Norfolk Southern Corporation · NYSE:NSC
Norfolk Southern — Proxy Contest (February 2024)
58 slides from Norfolk Southern's proxy contest presentation, Feb 20, 2024
Slide 1: The Case for Leadership, Safety & Strategy Changes at Norfolk Southern
February 2024 The Case for Leadership, Safety & Strategy Changes at Norfolk Southern
Slide 2: Disclaimer
The Case for Leadership, Safety & Strategy Changes at Norfolk Southern Disclaimer Ancora Alternatives LLC (“Ancora Alternatives”) and its affiliates (collectively, “Ancora”) exclaim that the information contained herein is provided for informational purposes only and does not constitute an offering
Slide 3: Situation Overview
The Case for Leadership, Safety & Strategy Changes at Norfolk Southern Once stronger leadership establishes a safety-first, worker-focused culture, Norfolk Southern can implement the network of the future to regain trust, reestablish reliability and unlock enhanced value for shareholders, employees,
Slide 4: Table of Contents
The Case for Leadership, Safety & Strategy Changes at Norfolk Southern Table of Contents 4 Executive Summary (Page 5) The Problem: Ineffective Management, Failed Strategy, Lax Oversight and Absent Accountability (Page 20) The Evidence: Underperformance, Shrinking Margins and Tone-Deaf Crisis Respons
Slide 5: Executive Summary
ee ih Executive Summary
Slide 6: About Norfolk Southern
The Case for Leadership, Safety & Strategy Changes at Norfolk Southern About Norfolk Southern 6 1 Company filings. 2 Source: Bloomberg. Performance runs from 2022 Investor Day on December 6, 2022 through January 31, 2024, the first public disclosure of investor group activity in The Wall Street Jour
Slide 7: About Norfolk Southern (Cont.)
The Case for Leadership, Safety & Strategy Changes at Norfolk Southern About Norfolk Southern (Cont.) Source: Surface Transportation Board, Company filings. Class I Average includes CSX, UNP, CP and CNI. 7 Weak Revenue / EBIT / EPS Industry-Worst Operating Ratio Declining Volumes Lagging Ratio of Ca
Slide 8: Why We're Seeking to Elect a Majority Slate and Install a New CEO
The Case for Leadership, Safety & Strategy Changes at Norfolk Southern Why We’re Seeking to Elect a Majority Slate and Install a New CEO 8 UNQUALIFIED CEO • Mr. Shaw does not possess the strategic operating and financial experience needed to effectively oversee Norfolk Southern during this critical
Slide 9: The Financial Community Has Lost Confidence in Existing Leadership
The Case for Leadership, Safety & Strategy Changes at Norfolk Southern 9 $230 $235 $240 $245 $250 $255 $260 1/25/24 1/26/24 1/29/24 1/30/24 1/31/24 2/1/24 Norfolk Southern misses consensus for 2023 Norfolk Southern is reportedly targeted by active investors (1.9%) 9.1% “Norfolk Southern was the wors
Slide 10: The General Public Has Lost Confidence in Existing Leadership
The Case for Leadership, Safety & Strategy Changes at Norfolk Southern The Company’s insufficient response to the 2023 derailment in East Palestine, Ohio is a microcosm of Norfolk Southern’s failed strategy, insufficient accountability and lack of oversight of poor leadership. 10 The General Public
Slide 11: Elected Officials Have Lost Confidence in Existing Leadership
The Case for Leadership, Safety & Strategy Changes at Norfolk Southern 11 President Joseph Biden’s Post; Senator Sherrod Brown's Post; Senator John Fetterman’s Post; Senator Bob Casey, Jr.’s Post. Elected Officials Have Lost Confidence in Existing Leadership
Slide 12: New Lapses in 2024 Validate Concerns About Existing Leadership
