------------------------- |  | - | ----- | - |  | - | ----- | -
|                                                          |  |   | 2006  |   |  |   | 2005  |  
|Risk-free interest rates                                  |  |   | 4.5   | % |  |   | 3.7   | %
|Dividend yield                                            |  |   | 1.4   | % |  |   | 1.9   | %
|Expected lives (years)                                    |  |   | 5.7   |   |  |   | 4.8   |  
|Volatility                                                |  |   | 24.7  | % |  |   | 21.0  | %
|Weighted-average grant-date fair
value of options granted |  | $ | 23.94 |   |  | $ | 12.28 |  

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

A summary of stock option activity during the quarter ended March 31, 2006 is presented below:



|                                      |  |            |   |  |                               
|------------------------------------- |  | ---------- | - |  | ------------------------------
|                                      |  | Shares     |   |  | Weighted-AverageExercise Price
|Outstanding at January 1, 2006        |  | 8,320,248  |   |  | $59.08                        
|Granted                               |  | 949,650    |   |  | 86.05                         
|Exercised                             |  | (1,626,526 | ) |  | 56.62                         
|Forfeited or expired                  |  | (12,067    | ) |  | 53.41                         
|Outstanding at March 31,
2006         |  | 7,631,305  |   |  | $62.83                        
|Options exercisable at March 31,
2006 |  | 6,623,755  |   |  | $59.54                        

The weighted-average remaining contractual terms of options outstanding and
exercisable at March 31, 2006 was 5.9 years and 5.3 years, respectively. The aggregate intrinsic value of options outstanding and exercisable at March 31, 2006 was $233 million and $224 million, respectively.

Stock options are granted at market price on the date of grant, have ten-year contractual terms, and vest no later than three years from
the date of grant. While the majority of the options that were granted in the first quarter of 2006 will vest over a three-year service period, a smaller percentage of options awarded in 2006 and the nonvested options that were awarded in prior
years will vest two years from their grant date. None of the stock options outstanding at March 31, 2006 are subject to performance or market-based vesting conditions.

At March 31, 2006, there was $21 million of unrecognized compensation expense related to nonvested stock options, which is expected to be recognized over a weighted-average period of 2.4
years. Additional information regarding stock option exercises appears in the table below:



|                                                        |  |                             |  |     
|------------------------------------------------------- |  | --------------------------- |  | ----
|                                                        |  | Three Months EndedMarch 31,
|Millions of Dollars                                     |  | 2006                        |  | 2005
|Aggregate grant-date fair value of stock options
vested |  | $16                         |  | $18 
|Intrinsic value of stock options exercised              |  | 48                          |  | 33  
|UPC tax benefit realized from option
exercises          |  | 19                          |  | 12  



8



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Retention Awards  The fair value of retention awards is based on the market price of the
stock at the grant date.

Changes in our retention awards for the first quarter of 2006 were as follows:



|                             |  |         |   |  |                                      
|---------------------------- |  | ------- | - |  | -------------------------------------
|                             |  | Shares  |   |  | Weighted-AverageGrant-Date Fair Value
|Nonvested at January 1, 2006 |  | 640,140 |   |  | $59.05                               
|Granted                      |  | 318,450 |   |  | 86.05                                
|Vested                       |  | (77,113 | ) |  | 55.98                                
|Forfeited                    |  | (3,225  | ) |  | 65.81                                
|Nonvested at March 31,
2006  |  | 878,252 |   |  | $69.08                               

Retention awards, which UPC grants at no cost to the employee, vest over periods
lasting up to four years. With the exception of the awards granted under the Long Term Plan, which is discussed below, the majority of awards granted in 2006 will vest over a four-year service period. Most nonvested awards that were granted in prior
years also vest over four years.

In January 2006, UPCs Board of Directors approved a new Long Term Plan (LTP). Under
the LTP, selected employees were awarded stock units subject to continued employment through January 2009 and the attainment of certain levels of UPCs return on invested capital (ROIC) as defined in the LTP. Over the course of the 3-year
performance period, the participants can earn up to 50,600 stock units, which had a grant-date fair value of $86.05 each and are included within the granted shares shown in the table above. We will expense the fair value (grant-date stock price) of
the units that are probable of being earned based on UPCs forecasted ROIC over the 3-year performance period.

At
March 31, 2006, there was $35 million of total unrecognized compensation expense related to nonvested retention awards, which is expected to be recognized over a weighted-average period of 2.0 years. A portion of this expense is subject to
achievement of the performance criteria under the LTP.

3.    Operations and Segmentation  We are a Class
I railroad operating in the United States. Our railroad, along with its subsidiaries, is our one reportable business segment. Although revenue is analyzed by commodity, we analyze the net financial results of the railroad as one segment due to the
integrated nature of the rail network.

4.    Transactions with Affiliates  At March 31, 2006 and
December 31, 2005, we had $813 million and $782 million working capital deficit balances, respectively, relating to UPCs management of our cash position. As part of UPCs cash management activities, we advance excess cash (cash
available after satisfying all of our obligations and paying dividends to UPC) to UPC. We declare and pay dividends to UPC, which typically approximate the dividends that UPC declares to its shareholders; however, there is no formal requirement to
do so. The dividend declaration between UPC and us is determined solely by our Board of Directors. To the extent we require additional cash for use in our operations, UPC makes such funds available to us for borrowing. Transactions with UPC are
treated as net intercompany borrowings in the Consolidated Statements of Financial Position.

The majority of our
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 our behalf. We assumed these acquisition costs 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 we are able to borrow from UPC.
Intercompany borrowings are unsecured and rank equally with all of our other unsecured indebtedness.

UPC provides us with
various services, including strategic planning, legal, treasury, accounting, auditing, insurance, human resources, and corporate affairs. Billings for these services were $22 million and $17 million for the three months ended March 31, 2006 and
2005, respectively.

5.    Financial Instruments

Strategy and Risk  We may use derivative financial instruments in limited instances for other than trading purposes to assist in managing our overall exposure to fluctuations in
interest rates. We are not a party to leveraged derivatives and, by policy, do not use derivative financial instruments for speculative purposes. Financial instruments qualifying for hedge accounting must maintain a specified level of effectiveness
between the hedging instrument and



9



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the item being hedged, both at inception and throughout the hedged period. We formally document the nature and relationships between the hedging instruments
and hedged items, as well as our risk-management objectives, strategies for undertaking the various hedge transactions, and method of assessing hedge effectiveness. We may use swaps, collars, futures, and/or forward contracts to mitigate the
downside risk of adverse price movements and to hedge the exposure to variable cash flows. The use of these instruments also limits future benefits from favorable movements.

