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1 Deutsche Bank Global Industrials & Basic Materials Conference Rob Knight, CFO June 13, 2012 2 Cautionary Information This presentation and related materials contain statements about the Corporation’s future that are not statements of historical fact, including specifically the Corporation’s outlook regarding: economic conditions and growth opportunities; future safety and operating performance; future capital investments; and its ability to generate volume leverage, increase returns to shareholders, and attract new business. 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 2011, which was filed with the SEC on February 3, 2012. 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.
Transcript
Page 1: Deutsche Bank Global Industrials & Basic Materials Conference · 2012. 6. 12. · 1 1 Deutsche Bank Global Industrials & Basic Materials Conference Rob Knight, CFO – June 13, 2012

1

1

Deutsche Bank Global Industrials & Basic Materials Conference

Rob Knight, CFO – June 13, 2012

2

Cautionary Information

This presentation and related materials contain statements about the Corporation’s future that are not

statements of historical fact, including specifically the Corporation’s outlook regarding: economic conditions and growth

opportunities; future safety and operating performance; future capital investments; and its ability to generate volume

leverage, increase returns to shareholders, and attract new business. 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 2011, which was filed with the SEC on February 3, 2012. 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.

Page 2: Deutsche Bank Global Industrials & Basic Materials Conference · 2012. 6. 12. · 1 1 Deutsche Bank Global Industrials & Basic Materials Conference Rob Knight, CFO – June 13, 2012

2

3

81.6 79.3

76.1

70.6 70.7

$1.90

$2.94 $3.44

$4.53

$3.74

$5.53

$6.72

Financial Trends

EPS Operating Ratio (%)

7 Day Volume

6.4%

8.2% 8.8%

10.2%

8.2%

10.8%

12.4% ROIC (%)*

86.9

2006 2007 2008 2009 2010 2011 2005 2006 2007 2008 2009 2010 2011 2005

2006 2007 2008 2009 2010 2011 2005

Free Cash Flow*

$0.2

$0.5 $0.5

$0.8 $0.7

$1.4

$1.9 (billions)

2006 2007 2008 2009 2010 2011 2005

* See Union Pacific website under Investors for a reconciliation to GAAP.

77.4

4

2010 2011 2012

$1.01

$1.29

$1.79

Best-Ever First

Quarter

First Quarter 2012 Results

+39%

Earnings Per Share Positives

• First Quarter Records

– Operating Revenue*

– Operating Income

– Operating Ratio

– Earnings

– Safety*

– Customer Satisfaction*

• Franchise Diversity

Challenges

• Coal Volumes

* Best-ever Quarterly Record 2010 2011 2012

75.1 74.7

70.5

Operating Ratio (%)

Best-Ever First

Quarter

(4.2) pts

Page 3: Deutsche Bank Global Industrials & Basic Materials Conference · 2012. 6. 12. · 1 1 Deutsche Bank Global Industrials & Basic Materials Conference Rob Knight, CFO – June 13, 2012

3

5

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

To/From

Asia

To/From

Asia

To Europe,

South America

and Africa

Industrial

16%

Agricultural

19%

Chemicals

15%

Eagle Pass

Laredo

Dallas

Eastport

Intermodal

20%

Energy

22% Autos 8%

Industrial

17%

Agricultural

18%

Chemicals

15%

Freight Revenue FY 2011 of $18.5B

• Diverse Business Mix

• Fastest Growing States

• Broad Port Access

• Interchange Traffic & Border Crossings

The Strength of a Unique Franchise

6

Mexico Opportunities Strong Investments – Foreign and Domestic

*Estimation by Mexico’s Secretary of Economy

Ferromex (FXE)

KCSM

Ferrosur (FSRR)

UP Interchange Points

New Industrial Investment

2005 2006 2007 2008 2009 2010 2011

708 764 776 743

600

750 817

Volume Growth (Carloads in Thousands)

7% Volume Growth

in 1Q 2012

+9%

Ports

Recent Announcements

from Audi & Unilever

~ $2.5B Investment*

Page 4: Deutsche Bank Global Industrials & Basic Materials Conference · 2012. 6. 12. · 1 1 Deutsche Bank Global Industrials & Basic Materials Conference Rob Knight, CFO – June 13, 2012

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7

Coal Trends

Southern Powder River Basin

74%

Other 13%

28,000

32,000

36,000

40,000

44,000

48,000

Volume Impact (Weekly Carloadings)

1Q 4Q

2011

2Q 3Q

– Mild Winter Weather

– Low Natural Gas Prices

– 1Q 2012 Contract Losses

+ New Business in 2012

+ Higher Export Volumes

45

50

55

60

65

70

75

80

85

20

25

30

35

40

45

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May

Inventory

Inventory

(days)

2011

Southern Powder River Basin (Trains Per Day and Monthly Inventory Days*)

2012

(through

June 9)

2012

SPRB

Trains/Day

*Energy Ventures Analysis, Inc.

