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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.

Eric Butler

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 per car decline in a moment. First, finished vehicle shipments declined 3% as winter weather impacted shipments and we had a couple of plants with unscheduled shutdowns. While automotive production was strong in the quarter, the severe winter weather contributed to year-over-year sales declines in January and February. Sales rebounded strongly in March, up 5.6% thanks to improved weather and dealer incentives. We expect that our finished vehicle shipments to rebound as the rail network recovers from the challenging weather.

From the parts side volume increased 9% with strong production and over-the-road conversions driving gains. The decrease I mentioned earlier in average revenue per car reflects a change in the way we handle per diem revenue on Intermodal containers used by our customers for auto parts. As a result in 2014 the per diem revenue is included in other revenues instead of automotive commodity revenue.

Chemicals volume was flat for the quarter with revenue up 2% on a 3% increase on average revenue per car. Industrial chemicals volume was up 7%, driven by strength in end user market such as shale related drilling, paper products and the icing materials. Fertilizer shipments were up 7% for the quarter on strong export potash demands.

Crude oil volume declined 18% compared to the first quarter of last year with price spreads negatively impacting volume. Partially offsetting the decline was an increase in our prior shipments to the Gulf Coast.

Turning now to coal, revenue increased 3% in the first quarter on a 7% increase in volume. The average revenue per car declined 4% driven by mix and lower fuel prices. Southern Powder River basin tonnage was up 2% as demand from the cold winter and higher natural gas prices offset our previously reported contract loss.

Colorado, Utah coal tonnage was up 13%, and benefitting from the increased domestic demand as well as gains in West Coast exports. We continue to see strength from other coal producing regions where tonnage was up 25% for the quarter.

Now in industrial products business, a 9% increase in volume and a 1% improves in average revenue per car produced revenue growth of 10%.

Non-metallic minerals volume was up 18% for the quarter. We continue to see strong demand for frac sand and shale related drilling which was up 22% over last year. Aggregate and cement demand were strong particularly in Texas and California, driving construction shipments up 10% for the first quarter. And our government and waste shipments were up 23%, driven by a waste customer adding short haul shipments in January and February. Additionally the winter weather increased demand for salt, while shipments were up 28% compared to the first quarter last year.

Intermodal revenue was up 4% in the first quarter, driven by 3% volume gain and a 1% improvement in average revenue per unit. Domestic Intermodal volume was up 8% in the quarter, driven by strength from our traditional IMC customers, new motor carrier customers and demand for new premium service offerings.

Headwinds from the severe winter weather were offset by business development and highway conversions. Our international Intermodal volumes declined 1% against the strong comparison from the first quarter of 2013. The winter weather impacted consumer demand and imports to the West Coast ports were down nearly 3% for the first two months of the year.

Now take a look at how we see out business shaping up for the rest of 2014. Our current outlook is for the economy to strengthen modestly this year. Last year's strong crops should provide opportunity for ag products in the second quarter with anticipated strength in both domestic and export grain markets. 2014 crop yields will be dependent on the weather.

In food and refrigerator, we expect growth in import beer, but the draught in California could create a headwind for tomato paste and canned goods.

Automotive market fundamentals remain strong with demands for new vehicles, easy access to financing, low interest rates and low fuel prices, all expected to drive increased sales. We should see finished vehicle volume rebound in the second quarter as continue to recover from the winter weather.

Most of our chemicals markets should remain solid throughout 2014. Crude by rail will continue to be impacted by spreads, a growing gulf crude supply and increased pipeline capacity. Lower inventories will continue to be a driver for our coal business in the second quarter. Weather conditions in summer will influence how things shape up for the full year.

Industrial products should continue to benefit from shale related activity with increased drilling, supporting growth in frac sand and pipe shipments. Housing starts were off to a slow start in 2014, but they are still projected to exceed 1 million units which we anticipate will drive demand for lumber shipments and we think the strength in construction products will continue.

Highway conversions and new product offerings should continue to drive growth in domestic Intermodal. International Intermodal should benefit from a continued improving economy and strengthening housing market. For the full year our strong value preposition and diverse franchise will again support business development efforts across our broad portfolio business.

