Thank you for accessing Union Pacific Corporation's first quarter earnings conference call held at 8:45 AM Eastern time on April 17, 2014 in Omaha. This presentation and the accompanying materials include statements that contain estimates and projections or expectations regarding the Corporation’s financial results and operations and future economic conditions. These statements are forward-looking statements as defined by the federal securities law. Forward-looking statements are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in the statements. The materials accompanying this presentation include more detailed information regarding forward-looking information and these risks and uncertainties.

Greetings and welcome to the Union Pacific first quarter 2014 conference call. At this time all participants are in a listen only mode. A brief question-and-answer session will follow formal presentation. (Operator Instructions) It is now my pleasure to turn to introduce your host Mr. Jack Koraleski, CEO for Union Pacific. Thank you, Mr. Koraleski, you may now begin.

Thanks, Robin, good morning everybody. Welcome to Union Pacific’s first quarter earnings conference call. With me here today in Omaha are Eric Butler, our Executive Vice President of marketing and sales, Lance Fritz, President and Chief Operating Officer and Rob Knight, our Chief Financial Officer. This morning we’re pleased to report that Union Pacific achieved first quarter earnings of $2.38 per share, an increase of 17% compared to the first quarter of 2013 and another all-time quarter record. Total volumes were up 5% and the increase was broad-based. We saw growth in five of our six business groups with particular strength in agricultural shipments, industrial products and coal. The volume growth combined with solid core pricing and a continued focus on safety service and efficiency drove a 2 point improvement in our operating ratio to a record 67.1% for the quarter. As you all know this winter was one for the record but especially in the upper Midwest. So we're proud of the efforts of the men and women of the Union Pacific who worked tirelessly to serve our customers despite these weather challenges and helped us to achieve a solid start to the year. So with that let's get into it. I'll turn it over to Eric.

Thanks Jack, and good morning. In the first quarter volume was up 5% compared to 2013 as solid demand made up for the challenging weather conditions in much of the country. We had strong grains in agricultural products, industrial products and coal. We also saw volume growth in the automotive and in chemicals we were able to offset declines in crude oil with gains in other commodities to end up even with last year’s strong first quarter results. Corporate improved 2% which was partially offset by unfavourable mix and lower fuel prices to produce a 1% improvement in average revenue per car add in our volume growth and we increased freight revenue by 6% to a first quarter record of $5.3 billion. Let's take a closer look at each of the six business groups. At products volume grew 13%, which combined with a 3% improvement in average revenue per car throws revenue growth up 16%. We continue to see strong demand for grain with carloadings up 39% driven by last year's strong harvest. The biggest gains were in grain exports to China and Mexico and wheat exports to the Gulf. And lower corn prices drove increased demand for domestic feed grains. Grain product volume was up 5%, driven by the 11% increase in ethanol shipments as refineries replenish low ethanol inventories. Shipment to BBG's grew 38%, driven by strong export demand primarily from China. Food and repurchase shipments were down 3% for the quarter as the winter weather impact the cycle times for equipment serving the produce and frozen food markets. Partially offsetting those declines were gains in import beer where volume grew 3%. Automotive volume grew 2%, though average revenue per car was down 2% resulting in flat revenue for the quarter. I'll talk more about the average revenue…

Thanks, Eric, and good morning. I'll start with our safety performance which is the foundation of our operations. The first quarter of 2014 reportable injury rate improved 3% versus 2013. Progress achieved through our comprehensive safety strategy, the number of severe injuries during the quarter declined to a record low reflecting our work to reduce the risk of critical incidents, our team's commitment to the Courage to Care and the maturation of our total safety culture. Moving to rail equipment incidents or derailments, our first quarter reportable rate finished up 7% versus the quarterly record set in 2013. However the absolute number of incidents, including those that do not meet the regulatory reportable threshold decreased to a record lows in each of the first three months of this year. Looking forward we expect continued improvement from investments that harden our infrastructure, expand advanced defect detection technology and enhance our ability to find and address risks. In public safety, our grade crossing incident rate improvement slightly versus 2013. Driver behaviour continues to be a critical element. To make continued progress we're focussed on improving or closing high risk crossings and reinforcing public awareness. Severe winter weather conditions were a headwind to our safety performance during the quarter, most notably where our employees faced the brunt of below zero temperatures and record snowfall. Even so the team did a tremendous job addressing the risks. In addition to impacting safety, the most severe winter weather we've faced in quite a few years materially impacted our first quarter network performance. The impact was evident in the upper Midwest and at interchange points with other carriers, particularly in Chicago. Extremely cold temperatures and significant snowfall disrupted operations by limiting train size, curtailing switching activity, reducing the mobility to mobilize crews to crew load, change locations,…

Thanks, Lance, and good morning. Let's start with the recap of our first quarter results. Operating revenue grew 7% to an all time record of more than $5.6 billion, driven by strong volume growth and solid core pricing. Operating expense totalled nearly $3.8 billion, increasing 3% over last year. Expenses include about $35 million or roughly $0.05 per share of cost associated with the severe weather conditions in the quarter. Operating income grew 14% to more than $1.8 billion, hitting a best ever mark for the first quarter. Below the line other income totalled $38 million, down 5% from 2013. Interest expense of $ 133 million was up 4% compared to the previous year primarily driven by new debt issuances at the beginning to 2014. Income tax expense increased to $671 million, driven primarily by higher pre-tax earnings. Net income grew 14% versus 2013. While the outstanding share balance declined 3% as a result of our continued share repurchase activity. These results combined to produce a best ever first quarter earnings of $2.38 per share, up 17% versus 2013. Turning to our top line, freight revenue grew 6% to our first quarter record of just under $5.3 billion, driven primarily by 5% volume growth. Lower fuel prices and business mix each drove about a half point decline in our average revenue per car. Both in our grain and frac sands volumes were positive mix drivers, but were more than offset by negative mix in automotive and coal. Eric just pointed out the increases in lower ARC auto parts versus the decrease in finished vehicle volumes which accounts for the negative mix in automotive. As per coal, we did see the benefit of higher ARC volumes including our prior year re-price legacy business, however this was more than offset by increases…

