UNION PACIFIC CORP, 10-K, 1997-03-28

UNION PACIFIC CORP
10-K, 1997-03-28
RAILROADS, LINE-HAUL OPERATING

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<PAGE> COVER

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________

FORM 10-K
(Mark One)

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1996
OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from _________ to _________

Commission file number 1-6075

UNION PACIFIC CORPORATION
(Exact name of registrant as specified in its charter)

Utah 13-2626465
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)

Martin Tower, Eighth and Eaton Avenues 18018
Bethlehem, Pennsylvania (Zip Code)
(Address of principal executive offices)

(610) 861-3200
(Registrant's telephone number, including area code)
___________________________________

Securities registered pursuant to Section 12(b) of the Act:

Name of each exchange on
Title of each class which registered
- ---------------------------------------- -------------------------
Common Stock (Par Value $2.50 per share) New York Stock Stock Exchange, Inc.

___________________________________

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 if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ].
___________________________________

As of February 28, 1997 the aggregate market value of the registrant's
Common Stock held by non-affiliates (using the New York Stock Exchange closing
price) was approximately $14,872,259,119.

The number of shares outstanding of the registrant's Common Stock as of
February 28, 1997 was 246,842,475.

Portions of the following documents are incorporated by reference into
this Report: (1) registrant's Annual Report to Stockholders for the year ended
December 31, 1996 (Parts I, II and IV); and (2) registrant's definitive Proxy
Statement for the annual meeting of stockholders to be held on April 18, 1997
(Part III).

<PAGE> 1

PART I

Item 1. Business and Item 2. Properties

Discussion of Significant Events and Operations

Union Pacific Corporation (UPC or the Corporation), incorporated in Utah
in 1969, operates through subsidiaries primarily in the areas of rail
transportation and trucking. The Corporation's rail transportation operations
include Union Pacific Railroad Company (including Missouri Pacific Railroad
Company (MPRR), which was merged with Union Pacific Railroad Company on
January 1, 1997)(UPRR), and the rail subsidiaries of Southern Pacific Rail
Corporation (Southern Pacific or SP)(collectively, the Railroad), the
acquisition of which was completed in September 1996. The Corporation's
trucking operations principally consist of Overnite Transportation Company
(Overnite). Each of the foregoing subsidiaries is either directly or indi-
rectly wholly owned by the Corporation. During 1996 and 1995, UPC completed
several strategic transactions that refocused the Corporation's business
objectives on its core transportation operations (see "Corporate
Reorganization" below).

Corporate Reorganization

Chicago and North Western Transportation Company (CNW) - In April 1995,
UPC acquired the remaining 71.6% of CNW's outstanding common stock not
previously owned by UPC for $1.2 billion. The acquisition of CNW was
accounted for as a purchase, and CNW's financial results were consolidated
with UPC, beginning in May 1995.

Natural Resources Divestiture - In July 1995, UPC's Board of Directors
approved a formal plan to dispose of its oil, gas and mining business through
an initial public offering (IPO) of 17% of the common stock of Union Pacific
Resources Group Inc. (Resources), followed by a distribution of UPC's
remaining interest in Resources to the Corporation's stockholders on a tax-
free, pro-rata basis (the Spin-Off). In October 1995, Resources completed the
IPO, and, after UPC's receipt of a favorable Internal Revenue Service ruling
as to the tax-free nature of the Spin-Off in September 1996, UPC completed its
divestiture of Resources.

Southern Pacific Acquisition - In September 1995, UPC acquired 25% of
Southern Pacific, and, in September 1996, it acquired the remaining 75% after
receipt of a favorable decision from the Surface Transportation Board of the
U.S. Department of Transportation (STB) regarding the Corporation's
acquisition of SP. The aggregate Southern Pacific purchase price was $4.1
billion ($2.5 billion in UPC common stock and $1.6 billion in cash). The
acquisition of Southern Pacific was accounted for as a purchase, and Southern
Pacific's results were fully consolidated with the Corporation's results
beginning in October 1996.

Continuing Operations

Rail Transportation - The Railroad is the largest railroad in the United
States (measured in both track miles and freight revenue), operating nearly
36,000 route miles linking Pacific Coast and Gulf Coast ports with the
Midwest. The Railroad serves the western two-thirds of the country and
maintains coordinated schedules with other carriers for the handling of
freight to and from

<PAGE> 2

the Atlantic seaboard, the Pacific Coast, the Southeast,
the Southwest, Canada and Mexico. Export and import traffic is moved through
Gulf Coast and Pacific Coast ports, and across the Mexican and (primarily
through interline connections) Canadian borders. Major categories of freight
hauled by the Railroad are agricultural products, automotive, chemicals,
energy (primarily coal), industrial products and intermodal. In 1996, energy
was the largest commodity hauled, representing 39.3% of the Railroad's revenue
ton-miles and 22.0% of the Railroad's commodity revenue. Percentages of
revenue ton-miles and commodity revenue for other commodities hauled by the
Railroad are presented on page 49 of the 1996 Annual Report to Stockholders
(Annual Report) and are incorporated herein by reference.

In its rail transportation business, the Railroad is subject to price and
service competition from other railroads, motor carriers and barge operators.
The vast majority of the Railroad's freight is hauled in corridors served by
competing railroads and motor carriers. Motor carrier competition has been
strengthened by longer combination vehicles that are allowed in a number of
states in which the Railroad operates and magnified by aggressive motor
carrier pricing caused by overcapacity within the trucking industry. Because
of the Railroad's proximity to major inland and Gulf Coast waterways, barge
competition can be particularly pronounced for grain and bulk commodities in
certain markets.

Approximately 90% of the Railroad's 54,000 employees are represented by
rail unions. During 1996, nearly all UPRR's unionized workforce ratified
five-year national agreements that include a combination of general wage
increases and lump-sum payments. In addition, the contracts provide for
increased flexibility in work rules. The Railroad has implemented two-person
crews for all through-freight trains and for a portion of yard and local
operations. Expansion of two-person crews is planned for other sections of
the system. With respect to Southern Pacific's unionized workforce, under the
conditions imposed by the STB in connection with the Southern Pacific
acquisition, labor agreements between the Railroad and the unions must be
negotiated before the UPRR and SP rail systems can be fully integrated. UPRR
has begun negotiations with the union leadership representing Southern
Pacific's workforce and expects union agreements to be ratified in 1997 and
1998. To date, the leadership of certain regional shopcraft, carmen and
clerical unions (collectively representing approximately 40% of SP's
unionized workforce) has negotiated agreements relating to the consolidation
and coordination of UPRR's and Southern Pacific's operations.

A separate Annual Report on Form 10-K for the year ended December 31,
1996, was filed by UPRR and contains additional information concerning that
company.

Trucking - Overnite, a major interstate trucking company, serves all 50
states and portions of Canada and Mexico through 161 service centers located
throughout the United States. As one of the largest trucking companies in the
United States, Overnite serves 95% of the U.S. population, specializing in
less-than-truckload shipments and offering a comprehensive array of services.
Overnite transports a variety of products, including machinery, tobacco,
textiles, plastics, electronics and paper products.

Overnite experiences intense service and price competition from both
regional and national motor carriers, which has been amplified by overcapacity
in the trucking industry. Overcapacity and intense competition will likely

<PAGE> 3

continue well into 1997. During 1996, Overnite launched several strategic
initiatives aimed at better matching its operations to the current trucking
environment. Actions taken included workforce reductions, service center
consolidations, centralization of the linehaul management process, and pricing
initiatives targeting Overnite's lowest margin customers.

As the nation's largest non-union trucking company, Overnite is
periodically targeted by major labor organization efforts and is currently the
subject of an organizational campaign instituted by the International
Brotherhood of Teamsters (Teamsters) at many of its service centers. Since
year-end 1994, over 50 of Overnite's 161 service centers have received
petitions for union elections. Where elections have been held, 29 Overnite
service centers voted against representation and two elections remain
unresolved. The employees of three service centers that previously voted for
union representation filed petitions with the National Labor Relations Board
(NLRB) to decertify the Teamsters as their union bargaining representative.
Thirteen service centers, representing approximately 8% of Overnite's
nationwide workforce, have voted for union representation, and the Teamsters
have been certified as the bargaining representative for such employees
without challenge by Overnite. Seven other service centers, representing
another 9% of Overnite's nationwide workforce, have either voted for union
representation, or it is unclear how such employees have voted, and such
elections are currently being challenged by Overnite before the NLRB or the
Federal courts. Overnite has begun negotiations with the Teamsters at the
certified service centers and does not anticipate that these negotiations will
have a significant impact on its future operating results.

Discontinued Operations

Natural Resources - Resources is an independent oil and gas company
engaged in the exploration for and production of natural gas, crude oil and
associated products.

A separate Annual Report on Form 10-K for the year ended December 31,
1996 was filed by Resources, which contains additional information concerning
that company.

Other Information

Additional information for UPC's principal businesses is presented on
pages 8 through 21, 39, 40, 49 and 50 of the Annual Report and such
information (excluding photographs on pages 8 through 21, none of which
supplements the text and which are not otherwise required to be disclosed
herein) is incorporated herein by reference. Information on business segments
on page 33 and a map of the Corporation's operations on pages 52 and 53 of the
Annual Report are also incorporated herein by reference.

Governmental Regulation

UPC's operations are currently subject to a variety of Federal,
state and local regulation. The most significant areas of regulation are
described below.

<PAGE> 4

The operations of the Railroad and Overnite are subject to the regulatory
jurisdiction of the STB, the successor to the Interstate Commerce Commission
(ICC), other Federal agencies and various state agencies. The STB has
jurisdiction over rates charged on certain regulated rail traffic; freight car
compensation; transfer, extension or abandonment of rail lines; and
acquisition of control of rail and motor carriers by rail common carriers.
Other Federal agencies have jurisdiction over safety, movement of hazardous
materials, movement and disposal of hazardous waste and equipment standards.

As a result of the ICC Termination Act of 1995, effective January 1,
1996, state agencies no longer have authority to regulate intrastate rail
rates, practices and services. In addition, in January 1995, the Federal
government deregulated intrastate trucking, lifting state oversight of rates,
routes and service. However, various state and local agencies have
jurisdiction over disposal of hazardous wastes and seek to regulate movement
of hazardous materials.

Environmental Regulation

Subsidiaries of UPC are subject to various environmental statutes and
regulations, including the Resource Conservation and Recovery Act (RCRA), the
Comprehensive Environmental Response, Compensation and Liability Act of 1980
(CERCLA), and the Clean Air Act (CAA).

RCRA applies to hazardous waste generators and transporters, as well as
persons engaged in treatment and disposal of hazardous waste, and specifies
standards for storage areas, treatment units and land disposal units. All
generators of hazardous waste are required to label shipments in accordance
with detailed regulations and to prepare a detailed manifest identifying the
material and stating its destination before waste can be released for offsite
transport. The transporter must deliver the hazardous waste in accordance
with the manifest and only to a treatment, storage or disposal facility
qualified for RCRA interim status or having a final RCRA permit.

Environmental Protection Agency (EPA) regulations under RCRA have
established a comprehensive system for the management of hazardous waste.
These regulations identify a wide range of industrial by-products and residues
as hazardous waste, and specify requirements for "cradle-to-grave" management
of such waste from the time of generation through the time of disposal and
beyond. States that have adopted hazardous waste management programs with
standards at least as stringent as those promulgated by the EPA may be
authorized by the EPA to administer all or part of RCRA on behalf of the EPA.

CERCLA was designed to establish a strategy for cleaning up facilities at
which hazardous waste or other hazardous substances have created actual or
potential environmental hazards. The EPA has designated certain facilities as
requiring cleanup or further assessment. Among other things, CERCLA authorizes
the Federal government either to clean up such facilities itself or to order
persons responsible for the situation to do so. The act created a multi-
billion dollar fund to be used by the Federal government to pay for such
cleanup efforts. In the event the Federal government pays for such clean-up,
it will seek reimbursement from private parties upon which CERCLA imposes
liability.

<PAGE> 5

CERCLA imposes strict liability on the owners and operators of facilities
in which hazardous waste and other hazardous substances are deposited or from
which they are released or are likely to be released into the environment. It
also imposes strict liability on the generators of such waste, and the
transporters of the waste who select the disposal or treatment sites.
Liability may include cleanup costs incurred by third persons and damage to
publicly-owned natural resources. UPC's subsidiaries are subject to potential
liability under CERCLA as generators of hazardous waste and as transporters.
Some states have enacted, and other states are considering enacting,
legislation similar to CERCLA. Certain provisions of these acts are more
stringent than CERCLA. States that have passed such legislation are currently
active in designating more facilities as requiring cleanup and further
assessment.

The operations of the Corporation's subsidiaries are subject to the
requirements of the CAA. The 1990 amendments to the CAA include a provision
under Title V requiring that certain facilities obtain operating permits. EPA
regulations require all states to develop Federally-approvable permit
programs. Affected facilities must submit air operating permit applications
to the respective states within one year of the EPA's approval of the state
programs. Certain UPC railroad facilities may be required to obtain such
permits. In addition, in January 1997, the EPA issued proposed regulations
which, if adopted in the proposed form, would require that locomotives
purchased or remanufactured after 1999 or 2000 meet certain stringent
emissions criteria. While the cost of meeting these requirements may be
significant, expenditures are not expected to affect materially the
Corporation's financial condition or results of operations.

The operations of UPC's subsidiaries are also subject to other laws
protecting the environment, including permit requirements for wastewater
discharges pursuant to the National Pollutant Discharge Elimination System and
storm-water regulations under the Federal Water Pollution Control Act.

Cautionary Information

Certain information included in this report contains, and other materials
filed or to be filed by the Corporation 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 Corporation) contain or will
contain, forward-looking statements within the meaning of the Securities Act
of 1933, as amended, and the Securities Exchange Act of 1934, as amended.
Such forward- looking information may include, without limitation, statements
that the Corporation does not expect that lawsuits, environmental costs,
commitments, contingent liabilities, labor negotiations or other matters will
have a material adverse effect on its consolidated financial condition,
results of operations or liquidity and other similar expressions concerning
matters that are not historical facts, and projections as to the Corporation's
financial results. Such forward-looking information is or will be based on
information available at that time and is or will be subject to risks and
uncertainties that could cause actual results to differ materially from those
expressed in the statements. Important factors that could cause such
differences include but are not limited to industry competition and regulatory
developments, natural events such as floods and earthquakes, the effects of
adverse general economic conditions, fuel prices and the ultimate outcome of
environmental investigations or proceedings and other types of claims and
litigation.

<PAGE> 6

Item 3. Legal Proceedings

Southern Pacific Acquisition

On August 12, 1996, the STB served a decision (the "Decision") approving
the acquisition of control of Southern Pacific and its rail affiliates by the
Corporation and its affiliates, the merger of SP with an affiliate of the
Corporation, and certain related transactions, subject to various conditions.
The acquisition was consummated on September 11, 1996.

On August 29, 1996, the Corporation and its affiliates filed a petition
equesting that the STB clarify certain conditions set forth in the Decision
that would allow the Burlington Northern and Santa Fe Railway Company ("BNSF")
to serve new transloading facilities and other new facilities on SP rail lines
of UPRR or SP over which BNSF has received trackage rights. The STB denied
this petition. In addition, various other parties requested that the STB (a)
clarify certain aspects of the condition requiring that the Corporation and
its affiliates modify contracts with shippers at "2-to-1" points to allow BNSF
to access at least 50% of the volume, (b) remove the restriction that it
imposed on the traffic that the Texas Mexican Railway Company ("Tex Mex")
could transport over trackage rights granted to Tex Mex in the Decision, (c)
expand the trackage rights that it made available to Dow Chemical Company for
use in connection with a possible build-out from its Freeport, Texas,
facility, (d) allow Utah Railway Company access to the facility of Railco,
Inc., in Carbon City, Utah, (e) reconsider its decision not to impose labor
protective conditions on the settlement agreement between certain rail
affiliates of the Corporation and the Gateway Western Railway Company, (f)
reconsider its decision to grant BNSF access to shippers in Lake Charles,
Louisiana, as a condition to the merger, and (g) reconsider its approval of
the merger. The STB resolved all of these petitions against the petitioners
and in favor of the Corporation and its affiliates.

On January 24, 1997, the Corporation and its affiliates, as well as
Kansas City Southern Railway Company ("KCS"), BNSF and Texas Utilities
Electric Company ("TUE"), submitted to the STB their proposals regarding the
implementation of the STB's condition requiring that, in order to preserve
TUE's competitive options for the movement of coal to/from its Martin Lake,
Texas generating station, BNSF be permitted to use its trackage rights over
UPRR and SP lines to handle future TUE coal trans via interchange with KCS at
two locations. The STB is considering the parties' dispute concerning the
scope of interchange rights that would appropriately implement this condition.

The City of Reno, Nevada (the "City"), filed a complaint on July 12, 1996
in the U.S. District Court for the District of Nevada seeking a writ of
mandamus directing the STB to prepare, with regard to the alleged impacts of
the merger on Reno and the surrounding area, an environmental impact statement
pursuant to the National Environmental Policy Act and a conformity
determination pursuant to the Clean Air Act. The District Court dismissed the
complaint for lack of jurisdiction and denied the City's petition to transfer
the suit to the U.S. Court of Appeals for the Ninth Circuit. The City
subsequently filed a petition for review of the Decision in the U.S. Court of
Appeals for the Ninth Circuit on August 21, 1996. The City's petition was
ordered consolidated in the U.S. Court of Appeals for the District of Columbia
Circuit with the petitions for review described below.

<PAGE> 7

Judicial appeals with respect to the Decision were filed in the U.S.
Court of Appeals for the District of Columbia Circuit by various parties. The
Corporation and its affiliates filed a petition for review of the STB's
decision to impose a condition permitting BNSF to serve new transloading
facilities on lines of the merging railroads over which BNSF will have
overhead trackage rights, and also seeking review of the STB's approval of the
trackage rights applications of Tex Mex. BNSF also filed petitions for review
of the grant of trackage rights to Tex Mex. The City of Wichita and Sedgwick
County, Kansas, filed a petition seeking review of the Decision insofar as it
may require parties other than the Corporation and its affiliates to
contribute to the costs of mitigating the effects of increased rail traffic in
those locations. Enterprise Products Company filed a petition for review of
the Decision insofar as it did not identify Enterprise's Mont Belvieu, Texas,
facility as a "2-to-1" facility. The Western Coal Traffic League ("WCTL")
filed a petition for review on the grounds that the Decision approving the
merger and denying conditions sought by WCTL was arbitrary and capricious and
based on a misapplication of the facts and law. Geneva Steel Company filed
three petitions for review, contending that the Decision and certain STB
decisions resolving petitions for clarification or reconsideration were
arbitrary, capricious, an abuse of discretion, unsupported by substantial
evidence, or otherwise contrary to law. Tex Mex filed a petition for review
of the STB's decision to impose a restriction on traffic that the Tex Mex can
transport over trackage rights granted to Tex Mex in the Decision, as well as
the STB's decision refusing to reopen or reconsider the Decision. The United
Transportation Union-General Committee of Adjustment filed a petition for
review of the Decision and of the STB's decision denying a petition to reopen
the Decision. KCS filed petitions for review of the Decision raising
challenges to STB determinations (a) to grant rights to BNSF to handle traffic
of shippers in the Lake Charles area, (b) not to require UPRR and SP to ensure
that KCS could interchange traffic with BNSF at Beaumont, Texas, for movements
to Houston, Texas, and at Lake Charles, Louisiana, for movements to New
Orleans, Louisiana, (c) granting trackage rights to BNSF over certain KCS
trackage, (d) imposing limitations on the rights granted to Tex Mex, (e)
addressing environmental aspects of the proceeding, and (f) declining to
expand the procedural schedule.