Market and Credit Risk  We address market risk related to derivative financial instruments by selecting instruments with value fluctuations that highly correlate with the underlying
hedged item. Credit risk related to derivative financial instruments, which is minimal, is managed by requiring high credit standards for counterparties and periodic settlements. At March 31, 2006 and December 31, 2005, we were not
required to provide collateral, nor had we received collateral, relating to our hedging activities.

Interest Rate Cash Flow Hedges We report changes in the fair value of cash flow hedges in accumulated other comprehensive loss until the hedged item affects earnings. At March 31, 2006, we had a reduction of $6 million recorded as an accumulated other
comprehensive loss that is being amortized on a straight-line basis through September 31, 2014. As of March 31, 2006 and December 31, 2005, we had no interest rate cash flow hedges outstanding.

Sale of Receivables  We transfer most of our accounts receivable to Union Pacific Receivables, Inc. (UPRI), a bankruptcy-remote subsidiary,
as part of a sale of receivables facility. UPRI sells, without recourse on a 364-day revolving basis, an undivided interest in such accounts receivable to investors. The total capacity to sell undivided interests to investors under the facility was
$600 million at March 31, 2006. The value of the outstanding undivided interest held by investors under the facility was $600 million at both March 31, 2006 and December 31, 2005. The value of the outstanding undivided interest held
by investors is not included in our Consolidated Financial Statements. The value of the undivided interest held by investors was supported by $1,224 million and $1,226 million of accounts receivable held by UPRI at March 31, 2006 and
December 31, 2005, respectively. At March 31, 2006 and December 31, 2005, the value of the interest retained by UPRI was $624 million and $626 million, respectively. This retained interest is included in accounts receivable in our
Consolidated Financial Statements. The interest sold to investors is sold at carrying value, which approximates fair value, and there is no gain or loss recognized from the transaction.

The value of the outstanding undivided interest held by investors could fluctuate based upon the availability of eligible receivables and
is directly affected by changing business volumes and credit risks, including default and dilution. If default or dilution percentages were to increase one percentage point, the amount of eligible receivables would decrease by $6 million. Should
UPCs credit rating fall below investment grade, the value of the outstanding undivided interest held by investors would be reduced, and, in certain cases, the investors would have the right to discontinue the facility.

We have been designated to service the sold receivables; however, we do not recognize any servicing asset or liability as the servicing
fees adequately compensate us for our responsibilities. We collected approximately $4 billion and $3 billion during the three-month periods ended March 31, 2006 and 2005, respectively. UPRI used certain of these proceeds to purchase new
receivables under the facility.

The costs of the sale of receivables program are included in other income and were $7
million and $4 million for the three months ended March 31, 2006 and 2005, respectively. The costs include interest, program fees paid to banks, commercial paper issuing costs, and fees for unused commitment availability.

The investors have no recourse to our other assets except for customary warranty and indemnity claims. Our creditors have no recourse to
the assets of UPRI. On August 11, 2005, the sale of receivables program was renewed for an additional 364-day period without any significant changes in terms.

6.    Retirement Plans

Pension and Other Postretirement Benefits

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



10



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Other Postretirement Benefits (OPEB)  We provide defined contribution medical and life
insurance benefits for eligible retirees through the Corporations programs. These benefits are funded as medical claims and life insurance premiums are paid.

See note 10 to the Consolidated Financial Statements for discussion of the FASBs project to reconsider the accounting for postretirement benefits, including pensions.

Expense

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

The components of our net periodic pension and
OPEB costs were as follows:



|                                |  |                             |  |                             |  |      |  |     
|------------------------------- |  | --------------------------- |  | --------------------------- |  | ---- |  | ----
|                                |  | Pension                     |  | OPEB                       
|                                |  | Three Months EndedMarch 31, |  | Three Months EndedMarch 31,
|Millions of Dollars             |  | 2006                        |  | 2005                        |  | 2006 |  | 2005
|Service cost                    |  | $8                          |  | $9                          |  | $1   |  | $1  
|Interest cost                   |  | 29                          |  | 29                          |  | 7    |  | 7   
|Expected return on plan assets  |  | (34)                        |  | (34)                        |  | -    |  | -   
|Amortization of:                |  |                             |  |                             |  |      |  |     
|Prior service cost (credit)     |  | 2                           |  | 2                           |  | (7)  |  | (6) 
|Actuarial loss                  |  | 5                           |  | 3                           |  | 4    |  | 3   
|Total net periodic benefit
cost |  | $10                         |  | $9                          |  | $5   |  | $5  

Cash Contributions

Our policy with respect to funding the qualified plans is to fund at least the minimum required by the Employee Retirement Income Security Act of 1974, as amended, and not more than the maximum
amount deductible for tax purposes. The Corporation does not currently have minimum funding requirements under applicable employee benefit and tax laws. In January 2006, we made a $50 million voluntary contribution to the funded pension plan. The
contribution was made with cash generated from operations. No further contributions are expected during 2006.

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

8.    Commitments and Contingencies

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

Personal Injury  The cost of personal injuries to employees and others related to our activities is charged to expense based on estimates of
the ultimate cost and number of incidents each year. We use third-party actuaries to assist us in measuring the expense and liability, including unasserted claims. Compensation for 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.



11



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Our personal injury liability activity was as follows:



|                                |  |                             |   |  |      |  
|------------------------------- |  | --------------------------- | - |  | ---- | -
|                                |  | Three Months EndedMarch 31, |  
|Millions of
Dollars             |  | 2006                        |   |  | 2005 |  
|Beginning balance               |  | $614                        |   |  | $637 |  
|Accruals                        |  | 76                          |   |  | 63   |  
|Payments                        |  | (55                         | ) |  | (60  | )
|Ending balance                  |  | $635                        |   |  | $640 |  
|Current portion, ending
balance |  | $271                        |   |  | $272 |  

Our personal injury liability is discounted to present value using applicable U.S.
Treasury rates.

Asbestos  We are a defendant in a number of lawsuits in which current and former employees allege exposure to
asbestos. Additionally, we have received claims for asbestos exposure that have not been litigated. The claims and lawsuits (collectively referred to as claims) allege occupational illness resulting from exposure to asbestos-containing
products. In most cases, the claimants do not have credible medical evidence of physical impairment resulting from the alleged exposures. Additionally, most claims filed against us do not specify an amount of alleged damages.