Okay. Thanks, Rob. As we put this winter behind us, we're off to a good start for the year. As always, there's going to be some challenges ahead. But we also see opportunity. In the weeks ahead, we'll be focused on restoring the fluidity of our network after the winter slowdown. We're absolutely committed to pursuing the excellent service our customers expect and deserve. It's a cornerstone of our on-going success. Our value proposition to our customers depends on it. Strong service goes hand in hand with improvements in network in asset utilization that are so critical to our future. Another potential challenge for the entire industry is the uncertain regulatory environment, which is being played out in Washington D.C., Canada and Mexico. We're watching things closely on all fronts making sure that regulators truly understand the importance of a healthy growing rail industry. We're also watching the weather and the economy very closely. There's still a lot of year ahead of us, so we'll have to see how the summer burn plays out for coal demand and how the 2014 crops will fair everything from planning through harvest. As far as the economy goes, a lot can change between now and the end of the year. But at this point, we're seeing some signs of gradual economic improvement. And we're encouraged by the opportunities it presents. With the power and the potential of the Union Pacific franchise, we'll leverage these opportunities to drive record financial performance and shareholder returns this year and in the years' to come. So with that, let's get started and open it up for your questions.

Thank you. We'll now be conducting a question-and-answer session. (Operator Instructions) Our first question is from the line of Scott Group with Wolfe Research. Please proceed with your question. Scott Group – Wolfe Research: So I wanted to just first ask about the yields, particularly on the auto and coal side. So if I'm understanding this right, as finished vehicles start to grow again as whether it gets better, shall we start thinking about auto yields growing again? And then on the coal side, with yields down 4% year-over-year, they were just so strong in first quarter last year up 16%, was there anything unusual, like any liquidated damages last year that you didn't have this year that's driving that? Because I'm just not sure how to model coal yields going forward.

Yes. Scott, let me talk about the autos first. As Eric mentioned in his comments, there was a process changed and affected some per diem treatment on some containers. It basically accounts for all of the decline in the autos' arc. On top of that then, as he also pointed out, the mid shift of finished vehicles and more auto parts also had an impact on arc. So we don’t give guidance on what the mix is going to look like or what the arc is going to look like by commodity line, and we don't do it by the way as a company. But directionally, yes, if we see growth in finished vehicles outpacing the growth in auto parts, you would expect that trend to move in that direction. We're not giving that specific guidance, but you're thinking about it right. On the coal, our coal arc was down 4%, roughly half of that was driven by mix. I mean your traditional mix. If you might see, that's a great movement of shorter haul coal moves and less shipments of the higher. In some cases, repriced coal business. And the other half was made up of lower fuel prices drove lower average every car on the arc line. And year-over-year, you're exactly right, there was a small, as you recall we pointed out. It was roughly $15 million of liquidity. The damage is last year that did not repeat this year. That at this point, I don't see that our trend is continuing throughout the year. So that had a little bit of an impact on our coal arc line as well. And that piece was about 1.5, if you will, of the 1.5% of the 4% decline. Scott Group – Wolfe Research: Okay. That's very helpful. And then I just wanted to take a shot at the long-term margin guidance. So if I look at historically at the first quarter OR and then the full year OR, the full year typically is about three to four points better than the first quarter, and you had weather in 1Q. I mean it feels like we're on a run rate this year around 64% for the OR. And that's just so much -- so different than the sub-65 in 2017. So I'm not sure that if the long-term guidance is just really still or is there something that you're telling us that we need to be thinking about or worried about the next three quarters that's going to dramatically change the trajectory margins.

Hey, Scott, our guidance is below 65 before 2017, not in 2017. Rob, why don't you fill in the blanks on that?

Yes. Scott, I mean we hope you're right. I mean there's a lot of things that have to play out. I mean we certainly hope for the economy cooperates fuel prices as you've heard us speak many times. It can have an impact directly on the margins and the operating ratio. So as we've said all along on this financial improvement journey over the last decade, we're not looking at the sub-65% as an endpoint and we're not going to slowdown. We're going to get there safely and efficiently as we can. And if all the stars line, the economy cooperates and we move in direction that we hope everything happens, we get there as soon as we can. But our best look at this point in time is that it looks to us like it's sometime before 2017. Scott Group – Wolfe Research: Okay. Thanks guys.

Our next question comes from the line of Chris Wetherbee of Citigroup. Please proceed with your question. Chris Wetherbee – Citigroup: Thanks. Good morning. Maybe just a quick question on the volume pace, as you came out of the first quarter, things obviously ramping up. It seems like there was probably some pent up demand here that's carried into the second quarter. How do we think about sort of how long that last and maybe the pace of activity here? And how much is sort of still yet to be moved and wants to be moved and kind of when can the catch up do you think?

