Good morning, ladies and gentlemen, and welcome to the CSX Corporation second quarter 2007 earnings conference call. (Operator Instructions) For opening remarks and introductions, I would like to turn the call over to Mr. David Baggs, assistant Vice President, Investor Relations for CSX Corporation. Sir, you may begin. David Baggs: Thank you. Good morning, everyone and welcome to CSX Corporation second quarter 2007 earnings presentation. The presentation material this morning that we'll be reviewing, along with our CSX quarterly financial report and our quarterly safety and service measurements are available on our web site at CSX.com under the investor section. In addition, following the presentation a webcast and podcast replay will be available. Here representing CSX this morning are Michael Ward, the company's Chairman, President and Chief Executive Officer; Clarence Gooden, Chief Sales and Marketing Officer; Tony Ingram, Chief Operating Officer; and Oscar Munoz, Chief Financial Officer. Now before we begin the formal part of our program, let me remind everyone that the presentation and other statements made by the company contain forward-looking statements. Actual performance could differ materially from the results anticipated by these forward-looking statements. With that, let me turn the presentation over to Michael Ward, CSX Corporation's Chairman, President and Chief Executive Officer. Michael Ward: Thank you, David and good morning, everyone. The second quarter results announced yesterday demonstrate once again CSX's earning power and momentum. Earnings per share were up 22% on a comparable basis to last year when you back out insurance recoveries and tax settlements from the prior period. Our transportation businesses generated record second quarter revenues of $2.5 billion, a nearly 5% increase over 2006, and operating income of $603 million. Our operations are clearly in a rhythm and delivering great results in both safety and service. We expect continued improvement in both…

Thank you, Michael and good morning, everyone. I'm pleased to report the team delivered strong results for the second quarter. First, safety results are outstanding and the positive trend continues. We're running to plan and key service measures continue to improve across the board. Our customer sees these improvements and they gave us our highest ever rating in customer satisfaction. Productivity is also improving and working against inflation. Let's look at safety in more detail. Slide 7 shows the excellent trend in safety continued in the second quarter. In the yellow box you see personal injuries at 1.04 for the quarter. This is the best performance ever achieved at CSX and it helped drive the improvements for the rolling 12 months. Train accidents were 2.85 for the quarter. On a rolling 12 months, they were down 22% from 3.09. The improvements in safety are outstanding, but we will not stop here. Our employees are committed to safety and reaching a higher level of performance. Let's turn to the area our customer sees, on-time performance. On-time in originations increased to 80% in the quarter, another all-time high for CSX, and for the rolling 12 months, performance improved to 77%. On-time arrivals were 69% for the quarter and also improved for the rolling 12 months. The train network is running well and our focus on planned execution is producing results. This trend will continue as we build on our success. Looking at slide 9, our asset turns also continues to improve. On average, the well was 24 hours in the quarter and 25 hours for the rolling 12 months. Our terminals remain fluid and they're running the plan everyday. Cars online remained at a good level, 223,000 cars for the quarter. Now let's look at another measure of network performance, velocity. Velocity…

(Operator Instructions) Our first question comes from Ken Hoexter - Merrill Lynch. Ken Hoexter - Merrill Lynch : Good morning. Great, great results and good to see that things are really on track with the turnaround. Mike, before I get to some of the earnings questions, I have a question on the big picture. There's an article up in Canada today talking about a potential bid for CP and the potential for them dividing the network up into a network operating company and a physical asset or rail operating entity. Can you talk about, as you talk about looking at the company and ability to get certain leverage, can you talk about whether something like that makes sense in ability to get more leverage on top of the company to get the returns that you desire, versus operating as a full entity? I know we are getting a lot of questions on it this morning. Michael Ward: Ken, I think as you know, as a matter of long-standing policy we usually don't discuss long-term strategic assessments. Having said that, I think that our current business model is the right business model for CSX. This company and its committed employees have brought excellent results and value by just about any measure you can think of; I mean, tripling in the last three years is pretty darn good and as I said, we're proud of it. I think you can really look forward for us, that we're going to continue that and continue that at a strong pace. Ken Hoexter - Merrill Lynch : On the quarter, Clarence, you noted that yields were up 7% or 6.5% in line with the same-store level. What level do you target as the annual increase level in some of the long-term contracts? Is it in…

