Union Pacific Corp. Fireside chat

Well, David, thank you very much and great day here. I look outside and the weather is just perfect for September 1st, for railroading anyways. That is the way I look at it. I do not really look at it on whether it is beach weather or holiday weather. How good is it for railroading? I like it. Just about perfect through the whole network. We are looking at a big storm coming up in the Gulf that might affect us a little bit, but overall, we are ready to go. Railroads are all good. Of course, I have Jennifer Hamann here with me, Chief Financial Officer. Listen, I am going to go through slides real quick and then open up for questions. Jennifer is going to have a few comments right after me. Of course, a big, long list of boilerplate.

Got longer after the merger than it was before. We will be making some forward-looking statements. If you have any questions, please refer to the Union Pacific website and SEC filings for additional information. If we look at the first slide we have up, let's recap the past month or so since we talked at our earnings. In late July, we announced our agreements with Canadian National and provided the supplemental information the STB requested. A few weeks ago, on August 18, the STB published a procedural schedule. Certainly, we wanted the process to move faster, but we will take the win. They published the schedule, confirmed that the 12-month statutory clock started when they accepted our application on May 28, 2026. Last week, we filed our comments that our merger easily meets the prima facie standard.

We are confident our merger satisfies the STB's requirements and is overwhelmingly in the public interest. It removes 2.1 million annual truckloads off the road, reducing highway congestion and improving driver safety, delivers $3.5 billion in annual shipper savings, and improves rail safety because of the touch points that it removes. Our merger enhances rail competition by adding seamless coast-to-coast rail service, which is faster and more reliable. It provides for new intermodal and manifest service products, providing more options for our customers. Single-line shipments have generally lower prices than interline shipments. I do not have to explain it too much. Anybody who knows a little bit about business and a couple of companies with a margin, there is a big difference in one company with margin. Beyond that, we have offered additional enhancements. We have expanded the Committed Gateway Pricing and included both unit trains.

We added protection to preserve Class 1 rail options for three to two and two to one shippers. New service level protections in case unexpected issues arise. Stronger oversight and accountability for customers with additional access to a new rate relief process. We improved connectivity options with Canadian National, Canada to and from Mexico, and Union Pacific's access to the road around Chicago and the EJ&E. What is next? Let's move to slide 4 in the timeline. We are in the merits review, which is a great place to be as the conversation will be focused on data and facts, not what people think. I have never liked what people think. I like people to give me the facts, and then we will make the best decision from facts and figures.

Those who want to participate in the process must submit their notice to participate by the end of the week, and competing railroads and stakeholders will need to submit their comments. I think there is some change a little bit from the September 9 that the STB put out, but we are okay. It gives them some time to do that. If they have asked, they need to be back up with support by November 18. So some detail about what they are looking at and what the issue is. Our opponents are also still talking about what ifs of subsequent mergers. We expect the STB will evaluate our merger on its merits, and we will do the same for another application. At this point in time, there is no other merger. There is only one merger of Class 1s, and we are in the middle of it.

When and if that happens, because at this point, everyone has said, the participating parties, that they are not interested in a merger. But if they became interested in a merger and we've done a good job in our application to talk about that and take people through, then the STB needs to look at the new place and time and what's happening at that point, not try to protect it at this point where they have complete control over any process that happens for any subsequent merger. With that, I'll pass it over to Jennifer.

Yeah, just a couple things. A couple kind of, I'll say, housekeeping-ish items. So when we made our filing in late July, we did have a few tweaks to some of the things. But even with all the puts and takes as we have continued to run through the numbers a number of times, we keep coming back to basically the same place. So we're very confident in our net revenue synergy target of $1.8 billion annually and our cost synergy target of $1 billion annually. Then with that, we fully expect that we should be back in the mode of buying back shares in year 2. And remember, we are counting it from the day of the close of the merger. So within 2 years of the merger close, we'll be back buying shares, our leverage targets will be back.

We're going to stay solidly, strongly investment grade rated. We expect to generate cash roughly $11.8, so just shy of $12 billion by year 3. And when you think about deal closing, that's really looking at some time in Q3, maybe as late as Q4 of 2027 based on the schedule that you see here on the slide and what the STB has put out. We feel like having the timeline is great for all parties involved. It's able to allow us to firm up our integration planning. And as Jim mentioned, we're very anxious to get into the merits phase of this discussion because we strongly believe in the benefits of the merger. The financials are very compelling, and we're in the process of putting together a very robust integration plan. So all of those things are coming together.

Certainly, we've met all the deadlines that the STB has given us to this point. I know they did just, I think last night or today to what you were referring to, Jim, they did push back the date of people to say that they were intending to participate, which shows on there as September 4th. They did just move that back to September 30th, but no other deadlines changed. In particular, the September 9th date is still intact in terms of when participants need to make their requests of what they're going to be looking for through the merger. So we're just anxious to get going. Been into this a year, and we're ready to go. With that, David, we're ready for your questions.

I don't think there's a message. I think it's the way the STB does things, and if you take a look at the STB, and the chair knows that the STB sometimes has taken a long time to make certain decisions on certain things. We have some things outstanding even today on other topics that we've been waiting for a long time. The nice part about this process is once the application gets accepted, which it was, there's a black and white statute that says that the STB needs to be finished with the gathering of information within one year. That's not something that can be easily changed when the statute tells you exactly what it is. So what did we learn?