Assuming the economy cooperates, we expect to deliver profitable revenue growth yet again in 2014, driven by continued volume growth and corporation's gains. With that I'll turn in over to Lance.

Lance Fritz

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, elongating equipment cycles and reducing fuel efficiency. Our dedicated employees did a great job battling difficult conditions while maintaining open channels of communication with customers and our interchange partners as we managed through the challenge.

We responded by leveraging the unique value of Union Pacific. We adjusted transportation plans to use alternative switching yards and gateways. We realigned resources to where they were needed most and employed the use of our surge capacity.

This included increasing our active locomotive fleet by about 600 units since last fall and increasing our active TE&Y workforce by roughly 550 since January. While we mitigated a fair amount of winter’s impact, our service performance fell short of our expectations and we are working hard to achieve a rapid and full recovery. And while that recovery is now underway, most of our first quarter operating performance metrics reflect the winter's impact. Velocity declined 7% as adverse conditions generated an 80% increase in the number of days with major service interruptions. These interruptions temporarily reduced operating capacity during the quarter, particularly in the northern region. The interruptions in subsequent limits on network capacity also drove a decline in our service delivery index, a measure which gauges how well we are meeting overall customer commitments.

On a brighter note we were able to maintain local service within a decent range, registering a 93.1% industry spot and pool. This metric which measures the delivering or pulling of a car to or from a customer also reflects the tighter service commitments we introduced this year.

In addition to surge resources, infrastructure investments have also improved our ability to recover after incidents, reducing their impact on the network. For 2014, we plan to invest around $3.9 billion which is up about $300 million from our 2013 spend. We're purchasing 200 locomotives this year compared to a 100 last year, impart due to future volume growth assumptions as well as our tier 4 emission strategy. We continue to invest in capacity across our network, including new capacity in the upper Midwest and in the South, that support expected growth.

And speaking of unit volume growth, for the first time in several years we saw solid and relatively balanced regional volume growth. While severe weather impacted our ability to fully leverage that volume, we were still able to realize meaningful productivity gains. For example the increase in regional TE&Y employees was less than our unit growth, despite the surge of crews we deployed in the North. Freight cart dwell was up 12% for the quarter, driven by a 36% weather related increase in the Northern region.

On a more positive note, we held locomotive productivity flat in the face of the headwinds. Our longer term trend of improving locomotive reliability coupled with effective utilization plans should register continued gains going forward.

Overall, we generated reasonable productivity improvement as our men and women applied their expertise to improve safety, service and efficiency using the UP way. Our primary focus was serving our customers and keeping our employees safe during difficult operating conditions. The net result was a 2 percentage point improvement in operating ratio, something our team is very proud of achieving in a very difficult quarter.

In summary, our full year operating outlook for 2014 remains positive. We are confident we are on a path for restoring operations back to normal. We're focussed on reducing variability in the network to drive service improvements and we've made progress during the past few weeks. We will continue to work closely with our interchange partners as our recovery and that of the entire rail industry is conditioned upon interchanged fluidity. And as performance improves and as demand dictates, we'll adjust our resource levels accordingly, including moving locomotives back into storage.

We expect to generate record safety results on our way to an incident free environment as network performance improves and we utilize resources more efficiently, our ability to leverage unit growth that generates solid productivity will improve and we will continue to make smart capital investments that generate attractive returns by increasing capacity and high volume quarters while also supporting our safety, service and productivity initiatives.

As a result we'll provide customers with a value preposition that supports growth with high levels of service. All combined it translates into increased returns for our shareholders.

With that I'll turn it over to Rob.

Robert Knight

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 in lower ARC, shorter haul movements. Increased Intermodal and waste shipments also contributed to the negative mix. Core pricing gains totalled slightly over 2%, continuing our pricing strategy of outpacing inflation.

Slide 21 provides more detail on our core pricing trends in 2014. As you recall 2014 is a legacy light year. So we will not see the point and a half of legacy benefits which we saw in 2013. We're also seeing the impact of lower inflation on that portion of our business that is tied to inflation escalators primarily All-LF. The type table at the bottom of the slide takes a closer look at the quarterly All-LF escalator. As you can see it rebounded only slightly from negative territory in the fourth quarter last year.

