<COVER PAGE>                          

                          
                               FORM 10-Q   
    
                             UNITED STATES
                   SECURITIES AND EXCHANGE COMMISSION
                      WASHINGTON, D.C.  20549-1004
  
  (Mark One)
  
  [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                     EXCHANGE ACT OF 1934                 
                                 
  For the quarterly period ended June 30, 1998
  
                              OR
  
  [   ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                     EXCHANGE ACT OF 1934
  
  For the transition period from___________________ to _____________________
  
                     Commission file number 1-6146
  
                     UNION PACIFIC RAILROAD COMPANY
         (Exact name of Registrant as specified in its charter)
  
         DELAWARE                                94-6001323
  (State or other jurisdiction of             (I.R.S. Employer
   incorporation or organization)           Identification No.)
  
                   1416 DODGE STREET, OMAHA, NEBRASKA
                (Address of principal executive offices)
  
                                 68179
                              (Zip Code)
  
                            (402) 271-5000
          (Registrant's telephone number, including area code)
  
   Indicate by check mark whether the Registrant (1) has filed all
  reports required to be filed by Section 13 or 15(d) of the Securities
  Exchange Act of 1934 during the preceding 12 months (or for such shorter
  period that the registrant was required to file such reports), and (2) has
  been subject to such filing requirements for the past 90 days.
  
  YES   X     NO         
     _______     ________ 
  
   As of June 30, 1998, the Registrant had outstanding 7,130 shares of
  Common Stock, $10 par value, and 620 shares of Class A Stock, $10 par
  value.

        THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL
  INSTRUCTIONS H(1)(a) AND (b) OF FORM 10-Q AND IS THEREFORE FILING THIS
  FORM WITH THE REDUCED DISCLOSURE FORMAT.                
  
  <INDEX PAGE>
  
                     UNION PACIFIC RAILROAD COMPANY
                              INDEX
  
  
                    PART I.  FINANCIAL INFORMATION
                    ------------------------------
                               
  
  
                                                                 Page Number
                                                                 -----------
                                                            
  
  ITEM 1: CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:                  
  
     CONDENSED STATEMENT OF CONSOLIDATED INCOME 
        AND RETAINED EARNINGS - For the Three Months
        and Six Months Ended June 30, 1998 and 1997. . . . . . . .      1 
  
        CONDENSED STATEMENT OF CONSOLIDATED FINANCIAL 
          POSITION - At June 30, 1998 and 
        December 31, 1997. . . . . . . . . . . . . . . . . . . .        2
  
     CONDENSED STATEMENT OF CONSOLIDATED CASH FLOWS 
        For the Six Months Ended 
        June 30, 1998 and 1997 . . . . . . . . . . . . . . . . .        4
  
     NOTES TO CONDENSED CONSOLIDATED FINANCIAL 
        STATEMENTS . . . . . . . . . . . . . . . . . . . . . . .        5
                                                        
  ITEM 2: MANAGEMENT'S NARRATIVE ANALYSIS OF THE RESULTS 
        OF OPERATIONS. . . . . . . . . . . . . . . . . . . . . .       10
  
  
  
  
                 PART II.  OTHER INFORMATION
                  ----------------------------
                               
  
  ITEM 1:  LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . .       18
  
  ITEM 6:  EXHIBITS AND REPORTS ON FORM 8-K  . . . . . . . . . .       22
  
  SIGNATURE  . . . . . . . . . . . . . . . . . . . . . . . . . .       23
  

<PAGE>  1

  
PART I - FINANCIAL INFORMATION
------------------------------
ITEM 1.  CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  
   UNION PACIFIC RAILROAD COMPANY AND CONSOLIDATED SUBSIDIARY
COMPANIES
  
     CONDENSED STATEMENT OF CONSOLIDATED INCOME AND RETAINED
EARNINGS
        For The Three and Six Months Ended June 30, 1998 and 1997
        ----------------------------------------------------------
                 (Millions of Dollars, Except Ratio)
                            (Unaudited)
                                                             
                                                   Three Months    Six Months
                                           Ended June 30,       Ended June 30,
                                           1998      1997       1998      1997
                                          ------    ------     ------   ------
  
  Operating Revenues . . . . . . . . . .  $2,317    $2,611     $4,601   $5,174 
                                          ------    ------     ------   ------ 
  Operating Expenses:
   Salaries, wages and employee 
     benefits. . . . . . . . . . . . . .     889       857      1,773    1,712 
   Equipment and other rents . . . . . .     344       310        700      624 
   Fuel and utilities  (Note 3). . . . .     201       252        409      533 
   Depreciation and amortization . . . .     248       243        494      483 
   Materials and supplies. . . . . . . .     134       122        266      270 
   Purchased services. . . . . . . . . .     154       145        295      304 
   Other costs (Note 5). . . . . . . . .     464       183        728      396 
                                          ------    ------     ------   ------ 
     Total . . . . . . . . . . . . . . .   2,434     2,112      4,665    4,322 
   
  Operating Income (Loss). . . . . . . .    (117)      499        (64)     852 
  Other Income - Net . . . . . . . . . .      50        17         69       53 
  Interest Expense (Note 3). . . . . . .    (147)     (119)      (282)    (241)
                                          ------    ------     ------   ------
  
  Income (Loss) Before Income Taxes. . .    (214)      397       (277)     664 
  Income Tax Expense (Benefit) . . . . .     (92)      147       (123)     244 
                                          ------    ------     ------   ------ 
     Net Income (Loss) . . . . . . . . .  $ (122)   $  250     $ (154)  $  420 
                                          ======    ======     ======   ====== 
  Retained Earnings:                                       
   Beginning of period . . . . . . . . .  $3,968    $4,000     $4,110   $3,939 
   Net income (loss) . . . . . . . . . .    (122)      250       (154)     420 
   Dividends to parent . . . . . . . . .    (110)     (105)      (220)    (214)
                                          ------    ------     ------   ------ 
        End of Period. . . . . . . . . .  $3,736    $4,145     $3,736   $4,145 
                                          ======    ======     ======   ====== 
  Ratio of Earnings to Fixed 
     Charges (Note 4). . . . . . . . . .       -       3.4          -      3.0 
                                             ===       ===        ===      === 
  The accompanying accounting policies and notes to condensed financial
    statements are an integral part of these statements.
    
<PAGE>  2    
    
    
        UNION PACIFIC RAILROAD COMPANY AND CONSOLIDATED SUBSIDIARY
COMPANIES
            CONDENSED STATEMENT OF CONSOLIDATED FINANCIAL POSITION
            ------------------------------------------------------
                          (Millions of Dollars)
                               (Unaudited)
  
  
                                                    June 30,      December 31,
  ASSETS                                              1998            1997    
  ------                                          -----------     ------------
  Current Assets:
   Cash and temporary investments  . . . . .        $    29         $    50
   Accounts receivable - net (Note 3)  . . .            358             456
   Materials and supplies  . . . . . . . . .            316             288
   Other current assets  . . . . . . . . . .            194             251
                                                    -------         -------
     Total Current Assets  . . . . . . . . .            897           1,045
                                                    -------         -------
     
  Investments:                               
   Investments in and advances to            
    affiliated companies . . . . . . . . . .            655             595
   Other investments . . . . . . . . . . . .              6              29
                                                    -------         -------
     Total Investments . . . . . . . . . . .            661             624
                                                    -------         -------
  Properties, at cost:                                              
   Road and other  . . . . . . . . . . . . .         24,251          23,610
   Equipment . . . . . . . . . . . . . . . .          7,521           7,084
                                                    -------         -------
     Total Properties  . . . . . . . . . . .         31,772          30,694
   Less accumulated depreciation and 
     amortization  . . . . . . . . . . . . .          5,553           5,208
                                                    -------         -------
     Properties - Net  . . . . . . . . . . .         26,219          25,486
                                                    -------        --------
  Other Assets . . . . . . . . . . . . . . .            139              92
                                                    -------         -------
     Total Assets  . . . . . . . . . . . . .        $27,916         $27,247
                                                    =======         =======
  
  
  
  The accompanying accounting policies and notes to condensed financial
  statements are an integral part of these statements.


