Norfolk Southern Corporation · NYSE:NSC
Norfolk Southern — Merger or Acquisition (December 2015)
29 slides from Norfolk Southern's merger presentation, Dec 4, 2015
Slide 1: Investor Presentation December 4, 2015
1 Investor Presentation December 4, 2015 Jim Squires Chairman, President, and Chief Executive Officer
Slide 2: Forward-Looking Statements
Forward-Looking Statements 2 Certain statements in this presentation are forward-looking statements within the meaning of the safe harbor provision of the Private Securities Litigation Reform Act of 1995, as amended, including but not limited to statements regarding the indication of interest made b
Slide 3: Agenda
Agenda 3 Norfolk Southern Overview Norfolk Southern’s Strategic Plan Financial Update Board of Directors Evaluation of CP Indication of Interest
Slide 4: Norfolk Southern Overview: Volume Mix (YTD 9/30/15)
Volume Mix (YTD 9/30/15) 77% of U.S. population 65% of U.S. manufacturing 55% of total energy consumption in the U.S. Estimated 50M+ long-haul* truck shipments in our service area Extensive port access Intermodal 51% Coal 15% General Merchandise 34% 4 Norfolk Southern Overview Note: * Over
Slide 5: Strong Network Supports Future Growth
Strong Network Supports Future Growth 5
Slide 6: Strategic Plan
Strategic Plan Consistently Deliver Efficient and Superior Service to Build a More Profitable Franchise Key Initiatives Revising Operating Model Improving Network Performance Addressing Customer Needs Managing Headcount Improving Locomotive Productivity 6 Norfolk Southern Strategic Plan Pr
Slide 7: Strategic Plan Operating and Financial Targets
Strategic Plan Operating and Financial Targets 7 Increase asset utilization Optimize revenue – both pricing and volume Double-digit compound annual EPS growth Improve productivity to deliver efficient and superior service Reward shareholders with significant return of capital Operating Ratio < 70 Fo
Slide 8: Norfolk Southern's Strategic Plan
8 Norfolk Southern’s Strategic Plan
Slide 9: Adapting to a Changing Environment
Near-Term Challenges: ‒ Commodity pricing and foreign exchange rates ‒ Structural changes to coal markets ‒ Decreased fuel surcharge revenues ‒ Truckload capacity Opportunities: ‒ Consumer-driven markets ‒ International and domestic intermodal gains long-term ‒ Operational improvements Operati
Slide 10: Key Operating Improvement Initiatives
Service Levels Approaching All-Time Best Triple Crown Restructuring On Track Roanoke Closure Complete Streamlining of Coal Network Headcount Reduction in Non-Agreement Workforce Key Operating Improvement Initiatives 10 Rationalizing Assets and Resources − Streamlining switching yards and terminals −
Slide 11: Positive Operational Momentum
11 * Most Current Data Available Positive Operational Momentum A faster railroad is a less expensive and more profitable railroad 50% 55% 60% 65% 70% 75% 80% 85% 90% Ja n Fe b M ar A p r M ay Ju n Ju l A u g Se p O ct N o v D ec Composite Service Performance (1) Current: 82% Train Speed (2) Better (
Slide 12: Ongoing Operating Initiatives
Ongoing Operating Initiatives Rationalizing Switching Yards and Terminals 12 Completed Moorman Yard at Bellevue Closed Buckeye Hump Yard in 2009 Closed Roanoke Hump Yard in 2013 Evaluating closure of additional yards Near-term focus on making hump yards more efficient Reducing Secondary Ma
Slide 13: Financial Update
13 Financial Update
Slide 14: Foundations of Strategic Plan
Improved Pricing Volume Growth Reduction in Capital Spending Operating Improvement Initiatives Operating Ratio Below 65 Pursue Disciplined Capital Allocation Strategy While Investing Appropriately in the Network Foundations of Strategic Plan 14 Realizable strategy to drive long-term valu
Slide 15: Driving Revenue Growth
Optimize pricing based on business and market dynamics Contribution growth from service-sensitive traffic Align price, volume, service, capacity and investment Pursue tuck-in M&A opportunities to enhance existing network Driving Revenue Growth 15 Increases in general merchandise and intermod
Slide 16: Current Market Trends
16 Current Market Trends Near-Term Challenges Long-Term Outlook Commodity Markets Domestic Intermodal International Intermodal Low commodity prices and strength of the U.S. dollar impacting demand Stabilization of commodity volumes in 2016 due to: − Less volatile pricing − Utility Coal clearing
