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FORM 10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549


(Mark One)

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

For the quarterly period ended March 31, 2003

- OR -

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

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

YES [   ]    NO [X]

As of April 30, 2003, the Registrant had outstanding 7,130 shares of
Common Stock, $10 par value, and 620 shares of Class A Stock, $10 par value.

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





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TABLE OF CONTENTS



|                                                |                                                                      |                                                                  |  |  |  |  |  | 
|----------------------------------------------- | -------------------------------------------------------------------- | ---------------------------------------------------------------- |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION                  
|                                                | Item 1. Consolidated Financial Statements                           
|                                                |                                                                      | Consolidated Statements of Income                               
|                                                |                                                                      | Consolidated Statements of Financial Position                   
|                                                |                                                                      | Consolidated Statements of Cash Flows                           
|                                                |                                                                      | Consolidated Statement of Changes in Common Shareholders Equity
|                                                |                                                                      | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                      
|                                                | Item 2. Managements Narrative Analysis of the Results of Operations
|                                                | Item 3. Quantitative and Qualitative Disclosures About Market Risk  
|                                                | Item 4. Controls and Procedures                                     
|PART II. OTHER INFORMATION                     
|                                                | Item 1. Legal Proceedings                                           
|                                                | Item 6. Exhibits and Reports on Form 8-K                            
|SIGNATURES                                     
|CERTIFICATION                                  
|EX-12 Ratio of Earnings to Fixed Charges       
|EX-99 Certification Pursuant to 18 USC Sec 1350



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##### Table of Contents



TABLE OF CONTENTS
UNION PACIFIC RAILROAD COMPANY

|                                                                     |                                                                                                                        |  |    |   |             |  | 
|-------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------- |  | -- | - | ----------- |  | 
|                                                                     |                                                                                                                        |  |    |   | Page Number
|                                                                     |                                                                                                                        |  |    |   |            
|PART I. FINANCIAL INFORMATION                                        |                                                                                                                        |  |    |  
|Item 1: Consolidated Financial Statements:                           |                                                                                                                        |  |    |  
|                                                                     | CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
For the Three Months Ended March 31, 2003 and 2002                       |  |    | 3 |            
|                                                                     | CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
At March 31, 2003 (Unaudited) and December 31, 2002                      |  |    | 4 |            
|                                                                     | CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
For the Three Months Ended March 31, 2003 and 2002                   |  |    | 5 |            
|                                                                     | CONSOLIDATED STATEMENT OF CHANGES IN COMMON SHAREHOLDERS EQUITY
(Unaudited)
For the Three Months Ended March 31, 2003 |  |    | 6 |            
|                                                                     | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)                                                                 |  |    | 7 |            
|Item 2: Managements Narrative Analysis of the Results of Operations |                                                                                                                        |  | 12 |  
|Item 3: Quantitative and Qualitative Disclosures About Market Risk   |                                                                                                                        |  | 17 |  
|Item 4: Controls and Procedures                                      |                                                                                                                        |  | 17 |  
|PART II. OTHER INFORMATION                                           |                                                                                                                        |  |    |  
|Item 1: Legal Proceedings                                            |                                                                                                                        |  | 18 |  
|Item 6: Exhibits and Reports on Form
8-K                             |                                                                                                                        |  | 19 |  
|Signatures                                                           |                                                                                                                        |  | 20 |  
|Certifications                                                       |                                                                                                                        |  | 21 |  

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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 and Affiliate Companies

|                                                     |  |      |       |      |  |   |       |  
|---------------------------------------------------- |  | ---- | ----- | ---- |  | - | ----- | -
|Millions of Dollars,                                 |  |      |       |      |  |   |       |  
|For the Three Months Ended March 31,                 |  | 2003 |       | 2002
|                                                     |  |      |       |     
|Operating Revenues                                   |  |      |       |      |  |   |       |  
|Rail                                                 |  | $    | 2,725 |      |  | $ | 2,649 |  
|                                                     |  |      |       |      |  |   |       |  
|Operating Expenses                                   |  |      |       |      |  |   |       |  
|Salaries, wages and employee benefits                |  |      | 940   |      |  |   | 891   |  
|Equipment and other rents                            |  |      | 309   |      |  |   | 313   |  
|Depreciation                                         |  |      | 274   |      |  |   | 282   |  
|Fuel and utilities                                   |  |      | 352   |      |  |   | 224   |  
|Materials and supplies                               |  |      | 102   |      |  |   | 118   |  
|Casualty costs                                       |  |      | 100   |      |  |   | 85    |  
|Purchased services and other costs                   |  |      | 277   |      |  |   | 228   |  
|                                                     |  |      |       |      |  |   |       |  
|Total                                                |  |      | 2,354 |      |  |   | 2,141 |  
|                                                     |  |      |       |      |  |   |       |  
|                                                     |  |      |       |      |  |   |       |  
|Operating income                                     |  |      | 371   |      |  |   | 508   |  
|Other income                                         |  |      | 14    |      |  |   | 19    |  
|Interest expense                                     |  |      | (126  | )    |  |   | (139  | )
|                                                     |  |      |       |      |  |   |       |  
|Income before income taxes                           |  |      | 259   |      |  |   | 388   |  
|Income taxes                                         |  |      | (92   | )    |  |   | (145  | )
|                                                     |  |      |       |      |  |   |       |  
|Income before cumulative effect of accounting change |  |      | 167   |      |  |   | 243   |  
|Cumulative effect of accounting change, net of tax   |  |      | 274   |      |  |   |      |  
|                                                     |  |      |       |      |  |   |       |  
|Net income                                           |  | $    | 441   |      |  | $ | 243   |  
|                                                     |  |      |       |      |  |   |       |  

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

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

|                                                  |                                                     |                                     |        |             |        |          |        |        |       
|------------------------------------------------- | --------------------------------------------------- | ----------------------------------- | ------ | ----------- | ------ | -------- | ------ | ------ | ------
|                                                  |                                                     |                                     |        | (Unaudited) |        |          |       
|                                                  |                                                     |                                     |        | Mar. 31,    |        | Dec. 31,
|Millions of Dollars                               |                                                     | 2003                                |        | 2002       
|                                                  |                                                     |                                     |        |            
|Assets                                            |                                                     |                                     |        |             |        |          |       
|                                                  | Current Assets                                      |                                     |        |             |        |          |        |       
|                                                  |                                                     | Cash and temporary investments      |        | $           | 233    |          |        | $      | 110   
|                                                  |                                                     | Accounts receivable, net            |        |             | 454    |          |        |        | 529   
|                                                  |                                                     | Inventories                         |        |             | 288    |          |        |        | 277   
|                                                  |                                                     | Current deferred income taxes       |        |             | 282    |          |        |        | 281   
|                                                  |                                                     | Other current assets                |        |             | 219    |          |        |        | 189   
|                                                  |                                                     |                                     |        |             |        |          |        |        |       
|                                                  |                                                     | Total                               |        |             | 1,476  |          |        |        | 1,386 
|                                                  |                                                     |                                     |        |             |        |          |        |        |       
|Investments                                       |                                                     |                                     |        |             |        |          |       
|                                                  | Investments in and advances to affiliated companies |                                     |        | 645         |        |          |        | 649   
|                                                  | Other investments                                   |                                     |        | 44          |        |          |        | 49    
|                                                  |                                                     |                                     |        |             |        |          |        |        |       
|                                                  | Total                                               |                                     |        | 689         |        |          |        | 698   
|                                                  |                                                     |                                     |        |             |        |          |        |        |       
|Properties                                        |                                                     |                                     |        |             |        |          |       
|                                                  | Cost                                                |                                     |        | 37,154      |        |          |        | 36,821
|                                                  | Accumulated depreciation                            |                                     |        | (7,572      | )      |          |        | (7,841
|                                                  |                                                     |                                     |        |             |        |          |        |        |       
|                                                  | Net                                                 |                                     |        | 29,582      |        |          |        | 28,980
|                                                  |                                                     |                                     |        |             |        |          |        |        |       
|Other                                             |                                                     |                                     |        |             |        |          |       
|                                                  | Other assets                                        |                                     |        | 308         |        |          |        | 250   
|                                                  |                                                     |                                     |        |             |        |          |        |        |       
|Total assets                                      |                                                     | $                                   | 32,055 |             |        | $        | 31,314
|                                                  |                                                     |                                     |        |             |        |          |        |        |       
|Liabilities and Common Shareholders Equity       |                                                     |                                     |        |             |        |          |       
|                                                  | Current Liabilities                                 |                                     |        |             |        |          |        |       
|                                                  |                                                     | Accounts payable                    |        | $           | 458    |          |        | $      | 416   
|                                                  |                                                     | Accrued wages and vacation          |        |             | 363    |          |        |        | 362   
|                                                  |                                                     | Accrued casualty costs              |        |             | 408    |          |        |        | 403   
|                                                  |                                                     | Income and other taxes              |        |             | 304    |          |        |        | 226   
|                                                  |                                                     | Debt due within one year            |        |             | 267    |          |        |        | 275   
|                                                  |                                                     | Interest                            |        |             | 58     |          |        |        | 71    
|                                                  |                                                     | Other current liabilities           |        |             | 473    |          |        |        | 537   
|                                                  |                                                     |                                     |        |             |        |          |        |        |       
|                                                  | Total                                               |                                     |        | 2,331       |        |          |        | 2,290 
|                                                  | Other Liabilities and Common Shareholders Equity   |                                     |        |             |        |          |       
|                                                  |                                                     | Intercompany borrowing from UPC     |        | 4,603       |        |          |        | 4,464 
|                                                  |                                                     | Third-party debt due after one year |        | 1,943       |        |          |        | 1,984 
|                                                  |                                                     | Deferred income taxes               |        | 9,026       |        |          |        | 8,823 
|                                                  |                                                     | Accrued casualty costs              |        | 616         |        |          |        | 658   
|                                                  |                                                     | Retiree benefits obligation         |        | 809         |        |          |        | 888   
|                                                  |                                                     | Other long-term liabilities         |        | 480         |        |          |        | 333   
|                                                  |                                                     | Redeemable Preference Shares        |        | 18          |        |          |        | 18    
|                                                  |                                                     | Commitments and contingencies       |        |             |        |          |        |       
|                                                  |                                                     | Common shareholders equity         |        |             | 12,229 |          |        |        | 11,856
|                                                  |                                                     |                                     |        |             |        |          |        |        |       
|Total liabilities and common shareholders equity |                                                     | $                                   | 32,055 |             |        | $        | 31,314
|                                                  |                                                     |                                     |        |             |        |          |        |        |       

