csx 2005_Deutsche_BK_FINAL-REF21832

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<ol><li> 1. Deutsche Bank Global Transportation Conference Oscar Munoz Executive Vice PresidentChief Financial Officer </li><li> 2. Forward-looking Disclosure Statement This presentation 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 managements plans, strategies and objectives for future operation, and managements 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, 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 does update 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 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 Companys 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 Companys SEC reports, accessible on the SECs website at www.sec.gov and the Companys website at www.csx.com. </li><li> 3. In 1997, CSX began a process to transform itself into a highly focused railroad The transition began with Conrail Non-rail assets were monetized 1998 ACL 1999 Sea-Land International 2000 CTI Logistix 2002 CSX Lines 2004 CSX World Terminals (expected to close in the first quarter) (expected to close in the first quarter)33 </li><li> 4. Proceeds from the monetization of non-rail assets were used to reduce leverage$11.070% $11.070% $10.065% $10.065% 63% 63%$9.060%$9.060%All-in Leverage 62%62%All-in Leverage 62%62% All-in Debt All-in Debt59%59% 58%58% 58%58%$8.055%$8.055% 57% 57% 54%54% 54%54%$7.050%$7.050%51%51%$6.045%$6.045%$5.040%$5.040%$4.035%$4.035% 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 All-in Leverage All-in Debt in BillionsAll-in Leverage All-in Debt in Billions 44 </li><li> 5. However, CSXs core earning power and stock performance stalled through 2003Surface TransportationRolling Operating Income versus Stock Price$1,400 $60$1,400 $60 Operating Income in Millions Operating Income in Millions$1,200 $50$1,200 $50 Stock Price Stock Price$1,000 $40$1,000 $40$800$30 $800$30$600$20 $600$20Q4Q4 Q4 Q4 Q4 Q4 Q4 Q4 Q4Q4Q4 Q4 Q4 Q4 Q4 Q4 Q4 Q4 19951996 1997 1998 1999 2000 2001 2002 2003 19951996 1997 1998 1999 2000 2001 2002 2003 Operating IncomeStock PriceOperating IncomeStock Price 5 5 </li><li> 6. In 2004, CSX focused on three key strategies to restore core earning power Revenue OperatingOrganizationalInitiativesImprovements Structure Price Leadership Safety Organizational Effectiveness Profitable Growth ONE Plan Initiative Offset Inflation Asset Utilization Process ProductivityImprovement Teams 6 6 </li><li> 7. Delivering on these strategies produced the best financial results in the last five years Surface Transportation Operating IncomeDollars in millions $1,064 $1,064$995$995 $907 $902 $907 $902$713$7132000 2001 20022003 20042000 2001 20022003 200477 </li><li> 8. Those results reflect the strong revenue yield improvements produced during 2004 Overall Revenue YieldYear-Over-Year Improvement52-Week Basis7.9%7.9%6.6%6.6%2.4%2.4% 1.2% 1.2%First Quarter Second Quarter Third Quarter Fourth Quarter First Quarter Second Quarter Third Quarter Fourth Quarter 8 8 </li><li> 9. In addition, operations began to improve in the second half, driven by the ONE PlanAverage Overall Train Velocity Miles per hour 20.9 20.920.520.520.120.1 19.519.5 First Quarter Second Quarter Third Quarter Fourth Quarter First Quarter Second Quarter Third Quarter Fourth Quarter 9 9 </li><li> 10. The improving financial results drove the recent increase in CSXs share priceSurface TransportationRolling Operating Income versus Stock Price$1,100 $45$1,100 $45 Operating Income in Millions Operating Income in Millions$1,040 $40$1,040 $40Stock PriceStock Price $980$35 $980$35$920$30 $920$30$860$25 $860$25$800$20 $800 $20Q1 2004Q2 2004Q3 2004 Q4 2004Q1 2004Q2 2004Q3 2004 Q4 2004Operating Income Stock Price Operating Income Stock Price1010 </li><li> 11. For 