While pricing is never easy, we continue to see solid core pricing gains above inflation on the business that we can touch in the marketplace today. Keep in mind also that the positive mix impact of new business or business returning to Union Pacific franchise is reflected in our margin gains but is not added to our core price calculation. We continue to be as focused as ever on pricing to market at rates that earn a fair and re-investible return.

Moving on to the expense side, Slide 22 provides a summary of our compensation and benefits expense which increased 3% compared to 2013. Higher volumes, inflation and weather were the primary drivers, offset by productivity realized by leveraging the volume growth. Total TE&Y increased slightly, but not at the same rate as our volume growth. However this increase was more than offset by a decrease in employees associated with capital projects for the quarter when compared to 2013.

For the remainder of the year we would expect to see compensation and benefits expense to grow, but this will be largely dependent on how volume plays out. In addition we still expect to see labour inflation come in under 2% for the full year.

Turning to the next slide, fuel expense totalled $921 million, up 2% when compared to 2013, driven primarily by higher GTMs associated with increased volumes. Our fuel consumption rate was essentially flat on a year-over-year basis with the weather having come negative impact. Total fuel expense was tempered by a 3% year-over-year decline in average diesel fuel prices.

Moving on to the other expense categories, purchase service and materials expense increased 9% to $607 million, due to volume related subsidiary contract expenses, higher locomotive and freight car material costs and crude transportation and lodging costs.

Depreciation expense was $464 million, up 7% compared to 2013, consistent with our prior guidance. Looking ahead, we now expect depreciation to be up 7% to 8% this year.

Slide 25 summarizes the remaining two expense categories. Equipment and other rent expense totalled $312 million, which was flat when compared to 2013. Higher freight car rental expenses was offset by lower container lease costs. Other expenses came in at $226 million, down $11 million versus last year. Higher utility expense was more than offset by a year-over-year improvement in our freight and equipment damage costs as well as lower environmental and personal injury expenses. For 2014, we expect the other expense line to increase between 5% and 10% for the full year, excluding any unusual items.

Turning to our operating ratio performance. Pricing the business at re-investible levels and moving it safely and efficiently continues to drive results. We achieved a record first quarter operating ratio of 67.1% improving two points when compared to 2013. Longer term, we remain committed to achieving an operating ratio below 65% before 2017. We also remain committed to achieving strong cash generation and improving overall financial returns.

Turning now to our cash flow. In the first quarter, cash from operations increased to almost $1.8 billion. You'll recall that we expect the headwind of about $400 million this year due to tax payments associated with prior years' bonus depreciation. These payments will be reflected in subsequent quarters.

We invested about $900 million this quarter in cash capital investments and also returned $363 million in dividend payment to our shareholders. Also, in keeping our commitment to achieve a dividend pay-out range of 30% to 35%, we increased our declared dividend per share by 32% on a year-over-year basis.

Taking a look at the balance sheet, we issued $1 billion of new debt in January bringing our adjusted debt balance to $13.3 billion at quarter end. This takes our adjusted debt to cap ratio to 38.4% up from 37.6% at yearend '13. We remain committed to achieving an adjusted debt to cap ratio of approximately 40% and a debt to EBITDA ratio of about 1.5 by yearend. We feel our current cash outlook positions us well to execute our cash allocation strategy.

Our record profitability and strong cash generation enable us to continue to fund our strong capital program and grow shareholder returns. In addition, we continue to make opportunistic share repurchases which play an important role in our balanced approach to cash allocation.

As you may recall, our new repurchased authorization of up to 60 million shares over a four-year time period went into effect January 1st of this year. Under this new authority, we bought back 3.8 million shares totalling $683 million in the first quarter. This brings accumulative share repurchases since 2007 to $110 million shares. Combining dividend payments and share repurchases, we returned over $1 billion to our shareholders in the first quarter. It represents roughly 45% increase over 2013, clearly demonstrating our commitment to increasing shareholder value.

So that's a recap of the first quarter result.

As we look to the remainder of the year, its favourable economy and some help from the weather will combine with our commitment on core pricing above inflation and our on-going productivity initiatives to produced continued margin improvement and record financial results.

With that, I'll turn it back to Jack.

John Koraleski

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.

Earnings Call Part 2:

• Q&A with Union Pacific Corporation CEO