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

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

|                                                      |                                                                                   |                                                |      |      |      |   |      |      |      |   | 
|----------------------------------------------------- | --------------------------------------------------------------------------------- | ---------------------------------------------- | ---- | ---- | ---- | - | ---- | ---- | ---- | - | 
|Millions of Dollars,                                  |                                                                                   |                                                |      |      |      |   |      |     
|For the Three Months Ended March 31,                  |                                                                                   | 2003                                           |      | 2002
|                                                      |                                                                                   |                                                |      |     
|Operating Activities                                  |                                                                                   |                                                |      |      |      |   |      |     
|                                                      | Net income                                                                        |                                                | $    | 441  |      |   | $    | 243  |     
|                                                      | Adjustments to reconcile net income to net cash
provided by operating activities: |                                                |      |      |      |   |      |      |     
|                                                      |                                                                                   | Cumulative effect of accounting change         |      |      | (274 | ) |      |      |     |  
|                                                      |                                                                                   | Depreciation                                   |      |      | 274  |   |      |      | 282  |  
|                                                      |                                                                                   | Deferred income taxes                          |      |      | 42   |   |      |      | 52   |  
|                                                      |                                                                                   | Cash paid to fund pension plan                 |      |      | (50  | ) |      |      |     |  
|                                                      |                                                                                   | Other, net                                     |      |      | (131 | ) |      |      | (25  | )
|                                                      |                                                                                   | Changes in current assets and liabilities, net |      |      | 83   |   |      |      | (210 | )
|                                                      |                                                                                   |                                                |      |      |      |   |      |     
|Cash provided by operating activities                 |                                                                                   |                                                | 385  |      |      |   | 342  |     
|                                                      |                                                                                   |                                                |      |      |      |   |      |     
|Investing Activities                                  |                                                                                   |                                                |      |      |      |   |      |     
|                                                      | Capital investments                                                               |                                                |      | (412 | )    |   |      | (352 | )   
|                                                      | Proceeds from asset sales                                                         |                                                |      | 20   |      |   |      | 20   |     
|                                                      | Other investing activities, net                                                   |                                                |      | 98   |      |   |      | (15  | )   
|                                                      |                                                                                   |                                                |      |      |      |   |      |     
|Cash used in investing activities                     |                                                                                   |                                                | (294 | )    |      |   | (347 | )   
|                                                      |                                                                                   |                                                |      |      |      |   |      |     
|Financing Activities                                  |                                                                                   |                                                |      |      |      |   |      |     
|                                                      | Dividends paid to parent                                                          |                                                |      | (58  | )    |   |      | (50  | )   
|                                                      | Debt repaid                                                                       |                                                |      | (49  | )    |   |      | (69  | )   
|                                                      | Advances from affiliated companies                                                |                                                |      | 139  |      |   |      | 122  |     
|                                                      |                                                                                   |                                                |      |      |      |   |      |     
|Cash provided by financing activities                 |                                                                                   |                                                | 32   |      |      |   | 3    |     
|                                                      |                                                                                   |                                                |      |      |      |   |      |     
|Net change in cash and temporary investments          |                                                                                   |                                                | 123  |      |      |   | (2   | )   
|Cash and temporary investments at beginning of
period |                                                                                   |                                                | 110  |      |      |   | 87   |     
|                                                      |                                                                                   |                                                |      |      |      |   |      |     
|Cash and temporary investments at end of period       |                                                                                   | $                                              | 233  |      |      | $ | 85   |     
|                                                      |                                                                                   |                                                |      |      |      |   |      |     
|Changes in Current Assets and Liabilities, Net        |                                                                                   |                                                |      |      |      |   |      |     
|                                                      | Accounts receivable, net                                                          |                                                | $    | 75   |      |   | $    | (57  | )   
|                                                      | Inventories                                                                       |                                                |      | (11  | )    |   |      | 6    |     
|                                                      | Other current assets                                                              |                                                |      | (30  | )    |   |      | (34  | )   
|                                                      | Accounts, wages and vacation payable                                              |                                                |      | 43   |      |   |      | (44  | )   
|                                                      | Other current liabilities                                                         |                                                |      | 6    |      |   |      | (81  | )   
|                                                      |                                                                                   |                                                |      |      |      |   |      |     
|Total                                                 |                                                                                   | $                                              | 83   |      |      | $ | (210 | )   
|                                                      |                                                                                   |                                                |      |      |      |   |      |     
|Supplemental Cash Flow Information:                   |                                                                                   |                                                |      |      |      |   |      |     
|                                                      | Cash (paid) received during the period for:                                       |                                                |      |      |      |   |      |      |     
|                                                      |                                                                                   | Interest                                       |      | $    | (140 | ) |      | $    | (157 | )
|                                                      |                                                                                   | Income taxes, net                              |      |      | 32   |   |      |      | (50  | )
|                                                      |                                                                                   |                                                |      |      |      |   |      |     

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

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

|                                        |  |        |   |         |  |         |   |          |  |             |       |             |  |             |       |       |  |                             |      |         |  |   |     |   |  |   |    |   |  |   |      |   |  |   |        |  
|--------------------------------------- |  | ------ | - | ------- |  | ------- | - | -------- |  | ----------- | ----- | ----------- |  | ----------- | ----- | ----- |  | --------------------------- | ---- | ------- |  | - | --- | - |  | - | -- | - |  | - | ---- | - |  | - | ------ | -
|                                        |  |        |   |         |  |         |   |          |  |             |       |             |  |             |       |       |  | Accumulated Other           |      |         |  |  
|                                        |  |        |   |         |  |         |   |          |  |             |       |             |  |             |       |       |  | Comprehensive Income (Loss) |      |         |  |  
|                                        |  |        |   |         |  |         |   |          |  |             |       |             |  |             |       |       |  |                             |      |         |  |  
|                                        |  |        |   |         |  |         |   |          |  |             |       |             |  |             |       |       |  | Minimum                     |      | Foreign |  |   |     |   |  |   |    |   |  |   |      |  
|Millions of Dollars,                    |  | [a]    |   | [b]     |  | Paid-   |   |          |  | Pension     |       | Currency    |  |             |       |       |  |                             |      |         |  |  
|For the Three Months Ended              |  | Common |   | Class A |  | in-     |   | Retained |  | Liability   |       | Translation |  | Derivative  |       |       |  |                             |      |         |  |  
|March 31, 2003                          |  | Shares |   | Shares  |  | Surplus |   | Earnings |  | Adjustments |       | Adjustments |  | Adjustments |       | Total |  | Total                      
|                                        |  |        |   |         |  |         |   |          |  |             |       |             |  |             |       |       |  |                            
|Balance at December 31,
2002            |  | $      |  |         |  | $       |  |          |  | $           | 4,782 |             |  | $           | 7,224 |       |  | $                           | (148 | )       |  | $ | (9  | ) |  | $ | 7  |   |  | $ | (150 | ) |  | $ | 11,856 |  
|                                        |  |        |   |         |  |         |   |          |  |             |       |             |  |             |       |       |  |                             |      |         |  |   |     |   |  |   |    |   |  |   |      |   |  |   |        |  
|Net income                              |  |        |  |         |  |         |  |          |  |             |      |             |  |             | 441   |       |  |                             |     |         |  |   |    |   |  |   |   |   |  |   |     |   |  |   | 441    |  
|Other comprehensive loss,
net of tax[c] |  |        |  |         |  |         |  |          |  |             |      |             |  |             |      |       |  |                             |     |         |  |   | (9  | ) |  |   | (1 | ) |  |   | (10  | ) |  |   | (10    | )
|                                        |  |        |   |         |  |         |   |          |  |             |       |             |  |             |       |       |  |                             |      |         |  |   |     |   |  |   |    |   |  |   |      |   |  |   |        |  
|Comprehensive income                    |  |        |   |         |  |         |   |          |  |             |       |             |  |             |       |       |  |                             |      |         |  |   |     |   |  |   |    |   |  |   |      |   |  |   | 431    |  
|Dividends declared                      |  |        |  |         |  |         |  |          |  |             |      |             |  |             | (58   | )     |  |                             |     |         |  |   |    |   |  |   |   |   |  |   |     |   |  |   | (58    | )
|                                        |  |        |   |         |  |         |   |          |  |             |       |             |  |             |       |       |  |                             |      |         |  |   |     |   |  |   |    |   |  |   |      |   |  |   |        |  
|Balance at March 31, 2003               |  | $      |  |         |  | $       |  |          |  | $           | 4,782 |             |  | $           | 7,607 |       |  | $                           | (148 | )       |  | $ | (18 | ) |  | $ | 6  |   |  | $ | (160 | ) |  | $ | 12,229 |  
|                                        |  |        |   |         |  |         |   |          |  |             |       |             |  |             |       |       |  |                             |      |         |  |   |     |   |  |   |    |   |  |   |      |   |  |   |        |  



