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High Demand and Operational Improvement Drive 64 Percent Gain in Union Pacific's Second Quarter Earnings Per Share

Posted on: Thursday, 20 July 2006, 09:00 CDT

OMAHA, Neb., July 20 /PRNewswire-FirstCall/ --

* Second quarter 2006 earnings per share grew 64 percent to $1.44 per diluted share. * Commodity revenue was an all-time quarterly record of $3.7 billion, up 17 percent. * Operating Income increased 53 percent to $717 million. * Second quarter 2006 operating ratio improved by 4.3 points to 81.7 percent.

Union Pacific Corporation today reported second quarter 2006 net income of $390 million or $1.44 per diluted share, compared to $233 million, or $.88 per diluted share in the same quarter last year. Operating income during the second quarter of 2006 was $717 million, up from $468 million reported in the second quarter of 2005.

"Quarterly operating income was the best ever in the history of the railroad," said Jim Young, President and Chief Executive Officer. "Reaching this milestone so early in the year is a clear indication that the demand environment remains very strong, and that we are moving volume more efficiently. The accomplishment I'm most pleased with is that we converted strong demand and yield gains into our best operating ratio in over two years. In addition, customers are seeing our service reliability improve."

Second Quarter 2006 Overview * Quarterly operating revenue was an all-time record $3.9 billion compared to $3.3 billion in the second quarter of 2005. * Commodity revenue set an all-time quarterly record, up 17 percent to $3.7 billion. This compares to $3.2 billion in the second quarter of 2005 and was driven by improved yields, higher fuel surcharge recoveries and a 5 percent increase in volume. * The second quarter 2006 operating ratio improved to 81.7 percent compared to 86 percent in 2005. This was the best operating ratio in over two years. * The Railroad's average quarterly fuel price increased 29 percent versus the year ago quarter, from $1.67 per gallon in 2005 to $2.15 per gallon in the second quarter of 2006. The fuel surcharge recovered 80 percent of the cost in excess of the Railroad's $.75 per gallon base fuel price. * Employee productivity, as measured by gross ton-miles per employee, gained 3 percent versus the year ago quarter. * In the face of record volume, operating metrics remained stable. Average terminal dwell time increased slightly and average quarterly train speed remained flat versus a year ago. Second Quarter Railroad Commodity Revenue Summary versus 2005 -- Agricultural up 22 percent -- Automotive up 18 percent -- Chemicals up 17 percent -- Intermodal up 16 percent -- Energy up 16 percent -- Industrial Products up 15 percent Looking Forward

"We expect the volume strength we saw in the first half of the year to continue through the upcoming peak shipping season," Young said. "The biggest challenge ahead for us will be to continue to make progress on our operating initiatives, productivity and service reliability in the face of record volume."

Union Pacific Corporation owns one of America's leading transportation companies. Its principal operating company, Union Pacific Railroad, links 23 states in the western two-thirds of the country and serves the fastest-growing U.S. population centers. Union Pacific's diversified business mix includes Agricultural Products, Automotive, Chemicals, Energy, Industrial Products and Intermodal. The railroad offers competitive long-haul routes from all major West Coast and Gulf Coast ports to eastern gateways. Union Pacific connects with Canada's rail systems and is the only railroad serving all six major gateways to Mexico, making it North America's premier rail franchise.

Supplemental financial information is attached.

Additional information is available at our Web site: http://www.up.com/. Our contact for investors is Jennifer Hamann at (402) 544-4227. Our media contact is Kathryn Blackwell at (402) 319-4288 or (402) 544-3753.