The greatest potential for asbestos exposure in the railroad industry existed while steam locomotives were used. The railroad industry,
including our predecessors and us, phased out steam locomotives between 1955 and 1960. The use of asbestos-containing products in the railroad industry was substantially reduced after steam locomotives were discontinued, although it was not
completely eliminated. Some asbestos-containing products were still manufactured in the building trade industry and were used in isolated component parts on locomotives and railroad cars during the 1960s and 1970s. By the early 1980s, manufacturers
of building materials and locomotive component parts developed non-asbestos alternatives for their products and ceased manufacturing asbestos-containing materials.

Prior to 2004, we concluded it was not possible to reasonably estimate the cost of disposing of asbestos-related claims that might be filed against us in the future, due to a lack of sufficient
comparable history from which to reasonably estimate unasserted asbestos-related claims. As a result, we recorded a liability for asbestos-related claims only when the claims were asserted.

Since 2004, we have used a third party with extensive experience in estimating resolution costs for asbestos-related claims to assist us
in assessing the number and value of these unasserted claims through 2034, based on our average claims experience over a multi-year period. The liability for resolving both asserted and unasserted claims is based on the following assumptions:



| |  |  | The number of claims to be filed against us will decline each year after 2005.
| | - |  | ------------------------------------------------------------------------------



| |  |  | The average settlement values for asserted and unasserted claims will be equivalent to those experienced between 2002 and 2004.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------



| |  |  | The percentage of claims dismissed between 2002 and 2004 will continue through 2034.
| | - |  | ------------------------------------------------------------------------------------

Our asbestos-related liability activity was as follows:



|                    |  |                             |   |  |      |  
|------------------- |  | --------------------------- | - |  | ---- | -
|                    |  | Three Months EndedMarch 31, |  
|Millions of Dollars |  | 2006                        |   |  | 2005 |  
|Beginning balance   |  | $311                        |   |  | $324 |  
|Accruals            |  | -                           |   |  | 2    |  
|Payments            |  | (2                          | ) |  | (2   | )
|Ending balance      |  | $309                        |   |  | $324 |  
|Current portion     |  | $16                         |   |  | $17  |  



12



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Our liability for asbestos-related claims is not discounted to present value due to the
uncertainty surrounding the timing of future payments. Approximately 17% of the recorded liability related to asserted claims, and approximately 83% related to unasserted claims. These claims are expected to be paid out through 2034. During the
third quarter of 2005, our third-party consultants assisted us in reviewing our actual asbestos claim experience through the first half of 2005 compared to the assumptions used in the 2004 estimate, and we determined that no adjustment to our
estimate was necessary. We will continue to review actual experience and adjust our estimate as warranted.

Insurance
coverage reimburses us for a portion of the costs incurred to resolve asbestos-related claims, and we have recognized an asset for estimated insurance recoveries.

We believe that our liability estimates for asbestos-related claims and the estimated insurance recoveries reflect reasonable and probable estimates. The amounts recorded for asbestos-related
liabilities and related insurance recoveries were based on currently known facts. However, future events, such as the number of new claims to be filed each year, average settlement costs, and insurance coverage issues could cause the actual costs
and insurance recoveries to be higher or lower than the projected amounts. Estimates may also vary due to changes in the litigation environment, federal and state law governing compensation of asbestos claimants, and the level of payments made to
claimants by other defendants.

Additionally, we have a legal obligation to properly dispose of asbestos-containing
materials. The estimated fair value of this obligation is $5 million at both March 31, 2006 and December 31, 2005, which is recorded as a liability.

Environmental Costs We are subject to federal, state, and local environmental laws and regulations. We have identified approximately 352 sites at which we are or may be liable for remediation costs
associated with alleged contamination or for violations of environmental requirements. This includes 39 sites that are the subject of actions taken by the U.S. government, 22 of which are currently on the Superfund National Priorities List. Certain
federal legislation imposes joint and several liability for the remediation of identified sites; consequently, our ultimate environmental liability may include costs relating to activities of other parties, in addition to costs relating to our own
activities at each site.

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

Our environmental liability activity was as follows:



|                                |  |                             |   |  |      |  
|------------------------------- |  | --------------------------- | - |  | ---- | -
|                                |  | Three Months EndedMarch 31, |  
|Millions of Dollars             |  | 2006                        |   |  | 2005 |  
|Beginning balance               |  | $213                        |   |  | $201 |  
|Accruals                        |  | 5                           |   |  | 12   |  
|Payments                        |  | (8                          | ) |  | (8   | )
|Ending balance                  |  | $210                        |   |  | $205 |  
|Current portion, ending
balance |  | $50                         |   |  | $49  |  

The environmental liability includes 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. We believe that we have adequately accrued for our 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 the speculative nature of remediation costs. Estimates may also vary due to changes in federal, state, and local laws governing environmental remediation. We do not expect current obligations to have a material adverse effect on our
consolidated results of operations, financial condition, or liquidity.



13



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Guarantees  At March 31, 2006, we were contingently liable for $435 million in
guarantees. We have recorded a liability of $7 million for the fair value of these obligations as of March 31, 2006. We entered into these contingent guarantees in the normal course of business, and they include guaranteed obligations related
to our headquarters building, equipment financings, and affiliated operations. The final guarantee expires in 2022. We are not aware of any existing event of default that would require us to satisfy these guarantees. We do not expect that these
guarantees will have a material adverse effect on our consolidated results of operations, financial condition, or liquidity.

Income
Taxes  As previously reported in note 4 to our Consolidated Financial Statements, Item 8, in our 2005 annual report on Form 10-K, the IRS has completed its examinations and issued notices of deficiency for tax years 1995 through 2002.
Among their proposed adjustments is the disallowance of tax deductions claimed in connection with certain donations of property. In 2005, the IRS national office issued a Technical Advice Memorandum that left unresolved whether the deductions were
proper pending further factual development by the IRS examination team. We continue to dispute the donation issue, as well as many of the other proposed adjustments, and will contest the associated tax deficiencies through the IRS appeals process,
and, if necessary, litigation. We do not expect that the ultimate resolution of these examinations will have a material adverse effect on our operating results, financial condition, or liquidity. In addition, the IRS has begun its examination of tax
years 2003 and 2004.

