csx 2007-q2-bwslides

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Second Quarter 2007Earnings PresentationSecond Quarter 2007Earnings Presentation

22

Forward-Looking DisclosureThis 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 management’s plans, strategies and objectives 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,” 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 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.

33

Executive Summary

Michael WardChairman, President andChief Executive Officer

44

Second quarter overview . . .

Second QuarterEarnings Per Share

$0.83

$0.58

$0.71 $0.71

Reported Comparable

2006 2007

Core earning power is strong and increasing

Pricing actions produced record quarterly revenues

Safety and customer satisfaction at all-time best levels

Price/productivity driving operating ratio lower

Note: 2006 comparable EPS exclude insurance gains and resolution of certain tax matters

22%Increase

55

Operations Review

Tony IngramExecutive Vice PresidentChief Operating Officer

66

Leadership, discipline and execution

Excellent trends in safety and service

Customer satisfaction levels at all-time high

Productivity gains working against inflation

SafetySafety

ProductivityProductivity

ServiceService

LeadershipLeadership

DisciplineDiscipline

ExecutionExecution

ReliablePerformance

77

Strong safety trends continue

Rolling 12-month Averages

FRA Personal Injury

1.58

1.46 1.431.39

1.31

Q22006

Q32006

Q42006

Q12007

Q22007

FRA Train Accidents

3.963.62

3.453.25

3.09

Q22006

Q32006

Q42006

Q12007

Q22007

13 WeekAverage

1.04

13 WeekAverage

2.85

88

On-time performance trending upward


On-Time Originations

65%71%

76% 76% 77%

Q22006

Q32006

Q42006

Q12007

Q22007

On-Time Arrivals

52%57%

63% 63% 66%

Q22006

Q32006

Q42006

Q12007

Q22007

13 WeekAverage

80%

13 WeekAverage

69%

99

Asset utilization sustaining gains


Cars-On-Line (000)

228226 225 225 225

Q22006

Q32006

Q42006

Q12007

Q22007

Dwell Time (hours)

27.726.8

25.6 25.2 24.8

Q22006

Q32006

Q42006

Q12007

Q22007

13 WeekAverage24.0 hrs

13 WeekAverage

223K

1010

Network operations fluid and consistent

Velocity (mph)

19.5 19.619.9 19.9

20.1

Q2 2006 Q3 2006 Q4 2006 Q1 2007 Q2 2007

13 WeekAverage

20.4 mph


1111

Customer satisfaction at all-time high

Over 2,000 customer surveys each year

Measures 15 aspects of customer service

Achieved highest rating in four years of study

Customer SatisfactionIndexed: 2004=100

10097

103

112

2004 2005 2006 2007YTD

1212

Operating productivity is improving

Execution is driving better asset utilization

ONE Plan flexing with market conditions

Process improvement enhancing efficiency

Total Service Integration (TSI) initiativewill further improve productivity

1313

Operations wrap-up . . .

Excellent safety and service performance, with further improvement ahead

Productivity gains will continue to improve the operating ratio

Improving execution will continue to drive higher levels of customer satisfaction

1414

Sales and Marketing Review

Clarence GoodenExecutive Vice PresidentSales and Marketing

1515

Revenues up nearly 5% to $2.5 billion

Second QuarterRevenue in Millions

$2,530$2,421

$164 ($55)

2006 RPU Volume 2007

Pricing actions produced record quarterly revenues

Leveraging yield strength to offset softer volumes

Uninterrupted revenue growth more than 5yrs

$109 million

1616

Price continues to drive RPU growth

Year-Over-Year Change

6.5%7.1%6.6%6.7%6.8%6.2%6.3%5.6%6.0%

9.6% 9.0%

11.0% 11.7%12.6%

11.8%

8.4% 8.1%6.9%

Q22005

Q32005

Q42005

Q12006

Q22006

Q32006

Q42006

Q12007

Q22007

Price Increase on 'Same Store Sales' Total Revenue per Unit

Note: ‘Same Store Sales’ price increases exclude impacts from fuel and mix

1717

Merchandise revenue increased 5%

Second Quarter2007 versus 2006

5%

(4%)

9%

Revenue

Volume

RPU

Record quarterly revenues

Leveraging yield strength to offset softer volumes

Strength in agriculture, driven by ethanol

Softness in housing and automotive related markets continues

$ 1,268$ 61$ 1,207Revenue

(millions)

703(26)729Volume

(thousands)

$ 1,804$ 148$ 1,656RPU

2007Change2006

1818

Coal revenue increased nearly 8%


8%

(1%)

9%

Revenue

Volume

RPU

Record quarterly revenue

Strong demand in export offsetting utility declines

Tons up nearly 1% on higher tonnage per car

Pricing environment remains strong

$ 638$ 45$ 593Revenue

(millions)

466(4)470Volume

(thousands)

$ 1,369$ 107$ 1,262RPU

2007Change2006

1919

Automotive revenue remained flat


0%

(4%)

4%

Revenue

Volume

RPU

Price increases offsetting volume declines

‘Big 3’ production down; additional plant closures

New domestics continue to gain share

$ 223$ 0$ 223Revenue

(millions)

119(5)124Volume

(thousands)

$ 1,874$ 76$ 1,798RPU

2007Change2006

2020

Intermodal revenue declined 4%


(4%)

(1%)

(2%)

Revenue

Volume

RPU

International traffic down

New services increase domestic traffic

Price gains offset by mix

$ 343($ 13)$ 356Revenue

(millions)

539(8)547Volume

(thousands)

$ 636($ 15)$ 651RPU

2007Change2006

2121

Intermodal operating income up 16%

Comparable Operating Income in Millions

$32

$55$61

$71

Q22004

Q22005

Q22006

Q22007

ComparableOperating Ratio

90.2%

83.3% 82.9%

79.3%

Q22004

Q22005

Q22006

Q22007

Note: 2004 excludes restructuring charge and 2006 excludes insurance gains

2222

Third quarter revenue outlook is positive

Food & Consumer

Forest Products

Intermodal

Metals

Agricultural Products

Automotive

Chemicals

Coal, Coke & Iron Ore

Emerging Markets

Phosphate & Fertilizer

UnfavorableNeutralFavorable

2323

Sales and Marketing wrap-up . . .