|[a] |  | Common Stock, $10.00 par value; 9,200 shares authorized; 4,465 outstanding.
|--- |  | ---------------------------------------------------------------------------
|   
|[b] |  | Class A Stock, $10.00 par value; 800 shares authorized; 388 outstanding.   
|   
|[c] |  | Other comprehensive loss, net of tax of $6.                                

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

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UNION PACIFIC RAILROAD COMPANY AND CONSOLIDATED SUBSIDIARY AND AFFILIATE
COMPANIES




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Responsibilities for Financial Statements- Union Pacific Railroad Company
(the Registrant), a Class I railroad incorporated in Delaware and an indirect
wholly owned subsidiary of Union Pacific Corporation (the Corporation or UPC),
together with a number of wholly owned and majority owned subsidiaries, certain
affiliates and various minority-owned companies (collectively, UPRR, the
Company or the Railroad), operates various railroad and railroad-related
businesses. The Consolidated Financial Statements of the Company are unaudited
and reflect all adjustments (consisting only of normal and recurring
adjustments) that are, in the opinion of management, necessary for a fair
presentation of the financial position and operating results for the interim
periods presented. The Consolidated Statements of Financial Position at
December 31, 2002 is derived from audited financial statements. The
Consolidated Financial Statements should be read in conjunction with the
Consolidated Financial Statements and notes thereto contained in the Companys
Annual Report on Form 10-K for the year ended December 31, 2002. The results
of operations for the three months ended March 31, 2003 are not necessarily
indicative of the results for the entire year ending December 31, 2003.
Certain prior year amounts have been reclassified to conform to the 2003
financial statement presentation.

Stock-Based Compensation The Company participates in the Corporations stock
incentive plans. At March 31, 2003, the Corporation had several stock-based
employee compensation plans. The Corporation accounts for those plans under
the recognition and measurement principles of APB Opinion No. 25, Accounting
for Stock Issued to Employees",and related Interpretations. No stock-based
employee compensation expense, related to stock option grants, is reflected in
net income as all options granted under those plans had an exercise price equal
to the market value of the underlying common stock on the date of grant.
Stock-based employee compensation expense related to restricted stock and other
incentive plans is reflected in net income. The following table illustrates
the effect on net income if the Company had applied the fair value recognition
provisions of FASB Statement No. 123, Accounting for Stock-Based
Compensation",to stock-based employee compensation.

|                                                                                                                    |  |                              |     |      |  |   |     |  
|------------------------------------------------------------------------------------------------------------------- |  | ---------------------------- | --- | ---- |  | - | --- | -
|                                                                                                                    |  | Three Months Ended March 31,
|Millions of Dollars                                                                                                 |  | 2003                         |     | 2002
|                                                                                                                    |  |                              |     |     
|Net income, as reported                                                                                             |  | $                            | 441 |      |  | $ | 243 |  
|Stock-based employee
compensation expense included
in reported net income, net
of tax                               |  |                              | 5   |      |  |   | 2   |  
|Total stock-based employee
compensation expense
determined under fair value
based method for all awards,
net of tax |  |                              | (9  | )    |  |   | (5  | )
|                                                                                                                    |  |                              |     |      |  |   |     |  
|Pro forma net income                                                                                                |  | $                            | 437 |      |  | $ | 240 |  
|                                                                                                                    |  |                              |     |      |  |   |     |  

The fair value of each option grant was estimated on the date of grant
using the Black-Scholes option-pricing model, with the following
weighted-average assumptions for options granted during the three months ended
March 31, 2003 and 2002, respectively: risk-free interest rates of 2.9% and
4.4%; dividend yield of 1.5% and 1.3%; expected lives of 5 years and 5 years;
and volatility of 28.4% and 28.8%.

2. Intercompany Relationship with
UPC -At March 31, 2003 and December 31,
2002, the Railroad had $855 million and $904 million working capital deficit
balances, respectively, relating to UPCs management of its cash position. As
part of UPCs cash management activities, the Railroad advances excess cash
(cash available after satisfying all of the Railroads obligations and paying
dividends to UPC) to UPC. Dividends declared and paid to UPC by the Railroad
typically approximate the dividends that UPC declares to its shareholders;
however, there is no formal requirement to do so. The dividend declaration
between the Railroad and UPC is determined solely by the Railroads Board of
Directors. To the extent the Railroad requires additional cash for use in its
operations, UPC makes such funds available for borrowing by the Railroad.
Transactions between UPC and UPRR are treated as net intercompany borrowings in
the Consolidated Statements of Financial Position.

7



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##### Table of Contents



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

UPC provides the Company with various services, including strategic
planning, legal, treasury, accounting, auditing, insurance, human resources and
corporate affairs. In 2003, pursuant to a services agreement, UPC will continue
to provide services to the Company, and the Company will pay UPC its share of
the costs as determined by an independent review. Billings for these services
were $15 million for the period ended March 31, 2003.

3. Financial Instruments

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

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

Market and Credit Risk- The Company addresses market risk related to
derivative financial instruments by selecting instruments with value
fluctuations that highly correlate with the underlying item being hedged.
Credit risk related to derivative financial instruments, which is minimal, is
managed by requiring high credit standards for counterparties and periodic
settlements. At March 31, 2003, the Company has not been required to provide
collateral, nor has the Company received collateral relating to its hedging
activity.

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

Fuel Strategy- Fuel costs are a significant portion of the Companys total
operating expenses. As a result of the significance of fuel costs and the
historical volatility of fuel prices, the Company uses swaps, futures and/or
forward contracts to mitigate the impact of adverse fuel price changes. In
addition, the Company, at times, may use costless collars to manage risk
related to changes in fuel prices.

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

|                                |                                                           |          |   |          |  |  |   |      | 
|------------------------------- | --------------------------------------------------------- | -------- | - | -------- |  |  | - | ---- | 
|Millions,                       |                                                           | Mar. 31, |   | Dec. 31,
|Except Average Commodity Prices |                                                           | 2003     |   | 2002    
|                                |                                                           |          |   |         
|Fuel hedging/swaptions:         |                                                           |          |   |          |  |  |   |     
|                                | Number of gallons hedged for 2002 [a]                     |          |   |         |  |  |   | 552  | 
|                                | Average price of 2002 hedges (per gallon) [b]             |          | $ |         |  |  | $ | 0.56 | 
|                                | Number of gallons hedged for the remainder of 2003 [c]    |          |   | 66       |  |  |   | 88   | 
|                                | Average price of 2003 hedges outstanding (per gallon) [b] |          | $ | 0.58     |  |  | $ | 0.58 | 
|Rail fuel costless collars:     |                                                           |          |   |          |  |  |   |     
|                                | Number of gallons hedged for 2003 [d]                     |          |   | 57       |  |  |   |      | 
|                                | Average cap price [b]                                     |          | $ | 0.89     |  |  |   |     | 
|                                | Average floor price [b]                                   |          | $ | 0.60     |  |  |   |     | 



|[a] |  | Fuel hedges expired December 31, 2002. Fuel hedges included the swap portion of a swaption with a base term expiring
December 31, 2002.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------
|   
|[b] |  | Excluding taxes, transportation costs and regional pricing spreads.                                                                    
|   
|[c] |  | Fuel hedges which are in effect during 2003. These hedges expire December 31, 2003.                                                    
|   
|[d] |  | Costless collars expire June 30, 2003.                                                                                                 