All of the petitions for review have been consolidated. No briefing
schedule has yet been established. An STB motion to sever the petitions for
review filed by the City of Reno, Nevada, and the City of Wichita and Sedgwick
County, Kansas, and hold briefing in those two cases in abeyance is currently
pending. The Corporation believes that it is unlikely that the disposition of
these appeals will have a material impact on its results of operations.

The Decision provided for an 18-month process to conduct studies to
assess environmental impacts in the areas of Reno, Nevada, and Wichita,
Kansas, and arrive at mitigation measures to address those impacts. Both
studies are currently underway, and the STB's environmental section has
indicated that it expects to issue preliminary recommendations for public
comment by mid-summer.

On December 4, 1996, the Corporation and its affiliates filed a demand
for arbitration with the American Arbitration Association relating to the
implementation of a proportional rate arrangement that was part of the
settlement agreement between BNSF and the Corporation and its affiliates
related to the SP acquisition. On January 8, 1997, the parties signed a
letter agreement resolving in principle their disputes, and agreed to suspend
the arbitration proceeding

<PAGE> 8

pending completion of a formal agreement.

On February 11, 1997, BNSF filed a demand for arbitration with the
American Arbitration Association relating to the condition of a rail line that
BNSF had obtained as part of the settlement agreement between BNSF and the
Corporation and its affiliates related to the SP acquisition. BNSF contends
that it is entitled to a $10.5 million escrow that SP established in
connection with this dispute, while the UPRR and SP maintain that BNSF is not
entitled to any of the escrowed funds. The Corporation and SP answered BNSF's
demand on February 25, 1997, and the arbitration proceeding is pending.

Bottleneck Proceedings

On August 27, 1996, the STB initiated a proceeding asking for arguments
and evidence on the issue of whether it should modify its existing regulations
regarding the prescription of, and challenge to, rates for rail service
involving a segment that is served by only one railroad between an interchange
point and an exclusively-served shipper facility (i.e., a bottleneck segment).
The STB proceeding also referred to pending motions to dismiss three
individual complaint proceedings filed by shippers challenging a class rate
charged for the movement of coal, two of which named UPRR and Southern Pacific
Transportation Company (SPT) as a party thereto. Neither complaint proceeding
individually involves significant exposure for reparations. However, if
existing regulation of bottleneck movements were changed, future revenue from
such movements, including those covered by the complaint proceedings, could be
substantially reduced. On December 31, 1996, the STB served a decision which
generally reaffirmed earlier rulings regarding a rail carrier's obligation to
provide rates for bottleneck segments and assured rail carriers' right to
differentially price traffic. It also dismissed the two complaint proceedings
in which UPRR and SPT were defendants. The STB decision is pending on appeal
before the Eighth Circuit Court of Appeals.

Labor Matters
The General Counsel of the NLRB is seeking a bargaining order remedy
in 15 cases involving Overnite where a Teamster local union lost a
representation election. These cases are pending before a NLRB administrative
law judge. A bargaining order remedy would require Overnite to recognize
and bargain with the union as if the union had won instead of lost
the election and would be warranted only if the following findings
are made: (1) the petitioning Teamsters local had obtained valid
authorization cards from a majority of the employees in an appropriate unit;
(2) Overnite committed serious unfair labor practices; and (3) those unfair
labor practices would preclude the holding of a fair election despite the
application of less drastic remedies. Under NLRB case law, a bargaining order
remedy would attach retrospectively to the date when, after a union with a
showing of majority support demanded recognition, Overnite embarked on an
unlawful course of conduct. In the event of such a retroactive effective
bargaining order, Overnite would face back pay liability for losses in
employee earnings due to unilateral changes in terms or conditions of
employment, such as layoffs, reduced hours of work or less remunerative work
assignments. Overnite believes it has substantial defenses to these cases and
intends to aggressively defend them.

<PAGE> 9

Environmental Matters

The EPA has brought a civil action against SPT and its subsidiary, The
Denver and Rio Grande Western Railroad Company, in the U.S. District Court for
the District of Colorado alleging violation of the Clean Water Act and the Oil
Pollution Act. The complaint identifies seven incidents involving the alleged
release of hazardous substances into the waters of the United States and seeks
civil penalties of $25,000 per day and unspecified injunctive relief to
prevent future violations. The incidents are all related to derailments
dating back to 1992 and include six incidents in which the alleged releases
were from ruptured locomotive fuel tanks and one incident in 1996 involving an
alleged release of sulfuric acid near the Tennessee Pass.

In July 1995, the Butte County (Oroville, California) District Attorney
advised that a civil penalty action would be filed against UPRR for violations
resulting from a derailment and spill of diesel fuel into the Feather River in
Peo, California on April 14, 1995. In late July, the California Regional
Water Quality Control Board also filed a separate penalty action seeking
$40,000 for the same incident. This latter action was settled for $40,000.
In 1996, the District Attorney and California Department of Fish and Game
asserted a claim for natural resource damages in the range of $90,000 -
$100,000. UPRR is analyzing the claim and expects to resolve this matter
during the first half of 1997.

The Corporation and its affiliates have received notices from the EPA and
state environmental agencies alleging that it is or may be liable under
certain Federal or state environmental legislation for remediation costs
associated with requirements 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 Corporation 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 Corporation's exposure
has been reached although regulatory proceedings at the sites involved have
not been formally terminated. Additional information on the Corporation's
potential environmental costs is set forth under Note 11 to the Corporation's
financial statements.

Item 4. Submission of Matters to a Vote of Security Holders

Not applicable.

<PAGE> 10

Executive Officers of the Registrant and
Principal Executive Officers of Subsidiaries

Business
Experience
During Past
Name Position Age Five Years

Richard K. Davidson .......Chairman, President and 55 (1)
Chief Executive Officer of
UPC and Chairman and Chief
Executive Officer of the
Railroad

L. White Matthews, III ....Executive Vice President - 51 (2)
Finance

Carl W. von Bernuth .......Senior Vice President 53 Current
and General Counsel Position

John B. Gremillion, Jr. ...Vice President - Taxes 50 Current
Position

Mary E. McAuliffe .........Vice President - External 51 Current
Relations Position

Joseph E. O'Connor, Jr. ...Vice President and Controller 39 (3)

Gary F. Schuster ..........Vice President - Corporate 55 Current
Relations Position

Gary M. Stuart ............Vice President and Treasurer 56 Current
Position

Judy L. Swantak ...........Vice President and Corporate 41 Current
Secretary Position

Jerry R. Davis.............President and Chief Operating 58 (4)
Officer of the Railroad

Leo H. Suggs...............Chairman and Chief Executive 57 (5)
Officer of Overnite

___________________________

<PAGE> 11

Executive Officers of the Registrant and
Principal Executive Officers of Subsidiaries (Continued)

(1) Mr. Davidson was elected Chairman and Chief Executive Officer effective
January 1, 1997. He became President of UPC effective May 1994 and was
also Chief Operating Officer of UPC from November 1995 to December 1996.
He was President and Chief Executive Officer of the Railroad from
September 1991 until August 1995, Chairman of the Railroad until November
1996 and Chairman and Chief Executive Officer of the Railroad since
November 1996.

(2) Mr. Matthews was elected to his present position effective April 1992.
Prior thereto, he served as Senior Vice President - Finance of UPC.

(3) Mr. O'Connor was elected to his current position effective October 1996.
He was Director - Strategic Planning of UPC from November 1995 to
October 1996 and Director - Planning of UPC from April 1994 to
November 1995. Prior thereto, he was Manager - Planning of UPC.

(4) Mr. Davis was elected to his current position in November 1996. From
September 1996 to November 1996, he served as President - SP Rail
Operations. From February 1995 to September 1996, he served as
President and Chief Executive Officer of Southern Pacific Rail
Corporation. From January 1992 to February 1995, Mr. Davis served as
Executive Vice President and Chief Operating Officer of CSX
Transportation, Inc.(CSXT). Prior thereto, he was Executive Vice
President - Operations of CSXT and held various executive positions at
the Railroad.

(5) Mr. Suggs was elected to his current position in April 1996. From
January 1993 to April 1996, he was President and Chief Executive Officer
of Preston Trucking Company, Inc. Prior thereto, Mr. Suggs served as
Senior Vice President of Corporate Development of Yellow Corporation.

<PAGE> 12

PART II

Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters

Information as to the markets in which UPC's Common Stock is traded,
the quarterly high and low prices for such stock, the dividends declared with
respect to the Common Stock during the last two years, and the approximate
number of stockholders of record at January 31, 1997 is set forth under
Selected Quarterly Data and Stockholders and Dividends on page 49 of the
Annual Report. Information as to restrictions on the payment of dividends with
respect to the Corporation's Common Stock is set forth in Note 7 to Financial
Statements on pages 44 and 45 of the Annual Report. Such information is
incorporated herein by reference.

Item 6. Selected Financial Data

Selected Financial Data for the Corporation for each of the last 10
years is set forth under the Ten-Year Financial Summary on page 51 of the
Annual Report. All such information is incorporated herein by reference.

Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations

Information as to UPC's results of operations, cash flows, liquidity
and capital resources, and other matters is set forth in the Financial Review
on pages 22 through 31 of the Annual Report, and is incorporated herein by
reference.

Item 8. Financial Statements and Supplementary Data

The Corporation's consolidated financial statements, accounting
policy disclosures, Notes to Financial Statements, Business Segment
information and Independent Auditors' Report are presented on pages 32 through
48 of the Annual Report. Selected quarterly financial data are set forth
under Selected Quarterly Data on page 49 of the Annual Report. All such
information is incorporated herein by reference.

Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure

None.

<PAGE> 13
PART III

Item 10. Directors and Executive Officers of the Registrant

(a) Directors of Registrant.

Information as to the names, ages, positions and offices with UPC, terms
of office, periods of service, business experience during the past five years
and certain other directorships held by each director or person nominated to
become a director of UPC is set forth in the Directors segments of the Proxy
Statement and is incorporated herein by reference.

(b) Executive Officers of Registrant.

Information concerning the executive officers of UPC and its subsidiaries
is presented in Part I of this Report under Executive Officers of the
Registrant and Principal Executive Officers of Subsidiaries.

Information concerning compliance with Section 16(a) of the Securities
Exchange Act of 1934 is set forth in the Compliance with Section 16(a) of the
Securities Exchange Act segment of the Proxy Statement and is incorporated
herein by reference.

Item 11. Executive Compensation

Information concerning remuneration received by Union Pacific's executive
officers and directors is presented in the Compensation of Directors,
Compensation Committee Interlocks and Insider Participation, Report on
Executive Compensation, Summary Compensation Table, Option/SAR Grants Table,
Option/SAR Exercises and Year-End Value Table, Defined Benefit Plans and Five-
Year Performance Comparison segments of the Proxy Statement and is
incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management

Information as to the number of shares of Union Pacific's equity
securities beneficially owned as of February 12, 1997 by each of its directors
and nominees for director, its five most highly compensated executive officers
and its directors and executive officers as a group is set forth in the
Directors and Security Ownership of Management segments of the Proxy Statement
and is incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions

Information on related transactions is set forth in the Certain
Relationships and Related Transactions and Compensation Committee Interlocks
and Insider Participation segments of the Proxy Statement and is incorporated
herein by reference.

<PAGE> 14

PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K

(a)(1) and (2) Financial Statements and Schedules
----------------------------------------------
The financial statements, accounting policy disclosures, Notes to
Financial Statements and Independent Auditors' Report on pages 32
through 48, inclusive, of the Annual Report are incorporated herein by
reference.

No schedules are required to be filed because of the absence of
conditions under which they would be required or because the required
information is set forth in the financial statements referred to above.

(3) Exhibits
------------
Items 10(j) through 10(w) below constitute management contracts and
executive compensation arrangements required to be filed as exhibits to
this report.

2 Amended and Restated Agreement and Plan of Merger, dated as
of July 12, 1996, among the Corporation, SP, UP Holding
Company, Inc. ("UP Holding") and Union Pacific Merger Co. ("UP
Merger"), is incorporated herein by reference to Annex B to the
Joint Proxy Statement/Prospectus included in Post-Effective
Amendment No. 2 to UPC's Registration Statement on Form S-4
(No.33-64707).

3(a) Revised Articles of Incorporation of UPC, as amended through
April 25, 1996, are incorporated herein by reference to
Exhibit 3 to the Corporation's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1996.

3(b) By-Laws of UPC, as amended effective as of September 26, 1996,
are incorporated herein by reference to Exhibit 3 to
the Corporation's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1996.

4 Pursuant to various indentures and other agreements, UPC
has issued long-term debt; however, no such agreement has
securities or obligations covered thereby which exceed 10%
of the Corporation's total consolidated assets. UPC agrees
to furnish the Commission with a copy of any such indenture
or agreement upon request by the Commission.

9 Voting Trust Agreement, dated as of August 3, 1995, among
UPC, UP Acquisition Corporation and Southwest Bank of St.
Louis, is incorporated herein by reference to Annex K to the
Joint Proxy Statement/Prospectus included in UPC's
Registration Statement on Form S-4 (No. 33-64707).

<PAGE> 15

10(a) Amended and Restated Anschutz Shareholders Agreement, dated
as of July 12, 1996, among UPC, the Company, The Anschutz
Corporation ("TAC"), Anschutz Foundation (the "Foundation"),
and Mr. Philip F. Anschutz ("Mr. Anschutz"), is incorporated
herein by reference to Annex D to the Joint Proxy
Statement/Prospectus included in Post-Effective Amendment
No. 2 to UPC's Registration Statement on Form S-4
(No. 33-64707).

10(b) Amended and Restated MSLEF Shareholder Agreement, dated as
of July 12, 1996, between UPC and The Morgan Stanley
Leveraged Equity Fund II, L.P., is incorporated herein by
reference to Annex E to the Joint Proxy Statement/Prospectus
included in Post-Effective Amendment No. 2 to UPC's
Registration Statement on Form S-4 (No. 33-64707).

10(c) Amended and Restated Parent Shareholders Agreement, dated as
of July 12, 1996, among UPC, UP Merger and SP is
incorporated herein by reference to Annex F to the Joint
Proxy Statement/Prospectus included in Post-Effective
Amendment No. 2 to UPC's Registration Statement on Form S-4
(No. 33-64707).

10(d) Amended and Restated Anschutz/Spinco Shareholders Agreement,
dated as of July 12, 1996, among Union Pacific Resources
Group Inc. ("Resources"), TAC, the Foundation and Mr.
Anschutz is incorporated herein by reference to Annex G to
the Joint Proxy Statement/Prospectus included in Post-
Effective Amendment No. 2 to UPC's Registration Statement on
Form S-4 (No. 33-64707).

10(e) Amended and Restated Registration Rights Agreement, dated as
of July 12, 1996, among UPC, TAC, and the Foundation is
incorporated herein by reference to Annex H to the Joint
Proxy Statement/Prospectus included in Post-Effective
Amendment No. 2 to UPC's Registration Statement on Form S-4
(No. 33-64707).

10(f) Amended and Restated Registration Rights Agreement, dated as
of July 12, 1996, among Resources, TAC, and the Foundation
is incorporated herein by reference to Annex I to the Joint
Proxy Statement/Prospectus included in Post-Effective
Amendment No. 2 to UPC's Registration Statement on Form S-4
(No. 33-64707).

10(g) Amended and Restated Registration Rights Agreement, dated as
of July 12, 1996, among UPC, UP Holding, UP Merger and SP is
incorporated herein by reference to Annex J to the Joint
Proxy Statement/Prospectus included in Post-Effective
Amendment No. 2 to UPC's Registration Statement on Form S-4
(No. 33-64707).

<PAGE> 16

10(h) Agreement, dated September 25, 1995, among UPC, UPRR, MPRR
and SP, Southern Pacific Transportation Company (SPT), The
Denver & Rio Grande Western Railroad Company (D&RGW), St.
Louis Southwestern Railway Company (SLSRC) and SPCSL Corp.
(SPCSL), on the one hand, and Burlington Northern Railroad
Company (BN) and The Atchison, Topeka and Santa Fe Railway
Company (Santa Fe), on the other hand, is incorporated by
reference to Exhibit 10.11 to UPC's Registration Statement
on Form S-4 (No. 33-64707).

10(i) Supplemental Agreement, dated November 18, 1995, between
UPC, UPRR, MPRR and SP, SPT, D&RGW, SLSRC and SPCSL, on the
one hand, and BN and Santa Fe, on the other hand, is
incorporated herein by reference to Exhibit 10.12 to UPC's
Registration Statement on Form S-4 (No. 33-64707).

10(j) The Executive Incentive Plan of UPC, amended April 27, 1995,
is incorporated herein by reference to Exhibit 10(a) to the
Corporation's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1995.

10(k) The 1982 Stock Option and Restricted Stock Plan of UPC, as
amended as of February 1, 1992, is incorporated herein by
reference to Exhibit 10(c) to the Corporation's Annual
Report on Form 10-K for the year ended December 31, 1991.

10(l) The 1988 Stock Option and Restricted Stock Plan of UPC, as
amended as of February 1, 1992, is incorporated herein by
reference to Exhibit 10(d) to the Corporation's Annual
Report on Form 10-K for the year ended December 31, 1991.

10(m) The Supplemental Pension Plan for Officers and Managers of
UPC and Affiliates, as amended and restated, is incorporated
herein by reference to Exhibit 10(d) to the Corporation's
Annual Report on Form 10-K for the year ended December 31,
1993.

10(n) Agreement, dated as of January 1, 1997, between UPC and Drew
Lewis.

10(o) Employment Agreement, dated as of February 20, 1995, between
SP and Jerry R. Davis, is incorporated by reference to
Exhibit 10.12 to SP's Annual Report on Form 10-K for the
year ended December 31, 1994.

10(p) Letter Agreement, dated August 30, 1996, between UPC
and Jerry R. Davis, is incorporated by reference to Exhibit
10(b) to the Corporation's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1996.

10(q) The 1992 Restricted Stock Plan for Non-Employee Directors of
UPC, as amended as of January 28, 1993, is incorporated
herein by reference to Exhibit 10(a) to the Corporation's
Current Report on Form 8-K filed March 16, 1993.

<PAGE> 17

10(r) The 1993 Stock Option and Retention Stock Plan of UPC, as
amended April 21, 1995, is incorporated herein by reference
to Exhibit 10(b) to the Corporation's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1995.

10(s) The Pension Plan for Non-Employee Directors of UPC, as
amended January 25, 1996 is incorporated herein by reference
to Exhibit 10(w) to the Corporation's Annual Report on Form
10-K for the year ended December 31, 1995.

10(t) The Executive Life Insurance Plan of UPC, adopted August 2,
1994, is incorporated herein by reference to Exhibit 10 to
the Corporation's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1994.

10(u) The UPC Stock Unit Grant and Deferred Compensation Plan for
the Board of Directors, as amended January 25, 1996 is
incorporated herein by reference to Exhibit 10(y) to the
Corporation's Annual Report on Form 10-K for the year ended
December 31, 1995.

10(v) Charitable Contribution Plan for Non-Employee Directors of
UPC is incorporated herein by reference to Exhibit 10(z) to
the Corporation's Annual Report on Form 10-K for the year
ended December 31, 1995.

10(w) Written Description of Other Executive Compensation
Arrangements of UPC is incorporated herein by reference to
Exhibit 10(o) to the Corporation's Annual Report on Form
10-K for the year ended December 31, 1992.

(11) Computation of earnings per share.

