Speeches

Shareholder's Meeting - May 5, 2011

Before we turn to the voting results, let me take a few minutes to bring you up to date on what’s been happening at our company. I’ll make some “forward looking” comments today, so please refer to the cautionary information and risk factors summarized in our 2010 annual report (PDF File) .

UP’s Track Record of Success

A year ago at this time, we were just beginning to see a rebound from the severe economic downturn of 2009.  As 2010 progressed, we continued to gain momentum, and ended up recording the most profitable year in the history of our Company. 

UP's Strong Value Proposition

Top line growth and efficiency gains in 2010 resulted in an all-time record operating ratio of 70.6. We achieved “best-ever” earnings per share, free cash flow, and return on invested capital.

Operationally, we continued to deliver on our customer commitments by running a fluid and efficient railroad, focused on safety and record levels of customer service. These results would not have been possible without the hard work and dedication of our Union Pacific employees.

2010 - Strong Safety Results

Now, let me talk more about safety.  Coming off a record year in 2009, we again achieved a best-ever in employee safety and finished strong in our other safety measures. 

• The employee injury rate was down 6 percent, a third straight year of improvement,
• Derailment prevention efforts yielded strong results, only slightly behind 2009 record levels.  We saw a 12 percent reduction in associated costs due to the lower severity of those incidents, and

• We maintained our public safety efforts and grade crossing initiatives as both highway and rail traffic increased with the economic improvement.

  These achievements reflect our comprehensive efforts to enhance employee training, increase public education, make targeted capital investments, and eliminate safety risks.  We’ve made great progress, but our ultimate goal is zero injuries.

Driving Service Excellence

Along with strong safety performance, UP’s Operating Team continued to run a highly reliable and productive network.< Our productivity initiatives and improved efficiency allowed us to leverage our assets as volume returned to the railroad. These efforts drove our Velocity, and our Service Delivery Index, to near-record levels for the year.

*As reported to the AAR

Increasing Customer Satisfaction

Strong operating performance helped us achieve record high Customer Satisfaction. We kept our commitments, expanded our service offerings and provided our customers with significant value.

Also, with subsidiaries such as Union Pacific Distribution Services, Streamline and ShipCarsNow, we continue to reach new markets and discover opportunities to extend our reach into our customers’ supply chain.

UP’s Strong Value Proposition for Our Customers - Record 2010 Results

We were happy to see our efforts recognized this past year through several customer awards. Not only does this validate the hard work of our employees, but recognition from customers builds credibility and can help persuade a new customer to try out our service.

And, of course, UP’s growing value proposition also supports our long-term pricing objectives.

Strong Start to 2011

2010 is well behind us now, and we’re off to a great start for 2011. A couple of weeks ago we reported record First Quarter results. Earnings per share increased 28 percent driven by volume growth, core pricing gains, and continued productivity. The First Quarter Operating Ratio was a record 74.7 percent despite a significant fuel price headwind. This translated into record free cash flow in the quarter.

2011 Business Opportunities

*As of 4/30/2011

Taking a closer look at our First Quarter top line growth, we achieved volume gains in all six business groups for the fourth consecutive quarter. We also saw encouraging signs of continued economic improvement. Looking ahead to the rest of the year, we’re optimistic about our growth opportunities.

We’re taking the necessary steps to ensure that we have the resources in place to effectively leverage growing volumes and core pricing initiatives.

If consumer demand improves as expected, import volumes will drive intermodal growth – and our excellent service should support continued highway conversions. Strong energy-related demand will drive volume growth in our chemical, industrial products, and coal businesses.

To support these growth opportunities, we continue to make the critical long-term capital investments needed to keep our franchise strong and profitable.

Investing for Today and Tomorrow

*Includes cash capital, leases and other non-cash capital.

The investments we’re making today support the business that will move on our Railroad this year, next year, and over the next 20 to 30 years.