8

5,000

7,000

9,000

11,000

13,000

15,000

17,000 Automotive

2010

Jan Dec

2011

2009

2012

• Continued Growth in

Shale Crude Oil

• Lower Fertilizer

Volumes

• Continued Growth in

U.S. Auto Sales

• Aging Vehicles

• Drilling Demand

Drives Non-Metallic

Minerals and Steel

• Iron Ore Exports to

China

7 Day Volume Trends Through May 31, 2012

12,000

14,000

16,000

18,000

20,000

22,000 Chemicals

2010

Jan Dec

2011

2009

15,000

17,000

19,000

21,000

23,000

25,000 Industrial Products

2010

Jan Dec

2011

2009

2012

2012

2012 YTD up 15% 2012 YTD up 9% 2012 YTD up 9%

Page 5: Deutsche Bank Global Industrials & Basic Materials Conference · 2012. 6. 12. · 1 1 Deutsche Bank Global Industrials & Basic Materials Conference Rob Knight, CFO – June 13, 2012

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9

2012 YTD Volume Drivers Through May 31, 2012

Shale Related

Vehicles & Parts

Domestic Imdl

Ind Chem & Plastics

Wheat Hazard Waste

Coal Other

40 33

11

(16) (18)

(103)

26

Petroleum

Nonmetallic Minerals

Carload Growth vs. 2011 55 YTD Volumes (000s):

2012 3,701

2011 3,673

Variance 28

10

North American Shale Plays

Page 6: Deutsche Bank Global Industrials & Basic Materials Conference · 2012. 6. 12. · 1 1 Deutsche Bank Global Industrials & Basic Materials Conference Rob Knight, CFO – June 13, 2012

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11

Global Demand for Energy

Integrated Strategy

• Crude Oil

• Frac Sand

• Minerals

• Steel

• Pipe

0

200

400

600

2010 2011 2012 2013 2014 2015

Crude Sand/Minerals Pipe

Potential Volume Growth (Carloads In Thousands)

12

St. James

Livonia

US Development Group

• Current phase of expansion completed in

4Q 2011.

• Total off-loading capacity: 130,000 bpd

• Connected to storage terminal (7MM

barrel capacity) and pipeline network

NuStar Energy / EOG Resources

• Expansion completion by 2Q 2012

• Total off-loading capacity after

completion: 100,000 bpd

• Storage Capacity: 8MM barrels

Leveraging the Franchise Louisiana – Growth

Customer Facilities

Crude Oil Facilities

Plant Expansions / New Facilities

Shintech

(Expansions)

Georgia Gulf

(Expansion)

SNF Holding Co.

(New Facility)

New Orleans

Petroplex International LLC

• Recently announced new $600MM oil-

storage terminal in St. James

• Capacity of 4 – 6MM barrels

• Operational in 2014

Page 7: Deutsche Bank Global Industrials & Basic Materials Conference · 2012. 6. 12. · 1 1 Deutsche Bank Global Industrials & Basic Materials Conference Rob Knight, CFO – June 13, 2012

7

13

Fuel Cost Comparisons 1st Quarter 2012

$/MMBTU*

U.S. Chemical Cost Advantage Driving Global Competitiveness

*Brent Oil Price converted at the energy content basis (6.02 barrels per MMBTU)

Source: U.S. Energy Information Administration; IHS Chemical; McKinsey

Brent Crude U.S. Natural Gas

$19.79

$2.44 0%

50%

100%

North America

Middle East

South America

Europe Russia Asia

Natural Gas Crude

2011 Global Feedstock Sources

14

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

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

Page 8: Deutsche Bank Global Industrials & Basic Materials Conference · 2012. 6. 12. · 1 1 Deutsche Bank Global Industrials & Basic Materials Conference Rob Knight, CFO – June 13, 2012

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15

2012 YTD* up 2%

45,000

49,000

53,000

57,000

61,000

65,000

69,000

73,000

Intermodal Trends

• Growing Domestic

Volumes & Highway

Conversions

• Lower International

Volumes

Domestic & International (Year-over-Year Volume Growth)

UP Intermodal Volumes (7 Day)

Jan Dec

2010

2011

2009

1Q11 2Q11 3Q11 4Q11 1Q12

1% 0% 2%

3%

6% 6%

-2%

-12%

-7%

-3%

International

Domestic

*Through May 31, 2012

16

Panama Canal Impact Seattle/

Tacoma

14 Days*

LA/Long

Beach

13 Days*

NJ/ NY

27 Days*

Norfolk

28 Days*

Savannah

29 Days*

Favors

West

Coast

Coast

Neutral

Favors

East

Coast

Panama

Canal *Average transit days from Shanghai

• Most Freight Favors the West Coast

– Time-Sensitive Freight

• Cost of Panama Canal Expansion

• East Coast Investments Required

Page 9: Deutsche Bank Global Industrials & Basic Materials Conference · 2012. 6. 12. · 1 1 Deutsche Bank Global Industrials & Basic Materials Conference Rob Knight, CFO – June 13, 2012