This press release and related materials may contain statements about the Corporation's future that are not statements of historical fact. These statements are, or will be, forward-looking statements as defined by the Securities Act of 1933 and the Securities Exchange Act of 1934. Forward- looking statements include, without limitation, information or statements regarding: expectations as to continued or increasing demand for rail transportation services; expectations regarding operational improvements, including the effectiveness of network management initiatives that have been or will be implemented to improve system velocity, productivity, customer service and shareholder returns; expectations as to increased returns, cost savings, revenue growth and earnings; expectations regarding fuel price; the time by which certain objectives will be achieved, including expected improvements in velocity, operating efficiencies and implementation of network management initiatives; 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 our consolidated financial position, results of operations or liquidity; and statements concerning projections, predictions, expectations, estimates or forecasts as to the Corporation's and its subsidiaries' business, financial and operational results, and future economic performance; and statements of management's beliefs, expectations, 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, including expectations as to operational, service and network fluidity improvements are 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 Corporation's and its subsidiaries' 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 Corporation and its subsidiaries are fully successful in implementing their financial and operational initiatives, including those plans and management initiatives to improve system velocity and network performance or otherwise improve operations; the impact of ongoing track maintenance and restoration work being performed in the Southern Powder River Basin of Wyoming; 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; legislative and regulatory developments, including possible enactment of initiatives to re- regulate the rail industry; the impact of a rail accident involving the release of hazardous materials; natural events such as severe weather, fire, floods, hurricanes and earthquakes; changes in fuel prices; changes in labor costs, labor stoppages, and the availability of qualified personnel required for our operations; industry competition, conditions, performance and consolidation; legislative, regulatory and legal developments involving taxation, including enactment of new federal or state income tax rates, revisions of controlling authority and the outcome of tax claims and litigation; changes in securities and capital markets; 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; and war or risk of war. More information regarding risk factors is available in the Corporation's Annual Report on Form 10-K for 2005, which was filed with the SEC on February 24, 2006. The Corporation updates information regarding risk factors if circumstances require such updates in its periodic reports on Form 10-Q (or such other reports that may be filed with the SEC).

Forward-looking statements speak only as of the date the statements were made. The Corporation 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 Corporation does update one or more forward-looking statements, no inference should be drawn that the Corporation will make additional updates with respect thereto or with respect to other forward-looking statements. References to our website are provided for convenience and, therefore, information on the website is not, and should not be construed to be, incorporated by reference herein.

