Good morning, ladies and gentlemen, and welcome to the CSX Corporation third quarter 2009 earnings 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.

Thank you, Julie-Anne and again, good morning, everyone and welcome to CSX Corporation’s third quarter 2009 earnings presentation. The presentation material that we’ll review this morning along with our quarterly financial report and our safety and service measurements are available on our website at csx.com under the investor section. In addition, following the presentation a webcast and podcast replay will be available on the website. Here representing CSX Corporation this morning are Michael Ward, the Company’s Chairman, President and Chief Executive Officer; Tony Ingram, Chief Operating Officer; Clarence Gooden, Chief Sales and Marketing 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 and actual performance could differ materially from the results anticipated by these statements. In addition, let me also remind everyone that at the end of the presentation, we will conduct a quick question-and-answer session for the research analyst community. As a courtesy to everyone, please limit your inquiries to one primary and one follow-up question because the analyst community has expanded over the last quarter. And with that, let me turn the presentation over to CSX Corporation’s Chairman, President, and Chief Executive Officer, Michael Ward. Michael.

Well, thank you, David. Good morning, everyone. Last evening we reported third quarter earnings per share from continuing operations of $0.74, down 20% from the same period last year. Our story continues to feature two key elements -- a challenging environment and a team that is clearly up to the challenge. While volume and lower fuel recoveries reduce revenues 23% compared to the same period in 2008, we are seeing a sequential improvement in our markets overall. As such, we feel the worst of this recession is likely behind us. At the same time, core pricing remains strong. For the quarter, same-store sales price increased remained above 6% and we continue to believe in our ability to price above rail inflation on our long-term basis, reflecting the excellent service product we are providing and the value of rail transportation. That, as you know, is an essential element of our ability to invest in our rail network and our nation’s competitiveness well into the future. The continued focus on yield management, along with strong performance in safety, service, and productivity all resulted in an operating ratio of 73.9%, a third quarter record. When the economy took its sharp turn for the worse, we set out to prove the resiliency not only of our business but also of our people and our core earning power. We saw this challenging environment as an opportunity to create a stronger company and we are doing just that. Year-to-date, in the midst of the most significant freight recession in the past half century, we are producing earnings above 2007, which speaks volumes about the commitment and efforts of our 30,000 employees. Today my colleagues and I are pleased to provide you with a closer look at our results in the third quarter. With that, let me turn the presentation over to Clarence to review our top line results.

Thank you, Michael and good morning. In the third quarter of 2009, the impact of the economic downturn across most of the markets we serve began to moderate. At the same time, even as we right-size our network resources, we continue to deliver a reliable service product for our customers and we remain focused on pricing our services to reflect the value that we are providing to our customers. Now let’s look at the change in revenue for the quarter on the next slide. CSX revenue declined 23% to $2.3 billion, due to the continued broad-based volume weakness. As you can see on the chart, the effect of our continued market-based pricing partially offset the impact of declining fuel recoveries and reduced volumes. Price and mix accounted for $76 million in year-over-year revenue growth as pricing gains of $95 million offset a negative mix impact in the quarter of $19 million. Next, the impact from fuel prices further reduced revenues $292 million in the quarter. This includes a negative fuel lag impact which Oscar will speak to later in the presentation. Yet the primary revenue story this quarter continues to be the impact of volume -- while volume declines moderated, they still resulted in $456 million less in year-over-year revenue. Turning to slide seven, let’s take a closer look at the overall volume changes across the markets we serve. Volume weaknesses continued across all key markets as the effect of the recession continued to impact our customers. Total volume in the quarter was over $1.4 million units, down 15% below the third quarter of 2008, yet in each of the major markets that we serve, year-over-year volume declines moderated when compared to the second quarter. Some of the reasons for these improvements, which I will speak to in a moment,…

Thank you, Clarence and good morning, everyone. Our culture of leadership, discipline, and execution keeps delivering results despite the challenging business environment. Our commitment to safety remains strong and our performance ranks CSX as a leader in one of the nation’s safest industries. We continue to drive productivity while managing resource levels, which is helping to improve the operating ratio. And finally, the network is running well and service reliability remains high for our customers. Now let’s look at some of the details. Slide 17 shows improved performance in both personal injury and train accident rates. As you can see, performance improved dramatically over the last several years and that trend has continued in the third quarter. FRA personal injuries improved 7% to 1.09 for the quarter. That’s 21 fewer injuries compared to the previous year. FRA train accidents improved 21%, producing a rate of 2.47 in the quarter, with 31 fewer accidents versus prior year. Overall, we have made great progress but we will strive to make a safe environment even safer for our employees, for our customers, and for the communities we serve. Now let’s turn to productivity and cost management. This graph shows the change in car loads and road crew starts over the last three quarters. When volumes declined sharply in late 2008, we used the one plan to align our scheduled train network to match lower business levels. As volume level improved slightly in the third quarter, we handled the business without adding trains to the network. As a result, road crew starts were down 19% in the quarter, with volume down only 15%. When volume continues to improve, we will use these same one plan twos to keep the network lean and efficient. Now let’s turn to the next slide, number 19. A smaller…