9.    Other Income  Other income included the following for the three months ended
March 31:



|                                            |      |                             |   |      |     |  
|------------------------------------------- | ---- | --------------------------- | - | ---- | --- | -
|Millions of
Dollars                         |      | Three Months EndedMarch 31, |  
|                                            | 2006 |                             |   | 2005 |    
|Rental income                               |      | $13                         |   |      | $13 |  
|Net gain from non-operating asset sales     |      | 6                           |   |      | 14  |  
|Interest income                             |      | 1                           |   |      | 3   |  
|Sale of receivables program fees            |      | (7                          | ) |      | (4  | )
|Non-operating environmental costs and
other |      | (6                          | ) |      | (10 | )
|Total                                       |      | $7                          |   |      | $16 |  

10.    Accounting Pronouncements  In July 2005, the FASB issued
an exposure draft, Accounting for Uncertain Tax Positions, an Interpretation of FASB Statement No. 109. As drafted, the interpretation would require companies to recognize the best estimate of the impact of a tax position only if that
position is probable of being sustained during a tax audit. However, in November 2005 the FASB voted to replace the probable threshold and instead require companies to recognize the best estimate of the impact of a tax position only if that position
is more likely than not to be sustained during a tax audit. The FASB expects to issue a final interpretation in the second quarter of 2006 with a target effective date as of the beginning of the first fiscal year beginning after December 15,
2006. When it is available, we will review the final interpretation to determine the impact it may have on our Consolidated Financial Statements.

In March 2006, the FASB issued an exposure draft for the first phase of its project to reconsider the accounting for postretirement benefits, Employers Accounting for Defined Benefit Pension and Other
Postretirement Plans, an Amendment of FASB Statements No. 87, 88, 106, and 132(R). The exposure draft would require us to recognize the difference between the fair value of plan assets and the benefit obligation in our financial statements
as a component of accumulated other comprehensive income/loss. We are currently assessing the impact this exposure draft may have on our Consolidated Financial Statements. If the exposure draft is finalized, we would be required to adopt these
proposed changes in the first fiscal year ending after December 15, 2006.



14



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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations

UNION PACIFIC RAILROAD COMPANY AND CONSOLIDATED SUBSIDIARY COMPANIES

RESULTS OF OPERATIONS

Three Months Ended March 31, 2006 Compared to

Three Months Ended March 31, 2005

For purposes of this report, unless the context otherwise
requires, all references herein to the Company, we, us, and our mean Union Pacific Railroad Company and Consolidated Subsidiary Companies. For purposes of this report, unless the context otherwise
requires, all references herein to the Corporation and UPC shall mean Union Pacific Corporation and its subsidiaries.

The following discussion should be read in conjunction with the Consolidated Financial Statements and applicable notes to the Consolidated Financial Statements, Item 1, and other information included in this
report. Our Consolidated Financial Statements are unaudited and reflect all adjustments (consisting only of normal and recurring adjustments) that are, in the opinion of management, necessary for their fair presentation in conformity with accounting
principles generally accepted in the United States of America (GAAP).

Managements Discussion and Analysis of
Financial Condition and Results of Operations has been omitted in accordance with General Instruction H(1)(a) and (b) of Form 10-Q. In lieu thereof, a narrative analysis is presented.

We are a Class I railroad operating in the United States. Our railroad, along with its subsidiaries, is our one reportable business
segment. Although revenue is analyzed by commodity, we analyze the net financial results of the railroad as one segment due to the integrated nature of the rail network.

Available Information

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

References to our website address in this report, including references in Managements Discussion and Analysis of Financial
Condition and Results of Operations, Item 2, are provided as a convenience and do not constitute, and should not be deemed, an incorporation by reference of the information contained on, or available through, the website. Therefore, such
information should not be considered part of this report.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our Consolidated Financial Statements. The preparation of
these financial statements requires estimation and judgment that affect the reported amounts of revenue, expenses, assets, and liabilities. We base our 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. Our critical accounting policies are available in Item 7 of our 2005 annual report on Form 10-K. There have been no significant changes with respect to these policies
during the first three months of 2006.



15



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MANAGEMENTS NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS

QUARTERLY SUMMARY

Operating income grew 93% to $605 million driven by 18% revenue growth resulting from higher volume levels, fuel surcharge programs, and yield increases. In addition, mild winter weather conditions, network management initiatives, and
capacity improvements contributed to improved financial results compared to the first quarter of 2005, which were hampered by the January West Coast storm. The January West Coast storm reduced net income by approximately $34 million during the first
quarter of 2005. Conversely, higher locomotive diesel fuel prices; volume-related expenses; wage, benefit, and materials inflation; and personal injury costs partially offset the higher revenues and operating efficiencies.

In the first quarter of 2006, we handled record volume for any first quarter, which exceeded volume during the same period of last year
by 4%. Despite higher volumes, our operations improved modestly from the first quarter of 2005 with slight improvements in both average train speed and average terminal dwell time, as reported to the Association of American Railroads. We benefited
from mild winter weather during the quarter and did not experience the operating delays and expenses typically associated with winter weather conditions. Additionally, better weather conditions allowed us to accelerate implementation of our network
management initiatives and our capital programs. We continue to focus on increasing velocity, improving asset utilization, and increasing our capacity. In the second quarter of 2005, we began implementation of the Unified Plan, a major initiative to
help us achieve these goals by simplifying our network and reducing car handlings and work events. In the first quarter of 2006 compared to the same period of 2005, we decreased the rate of car handlings or switches at intermediate terminals and the
rate of en route work events by 12% and 16%, respectively, excluding energy carloads. These reductions translated to improved average terminal dwell time, which decreased by one half hour in the first quarter of 2006, resulting in cost savings and
improved car utilization. During the second quarter of 2006, our focus under the Unified Plan will involve the southern and western regions.

Operating Revenue



|                        |      |                             |      |         |  |    |  
|----------------------- | ---- | --------------------------- | ---- | ------- |  | -- | -
|Millions of
Dollars     |      | Three Months EndedMarch 31, |      | %Change | 
|                        | 2006 |                             | 2005 |        
|Commodity revenue       |      | $3,543                      |      | $3,004  |  | 18 | %
|Other revenue           |      | 159                         |      | 140     |  | 14 |  
|Total operating
revenue |      | $3,702                      |      | $3,144  |  | 18 | %

Operating revenue includes commodity revenue and other revenue. Other revenue consists primarily
of revenue earned by our subsidiaries, revenue from our commuter rail operations, and accessorial revenue, which we earn when customers retain equipment owned or controlled by us. We recognize commodity revenue on a percentage-of-completion basis as
freight moves from origin to destination. We allocate commodity revenue between reporting periods based on the relative transit time in each reporting period and recognize expenses as incurred. We recognize other revenue as service is performed or
contractual obligations are met.