During 2010, we invested approximately $2.5 billion dollars in our franchise. Over 70 percent of that spending went to improve our infrastructure. For 2011, we plan to spend about $3.3 billion dollars, including the additional $100 million dollars our Board approved this morning for growth capital investments.

This increase is supported by Union Pacific’s growing profitability, cash flows and financial returns. We’re investing for safety, service, growth, and productivity gains that will help us increase the value we provide to our customers and our shareholders.

Investing in America’s Infrastructure

Unfortunately, not everyone understands the critical link between earning returns and investing for the future. We are paying our own way. This means that strong financial returns are essential to our ability to continue to deliver value to our customers, and our country, over the long-term.

While many in Washington are in favor of moving more freight to rails, there are others who want to increase rail regulation. Regulatory policies currently under consideration would undermine our ability to do what we do best: provide the safest and most efficient ground transport of goods on a rail network funded by private investment.

We need to make sure our lawmakers and regulators understand that a healthy, efficient rail network is a critical part of the solution to our country’s growing need for a strong transportation infrastructure.

Since 1999, as our financial returns have increased, Union Pacific has invested nearly $30 billion dollars in our rail network. The total rail industry spent almost $11 billion dollars just in 2010 alone.

As a capital intensive industry, we’ve spent 17 percent of our revenue on capital investment – five times more than the average U.S. manufacturing company.

Great American Jobs

The rail industry plays an important role in the overall economy. We generate nearly $265 billion in total annual economic activity. Collectively, rail industry employees represent about 1 percent of the U.S. workforce. Every railroad job supports an additional 4.5 jobs in other industries.

And, we are well-positioned to sustain hiring in the years ahead to meet growing demand and attrition.

Valuing Employees, Our Most Important Resource

Our employees are the backbone of our Company, and a critical component of America’s economy. Because of this, we want to make certain we are an “Employer of Choice”, so we can continue to attract and retain high quality people.

Our employees also recognize the importance of giving back to communities where they work and live. We’re fostering a strong working relationship that benefits both our Company and our communities.

Driving Strong Shareholder Value

As our profitability increased this past year, our shareholders have seen the benefit through dividends and share repurchases, as well as a strong increase in their stock price.

We raised our dividend twice in 2010, for a total increase of 41 percent. This morning, we’ve shown our confidence in the future with the announcement of a 25 percent increase in our Second Quarter dividend, to 47.5 cents per share.

We also resumed our share repurchase program last May and completed nearly $1.25 billion dollars in repurchases, almost 17 million shares, in 2010.

Earlier this year, we renewed our repurchase program with the authorization to buy back an additional 40 million shares by 2014.

With our focused capital investments, solid balance sheet, strong dividends and opportunistic share repurchases, we’re balancing the critical uses of our cash for the long-term benefit of our shareholders.

Shareholder Returns

Ultimately, our performance is measured by our shareholders as they “vote” with their dollars to buy or sell UP stock. This chart shows that no matter which period you look at – the last year or the last 15 years – our stock produced double-digit total annual returns and significantly outperformed the S&P 500.

2011 Stock Price Comparison

*CSX, NS, CN, CP

Since our last meeting, we have continued to see a strong price performance. As of yesterday, our price is up roughly 32 percent.

And we recently “reset” our 52-week high, trading over $104 dollars per share.

Our stock price reflects investors’ confidence in UP’s strong potential for earnings and cash generation in the future, and we believe they will not be disappointed.

Railroad Business Model Works

Our future is supported, first and foremost, by the strength of the UP franchise.

The U.S. freight rail system offers the safest form of ground freight transportation – benefiting not only our customers, but the public as well.

We provide cost effective, energy efficient and environmentally sound transportation solutions that help keep our economy moving forward.

We have world-class employees who are dedicated to our Company’s mission of service.

And we are investing for the long-term benefit of our customers, our nation’s infrastructure, and, ultimately, our shareholders.