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##### Table of Contents



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

|                                |                                       |      |          |      |          |   |    |    | 
|------------------------------- | ------------------------------------- | ---- | -------- | ---- | -------- | - | -- | -- | 
|                                |                                       |      | Mar. 31, |      | Dec. 31,
|Millions of Dollars             |                                       | 2003 |          | 2002
|                                |                                       |      |          |     
|Fuel hedging:                   |                                       |      |          |      |          |   |    |   
|                                | Gross fair value asset position       |      | $        | 10   |          |   | $  | 12 | 
|                                | Gross fair value (liability) position |      |          |     |          |   |    |   | 
|                                |                                       |      |          |      |          |   |    |   
|Total fair value asset position |                                       | $    | 10       |      |          | $ | 12 |   
|                                |                                       |      |          |      |          |   |    |   

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

The Companys use of derivative financial instruments had the following
impact on pre-tax income for the three months ended March 31, 2003 and 2002:

|                                                      |  |                 |   |      |  |   |    |  
|----------------------------------------------------- |  | --------------- | - | ---- |  | - | -- | -
|                                                      |  | Three Months   
|                                                      |  | Ended March 31,
|Millions of Dollars                                   |  | 2003            |   | 2002
|                                                      |  |                 |   |     
|Decrease (increase) in fuel expense from fuel hedging |  | $               | 8 |      |  | $ | (6 | )
|Decrease in fuel expense from fuel swaptions          |  |                 |  |      |  |   | 10 |  
|                                                      |  |                 |   |      |  |   |    |  
|Decrease in operating expenses                        |  |                 | 8 |      |  |   | 4  |  
|Increase in other income, net from fuel swaptions     |  |                 |  |      |  |   | 3  |  
|                                                      |  |                 |   |      |  |   |    |  
|Increase in pre-tax income                            |  | $               | 8 |      |  | $ | 7  |  
|                                                      |  |                 |   |      |  |   |    |  

Through March 31, 2003, the Company had recorded less than $1 million for
fuel hedging ineffectiveness.

Sale of Receivables- The Railroad has sold, on a 364-day revolving basis, an
undivided percentage ownership interest in a designated pool of accounts
receivable to third parties through a bankruptcy-remote subsidiary.
Receivables are sold at carrying value, which approximates fair value. The
third parties have designated the Railroad to service the sold receivables.
The amount of receivables sold fluctuates based upon the availability of the
designated pool of receivables and is directly affected by changing business
volumes and credit risks. Payments collected from sold receivables can be
reinvested in new receivables on behalf of the buyers. Should the
Corporations credit rating fall below investment grade, the amount of
receivables sold would be reduced, and in certain cases, the buyers have the
right to discontinue this reinvestment, thus requiring the Railroad to fund the
receivables. At March 31, 2003 and December 31, 2002, accounts receivable are
presented net of $590 million and $600 million of receivables sold,
respectively. In May 2003, the sale of receivables program was extended for 90
days without any significant term changes with the intent to renew the program
for one year.

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

5. Other Income- Other income included the following for the three months
ended March 31, 2003 and 2002:

|                                             |  |                 |    |      |  |   |    |  
|-------------------------------------------- |  | --------------- | -- | ---- |  | - | -- | -
|                                             |  | Three Months   
|                                             |  | Ended March 31,
|Millions of Dollars                          |  | 2003            |    | 2002
|                                             |  |                 |    |     
|Net gain on non-operating asset dispositions |  | $               | 10 |      |  | $ | 8  |  
|Rental income                                |  |                 | 12 |      |  |   | 11 |  
|Interest income                              |  |                 | 1  |      |  |   | 1  |  
|Other, net                                   |  |                 | (9 | )    |  |   | (1 | )
|                                             |  |                 |    |      |  |   |    |  
|Total                                        |  | $               | 14 |      |  | $ | 19 |  
|                                             |  |                 |    |      |  |   |    |  

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6. Commitments and Contingencies

Unasserted Claims- There are various claims and lawsuits pending against the
Company and certain of its subsidiaries, in addition to unasserted claims. It
is not possible at this time for the Company to determine fully the effect of
all such claims on its consolidated financial condition, results of operations
or liquidity; however, to the extent possible, where unasserted claims can be
estimated and where such claims are considered probable, the Company has
recorded a liability. The Company does not expect that any known lawsuits or
claims, including unasserted claims, will have a material adverse effect on its
consolidated financial condition, results of operations or liquidity.

Personal Injury and Occupational Illness- The cost of injuries to employees
and others related to Railroad activities is charged to expense based on
actuarial estimates of the ultimate cost and number of incidents each year.
The three month expenses for the Companys personal injury-related events were
$58 million and $56 million in 2003 and 2002, respectively. As of March 31,
2003, the Company had a liability of $634 million accrued for personal injury
costs, of which $272 million was recorded as a current liability. The Railroad
has additional amounts accrued for claims related to certain occupational
illnesses. Compensation for Railroad work-related accidents is governed by the
Federal Employers Liability Act (FELA). Under FELA, damages are assessed
based on a finding of fault through litigation or out-of-court settlements. The
Railroad offers a comprehensive variety of services and rehabilitation programs
for employees who are injured at work.

Environmental- The Company generates and transports hazardous and nonhazardous
waste in its current operations and has done so in its former operations, and
it is subject to federal, state and local environmental laws and regulations.
The Company has identified approximately 415 active sites at which it is or may
be liable for remediation costs associated with alleged contamination or for
violations of environmental requirements. This includes 52 sites that are the
subject of actions taken by the U.S. government, 27 of which are currently on
the Superfund National Priorities List. Certain federal legislation imposes
joint and several liability for the remediation of identified sites;
consequently, the Companys ultimate environmental liability may include costs
relating to other parties, in addition to costs relating to its own activities
at each site.

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

As of March 31, 2003, the Company had a liability of $192 million accrued
for future environmental costs, of which $71 million was recorded in current
liabilities as accrued casualty costs. The liability includes future costs for
remediation and restoration of sites, as well as for ongoing monitoring costs,
but excludes any anticipated recoveries from third parties. Cost estimates are
based on information available for each site, financial viability of other
potentially responsible parties, and existing technology, laws and regulations.
The Company believes that it has adequately accrued
for its ultimate share of costs at sites subject to joint and several
liability. However, the ultimate liability for remediation is difficult to
determine because of the number of potentially responsible parties involved,
site-specific cost sharing arrangements with other potentially responsible
parties, the degree of contamination by various wastes, the scarcity and
quality of volumetric data related to many of the sites and/or the speculative
nature of remediation costs. The Company expects to pay out the majority of
the March 31, 2003 environmental liability over the next five years, funded by
cash generated from operations. The impact of current obligations is not
expected to have a material adverse effect on the results of operations,
financial condition or liquidity of the Company.

Other Matters- The Company periodically enters into financial and other
commitments in connection with its businesses. It is not possible at this time
for the Company to determine fully the effect of all unasserted claims on its
consolidated financial condition, results of operations or liquidity; however,
to the extent possible, where unasserted claims can be estimated and where such
claims are considered probable, the Company has recorded a liability. The
Company does not expect that any known lawsuits, claims, environmental costs,
commitments, contingent liabilities or guarantees will have a material adverse
effect on its consolidated financial condition, results of operations or
liquidity.

