Slide 1: CSX: The Case for Change
CSX: The Case for Change The Children’s Investment Fund Management (UK) LLP (“TCI”) & 3G Capital Partners, Ltd. (“3G”) June 2008 The Children’s Investment Fund Management (UK) LLP, 7 Clifford Street, London, W1S 2WE, UK 3G Capital Partners, Ltd. c/o 3G Capital Inc., 800 Third Avenue, 31st Floor, New
Slide 2: Disclaimer
Disclaimer THIS PRESENTATION IS FOR GENERAL INFORMATIONAL PURPOSES ONLY. IT DOES NOT HAVE REGARD TO THE SPECIFIC INVESTMENT OBJECTIVE, FINANCIAL SITUATION, SUITABILITY, OR THE PARTICULAR NEED OF ANY SPECIFIC PERSON WHO MAY RECEIVE THIS PRESENTATION, AND SHOULD NOT BE TAKEN AS ADVICE ON THE MERITS OF
Slide 3: Quote from Paul Tellier on skeptics in railroading
3 “There will always be skeptics. We hear their voices whenever we try to do something that has never been done before in railroading” Paul Tellier, former CEO of Canadian National, 2000 Source: 2000 Canadian National Annual Report
Slide 4: Table of Contents
4 Table of Contents Page # I. EXECUTIVE SUMMARY AND BACKGROUND Executive Summary 10 Our Nominees vs. CSX Nominees 11 Quotes Indicating the Quality of Our Nominees Our Vision for CSX 13 14 Key Questions we are Asking 15 Overview of TCI 16 How TCI Formed its View 18 Overview of 3G Capital Why Did it C
Slide 5: Table of Contents (continued)
5 Table of Contents (continued) 25 Industry Share Performance Indicates ‘Rising Tide Lifting All Boats’ Page # II. THE TRUTH ABOUT CSX PERFORMANCE (continued) Productivity Seems to have Stalled 26 Recent Performance Not as Good as it Looks 27 The Gap to Canadian National is Widening The CSX Defense
Slide 6: Table of Contents (continued)
6 Table of Contents (continued) 38 CSX vs. Canadian National 47 48 Further Opportunities – Safety Realizing Even Part of the Opportunity is Hugely Valuable 40 Overview of the Canadian National Model 41 CSX Benchmarked to Canadian National Page # III. THE PRODUCTIVITY OPPORTUNITY (continued) Michael
Slide 7: Table of Contents (continued)
7 Table of Contents (continued) 51 Is there a Smarter way to Price? 52 CSX vs. Norfolk Southern Pricing Comparison V. CAPITAL ALLOCATION AND STRUCTURE Page # IV. THE PRICING DISCOUNT Relationship between Compensation Metric and Capex 54 Contrasting Statements of Rail CEOs on Capex 55 Analysis of Vol
Slide 8: Table of Contents (continued)
8 Table of Contents (continued) 70 Board Not Interested in Allowing Shareholders a Voice 68 Entrenchment/Enrichment Actions by Board and Management Page # VI. SPECIFIC CORPORATE GOVERNANCE CONCERNS Shareholder Pressure has been Required for Positive Change 65 Highest Industry Pay for Lagging Industr
Slide 9: Table of Contents (continued)
9 Table of Contents (continued) 77 Brief Bios of Our Nominees 78 Brief Bios of Incumbent Directors Page # VII. APPENDIX Nominee Bio: Chris Hohn 79 Nominee Bio: Alex Behring 80 Nominee Bio: Gil Lamphere 81 Nominee Bio: Tim O’Toole 82 Nominee Bio: Gary Wilson 83 Back-up Data for Slide 24 84 Back-up Da
Slide 10: Executive Summary
10 Executive Summary What is the opportunity? We believe CSX can be the best railroad in America CSX’s earnings power is double what management is targeting to achieve Strong industry-wide pricing has flattered performance, stock price and compensation Productivity is the ‘unsung’ opportunity, but r
Slide 11: The Choice
11 The Choice Chris Hohn Managing Partner of TCI Alex Behring Managing Director of 3G & former CEO of ALL railroad (~10 years of railroad experience) Gil Lamphere Former director Canadian National and Illinois Central (~20 years of railroad experience) Tim O’Toole MD of London Underground & former C
Slide 12: What Our Nominees Will Add To The Board
12 What Our Nominees Will Add To The Board No railroad operating experience (excluding CEO) Philanthropist Doctor Business School Professor Jacksonville Contractor Chairman is CEO and President Average director tenure of ~10 years 5 directors have served longer than 14 years Total CSX stock ownershi
Slide 13: Independent Views On Our Nominees