(12) Computation of ratio of earnings to fixed charges.

(13) Pages 8 through 53, inclusive, of UPC's Annual Report to
Stockholders for the year ended December 31, 1996, but
excluding photographs set forth on pages 8 through 21, none
of which supplements the text and which are not otherwise
required to be disclosed in this Annual Report on Form 10-K.

(21) List of the Corporation's significant subsidiaries and their
respective states of incorporation.

(23) Independent Auditors' Consent.

(24) Powers of attorney executed by the directors of UPC.

(27) Financial Data Schedule.

(99) (a) Financial Statements for the Fiscal Year ended
December 31, 1996 required by Form 11-K for the UPC
Thrift Plan - to be filed by amendment.

<PAGE> 18

(99) (b) Financial Statements for the Fiscal Year ended
December 31, 1996 required by Form 11-K for the Union
Pacific Fruit Express Company Agreement Employee
401(k) Retirement Thrift Plan - to be filed by
amendment.

(99) (c) Financial Statements for the Fiscal Year ended
December 31, 1996 required by Form 11-K for the Skyway
Retirement Savings Plan - to be filed by amendment.

(99) (d) Financial Statements for the Fiscal Year ended
December 31, 1996 required by Form 11-K for the Union
Pacific Agreement Employee 401(k) Retirement Thrift
Plan - to be filed by amendment.

(99) (e) Financial Statements for the Fiscal Year ended
December 31, 1996 required by Form 11-K for the Union
Pacific Motor Freight Agreement Employee 401(k)
Retirement Thrift Plan - to be filed by amendment.

(99) (f) Financial Statements for the Fiscal Year ended
December 31, 1996 required by Form 11-K for the
Chicago and North Western Railway Company Profit
Sharing and Retirement Savings Program - to be filed
by amendment.

(99) (g) Financial Statements for the Fiscal Year ended
December 31, 1996 required by Form 11-K for the
Southern Pacific Rail Corporation Thrift Plan - to be
filed by amendment.

(b) Reports on Form 8-K

On October 17, 1996, the Corporation filed Amendment No. 1
to a Current Report on Form 8-K dated September 16, 1996.
Such Amendment contained certain pro forma financial
information related to the Southern Pacific acquisition and
the Spin-Off as required by Regulation S-X.

On October 21, 1996, the Corporation filed a Current Report
on Form 8-K disclosing the completion of the Spin-Off. Such
Report also included a press release dated October 17, 1996
containing earnings information for UPC for the third
quarter of 1996 and the nine months ended September 30,
1996.

<PAGE> 19

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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, on this 26th day of
March, 1997.

UNION PACIFIC CORPORATION

By /s/ Richard K. Davidson
-------------------------------
(Richard K. Davidson, Chairman,
President and Chief Executive
Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below, on this 26th day of March, 1997, by the
following persons on behalf of the registrant and in the capacities indicated.

PRINCIPAL EXECUTIVE OFFICER
AND DIRECTOR:

/s/ Richard K. Davidson
-------------------------------
(Richard K. Davidson, Chairman,
President, Chief Executive
Officer and Director)

PRINCIPAL FINANCIAL OFFICER
AND DIRECTOR:

/s/ L. White Matthews, III
-------------------------------
(L. White Matthews, III,
Executive Vice President -
Finance and Director)

PRINCIPAL ACCOUNTING OFFICER:

/s/ Joseph E. O'Connor, Jr.
-------------------------------
(Joseph E. O'Connor, Jr.,
Vice President and Controller)

<PAGE> 20

SIGNATURES - (Continued)

DIRECTORS:

Philip F. Anschutz* Judith Richards Hope*

Robert P. Bauman* Richard J. Mahoney*

Richard B. Cheney* John R. Meyer*

E. Virgil Conway* Thomas A. Reynolds, Jr.*

Spencer F. Eccles* James D. Robinson, III*

Elbridge T. Gerry, Jr.* Robert W. Roth*

William H. Gray, III* Richard D. Simmons*

* By /s/ Thomas E. Whitaker
______________________________________
(Thomas E. Whitaker, Attorney-in-fact)

<PAGE> 21

EXHIBIT INDEX
_____________

Items 10(j) through 10(w) below constitute management contracts and executive
compensation arrangements required to be filed as exhibits to this report.

Exhibit Number
--------------

2 Amended and Restated Agreement and Plan of Merger, dated as
of July 12, 1996, among the Corporation, SP, UP Holding
Company, Inc. ("UP Holding") and Union Pacific Merger Co.
("UP Merger"), is incorporated herein by reference to
Annex B to the Joint Proxy Statement/Prospectus included in
Post-Effective Amendment No. 2 to UPC's Registration
Statement on Form S-4 (No. 33-64707).

3(b) By-Laws of UPC, as amended effective as of September 26,
1996, are incorporated herein by reference to Exhibit 3 to
the Corporation's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1996.

<PAGE> 22

<PAGE> 23

10(n) Agreement, dated as of January 1, 1997, between UPC and Drew
Lewis.

<PAGE> 24

(11) Computation of earnings per share.

(12) Computation of ratio of earnings to fixed charges.

(21) List of the Corporation's significant subsidiaries and their
respective states of incorporation.

(23) Independent Auditors' Consent.

(24) Powers of attorney executed by the directors of UPC.

(27) Financial Data Schedule.

(99) (a) Financial Statements for the Fiscal Year ended
December 31, 1996 required by Form 11-K for the Union
Pacific Corporation Thrift Plan - to be filed by
amendment.

(99) (c) Financial Statements for the Fiscal Year ended
December 31, 1996 required by Form 11-K for the Skyway
Retirement Savings Plan - to be filed by amendment.

(99) (d) Financial Statements for the Fiscal Year ended
December 31, 1996 required by Form 11-K for the Union
Pacific Agreement Employee 401(k) Retirement Thrift
Plan - to be filed by amendment.

<PAGE> 25

(99) (g) Financial Statements for the Fiscal Year ended
December 31, 1996 required by Form 11-K for the
Southern Pacific Rail Corporation Thrift Plan - to be
filed by amendment.

<PAGE>
Exhibit 10(n)
-------------

CONSULTING AGREEMENT

AGREEMENT (the "Agreement"), made as of the 1st day of January,
1997, by and between Union Pacific Corporation, a Utah corporation ("UPC"),
and Drew Lewis ("Consultant").

W I T N E S S E T H:

WHEREAS, Consultant is retiring as Chairman and Chief Executive
Officer of UPC on December 31, 1996; and

WHEREAS, UPC appreciates the value of Consultant's advice and
counsel and wishes to retain him to provide consulting services relating to
governmental affairs, strategic matters and such other matters on which his
advice may be requested by UPC (the "Consulting Services"), and Consultant
is willing to provide the Consulting Services, on the terms and conditions
referred to herein.

NOW THEREFORE, in consideration of the foregoing and the respective
covenants and agreements of the parties herein contained, the parties
hereto agree as follows:

1. Engagement. UPC hereby agrees to engage the Consultant
to provide the Consulting Services to UPC and its affiliates, and the
Consultant hereby agrees to accept such engagement, on the terms and
conditions set forth herein, for the period commencing January 1, 1997 and
expiring on December 31, 2001.

2. Services. The Consultant agrees, during the Term, to use
his best efforts to provide Consulting Services to UPC and its affiliates,
at the direction and request of the Chief Executive Officer of UPC,
devoting such time as UPC may reasonably request, not to exceed 120 hours
in any three month period unless Consultant agrees to a greater amount of
time.

3. Independent Contractor. The Consultant shall be deemed
to be an independent contractor; the Consultant shall not be considered an
employee or agent of UPC or its affiliates for any purpose and shall not be
entitled or eligible to participate in any benefits or privileges given or
extended by UPC or its affiliates to their employees. The Consultant shall
have no power or right to enter into contracts or commitments on behalf of
UPC or its affiliates.

4. Fees and Expenses.

(a) Fees. In consideration of the Consulting Services
as contemplated by this Agreement, UPC shall pay to the Consultant during
the Term the sum of Seven Hundred Fifty Thousand Dollars ($750,000.00) per
year payable annually in advance on or about the first business day of each
year in the Term.

(b) Reimbursement of Expenses. During the Term, UPC
shall reimburse the Consultant for all reasonable and necessary business
expenses incurred by him in accordance with and on the terms of UPC's
customary expense reimbursement policies.

<PAGE> 2

5. Termination of Engagement. UPC shall have the right to
terminate the engagement of the Consultant under this Agreement prior to
the end of the Term for any reason, with or without cause.

6. Effect of Termination. In the event the engagement of
Consultant is terminated by UPC for any reason (other than breach by
Consultant of his obligations hereunder), or in the event of Consultant's
death, he shall be entitled to receive all fees specified under Section
4(a) for the remainder of the Term. Except as expressly provided herein
to the contrary, upon termination of the Consultant's engagement hereunder,
all rights and duties of the Consultant and UPC hereunder shall cease.
Notwithstanding the foregoing, no termination shall affect the Consultant's
duties and obligations to UPC under Sections 7 and 8 of this Agreement.

7. Confidential Information.

(a) The Consultant shall not, without the written
consent of the Board of Directors of UPC or a person authorized thereby or
pursuant to lawful process, while engaged by UPC or at any time thereafter,
directly or indirectly publish or disclose to any person, firm, corporation
or other entity, whether or not a competitor of UPC or any affiliate
thereof, except as necessary in connection with the performance by the
Consultant of his duties to UPC, any Confidential Information. For
purposes of this Agreement, "Confidential Information" means all
information about UPC and its affiliates obtained or developed by Employee
while an employee of or consultant to UPC including, but not limited to,
information regarding directors, officers and other key personnel of UPC
and its affiliates, financial information or plans and other matters, and
which UPC has requested be held in confidence or which it could reasonably
be expected to desire to be held in confidence, or the disclosure of which
would likely be disparaging or disadvantageous to UPC or any of such
employees and directors, but shall not include information already in the
public domain.

(b) The Consultant acknowledges that the provisions of this
Section 7 are reasonable and necessary for the protection of UPC and that
UPC will be irrevocably damaged if such covenants are not specifically
enforced. Accordingly, the Consultant agrees that, in addition to any
other relief to which UPC may be entitled in the form of actual or punitive
damages, UPC shall be entitled to seek and obtain injunctive relief from a
court of competent jurisdiction (without the posting of any bond therefor)
for the purposes of restraining the Consultant from any actual or
threatened breach of such covenants. UPC shall also be entitled to
terminate the engagement of Consultant and cease all payments under Section
4 in the event of a breach of this Section 7 during the Term.

8. Noncompetition.

(a) During the Term and for one year from the
expiration of the Term, the Consultant will not directly or indirectly own,
manage, operate, control or participate in the ownership, management,
operation or control of, or be connected as an officer, employee, partner,
director, consultant or otherwise with, or have any financial interest in
(except through the ownership of less than 5% of the outstanding shares of
capital stock of publicly held corporations), or aid or assist anyone else
in the conduct of, any business of the same type and character as the

<PAGE> 3

business UPC or any of its affiliates is conducting at that time (or at the
time the Consultant's engagement hereunder was terminated if the Consultant
is no longer engaged by UPC), including without limitation the business of
providing transportation services, in any location in which UPC or its
affiliates does business at the time (or at the time the Consultant's
engagement hereunder was terminated if the Consultant is no longer engaged
by UPC.)

(b) The Consultant and UPC have attempted to specify a
reasonable period of time, a reasonable area and reasonable restrictions to
which this Section 8 shall apply. The Consultant and UPC agree that if a
court or administrative body should subsequently determine that the terms
of this Section 8 are greater than reasonably necessary to protect UPC's
interests, UPC agrees to waive those terms that are found by a court or
administrative body to be greater than reasonably necessary to protect
UPC's interests and to request that the court or administrative body reform
this Agreement specifying a reasonable period of time and such other
reasonable restrictions as the court or administrative body deems
necessary.

(c) In addition to any other relief to which UPC may be
entitled, UPC shall be entitled to terminate the engagement of Consultant
and cease all payments under Section 4 in the event of a breach of this
Section 8 during the Term.

9. Notices. Notices and all other communications provided
for in this Agreement shall be in writing and shall be deemed to have been
duly given when personally delivered or when mailed by United States
registered mail, return receipt requested, postage prepaid, addressed as
follows:

If to the Consultant, to:
Drew Lewis
P.O. Box 70
Lederach, PA 19450

If to UPC, to:

Union Pacific Corporation
Martin Tower
Eighth and Eaton Avenues
Bethlehem, PA 18018
Attn: Chief Executive Officer

or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address
shall be effective only upon receipt.

10. Amendment and Waiver. No provisions of this Agreement
may be amended, waived or discharged unless such amendment, waiver or
discharge is agreed to in writing and signed by the Consultant and the
Chief Executive Officer of UPC or another officer of UPC specifically
designated by the Board of Directors of UPC. No waiver by any party hereto
at any time of any breach by another party hereto of, or compliance with,
any condition or provision of this Agreement to be performed by such other

<PAGE> 4

party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time.

11. Prior Agreement; Integration. The parties hereto agree
that the Employment Agreement, dated January 30, 1986, between the parties
is hereby terminated and no further obligations remain thereunder. This
Agreement contains the entire understanding of the parties with respect to
its subject matter. There are no restrictions, agreements, promises,
warranties, covenants or undertakings other than those expressly set forth
herein. This Agreement supersedes all prior agreements and understandings
between the parties with respect to its subject matter.

12. Governing Law. The validity, interpretation,
construction and performance of this Agreement shall be governed by the
laws of the Commonwealth of Pennsylvania.

13. Severability. The invalidity or unenforceability of any
provision or provisions of this Agreement shall not affect the validity and
enforceability of any other provision of this Agreement, which other
provisions shall remain in full force and effect.

14. Assignment; Binding Agreement. This Agreement may not be
transferred or assigned by either party, but shall be binding on the
successors and permitted assigns of each party. This Agreement and all
rights of the Consultant hereunder shall inure to the benefit of and be
enforceable by the Consultant's personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees.

IN WITNESS WHEREOF, the parties have executed this Agreement as of
the day and year first above written.

UNION PACIFIC CORPORATION

By: /s/ Richard K. Davidson
________________________
Richard K. Davidson
Chairman, President and
Chief Executive Officer

CONSULTANT

By: /s/ Drew Lewis
___________________________
Drew Lewis

<TABLE>
<CAPTION>
Exhibit 11
----------

UNION PACIFIC CORPORATION AND SUBSIDIARY COMPANIES
COMPUTATION OF EARNINGS PER SHARE

For the Years Ended December 31, 1996, 1995 and 1994
(In Thousands, Except Per Share Amounts)

1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Weighted average number of shares
outstanding (a). . . . . . . . . . . . . . . 216,685 204,930 205,105

Average shares issuable on exercise of
stock options less shares repurchasable
from proceeds. . . . . . . . . . . . . . . . 1,548 825 502
------- ------ ------
Weighted average number of shares used
in computation of earnings per share . . . . 218,233 205,755 205,607
======= ======= =======

Income from continuing operations. . . . . . . $732,860 $619,289 $568,631

Income (loss) from discontinued operations (b) 170,673 326,542 (22,429)
-------- -------- --------
Net Income . . . . . . . . . . . . . . . . . . $903,533 $945,831 $546,202
======== ======== ========

Earnings per share:

Income from continuing operations . . . . . $ 3.36 $ 3.01 $ 2.76

Income (loss) from discontinued operations (b) 0.78 1.59 (0.10)
-------- -------- --------
Net Income . . . . . . . . . . . . . . . . $ 4.14 $ 4.60 $ 2.66
======== ======== ========
(a) In connection with the Corporation's acquisition of Southern Pacific, on
September 11, 1996, UPC issued 38.1 million shares of its common stock in
exchange for 60% of SP's shares. As a result, average common stock
outstanding used in the computation of earnings per share will increase
in future periods. See Note 2 to the Financial Statements.

(b) All computations reflect Resources and USPCI as discontinued operations
(See Note 3 to the Financial Statements).
</TABLE>

Exhibit 12
----------
UNION PACIFIC CORPORATION AND SUBSIDIARY COMPANIES
RATIO OF EARNINGS TO FIXED CHARGES (a)
(Thousands of Dollars, Except for Ratio)

1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Earnings from continuing
operations (b/c) $ 732,860 $ 619,289 $ 568,631 $ 411,775 $ 455,967

Undistributed equity earnings (50,235) (23,893) (43,663) (32,426) (22,278)
---------- ---------- ---------- ---------- ----------
Total 682,625 595,396 524,968 379,349 433,689
---------- ---------- ---------- ---------- ----------

Income taxes (c) 380,560 313,590 329,586 317,913 265,536
---------- ---------- ---------- ---------- ----------
Fixed charges:
Interest expense
including amortization
of debt discount 500,580 450,182 347,188 311,698 342,479

Portion of rentals
representing an interest
factor 135,615 65,258 41,975 33,224 34,897
---------- ---------- ---------- ---------- ----------
Total 636,195 515,440 389,163 344,922 377,376
---------- ---------- ---------- ---------- ----------
Earnings available for
fixed charges $1,699,380 $1,424,426 $1,243,717 $1,042,184 $1,076,601
========== ========== ========== ========== ==========
Fixed charges - as above $ 636,195 $ 515,440 $ 389,163 $ 344,922 $ 377,376

Interest capitalized -- -- -- 224 50
---------- ---------- ---------- ---------- ----------
Total $ 636,195 $ 515,440 $ 389,163 $ 345,146 $ 377,426
========== ========== ========== ========== ==========
Ratio of earnings to
fixed charges 2.7 2.8 3.2 3.0 2.9
========== ========== ========== ========== ==========
</TABLE>

(a) All information presented reflects Resources and USPCI as discontinued
operations (See Note 3 to the Financial Statements).
(b) Amount for 1993 is before a cumulative effect adjustment for changes
in accounting principles for income taxes, postretirement benefits
other than pensions and revenue recognition. The net after-tax
adjustment related to these items was $116 million.
(c) In 1993, income from continuing operations and income taxes included
the one-time impact on deferred income taxes from the adoption of the
Omnibus Budget Reconciliation Act of 1993, which reduced income from
continuing operations and increased income taxes by $56 million.

EXHIBIT 13
----------
UNION PACIFIC CORPORATION

Pages 8 through 53, inclusive, of Union Pacific's Annual Report to
Stockholders for the year ended December 31, 1996, but excluding photographs
set forth on pages 8 through 21, none of which supplements the text and which
are not otherwise required to be disclosed in this Annual Report on Form 10-K.

<PAGE> 8

Union Pacific Railroad

1996 1995 1994
______________________________________________________________________
Operating revenues (millions) $7,680 $6,326 $5,318
______________________________________________________________________
Operating income (millions) $1,602 $1,384 $1,173
______________________________________________________________________
Carloadings (thousands) 6,632 5,568 4,991
______________________________________________________________________
Operating ratio 79.1 78.1 77.9
______________________________________________________________________

(One photograph, not incorporated by reference - see prefacing comment on
Exhibit 13 Cover Page.)

In 1996, the Railroad scripted a new chapter in its long history that may
well be the most significant of the century, transforming itself into a
company providing customers with the most comprehensive and efficient rail
service in the industry today. The historic merger with Southern Pacific,
significant gains in quality, safety and productivity, plus operational and
customer service

<PAGE> 9

innovations have catapulted UPRR into a new era of railroading.

On the strength of revenue growth and system-wide productivity gains,
UPRR, including the effects of the SP merger, realized net income of $940
million, an 8 percent increase over last year's $867 million. Carloadings
rose approximately 19 percent, including incremental traffic from SP.