The Case for Leadership, Safety & Strategy Changes at Norfolk Southern 12 “Nine train cars derailed at the Lamberts Point terminal in Norfolk on Wednesday morning, officials with Norfolk Southern confirmed to 13News Now.” -Feb. 7, 2024 “The National Transportation Safety Board is investigating a Nor
Slide 13: Our Nominees Possess Relevant Operating and Governance Backgrounds
The Case for Leadership, Safety & Strategy Changes at Norfolk Southern Our nominees possess relevant operating backgrounds, railroad industry expertise, corporate governance knowhow, financial analysis skills, strategy, legislative and regulatory affairs expertise, and public company board experienc
Slide 14: Jim Barber, Jr. as CEO
The Case for Leadership, Safety & Strategy Changes at Norfolk Southern Mr. Barber has a track record of growth and significant experience in operations, supply chain, strategic planning, employee relations and risk management from his 35-year career as a leader in the shipping and logistics industry
Slide 15: Jamie Boychuk as COO
The Case for Leadership, Safety & Strategy Changes at Norfolk Southern 15 • A lifelong railroader with the safety record and scheduled railroading acumen needed to help turn around Norfolk Southern. • Previously served as the Executive Vice President of Operations at CSX, where he led a variety of o
Slide 16: Scheduled Railroading Has Worked
The Case for Leadership, Safety & Strategy Changes at Norfolk Southern • Scheduled railroading has had a profound impact on the operating model of the railroad industry and is credited with significant improvements at Illinois Central Railroad (“Illinois Central”), Canadian National, Canadian Pacifi
Slide 17: Network of the Future Principles
The Case for Leadership, Safety & Strategy Changes at Norfolk Southern • Safety-First Culture – The well-being of our people, business partners and community • Human Capital – People are your #1 asset, ensure you provide recognition and development • Service – Customer-focused, based on reliable ser
Slide 18: The Value Creation Opportunity at Norfolk Southern
The Case for Leadership, Safety & Strategy Changes at Norfolk Southern The Value Creation Opportunity at Norfolk Southern We believe that our slate can provide new leadership and direction for Norfolk Southern. 18 • As demonstrated below, there are at least five areas where we have modeled potential
Slide 19: Safety-First Culture
The Case for Leadership, Safety & Strategy Changes at Norfolk Southern 19 ✓ Instill a safety-based, accountable, disciplined workforce culture that enables employees to take ownership of their work and responsibilities. ✓ An operations-experienced CEO like Mr. Barber can credibly establish a culture
Slide 20: The Problem: Ineffective Management, Failed Strategy, Lax Oversight and Absent Accountability
The Problem: Ineffective Management, Failed Strategy, Lax Oversight and Absent Accountability
Slide 21: Mr. Shaw's Unneeded and Expensive Growth Strategy
The Case for Leadership, Safety & Strategy Changes at Norfolk Southern Mr. Shaw has put in place an unneeded, untried and wildly expensive growth strategy based on driving increased low margin intermodal business with an operational design that has proven detrimental to earnings and ROIC. 21 1 Norfo
Slide 22: Mr. Shaw's Response to the East Palestine Tragedy Was Abysmal
The Case for Leadership, Safety & Strategy Changes at Norfolk Southern 22 NBC News article; The Hill article; CNN article; Associated Press article; CNN Business article; NBC News article; The Independent article; The Hill article; The Ohio Star article. Mr. Shaw’s Response to the East Palestine Tra
Slide 23: TOP|SPG Reverses TOP-21