Yes. I think you're exactly right, Chris. I think as we move towards the end of the quarter, we were catching up from some of the issues in the early quarter. But our volume outlook is still fairly decent for the year. So Eric, you want to …

Yes. Chris, as Jack said, clearly, there were some catch up, particularly when you think about the difficulties that the winter had on the automotive business. And then deep in coal utilities, there was a strong coal burn, and so there was some catch up there. You can also think about our grain business and the grain harvest. There's a natural processing in the first quarter shipping the record corn harvest that we had in the fourth quarter. But like Jack said, I'm pretty optimistic about a slowly-strengthening economy for the balance of the year. Slowly strengthening economy across our book of business will have positive impacts. Plus, we continue to have a strong valued proposition. And so we're optimistic for the balance of the year. Chris Wetherbee – Citigroup: That's great. That's very helpful. And on the coal side, when you think about the inventories of the utilities that you're serving relative to the length of haul differences that I think showed up here in the first quarter, how should we think about that? Is there any imbalance there we might suggest you have stronger volumes continuing to the shorter length of haul utilities? Any sort of color you could give there would be helpful.

Yes, I would say this. Those kind of balance in and out. Inventories are quite low. As you probably know, there are about 21 days below what would be considered normal. So they're quite low. But there's no kind of imbalance between short and long haul that would have a mix change for the future. Chris Wetherbee – Citigroup: Okay. Great. Thanks very much for the time. I appreciate it.

Our next question comes from the line of Ken Hoexter with Bank of America. Please proceed with your question. Ken Hoexter – Bank of America: Great. Good morning. Great job working through the weather. Just a follow up on the short haul freight that you've gained, it seems like a lot impacting the mix. Can you talk if there's any long-term impact on margins? And really, is this long-term business or is this because some competitors are having infrastructure issues as they fix that, some of that reverts back to a different network or is this more permanent business in nature?

Yes. It really kind of depends on the individual markets, Ken. For instance, the short haul move that Eric referenced on the waste product is a customer of ours that just historically last year had moved for nine months, and this year really picked up a volume in the first. So that's kind of an on-going issue for us. Rob, do you want to -- do you have any more with the …

Yes. Can I just say -- I mean your question is heading right on the reason why you heard me many, many times, say we're not going to get guide this fund on average revenue per car because mix is always a part of our business. And when you look as diverse as our franchise is, as diverse as all of our commodity groups are, mix is rather normal. But as you also are questioning in terms of the margin, just because something has a short haul lower average revenue per car doesn't mean it has a lower margin. So we're not afraid of that at all. We're pricing and moving the business as efficiently as we can, driving our margins which in fact we've done. We did that in the first quarter even with this negative mix impact. So mix will always be a part of our business, but we're focused on improving our margins regardless of the length of haul.

As Rob said, if we can get our re-investability threshold met, we're happy to take the business. Ken Hoexter – Bank of America: That's great insight. Thanks. Just a follow up on the locomotive side, and I guess demand side overall. You noted demand kind of creeping in a little bit on a gradual improvement. If we start seeing, I guess, a faster pace of improvement, what's your thoughts on your ability to handle it to take the capacity access locomotives, your infrastructure's ability to handle it? Maybe it's a Lance questions in terms of scalability of the infrastructure and available capacity.

Absolutely. Lance?

Sure. So Ken, we feel pretty good about fluidly handing the volume that Eric is bringing on for the network. If you think about where we are right now, the first quarter was, what, 179,078 car loads. We've publicly said we think our network can handle 195,000 plus with a very good excellent service product. So we're looking forward to that volume. Of course, it's dependent to some degree on exactly where it shows up. But you know, we've been putting capacity into the network in anticipation of that, and we feel pretty good about handling the volume.

And our first quarter was pretty balanced, so we like that. Ken Hoexter – Bank of America: And similarity access to locomotives to handle that? Is that infrastructure still available?

It is. If you think about how many locomotives we have left in surge right now. It's a little over 300. That's bearing in mind that we brought in what was at 600 locomotives since the fall with a large portion those not driven by volume, but instead driven by trying to overcome winter's impact. So we've got surgery resources that will be able to handle it.

So as we spin up volume and our operating stats improve, we'll actually be seeking some power out of the network and putting it back in storage.

That's right. Ken Hoexter – Bank of America: Appreciate the time. Thank you.

The next question comes from the line of Bill Greene of Morgan Stanley. Please go ahead with your question. William Greene – Morgan Stanley: Hi there. Good morning. Thanks for taking the question. Rob, I wanted to ask you about pricing. When we see this inflation metrics start to rise a bit, is it logical to think that the core pricing headline starts to rise as well? Is it as simple as that or is there another element though that you have to keep in mind?

I mean that part of business that is tied to the All-LF and there were timing differences. And as you've heard us comment many times, they're not all the same. Those contracts and those pieces of our business that are tied to the All-LF have different timeframes of when they trigger. So you pick that into consideration. But directionally, if inflation increases and as All-LF in fact reflects that, that part of business that is tied to All-LF will increase. Yes. William Greene – Morgan Stanley: Right. And then as we look … next year is a legacy. It's got more legacy in it, right? So as we look to next year, this should have a pretty good directional trend.

Yes, next year, Bill, as you've heard us say several times, we've got roughly $300 million of revenue which tends to be sort of frontend a business that we will compete for in the marketplace. But it's about $300 million of legacy revenue next year. William Greene – Morgan Stanley: Right. And then on inflation, I think in the past you've talked about seeking to offset it with productivity. But if it's going to run this low, is there a chance that our productivity actually causes our -- so not the cost-related to the volume growth, but rather just a fix cost based in the productivity. Can that actually cost the number to go down?

Lance could comment on this as well. But I would say, potentially. Again, as what you're referring to, Bill, as you know is we set the price the business to market, achieve a successful above inflation sort of pricing environment. And then in addition to that, offset, and we challenge ourselves to offset all. But if we hit 50% of offsetting inflation through productivity, that's a great model. And to your point, we're in a lower inflation area environment and a positive volume environment that gives us more options to do as well as we can on that.