13 Independent Views On Our Nominees “The Group presented an impressive list of Board candidates” Ed Wolfe, Bear Stearns (December 10, 2007) “In the long run, we believe the board nominations could be a positive The board members include several individuals with solid railroad backgrounds and/or fin
Slide 14: Our Vision For CSX
14 Our Vision For CSX “Our goal is a strong CSX that can provide the returns shareholders deserve, the service shippers demand, a safety record communities can count on, and a working environment employees can be proud of” (1) ‘Best In Class’ Corporate Governance Global best practice in management a
Slide 15: Key Questions We Are Asking
15 Key Questions We Are Asking Is this Board capable of holding management accountable? Is this Board working for shareholders or for management? Corporate Governance Productivity Opportunity Why does CSX lag peers on nearly every operational metric? Why does CSX have barely half the profitability o
Slide 16: The Children's Investment Fund Management UK LLP (TCI)
16 The Children’s Investment Fund Management UK LLP (“TCI”) London based investment firm with $15bn+ AUM Owner oriented approach to investing long-term, fundamental, value-focused conviction based on deep fundamental research Multi-year locked up capital Have fought for shareholders to have a voice
Slide 17: Performance of the TCI Master Fund
Performance of the TCI Master Fund Performance is gross of fees and expenses and is that of the Master Fund; dividends are reinvested. However, investments are made into feeders of the fund and not into the Master Fund and, thus, performance would be net of fees for the appropriate share class of th
Slide 18: How TCI Formed Its View
18 How TCI Formed Its View Met top management of all major NA railroads(1) Retained advisors to assist understanding Five industry consultants (pricing, ops, capex) Two DC law firms (legislation/regulation) DC lobbying firm (legislation/regulation) Numerous discussions with key stakeholders Dozens o
Slide 19: 3G Capital Partners, Ltd (3G)
19 3G Capital Partners, Ltd (“3G”) New York based investment firm Focus on global equities and special situations Leverage deep industry knowledge and operating experience to identify attractive long-duration investments Managing Director Alex Behring served as CEO of Latin America’s largest railroa
Slide 20: Why Did It Come To This?
20 Why Did It Come To This? Prior to the proxy contest, TCI tried for over a year to engage in a constructive dialogue with CSX management and board: Requests to meet privately with Mr. Ward (denied) Requests to meet privately with Mr. Munoz (granted a single one-on-one meeting, deemed “listen-only”
Slide 21: The Truth About Performance
21 The Truth About Performance “If what you did yesterday seems big, you haven’t done anything today” Lou Holtz Source: http://www.louholtzhalloffame.com/ Holtz is the only coach in NCAA history to lead six different programs to bowl games and the only coach to guide four different programs to final
Slide 22: CSX is a laggard on key operational metrics
22 The Truth About Performance The Simple Truth – CSX is a laggard on key operational metrics Velocity Dwell Time Accident Rate Labor/Sales Cost Inflation Cost / Unit Inflation CN CN NSC CN NSC CN BNSF NSC CN BNSF CN UP UP CSX CSX NSC UP NSC NSC BNSF BNSF UP CSX CSX CSX UP UP CSX BNSF BNSF Differenc
Slide 23: Customer surveys confirm poor performance relative to peers
23 Morgan Stanley Research Q. Delivery When Expected? Sep 07 Apr 08 NSC NSC BN BN CN UP CSX CSX UP CN Credit Suisse Research % Of Shippers Rating Service “Fair” or “Poor” NSC 8% BN 18% UP 36% CN 37% CSX 54% Source: Morgan Stanley Research April 18, 2008. Credit Suisse Research April 14,2008. Morgan
Slide 24: Sources of EBIT growth 2003-2007
$0m $500m $1,000m $1,500m $2,000m $2,500m 2003 EBIT Reported 2003 EBIT Adjusted Inflationary Pricing/Costs Real Pricing Volume Productivity 2007 EBIT Adjusted 2007 EBIT Reported 24 Source: Group analysis of 2003 and 2007 Quarterly Financial Reports. Inflationary Pricing/Costs assumes annual growth o
Slide 25: Industry stock performance confirms rising tide lifting all boats