The Case for Leadership, Safety & Strategy Changes at Norfolk Southern 23 • The TOP-21 operating strategy was released at an Investor Day in February 2019, at which time Norfolk Southern laid out an OR target of 60% by 2021. • TOP-21 was based on responsible PSR principles with demonstrable results
Slide 24: Norfolk Southern's Strategic Shift
The Case for Leadership, Safety & Strategy Changes at Norfolk Southern 24 • Norfolk Southern has the same fundamental strategic objectives as every rail: • Reliable, on-time service. • Highest growth possible. • Deliver service in both weak and strong markets. • No shortage of trained people or equi
Slide 25: Operational Shortcomings Despite Excess Resources
The Case for Leadership, Safety & Strategy Changes at Norfolk Southern 25 • Despite such excess resources, Norfolk Southern’s operation is unable to handle current trough volumes as measured by inferior trip plan compliance metrics, the large number of cars online, the mediocre 72% on-time arrival r
Slide 26: Board Has Sat Idle on Accident Rate and Abandoned Targets
The Case for Leadership, Safety & Strategy Changes at Norfolk Southern 26 • Rather than benchmarking Norfolk Southern’s performance against other Class I railroads, the Board is looking forward to contrasting 2024’s results with 2023’s underwhelming achievements. • The Board has not held management
Slide 27: Strong Boards Demand Accountability Following Major Failures
The Case for Leadership, Safety & Strategy Changes at Norfolk Southern 27 The New York Times article; The Wall Street Journal article; NPR article Strong Boards Demand Accountability Following Major Failures
Slide 28: The Evidence: Underperformance, Shrinking Margins and Tone-Deaf Crisis Response
The Evidence: Underperformance, Shrinking Margins and Tone-Deaf Crisis Response
Slide 29: Norfolk Southern Has Been a Long-Term Underperformer
The Case for Leadership, Safety & Strategy Changes at Norfolk Southern Norfolk Southern’s shares have underperformed the Company’s Class I railroad peers over every relevant period. 29 Source: FactSet, total shareholder returns as of 1/31/2024. Class I Average includes CSX, UNP, CP and CNI. 2022 Inv
Slide 30: Norfolk Southern's Operating Ratio Has Consistently Lagged Peers
The Case for Leadership, Safety & Strategy Changes at Norfolk Southern 30 Source: Company filings, FactSet. Class I Average includes CSX, UNP, CP and CNI. CSX figures exclude Quality Carriers contribution to OR. 64.4% 64.4% 60.6% 61.4% 67.4% 58.4% 58.8% 57.4% 57.5% 59.6% 60.2% 59.1% 58.4% 59.6% 61.1
Slide 31: EBIT Margins Have Worsened Versus Closest Competitor
The Case for Leadership, Safety & Strategy Changes at Norfolk Southern In 2023, the delta in EBIT dollars between Norfolk Southern and CSX was more than $1.6 billion. 31 Source: Bloomberg. $208 $410 $1,041 $944 $876 $880 $976 $1,601 $0 $200 $400 $600 $800 $1,000 $1,200 $1,400 $1,600 $1,800 2016 2017
Slide 32: Three-Year Outlook Indicates Margin Gap to Peers Will Not Close
The Case for Leadership, Safety & Strategy Changes at Norfolk Southern Mr. Shaw’s Three-Year Outlook Explicitly Indicates the Margin Gap to Peers Will Not Close 32 Source: Bloomberg. Outlook slide from NSC’s 4Q23 Earnings Presentation We aren’t going to give you a specific margin target, but it shou
Slide 33: Analysts Have No Confidence in Closing the Margin Gap
The Case for Leadership, Safety & Strategy Changes at Norfolk Southern Analysts have no confidence in current Company leadership’s ability to close the margin gap to peers. 33 Source: Company filings and FactSet. Class I Average includes CSX, UNP, CP, and CNI. CP excluded for historical data due to
Slide 34: Underperformed Peers Across All Relevant Financial Metrics (Cont.)
