Goldman Sachs Goldman Sachs Global Industrials Conference Global - - PowerPoint PPT Presentation

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Goldman Sachs Global Industrials Conference November 2009 Goldman Sachs Global Industrials Conference November 2009

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Forward-Looking Disclosure Forward-Looking Disclosure

This information and other statements by the company contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act with respect to, among other items: projections and estimates of earnings, revenues, cost-savings, expenses, or other financial items; statements of management’s plans, strategies and

• bjectives for future operation, and management’s expectations as to future performance and operations and the time

by which objectives will be achieved; statements concerning proposed new products and services; and statements regarding future economic, industry or market conditions or performance. Forward-looking statements are typically identified by words or phrases such as “believe,” “expect,” “anticipate,” “project,” “estimate,” “preliminary” and similar

• expressions. Forward-looking statements speak only as of the date they are made, and the company undertakes no
• bligation to update or revise any forward-looking statement. If the company does update any forward-looking

statement, no inference should be drawn that the company will make additional updates with respect to that statement

• r any other forward-looking statements.

Forward-looking statements are subject to a number of risks and uncertainties, and actual performance or results could differ materially from that anticipated by these forward-looking statements. Factors that may cause actual results to differ materially from those contemplated by these forward-looking statements include, among others; (i) the company’s success in implementing its financial and operational initiatives; (ii) changes in domestic or international economic or business conditions, including those affecting the rail industry (such as the impact of industry competition, conditions, performance and consolidation); (iii) legislative or regulatory changes; (iv) the inherent business risks associated with safety and security; and (v) the outcome of claims and litigation involving or affecting the company. Other important assumptions and factors that could cause actual results to differ materially from those in the forward- looking statements are specified in the company’s SEC reports, accessible on the SEC’s website at www.sec.gov and the company’s website at www.csx.com.

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Current CSX environment . . . Current CSX environment . . .

Worst economic recession in past half century abating

— Volumes continue to moderate going into the back half of the fourth quarter

Company emerging from recession stronger

— Earning power and margins have been resilient in current environment

Value of rail transportation supports long-term pricing

— Expect core price increases above rail inflation for 2010 and beyond

Industry fundamentals are strong long-term

— Growing population, congested highways, environmentalism favors railroads

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Economic environment continues to moderate Economic environment continues to moderate

Year-Over-Year Volume Change

(53%) (23%) (13%) (7%) (41%) (22%) (14%) (21%) (28%) (17%) (10%) (18%) (12%) (16%) (1%) (23%)

Automotive Merchandise Intermodal Coal

First Quarter Second Quarter Third Quarter Fourth Quarter-to-Date

Percent of Total Volume

3% Q1 5% Q4 36% Q1 35% Q4 31% Q1 35% Q4 30% Q1 25% Q4

Note: Fourth quarter year-over-year change in volume reflects data through week 43

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Utility stock piles likely remain high well into 2010 Utility stock piles likely remain high well into 2010

Eastern Power Sector Tons in Millions

30 40 50 60 70 80 90 100

Coal Consumption Coal Inventory Typical Inventory Level

Source: Coal consumption and inventory numbers from PIRA Energy Group 67 days

• f inventory

67 days 67 days

• f inventory
• f inventory

76 days

• f inventory

76 days 76 days

• f inventory
• f inventory

2001 2002 2003 2004 2005 2006 2007 2008 2009

62 days

• f inventory

62 days 62 days

• f inventory
• f inventory

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Core earning power resilient during recession Core earning power resilient during recession

Comparable Operating Margin and Volume

20.8% 22.0% 24.2% 25.3%

5,548 5,355 5,224 4,295

2006 2007 2008 2009

Comparable Operating Income and Volume

$1,494 $1,636 $2,076 $1,702

5,548 5,355 5,224 4,295

2006 2007 2008 2009

• Op. Income (millions)

Volume (000) Operating Margin Volume (000)

Note: See GAAP Reconciliation

Results Through First Three Quarters

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2009 Quarterly Cost Structure Year-Over-Year Variance

(26%) (35%) (30%) (17%) (27%) (24%)

First Quarter Second Quarter Third Quarter

2009 Quarterly Cost Structure Year-Over-Year Variance

(11%) (17%) (16%) (6%) (14%) (16%) (8%) (16%) (16%)

First Quarter Second Quarter Third Quarter

Sustained cost focus yields sequential improvement Sustained cost focus yields sequential improvement

Adjusted Variable Costs Fixed Costs Adjusted Total Costs Volume

Note: Adjusted variable and total costs have been normalized for fuel prices; lighter shaded bars reflect unadjusted costs

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Core pricing has remained firm in this environment Core pricing has remained firm in this environment

Note: “Same Store Sales” price increases exclude impacts from fuel surcharge and mix

Year-Over-Year Change

6.5% 6.7% 6.8% 6.4% 6.2% 6.5% 6.5% 6.6% 6.3% 8.0% 10.5% 14.5% 18.3% 21.2% 14.0% 0.2% (8.7%) (5.4%)

Q3 2007 Q4 2007 Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009 Q3 2009

Same Store Sales Price Increase Total Revenue per Unit

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Evolving Marketplace Evolving Evolving Marketplace Marketplace Pricing Opportunity Pricing Pricing Opportunity Opportunity Strong Service Strong Strong Service Service