<PAGE>  3

    UNION  PACIFIC RAILROAD COMPANY AND CONSOLIDATED SUBSIDIARY COMPANIES
  
         CONDENSED STATEMENT OF CONSOLIDATED FINANCIAL POSITION
         ------------------------------------------------------
            (Millions of Dollars, Except Per Share Amounts)
                             (Unaudited)
  
  
                                                     June 30,    December 31,
  LIABILITIES AND STOCKHOLDER'S EQUITY                1998           1997
  ------------------------------------              ---------    ------------
  Current Liabilities:
   Accounts payable  . . . . . . . . . . . . . . .  $   517         $   660
   Accrued wages and vacation  . . . . . . . . . .      440             382
   Income and other taxes. . . . . . . . . . . . .      255             263
   Accrued casualty costs  . . . . . . . . . . . .      319             318
   Debt due within one year  . . . . . . . . . . .      162             229
   Other current liabilities (Notes 2 and 5) . . .      896             915
                                                    -------         -------
     Total Current Liabilities . . . . . . . . . .    2,589           2,767
                                                    -------         -------
  Debt Due After One Year  . . . . . . . . . . . .    2,621           2,361
  
  Deferred Income Taxes  . . . . . . . . . . . . .    6,573           6,698
  
  Accrued Casualty Costs . . . . . . . . . . . . .      661             671
  
  Retiree Benefit Obligations  . . . . . . . . . .      760             749
  
  Due to UPC Long-Term . . . . . . . . . . . . . .    5,166           3,993
  
  Other Liabilities (Note 2) . . . . . . . . . . .    1,000           1,087
  
  Redeemable Preference Shares . . . . . . . . . .       28              29
   Series A, $10,000 par value; 4,829 shares outstanding
   Series B, $10,000 par value; 436 shares outstanding
  
  Stockholder's Equity (Note 2):
   Common stock - $10.00 par value; 9,200           
   shares authorized and 4,465 outstanding . . . .        -               -
   Class A stock - $10.00 par value; 800 
     shares authorized and 388 outstanding . . . .        -               -
  Capital surplus  . . . . . . . . . . . . . . . .    4,782           4,782
  Retained earnings  . . . . . . . . . . . . . . .    3,736           4,110
                                                    -------         -------
     Total Stockholder's Equity  . . . . . . . . .    8,518           8,892
                                                    -------         ------- 
     Total Liabilities and Stockholder's 
          Equity . . . . . . . . . . . . . . . . .  $27,916         $27,247
                                                    =======         ======= 
  
  The accompanying accounting policies and notes to condensed financial
    statements are an integral part of these statements.
    
    
<PAGE>  4    
    
    
      UNION PACIFIC RAILROAD COMPANY AND CONSOLIDATED SUBSIDIARY COMPANIES
  
              CONDENSED STATEMENT OF CONSOLIDATED CASH FLOWS
             For the Six Months Ended June 30, 1998 and 1997
             --------------------------------------------------
                           (Millions of Dollars)
                                (Unaudited)
  
  
                                                       1998            1997 
                                                   -----------   -----------
  Cash from Operations:                              
  
   Net Income (Loss) . . . . . . . . . . . .        $  (154)        $   420 
  
   Non-Cash Charges to Income:
     Depreciation and amortization . . . . .            494             483 
     Deferred income taxes . . . . . . . . .           (124)            105 
     Other - net . . . . . . . . . . . . . .           (149)           (185)
   Changes in current assets and 
     liabilities . . . . . . . . . . . . . .            (51)           (145)
                                                    -------         ------- 
     Cash Provided by Operations . . . . . . . . .       16             678 
                                                    -------         ------- 
  Investing Activities:
  
   Capital investments . . . . . . . . . . . . . .   (1,231)           (924)
   Other - net . . . . . . . . . . . . . . . . . .       41            (101)
                                                     -------        ------- 
     Cash Used in Investing Activities . . . . . .   (1,190)         (1,025)
                                                     -------        ------- 
  
  Equity and Financing Activities:
  
   Debt repaid . . . . . . . . . . . . . . . . . .     (180)           (170)
   Financings  . . . . . . . . . . . . . . . . . .      380             153 
   Dividends paid to parent. . . . . . . . . . . .     (220)           (214) 
   Advances from affiliated 
     companies - net. . . . . .. . . . . . . . . .    1,173             596 
                                                    -------         ------- 
     Cash Provided by Equity and 
        Financing Activities . . . . . . . . . . .    1,153             365 
                                                    -------         ------- 
     Net Change in Cash and Temporary
        Investments  . . . . . . . . . . . . . . .  $   (21)        $    18 
                                                    =======         ======= 
  
  
  The accompanying accounting policies and notes to condensed financial
    statements are an integral part of these statements.
    
    
<PAGE>  5    
    
      UNION PACIFIC RAILROAD COMPANY AND CONSOLIDATED SUBSIDIARY COMPANIES
  
            NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
           ------------------------------------------------------
                              (Unaudited)
  
  
  1. RESPONSIBILITIES FOR FINANCIAL STATEMENTS: The condensed consolidated
     financial statements of Union Pacific Railroad Company (the Company or
     the Railroad) are unaudited and reflect all adjustments (consisting
     only of normal and recurring adjustments) that are, in the opinion of
     management, necessary for a fair presentation of the financial position
     and operating results for the interim periods. The condensed
     consolidated financial statements should be read in conjunction with
     the consolidated financial statements and notes thereto contained in
     the Company's Annual Report on Form 10-K for the year ended
     December 31, 1997.  The results of operations for the three months and
     six months ended June 30, 1998 are not necessarily indicative of the
     results for the year ending December 31, 1998.  The financial
     statements present the results of operations and financial position of
     the Company combined with Southern Pacific Rail Corporation (Southern
     Pacific or SP), a holding company wholly owned by Union Pacific
     Corporation (UPC or Corporation), which owns 2,665 shares of common
     stock, $10 par value, of Union Pacific Railroad Company and 232 shares
     of Class A stock, $10 par value of Union Pacific Railroad Company. 
     Certain 1997 amounts have been reclassified to conform to the 1998
     financial statement presentation.
  
  2. ACQUISITION OF SOUTHERN PACIFIC RAIL CORPORATION:   UPC consummated the
     acquisition of Southern Pacific in September 1996.  The acquisition of
     Southern Pacific has been accounted for using the purchase method. 
  
     On February 1, 1998, Union Pacific Railroad Company, a Utah corporation
     (UPRR-Utah), was merged with and into Southern Pacific Transportation
     Company, a Delaware corporation (SPT), the principal SP rail affiliate
     (the SPT Merger), with SPT continuing as the surviving corporation and
     changing its name to "Union Pacific Railroad Company," immediately
     following the SPT Merger. Immediately prior to the SPT Merger, SPT was
     a wholly-owned, indirect subsidiary of UPC, and UPRR-Utah was a
     subsidiary of UPC, with all of the issued and outstanding shares of
     voting stock of UPRR-Utah being owned, directly or indirectly, by UPC.
     UPRR-Utah and SPT operated as a unified system before and after the SPT
     Merger.
  