(One photograph, not incorporated by reference - see prefacing comment on
Exhibit 13 Cover Page.)

Union Pacific's operating ratio was 79.1, compared to 78.1 in 1995.
Through quality programs, better asset utilization and new locomotives,
UPRR, on a stand-alone basis without SP, lowered its operating ratio to 77.1
in 1996. Revenue per car improved to $1,119, a 2 percent gain from 1995,
primarily a result of longer hauls.

Highlights for 1996

Results by individual commodities on a stand-alone basis -- without SP --
were mixed, but a strong showing in traditional market segments helped the
Railroad increase carloadings in 1996.

Coal was the leading commodity for the Railroad, as it hauled
approximately nearly 1.6 million carloadings, up 13 percent from 1995. The
Powder River Basin, which had the largest rate of growth, supplied nearly
110 million tons of coal, approximately 60 percent of all coal hauled. With
additional track capacity, the use of distributed power (placing locomotives
in the middle of the train) and 286,000-pound capacity cars, UPRR is now
running more efficient 135-car coal trains and is
well-positioned to achieve further market growth.

Revisions in planning coal train operations reduced the time that coal
trains "cycle" between mines and utilities by 17 percent, while the number
of train sets in coal service was cut 17 percent.

Auto traffic was strong again in 1996. Continued growth in Mexico,
sustained levels in the domestic auto business and further efficiencies in
vehicle handling helped UPRR raise its auto carloading volume and revenue
nearly 20 percent. With new business and a continued industry switch to
building more utility vehicles, the Railroad anticipates steady auto traffic
through 1997.

<PAGE> 10

Intermodal business improved sharply in the last half of 1996, with
shipments of auto parts from stamping plants and other suppliers in the
Midwest to the West Coast and Mexico leading the way. To handle future
growth, the Railroad has invested in upgrades in both new and existing
intermodal facilities.

While petrochemical business was flat throughout the year, certain
chemical commodities performed well. As anticipated, the plastics market
expanded, and export markets for soda ash improved. In the second half of
the year, potash shipments, especially those out of Canada, increased, and
the Railroad expects strong growth in this segment for 1997.

(One photograph, not incorporated by reference - see prefacing comment on
Exhibit 13 Cover Page.)

<PAGE> 11

These results reflect the application of new technology and trend-setting
approaches to railroad operations:
> The addition of 185 high-horsepower, AC-traction locomotives reduced many
train consists to two locomotives, while increasing pulling power.
> Increased fuel prices were offset by superior fuel conservation; in
September, employees set an all-time record low for monthly fuel
consumption.
> Innovations by the Customer Service Planning and Delivery group improved
train, terminal and rail car performance throughout the system.

Business with Mexico

Business with Mexico showed record growth for Union Pacific Railroad,
increasing nearly 25 percent. Revenues in the automotive segment,
chemicals, energy, agricultural and industrial products all increased, and
intermodal traffic, especially in automotive parts, rebounded strongly from
a sharp downturn in 1995. Although the Railroad was unsuccessful in its bid
to acquire Mexico's northeast rail line, it will continue to pursue other
business opportunities there.

(One photograph, not incorporated by reference - see prefacing comment on
Exhibit 13 Cover Page.)

Southern Pacific Merger

The Railroad took a number of initiatives to ensure that the Southern
Pacific merger would be well-executed. UPRR established five working teams,
supported by 73 subgroups, that are responsible for directing all facets of
the SP consolidation. While the integration could take at least two years
to complete, the teams are moving on or ahead of schedule.

The Railroad also divided the integration of Southern Pacific operations
into four distinct phases. The first, scheduled for the second quarter of
1997, will be on the central corridor, which runs from Kansas City through
the Rockies to northern California. The Cotton Belt, SP's operation between
Texas and Chicago, will be phased in during the third quarter of 1997,
followed by the Sunset Route, running from New Orleans to Los Angeles. The
final phase of consolidation, scheduled for the second quarter of 1998, will
tie operations in southern California to Seattle and Canada with the first-
ever single-line service along the West Coast's Interstate-5 corridor.

<PAGE> 12

As soon as the merger took effect, UPRR made a number of operating
improvements that had an immediate and positive impact on the former SP
lines. The Railroad increased locomotive availability by dispatching nearly
100 units to SP, improved the Service Delivery Index by 7 percentage points,
achieved record coal loadings from SP-served mines, and increased network
velocity 5 percent by improving average train speed while reducing average
daily freight car inventory.

With 36,000 miles of track in 23 states to manage, the Railroad divided
its system into four operating sections -- each with its own regional
headquarters and general manager.

The first major commercial success of the UP-SP merger occurred late in
1996 when Ford Motor Company awarded UPRR a major portion of its finished-
vehicle traffic out of its Kansas City "mixing center" beginning in January,
1998. The Railroad's new single-line service and routing efficiencies were
paramount to securing Ford's business -- amounting to more than 900,000 cars
and trucks annually.

Improved Customer Service

Throughout the year, the Railroad consistently worked to provide customer
service that is faster, better and safer. Foremost, it identified five key
factors -- locomotive power, freight cars, manpower, and mainline and
terminal capacity -- that, through careful management, continue to bring
added reliability and, in turn, greater customer satisfaction.

For its larger shippers, the Railroad launched integrated, cross-functional
customer improvement teams that examine their needs, as well as
rail corridors and networks, to find viable solutions to their unique
shipping requirements.

With new technological resources and tools, UPRR is able to take
operating efficiencies one step further.

(One photograph, not incorporated by reference - see prefacing comment on
Exhibit 13 Cover Page.)

The Railroad developed a decision support system to help commodities groups,
along with a Rail Yard Manager system to make information available to all
crews, and a Service Delivery Index -- derived from several service
performance measures -- that quantifies UPRR's performance and provides
real-time knowledge of what's going on throughout the Railroad.

<PAGE> 13

Also playing a significant part in the Railroad's successes was its
attention to safety. UPRR lowered its number of reportable injuries by 34
percent over 1995, and lost work-day cases dropped by nearly 40 percent.

A Footnote To History

In June, the Railroad completely shut down 160 miles of North America's
busiest freight corridor to complete -- in less than six days -- a
maintenance project that normally would be spread over six months. The
maintenance was performed between South Morrill, Nebraska, gateway to the
Powder River Basin, and UPRR's North Platte classification yard, the world's
largest. By squeezing this maintenance into six days, the Railroad was able
to run an extra 100 coal trains in 1996, a benefit to its customers and a
real boost to UPRR's productivity, equipment utilization and operational
efficiency.

(One photograph, not incorporated by reference - see prefacing comment on
Exhibit 13 Cover Page.)

<PAGE> 14

Overnite Transportation

1996 1995 1994
______________________________________________________________________
Operating revenues (millions) $ 961 $ 976 $1,037
______________________________________________________________________
Operating (loss) income (millions) $ (68) $ (49) $ 67
______________________________________________________________________
Operating ratio (a) 105.0 103.0 91.3
______________________________________________________________________
(a) Excludes goodwill amoritization.

(One photograph, not incorporated by reference - see prefacing comment on
Exhibit 13 Cover Page.)

Overnite Transportation had a net loss of $23 million before goodwill in
1996, compared to a loss of $10 million before goodwill in 1995, but it
achieved its best financial results of the year in the fourth quarter and
anticipates a continuing financial turnaround in 1997.

In mid-year 1996, Overnite began to implement a far-ranging strategy to
return the company to its status as

<PAGE> 15

one of the most profitable, service-oriented trucking companies in the
industry. Under Leo Suggs, its new chairman and chief executive officer,
Overnite has, in a sense, returned to basics by carrying out a four-pronged
program to provide better customer service, cut costs, raise yields and
improve profitable revenue growth. The first three phases of this program
have been very successful or have shown marked improvement, while the fourth
- -- profitable revenue growth -- will be the key theme for 1997.

Improving Service; Reducing Costs

On the operating side of the business, Overnite focused on improving service
reliability and reducing costs. Both thrusts made immediate headway.
On-time performance, for example, was 86 percent in April, 1996, but
reengineering efforts, combined with stringent discipline and micro-
management, helped on-time service to reach nearly 97 percent by year-end --
the high end of trucking industry standards. Quality showed a similar
improvement. Exception frequency -- a measure of lost or damaged freight --
was driven down from a high of 2.00 shipments per hundred in mid-year to
1.51 by year-end.

Overnite intends to improve both measurements -- on-time delivery and
exceptions -- in 1997, along with cycle time, bringbacks, dock productivity
and every other measure of heightened efficiency. Overnite, for example,
intends to reduce the number of bringbacks to zero.

(One photograph, not incorporated by reference - see prefacing comment on
Exhibit 13 Cover Page.)

<PAGE> 16

Bringbacks are deliveries brought back to the service center because of
an inability to deliver shipments to the customer for whatever reason.
Among other achievements, the company's load average per trailer went from a
low of 12,100 to nearly 13,200 pounds from April to December, and linehaul
costs per hundredweight were reduced from $3.72 to $3.27 during the same
period. All of these improvements have helped drive down costs.

On the marketing side of the business, Overnite has improved its yield by
relentlessly focusing on its most profitable traffic. Much of Overnite's
business with the large customers shipping at least $50,000 worth of goods a
month failed to cover variable costs. Overnite went to these customers and
renegotiated rates upward, which, in some cases,

(One photograph, not incorporated by reference - see prefacing comment on
Exhibit 13 Cover Page.)

<PAGE> 17

resulted in losing business. These efforts -- coupled with a concentration
on smaller and more profitable traffic opportunities -- raised Overnite's
overall yield by 10 percent.

Increasing Profitable Revenue

In order to continue improving its yield, Overnite launched a vigorous
campaign to increase its profitable revenue growth. This campaign
represents a full-court press by every employee to become a sales
representative for the newer, more efficient, on-time Overnite. This effort
is summed up in a successful program called BINGO -- Bring In New Growth for
Overnite. A companion focus is the inside sales initiative, wherein a new
headquarters sales group generates additional business from customers who
have had successful experiences with the company. The strategic target is
to add as much high-yield revenue as possible to an increasingly efficient
company so that more money will flow to the bottom line. This goal will
dominate 1997.

(One photograph, not incorporated by reference - see prefacing comment on
Exhibit 13 Cover Page.)

<PAGE> 18

Skyway Freight Systems

The markets for logistical services are changing, with customers demanding
more information, better-integrated programs and lower costs. Skyway's new
services, advanced technology and a continuing focus on quality provide an
edge to its customers in the intensely competitive race for the best value
chain. In 1996, the company strengthened its revenue base and diversified
its customer portfolio. Large and long-

(One photograph, not incorporated by reference - see prefacing comment on
Exhibit 13 Cover Page.)

<PAGE> 19

term contracts were signed with several major customers, including Corning
Consumer Products, EDS, Entex Information Systems, Gateway 2000 and
NordicTrack.

As companies become increasingly focused on logistics, their leaders are
broadening their vision to embrace value chain management, which includes
everything that happens between customer need and satisfaction. In 1996,
Skyway introduced a number of support services to provide an edge to its
customers in this highly competitive field.

Better Tracking Flexibility

Skyway's website, www.skyway.com, became an immediate success with
customers, providing them with new capabilities in electronic commerce.
Since its launch, customers have been given even better tracking
flexibility, along with the ability to view and to print proof-of-delivery
images directly from their computers.

Regional Order Fulfillment Centers provide the industry's first network
of automated order-fulfillment centers, using cross-dock techniques and
advanced technology to consolidate orders from multiple origins into cost-
effective and service-oriented deliveries.

Another new service, the Virtual Warehouse, coordinates order fulfillment
between a major computer reseller and its manufacturers. This allows part
of an order to be shipped directly from the manufacturer, while the rest is
shipped from the reseller. The shipments merge in transit and arrive at the
customer as one complete order.

As global competition increases and value chains become more complex, the
increased need to share information and to move product less becomes
extremely important for Skyway's customers. With this in mind, it has
developed tools that allow the company to provide value chain management
services such as global transportation management, order management and
vendor-managed inventory programs, all with international product
visibility. As a value chain integrator, Skyway will link companies with
their customers and suppliers, providing information that can reduce assets
and eliminate redundant activities. This process will increase speed to
market and simultaneously take cost out of value chains.

(One photograph, not incorporated by reference - see prefacing comment on
Exhibit 13 Cover Page.)

<PAGE> 20

Union Pacific Technologies

With a strong combination of well-trained people, sophisticated software
products and broad transportation experience, Union Pacific Technologies
achieved another successful year, supporting the Union Pacific companies and
bringing a wide range of products and services to the commercial
marketplace.

(One photograph, not incorporated by reference - see prefacing comment on
Exhibit 13 Cover Page.)

Internal Business

Foremost for Technologies has been its support of the company's merger with
Southern Pacific. Immediately after the merger was approved, a
communication network between UP and SP employees was established, giving
them access to each others' transportation systems and

<PAGE> 21

e-mail. Additionally, extensive systems were implemented to manage the
Burlington Northern/Santa Fe haulage and trackage rights agreement. All of
this set the stage for the more complex process of installing the
Transportation Control System (TCS) on the SP, beginning in the second
quarter of 1997 and continuing into 1998.

Technologies helped Overnite management implement strict operational
performance guidelines by providing daily information summarizing key
performance indicators for management review. New capabilities have also
been added to the computerized Central Dispatching System to improve
efficiencies in linehaul operations.

UPT continues to support the development of Skyway's highly advanced,
integrated supply chain services, a new concept for providing global third-
party logistics and management systems. These services will be delivered
with specific control software and systems that can build logistics programs
from a standard set of tools.

Commercial Business

Technologies' Shipment Management Services, which tracks both rail and truck
shipments against predetermined schedules, now handles over 65,000 shipments
each month for almost 200 subscribers. Building on this comprehensive
shipment tracking service, Technologies will introduce in 1997 a new
product, the Equipment and Maintenance Service, for large private fleet
owners to support the mechanical maintenance of rail cars.

Business in Mexico continues to grow as Technologies helps the National
Railway of Mexico (FNM) divide the single, state-owned railroad into
regional systems as part of its privatization efforts. Technologies will be
creating capabilities to help the new owners exchange information, track the
movement of cars from one line to another, and divide revenues.

Building upon its experience in providing the FNM with a Spanish version
of the TCS to manage rail operations, Technologies is planning to market
with a partner an expanded and improved version of this software to Mexico's
new regional railroads and throughout Latin America. Technologies has also
formed a similar partnership with Integrated Systems Solutions Corporation,
a division of IBM, to market rail infrastructure engineering applications
worldwide.

(One photograph, not incorporated by reference - see prefacing comment on
Exhibit 13 Cover Page.)

<PAGE> 22

FINANCIAL REVIEW

CONSOLIDATED RESULTS OF OPERATIONS

This review and the accompanying charts should be read with the financial
statements, notes and supplementary information.

Corporate Reorganization

During 1996 and 1995, Union Pacific Corporation (UPC or the Corporation)
completed several strategic transactions that refocused the Corporation's
business objectives on its core transportation operations.

Chicago and North Western Transportation Company (CNW) - In April 1995, UPC
acquired the remaining 71.6% of CNW's outstanding common stock not
previously owned by UPC for $1.2 billion. The acquisition of CNW was
accounted for as a purchase and CNW's financial results were consolidated
with UPC beginning in May 1995 (see Note 2 to the Financial Statements).

Natural Resources Divestiture - In July 1995, UPC's Board of Directors
approved a formal plan to dispose of its oil, gas and mining business by an
initial public offering (IPO) of 17% of the common stock of Union Pacific
Resources Group Inc. (Resources) followed by a distribution of UPC's
remaining interest in Resources to the Corporation's stockholders on a tax-
free, pro-rata basis (the Spin-Off)(see Note 3 to the Financial Statements).
In October 1995, Resources completed the IPO, and, after UPC's receipt of a
favorable Internal Revenue Service ruling as to the tax-free nature of the
Spin-Off in September 1996, UPC completed its divestiture of Resources. The
Corporation's share of Resources' financial results through September 1996
are presented as discontinued operations in the Corporation's consolidated
financial statements.

Southern Pacific Rail Corporation (Southern Pacific or SP) Acquisition - In
September 1995, UPC acquired 25% of Southern Pacific, and, in September
1996, it acquired the remaining 75% after receipt of a favorable decision
from the Surface Transportation Board of the U.S. Department of
Transportation (STB) on the Corporation's acquisition of SP. The aggregate
Southern Pacific purchase price was $4.1 billion ($2.5 billion in UPC common
stock and $1.6 billion in cash). The acquisition of Southern Pacific was
accounted for as a purchase. The statement of consolidated income includes
equity income equal to 25% of Southern Pacific's net income through
September 10, 1996, reflecting UPC's ownership of Southern Pacific during
such period, and 100% of Southern Pacific's net income thereafter. Southern
Pacific's results were fully consolidated with the Corporation's results
effective October 1, 1996 (see Note 2 to the Financial Statements).

As a result of the SP and CNW acquisitions, UPC now operates the largest
rail system in the United States, with 36,000 route miles linking Pacific
Coast and Gulf Coast ports to the Midwest and eastern U.S. gateways. The
Corporation also owns Overnite Transportation Company (Overnite), a major
interstate trucking company specializing in less-than-truckload (LTL)
shipments.

1996 Compared to 1995

Consolidated Results

The Corporation reported net income of $904 million ($4.14 per share) in
1996 compared to $946 million ($4.60 per share) in 1995.

Results of Continuing Operations

Consolidated - In 1996, the Corporation reported income from continuing
operations of $733 million ($3.36 per share), compared to 1995 results of
$619 million ($3.01 per share). This earnings improvement resulted
primarily from continued strong financial performance at Union Pacific
Railroad Company and its affiliates (collectively, the Railroad).

Operating revenues increased $1.30 billion (17%) to $8.79 billion in
1996, reflecting increased volumes at the Railroad (the result of increased
base business, the addition of Southern Pacific volumes from October 1,
1996 and the full-year effect of the CNW acquisition), slightly offset by
lower volumes at Overnite.

<PAGE> 23
(Graph of Union Pacific Railroad Carloadings)
<TABLE>
<CAPTION>
Thousands
1992 1993 1994 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Carloadings 4,458 4,619 4,991 5,568 6,632
</TABLE>

(Graph of Union Pacific Railroad Commodity Revenue Diversity-Pie Chart)
<TABLE>
<CAPTION>
Commodity Revenue Diversity
Union Pacific Railroad

<S> <C>
Automotive 10.4%
Agricultural Products 16.4
Intermodal 15.3
Industrial Products 17.9
Energy 22.0
Chemicals 18.0
</TABLE>

Operating expenses increased $1.11 billion (18%) to $7.25 billion in
1996. The addition of Southern Pacific's fourth quarter 1996 operations, a
full year of CNW operations, base rail volume growth and inflation were the
primary factors causing increases in salaries, wages and employee benefits
($434 million); equipment and other rents ($190 million); materials and
supplies ($92 million); purchased services ($81 million); casualty accruals
($48 million); and other taxes ($16 million). Fuel and utility costs rose
$216 million (38%), the result of increased volumes at the Railroad and a
14% increase in fuel prices. Depreciation charges rose $120 million,
primarily due to the addition of Southern Pacific and CNW properties and
UPC's continued reinvestment in its equipment and rail infrastructure.
Repair and maintenance expenses decreased $66 million, reflecting the
Railroad's more efficient maintenance practices, improved equipment
utilization and increased credits related to repairs of other railroads'
freight cars. Insurance costs decreased $17 million, principally reflecting
the refund of premiums associated with the liquidation of an insurance
company investment, slightly offset by Southern Pacific insurance costs.