Commodity revenue improved in all six business groups during the first quarter of 2006,
with over 20% growth in the agricultural products, industrial products, intermodal, and automotive commodity groups. Fuel surcharges, price increases, and index-based contract escalators, which are formulas in our shipping contracts that correlate
price adjustments to certain economic indexes, all contributed to higher average revenue per car (ARC). Our fuel surcharge programs (excluding index-based contract escalators that contain some provision for fuel) generated an additional $191 million
in commodity revenue compared to the same period in 2005, contributing 6% revenue growth. Volume increased 4% during the period led by substantial growth in intermodal, agricultural products, and automotive shipments, which was partially offset by
lower chemical and energy shipments. Contributing to the comparative volume growth in the first quarter of 2006 is the negative impact of the January West Coast storm on 2005 volume.

Subsidiary and accessorial revenue increased other revenue in the first quarter of 2006, mainly driven by higher volumes. In addition, we
generated higher subsidiary revenue from Bay Pacific Financial L.L.C. (Bay Pacific), an intermodal equipment leasing entity, as we acquired our joint venture partners interest in Bay Pacific during the third quarter of 2005.



16



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



|                                      |      |                             |      |         |  |    |  
|------------------------------------- | ---- | --------------------------- | ---- | ------- |  | -- | -
|Commodity Revenue Millions of Dollars |      | Three Months EndedMarch 31, |      | %Change | 
|                                      | 2006 |                             | 2005 |        
|Agricultural Products                 |      | $563                        |      | $448    |  | 26 | %
|Automotive                            |      | 361                         |      | 293     |  | 23 |  
|Chemicals                             |      | 501                         |      | 441     |  | 14 |  
|Energy                                |      | 699                         |      | 668     |  | 5  |  
|Industrial Products                   |      | 775                         |      | 630     |  | 23 |  
|Intermodal                            |      | 644                         |      | 524     |  | 23 |  
|Total                                 |      | $3,543                      |      | $3,004  |  | 18 | %



|                           |      |                             |      |         |  |    |  
|-------------------------- | ---- | --------------------------- | ---- | ------- |  | -- | -
|Revenue Carloads Thousands |      | Three Months EndedMarch 31, |      | %Change | 
|                           | 2006 |                             | 2005 |        
|Agricultural Products      |      | 234                         |      | 216     |  | 8  | %
|Automotive                 |      | 210                         |      | 192     |  | 9  |  
|Chemicals                  |      | 218                         |      | 228     |  | (4 | )
|Energy                     |      | 550                         |      | 574     |  | (4 | )
|Industrial Products        |      | 366                         |      | 358     |  | 2  |  
|Intermodal                 |      | 815                         |      | 732     |  | 11 |  
|Total                      |      | 2,393                       |      | 2,300   |  | 4  | %



|                        |      |                             |      |         |  |    |  
|----------------------- | ---- | --------------------------- | ---- | ------- |  | -- | -
|Average Revenue Per Car |      | Three Months EndedMarch 31, |      | %Change | 
|                        | 2006 |                             | 2005 |        
|Agricultural Products   |      | $2,405                      |      | $2,076  |  | 16 | %
|Automotive              |      | 1,722                       |      | 1,524   |  | 13 |  
|Chemicals               |      | 2,303                       |      | 1,937   |  | 19 |  
|Energy                  |      | 1,271                       |      | 1,163   |  | 9  |  
|Industrial Products     |      | 2,115                       |      | 1,758   |  | 20 |  
|Intermodal              |      | 790                         |      | 716     |  | 10 |  
|Total                   |      | $1,481                      |      | $1,306  |  | 13 | %

Agricultural Products  Price increases, volume growth, and fuel surcharges increased
commodity revenue in the first quarter of 2006 versus 2005. Carloads of grain products grew as we shipped more corn and feed grains for gulf export and dry feed ingredients to Mexico. Increased shipments of beer from Mexico also contributed to the
volume growth. Price and fuel surcharge increases drove ARC improvement, which was partially offset by the negative impact of shorter average lengths of haul.

Automotive  Revenue increased in the first quarter of 2006 due to fuel surcharges, volume growth, and price increases. Finished vehicle shipments grew as higher inventories at the end of 2005 translated
into strong demand for transportation in the first quarter of 2006. Higher shipments of finished vehicles from GM and Ford and higher import volumes from Toyota also drove the volume increase. Automotive parts shipments also grew, but to a lesser
extent in the first quarter period compared to 2005. Fuel surcharge growth and price increases, coupled with less growth in parts shipments that have lower ARC drove the ARC improvement.

Chemicals  Revenue increased in the first quarter of 2006 primarily due to price increases, fuel surcharges, and index-based contract escalators, which also drove ARC improvement.
Volume declined due to softer export markets for fertilizer, plastics, and liquid and dry chemicals shipments. An agreement providing the BNSF Railway Company (BNSF) access to certain facilities in the Bayport, Texas area also contributed to the
lower plastics shipments.

Energy  Revenue increased in the first quarter of 2006 primarily due to fuel surcharges, price
increases, and index-based contract escalators, which also drove ARC improvement. Carloadings for the quarter decreased primarily due to temporary outages at mines in Colorado and Utah, reducing quarter-over-quarter shipments by 20%. The mines
returned to full production in early April of 2006. Carloadings from the Southern Powder River Basin of Wyoming (SPRB) were essentially flat in the first quarter of 2006 versus 2005, and lower than our expectations. Over 250 train loadings were
missed during the period, approximately 55% were not loaded as a result of operational problems at



17



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the mines and 45% were not loaded due to either SPRB Joint Line operational issues with the BNSF or our network operations.

Industrial Products  Price increases, fuel surcharges, volume growth and the positive mix impact of transporting more shipments with a
higher average ARC generated revenue growth in the first quarter of 2006. More stone shipments resulting from larger trains and efficiency improvements drove volume growth. Lumber, steel, and cement shipments also increased, partially offset by
lower newsprint and fiber and recyclable moves, leading to the favorable ARC impact. Strong construction demand for lumber and cement along with solid domestic market conditions for steel and pipe fueled growth in these commodities.

