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BB&T Capital Markets Transportation Services Conference Rob Knight, CFO – February 13, 2013
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Cautionary Information This presentation and related materials contain statements about the Corporation’s future that are not
statements of historical fact, including specifically the statements regarding the Corporation’s expectations with respect to general economic conditions, future trends in commodity markets, and financial returns; its business strategy for the upcoming year and drivers for growth; and its plans to improve productivity with capital investments. These statements are, or will be, forward-looking statements as defined by the Securities Act of 1933 and the Securities Exchange Act of 1934. Forward-looking statements also generally include, without limitation, information or statements regarding: projections, predictions, expectations, estimates or forecasts as to the Corporation’s and its subsidiaries’ business, financial, and operational results, and future economic performance; and management’s beliefs, expectations, goals, and objectives and other similar expressions concerning matters that are not historical facts.
Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of the times that, or by which, such performance or results will be achieved. Forward-looking information, including expectations regarding operational and financial improvements and the Corporation’s future performance or results are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in the statement. Important factors, including risk factors, could affect the Corporation’s and its subsidiaries’ future results and could cause those results or other outcomes to differ materially from those expressed or implied in the forward-looking statements. Information regarding risk factors and other cautionary information are available in the Corporation’s Annual Report on Form 10-K for 2012, which was filed with the SEC on February 8, 2013. The Corporation updates information regarding risk factors if circumstances require such updates in its periodic reports on Form 10-Q and its subsequent Annual Reports on Form 10-K (or such other reports that may be filed with the SEC).
Forward-looking statements speak only as of, and are based only upon information available on, the date the statements were made. The Corporation assumes no obligation to update forward-looking information to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking information. If the Corporation does update one or more forward-looking statements, no inference should be drawn that the Corporation will make additional updates with respect thereto or with respect to other forward-looking statements. References to our website are provided for convenience and, therefore, information on or available through the website is not, and should not be deemed to be, incorporated by reference herein.
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Portland
Los Angeles
Calexico
Seattle
Brownsville
Houston New Orleans
Twin Cities
Nogales El Paso
Duluth
Oakland Omaha
Denver Salt Lake City
Kansas City
Chicago
Memphis
St. Louis
Fastest Growing States
Ports
Borders & Interchange
C
To/From Asia
Portla
Oaklala
To/From Asia
To Europe, South America
and Africa
Industrial 16%
Agricultural 19%
Chemicals 15%
asosEagle Pass Laredo
Dallas
Eastport
a
Industriri lllallll 16%
Agricuuuuuuultltltltltlturuuuuuuu al19%
ChChChChChChChChCChChChChChChChemememememee iciciccccicicicalaallaaaaallaalsss15%
Intermodal 20%
Coal 20%
Autos 9%
Industrial 18%
Agricultural 17%
Chemicals 16%
Freight Revenue $19.7B in 2012
• Diverse Business Mix • Fastest Growing States • Broad Port Access • Interchange Traffic &
Border Crossings
The Strength of a Unique Franchise
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2004* 2012 2004* 2012
Successful Track Record 2004 to 2012
Operating Ratio 87.5%
67.8%
#1 – Industry Improvement
2004* 2012
EPS
$1.42
$8.27
ROIC
5.3%
14.0%
+25% CAGR
* 2004 adjusted for asbestos charge of $247.4 million.