At March 31, 2003, the Company had unconditional purchase obligations of
$236 million for the acquisition of locomotives as part of the Companys
multi-year capital asset acquisition plan. In addition, the Company was
contingently liable for $318 million in guarantees and $28 million in letters
of credit at March 31, 2003. These
10Table of Contentscontingent guarantees were entered into in
the normal course of business and include guaranteed obligations of affiliated
operations. The Company is not aware of any existing event of default, which
would require it to satisfy these guarantees.7.     Accounting Pronouncements- In January 2003, the FASB issued Interpretation
No. 46, Consolidation of Variable Interest Entities (FIN 46). FIN 46
requires a variable interest entity to be consolidated by a company if that
company is subject to a majority of the risk of loss from the variable interest
entitys activities or entitled to receive a majority of the entitys residual
returns or both. FIN 46 also requires disclosures about variable interest
entities that a company is not required to consolidate but in which it has a
significant variable interest. The consolidation requirements of FIN 46 apply
immediately to variable interest entities created after January 31, 2003. The
consolidation requirements apply to existing entities in the first fiscal year
or interim period beginning after June 15, 2003. Certain of the disclosure
requirements apply in all financial statements issued after January 31, 2003,
regardless of when the variable interest entity was established. As described
in note 10 to the Consolidated Financial Statements, Item 8, in the Annual
Report on Form 10-K, the Railroad has a synthetic operating lease arrangement
to finance a new headquarters building, which falls within the guidance of FIN
46. In accordance with FIN 46, the Railroad will either consolidate,
restructure or refinance the synthetic lease prior to July 1, 2003. The
Company does not expect FIN 46 to have any impact on the treatment of the Sale
of Receivables program.On April 30, 2003, the FASB issued Statement No. 149, Amendment of
Statement 133 on Derivative Instruments and Hedging Activities (FAS 149). FAS
149 amends FAS 133 for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities. FAS 149 also amends certain other existing pronouncements.
It will require contracts with comparable characteristics to be accounted for
similarly. In particular, FAS 149 clarifies when a contract with an initial
net investment meets the characteristic of a derivative and clarifies when a
derivative that contains a financing component will require special reporting
in the statement of cash flows. FAS 149 is effective for the Company for
contracts entered into or modified after June 30, 2003. The Company is
evaluating the impact of adopting the requirements of FAS 149.8.     Cumulative Effect of Accounting Change- Surface Transportation Board (STB)
accounting rules require that railroads accrue the cost of removing track
structure over the expected useful life of these assets. Railroads
historically used this prescribed accounting for reports filed with both the
STB and SEC. In August 2001, the FASB issued Statement No. 143, Accounting
for Asset Retirement Obligations (FAS 143). This statement was effective for
the Company beginning January 1, 2003, and prohibits the accrual of removal
costs unless there is a legal obligation to remove the track structure at the
end of its life. The Company concluded that it did not have a legal obligation
to remove the track structure, and therefore, under generally accepted
accounting principles, the Company could not accrue the cost of removal in
advance. Reports filed with the SEC will reflect the cost of removing these
assets in the period in which they are removed. For STB reporting requirements
only, the Company will continue to follow the historical method of accruing in
advance, as prescribed by the STB. FAS 143 also requires the Company to record
a liability for legally obligated asset retirement costs associated with
tangible long-lived assets. At March 31, 2003, the Companys liability for
legally obligated asset retirement costs was $17 million. In the first quarter
of 2003, the Company recorded income from a cumulative effect of accounting
change, related to the adoption of FAS 143, of $274 million, net of tax of $167
million. The accounting change has no effect on the Companys liquidity. Had
the change been retroactively applied, the change would have had an immaterial
impact on net income and the following effect on operating expenses within the
Companys Consolidated Statements of Income for the three months ended March
31, 2003 and 2002:

|                                      |       |      |     |             |  |             |     |           |  |          |     |      |  |   |     |       | 
|------------------------------------- | ----- | ---- | --- | ----------- |  | ----------- | --- | --------- |  | -------- | --- | ---- |  | - | --- | ----- | 
|Operating Expenses                    |       |      |     |             |  |             |     |           |  | SFAS 143 |     | 2002
|(In millions)                         |       | 2003 |     | 2002 Actual |  | Adjustments |     | Pro Forma
|                                      |       |      |     |             |  |             |     |          
|Salaries, wages and employee benefits |       | $    | 940 |             |  | $           | 891 |           |  | $        | 28  |      |  | $ | 919 |      
|Equipment and other rents             |       |      | 309 |             |  |             | 313 |           |  |          |    |      |  |   | 313 |      
|Depreciation                          |       |      | 274 |             |  |             | 282 |           |  |          | (23 | )    |  |   | 259 |      
|Fuel and utilities                    |       |      | 352 |             |  |             | 224 |           |  |          |    |      |  |   | 224 |      
|Materials and supplies                |       |      | 102 |             |  |             | 118 |           |  |          | (5  | )    |  |   | 113 |      
|Casualty costs                        |       |      | 100 |             |  |             | 85  |           |  |          |    |      |  |   | 85  |      
|Purchased services and other costs    |       |      | 277 |             |  |             | 228 |           |  |          | 3   |      |  |   | 231 |      
|                                      |       |      |     |             |  |             |     |           |  |          |     |      |  |   |     |      
|                                      | Total |      | $   | 2,354       |  |             | $   | 2,141     |  |          | $   | 3    |  |   | $   | 2,144 | 
|                                      |       |      |     |             |  |             |     |           |  |          |     |      |  |   |     |      

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

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

Three Months Ended March 31, 2003 Compared to
Three Months Ended March 31, 2002

Union Pacific Railroad Company (the Registrant), a Class I railroad
incorporated in Delaware and an indirect wholly owned subsidiary of Union
Pacific Corporation (the Corporation or UPC), together with a number of wholly
owned and majority owned subsidiaries, certain affiliates and various
minority-owned companies (collectively, UPRR, the Company or Railroad),
operates various railroad and railroad-related businesses.

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

Critical Accounting Policies and Estimates

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

Net Income Rail operations reported net income in the first quarter of 2003
of $441 million. Income before the cumulative effect of accounting change for
rail operations in the first quarter of 2003 was $167 million, compared to net
income of $243 million in 2002, a decrease of $76 million (31%). The decrease
in earnings in the period resulted primarily from higher fuel prices, wage and
benefit inflation and volume-related costs.

Operating Revenues Operating revenue is comprised of commodity revenue and
other revenues. Other revenues primarily include subsidiary revenue from
various companies that are wholly owned or majority owned by the Railroad,
revenue from the Chicago commuter rail operations and accessorial revenue
earned due to customer detainment of Railroad owned or controlled equipment.
First quarter rail commodity revenues increased $59 million (2%) to $2.6
billion compared to 2002. First quarter revenue carloads increased 1% compared
to a year ago, with the highest growth in the automotive and industrial
products commodity groups. Average revenue per car increased 2% to $1,188.
Other revenues increased 17% to $118 million in the first quarter compared to a
year ago.

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

|                    |  |                    |       |      |  |        |       |  |  |  |    |  
|------------------- |  | ------------------ | ----- | ---- |  | ------ | ----- |  |  |  | -- | -
|                    |  | Three Months Ended |       |      |  |       
|Commodity Revenue   |  | Mar. 31,           |       | %   
|Millions of Dollars |  | 2003               |       | 2002 |  | Change
|                    |  |                    |       |      |  |       
|Agricultural        |  | $                  | 373   |      |  | $      | 369   |  |  |  | 1  |  
|Automotive          |  |                    | 302   |      |  |        | 283   |  |  |  | 7  |  
|Chemicals           |  |                    | 394   |      |  |        | 385   |  |  |  | 2  |  
|Energy              |  |                    | 561   |      |  |        | 582   |  |  |  | (4 | )
|Industrial Products |  |                    | 510   |      |  |        | 474   |  |  |  | 8  |  
|Intermodal          |  |                    | 467   |      |  |        | 455   |  |  |  | 2  |  
|                    |  |                    |       |      |  |        |       |  |  |  |    |  
|Total               |  | $                  | 2,607 |      |  | $      | 2,548 |  |  |  | 2  |  
|                    |  |                    |       |      |  |        |       |  |  |  |    |  

|                    |  |                    |       |      |  |        |       |  |  |  |    |  
|------------------- |  | ------------------ | ----- | ---- |  | ------ | ----- |  |  |  | -- | -
|                    |  | Three Months Ended |       |      |  |       
|Revenue Carloads    |  | Mar. 31,           |       | %   
|Thousands           |  | 2003               |       | 2002 |  | Change
|                    |  |                    |       |      |  |       
|Agricultural        |  |                    | 214   |      |  |        | 217   |  |  |  | (1 | )
|Automotive          |  |                    | 207   |      |  |        | 193   |  |  |  | 7  |  
|Chemicals           |  |                    | 219   |      |  |        | 218   |  |  |  | 1  |  
|Energy              |  |                    | 521   |      |  |        | 545   |  |  |  | (4 | )
|Industrial Products |  |                    | 340   |      |  |        | 324   |  |  |  | 5  |  
|Intermodal          |  |                    | 693   |      |  |        | 681   |  |  |  | 2  |  
|                    |  |                    |       |      |  |        |       |  |  |  |    |  
|Total               |  |                    | 2,194 |      |  |        | 2,178 |  |  |  | 1  |  
|                    |  |                    |       |      |  |        |       |  |  |  |    |  

|                    |  |                    |       |      |  |        |       |  |  |  |   | 
|------------------- |  | ------------------ | ----- | ---- |  | ------ | ----- |  |  |  | - | 
|                    |  | Three Months Ended |       |      |  |       
|Average Revenue     |  | Mar. 31,           |       | %   
|Per Car             |  | 2003               |       | 2002 |  | Change
|                    |  |                    |       |      |  |       
|Agricultural        |  | $                  | 1,741 |      |  | $      | 1,701 |  |  |  | 2 | 
|Automotive          |  |                    | 1,462 |      |  |        | 1,462 |  |  |  |  | 
|Chemicals           |  |                    | 1,796 |      |  |        | 1,771 |  |  |  | 1 | 
|Energy              |  |                    | 1,077 |      |  |        | 1,068 |  |  |  | 1 | 
|Industrial Products |  |                    | 1,498 |      |  |        | 1,461 |  |  |  | 3 | 
|Intermodal          |  |                    | 674   |      |  |        | 668   |  |  |  | 1 | 
|                    |  |                    |       |      |  |        |       |  |  |  |   | 
|Total               |  | $                  | 1,188 |      |  | $      | 1,170 |  |  |  | 2 | 
|                    |  |                    |       |      |  |        |       |  |  |  |   | 

Agricultural- Revenue increased 1% in the first quarter of 2003. Sugar beet
volume increased as unfavorable weather conditions in the fourth quarter 2002
caused shipments to be delayed until January. Ethanol shipments increased due
to heightened demand for the fuel additive. Weak domestic and export demand for
wheat, in addition to reduced corn exports to Mexico, offset these
increases. Average revenue per car increased due to the positive mix impact of
longer average length of haul shipments, as well as price increases that were
partially related to fuel surcharges.

