Second Quarter Earnings ReleaseSecond Quarter Earnings Release

Jim Young, Chairman and CEO

July 19, 2007

2

Second Quarter Results

2006

$1.44

Diluted Earnings per Share

2007

$1.65+ 15% • Challenging Quarter

– Economy

– Weather

• Pricing

• Operating Efficiency

• Strong ServiceImprovement

3

Operating Efficiency Drives Quality ServiceSecond Quarter

88.1

2004 2005

86.0

2006 2007

81.780.5

2004 2005 2006 2007

6163

69

80

Operating Ratio (%) Customer Satisfaction

Greater Service Relia

bility

Improved Efficiency

Second Quarter Marketing & Sales ReviewSecond Quarter Marketing & Sales Review

July 19, 2007

Jack Koraleski, Executive VP – Marketing & Sales

5

Second Quarter Overview

Commodity Revenue$3.9 Billion, +3%

($Millions)

IndustrialProducts$815 -1%

Intermodal$718 +3%

AgProducts$604 +7%

Autos$389 Flat

Chemicals$578 +8%

Energy$761 +4%

Highlights

• Improved Average RevenuePer Car

• Revenue

– Record Quarter: Chemicals

– Record Second Quarter: AgProducts, Energy &Intermodal

• Customer SatisfactionImprovement

6

Intermodal

Agricultural

Chemicals

Automotive

Industrial

Energy

TOTAL

Second Quarter Carloadings

-3%

-10%

2%

-4%

-2%

-6%

Flat

Drivers

• Heavy Rains & Flooding

• Market Softness

• Domestic IntermodalOutperformsInternational

• Ethanol GrowthContinues, But ExportFeed Declines

• Growth in Fertilizer andLiquid & Dry Chemicals

7

Industrial ProductsSecond Quarter

Quarterly Drivers

• Production Issues & WetWeather Impact Stone

• Softness in Lumber &Panel Products

• Natural Gas Drilling DrivesNon-Metallic Minerals

CO/UT23%

Lumber Volume*

2006 2007

60

50

-18%

Stone Volume*

2006 2007

101

86

-15%

Non-Metallic Volume*

2006 2007

2930

+4%

*Volume in (000s) of carloads

8

EnergySecond Quarter

Quarterly Drivers

• Weather Impacts

• Mine Production

CO/UT23%

SPRB Tonnage(Millions)

48

46

2006 2007

-4%

SPRB Trains Per Day

32.7

30.9

34.9

32.8

April May June JulyMTD

9

IntermodalSecond Quarter

2006

258

Domestic Volume*

2007

263

+2%

2006

571

International Volume*

2007

564

-1%

Quarterly Drivers

• New/Improved DomesticServices Driving Growth

– Southeast

– Mexico

– I-5 Corridor

• International VolumeDeclines Slightly WithSofter Imports

*Volume in (000s) of carloads

10

Customer Satisfaction Index

Good

60

70

79

63

69

66

74

67

75

2005 2006

Q1Q1 Q2 Q3 Q4

2007

Q1 Q2 Q3 Q4 Q2

80

11

Peak Season Volume Growth

2007 Commodity Outlook

• Third Quarter

– Volume: Flat +/-

• Full Year

– Volume: -1% to Flat

– Revenue: +5% +/-

2Q 3Q 2Q 3Q 2Q 3Q 2Q 3Q

2004 2005 2006 2007Est.

+2%

+2%

Flat

Second Quarter Operating ReviewSecond Quarter Operating Review

Dennis Duffy, Executive VP – Operations

July 19, 2007

13

CustomerCustomerEmployeeEmployee

Safety - Top Priority

2.90

1.52

48%

2001 2007*

Reportable InjuriesPer 200,000 Man-Hours

PublicPublic

3.36

2.39

29%

2001 2007*

Reportable IncidentsPer Million Train Miles

Crossing AccidentsPer Million Train Miles

4.79

3.52

27%

2001 2007*

*Through June 30

14

Network ChallengesSecond Quarter

Weather Interruptions

• 45 Network Impact Days

– Broad Midwest Area

– Outages in 5 States

• Resilient Network

– Resources

– Recovery ProcessesN. Little Rock

El Paso

EaglePass

LaredoBrownsville

Houston

NewOrleans

Omaha

Twin Cities

Ft. Worth

Duluth

Chicago

St. LouisDenver

Memphis

KansasCity

San Antonio

15

Network Performance UpdateSecond Quarter

AAR VelocityMPH

Good

2006

AAR Terminal DwellHours

Good

27.6

24.7

20072006

311

Good

20072006

325

AAR Inventory(000)