-19.7 points
+8.7 points
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Core Pricing & Leveraging Productivity Gains
• Taking on Business that fits the network at the Right Price
• Value-driven, Reinvestible Pricing
2007 2008 2009 2010 2011 2012
6% 6%
4.5% 5% 4.5%
Core Pricing Gains
4.5%
-30%
-20%
-10%
0%
10%
20%
30%
2006 2007 2008 2009 2010 2011 2012
GTMs
Train Speed
Network Performance
24%
(11%)
• Productivity Initiatives in All Areas • Focus on Unit Costs / Volume
Variability • Positioned to Leverage Future
Economic Growth
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Diverse Portfolio – Volume Drivers
*Through February 4, 2013
Chemicals
Intermodal
Coal
Ag
TOTAL
-4%
+7%
-11%
-23%
+6%
-3%
+13%
Industrial Products
Automotive
YTD 2013 Volume Growth*
• Crude Oil up 100%+
• Strong Intl & Domestic
• Pent up Vehicle Sales
• Lower Hazardous Waste, Softer Steel & Scrap Markets
YTD Drivers
1st Quarter • Ag volumes down in high
single digit range
• Coal volumes down in mid-teen range
• Impact of 2012 Leap Year
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Coal Trends
Current Drivers • Above average stockpiles • Low natural gas prices • 2013 contract loss
(10+ million tons) • Low river levels
Southern Powder River Basin
74%
Other 13%
27,000
31,000
35,000
39,000
43,000
47,000
Volume Impact (Weekly Carloadings)
1Q 4Q
2011
2012
2Q 3Q
2013*
Longer Term Drivers + New Domestic Business + Growing Exports from
~8M tons in 2012 to 16M tons by 2017
+ Potential Backfill to Eastern Markets
Uncertainties - Plant Retirements - Natural Gas Prices
*Through February 2, 2013
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Agricultural Trends
Whole Grain (Year-over-Year Volume Change, -10%)
1Q12 2Q12 3Q12 4Q12
16% 13%
-7%
-22%
-39% -32%
0%
-16%
Export Domestic
Grain Products (Year-over-Year Volume Change, -3%)
1Q12 2Q12 3Q12 4Q12
3% 0%
-2%
1% 3%
-6%
-16% -19% Ethanol &
DDGS
Other Products
Grain Products
37%
Grain 31%
Food/ Refrigerated
32%
2012 Revenue Mix
• Continued drought impact on corn supply in UP territory
• Reduced gas demand & high corn prices impacts ethanol
• Food & Refrigerated up 7% in ’12 • Long term opportunity to meet
growing world food demand
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0.0
0.5
1.0
1.5
2.0
2.5
0
2,000
4,000
6,000
8,000
10,000
12,000
2005 2013* 2007 2009 2011
UP Wkly Carloadings
Housing Starts (mils)
Housing Trends
*Through February 2, 2013
• Housing represents ~7% to 8% of current UP volumes
• Lumber, Stone & Glass down 3,000 carloads a week, a 2% overall volume impact
• Housing also drives appliances, roofing, rebar, aggregates, and cement demand
• Including IP, Chemicals & Intermodal, return to normal could add volume growth opportunity of ~5%
Lumber, Stone & Glass
4Q 2012 Lumber up 17%
‘04
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UP Positioned for Mexico Growth Opportunities Strong Investments – Foreign and Domestic
Ferromex (FXE) KCSM Ferrosur (FSRR)
UP Interchange Points
New Industrial Investment
'05 '06 '07 '08 '09 '10 '11 '12
708 764 776 743
600
750 817
857
Volume Growth (Carloads in Thousands)
+5%
Ports
2012 Business Mix (In Carloads)
Audi - $1.3B
Agricultural 14%
Autos 45%
Intermodal 24% Industrial
10%
Chemicals 6%
Coal 1%
+9%
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Portland
Los Angeles
Seattle
Houston New Orleans
Twin Cities
Duluth
Oakland Omaha
Denver Salt Lake City
Chicago
Memphis
St. Louis
Borders & Interchange
Industrial 16%
Agricultural 19%
Chemicals 15%
Dallas
Eastport
Industrial 17%
Agricultural 18%
Chemicals 15%
• Increased Mexico automotive production
• Foreign Direct Investments
• Connections with FXE and KCSM
• Comprehensive U.S. market coverage
• Efficient routes • Equipment investment
and supply
Distribution Centers/Ports (UP Owned/Leased and Private)
Assembly Centers (UP served and in Mexico)
Kansas City
Union Pacific Connecting NAFTA Markets Mexico Automotive
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Permian Basin
Marcellus
Eagle Ford
Niobrara
Bakken
Canadian Oil Sands
Current UP Origins Current UP Destinations Connecting Railroad Origins
Utica
Haynesville Barnett
$116 Brent
$116 Brent
$116 Brent
$117 LLS
$90
$87
$96
$105