     The SPT Merger has been accounted for in a manner similar to a 
     pooling-of-interest combination of entities under common control since 
     both entities involved in the merger were indirect wholly-owned 
     subsidiaries of UPC at the date of the SPT Merger and with the surviving 
     entity continuing as such.
  
     In connection with the continuing integration of the rail operations of
     UPRR-Utah and Southern Pacific, the Company is continuing to eliminate
     duplicate positions, (primarily positions other than train crews),

<PAGE>  6


     relocate positions, merge or dispose of redundant facilities, dispose
     of certain rail lines and cancel uneconomical and duplicative SP
     contracts.  The Company has also repaid certain of Southern Pacific's
     debt obligations. The Company recognized a $958 million liability in
     the Southern Pacific purchase price allocation for costs associated
     with SP's portion of these activities. 
     Through June 30, 1998, approximately $357 million in merger-related
     costs were paid by the Company and charged against these reserves,
     principally consisting of approximately $172 million and $73 million,
     respectively, for severance and relocation payments made to
     approximately 4,000 Southern Pacific employees and approximately $84
     million for labor protection payments.  The Company expects the
     remaining merger payments will be made over the course of the next five
     years as the rail operations of the UPRR-Utah and SP are integrated and
     labor negotiations are completed and implemented.
  
     In addition, the Company expects to incur approximately $184 million in
     acquisition-related costs through 1999 for severing or relocating
     Railroad employees, disposing of certain Railroad facilities, training
     and equipment upgrading.  These costs will be charged to expense as
     incurred over the next two years.  Results for the three and six months
     ended June 30, 1998 include $11 million and $29 million (after tax),
     respectively, in acquisition-related operating costs.
  
  3. FINANCIAL INSTRUMENTS:  
  
     Risk Management: The Company uses derivative financial instruments in
     limited instances for other than trading purposes to manage risk as it
     relates to fuel prices and interest rates.  Where the Company has fixed
     interest rates or fuel prices through the use of swaps, futures or
     forward contracts, the Company has mitigated the downside risk of
     adverse price and rate movements; however, it has also limited future
     gains from favorable movements.  
  
     The Company addresses market risk related to these instruments by
     selecting instruments whose value fluctuations highly correlate with
     the underlying item being hedged.  Credit risk related to derivative
     financial instruments, which is minimal, is managed by requiring
     minimum credit standards for counterparties and monthly settlements. 
     The total credit risk associated with the Company's counterparties was
     $0 at June 30, 1998.  The Company has not been required to provide, nor
     has it received, any collateral relating to its hedging activity.  
  
     The fair market value of the Company's derivative financial instrument
     positions at June 30, 1998 were determined based upon current fair
     market values as quoted by recognized dealers, or developed based on
     the present value of expected future cash flows discounted at the
     applicable zero coupon U.S. treasury rate and swap spread. 
  
     Fuel: Over the past three years, fuel costs approximated 10% of the
     Company's total operating expenses.  As a result of the significance of
     the fuel costs and the historical volatility of fuel prices, the


<PAGE>  7

     Company periodically uses swaps, futures and forward contracts to
     mitigate the impact of fuel price volatility.  The intent of this
     program is to protect the Company's operating margins and overall
     profitability from adverse fuel price changes.  
  
     At June 30, 1998, the Company had hedged 50% of its estimated remaining
     1998 fuel consumption at $0.51 per gallon on a Gulf Coast basis and had
     outstanding swap agreements covering its fuel purchases of $164 million, 
     with gross and net liability positions of $34 million.  Fuel hedging 
     increased the Company's second quarter 1998 and 1997 fuel costs
     by $20 million and approximately $1 million, respectively.  Fuel hedging 
     increased the Railroad's six months 1998 and 1997 fuel costs by
     $34 million and $1 million, respectively.
  
     Interest Rates: The Company controls its overall risk relating to
     fluctuations in interest rates by managing the proportion of fixed and
     floating rate debt instruments within its debt portfolio over a given
     period.  Derivatives are used in limited circumstances as one of the
     tools to obtain the targeted mix.  The mix of fixed and floating rate
     debt is largely managed through the issuance of targeted amounts of
     such debt as debt maturities occur or as incremental borrowings are
     required.  The Company also obtains additional flexibility in managing
     interest cost and the interest rate mix within its debt portfolio by
     issuing callable fixed rate debt securities. 
  
     At June 30, 1998, the Company had outstanding interest rate swaps on
     $106 million of notional principal amount of debt (4% of the total debt
     portfolio, excluding obligations to the Corporation) with gross and net
     liability positions of $8 million. These contracts mature over the next
     one to eight years. Interest rate hedging activity increased interest
     expense in the first six months of 1998 and 1997 by less than $1
     million and $2 million, respectively.
  
     Sale of Receivables:  The Company has sold, on a revolving basis, an
     undivided percentage ownership interest in a designated pool of
     accounts receivable.  At December 31, 1997 and June 30, 1998, accounts
     receivable are presented net of the $650 million and $602 million,
     respectively, of the receivables sold.
   
  4. RATIO OF EARNINGS TO FIXED CHARGES: The ratio of earnings to fixed
     charges has been computed on a total enterprise basis.  Earnings
     represent income from continuing operations less equity in
     undistributed earnings of unconsolidated affiliates, plus income taxes
     and fixed charges.  Fixed charges represent interest, amortization of 
     debt discount and expense, and the estimated interest portion of rental
     charges.  For the three and six months ended June 30, 1998, fixed
     charges exceeded earnings by approximately $228 million and $301
     million, respectively.
  
  5. COMMITMENTS AND CONTINGENCIES: There are various claims and lawsuits
     pending against the Company.  Certain customers have submitted claims
     for damages related to the delay of shipments by the Railroad as a
     result of congestion problems, and certain customers have filed
                                                  
<PAGE>  8                                                  

                                                  
     lawsuits seeking relief related to such delays.  The nature of the
     damages sought by claimants includes, but is not limited to,
     contractual liquidated damages, freight loss or damage, alternative
     transportation charges, additional production costs, lost business and
     lost profits.  In addition, some customers have asserted that they have
     the right to cancel contracts as a result of alleged material breaches
     of such contracts by the Company.  In the second quarter of 1998, the
     Company took a $155 million after-tax charge for the resolution of
     customer claims.  The Company will continue to evaluate the adequacy of
     Its reserves for claims and may  add to such reserves if appropriate.
  
     The Company is also party to certain regulatory proceedings before the
     Surface Transportation Board of the U.S. Department of Transportation
     (STB).  One proceeding pertains to rail service problems in the western
     United States. As an outgrowth of this proceeding, the STB issued an
     emergency service order imposing certain temporary measures on the
     Railroad designed, among other things, to reduce congestion on the
     Railroad's lines in the Houston, Texas area.    On July 31, 1998, the
     STB terminated the emergency service order.  The STB kept in place the
     requirement that the Railroad report certain service data, which the
     Railroad had acknowledged the STB had the authority to impose under a
     provision of the Interstate Commerce Act separate from the emergency
     service provision.  The STB also prescribed, under another statutory
     provision separate from the emergency service provision, a 45-day
     "wind-down" period during which certain rights that Texas Mexican
     Railway Company and The Burlington Northern and Santa Fe Railway
     Company (BNSF) had received under the emergency service order to handle
     UP traffic in Houston would be continued.  A second proceeding,
     initiated under the STB's continuing oversight jurisdiction with
     respect to the Corporation's acquisition of Southern Pacific and
     consolidation of Southern Pacific with UPRR-Utah (and separate from the
     STB's regularly scheduled annual proceeding to review the
     implementation of the merger and the effectiveness of the conditions
     that the STB imposed on it), is for the purpose of considering the
     justification for and advisability of any proposals for new remedial
     conditions to the merger as they pertain to service in the Houston,
     Texas/Gulf Coast area.  Various parties have filed applications in this
     proceeding seeking the imposition of additional conditions to the
     merger including, among other things, the granting of overhead trackage
     rights on certain of the Company's lines in Texas, "neutral switching
     supervision" on certain of the Company's branch lines, the opening to
     other railroads and switching by a "neutral switching company" of
     numerous industries now exclusively served by the Company in the
     Houston area, and the compulsory sale or lease to other carriers of
     certain of the Company's lines and facilities.  The Company believes
     that the applications are without merit and intends to contest them
     vigorously.  In addition, the STB has initiated various inquiries and
     formal rulemaking proceedings regarding certain elements of rail
     regulation following two days of hearings by the STB at the request of
     two members of Congress and in response to shippers' expressions of
     concern regarding railroad service quality, railroad rates and
     allegedly inadequate regulatory remedies.  There can be no assurance
     that the proposals advanced by parties in the remedial conditions

