Union Pacific 2012 Annual Report Download - page 3

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3
February 8, 2013
Fellow Shareholders:
Last year was a historic milestone for Union Pacific, marking 150 years of building America. It was our
most profitable year on record, leading the U.S. rail industry in overall financial performance. Our 2012
results are a testament to the strength and diversity of our franchise and the dedication and commitment
of our employees. For the first time, we achieved a sub-70 operating ratio of 67.8 percent, contributing to
record earnings per share of $8.27, and a best-ever return on invested capital of 14.0 percent.
Shareholders were rewarded with increased financial returns, including a 29 percent increase in
dividends declared per share compared to 2011 and $1.5 billion in share repurchases. UP’s stock price
reached new highs in 2012, increasing 19 percent and outpaced the S&P 500 by 5 points.
Despite a challenging economic environment and a significantly weaker coal market, our diverse portfolio
of business, including shale-related crude oil and frac sand moves, automotive shipments, chemicals, and
domestic intermodal traffic, offset the 14 percent decline in coal volumes. Operationally, we successfully
managed the shifts in business mix, improved network efficiency and fluidity, and operated a safer
railroad.
We achieved these record results by following a very straightforward strategy - an unrelenting focus on
creating value for our customers by providing safe, efficient, and reliable service. In turn, customers
rewarded us with record satisfaction ratings, clearly valuing our service offerings and the efficiencies we
provide as part of their total supply chain. In addition, with our Total Safety Culture and The UP Way
infused throughout the Company, employee injuries hit a record low in 2012, capping more than a decade
of significant improvement.
Our capital investments play a critical role in meeting the long-term demand for freight transportation in
the U.S. In 2012, we invested a record $3.7 billion across our network, supported by our best-ever
financial returns. Over half was spent on replacing and hardening our infrastructure to further enhance
safety and reliability. The balance was invested to increase customer value, support business growth,
and advance efforts on Positive Train Control (PTC) implementation, a federally mandated program.
Through 2012, we have invested nearly $750 million dollars of our estimated $2 billion spend on PTC.
A significant portion of our growth capital investment in 2012 was targeted to the southern region of our
network to meet growing demand for new business, particularly in the shale-related energy arena. The
increasing development of oil production in various domestic shale formations is providing an emerging
market opportunity for rail with shipments of inbound frac sand and pipe, and outbound crude oil. In
2012, the impact was substantial - our crude oil shipments grew more than three fold compared to 2011.
Going forward, we anticipate continued opportunities for growth in this market driven by our proven ability
to provide an efficient and flexible transportation solution for growing demand.
In an evolving marketplace, our franchise diversity remains an absolute core strength of Union Pacific.
An increasing U.S. population base will stimulate long-term growth for many of the goods we carry. To
meet this growing demand, we anticipate continued opportunities to convert freight from the highway,
supported by our integrated network, competitive service offerings, and environmental advantages. We
also play a vital role in the global supply chain, with international trade currently representing more than
30 percent of our revenue base. In particular, as the only railroad to serve all six major gateways to
Mexico, we are in an excellent position to benefit from economic growth in that country.
The men and women of Union Pacific are proud of the Company’s 150-year history, but we’re squarely
focused on the opportunities the future presents, as well as its challenges. The results achieved in 2012
demonstrate the power and potential of our franchise as we continue to run an even safer railroad, help
our country grow, create value for our customers, and increase financial returns for our shareholders.
Our future is bright as we see even greater prospects in the years to come.
President & Chief Executive Officer