Crude prices as of 2/5/13
Union Pacific Crude-by-Rail
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• Substantial oil industry investment in rail – $1 + Billion in rail terminals
– 20,000 new tank cars in service
• Rail advantages – Market flexibility – Faster transit time – Faster permitting and construction – Scalable with lower capital cost
Shale Energy and Rail Sustainability
• Shale production will continue to exceed pipeline capacity
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Shreveport
Ft. Worth
Dallas
Houston New Orleans
San Antonio
Brownsville
Ethylene Plants New Plant/Expansions
Expanding Chemical Franchise Texas/Louisiana Investments
Formosa Plastics Corp. • >$1.7 Billion investment in cracker
and additional capacity projects. • Cracker capacity: 800,000 mt/year • Estimated completion in 2016
Dow Chemical Co. • $1.7 Billion investment in cracker
and additional capacity projects. • Total capacity: 1.5 million mt/year • Estimated completion in 2017
Chevron Phillips Chemical Co. • $5 Billion investment in cracker &
additional capacity projects. • Total capacity: 1.5 million mt/year • Estimated completion in 2017
k
Gruppo Mossi & Ghisolfi • Investment in new PET & PTA plants. • Capacity: 1.0 & 1.2 million mt/year • Estimated completion in 2014
Source: Public Announcements
Exxon Mobil Corp. • Investment in steam cracker. • Total capacity: 1.5 million mt/year • Estimated completion in 2016
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Growth Driver: Highway Conversions
• Comprehensive & Integrated Intermodal Network
• Strong Value Proposition: – Competitive Service at an
Affordable Price – Innovative Solutions – Environmental Friendliness
• Truck’s Traditional Advantage is Eroding – Regulations & Rising Costs – Highway Congestion &
Infrastructure
• Capacity Available for Growth
Domestic Volume (Qtr-over-Qtr Volume Growth)
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q
1% 0%
2% 3%
6%
3%
1%
4%
2011 2012
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Investment Supports Intermodal Growth
Utilizing a systematic, structured approach to add capacity and improve service
Recent Intermodal Terminal Investments
5 New Terminals Completed 3 Terminal Expansions 1 New Terminal Under Construction 1 Interchange Gateway
Over $1.2 Billion Intermodal Terminal Investment since 2000
on
Terminal Investment since 2000
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2007 2008 2009 2010 2011 2012 2017
79.3 77.4
76.1
70.6 70.7
67.8 190
180
152
172 176.5 176
Raising the Bar – “Sub 65” Operating Ratio
Operating Ratio (Percent)
Sub-65
Now Targeting Sub 65% FY Operating
Ratio by 2017
Achieve high end of 2010
guidance sooner
than 2015
2010 Guidance: 65% - 67% FY Operating Ratio by 2015
7-Day Volume (000s)
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2008 2009 2010 2011 2012 2013 Est
$3.1
$2.5 $2.5
$3.2
$3.7 ~$3.6
10.2%
Capital Investments Supported by Returns
• Improved Profitability Drives Strong Cash Flow
• … Supports Investments that must meet high return hurdles
• … Supports Core Pricing that Drives Continued Investment
• Capital Spend to ~16% - 17% of Revenue for 2013 - 2017
ROIC*
Investments* & Returns** (Capital in Billions)
12.4%
** See Union Pacific website under Investors for a reconciliation to GAAP.
14.0%
New Locomotive Purchases/Leases
Base Capital
Positive Train Control
* Includes cash capital, leases and other non-cash capital.
$3.15(excl PTC)
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Future Allocation of Growing Cash
2013E – 2017E
Replacement Capital &
PTC
Return Driven Capital Dividend Growth Excess Cash to
Share Repurchase
Replacement Capital &
PTC
Cash Returns
Growth Capital
Cash Returns
2008 – 2012 ($24.5 Billion)
Growth Capital
2012
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Union Pacific – A Promising Future
• Market-Based Pricing at Reinvestible Levels
• Focus on Productivity, Efficiency, and Innovation
• Leverage Strengths of Diverse Franchise
• Invest to Strengthen and Enhance Network
• Drive Increased Profitability & Shareholder Returns
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BB&T Capital Markets Transportation Services Conference Question & Answer Session