Thank you, Tony and again, good morning to everyone. Let me first start with an overview of the quarter’s results on slide 24. I think as Clarence discussed earlier, the top line continues to be impacted by declining business levels. Overall, revenue fell 23% to $2.3 billion, driven principally by the 15% drop in traffic levels that you heard about. Expenses in the quarter declined 24% to $1.7 billion. About half of this change was due to lower fuel expense with the remainder being driven by Tony and our operating team through productivity and cost management initiatives. Operating income declined 18% to $598 million as our continued cost discipline helped partially offset revenue losses. These results, combined with slightly higher interest expense and lower income taxes and shares outstanding produced EPS from continuing operations of $0.74, a 20% decline versus last year. Fuel once again played a significant role in our results, so let’s look at the lag impact on slide 25. As we’ve discussed in previous quarters, the lag in our fuel surcharge program produces favorable earnings impact in times of falling fuel prices and a headwind in periods of rising prices. As you know, over the third quarter fuel prices increased steadily and this resulted in a $19 million unfavorable impact. If you take the forward curve, the projected change in fuel prices are expected to result in a neutral to slightly negative impact in this fourth quarter. However, as you can see also from the chart, we had a significant favorable lag impact of $150 million in the fourth quarter of last year and so we will face a tough year-over-year comparison as a result of that. Now let’s move over to the next slide and look at our expenses in more detail and start with the…

Thank you, Oscar. So today we find ourselves in a still challenging economy. However, the worst appears to be behind us and our underlying performance is still getting better. While the regulatory environment remains uncertain, we are seeing a growing appreciation in Washington for the role we play in improving the economy and the environment. Industry wide, it will take about $135 billion of new freight rail investment to keep pace with the outstanding growth in demand between now and 2035. At the same time, the industry is facing a multi-billion dollar unfunded mandate for positive train control, as well as the potential for billions more in impacts from new economic regulation, environmental and healthcare legislation. The time for investment in rail has never been more crucial. Congress has an opportunity to create a regulatory framework that not only encourages rail investment but economic growth and job creation as well. As we actively monitor and express our views in Washington, the employees of CSX are remaining relentlessly focused on our business. There are four key realities that drive us. First, we are in a great industry with a strong foundation and a terrific long-term potential. Second, we have a network that is positioned right where the action is, serving two-thirds of the American population where three-quarters of all consumption occurs. Third, we have a great team. Since 2004, our growth and rate of improvement has been unmatched in the industry. We have developed a culture of accountability that is always driving for better performance. And finally, the improvements we have made in our business have allowed us to make capital decisions that benefit customers and investors in the near and long-term. The employees of CSX are demonstrating in a very significant way that regardless of the economic environment, we are able to produce positive results while positioning ourselves to be a safer, leaner, and stronger company. This, combined with the renaissance of freight railroads in the United States, gives us great confidence in the long-term future of our company. With that, we will now take your questions.

(Operator Instructions) Our first question comes from Ken Hoexter of Banc of America Merrill Lynch.

After years of eliminating unprofitable intermodal revenues, it seems like your operating ratio on the intermodal side is creeping up significantly. When we get this turnaround and volumes obviously starting to improve sequentially, are we going to have to go through another period of culling some of these revenues? I just want to get your thoughts on kind of the intermodal business, which is the one part that doesn’t seem to have the rebound that the great rail cost-cutting side is having.

You know, when you look at our operating ratio and our intermodal business in the third quarter of this year, please keep in mind a couple of factors. Number one, we are comparing against a third quarter last year which was a record quarter in our intermodal business. Secondly, some of the factors that’s driving that intermodal profitability right now is a significantly reduced fuel surcharge revenue was coming in. Secondly, our volumes are down. We have tried to align our network capacity with what those volumes are being down but in order to stay competitive with trucks, we have to run a certain fixed network and that fixed network in the near and short-term has excess capacity on it and that impacts the profitability on that. And third has been the over-the-road pricing for the trucks is as tough as I’ve ever seen it in the years that I’ve been in this business and that is impacting our ability to get price in that intermodal business. Now, having said that, when the economy recovers and when the volumes come back and truck capacity tightens up, we expect the profitability of the intermodal business to improve.

Great, thanks, Clarence. If I can just get the follow-up on Oscar, you mentioned a couple of times you don’t expect costs to come back on a one-on-one basis. Can you kind of walk through what level you would expect kind of incremental margins on incremental revenues as they do start to turn around?

