1

Fourth Quarter 2014 Results

Donald W. Seale

Executive Vice President

and Chief Marketing Officer

2

Revenue

$2.9 Billion, flat

RPU

$1,489, down (4%)

Volume

1,928,200 units, up 4%

4Q 2013 Mix/Price Fuel Volume 4Q 2014

$2,881 $2,870 ($69) ($45)

$103

4Q 2014 Revenue $ in Millions & y-o-y Percent Change

Components of Revenue Change $ in Millions

Railway Operating Revenue Fourth Quarter 2014 vs. 2013

Merchandise

$1,678

+3%

Coal

$543

(15%)

Intermodal

$649

+5%

4Q 2014 Volume (000’s)

& y-o-y Percent Change

3

0

500

1,000

1,500

2,000

4Q 2013 4Q 2014

Coal

Merchandise

Intermodal

+5%

+6%

(6%)

1,862.0 1,928.2

Coal down (6%)

Weak shipments across most

markets, with (6%) decline in

Utility volume and (25%) decline

in Export volume

Intermodal up 6%

Gains in Domestic and

International markets

Merchandise up 5%

Gains in Metals & Construction

and Chemicals offsetting losses

in Agriculture and Paper & Forest

Products

Total volume up 4%

Railway Volume Fourth Quarter 2014 vs. 2013

4

193.5

43.3 46.0

19.3

0

50

100

150

200

250

Utility Export Dom Met Ind

Coal Market Fourth Quarter 2014 vs. 2013

Weak shipments in utility

and export markets

Revenue: $543 Million, down (15%)

RPU: $1,799, down (10%)

Utility 64%

Export 14%

Dom Met 15%

Ind 7%

Percent of Total 4Q 2014 Volume

Units

(000’s)

(6%) (25%) 13% 0%

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

5

654.5

324.8

0

100

200

300

400

500

600

700

Domestic International

Intermodal Market Fourth Quarter 2014 vs. 2013

4% 10%

Revenue: $649 Million, up 5%

RPU: $662, down (1%)

Drivers

Overall volume

gain of 6%

Domestic

67%

International

33%

Units

(000’s)

Domestic

Gains due to highway

conversions, strategic corridor

projects, and growth in key

accounts

International

Gains due to customer awards

and new services

Percent of Total 4Q 2014 Volume

180.0

155.0

132.7

103.7

75.4

0

50

100

150

200

MetCon Ag Chem Auto Paper

6

Merchandise Market Fourth Quarter 2014 vs. 2013

12% (3%) 14% 0% (2%)

Revenue: $1.7 Billion, up 3%

RPU: $2,594, down (1%)

Strength in Metals &

Construction and

Chemicals

Units

(000’s)

MetCon

28%

Ag

24% Chem

20%

Auto

16%

Paper

12%

Percent of Total 4Q 2014 Volume

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

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

$40

$60

$80

$100

$120

Monthly WTI Price for FSC (2 month lag)

Fuel Surcharge

7

Fuel Surcharge Programs

85%+ of revenue contains fuel

surcharges

• 2/3 WTI based / Dominant trigger

price $64 bbl.

• 1/3 OH Diesel based

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 2014 Results

Mark Manion

Executive Vice President

and Chief Operating Officer

2

Safety Performance 2009 – 2014*

0

2

4

6

2009 2010 2011 2012 2013 12 Mos2014

4th Qtr2014

3.2

3.5

4.2

3.8

3.6

3.9

3.7

Crossing Accidents (Per Million Train Miles)

0.0

0.5

1.0

1.5

2009 2010 2011 2012 2013 12 Mos2014

4th Qtr2014

1.1

0

0.8

9

0.7

5

0.8

3

1.1

8

1.2

0

1.2

1

Reportable Personal Injuries (Per 200,000 Employee-Hours)

0.0

1.0

2.0

3.0

2009 2010 2011 2012 2013 12 Mos2014

4th Qtr2014

2.6

2.3

2.1

1.8

2.4

2.4

2.9

Train Incidents (Per Million Train Miles)

* Based on preliminary data

Injury rate down over the course of the

year, but slightly up in 2014 overall.

Train Incident rates increased.

Grade Crossing Accident rate is up

slightly for the year with a modest

improvement in fourth quarter.