That's perfect. Rob is absolutely right. Mirroring what Rob says about our drive to an improved OR, there's -- we don't set a limit as just offset inflation. We look for efficiency and productivity everyday through the UP way. William Greene – Morgan Stanley: That's great. Thank you so much for your time.

And next question comes from the line of Jason Seidl of Cowen & Company. Please go over with your question. Jason Seidl – Cowen & Company: Good morning, guys. It's been well publicized that your competitors had some major, major service issues, and it seems like you guys probably got some freight from them. How much do that really stress the system in the first quarter when you saw on top of the weather, and everything else?

Jason, if you look at our issues in the first quarter, it was 99% winter. The additional volume and whatever we've taken on either of our own bringing on to the network or anything that might have been diverted on a temporary or permanent basis basically just would have been handled easily by our resources or infrastructure of the investments we've made in the past. So it did not -- the additional business did not stress our network. It was just really the impact of winter weather and the impact that it had not only on Union Pacific but broad-based throughout the industry on our interchange partners. Jason Seidl – Cowen & Company: Okay. And Jack, this is a broader question. I asked this on another call the other day. We've had issues with Chicago as an interchange in the real network, the entire topic been an analyst. I mean obviously it was great exacerbated this quarter with winter weather. And I know there's been projects around, like they create a project to try to improve that. What's really just holding the rail in street back from all giving together and really just trying to fix this interchange once and for all? Because it seems like this is something that would benefit sixth or the seventh class once going forward.

My perspective on that, Jason, is Create still is a blueprint for how we can significantly improve the throughput in the Chicago area. But each railroad has its own issues that's stealing with as well. And so in our world, we're making investments. We're planning. We're working together having the centralized operating controlled group in Chicago help to mitigate some of the winter weather. But there's lessons learned here. And I'm sure that as we come out of this first quarter experience, we'll learn from that, the industry will learn from that. We spend a lot of time working with our interchange partners on throughput and volumes, and things like that, how can we handle things more fluidly, our ability to divert to different gateways depending on the individual interchange partner, those kinds of things. So I think there'll be lessons learned from this. But I still fundamentally think the investment and the strategy identified and Create holds a lot of potential for us. Lance, what do you think?

Yes. Absolutely, Jack. And there's something that the participants in Create have been public about, and that is since the start of Create, we've taken a half a day out of the time it takes for a car to transfer through Chicago side to side, end to end, which is real progress. It's down by about a third. And this year's winter was epic. And in the absence of Create and the Chicago Planning Group and the coordination that the interchange railroads undertook, it would have been a much worse outcome. Clearly, lessons learned, but it was effective. Jason Seidl – Cowen & Company: And Lance, what do you think that number can come to? You said it's down by a third. I mean will it keep down by …

No. So think about it like this. We've got 17 capital projects already in place, complete. There are 20 are in designer underway, and so each one of those is going to help. So there's still fair amount of upside in terms of reducing the time it takes cars contributors. Jason Seidl – Cowen & Company: Okay. Jim, I really appreciate the time as always.

Thanks, Jason.

Our next question comes from the line of John Larkin with Stifel. Please go ahead with your question. John Larkin – Stifel, Nicolaus & Co., Inc.: Hey, good morning gentlemen.

Good morning, John. John Larkin – Stifel, Nicolaus & Co., Inc.: I wanted to focus on the real cost escalator chart that was in Rob's, actually in the presentation. And if you look back at the trailing four quarters, that's pretty tampered inflation. And I would have thought with the labor cost, the escalation built in your contracts that certainly overtime you would've seen more than an average of less than one, which I think it probably works out to be there. Anything that's going on there that were missing? And would you expect that to continue over the next four quarters?

Yes, John. I think you're going to see it continue to be low for the next four quarters. And if you recall that our labor inflation, which as you know the way the All-LF works is a market basket of inputs from the industry. But the labor inflation for us, we think it's going to be less than 2% this year. So that is a big piece of what's in there. And so it is driving and has been for quite some time now the reduction in that All-LF number. So it lines up, and overtime it does what it's intended to do. From quarter to quarter, there might be some timing issues. But it's done its job over multiple quarter and multiyear period. John Larkin – Stifel, Nicolaus & Co., Inc.: Okay. And then maybe just a follow-on on the timing of the restoration of complete fluidity in and around Chicago in the northern -- into the network. One of the executives giving testimony at the STB last week suggested that Chicago should be back in normal completely within four to six weeks. Is that in keeping with kind of your expectations? And will there be any meaningful impact on the EPS line during that restoration period?

Hey, Lance, why don't you handle the outlook?

Yes. Okay, John. So we are very encouraged by what we see happening on our network right now. We're confident that sometime in the second quarter we will be back to normal. We're working to make that as soon as possible. And in terms of Chicago interchange, that's a difficult question for me to answer because it's dependent on how quickly the networks of interchange railroads come up to speed. What we see right now is real solid improvement as we've exited winter.

Yes. So we're hoping it won't be a material. You won't see a lot of it in the second quarter from a cost perspective. But it really depends on how it plays itself out. John Larkin – Stifel, Nicolaus & Co., Inc.: Thank you.

Our next question comes from the line of Rob Salmon of Deutsche Bank. Please proceed with your question. Rob Salmon – Deutsche Bank: Hey, thanks. Good morning guys.

Good morning. Rob Salmon – Deutsche Bank: Rob, with regards to the incremental margins, as I'm taking a step back and kind of listening to what I heard on the call, it's fairly a mix work against you guys. There's a lot of incremental cause associated with winter weather which meant the network wasn't -- probably wasn't running as full as it could in constrained train lengths. Should I think about the Q1 64% incremental margin as being a low for the year and expanding from there?