Our next question comes from Ed Wolfe - Bear Stearns. Ed Wolfe - Bear Stearns : Can you give a little bit more detail around the labor? You talked about some costs related to the ratification of some contracts. Can you talk about what those costs were and how we think about those same costs in third quarter and fourth quarter versus second quarter? Oscar Munoz : Ed, this is Oscar. The engineer ratification cost in the quarter was approximately $12 million. That is by and large a one-time ratification cost and don't necessarily see increases in the further quarters. But we do see, obviously, a great win for both teams as we have more and more of our workforce tied, along with management, to the company's objectives. Ed Wolfe - Bear Stearns : What other contracts are ratified and do you expect a similar kind of drag from those as they get signed, or have you accrued for some and we could even see benefits? Oscar Munoz : I think it's a combination of all of that. There are always several things that are out there working; the timing, which we can't forecast. We do tend to accrue on a general basis what we expect and then ratification costs and such are all included as part of that. As they happen we'll let you know. Ed Wolfe - Bear Stearns : So average comp being up 4.5 in the quarter, we should look at that as there's about $12 million in there that's unusual? Oscar Munoz : Yes. Ed Wolfe - Bear Stearns : You also talked about the asset life study on the depreciation side. Can you give us some more details of what's changed in terms of how you're looking at depreciating the assets going forward? Oscar…

Our next question comes from Tom Wadewitz – JP Morgan. Tom Wadewitz – JP Morgan: I wanted to touch on the pricing and then also a little bit on intermodal. Ed asked you about the truck pricing. What about competition in the spot market with Norfolk Southern? Have you seen any change in that dynamic as a result of some slow volumes for a few quarters? Michael Ward: We have not. We see good, strong pricing all through the rail system. Tom Wadewitz – JP Morgan: On the intermodal side, can you talk a little bit about the medium-term outlook for growth on that, and perhaps touch on the new southeast service with Burlington Northern? How many trains a day you are running now and the outlook for further growth from that service? Michael Ward: Tom, we're running two a day. They're full in both directions. We may well have to add a second train here in the fall peak, if the fall peak does what we hope it does and expect that it will do. As you saw in our numbers, our domestic volume in general is up about 7% or 8% in the quarter so we feel good about the domestic growth in the third quarter. Tom Wadewitz – JP Morgan: So that service is meeting your expectations, it's coming in as you would have expected. What about the international? You talked about closing that terminal in Kingsport, which seems to make sense. Should we look at the run rate for international in second quarter and expect that to continue for a couple quarters as a result of the closures, or are you optimistic that international volume growth would pick up a bit in third and fourth quarter and perhaps be positive looking out a few quarters? Michael Ward: You can expect that volume growth in international for three more quarters to reflect the loss of that Kingsport, Tennessee business which was about 25% of the total international volume that was down. As we move into the fall peak and into the strong seasonal shipping business and international traffic, we expect that will grow some. Tom Wadewitz – JP Morgan: Is there anything else going on in international driving that softness, or is it just a weaker market in addition to the closure? Michael Ward: Well some of the steamship lines, as you're aware, pulled out of certain points. You would know that as the IPI, the InterPoint Intermodal traffic. That traffic in turn moves as domestic traffic.

Our next question comes from John Barnes - BBT Capital Markets. John Barnes - BBT Capital Markets: Congratulations on a nice number. A couple things on productivity. Tony, can you talk a little bit about your trends in terms of have you been able to, with the safety improvement and some of the improvement in on-time originations and arrivals, have you been able to do anything in terms of train size? Are you seeing a significant increase in cars per train, train starts, anything like that? Where do you think those numbers can go?

John, yes, we've seen some improvement in our train size, 2% or 3%, primarily because we've taken out a number of trains and shrunk some of the network trains that we operate on a daily basis. Also, with the automotive being a little weak, we've taken some trains out in that line, which has added cars to other trains. John Barnes - BBT Capital Markets: How much more do you think you have on that front, or do you think you've really exhausted your ability to continue to improve that?

