Good morning ladies and gentlemen and welcome to the CSX Corporation second quarter 2010 earnings call. As a reminder, today’s call is being recorded. During the call, all participants will be in a listen-only mode. For opening remarks and introduction, I would like to turn the call over to Mr. David Baggs, Assistant Vice President, Investor Relations for CSX Corporation. Mr. Baggs, you may begin.

Thank you Fran and good morning everyone. The presentation material that we will review this morning along with our quarterly financial report and our Safety and Service measurements are all available on our website at csx.com under the Investors section. In addition, following the presentation, a webcast and podcast replay will be available on the same website. Here representing CSX Corporation this morning are Michael Ward, the company’s Chairman, President and Chief Executive Officer; Clarence Gooden, Chief Sales and Marketing Officer; David Brown, Chief Operating Officer; and Oscar Munoz our Chief Financial Officer. 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 question-and-answer session with the research analysts. With 27 analysts now covering CSX, I would ask, as a courtesy to everyone, please limit your inquiries to one primary and one follow up question. 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 and good morning everyone. Last evening we reported second quarter earnings per share of $1.07, up 51% on a continuing basis from the same period last year. These results were driven largely by volume improvement in a recovering marketplace, the ability to value price our services and strong safety, service and productivity on our railroad. Looking at revenues broadly, they increased 22%. Volume was the biggest driver at 13%, while pricing and fuel cost recovery made up the rest. We took on higher levels of traffic profitably as our employees continued to find new ways to operate more efficiently. They continue to demonstrate our culture of accountability and results. The combination of higher revenues and strong productivity resulted in an all time record financial results including an operating income of $768 million, up 33% from the prior period and a 240 basis point improvement in our operating ratio to 71.2%. We are on the right path in creating value for our customers to help them compete in today’s economy. As a result, we are also delivering strong financial results for our shareholders. We remain confident in our ability to grow, drive operating leverage and produce strong financial results going forward. With that I’ll turn it over to Clarence.

Thank you Michael and good morning everyone. In the second quarter of 2010, an improving economy helped almost all the markets that we serve rebound from the lows experienced last year. As you can see in the chart on the left, the manufacturing sector expanded again in June as reflected in a reading of 56.2 from The Institute for Supply Management’s Manufacturing, Purchasing Managers Index. You will recall that a reading above 50 indicates growth. This is the eleventh consecutive month that the index has shown growth. Also, inventory replenishment continues to play a significant role in the recovery as inventories remain below target levels in several markets. And the chart to the right, the June ISM report on customer inventories which assesses responder’s views of the adequacies of their own inventories yielded an index score of 38 which indicates that responders believe their customer's inventories are too low. In addition to this report, the most recent May 2010 U.S. Census Bureau report of Manufacturer's Inventories to Shipments and Unfilled Orders stood at 1.25 which is near the low end of its historical range. At the same time, as the economy and our traffic levels have been improving, we remain committed to delivering a safe and reliable product and we remain focused on capturing the value of our services. Now let's look at the change in revenue for the second quarter on the next slide. CSX revenue increased 22% to nearly $2.7 billion due to volume growth or pricing gains and the impact of higher fuel cost reflected in our fuel surcharge program. As you can see on the chart, volume increases drove $290 million of year-over-year revenue growth. Also the combined effect of rate and mix accounted for $108 million of the increase reflecting yield gains across all markets,…