Consolidated operating income advanced $192 million (14%) to $1.53
billion in 1996, the result of a $218 million improvement at the Railroad,
partially offset by weaker results at UPC's other business segments. Other
income rose $41 million, principally reflecting higher gains on property
sales. Interest expense increased $51 million, the result of higher debt
levels associated with the CNW and Southern Pacific acquisitions, partially
offset by the favorable impact of the Resources' IPO dividend and debt
refinancing activities. Income from continuing operations as a percentage
of operating revenues remained unchanged from 1995 at 8.3%. Return on
average common stockholders' equity declined to 12.4% in 1996 from 16.5% a
year ago, reflecting the additional stock issued in connection with the
Southern Pacific acquisition.

Railroad - The Railroad earned $940 million in 1996 compared to $867 million
a year ago. Earnings improvements reflected base volume growth and the
full-year effect of the CNW acquisition. Earnings from these acquisitions
more than offset the incremental interest cost incurred in 1996 associated
with related acquisition financings.

Operating revenues grew $1.35 billion (21%) to $7.68 billion in 1996.
This increase primarily relates to a $1.31 billion (22%) increase in
commodity revenue, reflecting the addition of Southern Pacific and CNW
volumes, base business growth and a 2% increase in average commodity
revenue per car, resulting from a longer average length of haul.
Carloadings grew 19% (over 1.0 million cars), detailed as follows:

Agricultural Products: Agricultural products carloadings rose 13% and
commodity revenue increased $138 million (13%) to $1.22 billion. These
increases reflect the addition of CNW carloadings offset by a reduction in
base business carloadings, the result of low U.S. corn inventories, reduced
export demand and the absence of a record 1995 grain harvest. Average
commodity revenue per car was unchanged from 1995.

Automotive: Automotive commodity revenue rose 20% to $767 million as
carloadings increased 20% on continued auto industry sales growth and the
addition of Southern Pacific volumes. Finished autos and auto parts
carloadings rose 16% and 28%, respectively, reflecting strong Mexico
business. Average commodity revenue per car was unchanged from 1995.

Chemicals: Chemicals carloadings advanced 14% and commodity revenue
increased $169 million (14%) to $1.34 billion, principally from the addition
of Southern Pacific volumes and increased base business sparked by growth in
domestic fertilizer shipments and a rise in automotive industry plastics
demand. Average commodity revenue per car was unchanged from 1995.

Energy: Energy commodity revenue (primarily coal) rose 26% to $1.63 billion
in 1996, driven by a 13% increase in carloadings and a 12% increase in
average commodity

<PAGE> 24

(Graph of Union Pacific Railroad Powder River Basin Coal Volumes)
<TABLE>
<CAPTION>

1992 1993 1994 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Millions of Tons Originated 56 74 86 101 110
</TABLE>

(Graph of Union Pacific Railroad Fuel Consumption Rate)
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Gallons per Thousand 1.44 1.44 1.41 1.38 1.37
Gross Ton-Miles
</TABLE>

revenue per car. Volume increases reflected demand from both domestic and
foreign utilities for low-sulfur, Powder River Basin coal and the addition
of Southern Pacific volumes. The Railroad averaged 24 longer and heavier
trains per day out of the Powder River Basin in 1996 compared to 23 trains
per day in 1995. Average commodity revenue per car improvements resulted
from a longer average length of haul related to the CNW integration.

Industrial Products: Industrial products carloadings increased 26% and
commodity revenue rose $287 million (28%) to $1.33 billion, principally
resulting from the addition of Southern Pacific and CNW volumes. Average
commodity revenue per car grew 2%, reflecting a longer average length of
haul.

Intermodal: Intermodal commodity revenue rose 29% to $1.14 billion as a 26%
increase in carloadings--the result of new business, the addition of
Southern Pacific and CNW volumes and strengthening domestic intermodal
demand--combined with a 2% customer-mix-related increase in average
commodity revenue per car.

Operating expenses rose $1.14 billion (23%) to $6.08 billion in 1996.
The addition of Southern Pacific's fourth quarter 1996 operations, a full
year of CNW operations, base rail volume growth and inflation were the
primary factors causing increases in salaries, wages and employee benefits
($438 million); equipment and other rents ($188 million); materials and
supplies ($92 million); purchased services ($79 million); casualty accruals
($53 million); and other taxes ($20 million). Fuel and utility costs rose
$211 million, the result of increased volumes and a 13% increase in fuel
prices (net of fuel hedging), slightly offset by an improved fuel
consumption rate. Depreciation charges rose $118 million, primarily
reflecting the addition of Southern Pacific and CNW properties and the
Railroad's continued reinvestment in its equipment and rail infrastructure.
Repair and maintenance expenses decreased $67 million, resulting from more
efficient maintenance practices, improved equipment utilization and
increased credits related to repairs of other railroads' freight cars.
Insurance costs decreased $16 million, principally due to the refund of
premiums associated with the liquidation of an insurance company investment
slightly offset by Southern Pacific insurance costs.

Operating income improved $218 million (16%) to $1.60 billion in 1996,
while the operating ratio increased to 79.1 in 1996 from 78.1 last year. On
a pro forma basis, including Southern Pacific and CNW for a full year in
both periods, the operating ratio would have improved to 83.5 in 1996 from
84.2 in 1995. Interest expense increased $149 million, principally from
higher debt levels associated with Southern Pacific and CNW acquisition
financings. Other income increased $38 million, the result of increased
real estate sales activity.

Trucking - During 1996, Overnite implemented several strategic initiatives
aimed at better matching its operations to the current trucking industry
business environment. Actions taken included workforce reductions, service
center consolidations, centralization of the linehaul management process and
pricing initiatives targeting Overnite's lowest margin customers.
Nonetheless, aggressive pricing from regional LTL and truckload carriers
continued to impact Overnite's operating results. For these reasons,
Overnite reported a net loss of $43 million in 1996 compared to a net loss
of $30 million in 1995. Results for both periods included goodwill
amortization of $20 million.

Overnite's operating revenues decreased $15 million (2%) to $961 million
as a 6% decrease in volumes more than offset a 4% increase in average
prices--resulting from Overnite's pricing initiatives. Lower volumes
comprised a 3% decrease in LTL tonnage and a 29% decrease in truckload
volumes.

Operating expenses increased $4 million to $1.03 billion. Salaries, wages
and employee benefit costs decreased $8 million, reflecting workforce
reductions and lower volumes, partially offset by wage and benefit inflation
and a $3 million workforce reduction charge. The use of intermodal rail
service and contract linehaul carriers in the first half of 1996 caused a $7
million increase in purchased services. Fuel costs rose $5 million, driven
by a 24% increase in fuel prices that were partially offset by a 7% volume-
related reduction in fuel consumption.

<PAGE> 25

(Graph of Overnite Transportation Tonnage by Category-Pie Chart)
<TABLE>
<S> <C>
Less-than-truckload 90.8%
Truckload 9.2%
</TABLE>

(Graph of Overnite Transportation Revenue Per Hundredweight)
<TABLE>
<CAPTION>
Dollars
1992 1993 1994 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Revenue Per Hundredweight 9.03 9.28 9.82 9.55 9.97
</TABLE>

Overnite's operating loss grew $19 million to $68 million in 1996, while
Overnite's operating ratio (including goodwill amortization) increased to
107.0 in 1996 from 105.0 in 1995.

Corporate Services and Other Operations - Expenses related to Corporate
Services and Other Operations (consisting of corporate expenses, third-party
interest charges, intercompany interest allocations, other income and income
taxes related to the Corporation's holding company operations, and the
results of other operating units) decreased $54 million to $164 million in
1996. This decrease largely reflects lower Corporate interest costs
resulting from the utilization of Resources' IPO dividend to reduce debt
levels. Other operating units generated an operating loss of $1 million in
1996 compared to operating income of $6 million in 1995.

Results of Discontinued Operations

Resources reported net income of $207 million through September 26, 1996
(the record date for the Spin-Off), compared to $351 million for the full
year of 1995. As a result of Resources' October 1995 IPO and the subsequent
Spin-Off, UPC recognized $171 million (approximately 83%) of Resources' net
income through September 1996 in discontinued operations. The Corporation's
1995 results included 100% of Resources' net income to the date of the IPO
and approximately 83% of Resources' net income thereafter in discontinued
operations. These percentages reflected the Corporation's ownership of
Resources during the indicated periods.

Resources' 1996 results benefitted from higher hydrocarbon sales volumes
and prices, offset by a volume-related increase in exploration and
production costs, additional general and administrative expenses related to
operating Resources as a stand-alone company and higher interest charges
resulting from debt incurred in connection with Resources' IPO dividend to
UPC.

1995 COMPARED TO 1994

Consolidated Results

The Corporation's 1995 net income was $946 million ($4.60 per share),
compared to $546 million ($2.66 per share) in 1994. Results for 1995
included the effects of the acquisition of CNW and the receipt by Resources
of a $79 million after-tax bankruptcy settlement from Columbia Gas
Transmission Company (Columbia). Results for 1994 included a $404 million
after-tax loss from the sale of UPC's waste management business and the
benefit of a $116 million after-tax gain resulting from the sale of
Resources' Wilmington field.

Results of Continuing Operations

Consolidated - Income from continuing operations improved $51 million (9%)
in 1995 to $619 million ($3.01 per share), as a $113 million improvement at
the Railroad was partially offset by a $71 million earnings decline at
Overnite.

Consolidated operating revenues increased $994 million (15%) to $7.49
billion in 1995, as the Railroad's operating revenue improvement of just
more than $1 billion (reflecting the acquisition of CNW, increased base
carloadings and a higher average commodity revenue per car) was slightly
tempered by a $61 million decline in operating revenues at Overnite.
Consolidated operating expenses rose $897 million to $6.15 billion. The
addition of CNW operations, rail volume growth, rail traffic congestion in
1995 and inflation were the primary reasons for increases in salaries, wages
and employee benefits ($366 million); equipment and other rents ($153
million); fuel and utility costs ($94 million); purchased services ($42
million); materials and supplies ($33 million); and repair and maintenance
expenses ($22 million). Depreciation charges advanced $101 million,
reflecting the CNW properties acquired and the Corporation's continued
capital spending. Other increases also occurred in personal injury costs
($29 million), resulting from the acquisition of CNW and higher claims
costs; the cost of real estate sold ($16 million),

<PAGE> 26

(Graph of Union Pacific Railroad Revenue Ton-Miles Per Employee)
<TABLE>
<CAPTION>
Millions

1992 1993 1994 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Revenue Ton-Miles 7.21 7.66 8.21 8.82 9.40
Per Employee
</TABLE>

resulting from higher non-rail real estate sales activity; other taxes ($14
million), reflecting the addition of CNW; and insurance costs ($7 million)
due to the absence of 1994 premium refunds.

Consolidated operating income advanced $97 million (8%) to $1.34 billion
in 1995, resulting from a $211 million improvement at the Railroad,
partially offset by weaker operating results at Overnite. Other income
increased $41 million from interest associated with 1995 Railroad Retirement
Tax claim settlements and higher gains on property sales. Interest expense
rose $103 million, principally from the higher debt levels associated with
the CNW acquisition and the Southern Pacific first-step cash tender offer.
Income from continuing operations as a percentage of operating revenues fell
to 8.3% in 1995 from 8.7% in 1994, reflecting Overnite's performance
decline. Return on average common stockholders' equity improved to 16.5% in
1995 from 10.9% in 1994, reflecting 1995 net income growth.

Railroad - The Railroad earned $867 million in 1995, a 15% increase from
$754 million in 1994. Earnings improvements reflected the addition of CNW,
base volume growth and improvements in average prices, which more than
offset a $65 million after-tax increase in interest cost related to
financing the CNW acquisition and the Southern Pacific cash tender offer.

Revenues improved $1.01 billion (19%) to $6.33 billion, as CNW business
of approximately $800 million combined with a 5% improvement in average
commodity revenue per car, reflecting a longer average length of haul,
favorable traffic mix shifts and pricing improvements. Carloadings grew 12%
(nearly 577,000 cars) year-over-year, resulting from net incremental volumes
from the acquisition of CNW and business expansion.

Operating expenses rose $797 million to $4.94 billion in 1995.
Incremental CNW volumes, inflation and system congestion (caused by the
late arrival of new power and amplified by the CNW integration) were the
principal drivers causing an escalation in salaries, wages and employee
benefits ($301 million); rent expense ($150 million); fuel and utility costs
($92 million); materials and supplies expense ($32 million); purchased
services ($31 million); and repair and maintenance expenses ($22 million).
Depreciation rose $100 million, reflecting the addition of CNW properties
and continued capital spending. Personal injury expense rose $28 million,
reflecting the addition of CNW and higher average settlement costs, while
other taxes increased $19 million--primarily the result of the CNW
consolidation.

Operating income improved $211 million (18%) to $1.38 billion in 1995,
while the operating ratio increased to 78.1 in 1995 from 77.9 in 1994. On a
pro forma basis, including CNW in 1994 results, the operating ratio would
have been flat year-over-year.

Trucking - Overnite's operating environment was extremely difficult
throughout 1995. The major factors affecting Overnite's operations were
aggressive pricing from regional LTL and truckload carriers, soft volumes
caused by industry overcapacity, incremental expenses associated with
attempts by the International Brotherhood of Teamsters (Teamsters) to
unionize certain Overnite service centers and ongoing operational
inefficiencies associated with declining volumes. As a result, Overnite
reported a $30 million net loss in 1995, compared to $41 million of net
income in 1994. Results include goodwill amortization of $20 million in
1995, $3 million less than 1994, because of a favorable tax settlement
related to the deductibility of intangible assets.

Operating revenues declined $61 million (6%) in 1995 to $976 million.
Volumes were down 4%, while average prices declined 3%. Operating expenses
increased $55 million in 1995 to just over $1 billion. Salaries, wages and
employee benefit costs increased $39 million, caused by wage and benefit
inflation. General and administrative costs increased $12 million--
reflecting costs incurred in response to unionization efforts, an increased
provision for uncollectible accounts and higher insurance costs. In
addition, depreciation expense increased $5 million, reflecting continued
capital spending. Overnite recorded an operating loss of $49 million in
1995, compared to operating income of $67 million in 1994, as the operating
ratio (including goodwill amortization) increased to 105.0 from 93.6 in
1994.

<PAGE> 27

(Graph of Union Pacific Corporation Cash from Continuing Operations)
<TABLE>
<CAPTION>
$ Millions

1992 1993 1994 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Cash from Continuing 842 975 1,079 1,454 1,657
Operations
</TABLE>

(Graph of Union Pacific Corporation Capital Investments)
<TABLE>
<CAPTION>
$ Millions

1992 1993 1994 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Capital Investments 864 899 876 1,058 1,360
</TABLE>

Corporate Services and Other Operations - Expenses related to Corporate
Services and Other Operations decreased $9 million to $218 million in 1995.
The decrease was largely the result of a favorable payroll tax settlement
and lower professional fees. Other operating units generated operating
income of $6 million in 1995, compared to operating income of $4 million in
1994--reflecting improved operating results at the Corporation's other
operations.

Results of Discontinued Operations

Income from discontinued operations increased $349 million to $327 million
in 1995, reflecting the absence of a loss from the sale of UPC's waste
management unit in 1994. Resources' 1995 earnings declined $39 million from
1994 to $351 million, as lower natural gas prices, higher interest costs
caused by debt incurred by Resources in connection with its IPO dividend to
UPC and the absence of the 1994 Wilmington field sale were only partially
mitigated by the 1995 Columbia bankruptcy settlement and higher sales
volumes. As a result of Resources' October 1995 IPO, UPC recognized $327
million of Resources' 1995 net income in discontinued operations,
reflecting the Corporation's ownership of Resources.

CASH FLOWS, LIQUIDITY AND FINANCIAL RESOURCES

In 1996, cash from continuing operations was $1.66 billion, compared to
$1.45 billion in 1995. This $203 million increase primarily reflects higher
income from continuing operations ($114 million), lower CNW merger-related
payments and a higher proportion of non-cash expenses included in net
income.

Cash used in investing activities was $1.09 billion in 1996 compared to
$2.57 billion in 1995. This decrease primarily reflects proceeds from the
collection of IPO-related notes receivable ($650 million) and reduced cash
payments for strategic acquisitions ($1.61 billion). These items were
tempered by higher capital expenditures ($302 million), reflecting the
capital spending requirements resulting from the Southern Pacific and CNW
acquisitions, reduced cash provided by Resources ($201 million) and the
absence of $225 million in proceeds from the sale of UPC's waste management
unit, collected in January 1995.

Cash used in financing activities was $602 million in 1996 compared to
cash provided by financing activities of $1.23 billion in 1995. This change
in cash reflects debt repayments in excess of borrowings (principally from
reduced acquisition financings) and the absence of proceeds from Resources'
IPO. The ratio of debt to capital employed decreased to 49.4% at December
31, 1996 compared to 50.0% a year ago. This improvement resulted from
increased debt levels associated with the purchase of Southern Pacific
shares in September 1996 and the consolidation of Southern Pacific's debt,
which were more than offset by the 1996 stockholders' equity increase.

In December 1996, the Corporation completed the registration of $1
billion of securities for public issuance. Issuances under the registration
statement are expected to occur during 1997 and 1998, and will be used for
general corporate purposes, including repayment of borrowings, working
capital requirements and capital expenditures.

In October 1996, the Corporation completed its tender offer for Southern
Pacific's $375 million principal amount of 9-3/8% Senior Notes due 2005 (the
Notes). In connection with the tender offer, UPC retired approximately 90%
of the Notes. Investors tendering their Notes were also required to consent
to certain amendments to the Indenture pursuant to which the Notes were
issued, which eliminated or modified certain restrictive covenants under the
Indenture. The Corporation also repaid certain other higher cost Southern
Pacific debt, including $250 million in borrowings under Southern Pacific
Transportation Company's (SPT) credit facility and $30 million principal
amount of SPT's First and Refunding Mortgage 8.20% Bonds, Series B, due
2001. The Corporation issued comercial paper to fund the refinancing
activities.

<PAGE> 28

(Graph of Union Pacific Corporation Shareholder Value)
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Stock Price at Year-End 58.50 62.63 45.38 66.00 84.69

</TABLE>

At year-end 1996, the Corporation had $2.8 billion of outstanding credit
facilities expiring in 2001, of which $2.6 billion was available for use.

OTHER MATTERS

Personal Injury - Over the past 10 years work-related injuries have declined
by more than 10% annually (reflecting aggressive safety and training
programs), while the average settlement cost per claim has continued to rise
significantly. Annual expenses for injury-related events were $251 million in
1996, $222 million in 1995 and $194 million in 1994. Compensation for 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 on out-of-court settlements. The Railroad offers a comprehensive
variety of services and rehabilitation programs for employees who are injured
at work.

Environmental Costs - The Corporation generates and transports hazardous and
nonhazardous waste in its current and former operations, and is subject to
Federal, state and local environmental laws and regulations. The Corporation
has identified approximately 390 sites, including approximately 60 sites
currently on the Superfund National Priorities List or state superfund lists,
at which it is or may be liable for remediation costs associated with alleged
contamination or for violations of environmental requirements. Certain
Federal legislation imposes joint and several liability for the remediation of
identified sites; consequently, the Corporation's ultimate environmental
liability may include costs relating to other parties, in addition to costs
relating to its own activities at each site.

A liability of $231 million has been accrued for future costs at all
sites where the Corporation's obligation is probable and where such costs can
be reasonably estimated; however, the ultimate cost could be lower or as much
as 25% higher. 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 were based on
information available for each site, financial viability of other potentially
responsible parties (PRPs), and existing technology, laws and regulations.
The Corporation 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 with certainty
because of the number of PRPs involved, site-specific cost sharing
arrangements with other PRPs, 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.