Intermodal  Strong volume growth, fuel surcharges, price increases and index-based contract escalators led to higher revenue in the first
quarter of 2006. Carloadings grew due to strong imports, primarily from China and the rest of Asia, and stronger domestic traffic. In addition, first quarter 2005 volume levels were hampered by the January 2005 West Coast storm, which contributed to
comparative improvements in this quarter. ARC in the first quarter of 2006 improved due to fuel surcharges, price increases, and index-based contract escalators.

Mexico Business  Each commodity group discussed above includes revenue from shipments to and from Mexico. Revenue from Mexico business increased 26% to $313 million in the first quarter of 2006 compared
to the same period in 2005 driven by price increases, fuel surcharges, and volume growth. Increased shipments of finished vehicles, automotive parts, import beer, and dry feed ingredients led the volume growth.

Operating Expenses



|                                       |      |                             |      |         |  |    |  
|-------------------------------------- | ---- | --------------------------- | ---- | ------- |  | -- | -
|Millions of
Dollars                    |      | Three Months EndedMarch 31, |      | %Change | 
|                                       | 2006 |                             | 2005 |        
|Salaries, wages, and employee benefits |      | $1,108                      |      | $1,079  |  | 3  | %
|Fuel and utilities                     |      | 692                         |      | 539     |  | 28 |  
|Equipment and other rents              |      | 367                         |      | 352     |  | 4  |  
|Depreciation                           |      | 303                         |      | 289     |  | 5  |  
|Materials and supplies                 |      | 164                         |      | 135     |  | 21 |  
|Casualty costs                         |      | 109                         |      | 94      |  | 16 |  
|Purchased services and other
costs     |      | 354                         |      | 343     |  | 3  |  
|Total                                  |      | $3,097                      |      | $2,831  |  | 9  | %

Operating expenses increased $266 million in the first quarter of 2006 versus the comparable
period in 2005. A 29% increase in locomotive fuel prices accounted for $145 million of this increase. While our fuel surcharge programs helped offset these expenses in the form of higher revenue, we remain below 100% recovery of the additional
expense incurred above the base fuel price of $0.75 per gallon for our fuel surcharge programs. Inflation of wages, benefits, and materials and supplies; a larger workforce; volume-related expenses; higher locomotive and freight car lease expense;
and personal injury costs resulted in most of the additional increase. Lower training costs, an improved fuel consumption rate, and improved car cycle times (which reduced freight car rental expense) partially offset these costs.

Salaries, Wages, and Employee Benefits Several factors drove higher labor expenses in the first quarter of 2006 versus 2005. General wage
and benefit inflation continued to increase expenses, reflecting higher salaries and wages and the impact of higher healthcare and other benefit costs. We also incurred additional expenses associated with higher volume levels, a 2% increase in our
workforce, and higher management compensation costs driven by stock compensation expense pursuant to Financial Accounting Standards Board (FASB) Statement No. 123(R), Share-Based Payment. Conversely, lower crew training costs, reduced
protection pay, and network improvements boosted by mild winter weather conditions partially offset these costs. Expenses were also lower in 2006 as the first quarter of 2005 included higher labor expenses associated with the January West Coast
storm.

Fuel and Utilities  Fuel and utilities include locomotive fuel, utilities other than telephone, and gasoline and other
fuels. Higher diesel fuel prices, which averaged $1.87 per gallon (including taxes and transportation costs) in the first quarter of 2006 compared to $1.45 per gallon in the same period in 2005, increased expenses by $145 million. A 2% increase in
gross ton-miles resulted in $8 million of additional expenses. However, we improved our consumption rate by 2% through both fuel conservation programs and the use of newer, more fuel-efficient locomotives, which provided a $7 million reduction in
expense compared to 2005. Gasoline, utilities, and propane expenses increased $6 million in the first quarter of 2006 due to higher prices.



18



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Equipment and Other Rents  Equipment and other rents primarily includes rental expense we
pay for freight cars owned by other railroads or private companies; freight car, intermodal, and locomotive leases; other specialty equipment leases; and office and other rentals. In the first quarter of 2006, the number of leased locomotives and
freight cars increased, resulting in additional lease expense. Strong intermodal and automotive volume growth also increased our short-term freight car rental expense. Improved car cycle times partially offset these increases, which lowered
short-term freight car rental expense.

Depreciation  A majority of depreciation relates to track structure, including rail,
ties, and other track material. A higher depreciable asset base, reflecting higher capital spending in recent years, increased depreciation expense in the first quarter of 2006.

Materials and Supplies  Materials used to maintain our lines, structures, and equipment are the principal component of materials and supplies expense. This expense item also includes
small tools, office supplies, other materials, and the costs of freight services to ship our materials. During the first quarter of 2006, materials and supplies expense increased, primarily due to locomotive and freight car maintenance. We used more
repair materials to maintain a larger fleet of locomotives, including a growing number of units not covered by warranties. In addition, we performed maintenance on more locomotives that were serviced internally and not subject to maintenance
contracts with third-party contractors, compared to the first quarter 2005. We also incurred higher costs for car wheel sets and lube oil.

Casualty Costs  Personal injury expense, freight and property damage, insurance, and environmental costs are the primary components of casualty costs. Higher personal injury expense drove the first quarter year-over-year
increase, mainly due to higher estimated costs for future claims and adverse developments on a small group of existing claims. Insurance costs also increased in the first quarter of 2006 compared to 2005 due to higher premiums. Lower freight loss
and damage expense and lower costs for destruction of foreign or leased equipment partially offset these higher costs. We incur expense for destruction of foreign equipment when equipment owned by other railroads is damaged while in our possession.

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 other railroads and us, 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 in the first quarter of 2006 due to higher state and local taxes driven in part by higher diesel fuel prices,
volume-related expenses associated with crew transportation and lodging, as well as trucking services provided by intermodal carriers. Lower freight car and locomotive contract maintenance costs and lower expenses associated with jointly owned
operating facilities partially offset these costs. In addition, we incurred clean-up and restoration expenses in the first quarter of 2005 due to the January West Coast storm.