Thank you Clarence and good morning everyone. As we have communicated before, leadership, discipline and execution continue to be the foundation of our company’s strong operational and financial performance. During the second quarter as volume continued to build, our operating team delivered solid safety results, improved productivity and consistent network performance. We delivered another quarter of year-over-year improvement in FRA Personal Injury Frequency as we continue to be a leader in one of the nation's safest industries. Productivity gains helped produce record financial results including an operating ratio that improved 240 basis points to 21.2% as Michael mentioned earlier. Finally, our network remained very fluid and key service measurements remained stable as business volumes increased. Now let’s look at some of the details. Slide 18 shows second quarter FRA Personal Injury and Train Accident rates over the last four years. In the second quarter, the Personal Injury rate improved 14% versus the prior year to 1.13 with 13 fewer injuries. This marks the fifth consecutive quarter that we have registered year-over-year improvement. Although performance continues to improve, our goal is zero. Looking at train accidents, the second quarter frequency rate increased slightly to 2.78. While stable with the levels we’ve seen over the last four years, we are not satisfied with this result and we hold ourselves accountable for continuous improvement. This quarter safety results were achieved through effective leadership and a sustained effort by all of our employees. Now let’s look at our service performance on slide 19. Overall, we are pleased with our network performance in the second quarter. All measures rebounded from the first quarter and the network remained fluid as volume increased. On the left side of the chart, on time originations and arrivals, both declined slightly year-over-year, but they remained stable at the levels we…

Thank you, David. Couple of housekeeping items before I begin. Let me talk to you about a couple of reporting changes. First, reflecting the changes in our Intermodal business that Clarence discussed, Intermodal would no longer be reported as a separate business segment. Rather, it will be treated similar to the merchandise and coal groups and we will no longer provide a separate P&L. As an addendum to that, inland transportation expense formerly in its own line item has been incorporated as part of MS&O for consolidated reporting purposes. In addition to that, we have changed our accounting treatment related to rail grinding. This change has caused certain prior year expenses to be adjusted based on its preferable method of accounting. This had a net effect of increasing expenses approximately $5 million this quarter. If you require more changes on, more details on these changes, they are available on our quarterly financial report. So with that, let me begin with an overview of the quarter results starting at the top of slide 24. As Clarence discussed earlier, revenue improved 22% to nearly $2.7 billion. This very strong top line revenue growth, coupled with the great performance that David and his operating team delivered drove significant operating leverage and yielded a 33% increase in operating income to $768 million. If you go below the line, interest expense and other income were largely unchanged from prior year. Income taxes increased $62 million driven by higher earnings of course but were partially offset by a favorable audit resolution. All in, we finished the quarter with EPS from continuing operations of $1.07, an improvement of 51% versus last year. With that as background let’s take a more detailed review of our expenses starting with labor. Labor cost increased 10% or $67 million from last…

Thank you, Oscar. So summing up, CSX employees have delivered another excellent quarter in a recovering market environment. While the economy remains dynamic, our markets overall continue to improve and our outlook remains positive. At the same time, CSX has demonstrated it can be successful in a wide array of economic conditions. For the long term, we are well positioned to deliver on the nation’s growing need for freight transportation. At the same time, our ability to meet that need depends on a regulatory framework that allows us to invest back into our network. We are still active in Washington, focused on finding a constructive solution. In the meantime, the employees of CSX will continue to do what we do well, deliver. When we do that, we stand out as a unique value for our customers, our investors and our nation. With that, we will be glad to take your questions.

Thank you. We will now begin the question-and-answer session. (Operator Instructions) Our first from Ken Hoexter of Merrill Lynch.

Great results, but Oscar, maybe I could just dig into your last comment there on your target for continued performance at these levels. When you think about that, are you targeting, kind of sustaining these earnings growth levels, do you think you can maybe operationally if Dave wants to jump in and do you think you can get the operating ratio into the 60s. I guess is there anything structural here that stops you from continuing this level of improvement?

I think on your question of course all things are possible, we don’t have any limits to our level of success, but for now I think we will just stick with what we’ve said with regards to a very strong operating ratio performance for the year.

Dave, maybe I missed it during your presentation. You were talking about the degradation in the origination and departures. Is there some reason as to something going on with the floor or I guess is that impacting fluidity of the network at all? Is this just the volumes coming back on slowing growth down?

No, we have seen volumes come back. We are very fluid and it's not really reflection of a loss in fluidity at all. We are working of course to improve those numbers. We did have almost a month of the quarter where we had one of our four western gateways out of business because of the significant flow [ph] and that did cause some re-routing and some shifting around in traffic which does impact those measures but they remain very fluid and we're confident about improving them in the future.

Our next from Ed Wolfe of Wolfe Research. Your line is open.