2005, our core strategies remain intact, building on the foundation laid in 2004 RevenueOperating OrganizationalInitiatives ImprovementsStructure Test Price Ceilings Safety EmpowermentTest Price CeilingsSafety Empowerment Focused Growth One Plan MeasurementFocused Growth One Plan Measurement Offset Inflation Process Improvement AccountabilityOffset Inflation Process ImprovementAccountability 11 11 </li><li> 12. Those strategies leverage current market conditions and take CSX to the next level Favorable pricing environment Record pricing gains in 2004 Strong 2005 carryover pricing momentum Operating momentum One Plan benefits evident at close of 2004 Disciplined operating plan compliance key to success Detailed initiatives across safety, service and productivity Improving culture Clear accountability and drive for performance Improved management talent and training Enhanced cross-functional teamwork and communication 1212 </li><li> 13. Going forward, the investment thesis for rail stocks is changing Traditional Investment Thesis Evolving Investment Thesis Operating ratio Operating ratio Economic cycle Economic cycle Glass ceiling concept New source of organic growth1313 </li><li> 14. Near-term, results from our leading peers reflect both a challenge and opportunityNorth American Railroads2004 Operating Income and Margin$2,151$2,151$1,800$1,800 $1,702 $1,702$1,064 $1,064 33% 23% 20%13% CSX NSCCNIBNICSX NSCCNIBNI Operating Income (millions)Operating MarginsOperating Income (millions)Operating Margins 14 14 </li><li> 15. The opportunity is amplified by the strong industrial economy United States Industrial Production United States Industrial Production Annual Rate of Change Annual Rate of Change 4.1%4.1%4.1%4.1% 3.4% 3.4% 2.8% 2.8% 0.0% 0.0% (0.3%)(0.3%)(3.6%) (3.6%)200120022003 2004 20052006 2007 200120022003 2004 20052006 2007 Source Global Insight Source Global Insight 15 15 </li><li> 16. That surge has created supply constraints, yielding a favorable pricing environment CSX Surface TransportationAverage Revenue per Carload Year-Over-Year Change 4.3% 4.3% 2.1% 2.1% 1.2%1.2%0.8%0.8% 0.2% 0.2%20002001 2002 2003 200420002001 2002 2003 20041616 </li><li> 17. Long-term, challenges in the trucking industry drive growth potential for rails Origin HighwaysLabor Destination Railroad Industry Costs Congested Driver Increasing CongestedDriverIncreasing highways in a win-win partnershipFosters shortages highways in shortagesfuel andfuel and need ofand new insurance need ofand new insurance Improves truckhours of and increases resource utilizationmargins repair costs repair hours ofcostsservice lawsservice laws Increases operational leverage for the railroads Increases operational leverage for the railroads Enhances growth and PE multiples for the railroads 1717 </li><li> 18. That opportunity is significant, creating the potential of a new rail renaissance . . .Total Intercity Freight RevenuesDollars in billions$305$220 $162$123 $95$47$34 $36 $35 $18$29$30$28$17$12 $9 19601970 1975 1980 198519901995 2000 Rail Revenues Truck Revenues Source Eno TransportationSource Eno Transportation18 18 </li><li> 19. . . . And CSXs franchise is strategically positioned for that renaissance I-76 Chicago to Mid-AtlanticI-90 Chicago to NortheastI-95 Northeast to FloridaI-65 Chicago to FloridaI-75 Detroit to FloridaI-85 New Orleans to CarolinasI-10 New Orleans to Florida 19 19 </li><li> 20. In the new rail renaissance, values should be higher and multiples should expand Traditional Investment Thesis Evolving Investment Thesis Operating ratio Operating ratio Economic cycle Economic cycle Glass ceiling concept New source of organic growth2020 </li><li> 21. Deutsche Bank Global Transportation Conference Oscar Munoz Executive Vice PresidentChief Financial Officer </li></ol>