Rob, as you know, we don't give that level of guidance. But as you heard me say many times, for us to get from where we are today to our sub-65, and we're not going to slow down to get there in time. We get there as efficiently as we can. As soon as we're going to get 50% kind of number on incremental margins from here to there, there can be lumpiness from quarter to quarter depending on volumes of weather and other issue, fuel prices and other issues. So, you know, we're going to keep doing as well as we can. But I've shied away from getting specific quarterly guidance on that incremental margin number other than to get to our sub-65, we've got to continue to make good progress. Rob Salmon – Deutsche Bank: Okay. That's right. But we should think about the network running more fluidly, and that should obviously help overall operational performance, I would imagine.

That would be a plus. Absolutely. And then we'll see what volume -- our volume actually plays out. Rob Salmon – Deutsche Bank: Yes. It's fair. I'm not sure if this question should be directed towards Lance or towards Eric. I noticed in the network productivity section, one of the slides. You guys were calling out about 4% volume growth in the north. And as recently as a couple of quarters that it had been down on a year-over-year basis, clearly, your primary competitor in the west has been having a lot of challenges in that region. It looks like the TE&Y headcount, it increased about 6% year-over-year. Is this 6% growth with regard to expectations for future volume growth are just handling current traffic? And on a side note of that, can you give us a sense if you guys are seeing incremental competitive wins in the north, what type of traffic that's coming on, if it's coming on on the manifest network or unit train network?

Yes, I think what you saw in the TE&Y buildup of 6%, Rob, was basically the impact of winter where we flooded the northern region with extra labor to help us work our way through the winter process. And it's not necessarily a reflection of what's happening in the north on an ongoing basis. Lance, you want to -- is that okay?

Yes, that's perfect. Yes, yes.

And then the other thing is when you think about our northern region, think about that's where the grain is, that's where frac sand is and our model is sitting there and also our coal business. And so, those were all some fairly decent volume gains just intrinsic in the business itself. Rob Salmon – Deutsche Bank: Appreciate the color. It sounds like more unit train there. Thanks.

Our next question comes from the line of Allison Landry from Credit Suisse. Please proceed with your question. Allison Landry – Credit Suisse: Thanks. Good morning. I just wanted to follow up with a question on coal and specifically the growth in Colorado, Utah coal versus Southern Powder River Basin. So you mentioned 13% tonnage growth in Colorado and 2% in SPRB. Was that a function of whether or easy comps? How do we think about sort of the relative tonnage growth with the respect of these two origins for the balance of the year?

Okay, Eric?

Yes, tonnage. When you think about Colorado-Utah coal, there was some easy comps year over year. We do continue to expect in the outlook to see a Colorado-Utah coal being a good source for export coal as the export coal opportunity strengthen in the future. But I think if you think about it going forward, Southern Powder River Basin growth will probably outpace Colorado-Utah growth going forward in terms of upside opportunity. Allison Landry – Credit Suisse: Okay. And is it fair to say that the SPRB has a longer length of haul?

That depends on the origin and destination pair. But that's probably not an unreasonable expectation. But it depends on the origin of destination pair. Allison Landry – Credit Suisse: Got it. Okay. And then just -- I have a couple of questions on the frac sand business. You mentioned the volumes were up over 20% in the quarter. So I was wondering if you talk a little bit about the sustainability of this pace of growth over the next couple of years as new minds continue to come online in Wisconsin. And then could you give us some sense of how much of the frac business you are originating and terminating on your own minds? And maybe what shales you're delivering the most active?

Yes. We're very excited about our frac sand franchise. We think we have the premier origination franchise and we think a significant portion of the new mines that are coming online in the Wisconsin, Minnesota, Illinois region actually are coming on. Our franchise, at least access our franchise. So we're pretty optimistic about the longevity and the outlook from that standpoint. At the end of the day, it's really going to be drilling that really drives the consumption of frac sand and the drilling trends in terms of longer mines, longer drilling, deeper drilling, deeper horizontal more fracing all are pointing to significant continued growth in frac sand consumption, on those the really interesting friends in Texas in particular for Permian basin and Eagle Ford basin, I think in January I don’t know, the February March numbers have come up but in January Texas had an all-time record of production of oil in terms of record just going back to the early 80s. So as long as those drilling trends continue you'll see the frac sand demand continue and we have a premier frac sand franchise. Allison Landry – Credit Suisse: And I would imagine that has a pretty good length of haul from Wisconsin to Texas. Is that correct?

Turbos [ph] is north, south, it’s not as long as some east west moves but it is a pretty good part of our franchise.

Our next question comes from the line of Brandon Oglenski with Barclays. Brandon Oglenski – Barclays Capital: Rob, I wanted to come back to the discussion on pricing. Because I feel like there's a lot of maybe misunderstanding around the core pricing gains. Obviously you had higher levels of gains last year, but actually we're seeing better margin expansion this quarter. Can you just expand on your comment about how the new and incremental business is not necessarily captured in your metrics?

Yeah, I mean you have heard me say this many times but the way we calculate price at Union Pacific is how much price do we yield in a particular time period against our entire book of business. I am very proud of the way we calculate it because it’s the most conservative way of looking at it. What I pointed is that, so what that means that if we bring on a new piece of business or business that we haven't had for over a year let’s say, that business might come on at great margins, of course we’re very focused on bringing on at the right margins at the market level pricing. But it wouldn’t show up in the new price, I mean it wouldn’t show up in the year-over-year calculation of price. So you’re exactly right, when we point out that our pricing was up 2% and all the headwinds we faced, low legacy number light and All-LF impact, the reason that we were able to expand our margins is we were able to leverage the business, leverage the new volumes that came on and as new business came on, we are confident we are pricing it right but it doesn’t show up in the pricing number, but it shows up in our margins. Brandon Oglenski – Barclays Capital: And that's what we should really be focused on, to see how you are delivering on the pricing front, right?

