This summary is based on the fourth quarter fiscal 2006 earnings call conducted by Union Pacific Corp. (UNP: chart) on January 25, 2007.

Management:

- Chairman, President and CEO: James R. Young
- EVP, Marketing and Sales: John J. Koraleski
- EVP, Operations: Dennis J. Duffy
- EVP and CFO: Robert M. Knight, Jr.

Key Investors Issues

- Earnings were $485 million, or $1.78 per share, up 63.9% from the prior year.
- Commodity revenue grew 9% to $3.96 billion from $3.62 billion in 2005.
- Business volumes, as measured by total carloads, grew 1% to 2.4 million.

Full Year Highlights:

- Net income was $1.6 billion or $5.91 per share, up 60% from $1.0 billion, or $3.85 per share reported in 2005.
- Railroad commodity revenue totaled $14.9 billion, a 15 percent increase.
- Business volumes, as measured by total carloads, increased 3% to 9.9 million.

Fourth Quarter Highlights

Earnings were $485 million, or $1.78 per share, up 63.9% over the prior year’s $296 million or $1.10 per share following a 52% increase in operating income to $810 million as all facets of the operations improved.

- There was a nearly 6-point operating ratio improvement to 79.6% as the firm moved more coal tonnage than any ever before hauling a combined 61 million tons out of the both the Southern Powder River Basin and Colorado, Utah.
- Commodity revenue grew 9% to $3.96 billion from $3.62 billion in the prior year due to car loadings up 1% driven primarily by all-time record energy loadings.
- Revenue was also driven by an 8% growth in average revenue per car (ARC), resulting from yield improvements and the firm’s fuel surcharge programs.
- Fuel cost recovery added just 2 points to revenue as lower year-over-year fuel prices slowed the growth rate.

Strong price gains added 6 points to revenue growth somewhat offset by the mix effect of higher growth in the energy and intermodal volumes which have a lower average revenue per car.

- Operating expenses grew 2% as a result of lower fuel prices and better operating efficiency.
- Salaries and benefit expense grew 6% to under $1.2 billion in line with expectation as inflation, a larger workforce and volume growth were the primary drivers.

Compensation and benefit expense also increased, but this was offset with greater train troop productivity in the form of lower crew costs.

- The firm should maintain a workforce in 2007 that is roughly equal to 2006 levels, as increased productivity enables it to move growing volumes.
- The firm spend a little under $2.8 billion of the capital budget, spending roughly $2.7 billion.
- Cash capital totaled $2.2 billion and the remainder nearly $500 million is the cash equivalent of the locomotive and freight car lease programs.

Segment Highlights:

- Ag products set a new-high watermark for quarterly revenue at $670 million that was up 20% from the prior year driven by 4% growth in volume and a 15% improvement in average revenue per car.
- Ethanol and DDGs were up 50% and 64% respectively.
- Export feed grains increased 46%, while the Ag business to and from Mexico grew over 20%, with DDGs up over 100.
- Import Beer growing 40% and feed grains to Mexico up 31%.
- The new produce unit train that was launched in conjunction with the CSX in mid-October contributed to the increase in the Ag products business as well.

- Automotive business saw finished vehicle shipments declining 5% though this was offset by growth in the parts business holding overall volume flat.
- The parts growth came largely from new Honda and tier business as well as increased shipments for General Motors.
- Despite sales declining, the startup of Toyota’s new San Antonio plant will be a key driver of growth for both vehicles and parts business.

- Chemicals volumes were down 1%, as continued yield improvement drove a gain of 9% in revenue.
- Weather was a problem for the fall fertilizer season and resulted in a 12% decline in volumes.

The slowdown in construction reduced PVC demands, so liquid and dry volume was also down 3%.

- On the positive side, movements to storage-in-transit yards in the Houston Export Market helped the plastics business to grow 5% partially offsetting the decline in fertilizer area in liquid and dry.
- Going forward, growth in corn production to supply the ethanol industry should actually strengthen the fertilizer demand, given a little cushion should the softness in the construction and housing markets persist.