Slide 17: Anticipated Growth in Other Consumer-Driven Markets
Anticipated Growth in Other Consumer- Driven Markets 17 Sources: WardsAuto; EIA; NAHB Housing Market Index Automotive ‒ North American vehicle production projected to increase Ethanol ‒ Production and consumption to increase Basic Chemicals and Plastics ‒ Increased demand for packaging, automo
Slide 18: Capital Deployment
Capital Deployment 18 0 2,000 4,000 6,000 2006 2007 2008 2009 2010 2011 2012 2013 2014 YTD 2015 Reinvested and PTC Growth Dividends Shares Capital Expenditures Share Repurchases Dividends Balanced Cash Flow (2006 through 9/30/15) Use of Cash Flow ($ in Millions) $17.1 Billion $14.6 Billion Commitmen
Slide 19: Board of Directors Evaluation of CP Indication of Interest
19 Board of Directors Evaluation of CP Indication of Interest
Slide 20: Summary Observations of CP's Indication of Interest
Summary Observations of CP’s Indication of Interest 20 The CP indication of interest is grossly inadequate, substantially undervalues Norfolk Southern and creates substantial regulatory risks and uncertainties that are highly unlikely to be overcome The board of directors unanimously concluded t
Slide 21: Timeline of Events with CP
Nov. 6: Bill Ackman, the Principal of Pershing Square and a CP board of directors member and controlling shareholder, notes CP’s interest in pursuing an acquisition of a competitor of CSX (a prior CP acquisition target); significant media speculation that CP will approach Norfolk Southern to discu
Slide 22: Overview of Key Regulatory Concerns
Overview of Key Regulatory Concerns 22 Significant Delay Regulatory review not complete for two years or more and after two required periods of public comment, with strong opposition expected from key stakeholders Norfolk Southern would remain in limbo during the entire review, likely interrupti
Slide 23: Overview of Regulatory Review Timeline
CP’s indication of interest would require a two-stage “public interest” regulatory approval process: – Voting Trust: STB must approve any proposed voting trust if the trustee is independent, there is no control of the target and the trust is in the “public interest”, after a public comment process
Slide 24: Voting Trust Considerations: Premature Control
Voting Trust Considerations: Premature Control 24 A proposed voting trust may not be used to acquire shares in a target railroad unless: – The trust will prevent any exercise of control over the management of the target railroad, and – The trust mechanism is found by the STB to be in the “public i
Slide 25: Competition-Creating Access and Labor Protection Conditions
Competition-Creating Access Conditions Interested parties would use STB requirement that transaction “enhance competition” to demand more value destructive access conditions – Could apply only to CP-Norfolk Southern – Increased costs from significant operational disruption and inefficiency – Reven
Slide 26: Transaction Not in Best Interest of NS and its Shareholders
Transaction Not in Best Interest of NS and its Shareholders 26 Deal presents grossly inadequate value and substantial regulatory risks CP’s operating model would drive away service-oriented, truck-competitive traffic in an effort to lower OR. Norfolk Southern’s current strategic plan: – Drives i
Slide 27: Open Access Would Adversely Impact NS
Revenue loss Service would suffer, increasing costs and compromising shareholder value creation − More intermediate handlings increase costs − Shippers choosing interchange points disrupts the network and drives up costs − Even CP admits service will suffer: − Open access will “slow down the sup
Slide 28: No Help for Chicago Congestion Issues
No Help for Chicago Congestion Issues 28 CP incorrectly claims that the merger would alleviate congestion in Chicago CP accounts for less than 5% of Chicago traffic and thus any rerouting would have minimal impact − Less than one Norfolk Southern / CP train per day can be efficiently rerouted ar
Slide 29: Summary Observations of CP's Indication of Interest
Summary Observations of CP’s Indication of Interest 29 The CP indication of interest is grossly inadequate, substantially undervalues Norfolk Southern and creates substantial regulatory risks and uncertainties that are highly unlikely to be overcome The board of directors unanimously concluded t
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