Remediation of identified sites previously used in operations, used by
tenants or contaminated by former owners required spending of $28 million in
both 1996 and 1995. The Corporation is also engaged in reducing emissions,
spills and migration of hazardous materials, and spent $10 million and $11
million in 1996 and 1995, respectively, for control and prevention, a portion
of which has been capitalized. In 1997, the Corporation anticipates spending
$68 million for remediation and $14 million for control and prevention. In
addition, in connection with the integration of the Union Pacific Railroad
Company and its affiliate Missouri Pacific Railroad Company
(MPRR)(collectively UPRR) and Southern Pacific rail systems, in 1997, UPC may
spend up to $30 million in remediation costs related to the closure of major
Southern Pacific shops and facilities. The majority of the December 31, 1996
environmental liability is expected to be paid out over the next five years,
funded by cash generated from operations. However, future environmental
obligations are not expected to have a material impact on the results of
operations or financial condition of the Corporation.

Labor Matters - Approximately 90% of the Railroad's 54,000 employees are
represented by rail unions. During 1996, nearly all of UPRR's unionized
workforce of ratified five-year national agreements that include a combination
of general wage increases and lump-sum payments. In addition, the contracts
provide for increased flexibility in work rules. With respect to Southern
Pacific's unionized workforce, under the conditions imposed by the

<PAGE> 29

(Graph of Union Pacific Corporation Dividends Declared)

<TABLE>
<CAPTION>
$ Millions

1992 1993 1994 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Dividends Declared 289 315 341 353 371
</TABLE>

(Graph of Union Pacific Corporation Book Value)
<TABLE>
<CAPTION>
$ per Share
1992 1993 1994 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Book Value 22.75 23.81 24.92 30.93 33.35
</TABLE>

STB in connection with the Southern Pacific acquisition, labor agreements
between the Railroad and the unions must be negotiated before the UPRR and
Southern Pacific rail systems can be fully integrated. UPRR has begun
negotiations with the union leadership representing Southern Pacific's
workforce and expects union agreements to be ratified in 1997 and 1998. To
date, the leadership of certain regional shopcraft, carmen and clerical unions
(collectively representing approximately 40% of Southern Pacific's unionized
workforce) have negotiated agreements relating to the consolidation and
coordination of UPRR's and Southern Pacific's operations. The terms of
ratified and pending labor agreements are not expected to have a material
adverse effect on the Corporation's results of operations.

Overnite continues to oppose the efforts of the Teamsters to unionize
Overnite service centers. Since year-end 1994, over 50 of Overnite's 161
service centers have received petitions for union elections. Where elections
have been held, 29 Overnite service centers voted against representation and
two elections remain unresolved. The employees of three service centers that
previously voted for union representation filed petitions with the National
Labor Relations Board (NLRB) to decertify the Teamsters as their union
bargaining representative. Thirteen service centers, representing
approximately 8% of Overnite's nationwide workforce, have voted for union
representation, and the Teamsters have been certified as the bargaining
representative for such employees without challenge by Overnite. Seven other
service centers, representing another 9% of Overnite's nationwide workforce,
have either voted for union representation or it is unclear how such employees
have voted, and such elections are currently being challenged by Overnite
before the NLRB or the Federal courts. Overnite has begun negotiations with
the Teamsters at the certified service centers and does not anticipate that
these negotiations will have a significant impact on its future operating
results.

Management - At year-end 1996, Drew Lewis retired as Chairman and Chief
Executive Officer of the Corporation. Richard K. Davidson, the Corporation's
former President and Chief Operating Officer, was elected by the Board of
Directors as Chairman, President and Chief Executive Officer.

Inflation - The cumulative effect of long periods of inflation has
significantly increased asset replacement costs for capital-intensive
companies such as the Railroad and Overnite. As a result, depreciation
charges on an inflation-adjusted basis, assuming that all operating assets are
replaced at current price levels, would be substantially greater than
historically reported amounts.

Financial Instruments - The Corporation uses derivative financial instruments
in limited instances for other than trading purposes to manage risk as it
relates to fuel prices and interest rates. Where the Corporation has fixed
interest rates or fuel prices by using swaps, futures or forward contracts,
the Corporation has mitigated the downside risk of adverse price and rate
movements; however, it has also limited future gains from favorable
movements.

Interest Rates - The Corporation manages its overall exposure to fluctuations
in interest rates by adjusting the proportion of fixed and floating rate debt
instruments within its debt portfolio over a given period. Derivatives are
used in limited circumstances as one of the tools to obtain the targeted mix.
The mix of fixed and floating rate debt is largely managed through the
issuance of targeted amounts of each as debt matures or incremental borrowings
are required. The Corporation also obtains additional flexibility in managing
interest costs and the interest rate mix within its debt portfolio by issuing
callable fixed rate debt securities.

Fuel - Over the past three years, fuel costs approximated 10% of the
Corporation's total operating costs. As a result of the significance of fuel
costs and the historical volatility of fuel prices, the Corporation
periodically uses swaps, futures and forward fuel contracts to mitigate the
risk of fuel price volatility. The intent of this program is to protect the
Corporation's operating margins and overall profitability from adverse fuel
price changes.

<PAGE> 30

(Graph of Union Pacific Railroad Locomotives at Year-End)

<TABLE>
<CAPTION>
Locomotives
1992 1993 1994 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Locomotives 3,074 3,142 3,132 4,136 6,755

</TABLE>

Sensitivity Analysis - UPC had a limited number of interest rate swaps in
place at year-end 1996 (see Note 4 to the Financial Statements). If market
interest rates changed 5%, the related change in value of interest rate swaps
would not have a significant impact on the Corporation's interest expense or
net income.

Pending Accounting Pronouncements - The Financial Accounting Standards Board
issued Statement No. 125, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities," which provides consistent
standards for determining if transfers of financial assets are sales or
secured borrowings and which revises the accounting rules for liabilities
extinguished by an in-substance defeasance. This statement is effective for
transfers of financial assets and extinguishments of liabilities occurring
after December 31, 1996 and is not expected to have any impact on UPC's
operating results or financial condition.

The American Institute of Certified Public Accountants issued Statement
of Position 96-1, "Environmental Remediation Liabilities," effective for 1997,
which clarified the accounting for environmental remediation liabilities.
Adoption is not expected to have a significant impact on UPC's operating
results or financial condition.

A LOOK FORWARD

General Economic Factors - The Corporation's future results can be affected by
changes in the economic environment and by fluctuations in fuel prices.
Several of the commodities transported by both Overnite and the Railroad come
from industries with cyclical business operations. As a result, prolonged
negative changes in U.S. and global economic conditions can have an adverse
effect on the Corporation's operating results. In addition, operating results
at the Railroad and Overnite can be affected adversely by increases in diesel
fuel costs, to the extent that such costs are not recovered through higher
revenues and improved fuel conservation or mitigated by hedging activity.

1997 Capital Spending - The Corporation's 1997 capital expenditures, debt
service requirements and payments related to the integration of Southern
Pacific's rail operations will be funded primarily through cash generated from
operations and additional debt financings. The Corporation expects that such
sources will continue to provide sufficient funds to meet cash requirements in
the foreseeable future.

The Corporation expects to increase its level of capital spending to
$2.1 billion in 1997, including over $500 million to integrate the UPRR and
Southern Pacific rail systems. Railroad-related capital expenditures will be
used to continue capacity expansion on its main lines, upgrade and augment
equipment to meet customer needs and develop and implement new technologies. A
portion of these expenditures is anticipated to be funded from the sale or
lease of various operating and nonoperating properties of Southern Pacific.
Overnite will continue to maintain its truck fleet and upgrade technology.

1997 Business Outlook - Rail volumes are anticipated to improve across all
commodities in 1997, as a result of base business growth, a full year of
Southern Pacific operations and Railroad consolidation efficiencies. Continued
strong demand for low-sulfur coal and coal corridor productivity improvements
are expected to drive the continued expansion of energy business. A strong
1996 fall harvest and normal harvest conditions in 1997 should result in
rebounding grain carloadings. Continued strength in the economy should
escalate automotive, chemicals and intermodal volumes. Automotive traffic
will be further enhanced by continued auto parts and finished autos business
with Mexico, while intermodal volumes should benefit from the introduction of
a new premium train service linking California to Chicago and Memphis.
Average commodity revenue per car is also expected to improve in 1997,
reflecting the effects of longer average hauls, favorable product mix changes
and price improvements.

<PAGE> 31

(Graph of Union Pacific Corporation Assets)
<TABLE>
<CAPTION>
$ Millions

1992 1993 1994 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Assets 12,901 13,797 14,543 19,446 27,914

</TABLE>

(Graph of Union Pacific Corporation Revenues Per Employee)
<TABLE>
<CAPTION>
$Thousands

1992 1993 1994 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Revenues per Employee 135.0 136.3 143.0 151.4 160.3
</TABLE>

In January 1997, a continuation of record snowfalls followed by heavy
rains in northern California and the Pacific Northwest have caused flooding
and mud slides in these regions, resulting in track closings and washouts on
the I-5 corridor and the Feather River Canyon route. Although damage estimates
are significant, the Railroad expects that a substantial portion of these
costs will be recovered through insurance settlements. The Railroad has
avoided any significant impact on its service by rerouting trains to
unaffected lines.

The acquisition of Southern Pacific is anticipated to yield annual
benefits to operating income of $820 million, once Southern Pacific's
operations have been fully integrated with UPRR's existing operations over the
five-year period ending in 2001. The Railroad will consolidate Southern
Pacific's and UPRR's operations by region, beginning in mid-1997.

In January 1997, the Railroad merged MPRR into Union Pacific Railroad
Company. In connection with this merger, Union Pacific Railroad Company
assumed all debt obligations of MPRR. This merger is expected to reduce
administrative costs, simplify billing and enhance customer service
opportunities.

Overnite will continue the reorganization of its business operations to
meet the current trucking industry environment. As a result of these efforts,
UPC anticipates that Overnite will improve its financial results during 1997.

Year 2000 Costs - In 1995, UPC began modifying its computer system programming
to process transactions in the year 2000. Anticipated spending for this
modification will be expensed as incurred and is not expected to have a
significant impact on the Corporation's ongoing results of operations.

CAUTIONARY INFORMATION

Certain information included in this report contains, and other materials
filed or to be filed by the Corporation 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 Corporation) contain or will
contain, forward-looking statements within the meaning of the Securities Act
of 1933, as amended, and the Securities Exchange Act of 1934, as amended.
Such forward-looking information may include, without limitation, statements
that the Corporation does not expect that lawsuits, environmental costs,
commitments, contingent liabilities, labor negotiations or other matters will
have a material adverse effect on its consolidated financial condition,
results of operations or liquidity and other similar expressions concerning
matters that are not historical facts, and projections as to the Corporation's
financial results. Such forward-looking information is or will be based on
information available at that time and is or will be subject to risks and
uncertainties that could cause actual results to differ materially from those
expressed in the statements. Important factors that could cause such
differences include but are not limited to industry competition and regulatory
developments, natural events such as floods and earthquakes, the effects of
adverse general economic conditions, fuel prices and the ultimate outcome of
environmental investigations or proceedings and other types of claims and
litigation.

<PAGE> 32

INDEPENDENT AUDITORS' REPORT

Union Pacific Corporation, its Directors and Stockholders:

We have audited the accompanying statement of consolidated financial position
of Union Pacific Corporation and subsidiary companies as of December 31, 1996
and 1995, and the related statements of consolidated income, changes in common
stockholders' equity, and consolidated cash flows for each of the three years
in the period ended December 31, 1996. These financial statements are the
responsibility of the Corporation's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of Union Pacific Corporation
and subsidiary companies at December 31, 1996 and 1995, and the results of
their operations and their cash flows for each of the three years in the
period ended December 31, 1996 in conformity with generally accepted
accounting principles.

/s/ Deloitte & Touche LLP

New York, New York
January 23, 1997

RESPONSIBILITIES FOR FINANCIAL STATEMENTS

The accompanying financial statements, which consolidate the accounts of Union
Pacific Corporation and its subsidiaries, have been prepared in conformity
with generally accepted accounting principles.

The integrity and objectivity of data in these financial statements and
accompanying notes, including estimates and judgments related to matters not
concluded by year-end, are the responsibility of management as is all other
information in this Annual Report. Management devotes ongoing attention to
review and appraisal of its system of internal controls. This system is
designed to provide reasonable assurance, at an appropriate cost, that the
Corporation's assets are protected, that transactions and events are recorded
properly and that financial reports are reliable. The system is augmented by
a staff of corporate traveling auditors supplemented by internal auditors in
the subsidiary operating companies; careful attention to selection and
development of qualified financial personnel; programs to further timely
communication and monitoring of policies, standards and delegated authorities;
and evaluation by independent auditors during their audits of the annual
financial statements.

The Audit Committee of the Board of Directors, composed entirely of
outside directors, as identified on page 55, meets regularly with financial
management, the corporate auditors and the independent auditors to review the
work of each. The independent auditors and corporate auditors have free
access to the Audit Committee, without management representatives present, to
discuss the results of their audits and their comments on the adequacy of
internal controls and the quality of financial reporting.

/s/ Dick Davidson

Chairman, President and Chief Executive Officer

/s/ L. White Matthews, III

Executive Vice President-Finance

/s/ Joseph E. O'connor, Jr.

Vice President and Controller

<PAGE> 33
<TABLE>
<CAPTION>
BUSINESS SEGMENTS
Union Pacific Corporation and Subsidiary Companies

__________________________________________________________________________________
Millions of Dollars 1996 1995 1994
__________________________________________________________________________________
<S> <C> <C> <C>
Operating Railroad . . . . . . . . . . . . $ 7,680 $ 6,326 $ 5,318
Revenues Trucking . . . . . . . . . . . . 961 976 1,037
Corporate services and
other operations . . . . . . . . 145 184 137
__________________________________________________________________________________
Total . . . . . . . . . . . . . . $ 8,786 $ 7,486 $ 6,492
__________________________________________________________________________________
Operating Income Railroad . . . . .. . . . . . . . $ 1,602 $ 1,384 $ 1,173
(Loss) Trucking. . . . . . . . . . . . . (68) (49) 67
Corporate services and
other operations. . . . . . . . (1) 6 4
__________________________________________________________________________________
Total . . . . . . . . . . . . . . $ 1,533 $ 1,341 $ 1,244
__________________________________________________________________________________
Income (Loss) Railroad . . . . . . . . . . $ 940 $ 867 $ 754
from Continuing Trucking . . . . . . .. . . . (43) (30) 41
Operations Corporate services and
other operations. . . . . . . (164) (218) (227)
__________________________________________________________________________________
Total. . . . . . . . . . . . . . $ 733 $ 619 $ 568
__________________________________________________________________________________
Cash from Railroad . . . . . . .. . . . . $ 1,767 $ 1,486 $ 1,061
Continuing Trucking . . . . . . . . . . . . 47 37 116
Operations Corporate services and
other operations. . . . . . . . (157) (69) (98)
___________________________________________________________________________________
Total .. . . . . . . . . . . . . $ 1,657 $ 1,454 $ 1,079
___________________________________________________________________________________
Assets Railroad. . . . . . . . .. . . . $26,265 $15,694 $10,455
(at Year-End) Trucking . . . . . . . . . . . . 1,225 1,270 1,420
Corporate services and
other operations. . . . . . . . 424 2,482 2,668
___________________________________________________________________________________
Total. .. . . . . . . . .. . . . $27,914 $19,446 $14,543
___________________________________________________________________________________
Depreciation and Railroad . . . . . . . . . . $ 686 $ 568 $ 468
Amortization Trucking . . . . . . . . . . 65 64 63
Corporate services and
other operations . . . . . . 11 10 10
___________________________________________________________________________________
Total. . . . . . . . . . . . . $ 762 $ 642 $ 541
___________________________________________________________________________________
Capital Railroad . . . . . . . . . . . $ 1,339 $ 970 $ 769
Investments Trucking. . . . . . . . . . . 10 49 93
Corporate services and
other operations . . . . . . 11 39 14
___________________________________________________________________________________
Total. .. . . . . . . . . . . $ 1,360 $ 1,058 $ 876

This information should be read in conjunction with the
accompanying accounting policies and notes to the
financial statements.
</TABLE>

<PAGE> 34
<TABLE>
<CAPTION>
STATEMENT OF CONSOLIDATED INCOME

Union Pacific Corporation and Subsidiary Companies

________________________________________________________________________________________
Millions of Dollars, Except Per Share Amounts 1996 1995 1994
_________________________________________________________________________________________
<S> <C> <C> <C>
Operating Revenues Railroad, trucking and other . . . . . . . . .$ 8,786 $ 7,486 $ 6,492
_____________________________________________________________________
Operating Expenses Salaries, wages and employee benefits. . . . . 3,260 2,826 2,460
Equipment and other rents. . . . . . . . . . . 885 695 542
Fuel and utilities (Note 4). . . . . . . . . . 790 574 480
Depreciation and amortization . . . . . . . . 762 642 541
Purchased services . . . . . . . . . . . . . . 491 410 368
Materials and supplies . . . . . . . . . . . . 469 377 344
Other costs . . . . . . . . . . . . . . . . . 596 621 513
_____________________________________________________________________
Total . . . . . . . . . . . . . . . . . . . . 7,253 6,145 5,248
_____________________________________________________________________
Income Operating Income . . . . . . . . . . . . . . . 1,533 1,341 1,244
Other Income (Note 12) . . . . . . . . . . . . 182 141 100
Interest Expense (Notes 2, 3, 4 and 7) . . . . (501) (450) (347)
Corporate Expenses . . . . . . . . . . . . . . (101) (99) (99)
_____________________________________________________________________
Income before Income Taxes . . . . . . . . . . 1,113 933 898
Income Taxes (Note 6). . . . . . . . . . . . . (380) (314) (330)
_____________________________________________________________________
Income from Continuing Operations. . . . . . . 733 619 568
Income (Loss)from Discontinued
Operations (Note 3). . . . . . . . . . . . . . 171 327 (22)
_____________________________________________________________________
Net Income . . . . . . . . . . . . . . . . . .$ 904 $ 946 $ 546
_________________________________________________________________________________________
Per Share Income from Continuing Operations. . . . . . .$ 3.36 $ 3.01 $ 2.76
Income(Loss)from Discontinued
Operations. . . . . . . . . . . . . . . . . . 0.78 1.59 (0.10)
Net Income . . . . . . . . . . . . . . . . . . 4.14 4.60 2.66
Dividends. . . . . . . . . . . . . . . . . . . 1.72 1.72 1.66

The accompanying accounting policies and notes to the financial
statements are an integral part of these statements.