<PAGE>  9


     proceeding or the proceedings initiated in response to the rail
     regulation hearings will not be approved in some form.  Should the STB
     or Congress take aggressive action in the rail regulation proceedings
     (e.g., by making purportedly competition-enhancing changes in rate and
     route regulation and "access" provisions), the adverse effect on the
     Railroad and other rail carriers could be material.
  
     The Railroad is also subject to Federal, state and local environmental
     laws and regulations, and is currently participating in the
     investigation and remediation of numerous sites.  Where the remediation
     costs can be reasonably determined, and where such remediation is
     probable, the Company has recorded a liability.  In addition, the
     Company periodically enters into financial and other commitments and
     has retained certain contingent liabilities upon the disposition of
     formerly-owned operations.
   
     In addition, UPC and certain of its officers and directors are
     currently defendants in two purported class action securities lawsuits. 
     The class action suits allege, among other things, that management
     failed to properly disclose the Railroad's service and safety problems
     and thereby issued materially false and misleading statements
     concerning the merger with SP and the safe, efficient operation of its
     rail network. Because both the size of the class and the damages are
     uncertain, UPC and the Railroad are unable at this time to determine
     the potential liability, if any, which might arise from these lawsuits. 
     UPC management believes that these claims are without merit and intends
     to defend them vigorously.
  
     It is not possible at this time for the Company to fully determine the
     effect of all unasserted claims on its consolidated financial
     condition, results of operations or liquidity; however, to the extent
     possible, where unasserted claims can be estimated and where such
     claims are considered probable, the Company has recorded a liability. 
     The Company does not expect that any known lawsuits, claims,
     environmental costs, commitments or guarantees will have a material
     adverse effect on its consolidated financial condition.
  
  6. ACCOUNTING PRONOUNCEMENTS: In June 1997, the Financial Accounting
     Standards Board (FASB) issued Statement No. 130, "Reporting
     Comprehensive Income" (FAS 130) that is effective for all periods in
     1998, including interim periods.  The Railroad has adopted the
     provisions of FAS 130 effective January 1, 1998.  The components of
     comprehensive income include, among other things, changes in the market
     value of futures contracts which qualify for hedge accounting and a net
     loss recognized as an additional pension liability but not yet
     recognized as net periodic pension cost.  There is no impact from
     adopting FAS 130 for the six months ended June 30, 1998.
  
     Also in June 1997, the FASB issued Statement No. 131, "Disclosures       
     about Segments of an Enterprise and Related Information" that is      
     effective in 1998.  The Company curre ntly complies with the 
     provisions of this Statement.    
   

<PAGE> 10 


   In February 1998, the FASB issued Statement No. 132, "Employers'            
   Disclosures about Pensions and Other Postretirement Benefits" that is 
   effective in 1998 (FAS 132).  FAS 132 revises and standardizes   
   disclosures required by FAS 87, 88, and 106.  Restatement of the      
   retirement plans footnote will be required for all earlier       
   periods presented in comparative financial statements at December 31, 
   1998.
  
   In June 1998, the FASB issued Statement No. 133, "Accounting for            
   Derivative Instruments and Hedging Activities" (FAS 133) that will be      
   effective in 2000.  Management has  not yet determined the effect, if 
   any, FAS 133 will have on the Company's financial statements.
  
  
  
  ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS
  
     UNION PACIFIC RAILROAD COMPANY AND CONSOLIDATED SUBSIDIARY COMPANIES
  
        MANAGEMENT'S NARRATIVE ANALYSIS OF THE RESULTS OF OPERATIONS
  
           Six Months Ended June 30, 1998 Compared to June 30, 1997
          ------------------------------------------------------------
  
                           Mergers
                           --------
  
  On February 1, 1998, Union Pacific Railroad Company, a Utah Corporation
  (UPRR-Utah), was merged with and into Southern Pacific Transportation
  Company, a Delaware Corporation (SPT), the principal Southern Pacific Rail
  Corporation (Southern Pacific or SP) rail affiliate (the SPT Merger), with
  SPT continuing as the surviving corporation and changing its name to
  "Union Pacific Railroad Company" (the Company or the Railroad),
  immediately following the SPT Merger. Immediately prior to the SPT Merger,
  SPT was a wholly-owned, indirect subsidiary of Union Pacific Corporation
  (UPC or the Corporation), and UPRR-Utah was also a subsidiary of UPC, with
  all of the issued and outstanding shares of voting stock of UPRR-Utah
  being owned, directly or indirectly, by UPC. UPRR-Utah and SPT operated as
  a unified system before and after the SPT Merger.
  
  The SPT Merger has been accounted for in a manner similar to a pooling-of-
  interest combination of entities under common control since both entities
  involved in the merger were indirect wholly-owned subsidiaries of UPC at
  the date of the SPT Merger and with the surviving entity continuing as
  such.
  
  In September 1996, UPC completed its acquisition of Southern Pacific and,
  throughout 1997 and 1998, continued the process of integrating the
  operations of SP's rail subsidiaries into UPRR-Utah's operations.  The
  Corporation expects to complete the full integration of the operations of
  UPRR-Utah and the Southern Pacific rail subsidiaries during 1999.  The
  Corporation believes that the full implementation of the merger will


<PAGE> 11

  result in shorter routes, faster transit times, better on-time
  performance, expanded single-line service and more efficient traffic flow.
  
  As a result of the SP acquisition, the Company now operates the largest
  rail system in the United States, with 35,000 route miles linking Pacific
  Coast and Gulf Coast ports to the Midwest and eastern U.S. gateways. 
  
  
                     Congestion and Service Issues
                     -----------------------------
  
  As previously reported, congestion in and around Houston and the coastal
  areas of Texas and Louisiana (the Gulf Coast region) began to have a
  material adverse effect on the Company's operations and earnings in the
  third quarter of 1997.  System congestion started in the Gulf Coast region
  and spread throughout the system as the Company shifted resources to help
  mitigate the problem in the Gulf Coast region.  The congestion was brought
  on by, among other things, crew shortages and restricted track access
  caused by necessary track maintenance on former Southern Pacific lines,
  increased demand, washouts due to severe weather, derailments and
  congestion at Texas/Mexico gateways.  Traffic slowed further as rail yards
  in the Gulf Coast region filled, slowing access into and out of the yards
  and forcing trains to be held on sidings.  Slower average train velocity
  led to a greater need for locomotives in the region.  As traffic in the
  region backed up and the Railroad redeployed locomotives to the Gulf Coast
  region to help alleviate local congestion, congestion problems spread to
  other parts of the Railroad's system during the third and fourth quarters
  of 1997.
  