3

Composite Service Performance 2009 - 2014

50%

55%

60%

65%

70%

75%

80%

85%

90%

2009 2010 2011 2012 2013 12 Mos2014

4th Qtr2014

Oct2014

Nov2014

Dec2014

81.0%

76.7% 75.9%

83.1% 83.3%

69.9%

62.8% 61.6%

59.3%

67.3%

2012

4

Train Speed 2009 - 2014

16

18

20

22

24

26

28

2009 2010 2011 2012 2013 12 Mos2014

4th Qtr2014

Oct2014

Nov2014

Dec2014

23.1

21.5 21.2

23.9 23.9

21.2

19.7 19.3 19.3

20.6

Mil

es

pe

r H

ou

r

Better

5

Terminal Dwell 2009 - 2014

16

18

20

22

24

26

28

30

32

2009 2010 2011 2012 2013 12 Mos2014

4th Qtr2014

Oct2014

Nov2014

Dec2014

22.4

24.4 24.5

21.6 21.6

26.0

29.7 29.1

30.9

29.2

Ave

rag

e H

ou

rs

Better

6

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 %

4th Quarter 2014

Operating Efficiencies 4th Quarter and Full Year 2014 vs. 2013

7

Thank You Thank You

2014 Financial Results

2015 Capital Plan

Marta R. Stewart

Executive Vice President Finance

and Chief Financial Officer

1

Operating Results Fourth Quarter 2014 vs. 2013 ($ millions)

Favorable

(Unfavorable)

2014 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

Record fourth-quarter Income from Railway Operations.

Net decrease of $21 / 1%.

$2,000

$56

$47 $46

$29

$7

$1,979

2014

Railway Operating Expenses Fourth Quarter 2014 vs. 2013 ($ millions)

Fuel Compensation

& Benefits

Depreciation Purchased

Svcs & Rents

2013 Materials

& Other

3

Fuel Fourth Quarter 2014 vs. 2013 ($ millions)

2013 Price* Consumption* Other Fuel 2014

$403

$63 $12

$5

$347

+3% 17% *% reflects locomotive fuel only

4

Net decrease of $56 / 14%.

Compensation and Benefits Fourth Quarter 2014 vs. 2013 ($ millions)

5

• Lower post-retirement, pension

and health and welfare costs

• Lower incentive compensation

• Increased pay rates

• Increased overtime

• Temporary transfer program

costs

2013 2014

$761 $714

Net decrease of $47 / 6%.

Purchased Services and Rents Fourth Quarter 2014 vs. 2013 ($ millions)

•Higher volume-related costs:

– Intermodal operations

– Equipment rents

– Joint facilities

•Slower network velocity

6

2013 2014

$406 $452

Net increase of $46 / 11%.

Materials and Other Fourth Quarter 2014 vs. 2013 ($ millions)

7

• Less favorable personal injury

adjustment

•Higher materials expenses

•Higher T&E travel and temporary

housing costs

2013 2014

$197 $226

Net increase of $29 / 15%.

Depreciation Fourth Quarter 2014 vs. 2013 ($ millions)

8

2013 2014

$233 $240

Increase of $7 / 3%.

Dec 2013 Dec 2014

$37,032

$38,508

Properties Balance

• Increased capital base

Dec

2013

Dec

2014

Income Taxes Fourth Quarter 2014 vs. 2013 ($ millions)

9

2013 2014

$270 $279

Effective tax rate for the quarter was 35.3%.

Eff. Rate

35.3%

Eff. Rate

34.5%

10

2013 2014

$1.64 $1.64

2013 2014

$513 $511

Net Income and Diluted Earnings per Share Fourth Quarter 2014 vs. 2013 ($ millions except per share)

Net Income

Change vs. Prior Period: - %

Diluted Earnings per Share

Change vs. Prior Period: - %

Earnings per Share ties 4th quarter record.

Operating Results Year ($ millions)

Favorable

(Unfavorable)

2014 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

Record operating results.

2013 2014

$1,850 $2,000

Net Income and Diluted Earnings per Share Year ($ millions except per share)

Net Income

Change vs. Prior Period: + 8%

Diluted Earnings per Share

Change vs. Prior Period: + 9%

12

2013 2014

$5.85 $6.39

Record Net Income and Earnings per Share.

*Excluding Michigan land sale gain - please see reconciliation to GAAP posted on our web site.

*

* *

*

$ 1,910 $ 6.04

Cash Flows and Balances Year End ($ millions)

2014 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

2011 2012 2013 2014 2015B

$2,160 $2,241

$1,971

$2,395

$2,118

Projected spending - $2.4 billion.

2015 Capital Expenditures ($ millions)

14

71%

20% 9%

Core/Replacement Investments

Rail, Tie, Ballast programs

Freight car replacements

Locomotive rebuild program

Growth/Productivity Investments

Intermodal terminals and equipment

Used locomotives

Infrastructure improvements

Positive Train Control

Maintain the network, improve service, invest for growth.

2015 Capital Improvement Budget Core vs. Growth vs. PTC

15

$927

$104

$238 $238

$404

$65

$220

$199

Roadway

Infrastructure

Facilities & Terminals

Locomotives

Freight Cars

Technology

PTC

Other Projects

Total Spending = $2.4 Billion

2015 Capital Improvement Budget ($ millions)

16

Thank You

17