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Today, Union Pacific Corp. reported record first-quarter operating revenue of $2.9 billion, a 6 percent increase compared with the same 2003 period.

However, quarterly net income fell 62 percent to $165 million, operating income dropped 15 percent to $314 million, operating expenses increased 9 percent to $2.58 billion and UP's operating ratio worsened 2.6 points to 89.1 compared with first-quarter 2003.

The railroad's financial results were hampered by an Arkansas Supreme Court decision that upheld a $35.8 million jury verdict against UP pertaining to a 1998 grade-crossing accident, and a $38.6 million one-time reduction in state tax liabilities.

"The first quarter challenged us both operationally and financially," said UP Chairman and Chief Executive Officer Dick Davidson in a prepared statement. "We saw exceptionally strong demand for our services, setting records for both first-quarter carloads and operating revenue, [but] several factors, including our service challenges and the impact of truly adverse weather conditions, eroded the strong revenue gain."

On the plus side of UP's ledger, quarterly commodity revenue rose 7 percent to $2.8 billion, including 10 percent and 9 percent revenue hikes in agricultural and industrial products, and intermodal moves, respectively. Also, average revenue per car reached an all-time best of $1,214.

"Looking ahead, I am confident we are taking the right steps to address our current service issues," said Davidson. "We are continuing to hire and train new train-crew personnel, acquiring additional locomotives and refocusing our quality processes."