</TABLE>

<PAGE> 35
<TABLE>
<CAPTION>
STATEMENT OF CONSOLIDATED FINANCIAL POSITION
Union Pacific Corporation and Subsidiary Companies

____________________________________________________________________________
Millions of Dollars 1996 1995
____________________________________________________________________________
<S> <C> <C>
Assets _________________________________________________________

Current Assets Cash and temporary investments . . . $ 191 $ 230
Accounts receivable (Note 4). . . . . 494 349
Inventories . . . . . . . . . . 304 238
Notes receivable from Resources
(Note 3). . . . . . . . . . . . . . -- 650
Other current assets (Note 6) . . . . 345 212
_________________________________________________________
Total . . . . . . . . . . . . . . . . 1,334 1,679
_________________________________________________________
Investments Investments in and advances to
affiliated companies (Note 2). . . . 387 1,260
Other investments . . . . . . . . . . 226 187
_________________________________________________________
Total . . . . . . . . . . . . . . . . 613 1,447
_________________________________________________________
Properties Cost (Notes 2 and 5) . . . . . . . . 30,097 18,748
Accumulated depreciation (Note 5) . . (5,053) (4,643)
_________________________________________________________
Net . . . . . . . . . . . . . . . . . 25,044 14,105
_________________________________________________________
Other Excess Acquisition Costs - Net . . . 700 730
Net Assets of Discontinued
Operations (Note 3) . . . . . . . . -- 1,312
Other Assets. . . . . . . . . . . . . 223 173
_________________________________________________________
Total Assets. . . . . . . . . . . . . $27,914 $19,446
____________________________________________________________________________
Liabilities and Stockholders' Equity
_________________________________________________________
Current Accounts payable. . . . . . . . . . . $ 705 $ 436
Liabilities Accrued wages and vacation. . . . . . 427 284
Accrued casualty costs. . . . . . . . 332 192
Dividends and interest. . . . . . . . 293 203
Income and other taxes. . . . . . . . 250 178
Debt due within one year (Note 7) . . 127 132
Other current liabilities (Note 2). . 922 474
_________________________________________________________
Total . . . . . . . . . . . . . . . . 3,056 1,899
_________________________________________________________
Other Liabilities Debt Due after One Year (Notes 2, 3,
and Stockholders' and 7) . . . . . . . . . . . . . . 7,900 6,232
Equity Deferred Income Taxes (Note 6) . . . 5,939 3,498
Accrued Casualty Costs. . . . . . . . 730 352
Retiree Benefits Obligation (Note 9). 720 588
Other Long-Term Liabilities
(Notes 2 and 11) . . . . . . . . . . 1,344 297
Minority Interest in Consolidated
Subsidiary (Note 3) . . . . . . . . -- 216
Common Stockholders' Equity (page 37) 8,225 6,364
_________________________________________________________
Total Liabilities and
Stockholders' Equity . . . . . . . . $27,914 $19,446

The accompanying accounting policies and notes to the
financial statements are an integral part of these
statements.
</TABLE>
<PAGE> 36
<TABLE>
<CAPTION>
STATEMENT OF CONSOLIDATED CASH FLOWS
Union Pacific Corporation and Subsidiary Companies

______________________________________________________________________________
Millions of Dollars 1996 1995 1994
______________________________________________________________________________
<S> <C> <C> <C>
Cash from Net income . . . . . . . . . . . . . $ 904 $ 946 $ 546
Continuing Non-cash charges to income:
Operations Depreciation and amortization . . . 762 642 541
Deferred income taxes (Note 6) . . . 166 151 175
Other - net . . . . . . . . . . . . (572) 358 (260)
(Income)loss from discontinued
operations (Note 3) . . . . . . . . (171) (327) 22
Changes in current assets and
liabilities (Note 2). . . . . . . . 568 (316) 55
______________________________________________________________
Cash from Continuing Operations. . . 1,657 1,454 1,079
______________________________________________________________
Investing Capital investments . . . . . . . . (1,360) (1,058) (876)
Activities Cash provided (used) by discontinued
operations (Note 3) . . . . . . . . 41 467 (295)
Proceeds from Resources notes
receivable repayment (Note 3) . . . 650 -- --
Investments and acquisitions (Note 2) (539) (2,146) --
Proceeds from sale of assets and other
investing activities . . . . . . . 114 168 28
______________________________________________________________
Cash Used in Investing Activities. . (1,094) (2,569) (1,143)
______________________________________________________________
Equity and Dividends paid . . . . . . . . . . . (353) (353) (334)
Financing Debt repaid . . . . . . . . . . . . (2,047) (1,531) (319)
Activities Financings (Note 2) . . . . . . . . 1,741 2,275 731
Proceeds from Resources' stock
offering (Note 3) . . . . . . . . . -- 844 --
Other - net . . . . . . . . . . . . 57 (5) (1)
--------------------------------------------------------------
Cash (Used in) Provided by Equity and
Financing Activities. . . . . . . . (602) 1,230 77
______________________________________________________________
Net Change in Cash and Temporary
Investments . . . . . . . . . . . $ (39) $ 115 $ 13
______________________________________________________________________________
Changes in Accounts receivable . . . . . . . . $ 14 $ 47 $ (19)
Current Assets Inventories . . . . . . . . . . . . 12 19 (29)
and Liabilities Other current assets. . . . . . . . 762 (281) (307)
(Excluding SP Accounts, wages and vacation payable 4 80 (21)
Assets/ Debt due within one year. . . . . . (62) (295) 345
Liabilities Other current liabilities . . . . . (162) 114 86
Acquired) --------------------------------------------------------------
Total. . . . . . . . . . . . . . . $ 568 $ (316) $ 55
______________________________________________________________
The accompanying accounting policies and notes to the
financial statements are an integral part of these statements.
</TABLE>

<PAGE> 37
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN COMMON STOCKHOLDERS' EQUITY
Union Pacific Corporation and Subsidiary Companies

Balance at beginning of year
(232,317,010 issued shares in 1996;
231,837,976 in 1995; 230,788,175 in
1994) . . . . . . . . . . . . . . . $ 581 $ 580 $ 577

Common stock issued in Southern
Pacific acquisition (38,089,704
shares)(Note 2) . . . . . . . . . . 95 -- --

Conversions, exercises of stock
options and other (4,188,437 shares
in 1996; 479,034 in 1995; 1,049,801
in 1994). . . . . . . . . . . . . . 10 1 3
_____________________________________________________________
Balance at end of year (274,595,151
issued shares in 1996; 232,317,010 in
1995; 231,837,976 in 1994). . . . . 686 581 580
_____________________________________________________________
Paid-in Surplus Balance at beginning of year. . . . . 2,111 1,428 1,383

Common stock issued in Southern
Pacific acquisition (Note 2). . . . 2,381 -- --
Distribution of investment in
Resources (Note 3). . . . . . . . . (638) -- --
Issuance of Resources' no par common
stock (Note 3). . . . . . . . . . . -- 638 --
Conversions, exercises of stock options
and other . . . . . . . . . . . . . 155 45 45
_____________________________________________________________
Balance at end of year. . . . . . . . 4,009 2,111 1,428
_____________________________________________________________
Retained Balance at beginning of year. . . . . 5,327 4,734 4,529
Earnings Net income. . . . . . . . . . . . . . 904 946 546
_____________________________________________________________
Total . . . . . . . . . . . . . . . . 6,231 5,680 5,075
Cash dividends declared . . . . . . . (371) (353) (341)
Distribution of investment in
Resources (Note 3). . . . . . . . . (598) -- --
_____________________________________________________________
Balance at end of year (Note 7) . . . 5,262 5,327 4,734
______________________________________________________________
Treasury Stock Balance at end of year, at cost
(27,935,628 shares in 1996;
26,737,806 in 1995;
25,900,775 in 1994) . . . . . . . .(1,732) (1,655) (1,611)
_____________________________________________________________
Total Common Stockholders'
Equity (Note 10). . . . . . . . . $8,225 $6,364 $5,131

The accompanying accounting policies and notes to the
financial statements are an integral part of these statements.
</TABLE>
<PAGE> 38

NOTES TO THE FINANCIAL STATEMENTS

SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements include the accounts of Union Pacific
Corporation (the Corporation or UPC) and all of its subsidiaries. Investments
in affiliated companies (20% to 50% owned) are accounted for on the equity
method. All material intercompany transactions are eliminated.

Cash and Temporary Investments

Temporary investments are stated at cost that approximates fair value and
consist of investments with original maturities of three months or less.

Inventories

Inventories consist of materials and supplies carried at the lower of cost or
market.

Property and Depreciation

Properties are carried at cost. Provisions for depreciation are computed
principally on the straight-line method based on estimated service lives of
depreciable property.

The cost (net of salvage) of depreciable rail property retired or replaced
in the ordinary course of business is charged to accumulated depreciation. A
gain or loss is recognized in other income for all other property upon
disposition.

Long-Lived and Intangible Assets

Amortization of costs in excess of the fair value of net assets of acquired
businesses is generally recorded over 40 years on a straight-line basis. The
Corporation regularly assesses the recoverability of its long-lived and
intangible assets through a review of undiscounted cash flows and fair values
of those assets.

Revenue Recognition

Transportation revenues are recognized on a percentage-of-completion basis,
while delivery costs are recognized as incurred.

Hedging Transactions

The Corporation periodically hedges fuel purchases and interest rates.
Unrealized gains and losses from swaps, futures and forward contracts are
deferred and recognized as the fuel is consumed. The differential to be paid
or received on interest rate swaps is accrued as interest rates change and
recognized as interest expense over the life of the agreements (see Note 4).

Earnings Per Share

Earnings per share are based on the weighted average number of common shares
outstanding during the periods, plus shares issuable upon exercise of
outstanding stock options (see Note 10).

Minority Interest

Minority interest represents the minority stockholders' proportionate share
of the equity of Union Pacific Resources Group Inc. (Resources). At December
31, 1995, the Corporation owned approximately 83% of Resources' outstanding
common stock, which UPC distributed via a special dividend to its
stockholders in 1996 (see Note 3).

Use of Estimates

The consolidated financial statements of the Corporation include estimates
and assumptions regarding certain assets, liabilities, revenues and expenses
and the disclosure of certain contingent assets and liabilities. Actual
future results may differ from such estimates.

Change in Presentation

Certain 1995 and 1994 amounts have been restated to conform to the 1996
financial statement presentation. Resources and USPCI, Inc. (USPCI) are
classified as discontinued operations (see Note 3).

<PAGE> 39

1. Nature of Operations

UPC consists of two major business segments operating principally in the
United States and engaging in rail transportation and trucking.

Railroad - The Corporation's largest segment is Union Pacific Railroad
Company (including Missouri Pacific Railroad Company and, as of May 1, 1995,
Chicago and North Western Transportation Company (CNW))(UPRR), and, as of
October 1, 1996, Southern Pacific Rail Corporation (Southern Pacific or
SP)(see Note 2)(collectively the Railroad). The Railroad is the largest rail
system in the United States, with 36,000 route miles linking Pacific Coast
and Gulf Coast ports to the Midwest and eastern U.S. gateways. The Railroad
serves the western two-thirds of the country and maintains coordinated
schedules with other carriers for the handling of freight to and from the
Atlantic Coast, the Pacific Coast, the Southeast, the Southwest, Canada and
Mexico. Export and import traffic is moved through Gulf Coast and Pacific
Coast ports and across the Mexican and (primarily through interline
connections) Canadian borders. The Railroad is subject to price and service
competition from other railroads, motor carriers and barge operators. The
Corporation expects to integrate the operations of Southern Pacific with UPRR
during 1997 and 1998.

Approximately 90% of the Railroad's 54,000 employees are represented by
rail unions. During 1996, nearly all of UPRR's unionized workforce ratified
five-year national agreements, which include a combination of general wage
increases and lump-sum payments. In addition, the contracts provide for
increased flexibility in work rules. Under the conditions imposed by the
Surface Transportation Board of the U.S. Department of Transportation (STB)
in connection with the Southern Pacific acquisition, labor agreements between
the Railroad and the unions representing SP employees must be negotiated
before the UPRR and Southern Pacific rail systems can be fully integrated.
The Corporation has begun negotiations with these unions and expects revised
agreements to be ratified in 1997 and 1998.

Trucking - The Corporation's other major line of business is truck
transportation. Overnite Transportation Company (Overnite), a major
interstate trucking company specializing in less-than-truckload shipments,
serves all 50 states and portions of Canada and Mexico through 161 service
centers located throughout the United States. Overnite transports a variety
of products, including machinery, tobacco, textiles, plastics, electronics
and paper products. Overnite experiences intense service and price
competition from both regional and national motor carriers.

As the nation's largest non-union trucking company, Overnite is
periodically targeted by major labor organization efforts and is currently
the subject of an organizational campaign instituted by the International
Brotherhood of Teamsters (Teamsters) at many of its service centers. Since
year-end 1994, over 50 of Overnite's 161 service centers have received
petitions for union elections. Where elections have been held, 29 Overnite
service centers voted against representation and two elections remain
unresolved. The employees of three service centers that previously voted for
union representation filed petitions with the National Labor Relations Board
(NLRB) to decertify the Teamsters as their union bargaining representative.
Thirteen service centers, representing approximately 8% of Overnite's
nationwide workforce, have voted for union representation, and the Teamsters
have been certified as the bargaining representative for such employees
without challenge by Overnite. Seven other service centers, representing
another 9% of Overnite's nationwide workforce, have either voted for union
representation or it is unclear how such employees have voted, and such
elections are currently being challenged by Overnite before the NLRB or the
Federal courts. Overnite has begun negotiations with the Teamsters at the
service centers where the Teamsters have been certified as the bargaining
representative.

During 1996, Overnite's operating environment continued to be extremely
difficult. However, during the year, Overnite implemented several strategic
initiatives aimed at better matching its operations to the current trucking
industry environment. These actions included workforce reductions, service
center consolidations, centralization of the linehaul management process and
pricing initiatives targeting Overnite's lowest margin customers.

<PAGE> 40

Consolidated - The Corporation's future results can be affected by changes in
the economic environment and by fluctuations in fuel prices. Several of the
commodities transported by both Overnite and the Railroad come from
industries with cyclical business operations. As a result, prolonged
negative changes in U.S. and global economic conditions can have an adverse
effect on the Corporation's ongoing results. In addition, operating results
at the Railroad and Overnite can be affected adversely by increases in diesel
fuel costs, to the extent that such costs are not recovered through higher
revenues and improved fuel conservation, or mitigated by hedging activity.

Business Segments on page 33 provides additional financial information
related to the Corporation's operations.

2. Acquisitions

Southern Pacific - In August 1996, the STB issued a written decision
approving the acquisition of Southern Pacific by UPC with certain conditions.
UPC consummated the acquisition of Southern Pacific in September 1996 by
acquiring the remaining 75% of Southern Pacific common shares not previously
owned by the Corporation for $25 per SP share in cash, 0.4065 shares of the
Corporation's common stock per SP share or a combination thereof, at the
holder's election and subject to proration. As a result of the initial cash
tender offer in 1995 for 25% of Southern Pacific's outstanding shares and the
acquisition of the remaining 75% of Southern Pacific shares, 60% of the
outstanding Southern Pacific shares were converted into 38.1 million shares
of UPC common stock, and the remaining 40% of the outstanding shares were
acquired for $1,562 million in cash. UPC initially funded the cash portion of
the acquisition with credit facility borrowings.

The acquisition of Southern Pacific has been accounted for using the
purchase method. Results for 1996 include equity income equal to 25% of
Southern Pacific's net income through September 10, 1996, reflecting UPC's
ownership of SP during such period, and 100% of Southern Pacific's net income
thereafter. SP's results have been fully consolidated with the Corporation
effective October 1, 1996. The purchase price was determined as follows and
was based on a market value of the Corporation's common stock of $65.00 per
share, the value at the time of the announcement of the merger agreement
between the Corporation and Southern Pacific.

_____________________________________________________________
Millions of Dollars
_____________________________________________________________
Initial 25% investment in SP on September 15, 1995
including equity income . . . . . . . . . . . . . . $ 990
Second-step cash purchase (23.4 million shares at
$25.00 per SP share) on September 11, 1996. . . . . 586
Merger exchange of SP shares (93.7 million SP shares
converted into 38.1 million shares of UPC common
stock at $65.00 per share) on September 11, 1996. . 2,476
Transaction costs . . . . . . . . . . . . . . . . . . 45
_____________________________________________________________
Purchase price to be allocated. . . . . . . . . . . . $4,097
_____________________________________________________________

The Southern Pacific purchase price has been allocated as follows:
_____________________________________________________________
Millions of Dollars
_____________________________________________________________
Purchase price to be allocated . . . . . . . . . . . $4,097
Pre-tax merger costs:
Current . . . . . . . . . . . . . . . . . . . . . . 317
Long-term . . . . . . . . . . . . . . . . . . . . . 746
Equity acquired . . . . . . . . . . . . . . . . . . . (1,083)
_____________________________________________________________
Unallocated purchase price. . . . . . . . . . . . . . $4,077
_____________________________________________________________
Purchase price allocation:
Property and equipment . . . . . . . . . . . . . . . $6,160
Debt and preference share
revaluation. . . . . . . . . . . . . . . . . . . . (220)
Deferred income taxes (including
the effect of merger costs). . . . . . . . . . . . (1,863)
_____________________________________________________________
Total . . . . . . . . . . . . . . . . . . . . . . . . $4,077
_____________________________________________________________

In connection with the acquisition and subsequent consolidation of UPRR's
and Southern Pacific's rail operations, UPC plans to eliminate duplicate
positions, relocate certain functions, merge or dispose of redundant
facilities and dispose of certain rail lines. The Corporation also expects
to cancel uneconomical and duplicative SP contracts and repay certain of
Southern Pacific's debt obligations. UPC has recognized an estimated $1,063
million liability in the Southern Pacific purchase price allocation for costs
associated with these activities.

<PAGE> 41

Through year-end 1996, the Corporation charged $44 million to these
reserves, principally comprising costs to reduce Southern Pacific's
workforce. The Corporation expects the remaining acquisition-related
payments to be made in 1997 through 1999 as the Southern Pacific rail system
is integrated with UPRR.

In addition, the Corporation expects to incur approximately $250 million
in acquisition-related costs for severing or relocating UPC employees and
disposing of UPC facilities. Results for 1996 include $8 million of
acquisition-related operating expenses. The Corporation anticipates
charging the remaining acquisition-related payments for UPC employees and
facilities to operating expense in 1997 through 1999 as definitive plans are
refined and communicated and relocation and other costs are incurred.

The amounts recorded for Southern Pacific-related costs and estimated
costs for UPC severance, relocation and facility closings are subject to
refinement as more information becomes available and UPC's management
finalizes merger implementation plans. The results of union negotiations,
the actual portion of terminated or relocated UPC and SP employees, and the
resolution of certain litigation and other claims will be determined and
disclosed during the first half of 1997. As a result, the amounts included
in purchase accounting reserves and to be expensed by UPC in the future could
change. Any revision required is not expected to be material to the
Corporation's financial position or ongoing results of operations.

The pro forma results presented below have been prepared to reflect the
consummation of the Southern Pacific acquisition and the subsequent pro-rata
distribution of the shares of Resources owned by the Corporation to UPC's
stockholders (see Note 3), as if such events occurred at the beginning of
each period presented. The pro forma results presented below do not reflect
synergies expected to result from the integration of UPRR's and Southern
Pacific's rail operations, and, accordingly, do not account for any potential
increase in revenue or operating income, estimated cost savings, or one-time
costs associated with the elimination of UPC's duplicate facilities and
relocation or severance payments to UPC employees. The effects of the
foregoing could be substantial. This unaudited pro forma information is not
necessarily indicative of the results of operations that might have occurred
had the Southern Pacific acquisition and the distribution of the shares of
Resources owned by the Corporation actually occurred on the dates indicated,
or of future results of operations of the resulting entity. Pro forma
results for the year ended December 31, 1995 also reflect the pro forma
effect of UPC's acquisition of CNW as if such transaction had occurred at the
beginning of that period.