I mean clearly pricing is a tool along with productivity and other things that we do, but at the end of the day margin expansion is clearly the ultimate driver, the ultimate answer. Brandon Oglenski – Barclays Capital: Hopefully, I can just get one follow-up in here for Lance. Lance, I think you did state that the network is designed for 190,000, 195,000 units, I believe. That's about 5% from where you've been running the last few weeks. Does that signal that we need a lot more CapEx going forward? Or are there any structural constraints in the network that make it tough to get to 200,000?

No, Brandon, what we typically say is 195, 200,000, several days we could handle fluidly and we say that because in 2006 we peaked at a number about like that very different service product at that time and since then we improved processes, we’ve invested capital, we have more surge capacity and that's what gives us the confidence level. From the point of view of handling the volume that Eric’s team is bringing on right now and for the rest of the year, absent some acute areas where maybe we've got a very specific capacity constraint we feel very good about being able to satisfy that with a high service product.

Our next question is from the line of Bascome Majors with Susquehanna. Bascome Majors – Susquehanna Financial Group: There's a lot of regulatory balls in the air, the STB particularly, relative to just a few months ago. And you also mentioned some things developing in Canada and Mexico earlier in your comments. I was just hoping if you look at these all at once, could you help frame what, in your mind, is the greatest long-term concern for you? And perhaps additionally what's more immediate that you're looking at today that could impact you fairly soon?

That’s a fairly broad question and so we treat each of those as a very serious issue and we look at them very carefully and closely. So we’re watching what's happening with Needling [ph] proposals the service hearings, the Canadian directed agricultural equipments, the Mexico reform. So in each of those cases we have teams of people looking at working very hard to ensure as I said in my opening remarks that everyone understands the importance of having a viable growing and healthy rail system that’s paid for by private investment and not tax share dollars. So while we consider each one of those to be a very serious and concerning development it also gives us the opportunity to position all of the great things that not only Union Pacific but the entire rail industry has done by the constant reinvestment and investment of capital dollars to build the transportation infrastructure in this country and actually throughout North America that there is today. So we take them all one by one, if you look at the new discussion around revenue adequacy it’s going to be an opportunity for us to point out the benefits of what’s happened so far, the investment that’s been made, the importance of having decisions that were going to change things to recognize replacement costs, those kinds of things. The service hearings, I think well I think could position us well to tell the story of how even though it was a difficult quarter for the industry, the capital investment made it a lot better than it probably would've been if it had happened five or 10 years ago. In Mexico, we've been working very hard to make sure the government understands the importance in the developments and the volumes that have improved since we took on our concession in partnership with the FXE and that if they look at the throughput and the development of transportation within the country it has certainly helped to grow the Mexico economy. If you look at all the investment from the automotive industry and things like that. So we look at these as every one of them, well, it's a serious issue if it were to go it right, give us a great opportunity to talk about all the good things that have happened. And so we’re not afraid of them, we’re willing to step up to the plate and participate each and every one of them to make sure our story gets told.

Our next question is from the line of Walter Spracklin of RBC Capital Markets. Walter Spracklin – RBC Capital Markets: I guess my first question here is for Lance. With all the difficulty you had in the winter weather you still managed to keep your headcount under good control here and didn't really need to resource up significantly to add any redundancy. So, that's quite impressive. But I'm just wondering is that reflective of what could've been a lower headcount if you didn't have the weather? How should we look at your headcount as you go through the year and the year this year?

So Walter, we think about headcount, resourcing, for the volume that shows up where it shows up, so that we can maintain an excellent service product. I won’t look backwards and guess that what it would've been if winter hadn’t happened. Going forward the right way to think about our headcount is exactly as Rob states with productivity we should be able to keep headcount growth lower than volume growth and I feel pretty confident we are going to be able to do that. Walter Spracklin – RBC Capital Markets: So there is no -- nothing that distorted that in the first quarter that you're going to significantly drop headcount now in the second quarter or anything like that?

That’s correct. Walter Spracklin – RBC Capital Markets: Second question now. As you alluded to in a number of different ways in your ag business, lot of volatility. You mentioned weather, you mentioned related to that the significant drought from last year, the unpredictability of that. If we look at the current trends in the first quarter carloads, it seems to be off to a very good start, not only on a comp basis, as an easy comp basis, but also on an absolute basis. I'm just curious if, as we model this out in future years, given how important the ag business is, when we look back at historical average levels, be it on carload or overall crop size, is there any reason why your carload volumes would be any different from an average run rate level historically, or is that how we should look at it? Might we need to revert our 2015 ag estimates downwards to reflect perhaps a very healthy 2014 haul?

Walter, as you recall last year or 2012 going into 2013, there was the drought which significantly impacted our volumes last year, the same time first quarter. So if you look at year-over-year the fact that there was a record corn harvest and harvest started in October and the volumes are moving through the first quarter of this year, clearly is the primary driver behind the volumes that we are seeing. There were some as we said stress in the grain network on our competitors, so there was some small portion of incremental volumes we had assisting the market due to that, those challenges that they had. But again that surrounding the bigger issue was the record corn harvest was a pretty good bean harvest, pretty good wheat harvest and in terms of going forward in the future, again the weather will determine the yields, will determine the production and that will determine the volumes that move during harvest season. Walter Spracklin – RBC Capital Markets: If I could sneak one last one in here on the regulatory standpoint. I heard all your commentary. Perhaps you could give us if, to the extent you know it, the next few catalysts for any potential changes or regulatory -- in other words, are we going to stay within the confines of the STB and their actions? Or could there be any other occurrences that might impact the STBs, any changes the STB might make on the regulatory front?