Freight Car UtilizationDays

20072006

Good

AAR VelocityMPH

Good

21.621.2

2007

10.5

10.0

16

Productivity GainsSecond Quarter

Process Initiatives

Process Initiatives

Organizational Initiatives

Organizational Initiatives

“Iron in the

Ground”

“Iron in the

Ground”

Impro

vem

ent

Impro

vem

ent

Technology Initiatives

Technology Initiatives

$$ • Operational Efficiency

– 3% fewer carloads

– 7% fewer train starts

– 4% greater train size

• Operating IncomeStatement

• Process & Technology

– Unified Plan

– Distributed Power

17

New ServiceBlue Streak Truck-Competitive Product

Premier Service Route:

• New Service via MeridianSpeedway May 21, 2007

• Shreveport Gateway

• 130 miles shorter thanMemphis Gateway

• Over 200 miles shorter thanNew Orleans Gateway

Performance Improvements:

• Premium Service – 12 hours

• Standard Service – 24 hours

AtlantaLosAngeles

18

CapitalFirst Half 2007 Highlights

Sunset Corridor Expansion

• Sunset Double Track

• Terminal Improvements

SPRB Capacity Additions

• Joint Line Progress

• Central Corridor CTC

Maintenance

• Sunset ‘07 Season - Complete

• I-5 Tunnel Project – In Process

• Central Corridor – In Process

New Locomotives

• 210 of 300 Units Delivered

TerminalImprovements

CorridorImprovements

KC

St. Louis

Yuma

NorthPlatte

LosAngeles

Ft. Worth

Tucson

SanAntonio

El Paso

Chicago

SaltLakeCity

Angleton

Shreveport

Houston

HinklePortland

Oakland

19

Third Quarter OutlookPeak Season

• Strong Gains in Safety

• Resilient Network

• Improving Productivity& Service Reliability

• Positioned for Growth

Second Quarter Financial ReviewSecond Quarter Financial Review

Rob Knight, CFO

July 19, 2007

21

Income Statement SummarySecond Quarter – In Millions

Operating Revenues $4,046 $3,923 +3%

Operating ExpensesSalaries and Benefits 1,163 1,140 + 2Fuel and Utilities 766 794 - 4Equipment & Other Rents 370 371 FlatDepreciation 327 308 + 6Materials and Supplies 186 178 + 4Purchased Services & Other 447 415 + 8

Total Operating Expenses 3,259 3,206 + 2

Operating Income $ 787 $ 717 +10

2007 2006 Pct Chg

22

Revenue DriversSecond Quarter

• 3% Volume Decline

• 7% ARC Increase

• Mileage-based FuelSurcharge

– Increased entry point to$2.30/gallon On-HighwayDiesel Fuel

$2,901

2004 2005

$3,196

2006 2007

$3,742$3,865

+3%

$1,225

2004 2005

$1,337

2006 2007

$1,490$1,589

+7%

Average Revenue Per Car ($’s)

Total Commodity Revenue (Millions)

23

Salaries & BenefitsSecond Quarter – In Millions

$1,140

2006 2007

$1,163+2%

• Workforce Levels -1%

• Increased Wage/BenefitCosts

• Lower Crew Costs

– Volume

– Training

– Increased Productivity

24

Fuel & UtilitiesSecond Quarter

Fuel PriceDollars Per Gallon

Fuel ConsumptionGallons (in millions)

20072006

$2.17$2.15

20072006

346

• Reduced Diesel Consumption

– Lower Volumes

• Higher Gasoline and UtilityCosts

• Third Quarter Diesel Fuel PriceCould Exceed Last Year’sRecord Level

– Current Spot Price =$2.33/gallon

– Third Quarter 2006 =$2.27/gallon

332

25

Equipment & Materials ExpenseSecond Quarter – In Millions

$178

2006 2007

$186+4%

Materials and Supplies:

• Inflation

• Increased Maintenance onLarger Locomotive Fleet

Rent Expense

Materials & Supplies

$370$371Flat

2006 2007

Equipment & Other Rents:

• Lower Volume RelatedCosts

• Improved Car Cycle Time

• Increased LocomotiveLease Expense

26

Purchased Services & OtherSecond Quarter – In Millions

$415

2006 2007

$447+8%

• Lower Casualty Costs

• Increased ContractExpenses

• Higher Crew Lodging andTransportation Costs

• Less Reimbursable CarWork

27

Operating Ratio (%)Second Quarter

88.1

2004 2005

86.0• Pricing Improvement

• Operational EfficiencyGains

2006 2007

81.780.5

28

Full Income StatementSecond Quarter – In Millions

($ Millions Except EPS)