25 Source: Bloomberg Total Return Analysis, 31st December 2003 through 31st December 2007. Michael Ward was appointed CEO of CSX in January 2003, current management team all together from early 2004 The Truth About Performance Industry stock prices performance confirms ‘rising tide lifting all boats
Slide 26: Productivity seems to have stalled
-3.0% -2.0% -1.0% 0.0% 1.0% 2.0% 3.0% 4.0% 2001 2002 2003 2004 2005 2006 2007 -6.0% -4.0% -2.0% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% Productivity Yield Growth 26 The Truth About Performance Productivity, which is under management’s control, seems to have stalled Productivity has been declining at CS
Slide 27: Recent performance flattered by non-recurrings
27 The Truth About Performance Recent performance flattered by non-recurrings, it’s not as good as it looks... Q1 2008 Non-Fuel Cost Growth -0.4% 1.8% 0.9% 3.2% Total Costs Costs Per Unit Reported Financials Adjusted Financials Q1 2008 performance flattered by $38m of “one off” serious derailment ex
Slide 28: Gap to Canadian National is widening
1.20 1.30 1.40 1.50 1.60 1.70 1.80 2002 2003 2004 2005 2006 2007 Cents (USD) / GTM CSX Cost CN Cost (Constant FX) 28 The Truth About Performance And the gap to industry leader, Canadian National, is actually widening In 2002 CSX’s costs/GTM were 11% higher than CN. In 2007 the gap widened to 28% Sou
Slide 29: The CSX Defense
29 The Truth About Performance The CSX Defense Letter from CSX CEO to shareholders (April 30, 2008) “Dear Fellow Shareholder: On April 15, 2008, your Company extended its track-record of outstanding performance, announcing record-breaking first quarter earnings. CSX reported an increase of 63% in ea
Slide 30: Stock performed in line with railroads until the proxy contest
30 Source: Bloomberg Total Return Analysis, 31st December 2003 through 31st December 2007. Michael Ward was appointed CEO of CSX in January 2003, current management team all together from early 2004. Return since TCI/3G announced proxy contest is from 18th December 2007 to 9th May 2008 The Truth Abo
Slide 31: 15 year stock price performance
31 Source: Capital IQ. Share price reflects weekly data and performance is indexed as of May 1993. CNI indexed as of November 2006 IPO on NYSE The Truth About Performance 15 year stock price performance tells a more complete story average...
Slide 32: The Productivity Opportunity
32 The Productivity Opportunity “Perhaps the most ingrained barrier is human nature, the tendency to stick with the familiar and the comfortable, to keep doing things the way we’ve always done them” Hunter Harrison, CEO of Canadian National (on the barriers to change) Source: How We Work and Why by
Slide 33: Productivity can offset cost inflation and accommodate free growth
33 The Productivity Opportunity Productivity can offset cost inflation and accommodate free growth We believe that over the next decade CSX can achieve, as a result of productivity improvement: Zero cost inflation 1% volume growth per year (without growth capex) Implications $2.2bn run-rate EBIT imp
Slide 34: Summary of potential benefits
The Productivity Opportunity Summary of potential benefits Issue Benefit ($mm) Potential Actionable Opportunities Emulating CN’s Revolution. Becoming a Scheduled Precision Railroad 1,800 Dramatically improve yard operations, consolidate freight, and optimize scheduling Increase velocity 3mph (12%),
Slide 35: CN went from worst to first while CSX stood still
35 The Productivity Opportunity CN went from “worst to first” in industry profitability, while CSX stood still Source: Reported financial statements. 1995 chosen because its the year prior to CNI IPO, 1998 was the first year of CNI scheduled railroad. (1) Canadian National Annual Report 2000 referri
Slide 36: Focus on dwell in a typical shipment
Mainline Train 36 The Productivity Opportunity Focus on dwell, as cars move only 10% of the time in a typical shipment Loading Process at Shipper Wait at Local Yard to build train Switched at System Yard Switched at Regional Yard Switched at Regional Yard Wait at Destination Yard to split Unloading
Slide 37: Why is Canadian National a good model?