John, we're raising the bar every day. We're not satisfied where we are, we're looking for a few more every time we run a train. John Barnes - BBT Capital Markets: Very good. Oscar, can you give us an idea, average price per share on your repurchase during the quarter? Oscar Munoz : About $44.50. I think if you do the math on the 550 and the 12.3 million shares that we have, that should be about $44.50. John Barnes - BBT Capital Markets: I just wanted to make sure it wasn't skewed by a move in the stock. The other question on that front, I'm trying to get a sense, do you know how many shares a day you're allowed to purchase? I know it's a rolling kind of thing, but right off the top of your head, do you know what the maximum number per day you can buy is? Oscar Munoz : I don't. Clarence Gooden: My recollection, it's no more than 25% of the last two-week average. John Barnes - BBT Capital Markets: Clarence, lastly some of the follow-up on pricing. Of that 15% of your outstanding contracts that haven't been repriced since '04, do you have a feel for how many of those contracts, what percentage of the remaining business that hasn't been touched, how much of that are we talking about that hasn't been repriced in ten years? Is it more shorter duration since it has been touched, or is it half of it that hasn't been touched in ten or 15 years? I'm trying to get a sense of the remaining piece, what's the magnitude of increase we may see. Clarence Gooden: I really don't know how much of it hasn't been touched in ten years, because I don't look at it that way. I look at it, when am I going to touch it? The principal and preponderance of that will be repriced in 2008 and 2009.

Our next question comes from Scott Flower - Banc of America Securities. Scott Flower - Banc of America Securities: I wondered if I could get a little color. Clarence, I know that in the past you've been able to break out RPU as a percentage between mix and price and fuel surcharge. I'm wondering if I could get that sense from you now for this quarter? Clarence Gooden: Well, as you know, we transitioned, Scott, to a new mileage-based program that has a slightly different trigger point. We're focusing on that same-store sales perspective, which we've shown you now for the last several quarters. The same-store sales is up 6.5% and the RPU is up 6.9% and the difference in the two was due to fuel and mix. Scott Flower - Banc of America Securities: What is your coverage on fuel surcharge between fuel surcharge and RCAP currently? Clarence Gooden: 85%. Scott Flower - Banc of America Securities: I just want clarification, you've mentioned obviously the Kingsport facility, and you also in your comments talked about international account losses. Was that the Kingsport facility you're talking about, or were there other contracts that moved away? Clarence Gooden: There were certain lanes that shifted away. Scott Flower - Banc of America Securities: That's was what you were talking about in terms of the IPI changes? Clarence Gooden: That was part of it. Scott Flower - Banc of America Securities: Was some of the other business that walked away based on price, or did it move just in terms of where it embarked into the country in terms of broader changes at the steamship company? Clarence Gooden: It moved by where the steamship lines actually routed the freight. Scott Flower - Banc of America Securities: The last thing I had, maybe this is for you, Michael. Obviously, there have been some other industry settlements. I'm just wondering where does that leave the industry relative to the remaining employee groups that are still outstanding in terms of labor contracts? Michael Ward: As you probably know, Scott, we've reached with the RLBC, the Rail Labor Bargaining Coalition, which is a combination of seven unions, six of those ratified, the seventh is out for a revote, it is very close and they think it will pass. That will be back in August. That will take care of about 50% of the industry’s employees. We are currently in discussion with TCU, our clerical coalition for another five unions. Those discussions are occurring at this point and we're hopeful that they will follow the pattern set by the beginning 50% and then finally we'll have the UTU, which would be the last to come this round.