  The Company has adopted certain measures to alleviate the congestion
  problems, including the implementation of a Service Recovery Plan (the
  Plan) on October 1, 1997.  The Plan focuses on reducing the number of cars
  on the system and restoring system velocity, which, in turn, results in
  more reliable service to customers.  In addition to implementation of the
  Plan, the Company has taken other measures to address the service and
  congestion problems, including (i) a concentrated effort to hire more
  train and engine employees, (ii) the implementation of directional
  running, which provides for the movement of trains primarily in opposing
  directions on parallel lines and results in the avoidance of numerous
  daily train "meets" on those lines, on parallel tracks between Houston and
  St. Louis, and (iii) the establishment of a coordinated dispatching center
  in Houston, which is designed to provide close coordination of operations
  of the Railroad and The Burlington Northern and Santa Fe Railway Company
  (BNSF) in the Houston area and ensure the best possible handling of all
  rail traffic there.  Implementation of the Plan and other service recovery
  measures described above have significantly alleviated congestion in the
  Gulf Coast region.  Recently, service in the Railroad's Central Corridor
  between Chicago and Utah has been slowed by track maintenance and capacity
  expansion work which is expected to be completed by year-end.  In
  addition, the Railroad has recently experienced congestion on its lines in
  the Los Angeles basin and on the Sunset Route west of El Paso, Texas,
  caused in part by two derailments, tight crew supply and limited track
  capacity in that region, and the learning curve associated with the

<PAGE> 12


  integration of the computer system of Southern Pacific in the region into
  the Railroad's computer system, which commenced July 1, 1998.  The Company
  has been working to reduce this congestion by rerouting trains from this
  region to other portions of its system.
  
  Financial Impact of Congestion - The Company has estimated that the cost
  of the congestion-related problems for the six months ended June 30, 1998
  was approximately $694 million, after tax, which reflected the combined
  effects of lost business, higher costs associated with system congestion,
  and costs associated with service recovery efforts, alternate
  transportation and customer claims. Congestion-related costs for the
  quarter include a $155 million after-tax charge for the resolution of
  customer claims. Although progress has been made in improving service, the
  Company expects these problems to continue to have an adverse impact on
  1998 results.  In addition, as a result of operating losses incurred by
  the Company and in order to fund its capital programs, the Corporation has
  incurred substantial incremental debt since December 31, 1997, most of
  which has been repaid with the proceeds of the issuance on April 1, 1998
  of $1.5 billion of 6-1/4% preferred securities of Union Pacific Capital
  Trust, a statutory business trust sponsored by the Corporation, which
  securities are convertible into common stock of the Corporation at an
  initial conversion price of $68.90.  The timing of the Company's return to
  profitability will be determined by how rapidly it is able to eliminate
  congestion, and return to normal operations throughout its systems.
  
                    Results of Operations
                    ----------------------
  
  The Company reported a loss of $154 million for the first six months of
  1998, compared to $420 million of reported net income in 1997.  This
  decline in earnings is the result of the continuing effects of congestion
  on the Company's operations, which was estimated to cost the Company
  approximately $694 million after-tax in the first six months of 1998. 
  Both periods included the impact of one-time SP merger-related costs for
  severance, relocation and training of the Railroad employees ($29 million
  reduction in net income in 1998 and $36 million reduction in net income in
  1997).  
  
  The operating ratio for the first six months of 1998 was 101.4, which
  included approximately 21.2 points estimated to be attributable to
  congestion costs (both lost business and incremental operating costs). 
  This compares to an operating ratio of 83.5 for the same period in 1997. 
  Operating revenues fell $573 million (11%) to $4.6 billion in 1998.  This
  decrease reflects continuing congestion, the impact of the ongoing Asian
  financial crisis on export grain and intermodal markets and weak grain
  demand as farmers delay shipments due to the current grain price
  environment.  Average commodity revenue per car (ARC) fell 2% to $1,138
  per car, while total carloadings fell 9% to 4 million.  Commodity revenue
  in 1998 fell 11% over the same period in 1997 as shown in the table below:

<PAGE> 13

                          Commodity Revenue
                      Six Months Ended 6/30/98
                    ----------------------------
                                                          Versus 1997     
  (Revenue                            Commodity       ------------------
  in Thousands)        Cars       ARC       Revenue        Change      %  
  Agricultural       396,964    $1,531   $  607,636     $(156,751)   (21)
  Automotive         324,650     1,458      473,500       (15,091)    (3)
  Chemicals          449,508     1,720      773,179      (114,268)   (13)
  Energy             869,149     1,133      985,179       (22,134)    (2)
  Industrial         666,856     1,354      903,089      (105,336)   (10)
  Intermodal       1,226,556       599      734,215      (137,841)   (16)
                   ---------    ------   ----------     ---------     --
   Total Commodity 3,933,683    $1,138   $4,476,798     $(551,421)   (11)
                   =========    ======   ==========     =========     ==
  
  Agricultural Products: Commodity revenue fell 21% to $608 million. 
  Carloadings declined 16% to approximately 397,000 cars, primarily the
  result of a 24% decrease in corn volumes due to soft export demand caused
  by strong foreign harvests (primarily in China), as well as the
  continuation of system velocity issues.  Other agricultural products
  suffered from slow train cycles and related equipment shortages as well. 
  Average commodity revenue per car declined 5%, primarily the result of
  weak exports, which reduced the average length of haul by approximately
  10% as business movements shifted from the Pacific Northwest to the Gulf
  Coast region.
  
  Automotive: Commodity revenue fell 3% to $474 million, while carloadings
  were flat at approximately 325,000 cars.  Lower parts volumes (down 6%)
  led the decline in traffic, primarily the result of slow cycle times and
  diverted business due to service issues.  This was partially offset by a
  4% increase in finished vehicles, the result of strong Ford and Chrysler
  gains.  Finished vehicle results were also affected by strike-related
  declines at GM, which reduced revenues by approximately $9 million and
  carloadings by approximately 7,000.  Average commodity revenue per car
  declined 3%, resulting from the addition of new shorter haul Ford business
  and less long-haul Mexico parts business.
  
  Chemicals: Carloadings declined 9% to approximately 450,000 cars and
  commodity revenue decreased 13% to $773 million.  The decline in volume
  resulted principally from congestion-related diversions to other modes of
  transportation as well as to other rails. Rain in certain parts of the
  country lowered the demand for petroleum products, fertilizer and potash. 
  In addition, the Asian crisis reduced demand for exports of soda ash while
  warm weather in some areas hurt demand for LP gas. Average commodity
  revenue per car declined 4% due to generally shorter hauls (storage-in-
  transit moves for plastic and growth in short-haul potash moves) and
  unfavorable product mix.
  
  Energy (Primarily Coal): Commodity revenue fell 2% to approximately $985
  million in 1998, driven by a 3% decrease in carloadings. Continued slow
  system speeds, diversions of business to competing railroads and weak
  export markets led the decline, despite strong domestic demand.  Average
  commodity revenue per car rose slightly to $1,133 as generally shorter
  hauls were offset by favorable product mix. Powder River Basin (PRB) train

<PAGE> 14


  cycles rose slightly and longer trains boosted carloads by nearly 13,000
  units over 1997.  Most other mine locations posted declines, largely due
  to related train cycle issues.
  
  Industrial Products: Carloadings decreased 11%, while commodity revenue
  declined 10% to $903 million.  Volume declines resulted primarily from
  equipment shortages and service issues, including diversions of traffic to
  other modes of transportation and to other rails. Other contributing
  factors were strong competition, the Mexican embargo (affecting appliances
  and consumer products) and capacity constraints (affecting cement
  production). Average commodity revenue rose slightly to $1,354.
  
