Pitched winning recommendation to Deloitte judges of a $500 mil. investment in optimizing operational efficiency, to grow profits

1. How Tomorrow Moves
Allie Mollo
Jonathan Lockwood
Katie Gustas
Nimay Godbole
AJKN Consulting

2. Agenda
CSX Background
Situational Overview
Solution

3. Timeline
Risks & Mitigations
Conclusion

4. Introduction
Solution
Timeline
Risks
Overview
Conclusion
CSX’s Mission
Exceeding Customer
Commitments
Leading with
innovation
Investing in creation
of customers
Optimizing
operational efficiency

5. Introduction
Solution
Timeline
Risks
Overview
Conclusion
Situational Overview
If CSX does not adapt to the
changing market in the next
3 years, it will not be able to
see profitable growth
CSX Transportation is a rail
freight company operating
along the Eastern seaboard,
carrying various types of
items
How can CSX provide
service excellence, while
improving its cash flows
over the next 10 years?

6. Introduction
Solution
Timeline
Risks
Overview
Conclusion
The ACE Initiative
Acquisition of TSIA
Creation of double stack in intermodalC
Ensuring rail safetyE
Introduction
Solution
Timeline
Risks
Overview
Conclusion

7. Introduction
Solution
Timeline
Risks
Overview
Conclusion
Acquisition of TSI
Acquiring TSI to incorporate a B2C model within CSX
Transit Systems Inc.
• Trucking company in Wayne, PA
• B2B & B2C business model
• Individualized customer service
Integration within CSX
• Transformation to regional
• Holistic approach towards
shipping
• Utilize existing competencies
Team of
Tomorrow
Service
Excellence

8. Introduction
Solution
Timeline
Risks
Overview
Conclusion
TSI: Cost/Benefit Analysis
$176,248,644
$21,834,000
$198,082,644
$49,520,661
$247,603,305
PV of 5 year forward earnings:
Value of trucks:
Company Value:
25% Goodwill Premium:
Total Acquisition Cost:
Valuation of acquisition and ROI
Conservative Return
NPV: $29,556,108
ROI: 11.94%
Most Likely Return
NPV: $78,466,593
ROI: 31.69%
Bullish Return
NPV: $127,377,077
ROI: 51.44%

9. Introduction
Solution
Timeline
Risks
Overview
Conclusion
The ACE Initiative
Acquisition of TSIA
Creation of double stack in intermodalC
Ensuring rail safetyE
Introduction
Solution
Timeline
Risks
Overview
Conclusion

10. Introduction
Solution
Timeline
Risks
Overview
Conclusion
Railroad Trends in Double Stacking
Expand the intermodal network to capitalize on consumer trends
Network of Tomorrow
”Is there a way to optimize operational efficiency
while maintaining service excellence? “
15% of CSX’s
total revenue
25% of U.S.
railroad total
revenue
Fastest growing
segment of
freight rail
industry
Intermodal

11. Introduction
Solution
Timeline
Risks
Overview
Conclusion
Expansion of Intermodal
Northwest Ohio Terminal
Existing Terminals Served
Double Stacked Route
Future Double Stacked Route
CSX Rail Network
Double Stacked Partner
Using double stacks to connect terminals and increase profits
Double stacks are two
containers stacked high on
railroad cars
What?
• To increase efficiency
between Southeast
Corridor & I-90
• Decreased carbon
footprint due to a
decrease in trips
required
• 650 ft3 more per well in
double stack cars
Why?

12. Introduction
Solution
Timeline
Risks
Overview
Conclusion
Efficiency of Double Stack
Total Costs:
$115.70 million
Total Capital Costs:
Containers + Wells
$88.13 million
Total Operating Cost:
1.06 cents/ton/mile
$27.56 million
Profit with double stack:
$28.92 million
First year projections after implementation of double stack
Profit with single stack:
$8.71 million
Total Revenue:
5.56 cents/ton/mile
$144.61 million

13. Introduction
Solution
Timeline
Risks
Overview
Conclusion
The ACE Initiative
Acquisition of TSIA
Creation of double stack in intermodalC
Ensuring rail safetyE
Introduction
Solution
Timeline
Risks
Overview
Conclusion