Good morning. It's Scott Group in for Ed. First, wanted to talk a little bit about coal. Clarence, we've seen some relative weakness in the coal volumes in the past four or five weeks, can you talk about that? Are you seeing that on the utility or the met side? And then looking forward, what's the visibility for met coal given expectations for a slowdown in Asia and Europe? And then, I guess just a follow-up with that, can you just talk directionally what percentage of your export coal contracts have a take or pay element to them?

If I understood the three questions, the first one is the recent weakness in the coal volumes and what's happening in our coal business right now is miner's vacation is occurring and that's on a rolling basis over about a two to three week period. The second factor that’s caused some of that decline was a pause in some of the sheer volumes of export shipments specifically to China. On your second question which was -- help me again.

Visibility for met coal with Asia-Europe slowing and then any take-or-pay elements to the export coal?

We’re standing on our 30 million ton export number, although there has been some weakening in our European markets and some weakening and pausing in the China markets. What that has net resulted in is less upside than we thought we are going to have when we were first estimating export tonnage to be at 30 million tons, so we'd think the 30 million is still a solid number. And then on our take-or-pay contracts, the preponderance of our export contracts will have liquidated damage provisions in them, but understand, Scott, if you will that we really don’t want to do the liquidated damages, we actually make money, more money when we haul the coal.

And then I guess the second question is when I think about a typical seasonality and earnings trajectory, the past couple of years you’ve had better earnings in the third and fourth quarter but historically if I go back ‘05, ‘06, ‘07 second quarter was kind of peak earnings and then third and fourth quarter were sequentially a little bit lower. How do you think about this year from a typical seasonal standpoint?

Hey, it's Oscar. I would probably go back to the more historical levels. I think the economy, I think we were having a nice growth, but it’s beginning to stabilize a little bit. And given that, I would go back to some of the historical sort of second quarter being peak.

Our next request Tom Wadewitz from JPMorgan. Your line is open.

I wanted to ask you about cost side and how you would view incremental margins in second half of the year, I think your one of the framework for kind of viewing net performance is the metric for train starts versus volume, so it's pretty helpful to provide that data to us. Do you think that metric, train starts versus volumes stays at a kind of a similar gap to what we’ve seen in first half or do you think that that’s going to change much looking at the second half?

I think as business begins to build and as our network gets back to sort of its full operating aspect, you will begin to see more and more resources applied to that and then I think it's important that we provide the right level of service. So I think there would be some narrowing of the gap but again, understand that our concept of operating leverage for the back half of this year still remains a very, very positive viewpoint.

Okay. And then, I guess another factor that goes into that calculation of incremental margin would be what price looks like. I think your target was four to five same-store price and second quarter you are well above that at 6.5. Do you think there is room for further acceleration in price in the second half or do you think you kind of already seen the step up and you kind of stay at this 6.5 level when we look to second half?

This is Clarence. I think what you’re seeing at this run rate here is what you are going to see in the second half. Remember that it’s primarily the reason we are above our guidance is driven mainly by export coal. When you take export coal out of the equation, we are in the 4% to 5 % on our pricing same-store sales.

Okay, great. Thank you for the time.

Bill Greene of Morgan Stanley, your line is open now.

I just had a quick follow-up to Tom's question there. You said 4% to 5 % same-store sales, is that right? Did I get that export coal?

Export coal, that's right. It tended to be towards the higher end of that range.

And so the volatility that we’ve seen in this metric, like it was at 6% a few quarters ago then down to 5% and now back up at 6%. That’s all the export coal changes. Is that the right way to think about that?

Yes, that is.

Okay. Then Clarence, can I also ask a quick question just? It seems like CSX is involved in a lot of rate cases, more so than the other rails. Is that because you are being more aggressive on price or is there something more sort of specific to CSX’s, the network itself or something that’s leading to these that we are sort of missing here?

Let me address. This is Michael. I think we’ve seen some increase in activity as you know and then clearly we continue to value price what our services are. I think we are delivering good value and we work through the STB process. In some cases, the mediation has worked. When it doesn’t, then we are going to continue to defend our prices because we think they are fair and reasonable. And so, I think it is just what’s happening at this point. And again, we’re continuing to work cooperatively with most of our customers to resolve these on an amiable basis.