Economic Forecast2007-2008

2.1%

2.8%

1.7%

2.4%

2007 2008

GDP Industrial Production

Economy forecasted to improve in second half

Expect strong revenue growth to continue

Overall volume outlook improving in second half

Strong service levels support long-term growth

Source: Global Insight July 2007

2424

Financial Results

Oscar MunozExecutive Vice PresidentChief Financial Officer

2525

Strong second quarter results

)$ (66$ 390$ 324Net Earnings

)$ (0.12$ 0.83$ 0.71Earnings Per Share

))

-(3

(21))

11(98

(169))

11(101(190

Other Income (net)Interest ExpenseIncome Taxes

)$ (42$ 646$ 604Consolidated Operating Income

-11Other Operating Income

)$ (42$ 645$ 603Surface Transportation Operating Income

Variance20062007Dollars in millions, except EPS

Second Quarter Results

2626

Comparable EPS increased 22%

)($42$ 645$ 603Surface Transportation Operating Income

$ 84$ 519$ 603Comparable Operating Income

126)(126Less Gain on Insurance Recoveries

$ 0.13$ 0.58$ 0.71Comparable Earnings Per Share

0.08)(0.08Less Income Tax Benefits

0.17)(0.17Less Gain on Insurance Recoveries

)($ 0.12$ 0.83$ 0.71Earnings Per Share

Variance20062007Dollars in millions, except EPS


2727

Record Second Quarter Results

Comparable Surface TransporationOperating Income in Millions

$603

$519

$73

$30($19)

Q2 2006

2006 FuelHedge

InjuryReserves

EarningsMomentum

Q2 2007

2828

Operating income up 16%

16%$ 519 $ 603Operating Income

2.4 pts78.6%76.2%Operating Ratio

)(1%1,9021,927Operating Expenses

))))

5%

(4%(4%(0%(2%17%3%

$ 2,421

71548928821613262

$ 2,530

74150728922110960

RevenueExpenses

Labor and FringeMaterials, Supplies and OtherFuelDepreciationEquipment and Other RentsInland Transportation

Variance20062007Surface Transportation ($ in millions)


Note: 2006 results exclude insurance gains

2929

Labor and fringe increased 4%

Second QuarterDollars in Millions

$741

$715

$26

2006 Variance 2007

Primarily due to wage and benefit inflation

New labor agreement provides long-term benefits

Train crew headcount declined over 300

3030

MS&O increased 4%


$507$489

$18

2006 Variance 2007

Increase primarily driven by inflation

Personal injury reserves improve $30 million on strong safety record

3131

Fuel remained relatively flat


$289$288 $1

2006 Variance 2007

Cycling $19 million fuel hedge benefit from 2006

Lower fuel price and reduced volumes

Fuel efficiency reduced consumption by two million gallons

3232

Rents decreased 17%


$109

$132 ($23)

2006 Variance 2007

Lower Merchandise and Intermodal volumes

Operations driving better asset utilization

Favorable impact from the settlement of car hire expense with other rails

3333

All other expenses increased 1%

Higher capital base

Updated asset life study impacts depreciation


$216 $221

$62 $60

$3

2006 Variance 2007

$278 $281

Depreciation Inland Transport

3434

Focused approach to managing costs

20072007 2008-092008-09 2010+2010+

Plan long-term and execute short-term

Productivity and effectiveness targets established

Cross-functional and end-to-end process

Benchmarking best-in-class

Helping drive the operating ratio to the mid-low 70’s

3535

Recent actions reinforce shareholder focus

Cumulative Shares Repurchased

Dollars in Millions

$644

$465$422

$149

$548

Q22006

Q32006

Q42006

Q12007

Q22007

Quarterly DividendQ3 2005 - Q3 2007

$0.05$0.07

$0.10

$0.12

$0.15

Q32005

Q42005

Q32006

Q12007

Q32007

$1,192

Q2

3636

Financial wrap-up . . .

Mid-low 70’s

Exceed COC

Operating Ratio

ROIC

15%–17%Earnings Per Share

10%–12%Surface TransportOperating Income

2007–2010CAGR

Execute and

MonitorProgress

Execute and

MonitorProgress

Set goalsSet goals

Create plans

Create plans

Consistent Consistent continuous continuous

improvementimprovement

3737

Concluding Remarks

Michael WardChairman, President andChief Executive Officer

3838

Looking forward . . .

Driving excellent value for shareholders

Meeting the growing needs of our customers and the entire nation

Investments geared to accomplishing both

Committed to balanced approach to continue driving superior long-term value creation

3939

Second Quarter 2007Earnings PresentationSecond Quarter 2007Earnings Presentation

csx 2007-q2-bwslides

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