I can. That’s difficult and it’s across different market segments but I can generally say there will be better margins with the incremental volume than they were as we went into this recession. They will continue to be better and you will get to see that as we -- as volume increases.

Okay, and just a quick one, if I can, on cash -- do you plan on doing any stock buy-backs again soon? It looks like you are building up over $1 billion of cash reserves here.

It’s nice that the business has been able to generate the amount of cash that it has in this kind of down market but again, we continue to maintain sort of prudent outlook. We’ll wait and see how the economy recovers and I think continue our balanced approach to investing in the business dealing with dividends and share repurchases when the right time happens. So nothing at this point to report.

Great. Thanks for the time.

Tom Wadewitz of J.P. Morgan.

Let’s see -- a lot of things working quite well for you, so congratulations on the good results. I wanted to drill down a little bit more on coal. You had some pretty cautious comments on that. Can you give us a sense -- are you anticipating a further step-down in coal volumes or are you just saying kind of they stay at a similar level and they don’t show the improvement that you might see in other segments?

We expect the fourth quarter run-rate will be very similar to what the third quarter run-rate was. 2010, we expect that we will continue with headwind into 2010. You’ve got to remember there’s about four factors that will be affecting 2010 -- gas prices, whether or not industrial production comes back to robust levels or just continues the slow, steady improvement it’s got now, what will the winter weather be producing, and remember that these coal utility stockpiles that we have only represent about a 5% overhang, so as the utilities draw that down, you may see ups and downs in 2010.

So when you look at 2010, I guess one thing to consider would be minimum commitments that the utilities have, either with the miners or with you. Do you think those minimum commitments step down in 2010 versus this year or is there not a big change in that?

I don’t really -- I don’t know how to answer that. We don’t -- we’re not seeing any liquidated damages, if that’s your question. We’re not seeing any liquidated damages if that’s your question in the -- from any of our customers right now, and as to what the utilities will negotiate with the individual coal companies, we just have no insight into that right now.

But a lot of our contracts with them are longer term in nature, so there’s probably not going to be significant changes in our contracts.

Okay, and do you have a quick comment on timing on legislation, and then obviously I’ll pass it along to someone else.

We really don’t, as you know, the senate commerce committee has been working on this for many months now and they are really trying to strike that appropriate balance of how do we address some of the customers’ concerns, at the same time protecting the ability for the railroads to earn sufficient monies to get our cost of capital and continue to invest in the infrastructure. And I think that’s been one of the challenges why they haven’t come out with a bill yet. As you probably follow this as well, there’s constantly -- in a couple of weeks, something will be coming out but at this point, we don’t have any better visibility than they are working diligently on it.

Okay, great. Thanks for the time.

William Greene of Morgan Stanley.

Good morning. Clarence, how much of the 2010 business already has a price locked in?

You know, right now it’s going to be difficult for us to say because we are in the middle of the negotiations for next year -- in fact, they just started in the last month or so, but at the fourth quarter conference call, we’ll be able to give you some guidance on how much we’ve got locked in and what it looks like. But I would like to reaffirm, if I could to you, that we strongly believe that we still have pricing power in this environment because of the service levels that we’ve got and the value that rail transportation brings to the market place, and we will exceed rail inflation next year on our pricing.

Clarence, I think on last year’s third quarter call, you’d mentioned sort of half your business comes up for renewal each year. At that point, about a third had been negotiated and a third was in negotiations. Would it be different this year? Did you renegotiate things in a different way last year that would make that different or should that be about the same?

It should be about the same.

Okay. And then could you just remind us, legacy contracts, are there any left at this point?

We have a few legacy contracts, about 5% to 7% of legacy contracts. Most of them will start renewing in 2011 and some of them go out as far as 2013 and 15.

Okay, and then just one quick question for Oscar -- Oscar, the network seems to have at this point I think you could say a fair amount of excess capacity, so would that suggest you can hold CapEx at these levels for at least a year or two? I know you haven’t given guidance on CapEx for 2010 but just conceptually, it would seem that we could run CapEx at these levels until the volumes come back to kind of 2007 volumes. Is that logical?

Bill, I think from a broader perspective, you need to remember that there are some programs that are going to be required on the industry that are going to put some pressure on CapEx into the next five years, namely positive training control issues. So it is that factor that makes that direct answer to your question a little bit difficult, so we are working through it again over the course of these next few months. We’ll put the plans together and hopefully give you some sense of what CapEx will be next year but again, we don’t expect it to significantly move from the amount we’ve been spending for the last couple of years.

Okay. Thanks for the time.

Edward Wolfe of Wolfe Research.