UNION PACIFIC CORPORATION CONSOLIDATED STATEMENTS OF INCOME Periods Ended June 30 (Dollars in Millions, Except Per Share Amounts) (Unaudited) Second Quarter Year-to-Date Pct Pct 2006 2005 Chg 2006 2005 Chg Operating Revenues $3,923 $3,344 17 $7,633 $6,496 18 Operating Expenses Salaries, Wages, and Employee Benefits 1,140 1,075 6 2,269 2,174 4 Fuel and Utilities 794 597 33 1,486 1,136 31 Equipment and Other Rents 371 340 9 738 693 6 Depreciation 308 292 5 611 581 5 Materials and Supplies 178 128 39 342 263 30 Purchased Services and Other 415 444 (7) 865 868 -- Total Operating Expenses 3,206 2,876 11 6,311 5,715 10 Operating Income 717 468 53 1,322 781 69 Other Income - Net 29 29 -- 39 49 (20) Interest Expense (120) (128) (6) (240) (260) (8) Income Before Income Taxes 626 369 70 1,121 570 97 Income Tax Expense (236) (136) 74 (420) (209) U Net Income $390 $233 67 $701 $361 94 Basic Earnings Per Share $1.45 $0.89 63 $2.61 $1.38 89 Diluted Earnings Per Share $1.44 $0.88 64 $2.58 $1.36 90 UNION PACIFIC RAILROAD REVENUE DETAIL Periods Ended June 30 (Unaudited) Second Quarter 2006 2005 Pct Chg Commodity Revenue (000): Agricultural $565,743 $463,261 22 Automotive 389,980 329,166 18 Chemicals 536,075 458,754 17 Energy 732,164 629,437 16 Industrial Products 823,701 718,611 15 Intermodal 694,302 597,247 16 Total $3,741,965 $3,196,476 17 Revenue Carloads: Agricultural 225,414 215,257 5 Automotive 224,739 210,321 7 Chemicals 234,598 235,727 -- Energy 575,150 525,470 9 Industrial Products 386,604 397,071 (3) Intermodal 864,168 807,142 7 Total 2,510,673 2,390,988 5 Average Revenue per Car: Agricultural $2,510 $2,152 17 Automotive 1,735 1,565 11 Chemicals 2,285 1,946 17 Energy 1,273 1,198 6 Industrial Products 2,131 1,810 18 Intermodal 803 740 9 Total $1,490 $1,337 11 Year-to-Date 2006 2005 Pct Chg Commodity Revenue (000): Agricultural $1,128,332 $911,163 24 Automotive 751,308 622,271 21 Chemicals 1,037,576 899,418 15 Energy 1,431,631 1,297,220 10 Industrial Products 1,598,371 1,348,820 19 Intermodal 1,337,923 1,121,516 19 Total $7,285,141 $6,200,408 17 Revenue Carloads: Agricultural 459,372 431,012 7 Automotive 434,629 402,638 8 Chemicals 452,324 463,227 (2) Energy 1,125,315 1,099,457 2 Industrial Products 752,918 755,505 -- Intermodal 1,678,746 1,539,353 9 Total 4,903,304 4,691,192 5 Average Revenue per Car: Agricultural $2,456 $2,114 16 Automotive 1,729 1,545 12 Chemicals 2,294 1,942 18 Energy 1,272 1,180 8 Industrial Products 2,123 1,785 19 Intermodal 797 729 9 Total $1,486 $1,322 12 UNION PACIFIC CORPORATION CONSOLIDATED STATEMENTS OF FINANCIAL POSITION As of June 30, 2006 and December 31, 2005 (Dollars in Millions) (Unaudited) June 30, December 31, 2006 2005 Assets: Cash and Cash Equivalents $262 $773 Other Current Assets 1,625 1,552 Investments 831 806 Properties - Net 32,491 31,975 Other Assets 798 514 Total $36,007 $35,620 Liabilities and Shareholders' Equity: Current Portion of Long Term Debt $391 $656 Other Current Liabilities 2,723 2,728 Long Term Debt 6,678 6,760 Deferred Income Taxes 9,534 9,482 Other Long Term Liabilities 2,266 2,287 Common Shareholders' Equity 14,415 13,707 Total $36,007 $35,620 UNION PACIFIC CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS For the Six Months Ended June 30 (Dollars in Millions) (Unaudited) 2006 2005 Operating Activities: Net Income $701 $361 Depreciation 611 581 Deferred Income Taxes 81 155 Other - Net (160) 40 Cash Provided by Operating Activities 1,233 1,137 Investing Activities: Capital Investments (1,131) (1,078) Other - Net (253) (388) Cash Used in Investing Activities (1,384) (1,466) Financing Activities: Dividends Paid (160) (156) Debt Repaid (342) (639) Other - Net 142 311 Cash Used in Financing Activities (360) (484) Net Change in Cash and Cash Equivalents $(511) $(813) APPENDIX UNION PACIFIC CORPORATION OPERATING AND FINANCIAL STATISTICS Periods Ended June 30 (Unaudited) Second Quarter Year-to-Date Pct Pct 2006 2005 Chg 2006 2005 Chg Operating Statistics: Revenue Carloads (Thousands) 2,511 2,391 5 4,903 4,691 5 Revenue Ton-Miles (Billions) 143.4 136.8 5 282.7 274.3 3 Gross Ton-Miles (GTMs) (Billions) 272.1 260.0 5 535.1 518.4 3 Operating