37 The Productivity Opportunity Why is Canadian National a good model? Canadian National (“CN”) is the best-in-class railroad Most profitable and most productive railroad in America (margins 60% higher than CSX) CN went from “worst” to “first” in industry profitability. It can be done, despite skept
Slide 38: Arguments against using CN as the model
38 The Productivity Opportunity The arguments against using CN as the model are often one-sided CN has a simple “T” network, CSX is complex CSX’s complex network is really a few simple networks as well CN benefits from nationalized healthcare Payroll taxes, FELA and healthcare differences are worth
Slide 39: Michael Ward vs. Hunter Harrison
“People who really understand the industry would not draw direct comparisons between an American railroad and a Canadian Railroad” “They do not run through many urban centers” “It’s a very streamlined railroad, it’s sort of a “T” if you will” “Very different health and welfare system” “A lot of thei
Slide 40: What is the Canadian National model?
40 The Productivity Opportunity What is the Canadian National model? (1) Canadian National Fact Sheet. Other source: discussions with CN management Optimize railroad better service better value for customer customers help optimize Precision Scheduled Railroading Every railcar has a trip plan “Every
Slide 41: CSX metrics worse than CN pre-revolution
41 The Productivity Opportunity CSX’s metrics are generally worse than CN’s were pre-revolution CN 1998 CN Improvement CN Today CSX Today CN Advantage vs. CSX Carloads (000s) / Hump and Major Flat Yard(1) NA 206 66 212% Gross Ton Miles (bn) / Horse Power (mm) (2) 41 33% 55 33 67% Miles / Car / Day (
Slide 42: Capacity created by emulating CN's revolution
42 The Productivity Opportunity How much capacity could CSX theoretically create by emulating CN’s revolution? Source: Group analysis. Velocity, Dwell, Handlings, Hours / Load/Unload, and Cars / Train as per previous footnote. Average Haul per Analysis of Class I Railroads 2006, AAR. ( 1) Improve to
Slide 43: Analysis ties closely with what happened at CN
43 The Productivity Opportunity Although only indicative, our analysisties closely with what happened at CN Source: Group Analysis. CN Average haul per discussion with company management. Velocity, dwell, and handling per previous footnote. Capital expenditures per CN Annual Reports and maintenance
Slide 44: Further opportunities – Locomotives
The Productivity Opportunity Further opportunities – Locomotives NS CSX % Diff Locomotive Opex / HP 24 33 +37% Locomotive Opex ($k) / Locomotive 82 116 +41% Locomotive Opex ($k) / GTM (Bn) 737 827 +12% Locomotive Opex ($mm) 309 424 +37% Age of Fleet (Yrs) 18 19 HP / Locomotive 3,367 3,475 Source: 20
Slide 45: Further opportunities – Fuel
1.24 1.13 1.05 1.10 1.15 1.20 1.25 CSX CN The Productivity Opportunity Further opportunities – Fuel Opportunity to consume 9% less fuel Source: 2007 Q4 Reports for CSX and CN. Savings based on CSX Q407 average price of fuel Why does CSX consume more fuel per GTM than CN, despite CSX having a younger
Slide 46: Further opportunities – Labor Productivity
The Productivity Opportunity Further opportunities – Labor Productivity Source: Independent consultant, 2006 R1 Reports for CSX and NSC, AAR and STB reports CSX NSC % of Hours Paid but Not Worked 23% 12% Transportation Wage $1,046m Savings @ 12% $150m 23% of the hours CSX pays for do not actually ge
Slide 47: Further opportunities – Safety
FRA Personal Injuries Frequency Index 1.10 1.14 1.18 1.22 NS CSX Accidents per million train miles Caused by Human Factor 0.90 0.95 1.00 1.05 1.10 NS CSX Accidents per million train miles 2.0 2.2 2.4 2.6 2.8 3.0 NS CSX The Productivity Opportunity Further opportunities – Safety (unquantifiable) Acci
Slide 48: Realizing even part of the opportunity is hugely valuable
48 The Productivity Opportunity Realizing even part of the opportunity is hugely valuable % of Productivity Benefits Achieved 2007 25% 50% 75% 100% Op. Income $2,224m 2,774 3,324 3,874 4,424 Increase 25% 49% 74% 99% EPS $2.70 $3.50 $4.30 $5.11 $5.91 Increase 30% 59% 89% 119% Source: Group analysis a
Slide 49: Management guidance can be achieved by pricing alone
49 The Productivity Opportunity Management guidance can be achieved by pricing alone Management target of low 70s Guidance, like past performance, seems to rely almost solely on pricing Source: Group analysis, CSX 10K. 2008 price growth based on management guidance of 6%+. Cost Inflation of 3% in li
Slide 50: Pricing Discount
50 Pricing Discount A picture is worth a thousand words. . .
Slide 51: Is there a smarter way to price?