At this point in time as we look at it, the regulatory model is based on railroads being allowed to earn their rate of return and be revenue adequate. And we don't see a lot on the legislative front, there is the railroad antitrust bill that has been introduced but has seen no action and so we haven't really seen a lot on the regulatory front, other than what's happening in the STB and actually as we look at the STB hearings, they are taking a very measured and thoughtful approach to it. So we are in good shape.

Our next question is from the line of Justin Long of Stephens. Justin Long – Stephens Inc.: We've been hearing a lot lately about a tightening truckload environment. And you would imagine this should bode well for intermodal pricing as we progress throughout the year. Do think you will be in a position to get better intermodal pricing in 2014 versus what you've seen the past few years?

As we said we continue to price the market and we are continuedly focused on taking advantage of strong demand. As you mentioned the CSA is having an impact on trucking capacity, had an impact in the winter because of the safety concerns that probably were, was some trucking capacity that self selected themselves out of taking trips on the most difficult portion of the winter weather, because of the concern of the risk with CSA. But we continue to think that the intermodal opportunity is strong, trucking capacity is tightening and we continue to think that that's a good outlook for our book of business. Justin Long – Stephens Inc.: Maybe a follow-up to that. How much flexibility do you have to move pricing in intermodal? Have you already established your rates for this year or do you have the ability to raise rates throughout 2014 if the market and demand continues to move higher?

As we have talked in the past, a portion of business is in different segments, some in long-term contracts, some in one year contracts that rotate or come up throughout the year, some in instruments that you can change on a relatively frequent basis. Our intermodal business has the same kind of profile and as we have opportunities based on demand and market prices we will them.

Next question is coming from the line of Keith Schoonmaker of Morningstar. Keith Schoonmaker – Morningstar: My question is for Eric. Eric, your comments remain quite positive on the 2014 economy. And I want to ask you about chemicals in particular, given the sea change in US natural gas economics from fracking. Would you share any new developments or your expectations for what industries within chemicals might lead rail volume growth? And if you think this will come on next year or further into the future?

I think we have said several times in the past that with the relatively low natural gas prices, futures is still I think around 450 or something like that. You’re seeing a lot of plastics development coming on a number of different plants that have been announced for expansion, I think we said in the past and in previous earnings releases that most of those will come on in 2016, 2017 that we continue to see strong upside opportunity from that. Our fertilizer business we continue to see a strong upside opportunity in our fertilizer business. So fertilizers, plastics, industrial chems, we think are long-term positive outlooks. Keith Schoonmaker – Morningstar: And I guess just a quick follow-up on the Mexico discussion. Given this business is handed off to your US assets rather than your own operations in Mexico, and I recall the Ferromex ownership stake. Can you comment on how you believe your franchise would actually be effective if the bill proposed became law? Is this just a bad precedent for other jurisdictions or would this in itself have material impact to UP?

I think overall if you look at our franchise, the Union Pacific franchise, the business is moving into and out of Mexico, it's not going to really change materially, our ability to deliver goods about to the border and also to have taken from the border and deliver them throughout the US.

You heard us say this before but our interest in this is we don't want to see something that erodes commerce in Mexico and we think one of the unintended consequences of potential bill is that that it would create less commerce in Mexico. But as you know the only railroad that crosses 6 border crossings in and out of Mexico, so we just like to see commerce continue to grow and volumes continue to one across the border both ways and we are ready to handle it.

Next question comes from the line of David Vernon, Bernstein Research. David Vernon – Bernstein Research: Just two quick questions maybe on the growth outlook. Eric, the intermodal weeklies are looking pretty strong right now. How much of that is the Santa Teresa opening versus maybe some just straight organic conversion versus share take?

So we did open our Santa Teresa facility April 1 of this year and we think that, that will be a strong lever for us for that market, that market. I think we talked publicly that, that new ramp has about 250,000 less capacity, if you think about our domestic intermodal business is 1.6 million units, so we are seeing a strong growth with our products and services across-the-board, certainly new product offerings from Santa Teresa will add to that. But we are seeing strong growth across the board. David Vernon – Bernstein Research: Should we think that that Santa Teresa opening of that terminal is going to continue this growth through the year and it laps? Or is this more -- I guess I'm trying to figure out of the current strength is more of a temporary thing that should ebb as the weather sort of eases up and other rail service improves or if we should be expecting these higher upper single-digit growth in intermodal going forward?

So the current strength is, the strength that we are seeing across our book of business, when ramp opens up there is a gradual ramp up and there is going to be a gradual ramp up in Santa Teresa. The current strength in our intermodal business is depending on slowly growing economy and our value proposition and that’s an across the board opportunity for our book of business rate. David Vernon – Bernstein Research: Maybe just as a separate question. Are you guys seeing any development of terminals for handling heavy crude-by-rail, either in the western, specifically California refineries or down in Texas on your network?

As we have spoken before, there are number of different terminals that are under development both on the West Coast and to the extent also in the Gulf Coast. We’re working actively and part of our strategy is to strengthen franchise we cannot direct when and where crude oil will flow, that’s determined by strength that our franchise wants, to, we will ensure we have a franchise that landed when and where at once they flow. David Vernon – Bernstein Research: Would you think that western -- those western refineries might have perhaps a little bit of a cost advantage via rail relative to the Gulf?