Good morning. Can we just first start with some of the expense lines? Oscar, based on your comments on the MSNO line, it seems like $20 million was what you referred to as not ongoing. So if we take the $428 million and we add 20, give or take, is 448 as good a placeholder as any for fourth quarter, or is there a seasonal increase or anything else we should think about for that line?

You know, that’s a difficult question. I’m not going to give guidance on a range for a specific line item. You know, that particular expense item, it’s about roughly half variable costs that move up and down with business. The other half is generally fixed in nature until it’s not and again, issues like legal settlements, credit issues with regard to things that occur in our actuarial reserves, which are upcoming in the fourth quarter. It’s difficult to sort of move or forecast that particular line item, so I can't give you an average because if you look back in history, it really hasn’t been in that way. So think of it half and half on a normal basis, fixed versus variable and that’s about as much as I can give you, sorry.

No, that’s helpful and directionally though, fourth quarter no different seasonally than the others?

As far as MSNO, again half of it being volume levels, we’ve seen a little sequential increase in volume so you might see some of that up-tick but yes, nothing seasonal.

Okay, and then also directional, I’m not looking for precision in these expense lines but if I look at labor costs, down sequentially despite the 4% wage increase in July and higher volumes, both sequentially -- how do you account for that, the sequential improvement and the year over year?

I’ll tell you, it’s outstanding work from a very large group of people that are managing that expense in a spectacular way from what I’ve seen in my short time with the industry, so it is productivity to the Nth degree. And again, I think you heard Tony talk about running the additional volume without incremental train starts, that’s how it starts. It’s overtime management, it’s all around that. So again, with more volume, a few more people will come back in but we don’t expect any kind of significant increase in the fourth quarter for headcount.

Okay. Somebody, I think it was Clarence, noted abut getting pricing above inflation -- what’s the expected rail inflation for 2010? How are you thinking about that?

Well, right now our preliminary number that we are working with is 3%.

And that’s an overall combination of labor and materials and everything?

Yes.

I guess the wild card in there is fuel.

Fuel.

-- [in the forward curve are fuel].

Again, a directional number, Ed, as you’d expect.

Yes. Can you talk a little bit about tariff expectations? Clarence, everyone has asked you about pricing and what’s locked in but what’s your expectation for getting tariffs in 2010 relative to not being able to get them in ’09 so much?

Ed, before Clarence answers that, if you don’t mind, if you have additional questions if you could get back in at the end of the call, but Clarence, if you could answer that please.

Sure. Right now we are evaluating what our tariff is going to look like going forward. We’re getting a lot of push-back, as you could expect, from particularly the commodity groups in the tariff. But as we see the -- how the business is stabilizing here in the fourth quarter, we’ll make a decision on what we are going to do at the start of the year.

And last one -- this is just a follow-up to that and then I’m done, but the timing of when you make that decision is when?

We’ll make that in the fourth quarter.

Okay. Thanks a lot, guys.

Gary Chase of Barclays Capital.

Clarence, could you just clarify -- when you said that the current inventory levels represent a 5% overhang, you mean you would have to take your current volume rates down 5% for a year to correct it? Could you just define what that 5% means?

Well, if you look at what the utilities need in terms of inventory and you look at what they have there, they probably have somewhere in the neighborhood of 20 million tons more on the ground than they actually need to have, so either we are going to have to let that inventory work itself down or the burn rate for the utilities is going to have to increase.

Right, but that wouldn’t be 5% on a year -- that’s just 5% relative to the inventory levels, right?

That’s right.

Okay. You know, I understand the desire to be conservative on this -- how hard is it for coal to get incrementally more negative? I mean, it’s not a bright spot now. Do you have customers that are trying to renegotiate these minimums, whatever the contractual provisions? And then as a follow-up to that, I guess the other side of it is does the dynamic now with natural gas make you rethink how much value you can extract on the pricing side looking forward from some of these legacy situations.

The answer to your first question is no. And to the second question is, you know, natural gas is a commodity and it’s going to behave like a commodity behaves and right now there’s an abundant supply of, relatively speaking, of natural gas with exploration particularly in the shell reserves in this country. But the drilling rig count is down, so eventually the price of that natural gas will go up and when it does, the coal burn changes.

It’s starting to approach $5 on a the forward curve now.

It is -- it’s $4.50 on the current number and the forward curve gets to $5 and $6 after January 1st.

Okay, so it sounds like that will be a no to the second as well -- you don’t think it’s going to change the dynamic looking forward on --

Yes, that is correct.

Okay, guys, appreciate it.

Mat Troy of Citi Investment Research.

