Fourth Quarter Results Donald W. Seale Executive Vice President and Chief Marketing Officer 1
Railway Operating Revenue Fourth Quarter vs. 2013 Components of Revenue Change $ in Millions Revenue $2,881 ($69) $103 $2,870 ($45) $2.9 Billion, flat RPU $1,489, down (4%) 4Q 2013 Mix/Price Fuel Volume 4Q 4Q Revenue $ in Millions & y-o-y Percent Change Volume 1,928,200 units, up 4% Intermodal $649 +5% Coal $543 (15%) Merchandise $1,678 +3% 2
Railway Volume Fourth Quarter vs. 2013 Total volume up 4% Coal down (6%) Weak shipments across most markets, with (6%) decline in Utility volume and (25%) decline in Export volume 2,000 4Q Volume (000 s) & y-o-y Percent Change Coal 1,862.0 (6%) 1,928.2 Intermodal up 6% Gains in Domestic and International markets 1,500 1,000 Intermodal +6% Merchandise up 5% Gains in Metals & Construction and Chemicals offsetting losses in Agriculture and Paper & Forest Products 500 0 Merchandise 4Q 2013 4Q +5% 3
Coal Market Fourth Quarter vs. 2013 Revenue: $543 Million, down (15%) RPU: $1,799, down (10%) Drivers Utility Lower natural gas prices and reduced coal plant burn Export Weakened demand in a well-supplied global marketplace, with continued weak seaborne coal prices and a weaker Australian dollar Domestic Met Customer-specific gains in coke volumes Industrial New business opportunities offset by declines of anthracite and petcoke Units (000 s) 250 200 150 100 50 0 193.5 Percent of Total 4Q Volume Export 14% Dom Met 15% Ind 7% Utility 64% Weak shipments in utility and export markets 43.3 46.0 19.3 Utility Export Dom Met Ind (6%) (25%) 13% 0% 4
Intermodal Market Fourth Quarter vs. 2013 Revenue: $649 Million, up 5% RPU: $662, down (1%) Drivers Domestic Gains due to highway conversions, strategic corridor projects, and growth in key accounts International Gains due to customer awards and new services Units (000 s) 700 600 500 400 300 200 100 0 Percent of Total 4Q Volume 654.5 International 33% Domestic 67% Overall volume gain of 6% 324.8 Domestic International 4% 10% 5
Merchandise Market Fourth Quarter vs. 2013 Revenue: $1.7 Billion, up 3% RPU: $2,594, down (1%) Drivers MetCon Increased volumes of frac sand, iron and steel, and aggregates Agriculture Soybean volumes constrained by network velocity, partially offset by increased corn shipments Chemicals Growth in crude by rail and NGLs Units (000 s) 200 150 100 180.0 Percent of Total 4Q Volume Auto 16% 155.0 Chem 20% Paper 12% MetCon 28% Ag 24% Strength in Metals & Construction and 132.7 Chemicals 103.7 75.4 Automotive Downtime and model changeover at key NS-served plants Paper Gains of wood products offset by declines in graphic paper and municipal solid waste 50 0 MetCon Ag Chem Auto Paper 12% (3%) 14% 0% (2%) 6
Fuel Surcharge $120 Monthly WTI Price for FSC (2 month lag) $100 $80 $60 $40 Fuel Surcharge Programs 85%+ of revenue contains fuel surcharges 2/3 WTI based / Dominant trigger price $64 bbl. 1/3 OH Diesel based 7
Business Outlook COAL Utility coal demand weakened by lower natural gas prices as well as MATS implementation Continued strong competition in the global metallurgical and thermal markets strong US dollar Weaker domestic met volumes related to customer sourcing shifts Industrial coal volumes impacted by natural gas conversions INTERMODAL Focus on opportunities for highway conversions Continued growth with strategic corridor projects Growth from International customer awards and new service lanes Increased consumer spending MERCHANDISE Strength in crude oil shipments to East Coast refiners offset by negative impact of low oil prices Growth of NGLs along with drilling inputs such as frac sand Strength in automotive sector benefiting vehicles and steel Improved construction activity driving growth in aggregates, asphalt, lumber and steel Strong corn and soybean crops 8
9 Thank You
Fourth Quarter Results Mark Manion Executive Vice President and Chief Operating Officer
Safety Performance 2009 * 3.2 1.10 3.5 0.89 4.2 0.75 0.83 3.8 1.18 3.6 1.20 3.9 1.21 3.7 2.6 2.3 2.1 1.8 2.4 2.4 2.9 1.5 Reportable Personal Injuries (Per 200,000 Employee-Hours) Train Incidents (Per Million Train Miles) 3.0 1.0 2.0 0.5 1.0 0.0 6 4 2 2009 2010 2011 2012 2013 12 Mos Crossing Accidents (Per Million Train Miles) 4th Qtr 0.0 2009 2010 2011 2012 2013 12 Mos 4th Qtr Injury rate down over the course of the year, but slightly up in overall. Train Incident rates increased. Grade Crossing Accident rate is up slightly for the year with a modest improvement in fourth quarter. 0 2009 2010 2011 2012 2013 12 Mos 4th Qtr 2 * Based on preliminary data