I am not really sure what you are asking, when you say cost advantage you mean lower rail costs? David Vernon – Bernstein Research: Yeah, lower, just to move from western Canada down to the Western –

It will be market based and we will price to take advantage of the value of our franchise whether it’s going to the west coast or to the Gulf Coast.

The next question comes from the line of Ben Hartford of Robert W. Baird. Ben Hartford – Robert W. Baird: I think a question for Lance. If I look at cars online, cars online are call it 10% to 12% above trough levels of last year. As we think about volume growth accelerating and the cross current of the network normalizing into the third quarter, how should we think about the asset requirements of the network going forward? Can we continue to think about cars online falling as they were through all of last year? Or should we think about those 2013 levels as the trough and now that we do see volume growth accelerate that that growth number should lag, but we won't quite pierce and fall below the best levels realized last year? Can you provide some perspective there?

Sure, Ben, as I look at car inventory on our railroad right now the large majority of the growth year-over-year is about winter impact and I am expecting that portion of inventory to ultimately bleed off as we’re able to interchange it off to other carriers or ultimately get it to a customer on our own railroad. There is some amount of that growth that’s driven by unit volume growth and what I really look at and care about is car productivity as opposed to the absolute inventory number. The absolute inventory number is important for me as an overall indicator but what we really try to drive is good utilization of the cars that are on us.

The next question comes from the line of Don Broughton of Avondale Partners. Don Broughton – Avondale Partners: Real quick, you talked about wage inflation. Looking at the comp benefit line, obviously wage inflation 2%. What are the other puts and takes, performance bonuses we hope you earn, pension tailwinds? What else is going to be pushing and/or pulling that line in 2014?

On that line, a big offset if you will to wage inflation has been the pension expense, pension side of the equation and that’s been the reason why I say that our labor line for the full year is expected to be below 2%. Don Broughton – Avondale Partners: So the wage inflation actually is higher than that, it's just that the actual line itself will be -- come in at under 2%?

That’s correct.

Our next question comes from Jeff Kauffman of Buckingham Research. Jeff Kauffman – Buckingham Research: Most of my questions have been answered. Just one quick one on the locomotive CapEx you spoke about. With the tier 4 locomotive standards, this is the first time I think we're using exhaust gas recirculation to meet the standards and the experience of the truckers with this was we ended up with more expensive engines that were not as efficient. What are your thoughts on the locomotives post the tier 4 standard and does this change the economics for you in terms of thinking about natural gas as an alternative fuel in the long run for the locomotive fleet?

Sure, so first thing to note is, we have a couple of tier 4 test units that are on us, wired up so that we can fully understand with the OEM involved, what the economics and what really the overall performance metrics of those units look like. It is not certain what efficiency impact a tier four locomotive is going to have in relation to a tier 3. I know the OEMs are working very hard to make fuel consumption rates roughly equivalent and so there's more to follow there. And in terms of will delta in that make a fundamental difference in the LNG economics? The answer is that’s probably a minor impact, the major impact is utilization infrastructure costs and couple other elements.

Our next question is from the line of Claire Ouzagareen with Macquarie. Claire Ouzagareen – Macquarie: My first question relates to pricing. Could you clarify for us how much of your book is specifically tied to AII-LF or another inflation cost measure? And how much is able to take advantage of improving demand fundamentals for example, in intermodal?

I mean roughly a quarter of our business is tied to an escalator, AII-LF being the major driver of the escalations that we use. I would also then add to that, Eric responded earlier to the intermodal question of what capability does it to have to take pricing up throughout the year and we’ve got a mix of long-term contracts, we’ve got a mix of short-term contracts, we’ve got a mix of annual quotes if you will. So we look to take advantage and move and price to market wherever we can. We don't give specific guidance by commodity as to how much we can touch with any particular timeframe but across our entire book of business. We look to price to market where we have the opportunity. Claire Ouzagareen – Macquarie: Would you be able to comment to what verticals are offered most opportunity this year in your opinion?

No, we don’t get into that. Claire Ouzagareen – Macquarie: And then my second question relates to [indiscernible] rail opportunities specifically tied to the Permian, would you be able to share with us what kind of growth or infrastructure development projects you are looking for there to enable it to take advantage of production growth, and what kind of commitments you are looking for in the supply chain from a pure capital to developing an area?

As we have said previously, the Permian basin has great coverage, pipeline coverage and that's where most of the production growth has taken in the state of Texas. So if you look at our crude by rail volumes from the Permian they actually had decreased significantly, we have said that in the past. And they are really nominal and going forward there may be some spot opportunities for crude by rail in the Permian but the Permian has great pipeline coverage, we don't expect that to be a driver of any crude by rail volumes going into the future. It is a driver of our drilling materials volumes like frac sand and pipe. Claire Ouzagareen – Macquarie: So you are not contemplating maybe laying some new rail into California refineries or that's more science fiction than feasible future?

Yeah, so we are, as I mentioned before, looking at the destination franchise, for crude by rail into California. At this point in time, the market is suggesting a lot of that will be sourced from Canada or the Bakken. There are those in the market we believe that Permian will go to California. If that happens we will be prepared for it but I think the market today is suggesting majority of crude by rail in California will come from Canada or the Bakken.

Thank you. At this time, I would like to turn the floor back over to Mr. Jack Koraleski for closing comments.

Well, great, thank you everybody for joining us on the call today and we look forward to speaking with you again in July.

Thank you. This concludes today's conference. You may now disconnect your lines at this time.