CSX CORPORATION COWEN & COMPANY GLOBAL TRANSPORTATION CONFERENCE Progressing Forward
Forward Looking Disclosure This information and other statements by the company may 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, margins, volumes, rates, cost-savings, expenses, taxes, liquidity, capital expenditures, dividends, share repurchases or other financial items, statements of management’s plans, strategies and objectives for future operations, and management’s expectations as to future performance and operations and the time by which objectives will be achieved, statements concerning proposed new services, and statements regarding future economic, industry or market conditions or performance. Forward-looking statements are typically identified by words or phrases such as “will,” “should,” “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 obligation to update or revise any forward-looking statement. If the company updates any forward-looking statement, no inference should be drawn that the company will make additional updates with respect to that statement or 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 any forward-looking statements. Factors that may cause actual results to differ materially from those contemplated by any 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, political or business conditions, including those affecting the transportation 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; (v) the outcome of claims and litigation involving or affecting the company; (vi) natural events such as severe weather conditions or pandemic health crises; and (vii) the inherent uncertainty associated with projecting economic and business conditions. 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. 2
Non-GAAP Measures Disclosure CSX reports its financial results in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). CSX also uses certain non-GAAP measures that fall within the meaning of Securities and Exchange Commission Regulation G and Regulation S-K Item 10(e), which may provide users of the financial information with additional meaningful comparison to prior reported results. Therefore, CSX’s non-GAAP Non-GAAP measures do not have standardized definitions and are not defined by U.S. GAAP. measures are unlikely to be comparable to similar measures presented by other companies. The presentation of these non-GAAP measures should not be considered in isolation from, as a substitute for, or as superior to the financial information presented in accordance with GAAP. Forward Looking Non-GAAP Measures CSX presents non-GAAP or adjusted operating ratio and adjusted net earnings per share, assuming dilution on a forward-looking basis. The most directly comparable forward-looking GAAP measure is operating ratio and net earnings per share, assuming dilution. CSX is unable to provide a quantitative reconciliation of these forward-looking non-GAAP measures to the most directly comparable forward-looking GAAP measure, because CSX cannot reliably forecast the timing and amount of future restructuring charges and other charges related to the change of leadership and strategy which are difficult to predict and estimate. Please note that the unavailable reconciling items could significantly impact CSX’s future financial GAAP results. 3
CSX’s recent performance has been range bound CSX’s financial performance has CSX Operating Ratio been relatively flat since 2011 85% ― Offset ~$2B Coal revenue decline, but made little progress relative to the industry 75% 65% Service performance has had 55% peaks and valleys 2011 2012 2013 2014 2015 2016 ― 2012-13 were strong years, but 2014 had CSX Operating Income significant challenges Dollars in Millions ― 2015-16 improvements muted by heavy $4,200 focus on train productivity given coal decline $3,850 $3,500 Goal is consistent, high service levels, accompanied by a radically $3,150 improved financial trajectory $2,800 2011 2012 2013 2014 2015 2016 4
CSX is undergoing transformational change Precision Scheduled Railroading rollout has been rapid ― Implementing core tenets on an accelerated basis Now focused on executing and refining operating plan ― Aligning field leaders with Precision Railroading and new regional structure Resources support current train plan ― As execution improves, service, volume and utilization are expected to improve Long-term vision intact; full-year 2017 guidance refined ― Transition issues in Q3 impact operating ratio and EPS expectations 5
Precision Scheduled Railroading yard update Transitioning hump yards CSX Hump Terminals Transitioning operations to flat-switching ― Started with twelve; seven have been converted to flat switching operations Transitioned to flat-switching operations ― Two to four hump yards likely long term Hump Terminals Selkirk, NY Current footprint supports radically different train plan Toledo, OH Willard, OH Cumberland, MD ― Strategic blocking allows for farther, Avon, IN Cincinnati, OH faster transit while reducing handlings Louisville, KY Nashville, TN Hamlet, NC Yard efficiency improving Atlanta, GA Birmingham, AL ― Nearly two-thirds of all yard activity is now Waycross, GA done through flat switching ― Designed to reduce transit times in new framework by at least a day 6
Significant operating plan changes now in effect Balanced operating plan normalizes flow of assets ― Train size down during Q2; significant locomotive and car reductions Converting unit trains into merchandise batch network ― Improves asset utilization and is helping drive train length increases in Q3 Reduced operating units from nine to five ― Facilitates efficient traffic flows, emphasizes customer service at local level Major revision to train plan went into effect early July ― ~1,300 train plan changes since March; pace has moderated last several weeks 7
Service measures took step back; have stabilized Significant Derailments Terminal Dwell Train Velocity Cars Online (hours) (mph) 15.5 145.7 13.6 11.9 11.5 139.7 WK 26 WK 35 WK 26 WK 35 WK 26 WK 35 Note: Metrics reported using new CSX definitions; details available at www.csx.com/servicemetrics 8
Resources support new train plan Train Crew Delay Hours Average Daily Trains Holding for Power 2014 – 2017 YTD by Week 2014 – 2017 YTD by Week 2017 2016 2014 2017 2016 2014 1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 New operating plan has eliminated over 300 crew starts per week ― Active T&E count down about 300, with further opportunity going forward Locomotive availability also high, driven by consolidated train plan ― About 850 locomotives are in storage, sold or retired 9
Now focused on operating plan execution Network is now aligned with CSX Network New regions represented by colored lines Precision Railroading plan ― Hump conversions and new operating unit structure flow from revised train plan Selkirk, NY Developing decision-making ability of front line supervisors Willard, OH Avon, IN ― Began “Hunter camps” and recruited ~15 Cincinnati, OH experienced Precision Railroading leaders Revised train plan is gaining traction in the field Waycross, GA ― Transitioning from major re-design phase to execution and refinement 10
Third quarter volume up modestly during transition Year-Over-Year Volume Growth First Quarter Second Quarter Third Quarter to Date 11% 9% 7% 7% 6% 5% 4% 3% 3% 2% 2% 2% 1% 1% 1% 0% (1%) (3%) (3%) (4%) (7%) Domestic International Industrial Construction Agricultural Coal Total Intermodal Intermodal Sector Sector Sector Note: Third quarter to date volume reflects shipments CSX fiscal weeks 27-35, starting July 1st and ending September 1 st 11
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