Our next question comes from Jason Seidl - Credit Suisse. Jason Seidl - Credit Suisse: Good morning, gentleman. A quick question about the personal injury reserve adjustment. You said you do a review two times a year. If the trends continue on your safety record, should we expect another adjustment the next time you look at this? Oscar Munoz : It's difficult to forecast that. There are many issues that go into that adjustment, but clearly our best driver of that that we control is continuing that great safety record. So that is what we focus on, and then as the third party actuarial do their work, the resultant number is what we work through. Jason Seidl - Credit Suisse: You talked about some of the long-term productivity targets, can you give us a little bit more color behind that in terms of what they specifically are? Oscar Munoz : I think that the focus we're trying to articulate is moving from within year, within quarter kind of initiatives to a longer-term timeframe as Tony and his team get some of the processes they have been getting, the decisions for moving longer term are important. That we look at our investments, our tools and resources and training over a much longer-term horizon. It's the same basic issues, running the railroad and efficiency and productivity, but just on a longer-term basis. Jason Seidl - Credit Suisse: So there's nothing you specifically have in terms of here's our goals for train speeds, here’s our goal reducing the crew rates, terminal… Oscar Munoz : Every initiative has an efficiency and a productivity measurement that we monitor and work through. I won’t necessarily talk about those publicly, they are more internal ones, but yes. Every initiative has a very specific objective that's measured and monitored by the executive team. It is clearly a key to getting to that operating ratio in the low 70s. Jason Seidl - Credit Suisse: Just related to the economy, everyone's talking about a second half turnaround. Have you guys started to see anything that would cause you to believe that we're starting to see it move in the right direction in terms of your customers and your traffic? Clarence Gooden: We're seeing in certain segments of the economy, as I mentioned in our agricultural business our ethanol business is strong, our chemical business continues to be strong. We put our intermodal business in a neutral sort of category. Our coal business is sort of flat, moving there, and we still see issues in the housing sector. But overall, it looks to us like it's slightly trending up as we move into this second half.

Our next question comes from William Green - Morgan Stanley. William Green - Morgan Stanley: Hi. I'm wondering if you guys have a sense for how much of your volume change is due to the economy and how much might be due to yield management efforts, the whole pricing story? Clarence Gooden: I would say the preponderance of our volume change was due to the housing and automotive sectors, mainly. We had some decline in our metals business because of the inventories building up as a result of the automotive sectors, but in general if you saw our other markets we are fairly good as we moved in. William Green - Morgan Stanley: Okay. It so doesn't seem like the pricing is chasing volume off the rail? Clarence Gooden: No, I don't think so. William Green - Morgan Stanley: If we look at the ROIC target that you talked about, Oscar, how do you commute that cost of capital? Do you use regulatory definition or cap M or some other metric? Oscar Munoz : Cap M. William Green - Morgan Stanley: Lastly in terms of a productivity metric, we often look at carloads per employee, that's been falling for six or seven or eight quarters, something like that. How should we think about that going forward? Are you going to be able to start to drive that higher as you go through attrition or is this a number that has to wait for volumes to recover? Oscar Munoz : I think as the volume comes back, I think that will improve that metric. William Green - Morgan Stanley: So we'll hold on to what we got because of all of the regular attrition. Oscar Munoz : They'll move with volume.

Our next question comes from John Larkin - Stifel Nicolaus. John Larkin - Stifel Nicolaus: In thinking back to the session you held at the New York Stock Exchange a couple years ago where you laid out a very coherent plan that envisioned 2% to 3% volume growth over a five-plus year period and since that time, the economy has softened and volumes have turned negative. As you look forward here in your plans for 2010, can you give us a sense for how you see volumes trending? When do you think the year-over-year comparisons will turn positive? Will they tend to gravitate back to that 2% to 3% level, or do you think they'll initially ramp back a little faster than that so the long-term five-year average might be more like 2% to 3%? As a follow on to that, will that return to tonnage growth make tonnage job a lot more difficult in terms of continuing to show such dramatic improvement in the operating metrics? Lastly, will there be additional capital projects that will be needed to accommodate that growth beyond the Hudson River Corridor and the O&M improvement that I would gather are nearing completion? Michael Ward: John, I hope you didn't think all those questions up by yourself. On the volumes going forward, if the housing hasn’t hit us as hard as it did as an industry and the automotive downturns, we could have had much better volume here. I expect as the housing starts to come back sometime in late 2008 that you'll see the volume start to ramp back up. If we have a hot summer like we're having and hot nights and get a good electric burn on our coal, you'll see our coal business do good. With the dollar staying as weak as it is right now, you'll see our export coal volumes stay strong and I wouldn't be surprised if you didn't see some of the soy beans and ag products being exported as a result of the weaker dollar. Moving forward into the out years and out through 2010, I think we're on target to see our 2% to 3% annual growth as we've outlined. John Larkin - Stifel Nicolaus: Will there be a catch-up, do you think initially, or are we going to gravitate back off the lower base to a 2% to 3% growth? Michael Ward: Unless we have just some quantum jump in the economy, it will be a glide.