___________________________________________________________________
Millions of Dollars
Except Per Share Amounts 1996 1995
___________________________________________________________________
Operating revenues . . . . . . . . . . . . . . $11,219 $11,031
Operating income . . . . . . . . . . . . . . . 1,606 1,523
Net income . . . . . . . . . . . . . . . . . . 664 583
Net income per share . . . . . . . . . . . . . 2.71 2.39
___________________________________________________________________

CNW - In April 1995, UPC completed the acquisition of the remaining 71.6% of
CNW's outstanding common stock not previously owned by the Corporation for
approximately $1.2 billion, funded by the issuance of additional long-term
debt. The acquisition of CNW has been accounted for as a purchase, and CNW's
financial results were consolidated with the Corporation effective May 1,
1995.

3. Divestitures

Resources - In July 1995, the Corporation's Board of Directors approved a
formal plan to divest UPC's natural resources business through an initial
public offering (IPO) by Resources, followed by a pro-rata distribution of
the Resources shares owned by the Corporation to its stockholders (the Spin-
Off).

The IPO of 42.5 million Resources shares at $21 per share was completed in
October 1995 and generated net proceeds of $844 million. At that time,
Resources distributed to UPC a dividend of $1,621 million ($912 million in
cash, $650 million in 8.5% notes due within 90 days of the Spin-Off and a $59
million intercompany balance owed by the Corporation). UPC used the cash
proceeds from the IPO dividend to repay outstanding commercial paper.

<PAGE> 42

In September 1996, after UPC's receipt of a favorable Internal Revenue
Service ruling as to the tax-free nature of the Spin-Off, the Corporation's
Board of Directors declared a special dividend consisting of the shares of
Resources common stock owned by UPC. As a result of the Spin-Off, each of
the Corporation's stockholders received 0.846946 of a share of Resources
common stock for each UPC share of common stock held by such stockholder at
the September 26, 1996 record date for the distribution. In October 1996,
Resources repaid $650 million in notes to UPC, the proceeds of which were
used by the Corporation to repay outstanding commercial paper. The Spin-Off
was recorded as a reduction in paid-in surplus (representing the equity
generated by the IPO) and retained earnings (see Page 37).

Resources' results have been reported as a discontinued operation in the
Corporation's consolidated financial statements for all periods presented.
UPC's results reflect 100% of Resources' net income up to the date of the IPO
and approximately 83% of Resources' net income from the date of the IPO to
the Spin-Off. The Corporation's share of Resources' net income was $171
million, $327 million and $390 million in 1996, 1995 and 1994, respectively.
These amounts are net of income taxes of $82 million, $100 million and $131
million in 1996, 1995 and 1994, respectively. For the years ended December
31, 1996, 1995 and 1994, Resources' operating revenues were $1,831 million,
$1,477 million and $1,333 million, respectively.

USPCI - In September 1994, the Corporation's Board of Directors approved a
formal plan to dispose of its waste management business, USPCI. At year-end
1994, the Corporation completed the sale of USPCI for $225 million in notes
that were subsequently collected in January 1995. The sale resulted in a
$404 million after-tax loss (net of tax benefits of $196 million). USPCI's
1994 net loss of $8 million was also recorded in discontinued operations.

Proceeds and cash tax benefits from the sale of USPCI were used for general
corporate purposes, including the reduction of outstanding debt. Operating
revenues of USPCI for the year ended December 31, 1994 were $342 million.

4. Financial Instruments

Risk Management

The Corporation uses derivative financial instruments in limited instances
for other than trading purposes to manage risk as it relates to fuel prices
and interest rates. Where the Corporation has fixed interest rates or fuel
prices through the use of swaps, futures or forward contracts, the
Corporation has mitigated the downside risk of adverse price and rate
movements; however, it has also limited future gains from favorable
movements.

The Corporation addresses market risk related to these instruments by
selecting instruments whose value fluctuations highly correlate with the
underlying item being hedged. Credit risk related to derivative financial
instruments, which is minimal, is managed by requiring high credit standards
for counterparties and periodic settlements. The total risk associated with
the Corporation's counterparties was $31 million at December 31, 1996. The
Corporation has not been required to provide, nor has it received, any
significant amount of collateral relating to its hedging activity.

The fair market values of the Corporation's derivative financial
instrument positions at December 31, 1996 and 1995 described below were
determined based on current fair market values as quoted by recognized
dealers, or developed based on the present value of expected future cash
flows discounted at the applicable zero coupon U.S. treasury rate and swap
spread.

Interest Rates - The Corporation controls its overall risk of fluctuations in
interest rates by managing the proportion of fixed and floating rate debt
instruments within its debt portfolio over a given period. Derivatives are
used in limited circumstances as one of the tools to obtain the targeted mix.
The mix of fixed and floating rate debt is largely managed through the
issuance of targeted amounts of such debt as debt maturities occur or as
incremental borrowings are required. The Corporation also obtains additional
flexibility in managing interest costs and the interest rate mix within its
debt portfolio by issuing callable fixed rate debt securities.

At December 31, 1996, the Corporation had outstanding interest rate swaps
on $265 million of notional principal amount of debt (3% of the total debt
portfolio) with a gross fair market value asset position of $31 million and a
gross fair market value liability position of $12 million. These contracts
mature over the next two to nine years. At December 31, 1995, the Corporation
had outstanding

<PAGE> 43

interest rate swaps on $219 million of notional principal amount of debt (3%
of the total debt portfolio) with gross fair market value asset and liability
positions of $13 million, respectively. Interest rate hedging activity
increased interest expense by $3 million in 1996, and $7 million in both 1995
and 1994, raising the weighted average borrowing rate by no more than 20
basis points in any year.

Fuel - Over the past three years, fuel costs approximated 10% of the
Corporation's total operating expenses. As a result of the significance of
fuel costs and the historical volatility of fuel prices, the Corporation's
transportation subsidiaries periodically use swaps, futures and forward
contracts to mitigate the impact of fuel price volatility. The intent of
this program is to protect the Corporation's operating margins and overall
profitability from adverse fuel price changes. However, the use of these
contracts also limits the benefit of favorable fuel price changes.

At year-end 1996, neither the Railroad nor Overnite had hedged any of its
forecasted 1997 fuel consumption. At December 31, 1995, the Railroad had
hedged 7% of its forecasted 1996 fuel consumption at $0.46 per gallon, while
Overnite had not hedged any of its 1996 fuel requirements. At year-end 1995,
the Corporation had outstanding swap agreements covering fuel purchases of
$30 million, with gross and net asset positions of $2 million, respectively.
Fuel hedging lowered 1996 fuel costs by $34 million, had no significant
effect on 1995 fuel costs and lowered 1994 fuel costs by $10 million.

Fair Value of Financial Instruments

The fair value of the Corporation's long- and short-term debt has been
estimated using quoted market prices or current borrowing rates. At December
31, 1996, the fair value of total debt exceeded the carrying value by
approximately 3%. Of the Corporation's total debt portfolio, approximately
$1.6 billion of fixed rate debt securities contain call provisions that allow
the Corporation to retire the debt instruments prior to final maturity,
subject in certain cases to the payment of premiums.

The carrying value of all other financial instruments approximates fair
value.

Sale of Receivables

The Corporation has sold, on a revolving basis, an undivided percentage
ownership interest in a designated pool of accounts receivable. At December
31, 1996 and 1995, respectively, accounts receivable are presented net of the
$650 million and $400 million of receivables sold.

5. Properties

Major property accounts are as follows:

___________________________________________________________________
Millions of Dollars 1996 1995
___________________________________________________________________
Railroad:
Road and other. . . . . . . . . . . . . . . . $22,665 $12,888
Equipment . . . . . . . . . . . . . . . . . . 6,573 5,004
___________________________________________________________________
Total Railroad . . . . . . . . . . . . . . . . 29,238 17,892
Trucking . . . . . . . . . . . . . . . . . . . 736 744
Other. . . . . . . . . . . . . . . . . . . . . 123 112
___________________________________________________________________
Total. . . . . . . . . . . . . . . . . . . . . $30,097 $18,748
___________________________________________________________________

Accumulated depreciation accounts are as follows:
___________________________________________________________________
Millions of Dollars 1996 1995
___________________________________________________________________
Railroad:
Road and other. . . . . . . . . . . . . . . . $2,551 $2,331
Equipment . . . . . . . . . . . . . . . . . . 2,181 2,035
___________________________________________________________________
Total Railroad . . . . . . . . . . . . . . . . 4,732 4,366
Trucking . . . . . . . . . . . . . . . . . . . 272 237
Other. . . . . . . . . . . . . . . . . . . . . 49 40
___________________________________________________________________
Total. . . . . . . . . . . . . . . . . . . . . $5,053 $4,643
___________________________________________________________________

6. Income Taxes

Components of income tax expense, excluding discontinued operations, are as
follows:
_________________________________________________________________________
Millions of Dollars 1996 1995 1994
_________________________________________________________________________
Current:
Federal. . . . . . . . . . . . . . . . . . $200 $166 $123
State. . . . . . . . . . . . . . . . . . . 14 (3) 32
_________________________________________________________________________
Total current . . . . . . . . . . . . . . . 214 163 155
_________________________________________________________________________
Deferred:
Federal. . . . . . . . . . . . . . . . . . 149 130 178
State. . . . . . . . . . . . . . . . . . . 17 21 (3)
- -------------------------------------------------------------------------
Total deferred . . . . . . . . . . . . . . 166 151 175
_________________________________________________________________________
Total. . . . . . . . . . . . . . . . . . . . $380 $314 $330
_________________________________________________________________________

<PAGE> 44

Deferred tax liabilities (assets), excluding discontinued operations,
comprise the following:
________________________________________________________________
Millions of Dollars 1996 1995
________________________________________________________________
Net current deferred tax asset . . . . . . . $ (118) $ (119)
________________________________________________________________
Excess tax over book depreciation . . . . . . 6,891 3,697
State taxes - net . . . . . . . . . . . . . . 517 338
SP merger reserves . . . . . . . . . . . . . (357) --
Long-term liabilities . . . . . . . . . . . . (292) (204)
Retirement benefits . . . . . . . . . . . . . (288) (226)
Alternative minimum tax . . . . . . . . . . . (173) (111)
Net operating loss . . . . . . . . . . . . . (560) --
Other . . . . . . . . . . . . . . . . . . . . 201 4
________________________________________________________________
Net long-term deferred tax liability . . . . 5,939 3,498
________________________________________________________________
Net deferred tax liability . . . . . . . . . $5,821 $3,379
________________________________________________________________

The Corporation has a deferred tax asset reflecting the benefits of $1.6
billion in Southern Pacific net operating loss carryforwards (NOL), which
expire as follows:
______________________________________________________________________
Millions of Dollars
______________________________________________________________________
Expiring December 31:
2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 467
2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 266
2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 193
2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163
2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 245
2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164
2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
______________________________________________________________________
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,600
______________________________________________________________________

The Internal Revenue Code of 1986, as amended, limits a corporation's
ability to utilize its NOLs with certain changes in the ownership of a
corporation's stock. The Corporation does not expect that those limitations
will have an adverse impact on its ability to utilize the NOLs. The
Corporation has analyzed its NOLs and other deferred tax assets and believes
a valuation allowance is not necessary.

A reconciliation between statutory and effective tax rates of continuing
operations is as follows:
_________________________________________________________________________
1996 1995 1994
_________________________________________________________________________
Statutory tax rate . . . . . . . . . . . . . . 35.0% 35.0% 35.0%
State taxes - net. . . . . . . . . . . . . . . 1.8 1.2 2.1
Goodwill amortization. . . . . . . . . . . . . 0.7 0.9 1.2
Dividend exclusion . . . . . . . . . . . . . . (1.4) (2.3) (1.7)
Tax settlement . . . . . . . . . . . . . . . . (2.3) -- --
Other. . . . . . . . . . . . . . . . . . . . . 0.3 (1.1) 0.1
_________________________________________________________________________
Effective tax rate . . . . . . . . . . . . . . 34.1% 33.7% 36.7%
_________________________________________________________________________

Net payments of income taxes, including payments made by the Corporation
on behalf of Resources, were $108 million in 1996, $91 million in 1995 and
$119 million in 1994.

7. Debt

Total debt is summarized below:
_________________________________________________________________________
Millions of Dollars 1996 1995
_________________________________________________________________________
Notes and debentures, 3.00% to 10.00% due through
2054 . . . . . . . . . . . . . . . . . . . . . . . . . $4,051 $2,924
Equipment obligations, 5.57% to 15.00% due through
2012 . . . . . . . . . . . . . . . . . . . . . . . . . 1,048 722
Commercial paper and bid notes, average of 5.82%
in 1996 and 6.00% in 1995. . . . . . . . . . . . . . . 899 1,129
Term floating rate debt, 5.66% to 6.20%, due through
2002 . . . . . . . . . . . . . . . . . . . . . . . . . 392 250
Mortgage bonds, 4.25% to 5.00% due through 2030. . . . . 176 177
Credit facility borrowings, average of 5.70% in
1996 and 6.05% in 1995, due 2001 . . . . . . . . . . . 175 834
Tax-exempt financings, 3.83% to 4.10% due through
2026 . . . . . . . . . . . . . . . . . . . . . . . . . 168 168
Resources cash management agreement, 8.50%
due 1996 . . . . . . . . . . . . . . . . . . . . . . . -- 82
Capitalized leases . . . . . . . . . . . . . . . . . . . 1,137 255
Unamortized discount . . . . . . . . . . . . . . . . . . (19) (177)
_________________________________________________________________________
Total debt . . . . . . . . . . . . . . . . . . . . . . . 8,027 6,364
Less current portion . . . . . . . . . . . . . . . . . . (127) (132)
_________________________________________________________________________
Total long-term debt . . . . . . . . . . . . . . . . . . $7,900 $6,232
_________________________________________________________________________

Debt maturities for each year, 1997 through 2001, are $127 million, $255
million, $424 million, $632 million and $1.8 billion, respectively. Interest
payments approximate gross interest expense.

Approximately 25% of all rail equipment and other railroad properties
secures outstanding equipment obligations and mortgage bonds.

<PAGE> 45

The Corporation has $2.8 billion of credit facilities with various banks
designated for general corporate purposes. These facilities expire in 2001.
Commitment fees and interest rates payable under these facilities are similar
to fees and rates available to comparably rated corporate borrowers.

To the extent the Corporation has long-term credit facilities available,
commercial paper borrowings and other current maturities of long-term debt of
$1.2 billion, which are due within one year, have been classified as long-
term debt maturing in the year 2001. This classification reflects the
Corporation's intent to refinance these short-term borrowings and current
maturities of long-term debt on a long-term basis through the issuance of
additional commercial paper or new long-term financings, or by using
currently available long-term credit facilities if alternative financing is
not available.

In October 1995, the Corporation entered into a cash management agreement
with Resources. Under the terms of the agreement, which expired in October
1996, Resources was required to remit to the Corporation all cash generated
by its operations and was permitted to borrow up to a maximum of $200 million
from the Corporation. At December 31, 1995, the Corporation owed Resources
$82 million under this agreement.

The Corporation is subject to certain restrictions related to the payment
of cash dividends. The amount of retained earnings available for dividends
under the most restrictive test was $2.7 billion at December 31, 1996.

8. Leases

The Corporation leases certain locomotives, freight cars, trailers and other
property. Future minimum lease payments for capital and operating leases with
initial or remaining non-cancelable lease terms in excess of one year as of
December 31, 1996 are as follows:

________________________________________________________________
Operating Capital
Millions of Dollars Leases Leases
________________________________________________________________
1997 . . . . . . . . . . . . . . . . . . . . $ 494 $ 150
1998 . . . . . . . . . . . . . . . . . . . . 374 146
1999 . . . . . . . . . . . . . . . . . . . . 356 151
2000 . . . . . . . . . . . . . . . . . . . . 306 145
2001 . . . . . . . . . . . . . . . . . . . . 266 162
Later years . . . . . . . . . . . . . . . . 1,506 1,401
________________________________________________________________
Total minimum payments . . . . . . . . . . . $3,302 2,155
______________________________________________________
Amount representing interest . . . . . . . . (1,018)
________________________________________________________________
Present value of minimum lease payments. . . $1,137
________________________________________________________________

Rent expense for operating leases with terms exceeding one month was $350
million in 1996, $236 million in 1995 and $101 million in 1994. Contingent
rentals and sub-rentals are not significant.

9. Retirement Plans

The Corporation provides defined benefit pension plan benefits to eligible
non-union employees through qualified and non-qualified (supplemental)
pension plans. Railroad employees are covered by the Railroad Retirement
System. Contributions made to the System are expensed as incurred and
amounted to approximately $275 million in 1996 and $200 million in 1995 and
1994. In addition, retiree medical benefits and life insurance are provided
for eligible non-union employees through unfunded benefit plans.

Pension Benefits

Qualified and non-qualified pension benefits are based on years of service
and the highest compensation during the latest years of employment. The
qualified plans are funded based on the Projected Unit Credit actuarial
funding method and are funded at not less than the minimum fnding standards
set forth in the Employee Retirement Income Security Act of 1974, as amended.
The Corporation has settled a portion of the non-qualified unfunded
supplemental plan's accumulated benefit obligation by purchasing annuities.

Pension cost includes the following components:
_________________________________________________________________________
Millions of Dollars 1996 1995 1994
_________________________________________________________________________
Service cost - benefits
earned during the period. . . . . . . . . . $ 31 $ 28 $ 30
Interest on projected
benefit obligation. . . . . . . . . . . . . 89 80 73
Return on assets:
Actual (gain)loss . . . . . . . . . . . . . (163) (181) 8
Deferred gain (loss). . . . . . . . . . . . 77 111 (76)
Net amortization costs . . . . . . . . . . . 6 8 12
_________________________________________________________________________
Charge to operations . . . . . . . . . . . . $ 40 $ 46 $ 47
_________________________________________________________________________

<PAGE> 46

The projected benefit obligation was determined using a discount rate of
7.50% in 1996 and 7.25% in 1995. The estimated rate of salary increase
approximated 5.50% in 1996 and 5.25% in 1995. The expected long-term rate of
return on plan assets was 8.00% in both years. The change in assumptions
will not significantly affect 1997 pension cost. As of year-end 1996 and
1995, approximately 37% and 32%, respectively, of the funded plans' assets
were held in fixed-income and short-term securities, with the remainder in
equity securities.

The funded status of the Corporation's defined benefit pension plans is as
follows:
___________________________________________________________________
Assets Exceed Accumulated
Accumulated Benefits
Millions of Dollars Benefits Exceed Assets (a)
_______________________________________________________________________
1996 1995 1996 1995
_______________________________________________________________________
Plan assets at fair value. . . . $1,239 $1,024 $ 395 $ --
_______________________________________________________________________
Actuarial present value
of benefit obligations:
Vested benefits . . . . . . . . . 904 841 431 34
Non-vested benefits . . . . . . . 58 54 11 2
_______________________________________________________________________
Accumulated benefit
obligation. . . . . . . . . . . . 962 895 442 36
Additional benefits
based on estimated future salaries 132 193 54 22
_______________________________________________________________________
Projected benefit
obligation . . . . . . . . . . . 1,094 1,088 496 58
_______________________________________________________________________
Plan assets (over) under
projected benefit
obligation. . . . . . . . . . . . (145) 64 101 58
Unamortized net transition
asset (obligation). . . . . . . . 24 8 (11) (18)
Unrecognized prior service
cost . . . . . . . . . . . . . . (38) (54) (26) (27)
Unrecognized net gain(loss). . . . 324 163 2 (25)
Minimum liability. . . . . . . . . -- -- 42 48
_______________________________________________________________________
Pension liability. . . . . . . . . $ 165 $ 181 $ 108 $ 36
_______________________________________________________________________
(a) Includes the Corporation's non-qualified supplemental pension plan in
both 1996 and 1995, and the Southern Pacific qualified pension plan in 1996.