Operating Revenues $4,046 $3,923 + 3%

Operating Expenses 3,259 3,206 + 2

Operating Income 787 717 +10

Other Income – Net 36 29 +24

Interest Expense (120) (120) Flat

Income Before Income Taxes 703 626 +12

Income Tax Expense (257) (236) +9

Net Income $ 446 $ 390 +14

Diluted EPS $1.65 $1.44 +15

2007 2006 Pct Chg

29

Share Repurchase Program

• Second Quarter Purchases

– 3.6 million shares

– $116.40 average price/share

• Year-To-Date

– 5.7 million shares; 2% ofoutstanding shares

– 28% of program

First Half 2007

5,700

20,000

Shares Repurchased (000’s)

Total Program

30

2007 Outlook

3rd Quarter 2007 Outlook:

• EPS Growth = + 10 to 15%

Full Year:

• Revenue Growth = +5% +/-

– Volume Growth = -1% to Flat

• Operating Ratio below 80

• EPS Growth = + 10 to 15%

• ROIC Improvement

Second Quarter Earnings ReleaseSecond Quarter Earnings Release

Jim Young, Chairman and CEO

July 19, 2007

32

Second Half 2007 Drivers

Opportunities

• Coal Demand

• Intermodal

– “Normal” Peak Season

• Agricultural Products

– Record Corn Harvest

• Productivity Initiatives

• Continued YieldImprovement

Challenges

• Coal Supply Chain

– Mines, Rails, Utilities

• Industrial Products

– “Have we seen the bottom?”

• Economy ?

• High Fuel Prices

– Current Spot Price =$2.33/Gallon

Cautionary InformationThis presentation and related materials contain statements about the Corporation’s future that are not statementsof historical fact, including specifically statements regarding the economic outlook and improving the Corporation’sfinancial returns through productivity initiatives and operational efficiency. These statements are, or will be,forward-looking statements as defined by the Securities Act of 1933 and the Securities Exchange Act of 1934.Forward-looking statements also include, without limitation, information or statements regarding: expectations as tocontinued or increasing demand for rail transportation services; expectations regarding operational improvements,including the effectiveness of network management initiatives that have been or will be implemented to improveoperations, customer service, and shareholder returns; expectations as to increased returns, cost savings, revenuegrowth, and earnings; expectations regarding fuel price and our ability to mitigate fuel costs; the time by whichcertain objectives will be achieved, including expected improvements in operations and implementation of networkmanagement initiatives; estimates of costs relating to environmental remediation and restoration; proposed newproducts and services; expectations that claims, lawsuits, environmental costs, commitments, contingent liabilities,labor negotiations or agreements, or other matters will not have a material adverse effect on our consolidatedfinancial position, results of operations, or liquidity; statements concerning projections, predictions, expectations,estimates or forecasts as to the Corporation’s and its subsidiaries’ business, financial, and operational results, andfuture economic performance; and statements of management’s beliefs, expectations, goals, and objectives andother similar expressions concerning matters that are not historical facts.

Forward-looking statements should not be read as a guarantee of future performance or results, and will notnecessarily be accurate indications of the times that, or by which, such performance or results will be achieved.Forward-looking information, including expectations regarding operational and financial improvements and theCorporation’s future performance or results are subject to risks and uncertainties that could cause actualperformance or results to differ materially from those expressed in the statement.

Important factors, including risk factors, could affect the Corporation’s and its subsidiaries’ future results and couldcause those results or other outcomes to differ materially from those expressed or implied in the forward-lookingstatements. Information regarding risk factors and other cautionary information are available in the Corporation’sAnnual Report on Form 10-K for 2006, which was filed with the SEC on February 23, 2007. The Corporationupdates information regarding risk factors if circumstances require such updates in its periodic reports on Form 10-Q and its subsequent Annual Reports on Form 10-K (or such other reports that may be filed with the SEC).

Forward-looking statements speak only as of, and are based only upon information available on, the date thestatements were made. The Corporation assumes no obligation to update forward-looking information to reflectactual results, changes in assumptions or changes in other factors affecting forward-looking information. If theCorporation does update one or more forward-looking statements, no inference should be drawn that theCorporation will make additional updates with respect thereto or with respect to other forward-looking statements.References to our Web site are provided for convenience and, therefore, information on or available through thewebsite is not, and should not be deemed to be, incorporated by reference herein.

Second Quarter Earnings ReleaseSecond Quarter Earnings Release

July 19, 2007

Q&A