UNION PACIFIC CORPORATION OCTOBER 24, 2013 Alex Johansson, Dan Kleeman & Qianwen Wu

Agenda  Introduction  Macroeconomic Outlook  Industry Overview  Company Overview  Earnings Report  Financial Analysis  Valuation  Recommendation

Macroeconomic Outlook  Increasing Growth of Shale Sands  Emerging Market in South  Inbound – Frac Sand & Pipe  Outbound – Crude Oil  Increasing U.S. Population Base  Stimulate Long-Term Growth Source: K (Pg. 2)

Macroeconomic Outlook  Keystone XL Pipeline  Proposed Pipeline to Relieve Bottleneck Supply in Canada  Numerous Environmental Concerns  Recent News  Permit Denied January 2013  Increasing Doubt of Completion  No Decision Probably Till 2014 Source: Wall Street Journal

Macroeconomic Outlook Industry Catalysts  Automotive  Largest Automotive Carrier West of the Mississippi  Chemical – Shale Commodity Group  Emerging Market – Offsets Decreased Coal Growth  Coal  Coal Made Up 20% of 2012 Revenues  Decreased Growth Domestically – EPA & President Obama Proposals  Indirect Growth Relationship w/Natural Gas Prices  Decreased Growth In Imports To China  We Proposed Minimal Growth In Our Model Source: Wall Street Journal, K (Pg. 5 &23)

Industry Forces Analysis Rivalry: MEDIUM Buyers Power: MEDIUM Substitutes: HIGH Threats of Entrants: LOW Suppliers Power: HIGH

Industry Forces Analysis  Threat of Substitutes: High  Other Alternatives Include Transportation Via: River Barge, Trucking & Pipeline (Keystone XL)  Bargaining Power of Buyers: Medium  Few Competitors  Many Alternatives  Threat of New Entrants: Low  Very Capital Intensive  High Barriers of Entrance  Geographic specificity

Industry Forces Analysis  Bargaining Power of Suppliers: High  Very Little Pricing Power Over Fuel  Few Suppliers of Trains and Rail Supplies  Switching Cost May Be High  Rivalry among Competitors: Medium  Limited Amount of Competitors  Specific to Service & Geographic Region

Comparison between Dow Jones Railroad Index and S&P 500 Source: Google Finance

Company Overview Source: Union Pacific Website

Company Overview – Commodity Group Breakdown  Agricultural - Grains, Food & Beverage  Revenue Decrease 2%  Volume Decrease 4% With 2% Increase in Average Revenue/ Car  Coal - Coal & Petroleum Coke  Revenue Increase 2%  Volume Decrease 8% With 10% Increase in Average Revenue/Car  Intermodal - International and Domestic Container Traffic  Revenue Flat & Volume Decrease 1% With 2% Increase in Average Revenue/Car Source: rd Quarter 10-Q (Pg. 23)

Company Overview – Commodity Group Breakdown  Chemical - Petrochemical, Shale & Fertilizer  Revenue Increase 5%  Volume Decrease 3% With 2% Increase in Average Revenue/Car  Industrial Products - Construction Products, Metals, Minerals, Paper Consumer Goods, Etc.  Revenue Increase11%  Volume Increase 9% With 2% Increase in Average Revenue/Car  Automotive - Finished Vehicles & Automotive Parts  Revenue Increase 17%  Volume Increase 8% With 9% Increase in Average Revenue/Car Source: rd Quarter 10-Q (Pg. 23)

Company Overview – Revenue Breakdown  9 Months Ended September 2013 % of Revenue 2013% of Revenue 2012 Agricultural15%17% Automotive10%9% Chemicals17%16% Coal19%20% Industrial Products19%18% Intermodal20% Source: K (Pg. 5), Q (Pg. 8)

Business Risk Analysis Source: Union Pacific K (Pg. 6 & 11)  Seasonality  Agricultural Product (Harvesting Seasons) and Intermodal (Peaks During 4 th Quarter Holiday Season)  Competition  Other Railroads, Motor Carriers, Ship and Barge Operators and XL Keystone Pipeline  Fluctuation of Fuel Cost  Minimal Pricing Power - Fuel Surcharge vs. Busines  Key Suppliers  2 Suppliers For Horsepower Locomotive & Rail Purchases

Business Risk Analysis  Union Workers  86% of Employees Are Members of One of 14 Major Rail Unions  Dependence on Technology  Maintain Newest Technology vs. Competitors  Railroad Security  Required to Transport Hazardous Materials  Environmental Regulation  Significant Costs to Investigate and Mitigate Environmental Contamination  Weather Changes Source: K (Pg. 6, 7, 8, 10)

SWOT Analysis StrengthsWeaknesses -Industry Leader -Diversified End Markets -Strong & Efficient Networks -Unionized Workers -High Bargaining Power of Suppliers (2 Suppliers) -$716M Underfunded Pension OpportunitiesThreats -Growth of Shale Market -Investment in New Technology & Equipment (PTC) -Increasing U.S. Population Base (Long-Term) -Substitutes (XL Pipeline, Barges) -Cannot Maintain Pricing Power -Governmental Regulations Source: Marketline UNP Report

Strategy Focusing on Creating Value for Our Customers By Providing Safe, Efficient and Reliable Services.  Continued Capital Investment to Support Long-Term Functionality  Expand Network in the South  Increase Shale Related Presence  Maintain a Diverse Franchise of Operations Source: Union Pacific Q (Pg. 15), K (Pg. 2)

Management Outlook  Positive  2012 Performance Reaches All-Time High  Diversified Portfolio of Business Providing Hedging Against Each Other  Invest Intensively in Technology and Equipment Enhancement  Growth in the Southern Region of the Network (Shale- Related Energy Arena)  Increase in U.S. Population Base  Concerns  Fuel Price Fluctuation Source: rd Quarter 10-Q (Pg. 15, 22), K (Pg. 2)

Recent News – Earnings Report  Earnings Report – October 17, 2013  Record Quarterly Earnings of $2.48/Share From $ nd Quarter  Net Income Increased to $1.2B From $1.0B  Dividend Declared $0.79/Share  Record Quarterly Operating Margin of 64.8%  Flat Volumes With Increase in Core Pricing Power Source: Union Pacific Website News Releases

Recent Financial Information Source: Union Pacific K (Pg. 20)

Recent Financial Information Source: Union Pacific K (Pg. 20)

Current Stock Information Source: Yahoo Finance MetricValue Current Stock Price $ Trailing P/E Forward P/E Dividend Yield 2.00% Market Cap ($ millions) $71.52B

Financial Analysis Source: Capital IQ

Financial Analysis Source: Capital IQ

Stock Performance Source: Yahoo Finance

Comparable Company Analysis Source: Capital IQ

Comparable Company Analysis Source: Capital IQ

Discount Rate Source: Capital IQ

Discount Rate Source: Capital IQ

DCF Analysis

Decision Drivers  Strengths  Record Operating Margin of 65%  Record Quarterly Earnings of $2.48/Share & Record Quarterly Dividend of $0.78/Share  Industry Diversification – Growth of Shale  Automobile Industry Resurgence  Concerns  Decrease in Coal Growth  Crude Oil Fluctuations Source: Union Pacific Website News Releases, K (Pg. 2)

Recommendation  Valuation Summary  Current Stock Price: $ Per Share  Comparable Companies Valuation: $ Per Share  DCF Valuation: $ per share  Recommendation: HOLD  Diversified Competitive Position  Stock is Fully Valued  Positive Macroeconomic Outlook

Questions?