  Intermodal: Commodity revenue declined 16% to $734 million while
  carloadings fell 13% to 1,227,000 loads, the result of lower system speeds
  and related diversions of traffic to BNSF and other rails, as well as weak
  exports.  Average commodity revenue per car fell 4% due to unfavorable mix
  and a large volume of low ARC equipment repositioning moves due to
  equipment imbalances caused by the Asian crisis.
  
  Operating expenses were $4,665 million, $343 million (8%) higher than the
  first half of 1997 operating costs of $4,322 million.  Higher operating
  costs reflect approximately $375 million of estimated congestion-related
  costs.  The impact of congestion was slightly offset by lower fuel costs,
  merger and cost reduction benefits and volume-related cost savings, as
  carloads were off 9% and gross-ton miles were down 9%.  
      
  Salaries, wages and employee benefits were $61 million (4%) higher than
  1997, as net congestion-related costs and wage inflation (generated by the
  National Labor Agreement) were partially offset by merger consolidation
  benefits.  Year-over-year, the work force levels were up slightly, as
  hiring exceeded merger-related reductions, attrition, and the effect of
  lower volumes.
  
  Depreciation expense grew $11 million to $494 million due to the Company's
  continued reinvestment in new equipment and rail infrastructure.  The
  Railroad spent over $2 billion on capital projects in 1997 and anticipates
  spending $2.2 billion in 1998 of which $400 million will be merger-related. 
  
  Materials & Supplies costs for the six months were down $4 million (1%)
  from six months 1997, as congestion and volume savings were partially
  offset by higher material freight charges and freight car and roadway
  machine material.
  
  Fuel & Utilities expenses were down $124 million or 23% from 1997,
  reflecting lower fuel prices and congestion-related volume declines. A
  reduction in gross-ton miles (down 9%) generated volume-related fuel
  savings of $42 million versus 1997.  Prices were down 8.4 cents per gallon
  to 62.6 cents, saving $57 million.  The fuel consumption rate of 1.418
  gallons per thousand gross-ton miles improved 1% from last year's 1.429,
  lowering the Railroad's fuel costs by $9 million.
  
<PAGE> 15

    
  Rent Expense was up $76 million (12%) versus 1997, as system congestion
  (which hindered car cycle times) combined with unfavorable rates (strong
  market demand for equipment) to drive up equipment rent costs. 
  Congestion-related increases in car cycle times increased costs by $85
  million, which was partially offset by volume-related savings of $49
  million.
  
  Other Costs (including purchased services) increased $323 million (46%)
  from 1997, reflecting approximately $300 million for resolution of
  customer claims, and service recovery initiatives (focused on combating
  system congestion).  Congestion-related cost increases were partially
  offset by merger consolidation benefits (trackage rights reimbursements
  and contract pricing savings) and cost savings from company-wide cost
  control efforts.
  
  Operating income fell $916 million (108%) to a loss of $64 million in
  1998, due to the factors mentioned above.  Other income increased $16
  million, primarily reflecting increased real estate sales and a recovery
  of funds from insurers related to first quarter 1997 flood damage. 
  Interest expense increased $41 million, the result of higher debt levels
  and higher interest rates resulting from a recent credit rating downgrade. 
  Income taxes decreased $367 million to a benefit $123 million, primarily
  reflecting a loss before income taxes.
  
  
                        Other Matters
                        --------------
  
  Accounting Pronouncements - In June 1997, the Financial Accounting
  Standards Board (FASB) issued Statement No. 130, "Reporting Comprehensive
  Income" (FAS 130) that is effective for all periods in 1998, including
  interim periods.  The Company has adopted the provisions of FAS 130
  effective January 1, 1998.  The components of comprehensive income
  include, among other things, changes in the market value of futures
  contracts which qualify for hedge accounting and a net loss recognized as
  an additional pension liability but not yet recognized as net periodic
  pension cost. There is no impact from adopting FAS 130 for the six months
  ended June 30, 1998.
           
  Also in June 1997, the FASB issued Statement No. 131, "Disclosures about
  Segments of an Enterprise and Related Information" that is effective in
  1998. The Company currently complies with the provisions of this
  Statement.
  
  In February 1998, the FASB issued Statement No. 132, "Employers'
  Disclosures about Pensions and Other Postretirement Benefits" (FAS 132)
  that is effective in 1998.  FAS 132 revises and standardizes disclosures
  required by FAS 87, 88, and 106. Restatement of the retirement plans
  footnote will be required for all earlier periods presented in comparative
  financial statements at December 31, 1998. 
  
  In June 1998, the FASB issued Statement No. 133, "Accounting for
  Derivative Instruments  and Hedging Activities" (FAS 133) that will be

<PAGE> 16 


  effective in 2000.  Management  has not yet determined the effect, if any,
  FAS 133 will have on the Railroad's financial statements.
  
  Commitments and Contingencies - There are various claims and lawsuits
  pending against the Company.  Certain customers have submitted claims for
  damages related to the delay of shipments by the Railroad as a result of
  congestion problems, and certain customers have filed lawsuits seeking
  relief related to such delays.  The nature of the damages sought by
  claimants includes, but is not limited to, contractual liquidated damages,
  freight loss or damage, alternative transportation charges, additional
  production costs, lost business and lost profits.  In addition, some
  customers have asserted that they have the right to cancel contracts as a
  result of alleged material breaches of such contracts by the Railroad. In
  the second quarter of 1998, the Company took a $155 million after-tax
  charge for the resolution of customer claims.  The Company will continue
  to evaluate the adequacy of its reserves for claims and may add to such
  reserves if appropriate.
  
  The Company is also party to certain regulatory proceedings before the
  Surface Transportation Board of the U.S. Department of Transportation
  (STB).  One proceeding pertains to rail service problems in the western
  United States. As an outgrowth of this proceeding, the STB issued an
  emergency service order imposing certain temporary measures on the
  Railroad designed, among other things, to reduce congestion on the
  Railroad's lines in the Houston, Texas area.  On July 31, 1998, the STB
  terminated the emergency service order.  The STB kept in place the
  requirement that the Railroad report certain service data, which the
  Railroad had acknowledged the STB had the authority to impose under a
  provision of the Interstate Commerce Act separate from the emergency
  service provision.  The STB also prescribed, under another statutory
  provision separate from the emergency service provision, a 45-day "wind-
  down" period during which certain rights that Texas Mexican Railway
  Company (Tex Mex) and BNSF had received under the emergency service order
  to handle UP traffic in Houston would be continued.  A second proceeding,
  initiated under the STB's continuing oversight jurisdiction with respect
  to the Corporation's acquisition of Southern Pacific and consolidation of
  Southern Pacific with UPRR-Utah (and separate from the STB's regularly
  scheduled annual proceeding to review the implementation of the merger and
  the effectiveness of the conditions that the STB imposed on it), is for
  the purpose of considering the justification for and advisability of any
  proposals for new remedial conditions to the merger as they pertain to
  service in the Houston, Texas/Gulf Coast area.  Various parties have filed
  applications in this proceeding seeking the imposition of additional
  conditions to the merger including, among other things, the granting of
  overhead trackage rights on certain of the Railroad's lines in Texas,
  "neutral switching supervision" on certain of the Railroad's branch lines,
  the opening to other railroads and switching by a "neutral switching
  company" of numerous industries now exclusively served by the Railroad in
  the Houston area, and the compulsory sale or lease to other carriers of
  certain of the Railroad's lines and facilities.  The Railroad believes
  that the applications are without merit and intends to contest them
  vigorously.  In addition, the STB has initiated various inquiries and
  formal rulemaking proceedings regarding certain elements of rail

<PAGE> 17


  regulation following two days of hearings by the STB at the request of two
  members of Congress and in response to shippers' expressions of concern
  regarding railroad service quality, railroad rates and allegedly
  inadequate regulatory remedies.  There can be no assurance that the
  proposals advanced by parties in the remedial conditions proceeding or the
  proceedings initiated in response to the rail regulation hearings will not
  be approved in some form.  Should the STB or Congress take aggressive
  action in the rail regulation proceedings (e.g., by making purportedly
  competition-enhancing changes in rate and route regulation and "access"
  provisions), the adverse effect on the Railroad and other rail carriers
  could be material.
  