Automotive- Revenue increased 7% for the first quarter of 2003 driven by an
increase in carloads. The volume growth was due to market share gains for
materials shipments, in addition to higher production levels for domestic
manufacturers. Average revenue per car was flat as price increases were offset
by the mix impact of disproportionate growth in materials shipments, which move
at a lower average revenue per car than finished vehicles.

Chemicals- Revenue increased 2% for the first quarter of 2003. Volume growth
of 1% was driven by higher general demand for domestic fertilizer, soda ash and
liquid and dry chemical shipments. A decline in plastics shipments, due to
market uncertainty caused by the war and higher input costs which caused
producers to lower inventories, partially offset the increases. Average revenue
per car increased 1% due to a mix shift towards longer average length of haul
business, in addition to price increases that were partially related to fuel
surcharges.

Energy- Revenue decreased 4% for the first quarter of 2003 due to a 4% decline
in carloads. The volume decline was led by the absence of export traffic from
the Colorado and Utah mining regions, which Japan is now sourcing from other
Far Eastern producers. In addition, a severe snowstorm in March caused an
estimated loss of 71 trains out of

13



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##### Table of Contents



the Southern Powder River Basin and Colorado
and Utah mining regions. Average revenue per car increased 1%, primarily due to
price increases that were partially related to fuel surcharges.

Industrial Products- Revenue increased 8% for the first quarter of 2003 driven
by a 5% increase in carloads combined with a 3% increase in average revenue per
carload. The volume increase was led by shipments of military equipment and
ammunition in support of the war effort. Steel and scrap shipments increased as
the weakening dollar created higher domestic and export demand for U.S.
produced steel, augmented by market share gains. Demand for paperboard,
partially due to lower inventories, also contributed to volume gains. Average
revenue per car increased as a result of price increases and a greater mix of
longer average length of haul business, notably government shipments.

Intermodal- Revenue increased 2% for the first quarter of 2003 as a result of
a 2% increase in carloads. The additional volume was due to domestic market
penetration gained through the Railroads domestic strategy to penetrate the
over-the-road markets. Strong market growth for international business was
offset by penetration losses. Average revenue per car increased 1% due to price
increases, primarily relating to fuel surcharges and contract index-based
escalators.

Mexico Business- Included in the rail commodity revenue reported above,
Mexican related revenue decreased 2% to $206 million for the first quarter of
2003 over the comparable period in 2002. Reduced corn exports were the primary
reason for the decline. The Mexican government delayed the issue of corn export
permits for 2003 until late in the quarter. Partially offsetting the decline
was increased steel business to and from Mexico.

Operating Expenses- First quarter operating expenses increased $213 million
(10%) to $2.4 billion compared to 2002. In the first quarter, higher fuel
 prices, inflation and volume-related costs were partially offset by savings
from lower employee force levels, productivity improvements and cost control.

Salaries, Wages and Employee Benefits- Salaries, wages and employee benefits
increased $49 million (5%) in the first quarter of 2003 compared to 2002.
Increases were driven by inflation, the impact of FAS 143, protection costs and
severance costs. Salaries, wages and benefits increased $28 million due to the
adoption of FAS 143 and were up $21 million (2%) as inflation, higher
protection cost expense and the 2003 severance program offset a 2% reduction in
employee force levels. Protection cost represents the differential payment when
the wage earned for active employment is lower than an employees protected
rate of pay (an historic average). An individuals protected rate is imposed
by the STB for employees adversely affected by a merger and is established by
collective bargaining agreement in other cases.

Equipment and Other Rents- Equipment and other rents primarily includes rental
expense UPRR pays for freight cars owned by other railroads or private
companies; freight car, intermodal and locomotive leases; other specialty
equipped vehicle leases; and office and other rentals. Expenses decreased $4
million (1%) in the first quarter compared to 2002. The decrease was due
primarily to lower car cycle times (the average number of accumulated days that
loaded and empty cars from other railroads spend on UPRRs system) coupled with
lower expenses for car and other costs in the period. The decrease in car cycle
times is partially attributable to increased volume demand and better car
utilization. Partially offsetting the decrease was an increase in locomotive
leases. The increase in volume costs is related to an increase in carloads in
certain commodity types such as automotive, industrial products, intermodal and
chemicals that utilize a high percentage of rented freight cars. The higher
locomotive lease expense is due to UPRRs increased leasing of new, more
reliable and fuel efficient locomotives. These new locomotives replaced older,
non-leased models in the fleet, which helped reduce expenses for depreciation,
labor, materials and fuel during the period.

Depreciation- The majority of depreciation relates to track structure,
including rail, ties and other track material. Depreciation expense decreased
$8 million (3%) in the first quarter of 2003 compared to 2002. The adoption of
FAS 143 decreased depreciation by $24 million, while capital spending in recent
years increased depreciation by $16 million. Full year capital spending
totaled $1.8 billion in 2002 and $1.7 billion in 2001.