The Case for Leadership, Safety & Strategy Changes at Norfolk Southern 34 Source: Company filings and FactSet. Class I Peer Average excludes Canadian Pacific in FY 2021 to 2023 due to accounting anomaly from Kansas City Southern acquisition. 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20% 2019 2020 2021 2022
Slide 35: Operating Expense Breakdown vs. CSX
The Case for Leadership, Safety & Strategy Changes at Norfolk Southern 35 Source: Company filings. CSX figures based on rail revenue and excludes estimated expense contribution from Quality Carriers. Norfolk Southern vs. CSX Operating Expense Breakdown Expense Line Items % of Rail Revenue % differen
Slide 36: Purchased Services, Materials, Rents and Other Expenses
The Case for Leadership, Safety & Strategy Changes at Norfolk Southern 36 Source: Company filings. Measures purchased services, rents, materials and other expenses per gross ton mile. CSX figures exclude contribution from Quality Carriers. Estimated impact from Quality Carriers is $140M/quarter begi
Slide 37: Too Many Rail Cars on Its Network
The Case for Leadership, Safety & Strategy Changes at Norfolk Southern 37 Source: Company filings. • Since 2019, Norfolk Southern’s ratio of carloads to cars online is ~15% worse than CSX’s on average. • This trend has only worsened under Mr. Shaw’s tenure as CEO with the current difference -20%. •
Slide 38: Lower Train Speeds and Volume Declines
The Case for Leadership, Safety & Strategy Changes at Norfolk Southern 38 Source: Surface Transportation Board and company filings. Train speed is the average for the year. • Norfolk Southern’s deteriorating service levels have resulted in volume declines worse than CSX and other Class I rail peers.
Slide 39: Rail Cars Are Waiting For Longer
The Case for Leadership, Safety & Strategy Changes at Norfolk Southern 39 Source: Surface Transportation Board and company filings. 1Terminal dwell is the average for the year. • Norfolk Southern’s 2023 terminal dwell, or the time a rail car spends in a terminal awaiting movement toward its destinat
Slide 40: Norfolk Southern's Operations Have Not Improved
The Case for Leadership, Safety & Strategy Changes at Norfolk Southern 40 Source: Company filings. Dwell for NSC and CSX is system-wide. Train Speeds, Terminal Dwell and Volume: Percentage Change of Norfolk Southern vs. CSX From 2019 to 2023 Merchandise CSX -18% 5% -3% -20% 0% 20% 40% Speeds Dwell V
Slide 41: Switches Rail Cars Too Often
The Case for Leadership, Safety & Strategy Changes at Norfolk Southern 41 Source: Company filings (R1 Annual Report). • Norfolk Southern switched manifest cars more than 2x as often as CSX in 2022, extending a gap evident in prior years. • Increased railcar switching requires a vast number of on-sit
Slide 42: Trains Holding for Power and Unplanned Recrews
The Case for Leadership, Safety & Strategy Changes at Norfolk Southern 42 Source: Surface Transportation Board and company filings. Data from May 13, 2022 through the week of December 22, 2023. • In 2023, Norfolk Southern had an average of 11.5 trains per week held/delayed due to lack of necessary l
Slide 43: Manifest Trip Plan Compliance Has Lagged
The Case for Leadership, Safety & Strategy Changes at Norfolk Southern 40% 50% 60% 70% 80% 90% 100% May-22 Jun-22 Jul-22 Aug-22 Sep-22 Oct-22 Nov-22 Dec-22 Jan-23 Feb-23 Mar-23 Apr-23 May-23 Jun-23 Jul-23 Aug-23 Sep-23 Oct-23 Nov-23 Dec-23 NSC CSX 43 Source: Surface Transportation Board. Data from M
Slide 44: East Palestine Derailment Timeline and $1.1 Billion in Charges
The Case for Leadership, Safety & Strategy Changes at Norfolk Southern The Board and management’s flawed response is costly: Norfolk Southern has reserved $1.1 billion in charges so far as a result of the 2023 derailment in East Palestine.1 44 1 Company Form 10-K for fiscal year 2023. Feb. 6, 2023 A
Slide 45: Our Slate's Solution: New Board and Management With a New, Safety-First Strategic Vision
Our Slate’s Solution: New Board and Management With a New, Safety-First Strategic Vision
Slide 46: Nominee Profiles: Atkins and Barber