Non-Operating Items



|                    |      |                             |      |         |  |     |   
|------------------- | ---- | --------------------------- | ---- | ------- |  | --- | --
|Millions of
Dollars |      | Three Months EndedMarch 31, |      | %Change | 
|                    | 2006 |                             | 2005 |        
|Other income        |      | $     7                     |      | $   16  |  | (56 | )%
|Interest expense    |      | (125)                       |      | (122)   |  | 2   |   
|Income taxes        |      | (184)                       |      | (78)    |  | 136 |   

Other Income Lower net gains from non-operating asset sales, lower interest income
resulting from lower cash balances, and higher expenses due to rising interest rates associated with our sale of receivables program drove other income lower in the first quarter of 2006 compared to 2005.

Interest Expense Higher interest expense in the first quarter of 2006 was primarily due to increasing weighted-average debt levels of $6.8
billion in the first quarter of 2006 compared to $6.5 billion in the first quarter of 2005. Our effective interest rate for the first quarters of 2006 and 2005 were 7.3% and 7.4%, respectively, which slightly offset the impact of the increasing
average debt levels.

Income Taxes Income taxes were greater in the first quarter of 2006 primarily due to higher 2006
pre-tax income. Our effective tax rate for the first quarter of 2006 was 37.8% while the rate for the first quarter of 2005 was 37.7%.



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OTHER OPERATING AND FINANCIAL STATISTICS

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



|                                       |      |                             |      |          |  |    
|-------------------------------------- | ---- | --------------------------- | ---- | -------- |  | ---
|                                       |      | Three Months EndedMarch 31, |      | % Change
|                                       | 2006 |                             | 2005 |         
|Average train speed (miles per hour)   |      | 21.3                        |      | 21.1     |  | 1% 
|Average terminal dwell time (hours)    |      | 29.0                        |      | 29.5     |  | (2)
|Gross ton-miles (billions)             |      | 263.1                       |      | 258.4    |  | 2  
|Revenue ton-miles (billions)           |      | 139.3                       |      | 137.5    |  | 1  
|Average full-time equivalent
employees |      | 50,262                      |      | 49,294   |  | 2  

Average Train Speed Average train speed is calculated by dividing train miles by
hours operated on our main lines between terminals. Network management initiatives created additional capacity in our network, allowing us to move 4% more volume at an improved average train speed during the first quarter of 2006.

Average Terminal Dwell Time Average terminal dwell time is the average time that a rail car spends at our terminals. Lower average terminal
dwell time is favorable. The improvement in dwell time was the result of network management initiatives and directed efforts to more timely deliver rail cars off-line to our interchange partners and customers.

Gross and Revenue Ton-Miles Gross ton-miles are calculated by multiplying the weight of loaded or empty freight cars by the number
of miles hauled. Revenue ton-miles are based on tariff miles and do not include the weight of freight cars. In the first quarter of 2006, gross and revenue ton-miles grew 2% and 1% respectively, while carloadings increased 4%. Substantial volume
growth in the lower density commodity groups of intermodal and automotive, combined with a decrease in the higher density commodities of energy and chemicals, impacted growth rates of gross and revenue ton-miles in relation to carload growth.

Average Full-Time Equivalent Employees The first quarter 2006 increase includes the addition of employees needed to
complete increased track repair and replacement programs, more employees to maintain our larger locomotive and freight car fleet, the hiring of operations management personnel, including an expanded management training program, and train and engine
personnel.

OTHER MATTERS

Transactions with Affiliates At March 31, 2006 and December 31, 2005, we had $813 million and $782 million working capital deficit balances, respectively, relating to UPCs management of our cash position. As
part of UPCs cash management activities, we advance excess cash (cash available after satisfying all of our obligations and paying dividends to UPC) to UPC. We declare and pay dividends to UPC, which typically approximate the dividends that
UPC declares to its shareholders; however, there is no formal requirement to do so. The dividend declaration between UPC and us is determined solely by our Board of Directors. To the extent we require additional cash for use in our operations, UPC
makes such funds available to us for borrowing. Transactions with UPC are treated as net intercompany borrowings in the Consolidated Statements of Financial Position.

The majority of our 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 our behalf. We assumed these acquisition costs 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 we are able to borrow from UPC. Intercompany borrowings are unsecured and rank equally with all of our other unsecured indebtedness.

UPC provides us with various services, including strategic planning, legal, treasury, accounting, auditing, insurance, human resources, and corporate affairs. Billings for these services were $22
million and $17 million for the three months ended March 31, 2006 and 2005, respectively.

Commitments and Contingencies
Various claims and lawsuits are pending against us and certain of our subsidiaries. We are also subject to various federal, state and local environmental laws and regulations, pursuant to which we are currently participating in the investigation and
remediation of various sites. We do not expect that any



20



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known lawsuits, claims, environmental costs, commitments, contingent liabilities, or guarantees will have a material adverse effect on our consolidated
financial condition, results of operations, or liquidity after taking into account liabilities previously recorded for these matters.

Accounting Pronouncements In July 2005, the FASB issued an exposure draft, Accounting for Uncertain Tax Positions, an Interpretation of FASB Statement No. 109. As drafted, the interpretation would require companies
to recognize the best estimate of the impact of a tax position only if that position is probable of being sustained during a tax audit. However, in November 2005 the FASB voted to replace the probable threshold and instead require companies to
recognize the best estimate of the impact of a tax position only if that position is more likely than not to be sustained during a tax audit. The FASB expects to issue a final interpretation in the second quarter of 2006 with a target effective date
as of the beginning of the first fiscal year beginning after December 15, 2006. When it is available, we will review the final interpretation to determine the impact it may have on our Consolidated Financial Statements.

In March 2006, the FASB issued an exposure draft for the first phase of its project to reconsider the accounting for postretirement
benefits, Employers Accounting for Defined Benefit Pension and Other Postretirement Plans, an Amendment of FASB Statements No. 87, 88, 106, and 132(R). The exposure draft would require us to recognize the difference between the
fair value of plan assets and the benefit obligation in our financial statements as a component of accumulated other comprehensive income/loss. We are currently assessing the impact this exposure draft may have on our Consolidated Financial
Statements. If the exposure draft is finalized, we would be required to adopt these proposed changes in the first fiscal year ending after December 15, 2006.

Ratio of Earnings to Fixed Charges Our ratio of earnings to fixed charges was 3.6 and 2.2 for the quarters ended March 31, 2006 and 2005, respectively. The ratio of earnings to fixed charges was
computed on a consolidated basis. Earnings represent net income, less equity earnings net of distributions, plus fixed charges and income taxes. Fixed charges represent interest charges, amortization of debt discount, and an estimated amount
representing the interest portion of rental charges.