Fuel and Utilities- Fuel and utilities is comprised of locomotive fuel,
utilities other than telephone, gasoline and other fuels. Expenses increased
$128 million (57%) in the first quarter of 2003 compared to a year ago. The
increase was driven by higher fuel prices minimally offset by a lower fuel
consumption rate, as measured by gallons consumed per thousand gross ton miles.
Fuel prices averaged $1.00 per gallon in the first quarter of 2003 compared to
61 cents per gallon in the first quarter of 2002 (price includes taxes and
transportation costs). Higher fuel prices in 2003 resulted in a $125 million
increase in fuel expense in the first quarter compared to 2002. The lower
consumption rate decreased fuel expense by $3 million in the first quarter. A
1% increase in gross ton miles increased fuel expense by $1 million in the
first quarter. The Railroad hedged approximately 7% of its fuel consumption
for the first quarter, which decreased fuel costs by $8 million. As of March
31, 2003, expected fuel consumption for the
14Table of Contentsremainder of 2003 is 7% hedged at
58 cents per gallon (excluding estimated taxes, transportation costs and
regional pricing spreads). For the second quarter
of 2003, UPRR has also entered into costless collar transactions with average
floors and ceilings of 60 cents and 89 cents per gallon, respectively,
excluding taxes, transportation costs and regional pricing spreads, for
approximately 17% of expected second quarter volumes. Gasoline, utilities and
propane expenses increased $4 million in the first quarter primarily due to
higher fuel prices.Materials and Supplies- Material used for the maintenance of the Railroads
lines, structures and equipment is the principal component of materials and
supplies expense. Office, small tools and other supplies and the costs of
freight services purchased to ship company materials are also included.
Expenses decreased $16 million (14%) in the first quarter, primarily reflecting
the impact of FAS 143 as well as lower engineering and freight car repairs and
lower other costs.Casualty Costs- The largest component of casualty costs is personal injury
expense. Freight and property damage, insurance, environmental matters and
occupational illness expense are also included in casualty costs. Costs
increased $15 million (18%) in the first quarter compared to 2002 due to higher
insurance, freight damage and personal injury expenses.Purchased Services and Other Costs- Purchased services and other costs include
the costs of services purchased from outside contractors, state and local
taxes, net costs of operating facilities jointly used by UPRR and other
railroads, transportation and lodging for train crew employees, trucking and
contracting costs for intermodal containers, leased automobile maintenance
expenses, telephone and cellular expense, employee travel expense and computer
and other general expenses. Expenses increased $49 million (21%) in the first
quarter compared to last year primarily due to increased purchases for
locomotive, engineering and other contracts, coupled with higher state and
local taxes and intermodal volume costs.Operating Income- Operating income decreased $137 million (27%) in the first
quarter to $371 million. The operating margin (operating income as a
percentage of operating revenues) for the first quarter was 13.6%, compared to
19.2% in 2002. The decrease was driven primarily by higher fuel prices in
2003.Non-Operating Items -Interest expense decreased $13 million (9%) in the first
quarter primarily as a result of lower average debt levels and lower
weighted-average interest rates in 2003. First quarter other income decreased
$5 million (26%) in 2003 compared to 2002 due to losses from foreign currency
transactions related to the dividend received from Grupo Ferroviario Mexicano,
S.A. de C.V. and the absence of favorable fuel swaptions in 2003. Income taxes
decreased $53 million (37%) in the first quarter compared to 2002, due to lower
pre-tax income in 2003 and foreign tax credits recorded on the Railroads
investment in Grupo Ferroviario Mexicano, S.A. de C.V.OTHER MATTERSIntercompany Relationship with UPC
-At March 31, 2003 and December 31, 2002,
the Railroad had $855 million and $904 million working capital deficit
balances, respectively, relating to UPCs management of its cash position. As
part of UPCs cash management activities, the Railroad advances excess cash
(cash available after satisfying all of the Railroads obligations and paying
dividends to UPC) to UPC. Dividends declared and paid to UPC by the Railroad
typically approximate the dividends that UPC declares to its shareholders;
however, there is no formal requirement to do so. The dividend
declaration between the Railroad and UPC is determined solely by the Railroads
Board of Directors. To the extent the Railroad requires additional cash for
use in its operations, UPC makes such funds available for borrowing by the
Railroad. Transactions between UPC and UPRR are treated as net intercompany
borrowings in the Consolidated Statements of Financial Position.The majority of the Railroads intercompany borrowings from UPC relate to
the acquisitions of the Chicago and North Western Transportation Company and
Southern Pacific Rail Corporation which were funded by UPC on behalf of the
Railroad. These acquisition costs were assumed by the Railroad in the form of
intercompany borrowings from UPC. The intercompany borrowings accrue interest
at a rate of 7.5%, which may be adjusted from time to time, and are payable on
demand. There are no restrictions on the amount the Railroad is able to borrow
from UPC. Intercompany borrowings are unsecured and rank equally with all of
the Railroads other unsecured indebtedness.UPC provides the Company with various services, including strategic
planning, legal, treasury, accounting, auditing, insurance, human resources and
corporate affairs. In 2003, pursuant to a services agreement, UPC will continue
to provide services to the Company, and the Company will pay UPC its share of
the costs as determined by an independent review. Billings for these services
were $15 million for the period ended March 31, 2003.15Table of ContentsCommitments and Contingencies- There are various claims and lawsuits pending
against the Company and certain of its subsidiaries. The Company is also
subject to various federal, state and local environmental laws and regulations,
pursuant to which it is currently participating in the investigation and
remediation of various sites. A discussion of certain claims, lawsuits,
contingent liabilities and guarantees is set forth in note 6 to the
Consolidated Financial Statements, which discussion is incorporated herein by
reference.Ratio of Earnings to Fixed Charges -For the three months ended March 31, 2003
and 2002, the Companys ratio of earnings to fixed charges was 3.3 and 3.5,
respectively. The ratio of earnings to fixed charges has been computed on a
consolidated basis. Earnings represent net income less equity in undistributed
earnings of unconsolidated affiliates, plus fixed charges and income taxes.
Fixed charges represent interest charges, amortization of debt discount and the
estimated amount representing the interest portion of rental charges.Pensions- During the first quarter of 2003, the Company decreased its assumed
rate of return on pension plan assets from 9% to 8%. This assumption change
will result in an increase to 2003 pension expense of $14 million. During the
first quarter of 2003, the Railroad voluntarily contributed $50 million to its
pension plan.Dividend Receivable -The Company owns a 26% interest in Grupo Ferroviario
Mexicano, S.A. de C.V. (GFM). GFM operates a major railway system in Mexico.
During 2002, the Company recorded a dividend receivable from GFM of
approximately $118 million. As of December 31, 2002, the Company had received
approximately $20 million of the dividend. During the first quarter of 2003,
the Company received the remaining dividend.Work Force Reduction -During the first quarter of 2003, the Company incurred
$14 million, pre-tax, related to the reduction of approximately 295
administrative positions through involuntary severance.Accounting Pronouncements- In January 2003, the FASB issued Interpretation No.
46, Consolidation of Variable Interest Entities (FIN 46). FIN 46 requires a
variable interest entity to be consolidated by a company if that company is
subject to a majority of the risk of loss from the variable interest entitys
activities or entitled to receive a majority of the entitys residual returns
or both. FIN 46 also requires disclosures about variable interest entities
that a company is not required to consolidate but in which it has a significant
variable interest. The consolidation requirements of FIN 46 apply immediately
to variable interest entities created after January 31, 2003. The
consolidation requirements apply to existing entities in the first fiscal year
or interim period beginning after June 15, 2003. Certain of the disclosure
requirements apply in all financial statements issued after January 31, 2003,
regardless of when the variable interest entity was established. As described
in note 10 to the Consolidated Financial Statements, Item 8, in the Annual
Report on Form 10-K, the Railroad has a synthetic operating lease arrangement
to finance a new headquarters building, which falls within the guidance of FIN
46. In accordance with FIN 46, the Railroad will either consolidate,
restructure or refinance the synthetic lease prior to July 1, 2003. The
Company does not expect FIN 46 to have any impact on the treatment of the Sale
of Receivables.On April 30, 2003, the FASB issued Statement No. 149, Amendment of
Statement 133 on Derivative Instruments and Hedging Activities (FAS 149). FAS
149 amends FAS 133 for derivative instruments, including certain derivative
instruments embedded in other contracts and for hedging activities. FAS 149
also amends certain other existing pronouncements. It will require contracts
with comparable characteristics to be accounted for similarly. In particular,
FAS 149 clarifies when a contract with an initial net investment meets the
characteristic of a derivative and clarifies when a derivative that contains a
financing component will require special reporting in the statement of cash
flows. FAS 149 is effective for the Company for contracts entered into or
modified after June 30, 2003. The Company is evaluating the impact of adopting
the requirements of FAS 149.CAUTIONARY INFORMATIONCertain statements in this report are, and statements in other material filed
or to be filed with the Securities and Exchange Commission (as well as
information included in oral statements or other written statements made or to
be made by the Company) are, or will be, forward-looking statements as defined
by the Securities Act of 1933 and the Securities Exchange Act of 1934. These
forward-looking statements include, without limitation, statements regarding:
expectations as to operational improvements; expectations as to cost savings,
revenue growth and earnings; the time by which certain objectives will be
achieved; estimates of costs relating to environmental remediation and
restoration; proposed new products and services; expectations that claims,
lawsuits, environmental costs, commitments, contingent liabilities, labor
negotiations or agreements, or other matters will not have a material adverse
effect on the Companys consolidated financial position, results of operations
or liquidity; and statements concerning projections, predictions, expectations,
estimates or forecasts as to the Companys business,16Table of Contents

financial and operational
results, and future economic performance, statements of managements goals and
objectives and other similar expressions concerning matters that are not
historical facts.

Forward-looking statements should not be read as a guarantee of future
performance or results, and will not necessarily be accurate indications of the
times that, or by which, such performance or results will be achieved.
Forward-looking information is based on information available at the time
and/or managements good faith belief with respect to future events, and is
subject to risks and uncertainties that could cause actual performance or
results to differ materially from those expressed in the statements.

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



| |  |  | whether the Company is fully successful in implementing their
financial and operational initiatives;                                                                                                                               
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | industry competition, conditions, performance and
consolidation;                                                                                                                                                                   
|
| |  |  | legislative and regulatory developments, including possible
enactment of new tax rates and possible enactment of initiatives to
re-regulate the rail industry;                                                                     
|
| |  |  | natural events such as severe weather, fire, floods and earthquakes;                                                                                                                                                               
|
| |  |  | the effects of adverse general economic conditions, both within the United States and globally;                                                                                                                                    
|
| |  |  | any adverse economic or operational repercussions from
terrorist activities and any governmental response thereto;                                                                                                                 
|
| |  |  | war or risk of war;                                                                                                                                                                                                                
|
| |  |  | changes in fuel prices;                                                                                                                                                                                                            
|
| |  |  | changes in labor costs;                                                                                                                                                                                                            
|
| |  |  | labor stoppages; and                                                                                                                                                                                                               
|
| |  |  | the outcome of claims and litigation, including those related
to environmental contamination, personal injuries, and occupational
illnesses arising from hearing loss, repetitive motion and exposure
to asbestos and diesel fumes.