Back to the earlier question about legacy contracts -- given the fluid situation in the automotive industry, I know Ford has got a big contract with [inaudible] Southern. It’s supposed to re-price at a pretty favorable market base rate in the fourth quarter. Could you just talk about your automotive book? Are you involved in that renegotiation? Is there potential for share gain or loss? And what does the automotive side of the business look like? I would imagine the pricing opportunity there perhaps not as much as it was maybe two or three years ago when that was a healthier industry.

Matt, first I don’t really want to comment on any negotiations we are doing with a particular customer because of the confidentiality of that but I think it’s common knowledge that the Ford contracts are up for renewal. The automobile business is a tough business to be in right now. We don’t have any significant contract renewals coming up, other than the one that you’ve mentioned there, so it’s going to be a year or so before we actually get really significantly impacted by any of those negotiations. And as is usually the case, the automotive industry is trying to push prices down as low as they can get them and we are trying to push them up as high as we can get them. I don’t mean that to be flippant. I mean, that’s the truth.

Right, it’s the classic immovable object versus the irresistible force. I guess if I look at a question, because we are running long and I’ll keep it to two, the question I have is for Oscar and it is just a modeling question -- I just want to make sure I understand something correctly. You had in your footnote that you had about $160 million of CapEx not running through the CapEx line but actually classified as financing activities because you use seller financing. I was just wondering what that was, just to clarify, so we can come up with kind of what the true full-year CapEx number would be.

Simply said, it’s the receipt of physical assets and we pay for them at a later timeframe.

Okay, so it’s just a timing issue?

Yeah.

So the full-year CapEx guidance is unchanged?

Absolutely.

Thank you.

Christopher Ceraso from Credit Suisse.

You mentioned a lot about coal and I understand the inventory issues as it relates to steam coal but it looks like steel production is starting to ramp up a little bit globally. Do you think that there’s a chance that met coal and export coal can be up in 2010 versus 09?

There’s a possibility that it could be up. It’s just a wildcard because there’s very little metallurgical coal at the steel companies. Capacity utilization last week in the U.S. was at 59%, so is it up from where it got down into the high 30s, the low 40s? Yes. Is it where it was last year at this time? No. So it’s a wild card for us.

Okay. And then you’ve got a union contract coming up I guess at the end of the year. Do you think that the union appreciates the concept here, that if wage increases get smaller then your need to raise price as much can also come down, which might take some regulatory pressure off the industry?

I think that would be a highly unusual posture for them to take. I think their concern will be to push their wage increases as high as they possibly can. I’ll just remind the group, you know, we do negotiate as a -- the four, five class one railroads, four and KCS -- negotiate together against -- with the unions. Normally that’s a multi-year process and I’ll remind that the last 30 years has been fixed days loss of work due to strikes, so I think what you will see is a protracted negotiation with them pushing for wage increases and us pushing to minimize those increases. But it’s in the very early stages.

Okay. Thank you very much.

Justin Yagerman from Deutsche Bank.

Looking at the coal side of things, I just want to get back -- and I don’t know if we got a 100% clear answer -- you guys said that you are not currently getting push-back in terms of the minimums there that the utilities have to take. If that’s the case, then what is going to drive further pressure on the mix from coal overall? And I then I guess if in the worst case scenario you did have to take liquidated damages because you weren’t able to ship enough product, what does that mean in terms of how much you could make up give the fact that margins on those liquidated damages would essentially be 100%.

Typically our utility contracts have minimums and maximums, so the trick for the utility is just to try to stay slightly above that minimum and not have to pay any liquidated damages. So they walk a very fine line there. As it relates to liquidated damages, most of our contracts have liquidated damages, so let me describe them to you, Justin, if you would allow me to, in the following way -- they cushion the impact but they do not replace the contribution that we would make by hauling the coal. We would much rather haul the coal than receive liquidated damages.

And Clarence, isn’t it also true we’re not seeing any instances where people are paying liquidated damages, they are meeting their minimum.

Have not seen any and have had no discussions that I am aware of with any one about.

Embedded in that question was a mix view point as well, and again the simplest way of looking at that is even if coal volume would remain static and stable into the next quarter, for instance, the rest of the business is beginning to show some signs of growth and that’s how the mix begins to shift. So it’s not necessarily a further decline in coal -- it’s the rest of the business actually grows. And chart seven I think has a little bit of depiction from the first quarter to now that sort of outlines that.

Okay, that’s helpful. And then I guess a follow-up question on the cost side and thinking about the $20 million in MSNO -- you know, when we think about that as incorporated into continuing earnings, are there other offsets in your cost structure that maybe were counteracting that that we should be thinking about that are one-time in nature, that would lead us to believe that on a net basis this is neutral from a continuing standpoint?