14. Introduction
Solution
Timeline
Risks
Overview
Conclusion
Ensuring Rail Safety
Current Process
• Federal Railroad
Administration
• Conduct inspections
2x week
• Rail companies’
discretions
Team
of
Tomorrow
Highly
Automated
Technology
• Train Derailment
• Wide-Gauge
• Issue lie in low-
speed/traffic routes
Issue
Implementing new technology to ensure railway safety

15. Introduction
Solution
Timeline
Risks
Overview
Conclusion
• GREX Real Rail
Solutions
• Data collection,
Image analysis, &
Data analysis system
• Hitched to trains
Aurora
Ensuring Rail Safety
Implementing new technology to ensure railway safety

16. Introduction
Solution
Timeline
Risks
Overview
Conclusion
Benefit
Derailment Cost Saved $57,687,500.00
Cost
Inspector Salary $22,713,600.00
Aurora $31,500,000
Benefit - Cost $3,473,900.00
Rail Safety Cost Benefit Analysis
$115.5M Cost in
derailments per yr.
420 inspectors
210 inspecting pairs
100 miles covered
by each pair
Investment in 210
new Auroras
Valuation of new technology implementation

17. Introduction
Solution
Timeline
Risks
Overview
Conclusion
Timeline
6 months 12 months 18 months 24 months 30 months 36 months
Double-stack
implementation
Due Diligence Implementation across all intermodal
TSI M&A
Pre-merger assessment
Change management and integration
Combining
Aurora & Freight
Research & Development
Structured roll-out program

18. Introduction
Solution
Timeline
Risks
Overview
Conclusion
Risks & Mitigations
Potential
Risks
Mitigation
Plans
Company
Synergies
Increased Fuel
Costs
New Tech
Uncertainty
Ensure pre-
merger
assessments are
conducted
Decrease in ton
per mile costs,
resulting in
increased
revenues
Structured roll-
out process to
ensure safety

19. Introduction
Solution
Timeline
Risks
Overview
Conclusion
The ACE Initiative
Acquisition of TSIA
Creation of double stack in intermodalC
Ensuring rail safetyE
Introduction
Solution
Timeline
Risks
Overview
Conclusion
Overview

20. Introduction
Solution
Timeline
Risks
Overview
Conclusion
Appendix A
https://ir.uiowa.edu/cgi/viewcontent.cgi?article=1001&context=pp
c_transportation

21. Introduction
Solution
Timeline
Risks
Overview
Conclusion
Appendix B
$2,000 per container (240 containers)= $480,000
$730,490 per well (120 wells)= $87,658,916
Total Capital Costs = $88.13 million
Total Operating Costs for double in first year= $27.56 million
Total Costs= 115,698,576
Calculating Capital Costs Associated with Venture

22. Introduction
Solution
Timeline
Risks
Overview
Conclusion
Appendix C
Single vs Double Efficiency
L: 40 ft
W: 8 ft
H: 8.6 ft
Dimensions Volume
5504 ft3
per double
L: 50 ft
W: 9.6 ft
H: 10.11 ft
Dimensions Volume
4852.8 ft3
per single
Double stack
carries 650 ft3
more per
freight car

23. Introduction
Solution
Timeline
Risks
Overview
Conclusion
Operating Costs $27.56 million 1st
year
Appendix D
Decreasing operating costs while increasing revenue
Single-Cost vs Revenue
(2.68 𝑐𝑒𝑛𝑡𝑠 𝑝𝑒𝑟 𝑡𝑜𝑛 𝑝𝑒𝑟 𝑚𝑖𝑙𝑒) (3,360 𝑡𝑜𝑛𝑠 𝑝𝑒𝑟 𝑡𝑟𝑎𝑖𝑛) Costs $34.84 million per year
(3.35 𝑐𝑒𝑛𝑡𝑠 𝑝𝑒𝑟 𝑡𝑜𝑛 𝑝𝑒𝑟 𝑚𝑖𝑙𝑒) (3,360 𝑡𝑜𝑛𝑠 𝑝𝑒𝑟 𝑡𝑟𝑎𝑖𝑛)
(5.56 𝑐𝑒𝑛𝑡𝑠 𝑝𝑒𝑟 𝑡𝑜𝑛 𝑝𝑒𝑟 𝑚𝑖𝑙𝑒) (6,720 𝑡𝑜𝑛𝑠 𝑝𝑒𝑟 𝑡𝑟𝑎𝑖𝑛)
Generates $43.55 million per year
Double-Cost vs Revenue
Generates $144.61 million 1st year
$8.71 million in profit
(1.06 𝑐𝑒𝑛𝑡𝑠 𝑝𝑒𝑟 𝑡𝑜𝑛 𝑝𝑒𝑟 𝑚𝑖𝑙𝑒)(6,720 𝑡𝑜𝑛𝑠 𝑝𝑒𝑟 𝑡𝑟𝑎𝑖𝑛)
($2,000 𝑝𝑒𝑟 𝑐𝑜𝑛𝑡𝑎𝑖𝑛𝑒𝑟)(240 𝑐𝑜𝑛𝑡𝑎𝑖𝑛𝑒𝑟𝑠)($730, 490 𝑝𝑒𝑟 𝑤𝑒𝑙𝑙)(120 𝑤𝑒𝑙𝑙𝑠)
$88.13 million
in fixed costs
$28.92 million in profit$114.61 million — ($88.13 million + $27.56 million)