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




Item 3. Quantitative and Qualitative Disclosures About Market Risk

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




Item 4. Controls and Procedures

Within 90 days prior to the date of this report, the Company carried out an
evaluation, under the supervision and with the participation of the Companys
management, including the Companys Chief Executive Officer (CEO) and Chief
Financial Officer (CFO), of the effectiveness of the design and operation of
the Companys disclosure controls and procedures pursuant to Exchange Act Rule
13a-14. Based upon that evaluation, the CEO and the CFO concluded that the
Companys disclosure controls and procedures are effective in alerting them, in
a timely manner,
17Table of Contentsto material information relating to the Company (including its
consolidated subsidiaries) required to be included in the Companys periodic
SEC filings.Additionally, the CEO and CFO determined that there were no significant
changes in the Companys internal controls or in other factors that could
significantly affect the Companys internal controls subsequent to the date of
their most recent evaluation.
PART II. OTHER INFORMATION
Item 1. Legal ProceedingsEnvironmental MattersAs previously reported in the Companys Annual Report on Form 10-K for 2002,
the United States Environmental Protection Agency, Region 9, filed two
administrative complaints against UPRR, the first of which alleged that the
Railroad violated the Clean Water Act in 1997 by discharging dredged or fill
materials into the Carpenteria Salt Marsh in Santa Barbara County, California,
and sought civil penalties from the Railroad in an amount up to $137,500. The
second complaint alleged that the Railroad violated the Clean Water Act in 1999
by discharging dredged or fill materials into Laguna Creek, in Santa Barbara
County, California, without a Section 404 permit and likewise sought civil
penalties up to $137,500. These claims have been settled for a total payment
of $125,000.As previously reported in the Companys Annual Report on Form 10-K for
2002, the San Joaquin County District Attorney filed an action against Union
Pacific on February 3, 2003, alleging claims under the California Business and
Professions Code section 17200 (unfair business practices), Fish and Game Code
section 5650 and 5650.1, California Health and Safety Code section 25189(d) and
Public Nuisance, California Civil Code section 3480. The claims arise from a
February 16, 2000 derailment in Stockton, California in which a locomotive
struck an object on the tracks, resulting in the puncture of a fuel tank. The
District Attorney alleged that diesel fuel from this spill entered waters of
the State of California. The complaint also asserted claims under the above
referenced statutes for any other diesel spill which may have occurred in the
State of California between 2000 and 2003, in which diesel may have passed into
waters of the State of California and seeks injunctive relief, as well as civil
penalties of $25,000 for the alleged February 16, 2000, diesel spill and total
penalties of not less than $250,000 for all diesel spills which may have
occurred since 2000. The District Attorney filed an amended complaint on April
10, 2003, which narrowed the claims to the incident of February 16, 2000. The
amended complaint seeks both injunctive relief and daily penalties for each day
that fuel was in the affected waterway, which could exceed $100,000.The Company and its affiliates have received notices from the EPA and
state environmental agencies alleging that they are or may be liable under
certain federal or state environmental laws for remediation costs at various
sites throughout the United States, including sites which are on the Superfund
National Priorities List or state superfund lists. Although
specific claims have been made by the EPA and state regulators with respect to
some of these sites, the ultimate impact of these proceedings and suits by
third parties cannot be predicted at this time because of the number of
potentially responsible parties involved, the degree of contamination by
various wastes, the scarcity and quality of volumetric data related to many of
the sites and/or the speculative nature of remediation costs. Nevertheless, at
many of the superfund sites, the Company believes it will have little or no
exposure because no liability should be imposed under applicable law, one or
more other financially able parties generated all or most of the contamination,
or a settlement of the Companys exposure has been reached although regulatory
proceedings at the sites involved have not been formally terminated.Information concerning environmental claims and contingencies and
estimated remediation costs is set forth in Managements Discussion and
Analysis of Financial Condition and Results of Operations - Other Matters -
Environmental Costs, Item 2, and in note 6 to the Consolidated Financial
Statements, Item 1.OTHER MATTERSAs previously reported, Western Resources, Inc. (Western) filed a complaint on
January 24, 2000, in the U.S. District Court for the District of Kansas
alleging that UPRR and The Burlington Northern and Santa Fe Railway Company
(BNSF) materially breached their service obligations under the transportation
contract to deliver coal in a timely manner to Westerns Jeffrey Energy Center.
The original complaint sought recovery of consequential damages and termination
of the contract, excusing Western from further performance. In an amended
complaint filed September 1, 2000, Western claimed the right to retroactive
termination and added a claim for restitution. The matter went to trial before
a jury on August 20, 2002. On September 12, 2002, the jury returned a verdict
finding that the contract had not been breached by the railroads, and the
judgment dismissing the case was entered by the court on September18Table of Contents16, 2002.
Western filed a motion for new trial on September 30, 2002, which was denied by
the court on March 6, 2003. Western has filed notice of its intent to appeal
the verdict to the 8th Circuit Court of Appeals on April 4, 2003. UPRR and
BNSF will vigorously defend this and all other post-trial efforts by Western to
overturn the jury verdict.
Item 6. Exhibits and Reports on Form 8-K(a)
    
    ExhibitsExhibits are listed in the exhibit index on page 23.(b)
    
    Reports on Form 8-KOn January 22, 2003, the Registrant filed a Current Report on Form 8-K
announcing UPCs financial results for the fourth quarter of 2002.On April 24, 2003, the Registrant furnished a Current Report on Form 8-K
announcing UPCs financial results for the first quarter of 2003.19Table of Contents
SIGNATURESPursuant 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 15, 2003

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

20



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##### Table of Contents






CERTIFICATION
OF PRINCIPAL EXECUTIVE OFFICER

I, Richard K. Davidson, certify that:

1.     I have reviewed this quarterly report on Form 10-Q of Union Pacific
Railroad Company;

2.     Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;

3.     Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4.     The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

| |  |                                                                                                                                                                                                                                                                                                   
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
| |  |                                                                                                                                                                                                                                                                                                   
| |  | b) evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the Evaluation Date); and                                                                                                  
| |  |                                                                                                                                                                                                                                                                                                   
| |  | c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        

5.     The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):

| |  |                                                                                                                                                                                                                                                                                                  
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to record,
process, summarize and report financial data and have identified for the
registrants auditors any material weaknesses in internal controls; and
| |  |                                                                                                                                                                                                                                                                                                  
| |  | b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal
controls; and                                                                                                                                        

6.     The registrants other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: May 15, 2003

| |                               
| | ------------------------------
| | /s/ Richard K. Davidson       
| |                               
| | Richard K. Davidson           
| | Chairman and                  
| | Chief Executive Officer       
| | Union Pacific Railroad Company

21



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##### Table of Contents



CERTIFICATION
OF PRINCIPAL FINANCIAL OFFICER

I, James R. Young, certify that:

1.     I have reviewed this quarterly report on Form 10-Q of Union Pacific
Railroad Company;

2.     Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;

3.     Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4.     The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

| |  |                                                                                                                                                                                                                                                                                                   
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
| |  |                                                                                                                                                                                                                                                                                                   
| |  | b) evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the Evaluation Date); and                                                                                                  
| |  |                                                                                                                                                                                                                                                                                                   
| |  | c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        

5.     The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):

| |  |                                                                                                                                                                                                                                                                                                  
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to record,
process, summarize and report financial data and have identified for the
registrants auditors any material weaknesses in internal controls; and
| |  |                                                                                                                                                                                                                                                                                                  
| |  | b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal
controls; and                                                                                                                                        

6.     The registrants other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: May 15, 2003

| |                               
| | ------------------------------
| | /s/ James R. Young            
| |                               
| | James R. Young                
| | Chief Financial Officer       
| | Union Pacific Railroad Company

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##### Table of Contents



UNION PACIFIC RAILROAD COMPANY
EXHIBIT INDEX

|                                   |      |             |  |                                                                                                                                                                                                                                
|---------------------------------- | ---- | ----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No.                        |      | Description
|                                   |      |            
|Exhibits Filed with this Statement
|                                   |      |             |  |                                                                                                                                                                                                                                
|                                   | 12   |             |  | Ratio of Earnings to Fixed Charges for the Three Months Ended March 31,
2003 and 2002.                                                                                                                                         
|                                   |      |             |  |                                                                                                                                                                                                                                
|                                   | 99   |             |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002 - Richard K. Davidson
and James R. Young.                                                               
|                                   |      |             |  |                                                                                                                                                                                                                                
|Exhibits Incorporated by Reference
|                                   |      |             |  |                                                                                                                                                                                                                                
|                                   | 3(a) |             |  | Amended Certificate of Incorporation of the Registrant, effective as
of February 1, 1998, is incorporated herein by reference to Exhibit
3(a) to the Companys Annual Report on Form 10-K for the year ended
December 31, 1998.
|                                   |      |             |  |                                                                                                                                                                                                                                
|                                   | 3(b) |             |  | By-laws of the Registrant, as amended effective as of November 19,
1998, are incorporated herein by reference to Exhibit 3(b) to the
Companys Annual Report on Form 10-K for the year ended December 31,
1998.                

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