The way to think about that is we try to be as transparent as possible. The matters that occurred in the quarter are normal business matters. They just happened to hit in that and we don’t naturally have those recurring, so that’s what we are telling you. How you wish to offset that in your models versus other things, there’s always things in the business that are impacting us one way or the other. I mean, you’ve got a fuel lag that happens both ways and you could easily measure those two off, you’ve got mix impact -- you’ve got a whole host of different things. So we offer it to you for your use and your analysis and again to be transparent that embedded in that particular line item, there was a couple of items that were sort of unusual for us.

That’s very fair, and then I guess just lastly before I go, on, you know, modest improvement that you saw in terms of volume declines in intermodal as we move forward, do you think that there’s any leading indicator there? Are you getting a sense from your customers that this portends some kind of improvement in economic activity on an underlying basis? Are you seeing strength in consumer goods coming out as we are starting to hear about Asian export growth and all the rest? You mentioned a little bit of strengthening in the international business -- just any comments around that would be interesting to hear.

I think it’s just a slight bump up in the traffic and anticipation of the holiday seasons that are coming up. I don’t think that it’s any type of major indicator of some surge in economic growth in Asia.

Well, it would be the first time in a while that we felt any seasonality, so that’s actually nice.

That is.

Appreciate it. Thanks for your time, guys.

Donald Broughton of Avondale Partners.

Let’s go back and dwell a little bit on the labor line. I want to get a little bit more granularity, a follow-up on what Ed was asking earlier. The number of TNE employees was actually higher sequentially and in the second quarter your train starts were down 20%, and your crew starts were down 20% -- they were only down 19% -- I mean, still heroic in the third quarter but they were down less in the third than they were in the second. So with the 4% inflation in wages halfway through the quarter, I’m trying to get at the 15.5% drop in wages to foot. What else is there? Has there a change in management compensation or incentive pay-out?

That was a lot of math in your head there that I was having a hard time keeping up with.

Well, you’ve got TNE employees are up sequentially.

Okay.

And while your crew starts are still down, they are down less than they were than the second quarter. So if your TNE employees are up, they are getting paid 4% an hour more and your crew starts are down less, than why shouldn’t -- why wouldn’t I see a -- I mean, how is it that nominally sequentially the wage number could actually fall?

Incentive comp is a big number that we outlined in the chart. I don’t see the sequential drop in headcount.

Headcount is up sequentially.

Right. So here are the factors that I think we talked about in the script -- the vacation aspect is an impact, overtime reductions, and of course a very large number in incentive comp is a reduction as well, which all drove that number down. Are we answering your question?

So incentive comp is part of it -- bigger than a bread box, smaller than a rail car -- what are we talking about in the amount of swing in incentive comp?

$28 million.

I’m sorry?

$28 million -- it’s on our chart. I’m just trying to --

Okay.

If you look on chart number --

If I could learn to read?

Yeah.

You know what Mark Twain said about that. All right, that explains the variance then. Thank you.

Okay, great. Thanks.

John Mims of BB&T Capital Markets. John Mims - BB&T Capital Markets: Most of my questions have been answered -- not to beat this coal horse to death but just for -- to make sure I am looking at it right, when you talk about the headwinds you see in Q4 and going into 2010, on a sequential basis are we going to see car loads stay about the same as Q3 or are we going to see those decline in Q4 and into Q1?

Q4 should be sequentially about the same as Q3. John Mims - BB&T Capital Markets: And in 2010, can you venture that far?

It’s iffy in 2010, you know, because your year-over-year comparisons are going to be different, particularly in that first quarter and into some degree in the second quarter, you may see some decline in those quarters but --

As Clarence pointed out, there’s lots of variables here. How cold is the winter, where is natural gas prices, what is the demand for electricity -- so all those things weigh in there that’s a little hard to gauge that. What we do know though is there are 20 million tons or so more on the ground than they would like to have, and that’s really I guess the best visibility that we can give. John Mims - BB&T Capital Markets: Yeah, and this is just kind of on that same line -- I know this is difficult to answer but you know, finger in the wind, would you say this is a three-quarter headwind, a five-quarter headwind? You know, how have similar situations typically played out?

Well, it’s interesting -- I was talking with our investor relations last night. It’s a headwind, it’s not a hurricane. We are going to load 4,000 or 5,000 car loads of coal a week, originated loads less than we have historically loaded throughout the years. That’s essentially what it is. John Mims - BB&T Capital Markets: Great. Thanks for the time, great quarter.

Randy Cousins, BMO Capital Markets.

Oscar, I wonder if you could speak to the casualty reserves for the fourth quarter. Given the great FRA statistic that you guys are producing, normally you take out the true-ups in Q2 and Q4. Can you give us some sense as to sort of -- obviously you are probably not going to repeat what you did in Q2 but is it going to be $10 million, $20 million as a true-up?