Okay. Just one quick question as a follow-up to Oscar. Headcount, can you keep that flat for the year? You’ve done it pretty well here in the first half but is that sustainable? Thank you.

I think as David would attest, it is important for us to look ahead in this business. So we’ll begin to continue to hire and train in the next couple of quarters, in anticipation of the attrition that normally happens in our business. So I see relatively flat numbers but on a year-over-year basis, kind of that same 1% to 2% that we guided to last quarter for second quarter. We came a little bit below it but I’d stay with the 1% to 2% in the third.

Thank you.

Thank you. Our next request Justin Yagerman, Deutsche Bank. Your line is open.

Hey guys, I appreciate you taking the call. I wanted to get a sense; talking about resources coming back on as volumes are continuing to improve here, where are you in terms of lengthening your trains versus train starts? How much more capacity do you feel you have in the three different divisions to continue to lengthen the trains that you’re running?

That’s really dependent on the quarter we’re operating in and the type of trains. We certainly do have additional capacity overall. We think that to be around 10% or so for our general merchandise traffic and in the Intermodal traffic we’re looking at 15% to 20% in most lanes. So we have additional capacity that we’ll be filling as we bring on additional volume. We also have resources still available to bring back in, in terms of additional furloughed conductors, a few of those left were about 260 or so. And then we have some locomotives, we have sitting out in storage about 160 of those. So we can bring on additional resources as we need to generate additional train starts, but we’re at first of course looking to fill up existing trains and continue to gain the operating leverage we’ve shown in the recent past.

Okay. And then just trying to understand better your comments here on pricing, so given that you said you are seeing some slowdown in Europe and China and demand for export coal, but you're still guiding to the 30 million ton number for the full year. Is 6.5% same-store sales, a number that’s representative of a 30 million ton environment or if we see this continued slowdown in end market demand for the export coal, should we expect a reversion back to 4% or maybe 5% given that you’re at the higher end, you said of that range as we move into the back half of this year?

We gave guidance earlier in the year of 4% to 5% and we think that our base business is in that range and absent the export coal, we think the pricing would be above rail inflation, within our guidance. The export coal is the thing that provides the results we’ve seen that are somewhat higher in the first half. We don’t know if it will drive that same level of year-over-year increase in the second half at this point.

Our next is from Scott Malat of Goldman Sachs.

Just a follow-up maybe to Justin’s question a little bit on the coal side, the number of trains that have a 110 cars or more, we're following that pretty closely for a while. Is there any update on what percentage of coal trains have 110 cars or more?

Scott, we continue to push initiatives to increase the train size and that’s part of our TSI program which is implemented fairly well now. So we’re looking at numbers. The vast majority, 75% to 80% of our trains are that size or larger. We do still continue to have some that are a little bit shorter and all they have to do is either mostly receiver capacity limits. So we will continue to work with our shippers and receivers and increase productivity on our coal trains and we’ve seen a lot of success on that in the recent past.

Just another one just on cars online, it's just interesting to see you’ve been able to hold it so well in check. How do you think about cars online when volumes are up this much being so held low?

It really is a reflection of the fluidity of the network and we watch those internal measurements as well as the ones you see with velocity and dwell that are sort of the key components to moving cars on and off the system as productively as possible and that’s how we're managing that number to keep it as stable as possible and it’s been successful.

Our next from Gary Chase from Barclays Capital. Your line is now open.

Clarence, Intermodal volumes have obviously been looking very, very good. I wondered if you could give us a sense of what the UMAX change did to Intermodal volumes if may be we could think about what that would look like absent that classification change?

Gary, the UMAX volumes have been extremely good. First off, the service levels on UMAX are absolutely the best in the country. Their equipment turn times and utilization on the UMAX have exceeded anything that we’ve seen. And thirdly, the increase in the volumes really was beyond what we had expected if you’ll recall in our first quarter call. So it’s been all positive.

How much volumes fell out as a result of the accounting classification change? So I know the program is doing very well. I am just wondering how much higher would those numbers have been, if you didn’t change the way you accounted for the UMAX movement.