24. Introduction
Solution
Timeline
Risks
Overview
Conclusion
Appendix E
Valuation & depreciation of TSI trucking assets
Cost of Truck 150,000$ dollars
Average life of a truck 750,000 miles
Miles per year 42,900 miles
Life of a truck 17.48 years
Average age of truck 8.74 years
Value at at avg. age 72,780$
Assumed # of trucks 300
Cost of trucks 21,834,000$
Valuation of Truck Assets
Annual Depreciation 8,580$
Year Value
1 141,420$
2 132,840$
3 124,260$
4 115,680$
5 107,100$
6 98,520$
7 89,940$
8 81,360$
9 72,780$
10 64,200$
11 55,620$
12 47,040$
13 38,460$
14 29,880$
15 21,300$
16 12,720$
17 4,140$
Depreciation Schedule

25. Introduction
Solution
Timeline
Risks
Overview
Conclusion
Appendix F
Calculation of operating cost & revenue per mile
Miles driven per year 42,900
Category Cost Unit Annual Cost
Fuel Economy 7 mpg -
Fuel - Gallons per year 6,129 gallons -
Fuel - cost per gallon 2.92$ /gallon 17,895.43$
Driver Salary 0.36$ /mile 15,444.00$
Maintenance - cab & trailer 0.24$ /mile 10,296.00$
Maintenance - engine 0.12$ /mile 5,148.00$
Maintenance - tires 0.03$ /mile 1,287.00$
Insurance 0.05$ /mile 2,145.00$
DOT permits 0.02$ /mile 858.00$
Total operating cost per year
Operating Cost Per Mile
Operating Revenue Per Mile
53,073.43$
1.24$
4.05$

26. Introduction
Solution
Timeline
Risks
Overview
Conclusion
Appendix G
Calculation of operating income
Average Trip Length 50 miles
Average Speed 26.8 mph
Average Trip Time 1.87 hours
Average turnaround time 1 hour
Business day length 8 hours
Number of trips per day 3 trips
Revenue per trip 202.50$ -
Operating cost per trip 61.86$ -
Profit per trip 140.64$ -
Number of Trucks 300 trucks
Shipping days per year 286 days
Trips per truck per year 858 trips
Total Trips per year 257,400 trips
Annual revenue per truck 173,745.00$
Annual cost per truck 53,073.43$
Annual depreciation per truck 8,580.00$
Annual profit per truck 112,091.57$
Annual Trucking Profit 33,627,471$
Operating Income
Cumulative Time Action
9:00 AM Start
9:30 AM First Load
11:22 AM Trip
12:22 PM Turnaround
2:14 PM Trip
3:14 PM Turnaround
5:06 PM Trip
Trips Per 8 Hour Day