It’s hard to say but here’s my sense of it, because again it’s performed work by an outside actuarial service and until we open the envelope, we don’t know our selves. Given the short duration of time and thank you for noting the improvement and continuing improvement in safety, I think generally that too short a time has passed to have any real meaningful impact in this fourth quarter, given what would happen in second, so I would not expect a very large number in general.

Okay, and then my second question has to do with a surcharge [inaudible] -- so you talked about it as a headwind sort of year over year and if I look at your slide number 25 because I’m more interested in sort of the quarter to quarter issue as opposed to the sort of year over year number because last year’s number is in a different, totally different environment than what we’ve got today. So is the way to think of this as I think it sort of shows up here as sort of $33 million headwind this quarter or in the Q3 and then sort of a $19 million I think you are looking for in terms of sort of the next quarter, so the swing quarter to quarter, should we think of that as sort of like a $14 million favorable adjustment?

Just to clarify the chart a little bit, if you look at it, the last bar is the actual current period, Q3, so we are not --

Oh, sorry, yes.

And so the way to look at it -- I think your question is regarding Q4. I think what I said is that given the current forward curve, we don’t expect to see the lag kind of neutral to slightly negative so we wouldn’t expect to see a very large number impacting us.

So in terms of sort of thinking about Q3 versus Q4, is that then sort of a $19 million positive?

Yeah, but then remember we’ve got this year-over-year issue where we had that -- if you look back at Q4 of ’08 --

I’m just thinking quarter to quarter as opposed to year over year.

Yes.

So a $19 million positive?

Yes.

If the forward curve is correct.

If the forward curve is correct.

Thank you.

Jason Seidl from Dahlman Rose. Jason Seidl - Dahlman Rose & Co.: I’ll keep this quick -- Tony, how much additional freight can the network handle before you guys A&R going to have to start adding train size?

Well, we’ve lost about 20% in volume, so we can handle that. Our trains right now, we’ve adjusted our trains to maximize our train size, so there’s still plenty of volume out there to take what, you know, that we’ve lost there but I think that intermodal is greatest. Clarence mentioned there earlier, you’ve got more room on your intermodal trains and coal, your coal and your grain trains would be one type stuff on your unit trains, but there’s still plenty of volume out there for our trains. Jason Seidl - Dahlman Rose & Co.: Okay, and Clarence, you guys noted that you are still seeing a little bit of pricing pressure on the domestic intermodal. Have you started to seen that ease any in the last call it month or two? Because we’ve noted sort of a sequential up-tick in truckload pricing -- not much of one, but a sequential one. Is that flowing through to you guys yet or no, not yet?

It has, particularly coming off the west coast. Most intermodal carriers are out of boxes on the West Coast so we’ve been able to get some price coming off the West Coast. Jason Seidl - Dahlman Rose & Co.: Okay. Gentlemen, thank you for your time, as always.

Walter Spracklin, RBC Capital Markets.

Just a follow-up on the regulatory front here -- there are some news articles, and I don’t know to what extent you can really comment on this, but talking about a bill having been run past you guys and you seem to be okay with it and just some of the shippers have a few qualms about it -- is there anything you can speak to about that and is there any truth to that?

What I can say is this, Walter -- we have been in constant dialog with the Senate commerce committee staff. They’ve sort of imposed a cone of silence upon us because they are trying to work through this balanced ability for us to continue to earn appropriate monies and invest and some of the concerns some of the select customer base has and so they are working to strike that balance and I think they have shared some tentative ideas with us which depending how it shapes up may be something that the industry can live with but until they actually produce something, it’s really hard to comment on it.

Okay, understood but that’s good color, I appreciate it. Just last question, you mentioned the positive training control being an un-funded kind of liability out there. Do you have any -- assuming that there’s no update in the next year or two on how any government funding might come, how do you approach the funding of those initiatives given that sort of deadline you have? In other words, how much CapEx can we see devoted toward PTC in the next couple of years?

Well, as Clarence noted earlier, it’s going to be a challenge. We are going to have to work carefully at our capital spend and where we spend it but our current estimates between now and 2015 when it needs to be in place, it’s about a $750 million expense and potentially more. All the regulations haven’t been finalized at this point. We are working as an industry to minimize the number of miles that we have to apply this technology too and there are some ideas we are exploring with the FRA that will minimize while still protecting the public and so it’s still in the definitional phase but we are going to have some hard trade-offs to look at there of where do we spend our capital as we go forward.

And implicit in that, Walter, is the fact that the money comes from us. We are trying to work in some areas to potentially defray some of that costs [inaudible] -- it’s largely that will come out of our operating cash flow.

Okay, understood. Those were my two questions. Thanks very much, guys.

Jon Langenfeld of Robert Baird.

On the domestic intermodal side, can you talk about where the areas of relative strength are? Is it trans-con? Is it intra-eastern region and/or -- how is the spot market business doing?