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Strong service and market environment driving price Strong service and market environment driving price

“Same Store Sales” Price Increase

76% 79% 79% 82%

2006 2007 2008 2009

On-Time Originations

6.6% 6.7% 6.5% 6.5%

2006 2007 2008 2009

Highway congestion increasing Supply chains are expanding Rail service improving Focus on “green” intensifying Extreme regulatory change unlikely

Rail Industry Advantages

YTD

10 10 10 10 Pre-deregulation, rail pricing kept pace with inflation During the first 23 years after the passage During the first 23 years after the passage

• f the Staggers Act, rail pricing declined by 50%
• f the Staggers Act, rail pricing declined by 50%

Inflation-Adjusted Pricing Indexed: 1981 = $100

$100 $51

1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008

Inflation-plus price increases expected long-term Inflation-plus price increases expected long-term

Source: Association of American Railroads

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Inflation-plus pricing supports other key industries Inflation-plus pricing supports other key industries

Compound Annual Rate Increases Between 1990 and 2008

1.2% 2.3% 4.8% 7.5%

Rail Electricity Grain Chemical

Source: UBS Investment Research

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Long-term fundamentals drive Rail Renaissance Long-term fundamentals drive Rail Renaissance

Over time, more people . . . Over time, Over time, more people . . . more people . . . . . . will consume more things . . . . . . will consume . . . will consume more things . . . more things . . . . . . and those things need to be moved . . . and those things . . . and those things need to be moved need to be moved

296 311 326 342

2005 2010 2015 2020

U.S. Population in Millions

$3.1 $3.2 $3.6 $4.2

2005 2010 2015 2020

U.S. Consumption

• f Goods in Trillions

4.9 5.4 6.0 6.6

2005 2010 2015 2020

U.S. Transportation Demand in Trillion Ton-miles

Sources: Global Insight and American Association of State Highway and Transportation Officials

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Competitive advantages driving market share shift Competitive advantages driving market share shift

Surface Transportation Tonnage Market Share

Sources: Transearch and USDOT FHWA Freight Analysis Framework

Barge 8% Rail 15% Truck 77%

Rail Industry Advantages

• Highway congestion increasing
• Supply chains are expanding
• Rail service is improving
• Focus on “green” intensifying
• Extreme regulatory change unlikely

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CSX’s network leverages long-term fundamentals CSX’s network leverages long-term fundamentals

• Serves all major markets in

the eastern United States

— Markets account for over 65% of population and 75% of consumption

• Links all major industry and

natural resource centers

— Strong presence in coal, aggregates, phosphates support key industries

• Provides international access

through all major ports

— Directly serves Atlantic and Gulf ports; access to Pacific with alliances

Florida Midwest Gulf Coast Piedmont Atlantic Northeast

Mega-regions Served by CSX

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Strengthening position for long-term value creation Strengthening position for long-term value creation

CSX emerging from recession as a stronger company

— Earning power and margins have been resilient in current environment

Pricing the value of rail transportation is long-term focus

— Expect core price increases above rail inflation for 2010 and beyond

Rail renaissance fundamentals remain intact long-term

— Organic growth at attractive rates supports shareholder value creation

Relentless pursuit of excellence Relentless pursuit of excellence

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Goldman Sachs Global Industrials Conference November 2009 Goldman Sachs Global Industrials Conference November 2009

Appendix Appendix

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GAAP Reconciliation Disclosure GAAP Reconciliation Disclosure

CSX reports its financial results in accordance with generally accepted accounting principles (“GAAP”). However, management believes that certain non-GAAP financial measures used to manage the company’s business that fall within the meaning of Regulation G (Disclosure of Non-GAAP Financial Measures) by the SEC may provide users of the financial information with additional meaningful comparisons to prior reported results. In press releases and presentation slides for stock analysts, CSX has provided financial information adjusted for certain items, which are non-GAAP financial measures. The company’s management evaluates its business and makes certain

• perating decisions (e.g., budgeting, forecasting, employee compensation, asset management and resource allocation)

using these adjusted numbers. Likewise, this information facilitates comparisons to financial results that are directly associated with ongoing business

• perations as well as provides comparable historical information. Lastly, earnings forecasts prepared by stock analysts

and other third parties generally exclude the effects of items that are difficult to predict or measure in advance and are not directly related to CSX’s ongoing operations. A reconciliation between GAAP and the non-GAAP measure is

• provided. These non-GAAP measures should not be considered a substitute for GAAP measures.

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GAAP Reconciliation GAAP Reconciliation

Results Through First Three Quarters Dollars in millions 2006 2007 2008 2009 Operating Income Gain on Insurance Recoveries $ 1,635 (141) $ 1,655 (19) $ 2,076

• $ 1,702
• Comparable Operating Income

$ 1,494 $ 1,636 $ 2,076 $ 1,702 Operating Margin Gain on Insurance Recoveries 22.8% (2.0%) 22.2% (0.2%) 24.2%

• 25.3%
• Comparable Operating Margin

20.8% 22.0% 24.2% 25.3%

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Goldman Sachs Global Industrials Conference November 2009 Goldman Sachs Global Industrials Conference November 2009