CAUTIONARY INFORMATION

Certain statements in this report, 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 us), are, or will be, forward-looking statements as defined by the Securities Act of 1933 and the Securities Exchange Act of 1934. These forward-looking
statements include, without limitation, statements regarding: expectations as to operational or service improvements; statements concerning expectations of the effectiveness of steps taken or to be taken to improve operations, service, or to
stabilize the rail system, infrastructure improvements, transportation plan modifications, and management of customer traffic on the system to meet demand; expectations as to cost savings, revenue growth, and earnings; the time by which certain
objectives will be achieved; statements or information concerning projections, predictions, expectations, estimates, or forecasts as to our business, financial and operational results, future economic performance, and general economic conditions;
statements of managements goals and objectives; proposed new products and services; estimates of costs relating to environmental remediation and restoration; expectations that claims, lawsuits, environmental costs, commitments, contingent
liabilities, labor negotiations or agreements, or other matters will not have a material adverse effect on our consolidated financial condition, results of operations, or liquidity and any 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, including expectations as to improvement of operational, service, and network fluidity improvements. Forward-looking information is
subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in the statements.

The following important factors, in addition to those discussed in Risk Factors in Item 1A of our 2005 annual report on Form 10-K, could affect our future results and could cause those results or other outcomes
to differ materially from those expressed or implied in the forward-looking statements:



| |  |  | whether we are successful in implementing our financial and operational initiatives, including gaining new customers, retaining existing ones, increasing prices
for our services, and containing operating costs;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | whether we are successful in improving network operations and service by improving infrastructure; reviewing, assessing, and, as necessary, redesigning our
transportation plan; managing network volume, and undertaking other efficiency and productivity initiatives;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



21



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| |  |  | 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;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | legislative and regulatory developments, including possible legislation to re-regulate the rail industry;
| | - |  | ---------------------------------------------------------------------------------------------------------



| |  |  | any adverse economic or operational repercussions related to the transportation of hazardous materials, which we are required to transport under federal law;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | natural events such as severe weather, fire, hurricanes, floods, earthquakes, or other disruptions of our operating systems, structures, and equipment;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the impact of ongoing track maintenance and restoration in the Southern Powder River Basin of Wyoming;
| | - |  | ------------------------------------------------------------------------------------------------------



| |  |  | changes in fuel prices, including price increases caused by the effects of severe weather, other events, or disruptions of domestic refining capacity;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | material adverse changes in economic and industry conditions, both within the United States and globally;
| | - |  | ---------------------------------------------------------------------------------------------------------



| |  |  | adverse economic conditions affecting customer demand and the industries and geographic areas that produce and consume commodities we carry;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | transportation industry competition, conditions, performance, and consolidation;
| | - |  | --------------------------------------------------------------------------------



| |  |  | changes in labor costs, including healthcare cost increases, and labor difficulties, including stoppages affecting either our operations or our customers
abilities to deliver goods to us for shipment;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | legislative, regulatory, or legal developments involving taxation, including new federal or state income tax rates, revisions of controlling authority, and tax
claims and litigation;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | changes in securities and capital markets; and
| | - |  | ----------------------------------------------



| |  |  | terrorist activities, or other similar events, and any governmental response thereto; war or risk of war.
| | - |  | ---------------------------------------------------------------------------------------------------------

Forward-looking statements speak only as of the date the statement was made. We assume no obligation to update forward-looking
information to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking information. If we do update one or more forward-looking statements, no inference should be drawn that we will make additional
updates with respect thereto or with respect to other forward-looking statements.

Item 3. Quantitative and Qualitative Disclosures
About Market Risk

None.

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 Executive Vice President  Finance 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 Rules 13a-15 and 15d-15. In designing and evaluating the disclosure controls and procedures,
management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Based upon that evaluation, the CEO and the CFO concluded that, as
of the end of the period covered by this report, the Companys disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in our Exchange Act reports is recorded, processed,
summarized and reported within the time periods specified by the SEC, and that such information is accumulated and communicated to management, including the CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

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



22



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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Environmental Matters

As we reported in our Annual Report on Form 10-K for 2001, on January 30, 2002, the Louisiana Department of Environmental Quality (LDEQ) issued us a
notice of a proposed penalty assessment in the amount of $195,700. The proposed penalty relates to the derailment of one of our trains carrying hazardous materials near Eunice, Louisiana, on May 27, 2000. We met with the LDEQ regarding this
matter to demonstrate that no penalty should be assessed. On December 28, 2005, the LDEQ amended the proposed penalty to $47,113, and we submitted payment on February 13, 2006.

On October 25, 2005, the State of Washington Department of Ecology notified us that a $106,000 penalty had been assessed against us
for a November 15, 2003, incident near Kelso, Washington. In that incident, our train collided with a BNSF train, derailing three of our locomotives. The Department of Ecology contends that diesel fuel and lube oil from the derailed locomotives
entered waters of the State of Washington. We asked the state to reconsider the penalty amount. On April 10, 2006, the Department of Ecology notified us that our request had been denied and the amount of the penalty was affirmed. We currently
are considering appealing the penalty.

Item 1A. Risk Factors

There were no material changes from the risk
factors previously disclosed in our 2005 annual report on Form 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

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

None.

Item 5. Other Information

None.



23



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Item 6. Exhibits



|            |  |                                                                                                                                                                                                                                
|----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description of Exhibits Filed with this Statement                                                                                                                                                                              
|            | 
|12          |  | Ratio of Earnings to Fixed Charges for the Three Months Ended March 31, 2006 and 2005.                                                                                                                                         
|            | 
|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  James R.
Young.                                                                           
|            | 
|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  Robert M. Knight,
Jr.                                                                     
|            | 
|32          |  | Certifications Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002  James R. Young and Robert M. Knight,
Jr.                                                             
|            | 
|            |  | Description of 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 October 15, 2004, are incorporated herein by reference to Exhibit 3(b) to the Companys Quarterly Report on Form 10-Q
for the quarter ended September 30, 2004.               



24



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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: May 5, 2006



UNION PACIFIC RAILROAD COMPANY (Registrant)By

/s/ Robert M. Knight, Jr.Robert M. Knight, Jr.,Executive Vice President  Finance and Chief Financial Officer(Principal Financial Officer)By

/s/ Richard J. PutzRichard J. Putz,Chief Accounting Officer and Controller(Principal Financial Officer)




25