Composite Service Performance 2009-90% 85% 81.0% 83.1% 83.3% 2012 80% 76.7% 75.9% 75% 70% 69.9% 67.3% 65% 60% 62.8% 61.6% 59.3% 55% 50% 2009 2010 2011 2012 2013 12 Mos 4th Qtr Oct Nov Dec 3
Miles per Hour Train Speed 2009 - Better 28 26 23.9 23.9 24 23.1 22 21.5 21.2 21.2 20.6 20 19.7 19.3 19.3 18 16 2009 2010 2011 2012 2013 12 Mos 4th Qtr Oct Nov Dec 4
Average Hours Terminal Dwell 2009 - Better 32 30 29.7 29.1 30.9 29.2 28 26.0 26 24.4 24.5 24 22 22.4 21.6 21.6 20 18 16 2009 2010 2011 2012 2013 12 Mos 4th Qtr Oct Nov Dec 5
Operating Efficiencies 4 th Quarter and Full Year vs. 2013 4 th Quarter Volume + 4 % + 5 % Crew Starts 0 % - 1 % T & E Service Overtime Hours + 34 % + 23 % Carloads/Units per Locomotive - 4 % 0 % Diesel Gallons/KGTM - 3 % - 2 % 6
7 Thank You
Financial Results 2015 Capital Plan Marta R. Stewart Executive Vice President Finance and Chief Financial Officer 1
Operating Results Fourth Quarter vs. 2013 ($ millions) Record fourth-quarter Income from Railway Operations. Favorable (Unfavorable) 2013 $ % Railway operating revenues $ 2,870 $ 2,881 $ (11) - % Railway operating expenses 1,979 2,000 21 1% Income from railway operations $ 891 $ 881 $ 10 1% Railway operating ratio 69.0 69.4 0.4 1% 2
Railway Operating Expenses Fourth Quarter vs. 2013 ($ millions) Net decrease of $21 / 1%. $56 $47 $46 $29 $7 $2,000 $1,979 2013 Fuel Compensation Purchased Materials & Benefits Svcs & Rents & Other Depreciation 3
Fuel Fourth Quarter vs. 2013 ($ millions) Net decrease of $56 / 14%. $63 $12 $5 $403 $347 2013 Price* Consumption* Other Fuel 17% +3% *% reflects locomotive fuel only 4
Compensation and Benefits Fourth Quarter vs. 2013 ($ millions) Net decrease of $47 / 6%. Lower post-retirement, pension and health and welfare costs Lower incentive compensation Increased pay rates $761 $714 Increased overtime Temporary transfer program costs 2013 5
Purchased Services and Rents Fourth Quarter vs. 2013 ($ millions) Net increase of $46 / 11%. Higher volume-related costs: Intermodal operations Equipment rents Joint facilities Slower network velocity $406 $452 2013 6
Materials and Other Fourth Quarter vs. 2013 ($ millions) Net increase of $29 / 15%. Less favorable personal injury adjustment Higher materials expenses Higher T&E travel and temporary housing costs $197 $226 2013 7
Depreciation Fourth Quarter vs. 2013 ($ millions) Increase of $7 / 3%. Increased capital base Properties Balance $37,032 $38,508 $233 $240 Dec Dec 2013 Dec Dec 2013 2013 8
Income Taxes Fourth Quarter vs. 2013 ($ millions) Effective tax rate for the quarter was 35.3%. $270 $279 Eff. Rate 34.5% Eff. Rate 35.3% 2013 9
Net Income and Diluted Earnings per Share Fourth Quarter vs. 2013 ($ millions except per share) Earnings per Share ties 4 th quarter record. Net Income Change vs. Prior Period: - % Diluted Earnings per Share Change vs. Prior Period: - % $513 $511 $1.64 $1.64 2013 2013 10
Operating Results Year ($ millions) Record operating results. Favorable (Unfavorable) 2013 $ % Railway operating revenues $ 11,624 $ 11,245 $ 379 3% Railway operating expenses 8,049 7,988 (61) (1%) Income from railway operations $ 3,575 $ 3,257 $ 318 10% Railway operating ratio 69.2 71.0 1.8 3% 11
Net Income and Diluted Earnings per Share Year ($ millions except per share) Net Income Change vs. Prior Period: + 8% $ 1,910 Record Net Income and Earnings per Share. * Diluted Earnings per Share Change vs. Prior Period: + 9% $ 6.04 * $1,850 * $2,000 $5.85 * $6.39 2013 2013 *Excluding Michigan land sale gain - please see reconciliation to GAAP posted on our web site. 12
Cash Flows and Balances Year End ($ millions) 2013 Cash from operating activities $ 2,852 $ 3,078 Capital expenditures (2,118) (1,971) *Free cash flow $ 734 $ 1,107 Returns to shareholders: Dividends $ (687) $ (637) Share repurchases $ (318) $ (627) *Please see reconciliation to GAAP posted on our web site. 13
2015 Capital Expenditures ($ millions) Projected spending - $2.4 billion. $2,160 $2,241 $1,971 $2,118 $2,395 2011 2012 2013 2015B 14
2015 Capital Improvement Budget Core vs. Growth vs. PTC Maintain the network, improve service, invest for growth. Core/Replacement Investments 20% 9% Rail, Tie, Ballast programs Freight car replacements Locomotive rebuild program Growth/Productivity Investments 71% Intermodal terminals and equipment Used locomotives Infrastructure improvements Positive Train Control 15
2015 Capital Improvement Budget ($ millions) $199 Total Spending = $2.4 Billion $65 $404 $220 $927 Roadway Infrastructure Facilities & Terminals Locomotives Freight Cars Technology PTC Other Projects $238 $238 $104 16
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