Safety Performance Key to CSX's Battle with Shareholder Fund

Safety is one metric at the heart of a rebuttal letter sent Nov. 16 by the board of directors of CSX Corp., a major U.S. railroad based in Jacksonville, Fla., to The Children's Investment Master Fund (TCI), a London hedge fund that is a major shareholder in CSX and has pressed the railroad to change. TCI wants the railroad to separate its chairman and CEO roles (titles now held by one man, Michael Ward), lower its CEO's compensation, add independent board members, issue a plan for improving operations, steadily raise rates it charges to shippers, justify an "illogical and undisciplined" 2007-2010 capital spending plan, and improve relations with labor, shippers, and shareholders. The board's letter in answer is posted on the CSX Web site (www.csx.com), and it details the railroad's rising stock price, operating income, personal injury frequency, train accident frequency, velocity, and dwell time. Personal injury frequency year to date is 1.14 per 200,000 man hours, compared with 1.12 at Norfolk Southern, 1.73 at BNSF, and 1.75 at Union Pacific, according to the letter, which says train accident frequency year to date is 2.67 per million train miles at CSX, 2.16 at NS, 2.95 at BNSF, and 3.66 at UP. All of the figures are the latest available Federal Railroad Administration data, the letter says.

Through principal operating company CSX Transportation Inc., CSX Corp. operates the largest railroad in the eastern United States -- a 21,000-mile rail network linking commercial markets in 23 states, the District of Columbia, and the Canadian provinces Ontario and Quebec. CSXT has 33,000 employees, according to summaries available on the CSX Corp. site.

The board's letter indicates CSX has been communicating regularly with TCI throughout 2007 and considered the TCI proposals in several board and committee meetings. Financial media including The Wall Street Journal published reports about TCI's Oct. 16 letter requesting changes at CSX and said TCI owns 17.8 million shares of CSX Corp. stock, a 4.1 percent holding. The board warns in its letter that it believes TCI's demands "are not in the best interests of CSX shareholders and, in some cases, have damaged the industry."

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