51 Pricing Discount Is there a smarter way to price? US railroad pricing models haven’t really changed since deregulation What can we learn from other models? Airline yield management – uses price to ‘balance’ demand across times of day, days of week and weeks of year. It is our understanding that C
Slide 52: Why does CSX price at a deep discount to Norfolk Southern?
2 3 4 5 6 7 8 Coal Intermodal All Other Total Norfolk Southern CSX 52 Pricing Discount Why does CSX price at a deep discount to Norfolk Southern? Source: Group analysis of CSX and Norfolk Southern Q4 Financial Reports Comparison of Revenue per Revenue-Ton-Mile for Key Commodities (cents) NS versus C
Slide 53: Capital Allocation And Structure
53 Capital Allocation And Structure “Over time, the skill with which a company’s managers allocate capital has an enormous impact on the enterprise’s value.” Warren Buffet Source: Ber kshire Hathaway Letter To Shareholders, 1994
Slide 54: How can we be comfortable management will be disciplined?
54 600 1,000 1,400 1,800 2001 2002 2003 2004 2005 2006 2007 2008F 2009F 2010F $m Capital Allocation And Structure How can we be comfortable management will be disciplined? Until early 2006, CSX management were compensated on Free Cash Flow But now, long term compensation is based largely on the oper
Slide 55: Contrast between other railroad CEOs and Michael Ward on capex
55 Capital Allocation And Structure How can we be comfortable management will be disciplined? “As a private company, BNSF will only invest in added capacity to the extent we believe we can earn an adequate return on those investments.” Matt Rose, CEO of Burlington Northern “The owners of the Union P
Slide 56: Is the capital expenditure budget economically justifiable?
56 Capital Allocation And Structure Is the capital expenditure budget economically justifiable? Volumes Declining, and yet Capex Increasing Source: Group analysis of CSX 10K Reports and Q4 Financial Reports (1) See next slide for backup. (2) CSX’s announced capex plan contains $1.6bn of expansion ca
Slide 57: Management has consistently over-estimated volume growth
Capital Allocation And Structure CSX management has consistently over-estimated volume growth 57 Management’s consistent over-estimation of growth is concerning Source: CSX Investor Day Presentation, 11 August 2005, Q4 2005 Earnings Call (January 24, 2006), Q3 2006 Earnings Call (October 18, 2006),
Slide 58: Is there significant deferred maintenance liability?
(10) (8) (6) (4) (2) 0 2 4 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 -400 -300 -200 -100 0 100 200 Tie Cumulative Surplus/Deficit (MM) Rail Cumulative Surplus/Deficit (Miles) Capital Allocation And Structure Is there significant def
Slide 59: Network performance doesn't indicate deferred maintenance
Capital Allocation And Structure Network performance doesn’t indicate deferred maintenance either 59 0.0 1.0 2.0 3.0 4.0 5.0 6.0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 CSX % NS% UP% BNSF% % of Tracks w/ Slow Orders Slow Orders (1997 – 2006) Network Caused Accident Rate (2007) Network Acci
Slide 60: Factors to consider in capital structure
60 Capital Allocation And Structure Factors to consider in capital structure Infrastructure asset Pricing stability Diverse revenue base Non-core real estate Low-cost provider Cost opportunities Fixed cost base Capital intensive Strength of Business Serviceable Leverage Volatility of Cash flows Down
Slide 61: What is the appropriate capital structure for CSX?