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17

Housing Trends

Lumber, Stone & Glass

*Through May 31, 2012

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

2004 2012* 2006 2008 2010

UP Wkly Housing Carloadings

Housing Starts (mils) • Housing represents ~7%

of current UP volumes

• Lumber, Stone & Glass down 3,500 carloads a week, a 2% total volume growth opportunity

• Including Chemicals & Intermodal, total volume growth opportunity could be 6 - 7%

18

Pricing Gains and Opportunities

2007 2008 2009 2010 2011 1Q2012

6.0% 6.0%

4.5%

5.0%

4.5%

5.0%

Core Pricing Gains

2013 $350M 2015+

$500M

2014 $100M

*Based on freight revenue for 12-months ended December 31, 2010

Remaining Legacy*

Coal ~85%

All Other ~15%

Legacy Contracts as of Jan 2012 ($950 Million Remaining)*

Page 10: Deutsche Bank Global Industrials & Basic Materials Conference · 2012. 6. 12. · 1 1 Deutsche Bank Global Industrials & Basic Materials Conference Rob Knight, CFO – June 13, 2012

10

19

2006 2007 2008 2009 2010 2011 2015E

81.6

79.3 77.4

76.1

70.6 70.7 192 190

180

152

172

177

Operating Ratio Trend

Operating Ratio (Percent)

7-Day Volume (000s)

65 - 67

Targeting a 65% to 67%

Full Year Operating

Ratio by 2015

11 point improvement from 2006 to 2011

Fuel Price

20

2012 Capital Plan Replacement, Growth & Productivity

• Safe and Resilient

Infrastructure

• Increased Capacity

Spending

– Santa Teresa Facility

– Southern Region Projects

• 200 New Locomotives

• Increased PTC Spend

$3.6+ Billion Capital Plan (In Millions)

Infrastructure Replacement

$1,670

Locomotives/ Equipment $845

(purchases and upgrades)

Capacity/ Commercial

Facilities $600

Technology

$100

PTC $335

Growth and Productivity Replacement PTC

$625

$220

Other

$50

Page 11: Deutsche Bank Global Industrials & Basic Materials Conference · 2012. 6. 12. · 1 1 Deutsche Bank Global Industrials & Basic Materials Conference Rob Knight, CFO – June 13, 2012

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21

2005 2006 2007 2008 2009 2010 2011 2012

$2.8 $2.7

$3.0 $3.1

$2.5 $2.5

$3.2

~$3.6

6.4%

8.2% 8.8%

10.2%

8.2%

10.8%

12.4%

Investments and Returns

Total Capital Spending* (In Billions)

* Includes cash capital, leases and other non-cash capital. ** See Union Pacific website under Investors for a reconciliation to GAAP.

Return on Invested Capital**

PTC

22

2007 2008 2009 2010 2011

2007 2008 2009 2010 2011 1Q12

25.3

47.5 47.5

64.1

78.9 82.7

Delivering Value to Shareholders

Cumulative Share Repurchases (millions)

• Declared Dividend Increase of 58% in 2011

‒ Currently @ $2.40 per share on Annualized Basis

‒ Targeted Declared Payout Ratio of 30%

• Opportunistic Share Repurchases

‒ $1.4 Billion in 2011

‒ $433 Million in 1Q 2012

• Combined Cash returned to shareholders since 2007 = $9.2B

Annual Dividends

$0.75 $0.98 $1.08 31%

$1.31 21%

47%

10%

$1.93

Page 12: Deutsche Bank Global Industrials & Basic Materials Conference · 2012. 6. 12. · 1 1 Deutsche Bank Global Industrials & Basic Materials Conference Rob Knight, CFO – June 13, 2012

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23

Total Shareholder Return

Average Annual Total Return*

Time Frame** UP S&P 500

15 Yrs 10.1% 4.8%

10 Yrs 15.5% 4.6%

5 Yrs 15.7% (0.4%)

3 Yrs 29.4% 14.5%

1 Yr 13.3% 5.9%

* Assumes dividends are reinvested in company stock

** Periods ending June 8, 2012

24

Positioned for Success

• Growth Opportunities Despite Coal Headwinds

• Second Quarter 2012

– Record 2Q Earnings

– Strong Incremental Margin Consistent with First Quarter

– Sub-70 Operating Ratio

• Targeting Record FY 2012 Earnings and Operating Ratio

• Confidence in Strategy

– Increase Customer and Shareholder Value

– Enable Continued, Strategic Investments


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