UNION PACIFIC CORPORATIONAPRIL 18, 2013

Dan Ballantine & Keaton J. Cervantes

Agenda

Introduction Macroeconomic Outlook Industry Overview Company Overview Financial Analysis Valuation Recommendation

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

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

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

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

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

Industry Forces Analysis

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

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

Company Overview

Source: Union Pacific Website

Company Overview

Freight Revenue (94%) Agricultural Automotive Chemicals Coal Industrial Products Intermodal

Other Revenue (6%)

2012 Freight Revenue

Source: Union Pacific 2012 10-K

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

Company Overview

Source: Union Pacific 2012 10-K

Business Risk Analysis

SWOT Analysis

Strengths Weaknesses

- 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

Opportunities Threats

- 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

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

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

Recent News

New CEO named in March 2012: Previous CEO took a medical leave due to cancer

2012 marked Union Pacific’s 150th 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

Recent Financial Information

Source: Union Pacific 2012 10-K, 2010 10-K

Recent Financial Information

Source: Union Pacific 3/5/13 Raymond James Presentation

Operating Ratio

Current Stock Information

Source: Capital IQ, Yahoo Finance

Metric Value

Current Stock Price $136.94

Trailing P/E16.56

Forward P/E 14.58

Dividend Yield 2.02%

Market Cap($ millions)

$64,142.7

Financial Analysis

2008 2009 2010 2011 2012Current Ratio 0.98 1.37 1.16 1.12 1.16 Quick Ratio 0.36 0.43 0.58 0.61 0.64 Cash Ratio 0.43 0.69 0.37 0.37 0.34

2008 2009 2010 2011 2012Operating Profit Margin 22.68% 23.98% 29.36% 29.27% 32.23%Net Margin 13.01% 13.42% 16.39% 16.83% 18.84%ROA 6.01% 4.62% 6.50% 7.47% 8.55%ROE (Book Value) 15.07% 11.72% 16.02% 18.12% 20.51%

2008 2009 2010 2011 2012Debt/Assets 0.22 0.23 0.21 0.20 0.19 Debt/Equity 0.58 0.58 0.52 0.48 0.45 Interest Coverage 7.97 5.65 8.27 10.01 12.61

Liquidity Ratios

Profitability Ratios

Solvency Ratios

Financial Analysis

2008 2009 2010 2011 2012A/R Turnover 29.31 22.45 18.34 15.13 15.32 Days Sales Outstanding 12.45 16.26 19.90 24.12 23.83 Fixed Asset Turnover 0.51 0.39 0.45 0.50 0.51 Total Asset Turnover 0.46 0.34 0.40 0.44 0.45

2008 2009 2010 2011 2012Tax Burden 65.60% 67.98% 63.48% 63.90% 63.49%Interest Burden 87.46% 82.31% 87.91% 90.01% 92.07%Operating Profit Margin 22.68% 23.98% 29.36% 29.27% 32.23%Asset Turnover 45.24% 33.35% 39.37% 43.37% 44.38%Leverage 2.57 2.50 2.43 2.43 2.37 ROE 15.14% 11.20% 15.65% 17.72% 19.84%

Activity Ratios

DuPont Analysis

Comparable Companies

Source: Capital IQ

CompanyRevenue ($ millions)

Market Cap ($ millions)

Miles of Track

Revenue/ Track Miles

Canadian National Railway Company

$9,788 $41,697 20,100 $486,970

Canadian Pacific Railway Limited

$5,619 $21,644.6 14,400 $390,229

CSX Corp. $11,756 $25,038 21,000 $559,809

Kansas City Southern

$2,239 $11,876 6,300 $355,333

Norfolk Southern Corp

$11,040 $24,156 20,000 $552,000

Union Pacific Corporation

$20,926 $66,170 31,868 $656,646

Stock Performance

Source: Yahoo Finance

Comparable Company Analysis

Source: Capital IQ

Target CompanyTicker Symbol (Exchange)

Price/Book Value

Forward TEV/Sales

Forward TEV/EBITDA Forward P/E

Union Pacific Corporation UNP (NYSE) 3.40x 3.36x 8.00x 15.04

Comparable CompaniesCanadian National Railway Company CNR (TSX) 3.90x 4.61x 9.90x 16.22 Canadian Pacific Railway Limited CP (TSX) 4.40x 4.25x 11.40x 20.35 CSX Corp. CSX (NYSE) 2.80x 2.81x 7.30x 13.69 Kansas City Southern KSU (NYSE) 3.90x 5.60x 13.90x 26.10 Norfolk Southern Corp. NSC (NYSE) 2.50x 2.85x 7.80x 13.82

Comparable StatisticsHigh 4.40x 5.60x 13.90x 26.10 Median 3.90x 4.25x 9.90x 16.22 Low 2.50x 2.81x 7.30x 13.69 Mean 3.50x 4.02x 10.06x 18.04

Comparable Company Analysis

Source: Capital IQ

Multiple Low Median High MeanPrice/Book Value 103.68$ 161.73$ 182.47$ 145.15$ Forward TEV/Sales 110.83$ 178.63$ 242.19$ 167.99$ Forward TEV/EBITDA 122.88$ 174.30$ 253.40$ 177.46$ Forward P/E 128.59$ 152.35$ 245.16$ 169.41$

Implied UNP Share Price

Multiple Weight Implied UNP Stock Price

Price/Book Value 30% 145.15$ Forward TEV/Sales 30% 167.99$ Forward TEV/EBITDA 15% 177.46$ Forward P/E 25% 169.41$

UNP Implied Stock Price 162.91$

Discount Rate

CAPM

Risk-Free Rate 3.12%Market Risk Premium 6.00%5-Year Beta 0.74

CAPM Cost of Equity 7.53%

Year Actual1 33.55%2 13.93%3 29.44%4 66.00%5 -27.50%

Total Realized Return 137.03%

Arithmetic Annual Return 23.08%Geometric Annual Return 18.84%

Annual Realized Returns

Discount Rate

Share Price 141.27$ Shares Outstanding (millions) 468.40 Market Value of Equity 66,170.87$

Debt 8,997.00

Percent Equity Weight 88.03%Percent Debt Weight 11.97%

Cost of Debt 5.95%Cost of Equity

CAPM Cost of Equity 7.53% 60.00%UNP Realized Return 18.84% 40.00%

Cost of Equity 12.05%

Tax Rate 38.0%

WACC 11.05%

Weighted Average Cost of Capital

Cost of Equity Weightings

DCF Analysis

2013E 2014E 2015E 2016E 2017E Terminal ValueNet Income 4,671 5,483 6,149 7,057 8,152 Depreciation 1,869 1,836 1,924 2,014 1,925 Capital Expenditures (3,600) (3,700) (3,800) (3,500) (2,300) Changes in Net Working Capital

Less Increases in A/R (101) (139) (138) (120) (19) Less Increases in Inventories (104) (103) (79) (70) (93) Plus Increases in A/P 418 451 481 468 434

Free Cash Flow 3,153 3,828 4,537 5,849 8,098 103,578 Present Value 2,839 3,104 3,312 3,846 4,794 61,322

Discount Rate 11.05%

Calculation of Implied Share Price Terminal ValueImplied Enterprise Value 79,218$ Terminal Growth Rate 3.00%Less Debt (8,997)$ Plus Cash 1,063$ Implied Market Cap 71,284$

Implied Share Price 152.19$

Union Pacific Corporation Discounted Cash Flow Analysis ($ millions)

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

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

Questions?