Union Pacific Reports Record Fourth Quarter and Full Year Earnings

Union Pacific Corporation (NYSE:UNP) today reported 2007 fourth quarter net income of $491 million, or $1.86 per diluted share, compared to $485 million, or $1.78 per diluted share in the fourth quarter of 2006. "The drivers of our quarterly performance were revenue growth on flat volume and improved operational efficiency,” said Jim Young, Chairman and Chief Executive Officer. "Despite record-high diesel fuel prices and winter weather challenges, we turned in a solid fourth quarter performance to post another record year for our shareholders and improved service for our customers.” 2007 Fourth Quarter Summary In the fourth quarter of 2007, Union Pacific reported operating income of $864 million compared to $810 million in fourth quarter 2006, a 7 percent improvement. Operating ratio improved to 79.4 percent versus 79.6 percent in 2006. The Company’s commodity revenue grew 6 percent in 2007 to a fourth quarter best of $4.0 billion. All six business groups posted record fourth quarter revenue, and Agricultural revenue set an all-time mark. The main component of the growth was a 6 percent increase in average revenue per car (ARC), which reached an all-time quarterly record of $1,638 per car in the fourth quarter 2007, driven primarily by yield gains. Business volumes in fourth quarter 2007, as measured by total revenue carloads, were flat at 2.4 million. The Railroad’s 2007 average quarterly fuel price, including transportation and taxes, was up 34 percent to $2.59 per gallon compared to $1.94 in 2006. The Company’s fuel consumption rate, as measured by gallons per thousand gross ton-miles, was a fourth quarter-best rate of 1.25 versus 1.27 in the fourth quarter 2006. The Company repurchased nearly 2.4 million common shares at an average share price of $127.35 in the fourth quarter of 2007. Fourth Quarter 2007 Commodity Revenue Summary versus 2006 Chemicals up 12 percent Energy up 8 percent Agricultural up 7 percent Automotive and Intermodal each up 4 percent Industrial Products up 1 percent 2007 Full Year Summary "In 2007, we were able to achieve a Company best 79.3 percent operating ratio, while posting best-ever customer satisfaction marks,” Young said. "We operated our network more safely and efficiently, while improving our return on invested capital.” Full year 2007 net income was $1.86 billion, or $6.91 per diluted share, versus $1.6 billion, or $5.91 per diluted share reported in 2006. Railroad commodity revenue totaled a record $15.5 billion in 2007, a 4 percent increase compared with 2006. Five of the six business groups set all-time revenue records in 2007. The main driver of this growth was a 6 percent increase in ARC to a record $1,594 per car, driven primarily by yield gains. Operating ratio improved 2.2 points to 79.3 percent in 2007 versus 81.5 percent in 2006. Business volumes in 2007, as measured by total revenue carloads, decreased 1 percent to 9.7 million. Operating income was a record $3.4 billion in 2007, a 17 percent increase from $2.9 billion in 2006. The Railroad’s average yearly fuel price was $2.24 per gallon in 2007 compared to $2.06 in 2006, a 9 percent increase. The Company’s fuel consumption rate was a full-year best at 1.26 versus 1.28 in 2006. The Company repurchased more than 12.6 million common shares at an average share price of $115.44 in 2007. This represents 63 percent of the 20 million share repurchase program authorized in January 2007. 