1. UNION PACIFIC CORPORATION APRIL 18, 2013 Dan Ballantine & Keaton J. Cervantes

2. Agenda  Introduction  Macroeconomic Outlook  Industry Overview  Company Overview  Financial Analysis  Valuation  Recommendation

3. Union Pacific Corporation  Incorporated in 1862  Headquarters is located in Omaha, Nebraska  45,928 full-time employees (86% under union contract)  Operates 31,868 miles of track  Maintains a fleet of 8,391 locomotives  Provides rail service to 23 states throughout the Midwest, Western United States, and Mexico Source: Union Pacific 2012 10-K

4. Macroeconomic Outlook  Continued decline in coal shipments  Shale oil boom causes supply bottlenecks  Push to modernize fleets  End of drought brings increased agricultural shipments  Increased production in Mexico Source: Wall Street Journal

5. Macroeconomic Outlook  Keystone XL Pipeline  Intended to relieve the supply build-up in Midwest and Canada  Proposed route crosses the Ogallala Aquifer  Permit was denied on January 18, 2012 by President Obama Source: keystone-xl.com

6. Macroeconomic Outlook  Keystone XL Pipeline  Permit was denied based on possible environment consequences  Recent pipeline failure in Arkansas has reignited fears of environmental impact of pipeline  Approval is uncertain at the moment Source: Wall Street Journal

7. Macroeconomic Outlook  US-Mexico Rail Trade  Steadily increasing trade values in four major areas  Mexico Automotive Production:  Projected to increase 38% in the next three years due to higher labor costs in China Source: US DOT Federal Railroad Administration, Bloomberg

8. Industry Forces Analysis Rivalry: MEDIUM Buyers: MEDIUM Substitutes: HIGH Suppliers: HIGH New Entrants: LOW

9. Industry Forces Analysis  Bargaining Power of Suppliers: HIGH  Some inputs with no pricing power (fuel)  Low number of locomotive and rail suppliers  Bargaining Power of Buyers: MEDIUM  Relatively few industry competitors  High number of alternatives  Threat of New Entrants: LOW  Capital intensive business with high barriers to entry  Geographic specificity

10. Industry Forces Analysis  Threat of Substitutes: HIGH  Many alternatives to transporting goods including river barge, trucking, and pipeline  Rivalry among Competitors: MEDIUM  Limited companies in the industry  Limited direct competition due to geographic differences of the main industry players

11. Company Overview Source: Union Pacific Website

12. Company Overview  Freight Revenue (94%)  Agricultural  Automotive  Chemicals  Coal  Industrial Products  Intermodal  Other Revenue (6%) 2012 Freight Revenue Source: Union Pacific 2012 10-K

13. Company Overview  Positives  Revenue generated from chemical shipments (including oil) is up 20% in 2012  45% of revenue from Mexico is through automotive shipments  As the drought weakens, agricultural shipments will steadily increase  Increase in fuel costs partially offset by fuel surcharges  Issues  Year-over-year reduction in shipments of coal

14. Company Overview Source: Union Pacific 2012 10-K

15. Business Risk Analysis Fluctuating fuel costs Required to transport hazardous cargo Subject to government regulation Sensitive to general economic conditions Work stoppage due to unionized labor Vulnerable to political events

16. SWOT Analysis StrengthsWeaknesses -Excess cash reserves can allow UNP to upgrade fleet -Rail lines provide access to shale oil reserves -Strong operational efficiency -Largely unionized workforce may lead to work stoppages -Aging locomotive fleet OpportunitiesThreats -Continued growth in oil shipments -Upgrade fleet to be more fuel efficient -Increased trade between US and Mexico -Keystone XL approval -Economic downturn -Continual decline in coal shipments

17. Strategy  Invest in network of rail and locomotives by replacing existing equipment, in addition to compliance with Positive Train Control (PTC)  Increase the use of fuel surcharges to reduce vulnerability to rising fuel costs  More efficient locomotives  Increased shareholder returns through additional dividend raises and share repurchases Source: Union Pacific 2012 10-K

18. Management Outlook  Concern over decreased coal volume in 2013  Concerns over agricultural volume in the first half of 2013  Long-term acceptance of the Keystone XL pipeline  Additional investment in intermodal terminals  Additional growth opportunities through trade with Mexico  Target of sub-65% operating ratio by 2017 Source: Union Pacific Barclay’s Conference

19. Recent News  New CEO named in March 2012:  Previous CEO took a medical leave due to cancer  2012 marked Union Pacific’s 150 th year of existence  4Q 2012: record quarter profits in addition to most profitable year in company’s history  Record safety performance in 2012, despite a June 2012 collision of two Union Pacific trains in Goodwell, Oklahoma, killing three Source: Union Pacific Website News Releases

20. Recent Financial Information Source: Union Pacific 2012 10-K, 2010 10-K

21. Recent Financial Information Source: Union Pacific 3/5/13 Raymond James Presentation Operating Ratio

22. Current Stock Information Source: Capital IQ, Yahoo Finance MetricValue Current Stock Price $136.94 Trailing P/E 16.56 Forward P/E 14.58 Dividend Yield 2.02% Market Cap ($ millions) $64,142.7

23. Financial Analysis

25. Comparable Companies Source: Capital IQ Company Revenue ($ millions) Market Cap ($ millions) Miles of Track Revenue/ Track Miles Canadian National Railway Company $9,788$41,69720,100$486,970 Canadian Pacific Railway Limited $5,619$21,644.614,400$390,229 CSX Corp.$11,756$25,03821,000$559,809 Kansas City Southern$2,239$11,8766,300$355,333 Norfolk Southern Corp $11,040$24,15620,000$552,000 Union Pacific Corporation $20,926$66,17031,868$656,646

26. Stock Performance Source: Yahoo Finance

27. Comparable Company Analysis Source: Capital IQ

28. Comparable Company Analysis Source: Capital IQ

29. Discount Rate

31. DCF Analysis

32. Decision Drivers  Strengths  Improved operating ratio and efficiency  Short-term growth in oil transportation in addition to longer-term growth in Mexico  Management’s plan to return cash to shareholders  GICS Diversification  Concerns  Sensitivity to approval of Keystone XL pipeline  Declining demand for coal

33. Recommendation  Valuation Summary  Current Stock Price: $136.94 per share  Comparable Companies Valuation: $162.91 per share  DCF Valuation: $152.19 per share  Recommendation: BUY  Buy 100 shares at current market price  100 shares at current market price = $13,694

34. Questions?