  The Company is also subject to Federal, state and local environmental laws
  and regulations, and is currently participating in the investigation and
  remediation of numerous sites.  Where the remediation costs can be
  reasonably determined, and where such remediation is probable, the Company
  has recorded a liability.  In addition, the Company periodically enters
  into financial and other commitments and has retained certain contingent
  liabilities upon the disposition of formerly-owned operations.
   
  In addition, UPC and certain of its officers and directors are currently
  defendants in two purported class action securities lawsuits.  The class
  action suits allege, among other things, that management failed to
  properly disclose the Railroad's service and safety problems and thereby
  issued materially false and misleading statements concerning the merger
  with SP and the safe, efficient operation of its rail network.  Because
  both the size of the class and the damages are uncertain, UPC and the
  Railroad are unable at this time to determine the potential liability, if
  any, which might arise from these lawsuits.  UPC management believes that
  these claims are without merit and intends to defend them vigorously.
  
  It is not possible at this time for the Company to fully determine the
  effect of all unasserted claims on its consolidated financial condition,
  results of operations or liquidity; however, to the extent possible, where
  unasserted claims can be estimated and where such claims are considered
  probable, the Company has recorded a liability.  The Company does not
  expect that any known lawsuits, claims, environmental costs, commitments
  or guarantees will have a material adverse effect on its consolidated
  financial condition. 
  
  Year 2000 - In 1995, the Company began modifying its computer systems to
  process transactions involving the year 2000 and beyond.  Costs to convert
  these systems, estimated to total $46 million, are expensed as incurred. 
  At June 30, 1998, approximately 70% of the Company's systems had been
  modified, and the majority of the remaining systems are expected to be
  modified by year-end 1998.  During 1999, systems will be tested to assure
  compliance with year 2000 requirements.
  
  The Company is in the process of contacting entities with whom it
  exchanges data to determine the status of their year 2000 modification
  efforts.  In addition, the Company is working with vendors who supply
  equipment and/or software that could experience year 2000 problems.
  

<PAGE> 18


  The Company believes its systems will be successfully and timely modified. 
  However, failure to do so or failure on the part of third parties with
  whom the Company does business could materially impact operations and
  financial results in the year 2000.
  
  
                    Cautionary Information
                    ----------------------
  
  Certain information included in this report contains, and other materials
  filed or to be filed by the Railroad with the Securities and Exchange
  Commission (as well as information included in oral statements or other
  written statements made or to be made by the Railroad) contain or will
  contain, forward-looking statements within the meaning of the Securities
  Act of 1933, as amended, and the Securities Exchange Act of 1934, as
  amended.  Such forward-looking information may include, without
  limitation, statements that the Company does not expect that lawsuits,
  environmental costs, commitments, contingent liabilities, labor
  negotiations or other matters will have a material adverse effect on its
  financial condition, results of operations or liquidity and other similar
  expressions concerning matters that are not historical facts, and
  projections as to the Company's financial results.  Such forward-looking
  information is or will be based on information available at that time, and
  is or will be subject to risks and uncertainties that could cause actual
  results to differ materially from those expressed in the statements. 
  Important factors that could cause such differences include, but are not
  limited to whether the Railroad is fully successful in overcoming its
  congestion-related problems and implementing its service recovery plans
  and other financial and operational initiatives, industry competition and
  regulatory developments, natural events such as floods and earthquakes,
  the effects of adverse general economic conditions, changes in fuel
  prices, labor strikes, the impact of year 2000 systems problems and the
  ultimate outcome of shipper claims related to congestion, environmental
  investigations or proceedings and other types of claims and litigation.
  
  PART II.  OTHER INFORMATION
  ---------------------------        
  Item 1. LEGAL PROCEEDINGS
  
  SOUTHERN PACIFIC ACQUISITION: As previously reported, various appeals have
  been filed with respect to the STB's August 12, 1996 decision (the
  Decision) approving the acquisition of control of Southern Pacific by the
  Corporation. All of the appeals have been consolidated in the U.S. Court
  of Appeals for the District of Columbia Circuit. Oral argument in the case
  is scheduled for September 11, 1998.  Various appellants have withdrawn
  their appeals, leaving only BNSF, the Western Coal Traffic League (WCTL),
  and the City of Reno, Nevada with appeals pending.  On April 10, 1998,
  WCTL filed a motion to vacate and remand the Decision in light of a
  proceeding the STB commenced on March 31, 1998, under its continuing
  oversight jurisdiction over the merger, to consider whether any additional
  conditions are justified and should be imposed to deal with service
  problems in the Houston/Gulf Coast area.  That motion was denied by the
  court on May 22, 1998.  The Company believes that it is unlikely that the

<PAGE> 19


  disposition of the remaining appeals will have a material adverse impact
  on its consolidated financial condition or its results of operations.
  
  SHIPPER CLAIMS:  Certain customers have submitted claims for damages
  related to the delay of shipments by the Company as a result of congestion
  problems, and certain customers have filed lawsuits seeking relief related
  to such delays.  The nature of the damages sought by claimants includes,
  but is not limited to, contractual liquidated damages, freight loss or
  damage, alternative transportation charges, additional production costs,
  lost business and lost profits.  In addition, some customers have asserted
  that they have the right to cancel contracts as a result of alleged
  material breaches of such contracts by the Company.  While the Company
  does not believe that such claims will have a material adverse effect on
  its  financial condition, it is not possible to determine fully the
  effects of all asserted and unasserted claims.  In the second quarter of
  1998, the Company took a $155 million after-tax charge for the resolution
  of customer claims.  The Railroad will continue to evaluate the adequacy
  of its reserves for claims and may add to such reserves if appropriate.
  
  RAIL SERVICE PROCEEDINGS AND RELATED MATTERS:  As previously reported, the
  Company was subject to an emergency service order issued by the STB on
  October 31, 1997, as an outgrowth of a proceeding initiated by the STB on
  October 2, 1997 to investigate rail service problems in the western United
  States.  On July 31, 1998, the STB terminated the emergency service order. 
  The STB kept in place the requirement that the Railroad report certain
  service data, which the Railroad had acknowledged the STB had the
  authority to impose under a provision of the Interstate Commerce Act
  separate from the emergency service provision.  The STB also prescribed,
  under another statutory provision separate from the emergency service
  provision, a 45-day "wind-down" period during which certain rights that
  Tex Mex and BNSF had received under the emergency service order to handle
  UP traffic in Houston would be continued.
  
  Also as previously reported on March 31, 1998, the STB initiated a
  proceeding under its continuing oversight jurisdiction with respect to the
  merger of the Corporation and Southern Pacific to consider proposals for
  new remedial conditions to the merger as they pertain to service in the
  Houston, Texas/Gulf Coast area.  This proceeding, which is separate from
  the STB's regularly scheduled annual proceeding to review the
  implementation of the merger and the effectiveness of the conditions that
  the STB imposed on it, was initiated in response to submissions by Tex
  Mex, Kansas City Southern Railway Company (KCS) and the Greater Houston
  Partnership (GHP), proposing that the Railroad be directed to transfer
  certain lines and facilities in the Gulf Coast region to other rail
  carriers, that a "neutral" switching operation be established in the
  greater Houston area and that provisions in the STB's emergency service
  order that expanded Tex Mex's right to handle traffic to and from Houston
  be adopted permanently.  The STB's decision announcing the proceeding
  established a procedural schedule for the submission of evidence, replies
  and rebuttal. Separately from this proceeding, a shortline railroad, the
  Arkansas, Louisiana and Mississippi Railroad ("AL&M"), has filed a request
  that an additional condition be imposed on the merger allowing AL&M to
  interchange with BNSF.
  