61 Capital Allocation And Structure What is the appropriate capital structure for CSX? CSX Today 2x Net Debt / EBITDA Each Incremental 1x Net Debt / EBITDA Net Debt ($bn) $6.5bn $3bn (EBITDA – Maint capex) / Interest 4.6x - Potential decline in EBITDA possible(1) 49% 7% less New Capital Raised For I
Slide 62: Even in a severe downturn EBITDA is relatively resilient
2007A Downside % Revenue / Unit 1,409 1,452 3% Units 7,116 6,760 -5% Revenue 10,030 9,814 -2% Operating Costs 5,708 5,850 2% Depreciation 883 909 3% Diesel 1,210 1,150 -5% Total Costs 7,801 7,909 1% EBIT 2,229 1,906 -15% Margin 22% 19% EBITDA 3,112 2,815 -10% Margin 31% 29% % of Total Costs Fixed 77
Slide 63: Diversity of revenue base limits volume downside
63 Intermodal = 14% Structural growth from trade/share gain Can be cyclical in short term Capital Allocation And Structure Diversity of revenue base limits volume downside 26% 14% Coal = 26% Utility coal used for heating/lighting/AC Stable over time Short term weather/inventory influence Agriculture
Slide 64: Corporate Governance
64 Corporate Governance Management are operators, Boards are trustees, Shareholders are owners
Slide 65: Shareholder pressure has been required to force positive change
65 Corporate Governance Concern: shareholder pressure has been required to force positive change Pre-Shareholder Pressure Now SHARE BUYBACKS $500 million over 1 year(1) $3 billion over 2 years (6x) (but now buying stock 30% more expensive and paying 2x spread over LIBOR as would have in Q1 07) SHARE
Slide 66: Highest industry compensation for lagging performance
66 Corporate Governance Concern: highest industry compensation for lagging industry performance 2007 CSX NSC BNI UNP CN TOTAL EXECUTIVE COMPENSATION (top 5 executives) $38m $32m $20m $23m $19m AVERAGE NON-EXEC DIRECTOR COMPENSATION $343k $266k $258k $175k $306k TOTAL “GOLDEN PARACHUTE” PAYMENTS $95m
Slide 67: Board and management lack conviction in CSX value
67 Corporate Governance Concern: Board and management don’t seem to have conviction in CSX value Last Two Years Activity In CSX stock Senior Management Team Board TOTAL GRANTS $28.9m $5.3m TOTAL SALES $(38.9)m $(1.1)m TOTAL OPEN MARKET PURCHASES $0m $0m CHANGE IN NET EXPOSURE TO CSX $(10.0)m $4.2m S
Slide 68: Is the Board working for shareholders or management?
68 Corporate Governance Concern: is the Board working for shareholders or management / themselves? Allegedly approved “spring loaded” grants, in violation of Insider Trading Policy Allegedly allowed abusive use of The Greenbrier(1) Changed compensation basis to Operating Ratio (easily manipulated)(2
Slide 69: Disingenuous attempt at special meeting bylaw
69 Corporate Governance Concern: disingenuous attempt at special meeting bylaw Shareholders vote for ability to call special meetings (passed 2:1), May 07 “At first glance, the bylaw would appear to be positive for shareholders.....A closer reading, however, casts doubt on the bylaw’s impact.” (ISS,
Slide 70: Board not interested in allowing shareholders a voice
70 Corporate Governance Concern: Board not interested in allowing shareholders a voice without ties TCI/3G Concessions Conceded on number of board seats Offered to work with CSX Board to find mutually agreeable directors Suggested leaving contentious issue of separating Chairman/CEO roles to a share
Slide 71: Filing baseless lawsuit to manipulate shareholder vote
71 Corporate Governance Concern: filing baseless lawsuit to manipulate shareholder vote The Truth CSX’s Major Allegations TCI/3G have an agreement with swap counterparties to vote stock (if any) hedging swaps TCI/3G formed a group much earlier than disclosed TCI/3G are seeking control of CSX There i
Slide 72: Harassment and intimidation of workers
72 Corporate Governance Concern: harassment and intimidation of workers In March 2008 the Federal Railroad Administration published “CSX Transportation Harassment and Intimidation Investigation”: The investigation followed an August 2006 joint letter from the two largest rail unions (UTU and BLET) c
Slide 73: Spring-loading and violations of Insider Trading Policy