In terms of volume, those numbers would have been on a quarterly basis about 15,000 and that would have been strictly the volumes that move off the CSX core, never moved on the CSX railroad and a lot of those volumes again were replaced now with interline divisional volumes.

The reason I asked is you know if you take a look, I mean, what you have disclosed in terms of Intermodal RTM growth would suggest that you have length of haul increase, the pricing on Intermodal just looks like it would have been under pressure and I am sure you mentioned that you had core gain there. How do you think about what’s really going on from a price standpoint in that segment because the optics, to show a 9% decline on what appears to be improving or favorable length of haul, I mean is there something else in there that’s obscuring a core price gain in Intermodal?

No, they’re improving, unless the haul was all over the eastern core where we had lost in the revenue per unit was on the transcon moves but both our domestic and international business on the same store sale basis, we had positive price gains.

It’s being skewed by the $43 million right?

That’s right.

And the $43 million that was revenue impact, or going to be very close right, $43 million in cost, $43 million in revenue.

It could be close.

And any thoughts on what’s driving the general increase in Intermodal activity, are we peaking early? Are there concerns that will have a little bit of a retail inventory problem as we head into year end?

Well I think there are several things driving the Intermodal increases. Firstly, the international segments of business both on the East Coast and the West Coast are up. Secondly, is that the domestic volumes moving off the highway and in the UMAX program, the fact that we are now able to put asset-based carriers on the containers where we couldn’t in the CSXU [ph] program that proved to be positive. And in fact on August 1, in the TransPacific trade there is a peak surcharge that’s going in place, so you are seeing all the vessels that are in the TransPacific trade are full and you are starting to see cargo rotated at the ports in Asia to secondary vessels coming to the West Coast. So it looks very positive to us and for growth here in the third quarter.

Our next, Chris Ceraso of Credit Suisse, your line is now open.

You mentioned the wage and benefit inflation in your cost walk. What is your expectation for that in 2011?

You know what, I don’t have that number ahead of me. So we’ll post you as we get near that timeframe. But traditionally the normal inflationary increases that I think when we talked about the ones for this year were higher in 2010 versus what we had expected in 2011. So we think they would revert back to a little bit more of a normalized number rather than the high numbers we have this year.

You may recall we normally enter into five-year contracts and the past one, we rear end loaded the increases toward the end of the contract which obviously has the good NTB [ph] for us. So as Oscar was saying as we move into the new contract we would expect to see more normalized increases.

Okay. That’s what I thought. You mentioned that the 6.5% price was really helped by the export coal, was there any benefit in there from tightening in the truckload market or strengthen trucking prices as you walk from say Q1 to Q2 or was it really just the coal?

The Intermodel numbers as I mentioned earlier, we had same-store sales positive increases on the domestic side, mainly as a result of the trucking prices going up.

Okay. And just lastly, we have been hearing some more hawkish commentary out of both Mr. Rockefeller and Oberstar, do you feel like they are getting any closer to getting something through Congress or do you expect it to slip to 2011?

Well, it’s hard to gauge that. Obviously the Senate calendar is very crowded at this point. We continue to stay engaged in Washington concerning that. But yeah, here is really the bottom line; you know we have to create jobs in this country by making our goods more competitive in the global economy and freight rail is essential to our competitiveness worldwide. So we are still very hopeful that policy that will allow us to continue to earn enough to invest is what should come out of this. In the last five years, we, the major railroads have invested over $40 billion and even that level of investment, every government study says that that pace is still not going to be enough transportation infrastructure for the next 20 years. So, we are still continuing to push to make sure we have adequate earnings to continue to invest in our infrastructure.

Okay. Thank you.

Our next from Scott Flower with Macquarie Securities. You are open. Scott Flower - Macquarie (USA) Equities Research Good morning all. Just a couple of quick questions. Clarence, I know you mentioned that there are few areas where inventories were with the ISM data below where you would expect. Could you give us a little more color in terms of the customer base, where do you think inventories really are low versus where they are high?