27. Introduction
Solution
Timeline
Risks
Overview
Conclusion
Appendix H
Operating cost & profit: 10 year projections
Year Growth Revenue Cost Profit
2017 2.7% 52,123,500$ 15,922,029$ 36,201,471$
2018 2.7% 53,530,835$ 16,351,923$ 37,178,911$
2019 2.7% 54,976,167$ 16,793,425$ 38,182,742$
2020 2.7% 56,460,524$ 17,246,848$ 39,213,676$
2021 2.7% 57,984,958$ 17,712,513$ 40,272,445$
2022 2.7% 59,550,552$ 18,190,750$ 41,359,801$
2023 2.7% 61,158,416$ 18,681,901$ 42,476,516$
2024 2.0% 62,381,585$ 19,186,312$ 43,195,273$
2025 2.0% 63,629,216$ 19,570,038$ 44,059,178$
2026 2.0% 64,901,801$ 19,961,439$ 44,940,362$
2027 2.0% 66,199,837$ 20,360,668$ 45,839,169$
10 Year Estimated Operating Cost & Profit

28. Introduction
Solution
Timeline
Risks
Overview
Conclusion
Appendix I
TSI acquisition valuation
176,248,644$
21,834,000$
198,082,644$
49,520,661$
247,603,305$Total Estimated Acquisition Cost
Company Valuation
Present Value of 5 year Forward Earnings:
Value of Truck Assets
Company Value
25% Goodwill Premium

29. Introduction
Solution
Timeline
Risks
Overview
Conclusion
Appendix J
3 cases of future profitability & ultimate acquisition returns
Year Conservative Most Likely Bullish
2017 25,642,709$ 30,167,893$ 34,693,077$
2018 26,335,062$ 30,982,426$ 35,629,790$
2019 27,046,109$ 31,818,951$ 36,591,794$
2020 27,776,354$ 32,678,063$ 37,579,773$
2021 28,526,315$ 33,560,371$ 38,594,426$
2022 29,296,526$ 34,466,501$ 39,636,476$
2023 30,087,532$ 35,397,096$ 40,706,661$
2024 30,596,651$ 35,996,061$ 41,395,470$
2025 31,208,585$ 36,715,982$ 42,223,379$
2026 31,832,756$ 37,450,301$ 43,067,847$
2027 32,469,411$ 38,199,307$ 43,929,204$
Conservative Most Likely Bullish
PV of Acquisition $29,556,108 $78,466,593 $127,377,077
ROI 11.94% 31.69% 51.44%
Annual Profit Estimates: 3 Cases

30. Introduction
Solution
Timeline
Risks
Overview
Conclusion
Appendix K

31. Introduction
Solution
Timeline
Risks
Overview
Conclusion
Derailment Cost
$461,500,000.00 Damage from derailments from 2010-2014
2,141 Derailments caused by track and rail defects from 2010-2014
$215,553.48 Avg. cost per derailment
$461,500,000.00 Damage from derailments from 2010-2014
4 2010-2014
$115,375,000.00 Cost of Derailments per year
50% Most Likely reduction in derailments per year
$57,687,500.00 Derailment Cost Saved
$115,375,000.00
35% Conservative reduction in derailments per year
$40,381,250.00
$115,375,000.00
65% Bullish reduction in derailments per year
$74,993,750.00
Inspector Salary
21,000 Miles of track
100 Miles covered per 2 inspectors
210 Pairs of inspectors
2 Inspectors per pair
420 Total inspectors
10 Hours worked per day
$26.00 Average pay rate
$109,200.00 Cost per day
4 Days per week
52 Weeks per year
$22,713,600.00 $ Spent on inspector salaries per year
200% Increase in inspectors
$45,427,200.00
$22,713,600.00 Salary Investment
Appendix L
Aurora Cost
$150,000 Cost of 1 Aurora 21,000 Miles of track
210 New Auroras 420 New Total of Auroras
$31,500,000 Total Cost 50 Miles minimum coverage per Aurora

32. Introduction
Solution
Timeline
Risks
Overview
Conclusion
Appendix L
A. Appendix A: Efficiency of Double-Stack
B. Appendix B: Calculating Capital Costs Associated with Venture
C. Appendix C: Single vs. Double-Stack Efficiency
D. Appendix D: Decreasing operating costs while increasing revenue
E. Appendix E: Valuation & depreciation of TSI trucking assets
F. Appendix F: Calculation of operating cost & revenue per mile
G. Appendix G: Calculation of operating income
H. Appendix H: Operating cost & profit: 10 year projections
I. Appendix I: TSI acquisition valuation
J. Appendix J: 3 cases of future profitability & ultimate acquisition returns