73 Corporate Governance Concern: “spring-loading” and violations of Insider Trading Policy Major Allegations against Board and Michael Ward Setting “spring-loaded” grants for CSX executives Set grants while in possession of material non-public information, in violation of Insider Trading Policy and
Slide 74: Alleged abusive use of The Greenbrier
74 Corporate Governance Concern: alleged abusive use of the The Greenbrier The former Greenbrier President has alleged widespread abuse of the resort by executives and Board members, who treat it as their own private country club. Allegations include: Unaccounted for use, “comped” use, and unpaid ta
Slide 75: Our concerns are shared
75 Corporate Governance Our concerns are shared... Source: Large four US railroads refers to the four largest Class I US railroads: Norfolk Southern, CSX, Burlington Northern Santa Fe, Union Pacific. An example of Warren Buffet’s investment philosophy: ‘As time goes on, I get more and more convinced
Slide 76: Appendix
Appendix
Slide 77: Our Nominees
77 Our Nominees Chris Hohn Founder/Managing Partner of TCI Long track record of successful fundamental investing Vocal advocate for strong corporate governance globally TCI owns over 4% of CSX’s shares MBA (high distinction), Harvard Gil Lamphere Long track record as successful railroad investor / b
Slide 78: Existing Board
78 Existing Board Donna Alvarado Founder & President of Aguila International Former Deputy Assistant Secretary of Defense Director: Correction Corp of America, Ohio Board of Regents Age 59; 1 year on CSX Board John Breaux Partner, Breaux-Lott Leadership Group Former US Senator (Louisiana) 1986-2005
Slide 79: Our Nominees – Christopher Hohn
79 Our Nominees Christopher Hohn (41) Before founding TCI in 2003, Mr. Hohn spent seven years at Perry Capital and was the portfolio manager leading its European investment strategy from 1997 to 2003. Mr. Hohn has previously served on the Board of RIT Capital Partners plc, which is publicly listed o
Slide 80: Our Nominees – Alexandre Behring
80 Our Nominees Alexandre Behring (41) Mr. Behring is the Managing Director of 3G, a private investment firm. Previously, he spent 10 years at GP Investments, Latin America’s largest private-equity firm, including eight years as a Partner and Member of the firm’s Investment Committee. He served for
Slide 81: Our Nominees – Gilbert Lamphere
81 Our Nominees Gilbert Lamphere (55) Mr. Lamphere is the Managing Director of Lamphere Capital Management, a private investment firm. Previously, he was a Director of Canadian National Railway, Chairman of Illinois Central Railroad prior to its sale to Canadian National in 1998, and a Director of F
Slide 82: Our Nominees – Timothy O'Toole
82 Our Nominees Timothy O’Toole (52) Mr. O’Toole has over 25 years of railroad industry experience. He is currently the Managing Director of the London Underground, where he is responsible for operating and rebuilding the Tube, the world’s oldest metropolitan railway. Previously, he served as Presid
Slide 83: Our Nominees – Gary Wilson
83 Our Nominees Gary Wilson (68) Mr. Wilson was a principal investor and Co-Chairman of the Board of Northwest Airlines from 1991 to 1997 and Chairman from 1997 to 2007. From 1985 to1990, he was Chief Financial Officer and a director of The Walt Disney Company and served on its Board until 2006. Pri
Slide 84: Back-Up Data For Slide 24
84 Back-Up Data For Slide 24 CSX 2007 Reported Operating Income 2,251 - Gains on Insurance Recoveries (28) + Serious Derailments in Q1 38 - 80% of $56m Personal Injury Reserve in Q4 (45) - 80% of $30m Personal Injury Reserve in Q2 (24) - 1/7 of previously taken Personal Casualty Claim (33) CSX 2007
Slide 85: Back-Up Data For Slide 26
85 Back-Up Data For Slide 26 CSX 2007 Reported Total Expenses 7,779 + Gains on Insurance Recoveries 28 - Serious Derailments in Q1 (38) + 80% of $56m Personal Injury Reserve in Q4 45 + 80% of $30m Personal Injury Reserve in Q2 24 + 1/7 of previously taken Personal Casualty Claim 33 CSX 2007 Adjusted
Slide 86: Back-Up Data For Slide 27
86 Back-Up Data For Slide 27 Q1 2007 Q1 2008 Q4 2006 Q4 2007 CSX Reported Non-Fuel Operating Expenses 1,653 1,646 1,620 1,611 + Insurance Recoveries 18 2 27 8 - Serious Derailments -38 + 80% of change in Personal Injury Reserves 45 CSX Adjusted Non-Fuel Operating Expenses 1,633 1,648 1,647 1,664 Vol