Margin 18.3% 14.0% 4.3 pt 17.3% 12.0% 5.3 pt Operating Ratio 81.7% 86.0% (4.3) pt 82.7% 88.0% (5.3) pt Average Employees 51,077 50,093 2 50,670 49,694 2 GTMs (Millions) per Average Employee 5.33 5.19 3 10.56 10.43 1 Average Fuel Price Per Gallon $2.15 $1.67 29 $2.01 $1.56 29 Fuel Consumed in Gallons (Millions) 346 335 3 691 679 2 Fuel Consumption Rate (Gal per 000 GTM) 1.27 1.29 (2) 1.29 1.31 (2) AAR Reported Performance Measures: Average Train Speed (Miles per Hour) 21.2 21.2 -- 21.3 21.2 -- Average Terminal Dwell Time (Hours) 27.6 27.4 1 28.3 28.4 -- Average Rail Car Inventory(a) 324,833 N/A N/A 326,220 N/A N/A Financial: Weighted Average Shares - Basic (Millions) 269.3 262.8 2 268.8 262.1 3 Weighted Average Shares - Diluted (Millions) 272.1 265.6 2 271.6 265.0 2 Effective Income Tax Rate 37.7% 36.9% 0.8 pt 37.5% 36.7% 0.8 pt Debt to Capital(b) 32.9% 35.1% (2.2) pt Lease Adjusted Debt to Capital(c) 41.2% 43.6% (2.4)pt Free Cash Flow (Millions)(d) $(311) $(485) 36 (a) On October 1, 2005, the rail car inventory measurement was standardized for all reporting railroads. Rail car inventory for prior periods was not recalculated. (b) Debt to capital is computed as follows: total debt divided by total debt plus equity.2005 percentages are as of December 31, 2005. (c) Lease adjusted debt to capital, a non-GAAP measure, is computed as follows: total debt plus net present value of operating leases divided by total debt plus equity plus net present value of operating leases. 2005 percentages are as of December 31, 2005. See Union Pacific web site under Investor Relations for a reconciliation to GAAP. (d) Free cash flow is a non-GAAP measure; however, we believe that it is important in evaluating our financial performance and measures our ability to generate cash without incurring additional external financings. The following table reconciles cash provided by operating activities (GAAP measure) to free cash flow: Year-to-Date 2006 2005 Cash Provided by Operating Activities $1,233 $1,137 Cash Used in Investing Activities (1,384) (1,466) Dividends Paid (160) (156) Free Cash Flow $(311) $(485) UNION PACIFIC CORPORATION STATEMENTS OF CONSOLIDATED INCOME By Quarter and Year-to-Date 2006 (Dollars in Millions, Except Per Share Amounts) (Unaudited) Quarter Ended Year-to-Date March 31 June 30 June 30 Operating Revenues $3,710 $3,923 $7,633 Operating Expenses Salaries, Wages, and Employee Benefits 1,129 1,140 2,269 Fuel and Utilities 692 794 1,486 Equipment and Other Rents 367 371 738 Depreciation 303 308 611 Materials and Supplies 164 178 342 Purchased Services and Other 450 415 865 Total Operating Expenses 3,105 3,206 6,311 Operating Income 605 717 1,322 Other Income - Net 10 29 39 Interest Expense (120) (120) (240) Income Before Income Taxes 495 626 1,121 Income Tax Expense (184) (236) (420) Net Income $311 $390 $701 Basic Earnings Per Share $1.16 $1.45 $2.61 Diluted Earnings Per Share $1.15 $1.44 $2.58 UNION PACIFIC RAILROAD REVENUE DETAIL By Quarter and Year-to-Date 2006 (Unaudited) Quarter Ended Year-to-Date March 31 June 30 June 30 Commodity Revenue (000): Agricultural $562,589 $565,743 $1,128,332 Automotive 361,328 389,980 751,308 Chemicals 501,501 536,075 1,037,576 Energy 699,467 732,164 1,431,631 Industrial Products 774,670 823,701 1,598,371 Intermodal 643,621 694,302 1,337,923 Total $3,543,176 $3,741,965 $7,285,141 Revenue Carloads: Agricultural 233,958 225,414 459,372 Automotive 209,890 224,739 434,629 Chemicals 217,726 234,598 452,324 Energy 550,165 575,150 1,125,315 Industrial Products 366,314 386,604 752,918 Intermodal 814,578 864,168 1,678,746 Total 2,392,631 2,510,673 4,903,304 Average Revenue per Car: Agricultural $2,405 $2,510 $2,456 Automotive 1,722 1,735 1,729 Chemicals 2,303 2,285 2,294 Energy 1,271 1,273 1,272 Industrial Products 2,115 2,131 2,123 Intermodal 790 803 797 Total $1,481 $1,490 $1,486

Union Pacific Corporation

CONTACT: investors, Jennifer Hamann, +1-402-544-4227, or media, KathrynBlackwell, +1-402-319-4288, or +1-402-544-3753, both of Union PacificCorporation

Web site: http://www.up.com/

Source: PRNewswire-FirstCall

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