CSX Corporation (CSX)’s Fourth Quarter 2014 Earnings Conference Call Transcript

Page 5 of 18

Operator

Thank you. The next question is from Allison Landry with Credit Suisse.

Michael Ward

Good morning, Allie.

Allison Landry, Credit Suisse

Good morning. Thanks for taking my question. Following up on Tom’s question, how are you thinking about the broader economic tailwinds that result from lower oil prices? And if we think about a scenario where, let’s just say for argument’s sake, that crude and anything Shell related evaporates, how do we think about where you could see upside in intermodal or some of your other lines of business?

Clarence Gooden

Allison, we feel very positive about it. There’s been some studies that come out that essentially only 10 states have employment that’s directly impacted by the oil boom. It’s less than 2% of the US population. For us, the crude by rail is less than 2% of our business. For the average US person, it’s like getting a tax break of almost $2,000 a year, so it puts a lot of dollars into the economy. From any indication that we see, it’s a positive experience for the American taxpayer, for the American economy, so I think lower crude oil prices is very positive for our economy and very positive for CSX .

Allison Landry

Okay, great. And then as my follow-up question, the $200 million of productivity gains that’s quite a bit higher than what you’ve generated in the last few years which has averaged I think to $130 million to $140 million. Is this inclusive of the incremental or unusual weather expense that you saw last year or is that on top of the $200 million?

Oscar Munoz, Chief Operations Officer

Allison, this is Oscar Munoz. I think a portion of that number is weather although not as significant as you might think, probably 15% of that number, roughly.

Fredrik Eliasson, Chief Financial Officer

So just to clarify on the $200 million, so what we have is the operations normal target of about $130 million to $150 million plus we have about $50 million that is linked to the SG&A workforce reduction program that we outlined the severance charge in our fourth quarter.

Allison Landry

Okay. And then the rest would be weather?

Fredrik Eliasson

Part of the operations productivity savings is to cycle what we cycled last year, as Oscar outlined.

Allison Landry

Okay, great. Thank you so much.

Operator

Thank you. The next question is from Rob Salmon with Deutsche Bank.

Michael Ward

Good morning Rob.

Rob Salmon, Deutsche Bank

Hi, good morning guys. As a follow-up to Allison’s question, could you give us a sense in terms of what sort of network? How quickly you’re expecting the network to return to normal, and what sort of key velocity and dwell metrics we should be looking for as we think about that $200 million?

Oscar Munoz

Thanks, Rob. So the productivity initiatives are broad across a lot of different aspects: volume absorption, specific initiatives, certainly weather — winter sort of overlap. But I think if you think of the incremental resources that are coming online, it’s going to just reestablish the discipline that we’ve had over the past three or four years around the internal operations of both scheduled and the unscheduled networks. And specifically, while velocity will be a bit of a lagging indicator as will dwell the public measures you see, I think dwell in particular will be a key metric to watch. Internally, we have intermediate and home terminal dwell that we’re monitoring. But I think the dwell, I think will be an area that you can focus on and that — when it stops dwelling there, it increases cost in a big way and that will be the first focus and benefit from the incremental resources.

Rob Salmon

That’s helpful. Did you guys quantify the savings expectations for the employee — the management workforce reduction program? Was any realized in the fourth quarter?

Page 5 of 18