John, addressing the capital, as we indicated there in I think it was 2005, we had a two-year program to build some capacity between Chicago and Jacksonville and we're on target to complete that this year. We're seeing some improvements and we'll look at that as we go forward. We are planning long term to look at different capital improvements based on the outlook of business to come. The assistance with our new program, our Total Service Integration that we'll share with you guys a little later in the year, will be a great tool in looking at how we lay out our capital program going forward.

Our next question comes from John Kartsonas - Citigroup. John Kartsonas – Citigroup: As you look at your $3 billion share buyback program, probably you will need to stop at the debt markets in the next year-and-a-half here. Any thoughts on whether that's going to be a gradual process? Like a certain amount per quarter, or is it going to be a one-off like the second quarter? Oscar Munoz : John, are you talking about the debt? John Kartsonas – Citigroup: Yes. Oscar Munoz : Usually we tend to do that in relatively large traunches as opposed to scatter them over time. That's been our historical trend anyway. John Kartsonas – Citigroup: Any thought on your cash balances, using some of that, maybe? Oscar Munoz : We continue to use a balance of cash on hand and other methods, but a lot of it will be fueled by debt. John Kartsonas – Citigroup: So you'd expect the $800 million to stay relatively flat? Oscar Munoz : I think it will go down a little bit.

Our next question comes from Amy Young - Caylon Securities. Amy Young - Caylon Securities: Just a couple of questions on the safety costs. As we think about modeling out safety improvements, what level of cash costs should we expect to model out in the second half of 2007 and 2008? Any color you can add on that?

Amy, safety costs are a very broad swath of costs across our entire P&L. It's really difficult to forecast that on an independent basis. So what we try to give you is broad coverage on each of the individual line items, which we did today: labor, MS&O, rent and such. That's probably the best guidance we can provide you at this time. Amy Young - Caylon Securities: Back on to the yield of 7%, is there any way you could quantify how much of that was mix? Clarence Gooden: No, Amy, as I mentioned earlier to that question, we had transitioned over to a mileage-based program that's got a fuel surcharge that's got a little bit different trigger point and our focus has tried to stay on a same-store sales perspective, which you may have seen for the last two or three quarters. So our same-store sales were up 6.5% and ARPU was up 6.9%. So the difference in those two is both fuel and mix. Oscar Munoz : So true price increase was 6.5%.

Our final question comes from Donald Broughton - A.G. Edwards. Donald Broughton - A.G. Edwards: Can you give us some insight into how the April 26 transition to the mileage-based fuel surcharge program went? Really any insight into how it went on a commodity-by-commodity basis? Michael Ward: Donald, it went very well. We had essentially no problems. As our contracts have renewed, we've taken the customers to the newer mileage-based fuel surcharge. I'm not aware of any issues that we've had in any of our commodities. Donald Broughton - A.G. Edwards: And it doesn't necessarily affect the deregulated commodities, right? They continue to operate on the old program? Michael Ward: That is correct. Donald Broughton - A.G. Edwards: Of course, of course. But obviously it does affect a number of them. Can you give us a quick update on the FRA investigation, a status update and how, if any, it has changed your CapEx allocation plans? Oscar Munoz : Yes. We've been working very closely with the FRA over the last three to four months. I think they're very pleased with the programs we're putting in place. A lot of it has to do with behaviors and making sure we're doing things in a safe manner. We've engaged in a number of programs with them. The spending side of it is not real big, Donald. It's deploying some technology over the next couple of years, detection technology, which are not overly expensive. So I think it's more around putting good processes, good programs in place more than huge capital infusions required. I think the FRA is very pleased with the program we have in place and the progress we're making and as Tony alluded to, last quarter was one of our safest quarters ever. David Baggs: Thanks, everybody for joining us today. I think that concludes our call.