Well, the quick answer is yes to all three -- our trans-con business has been up, mainly as a result of trans loading off of the west coast of the international boxes and that’s been the case just about all year. Some of our truckload partners on the eastern core have been converting a lot of their over-the-road business in a fairly aggressive way to intermodal and that’s produced growth for us. And in our spot market business that we do through brokers and all, that business has remained strong all year long.

So across the board.

Yes.

Okay, thanks. And then the follow-up is you have a couple larger partnerships with intermodal marketing companies and then you have a number of smaller partnerships -- how does your strategy look if one of the larger partners no longer is able to service your needs? How does your -- just generically, how does your strategy look out over the next three to five years under that type of scenario? Where are the offsets? What are your options?

Well, I’m not exactly sure where you are headed with the question but let me say that our intermodal strategy, if one of our larger partners was to change carriers, if somebody was to buy them or whatever, the freight capacity in this country is still going to move. The business itself is still going to move and we think that we will earn our fair share of the business as it moves. We’ve got an excellent service product that Tony and his team is delivering right now -- I mean, just absolutely fantastic service that we can offer. We have box availability that is in the market place that we are doing good. We think we are priced right. We think we serve a lot of the eastern markets where most of the consumer population in this country lives. We’ve got projects such as the national gateway and things that we are moving out in New England that are going to provide a lot of value to what the shipping public needs. We have new terminals coming online in Northwest Ohio. In Bessemer, Alabama we just opened up a new terminal. We’ve had expansions of terminals in Charlotte and new terminals in Chambersburg. We’ve got most of our network now cleared completely for the double stacks. National gateway will be the crowning jewel for it. So you know, Jon, we feel pretty good about where our intermodal strategy is.

Okay, great. And does the core pricing on domestic intermodal, can you give us some sense of what that looks like for you?

The core pricing on domestic intermodal?

Correct.

It’s tough. I guess the trucking environment, a lot of the mid-size truckers that had been in the intermodal business have had to take intermodal off of the rail and put it back onto the highway to protect their driver base and that’s been tough for us. There’s a lot of capacity out in the marketplace still, even though you hear the stories that people are taking capacity out. The banks are not foreclosing on these trucking companies because what are they going to do with seven or eight hundred or thousand or whatever the math is with the trucks. So you’ve got between the artificial financing that’s propping up some of these companies and the need for them just to get freight to stay in business, it is a tough pricing environment.

Would you care to quantify that for us? Is it down a couple of percent? Is it down 6%? What would be the range we are looking at?

I don’t know off the top of my head. I don’t want to guess a number but it’s down.

Okay. Very good. Thank you.

Our final question comes from John Larkin of Stifel Nicolaus. John G. Larkin - Stifel, Nicolaus & Co., Inc. : I had a question that’s a little longer term in nature related to kind of target margins in the three to five year time horizon. If we are in the early stages of a volume recovery, which I think is an accurate assessment, and you are able to bring costs on at a less rapid rate than the volumes recover and pricing outstrips inflation, you ought to have a pretty good run of margin expansion here. Do you think over that three to five year time horizon it’s possible to get down into a consistent, sustainable operating ratio with a six in front of it?

Absolutely. You know, we put out guidance about a year-and-a-half ago that we thought by 2010 we would be sub-70 in our operating ratio. Obviously this downturn impacts the timing. It does not impact where we think we can and should be and will be, which is a sub-70 operating ratio company. John G. Larkin - Stifel, Nicolaus & Co., Inc. : Okay, and then just maybe another final question here -- there’s been a lot written and talked about with respect to natural gas prices being low and how long they will be low and so forth. Do you have a handle, Clarence, on how many of the power plants that you serve actually have the technology in place to switch over to natural gas and how many of those have actually either totally or partially switched over to natural gas at this point?

Couldn’t give you a number off the top of my head but I would remind you, John, of something I am sure you are already aware of -- when electrical utilities convert to natural gas, it’s not the coal fire plant that converts -- they just fire up the combined cycle gas turbine engines that they have idle to so-called peakers. Now we do have one power plant that I am aware of that is changing its view of mix from coal to bio-mass, but it’s a very small plant in South Georgia that is doing that and probably won't have that much impact on our coal business. John G. Larkin - Stifel, Nicolaus & Co., Inc. : Okay, so is it safe to say that really the issue is the stockpiles and reduced electricity demand and once that stockpile as an industry gets drawn down, we ought to return to more of a normal level of coal movements?

Yes, absolutely. John G. Larkin - Stifel, Nicolaus & Co., Inc. : All right. Thanks very much.

Thank you, everyone, for your participation today. We appreciate your interest. See you next quarter.

Thank you. This concludes today’s conference call. Thank you for participating. You may disconnect your lines.