<PAGE> 20


  On July 8, 1998, various parties filed applications for conditions in the
  remedial conditions proceeding.  For example, BNSF sought trackage rights
  over the Railroad's line between San Antonio and Laredo, Texas, trackage
  rights on the Railroad's line between Taylor and Milano, Texas, "neutral
  switching supervision" on certain branches in the Houston and Beaumont
  areas, and a variety of other conditions.  KCS and Tex Mex, in a joint
  filing with the Railroad Commission of Texas, the Chemical Manufacturers
  Association, the Society of the Plastics Industry and several other
  parties, sought a number of conditions, including the opening to other
  railroads and switching by a "neutral switching company" of numerous
  industries now exclusively served by the Railroad in the Houston area, the
  compulsory sale or lease to Tex Mex of a Railroad yard in Houston, the
  compulsory sale to Tex Mex of a former SP line between Rosenberg and
  Victoria, Texas, the compulsory transfer to KCS and Tex Mex of the
  Railroad's Beaumont Subdivision between Houston and Beaumont in exchange
  for a track that KCS and Tex Mex propose to construct on the right-of-way
  of the SP line between those cities, and the adoption on a permanent basis
  of the provision of the emergency service order allowing Tex Mex to handle
  traffic moving between Houston and points other than Tex Mex's own lines,
  and of certain other provisions of that order.  A number of shippers,
  including Dow Chemical Company, Formosa Plastics Corporation and E.I.
  DuPont de Nemours and Company, also individually sought various
  conditions.  The Railroad's response in opposition to the condition
  requests is due on September 18, 1998.  The Railroad believes that the
  applications are without merit and intends to contest them vigorously.
  
  There can be no assurance that the proposals advanced by BNSF, Tex Mex,
  KCS, GHP or other parties in the remedial conditions proceeding or other
  condition requests such as the request of AL&M will not be approved in
  some form. 
  
  RAIL ACCESS AND COMPETITION:   As previously reported, the STB, acting
  pursuant to requests from two members of Congress and responding to
  shippers' concerns about railroad service quality, railroad rates and
  allegedly inadequate regulatory remedies, issued a decision on April 17,
  1998, following two days of hearings, which opened inquiries into certain
  elements of rail regulation. The STB noted that no parties to the hearings
  had shown how aggressive remedies designed to produce lower rates and
  enhance competition would permit the industry to cover system costs and
  support reinvestment.  Nevertheless, it (i) directed a panel of
  disinterested economic experts to recommend appropriate standards to
  measure railroad revenue adequacy, which is used to determine whether
  rates are lawful (this portion of the decision was subsequently modified
  to permit, as an alternative, discussions of this issue between railroad
  and shipper representatives); (ii) initiated a rulemaking proceeding to
  consider revisions to "competitive access" regulations in order to address
  quality of service issues; (iii) ordered interested parties to identify
  modifications to regulations governing access on non-service-related
  grounds; (iv) began a rulemaking proceeding to consider eliminating
  product and geographic competition as factors to be considered in deciding
  whether a railroad has market dominance over rail traffic; (v) ordered
  large and small railroads to negotiate arrangements that would increase
  the role of short-line rail carriers; and (vi) directed the railroads to

<PAGE> 21


  establish "formalized dialogue" immediately with large and small shippers
  and rail labor. The rulemakings described in clauses (ii) and (iv) of the
  preceding sentence are pending.  Meetings between railroad and shipper
  representatives under the supervision of an administrative law judge on
  the topics described in clauses (i) and (iii) of the foregoing sentence
  have failed to produce agreement, as have discussions between
  representatives of the large railroads and smaller railroads on the topics
  described in clause (v).  The dialogues described in clause (vi) of the
  foregoing sentence are ongoing.  Should the STB or Congress take
  aggressive action, (e.g., by making purportedly competition-enhancing
  changes in rate and route regulation and "access" provisions), the adverse
  effect on the Railroad and other railroads could be material.
  
  DERIVATIVE LITIGATION: As previously reported in the Company's 1997 Annual
  Report on Form 10-K, certain current and former directors of the
  Corporation had been named as defendants in a purported derivative action
  filed on behalf of the Corporation in the Federal District Court for the
  Northern District of Texas in late 1997.  The derivative action alleged,
  among other things, that the named current and former directors breached
  their fiduciary duties to the Corporation by approving the mergers of
  Southern Pacific and Chicago and North Western Transportation Company into
  the Corporation without ensuring that the Corporation or the Railroad had
  adequate systems in place to integrate effectively those companies into
  the operations of the Corporation and the Railroad.  The derivative action
  was voluntarily dismissed by the plaintiffs, without prejudice, on May 26,
  1998.
  
  ENVIRONMENTAL MATTERS:  The Company has received approximately 20 Notices
  of Violation (NOVs) from the South Coast Air Quality Management District
  (the District) relating to fumes emitted from idling diesel locomotives at
  Slover siding near the Railroad's yard in West Colton, California.  Trains
  awaiting crews or room to enter the West Colton yard have been parked at
  Slover siding with their engines running for various amounts of time,
  causing exhaust fumes to enter the backyards and homes of residents living
  along the siding.  The District has cited the Railroad for creating a
  public nuisance pursuant to the California Health and Safety Code and the
  District's regulations.  Each violation carries a maximum civil penalty of
  $25,000 per day, which may be increased in some circumstances to $50,000
  per day.  The Railroad has modified its operating procedures for trains
  entering the West Colton yard to reduce the problem and may enter into a
  stipulation with the District.  The Railroad expects to settle the NOVs
  for an amount that is less than the maximum permitted by law, but the
  exact amount cannot be determined at this time.


<PAGE> 22

  
  Item 6.  EXHIBITS AND REPORTS ON FORM 8-K
           --------------------------------
                                                
           (a)  Exhibits
                --------
                12 - Ratio of Earnings to Fixed Charges
  
                27 - Financial Data Schedule.
                                                
           (b)  Reports on Form 8-K
                -------------------
         
                On April 23, 1998, the Company filed a Current Report on
                Form 8-K announcing first quarter 1998 results.
  
                On May 29, 1998, the Company filed a Current Report on Form
                8-K announcing the Company's expectation of a loss from
                continuing operations in the second quarter of 1998.
                                                                               
[SIGNATURE]                                                                    
                                 SIGNATURES
  
  
  Pursuant to the requirements of the Securities Exchange Act of 1934,
  Registrant has duly caused this report to be signed on its behalf by the
  undersigned thereunto duly authorized, on this 14th day of August, 1998.
  
  
  
  
                                UNION PACIFIC RAILROAD COMPANY
  
  
  
                                By  /s/ John J. Koraleski                 
                                    ------------------------------- 
                                    John J. Koraleski
                                    Executive Vice President-Finance 
                                    and Chief Financial Officer
                                    (chief accounting officer and
                                    duly authorized officer)
  
  
  
  
  
                                
<EXHIBIT INDEX>  INDEX  
  
                     
  UNION PACIFIC RAILROAD COMPANY AND CONSOLIDATED SUBSIDIARY
COMPANIES
  
                                  EXHIBIT INDEX
  
  Exhibit No.                 Description              
  -----------  -----------------------------------------
  
    12            Computation of Ratio of Earnings to
                  Fixed Charges
  
    27            Financial Data Schedule