The Case for Leadership, Safety & Strategy Changes at Norfolk Southern 46 Betsy Atkins • Capital Allocation: CEO and Founder of Baja Corp., a venture capital firm that has focused on software and technology since 1993. • Governance: Director of SL Green Realty Corp. (NYSE: SLG), SolarEdge Technologi
Slide 47: Nominee Profiles: Fahmy, Kasich and Others
The Case for Leadership, Safety & Strategy Changes at Norfolk Southern 47 Former railroad and transportation industry executive with safety, supply management, engineering and mechanical experience. Former Ohio governor and congressman with significant regulatory, legislative and executive policy ex
Slide 48: The Winning Ticket: Jim Barber as CEO and Jamie Boychuk as COO
The Case for Leadership, Safety & Strategy Changes at Norfolk Southern 48 BARBER BOYCHUK ’24 The Agenda The Winning Ticket: Jim Barber as CEO and Jamie Boychuk as COO
Slide 49: Our CEO Candidate Has the Investment Community's Respect
The Case for Leadership, Safety & Strategy Changes at Norfolk Southern 49 Jim Barber, Jr. “Barber in our view was a likely successor to [former UPS] Chairman and CEO David Abney.” “Barber is highly regarded as a logistics operator who helped turnaround U.S. peak season problems at UPS during his ten
Slide 50: Jim Barber, Jr. vs. Alan Shaw
The Case for Leadership, Safety & Strategy Changes at Norfolk Southern 50 Jim Barber, Jr. Alan Shaw × Non-operating background in marketing and sales, industrial development, real estate and customer relations. Was in coal, chemicals and financial staff roles during his first 20 years at Norfolk Sou
Slide 51: Our Slate Has Proven Railroad Industry and Well-Rounded Experience
The Case for Leadership, Safety & Strategy Changes at Norfolk Southern 51 ATKINS BARBER, JR. CLYBURN, JR. CONNORS FAHMY KASICH LAMPHERE LANDRY RAILROAD OR TRANSPORTATION EXPERTISE LOGISTICS & SUPPLY CHAIN MANAGEMENT GOVERNMENT AFFAIRS HUMAN CAPITAL MANAGEMENT & COMPENSATION EXECUTIVE EXPERIENCE FINA
Slide 52: Safety Metrics Improved Once Scheduled Railroading Was Implemented
The Case for Leadership, Safety & Strategy Changes at Norfolk Southern Illinois Central (1993-1997) Canadian National (2003-2007) Canadian Pacific (2011-2015) CSX (2017-2021) Railroads Have Seen Safety Metrics Improve Once Scheduled Railroading Principles Were Implemented Source: Company filings, FR
Slide 53: The Value Creation Opportunity at Norfolk Southern
The Case for Leadership, Safety & Strategy Changes at Norfolk Southern The Value Creation Opportunity at Norfolk Southern We believe that our slate can provide new leadership and direction for Norfolk Southern. 53 • As demonstrated below, there are at least five areas where we have modeled potential
Slide 54: Appendix
Appendix
Slide 55: Why Mr. Shaw's TOP|SPG Strategy Is Flawed
The Case for Leadership, Safety & Strategy Changes at Norfolk Southern 55 • Carrying high overhead to gain market share. • This strategy is untested, hypothetical analytically unsubstantiated and depends on competitive responses and market conditions including truck pricing. There is no basis for su
Slide 56: Why Mr. Shaw's TOP|SPG Strategy Is Flawed (Cont.)
The Case for Leadership, Safety & Strategy Changes at Norfolk Southern 56 • Altering operation to clear congestion for intermodal through trains. • Reversing the strategy of blocking merchandise consists at point of origination or enroute and forcing them instead into yards has resulted in the numbe
Slide 57: Why Mr. Shaw's TOP|SPG Strategy Is Flawed (Cont.)
The Case for Leadership, Safety & Strategy Changes at Norfolk Southern 57 • A pricing and operation design strategy enabling intermodal to grow at an accelerated rate will lead to even further congestion. • On average it takes three to four intermodal cars to equal the EBIT of one merchandise car. •
Slide 58: Why Mr. Shaw's TOP|SPG Strategy Is Flawed (Cont.)
The Case for Leadership, Safety & Strategy Changes at Norfolk Southern 58 Why Mr. Shaw’s TOP|SPG Strategy Is Flawed (Cont.) • Use of “accretive to the OR” and “incremental margins.” • A short-term strategy that accelerates rapid onboarding of lower margin intermodal. • Is misleading accounting – all