2008 Outlook "We see both challenges and opportunities ahead in 2008,” Young said. "Although external factors such as the U.S. economy and high fuel prices will challenge us, Union Pacific employees have created positive momentum for our Company that will lead to further improvements in operational efficiency and customer service. Overall, we remain optimistic that our superior franchise will enable us to overcome economic weakness and post another record year in 2008.” Union Pacific Corporation owns one of America’s leading transportation companies. Its principal operating company, Union Pacific Railroad, is the largest railroad in North America, covering 23 states across the western two-thirds of the United States. A strong focus on quality and a strategically advantageous route structure enable the company to serve customers in critical and fast growing markets. It is a leading carrier of low-sulfur coal used in electrical power generation and has broad coverage of the large chemical-producing areas along the Gulf Coast. With competitive long-haul routes between all major West Coast ports and eastern gateways, and as the only railroad to serve all six major gateways to Mexico, Union Pacific has the premier rail franchise in North America. Supplemental financial information is attached. Additional information is available at our Web site: www.up.com. This press release and related materials contain statements about the Corporation’s future that are not statements of historical fact, including specifically statements of management regarding the challenges that the Corporation may face due to overall economic conditions and higher diesel fuel prices; management’s outlook on the strength of the economy and the opportunities for the Corporation, including improving operational efficiency and customer service; and the ability of the Corporation to overcome economic weakness and achieve record financial performance. 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 also generally 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 operations, customer service, and shareholder returns; expectations as to increased returns, cost savings, revenue growth, and earnings; expectations regarding fuel price and our ability to mitigate fuel costs; the time by which certain objectives will be achieved, including expected improvements in operations 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; 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 regarding operational and financial improvements and the Corporation’s future performance or results are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in the statement. Important factors, including risk factors, 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. Information regarding risk factors and other cautionary information are available in the Corporation’s Annual Report on Form 10-K for 2006, which was filed with the SEC on February 23, 2007. The Corporation updates information regarding risk factors if circumstances require such updates in its periodic reports on Form 10-Q and its subsequent Annual Reports on Form 10-K (or such other reports that may be filed with the SEC). Forward-looking statements speak only as of, and are based only upon information available on, 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 Web site are provided for convenience and, therefore, information on or available through the website is not, and should not be deemed to be, incorporated by reference herein. UNION PACIFIC CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF INCOME For the Year Ended December 31 (Dollars in Millions, Except Per Share Amounts) (Unaudited)             Fourth Quarter Year Ended 2007   2006   Pct Chg 2007   2006   Pct Chg   Operating Revenue $ 4,197 $ 3,962 6 $ 16,283 $ 15,578 5   Operating Expenses Salaries, Wages, and Employee Benefits 1,136 1,169 (3 ) 4,591 4,599 - Fuel and Utilities 913 705 30 3,164 3,012 5 Equipment and Other Rents 344 346 (1 ) 1,423 1,455 (2 ) Depreciation 337 315 7 1,321 1,237 7 Materials and Supplies 172 171 1 714 691 3 Purchased Services and Other   431     446   (3 )   1,695     1,700   - Total Operating Expenses   3,333     3,152   6   12,908     12,694   2   Operating Income 864 810 7 3,375 2,884 17   Other Income 40 57 (30 ) 116 118 (2 ) Interest Expense   (125 )   (118 ) 6   (482 )   (477 ) 1   Income Before Income Taxes 779 749 4 3,009 2,525 19 Income Tax Expense   (288 )   (264 ) 9   (1,154 )   (919 ) 26   Net Income $ 491   $ 485   1 $ 1,855   $ 1,606   16     Basic Earnings Per Share $ 1.88 $ 1.79 5 $ 6.97 $ 5.96 17   Diluted Earnings Per Share $ 1.86 $ 1.78 4 $ 6.91 $ 5.91 17 UNION PACIFIC RAILROAD REVENUE DETAIL For the Year Ended December 31 (Unaudited)               Fourth Quarter Year Ended 2007   2006   Pct Chg 2007   2006   Pct Chg Commodity Revenue (Millions): Agricultural $ 719 $ 670 7 $ 2,597 $ 2,395 8 Automotive 374 359 4 1,469 1,438 2 Chemicals 584 520 12 2,293 2,098 9 Energy 818 758 8 3,136 2,953 6 Industrial Products 753 743 1 3,110 3,168 (2 ) Intermodal 755 725 4 2,911 2,810 4         Total $ 4,003 $ 3,775 6 $ 15,516 $ 14,862 4     Revenue Carloads (Thousands): Agricultural 239 237 1 902 923 (2 ) Automotive 203 208 (2 ) 826 834 (1 ) Chemicals 227 216 5 928 896 4 Energy 597 587 2 2,299 2,296 - Industrial Products 319 325 (2 ) 1,325 1,446 (8 ) Intermodal 859 867 (1 ) 3,453 3,457 -         Total   2,444   2,440 -   9,733   9,852 (1 )     Average Revenue per Car: Agricultural $ 3,006 $ 2,825 6 $ 2,880 $ 2,595 11 Automotive 1,844 1,722 7 1,779 1,724 3 Chemicals 2,573 2,415 7 2,471 2,342 6 Energy 1,370 1,292 6 1,364 1,286 6 Industrial Products 2,356 2,282 3 2,347 2,190 7 Intermodal 880 837 5 843 813 4         Average $ 1,638 $ 1,547 6 $ 1,594 $ 1,509 6 UNION PACIFIC CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION As of December 31, 2007 and 2006 (Dollars in Millions) (Unaudited)       December 31, December 31, 2007   2006 Assets: Cash and Cash Equivalents $ 878 $ 827 Other Current Assets 1,716 1,584 Investments 923 877 Properties - Net 34,158 32,873 Other Assets 358 354     Total $ 38,033 $ 36,515 Liabilities and Shareholders' Equity: Current Portion of Long Term Debt $ 139 $ 780 Other Current Liabilities 2,902 2,759 Long Term Debt 7,543 6,000 Deferred Income Taxes 10,050 9,696 Other Long Term Liabilities 1,814 1,968 Common Shareholders' Equity 15,585 15,312     Total $ 38,033 $ 36,515 UNION PACIFIC CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS For the Year Ended December 31 (Dollars in Millions) (Unaudited)           2007       2006   Operating Activities: Net Income $ 1,855 $ 1,606 Depreciation 1,321 1,237 Deferred Income Taxes 332 235 Other - Net   (231 )   (198 ) Cash Provided by Operating Activities   3,277     2,880   Investing Activities: Capital Investments (2,496 ) (2,242 ) Other - Net   70     200   Cash Used in Investing Activities   (2,426 )   (2,042 )   Financing Activities: Common Shares Repurchased (1,375 ) - Dividends Paid (364 ) (322 ) Debt Repaid (792 ) (657 ) Debt Issued 1,581 - Other - Net   150     195   Cash Used in Financing Activities   (800 )   (784 ) Net Change in Cash and Cash Equivalents $ 51   $ 54   UNION PACIFIC CORPORATION OPERATING AND FINANCIAL STATISTICS For the Year Ended December 31 (Unaudited)               Fourth Quarter Year Ended 2007   2006   Pct Chg 2007   2006   Pct Chg   Operating/Performance Statistics: Revenue Carloads (Thousands) 2,444 2,440 - 9,733 9,852 (1 ) Revenue Ton-Miles (Billions) 143.4 140.8 2 561.8 565.2 (1 ) Gross Ton-Miles (GTMs) (Billions) 267.2 267.4 - 1,052.3 1,072.5 (2 ) Operating Margin 20.6 % 20.4 % 0.2 pt 20.7 % 18.5 % 2.2 pt Operating Ratio 79.4 % 79.6 % (0.2 ) pt 79.3 % 81.5 % (2.2 ) pt Average Employees 48,770 50,328 (3 ) 50,089 50,739 (1 ) GTMs (Millions) per Average Employee 5.48 5.31 3 21.01 21.14 (1 ) Average Fuel Price Per Gallon Consumed $ 2.59 $ 1.94 34 $ 2.24 $ 2.06 9 Fuel Consumed in Gallons (Millions) 333 340 (2 ) 1,326 1,372 (3 ) Fuel Consumption Rate (Gal per 000 GTM) 1.25 1.27 (2 ) 1.26 1.28 (2 ) Customer Satisfaction Index 78 75 3 pt 79 72 7 pt   AAR Reported Performance Measures: Average Train Speed (Miles per Hour) 22.3 22.0 1 21.8 21.4 2 Average Terminal Dwell Time (Hours) 25.4 25.9 (2 ) 25.1 27.2 (8 ) Average Rail Car Inventory 307,682 313,991 (2 ) 309,912 321,566 (4 )   Financial Statistics: Weighted Average Shares - Basic (Millions) 261.8 270.3 (3 ) 265.9 269.4 (1 ) Weighted Average Shares - Diluted (Millions) 264.3 272.7 (3 ) 268.4 272.0 (1 ) Effective Income Tax Rate 37.0 % 35.2 % 1.8 pt 38.4 % 36.4 % 2.0 pt Debt to Capital (a) 33.0 % 30.7 % 2.3 pt Adjusted Debt to Capital (b) 43.6 % 41.6 % 2.0 pt Return on Invested Capital (c) 8.7 % 8.2 % 0.5 pt Free Cash Flow (Millions) (d) $ 487 $ 516 U  (a) Debt to capital is computed as follows:  total debt divided by total debt plus equity. (b) Adjusted debt to capital, a non-GAAP measure, is computed as follows:  total debt plus net present value of operating leases plus value of sold receivables divided by total debt plus net present value of operating leases plus value of sold receivables plus equity.  See Union Pacific web site under Investor Relations for a reconciliation to GAAP. (c) Return on invested capital is a non-GAAP measure; however, we believe return on invested capital (ROIC) is important in evaluating the long-term efficiency and value of the Company's capital investments.  ROIC should be considered in addition to, rather than as a substitute for, other information provided in accordance with GAAP.  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.  See Union Pacific web site under Investor Relations for a reconciliation to GAAP.                 Year Ended            2007     2006  Cash Provided by Operating Activities       $ 3,277   $ 2,880 Cash Used in Investing Activities          (2,426 ) (2,042 ) Dividends Paid   (364 )   (322 ) Free Cash Flow $ 487   $ 516   UNION PACIFIC CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF INCOME By Quarter and Full Year 2007 (Dollars in Millions, Except Per Share Amounts) (Unaudited)           Quarter Ended Year Ended March 31 June 30 September 30 December 31 December 31   Operating Revenue $ 3,849 $ 4,046 $ 4,191 $ 4,197 $ 16,283   Operating Expenses Salaries, Wages, and Employee Benefits 1,180 1,163 1,112 1,136 4,591 Fuel and Utilities 683 766 802 913 3,164 Equipment and Other Rents 353 370 356 344 1,423 Depreciation 325 327 332 337 1,321 Materials and Supplies 176 186 180 172 714 Purchased Services and Other   413     447     404     431     1,695   Total Operating Expenses   3,130     3,259     3,186     3,333     12,908     Operating Income 719 787 1,005 864 3,375   Other Income 15 36 25 40 116 Interest Expense   (113 )   (120 )   (124 )   (125 )   (482 )   Income Before Income Taxes 621 703 906 779 3,009 Income Tax Expense   (235 )   (257 )   (374 )   (288 )   (1,154 )   Net Income $ 386   $ 446   $ 532   $ 491   $ 1,855       Basic Earnings Per Share $ 1.43   $ 1.66   $ 2.02   $ 1.88   $ 6.97     Diluted Earnings Per Share $ 1.41   $ 1.65   $ 2.00   $ 1.86   $ 6.91   UNION PACIFIC RAILROAD REVENUE DETAIL By Quarter and Full Year 2007 (Unaudited)             Quarter Ended Year Ended March 31 June 30 September 30 December 31 December 31 Commodity Revenue (Millions): Agricultural $ 607 $ 604 $ 667 $ 719 $ 2,597 Automotive 355 389 351 374 1,469 Chemicals 544 578 587 584 2,293 Energy 730 761 827 818 3,136 Industrial Products 747 815 795 753 3,110 Intermodal 669 718 769 755 2,911           Total $ 3,652 $ 3,865 $ 3,996 $ 4,003 $ 15,516   Revenue Carloads (Thousands): Agricultural 219 212 232 239 902 Automotive 201 221 201 203 826 Chemicals 224 239 238 227 928 Energy 551 551 600 597 2,299 Industrial Products 318 349 339 319 1,325 Intermodal 821 861 912 859 3,453           Total   2,334   2,433   2,522   2,444   9,733   Average Revenue per Car: Agricultural $ 2,771 $ 2,855 $ 2,876 $ 3,006 $ 2,880 Automotive 1,761 1,767 1,743 1,844 1,779 Chemicals 2,434 2,410 2,469 2,573 2,471 Energy 1,325 1,382 1,377 1,370 1,364 Industrial Products 2,351 2,334 2,347 2,356 2,347 Intermodal 815 834 843 880 843           Average $ 1,565 $ 1,589 $ 1,584 $ 1,638 $ 1,594