That particular range is information to you Scott; ranges from a low 1.2% to a high of 1.8%. So it's near the historical lows at 1.25%. And what we see, a lot of the inventories, so let me just give you one example is in the steel industry. If you look at what the forward inventories are that are physically on the ground in the servicing centers, they are staying at relatively low levels because nobody wants to get caught with product. Same is true in the phosphate business. Right now there is virtually no inventory out in the steel locations because you recall just a year ago people had $900 ton phosphate, now its $300 ton phosphate. So that would be two examples. Scott Flower - Macquarie (USA) Equities Research Okay. And then just a follow-up question. I know that you talked a little bit about operating leverage, but I am just wondering, maybe this is for David, where do you think you are loosest on resources or capacity, whether it's the different variables that go into capacity? And trust me I know it’s a complicated equation in the rail business, where are you loosest on capacity, the resources or lanes and where are you tightest in terms of resources or lanes?

In terms of resources, we’re really tight in the sense of the things ahead of the most critical lead times, hiring new conductors, training engineers, that’s all continuing now at a path where we are going to cover attrition, plus the additional growth that we anticipate. So we can plan that out pretty well and have been pretty good at hitting the targets that we need to hit to make sure those resources are available. Locomotive-wise, we still have a pretty good number of locomotives available, so that’s another critical resource that we continue to maintain readiness with a surplus that’s available for growth. We look at lanes, when we look at sort of I-95 corridor, we see tendency there for trains to be a little more full and some pretty good volumes moving across that part of our network. But there is a lot of capacity there, and we can take advantage of that for growth. We have mentioned Intermodal and when we look at train volume increase potential, we see that the most potential is in the Intermodal side of our business, so we see we can add volume to most of our Intermodal trains, at least into the low double digit, 10%, 12%, 15%. So, we feel pretty good about our current ability to expand the existing train plan, to handle additional business and we are always planning ahead, we went through a lot of planning tools and effort to be sure we are prepared to bring on additional resources before they are needed, but at the time we are ready for it.

Our next request is Jason Seidl of Dahlman Rose. Jason Seidl - Dahlman Rose & Co. Oscar, a quick question for you regarding the cash flow, it looked to be pretty darn good in the quarter. However, there was a big swing of just slightly over $250 million in the other operating activities in your line. Can you give us more color on that?

Yes, you got me there. I am not sure. We did the debt exchange, that could be a possibility, but nothing of any significance. That doesn’t hit my radar screen. So, we will get back to you Jason. Jason Seidl - Dahlman Rose & Co. Also, could you kind of update us on where you guys are at with your share repurchase programs, sort of how much you have left?

We, probably after the $576 million and 10 million shares we did this quarter, we are probably down to slightly below $1 billion of authority left. Jason Seidl - Dahlman Rose & Co. $1 billion left.

Slightly below that.

Chris Wetherbee, FBR Capital Markets.

Just a quick one for you, Michael. Just an update on the Washington side. How much or how active have the discussions been over the last few weeks? Do you find yourself responding more to enquiries than you have over the last couple of months or is it the same kind of level of activity?

Well, the Senate Congress Committee staff at this point is I think reevaluating a lot of things here. We’ve as an industry made known our issues and our concerns. At this point, we stand ready to sit with them any time they are ready to sit down and continue the dialogue.

A bigger picture question maybe for Clarence or for Michael as well. From your customer perspective, are you getting any body language that different in the last kind of four to six weeks in terms of being a little bit more cautious on the outlook of the economy or is everything continuing to trend in this kind of slower and steady type of growth environment we seem to have been in over the last two quarters?

Chris, we had some concern that came out at the Steel Conference in New York two weeks ago, about a little concern, and maybe some possible slowdowns on a worldwide basis in the second half. We haven’t seen that happen yet. In fact, our business has stayed fairly good in the steel side and the steel capacity is still above 70%. In the rest of our businesses, actually people’s body language is much better than it’s been in the recent past.

Our next is Jon Langenfeld of Robert Baird and Company.

Good morning, Ben Hartford in for a Jon this morning. Oscar, if you could talk a little bit about that share repurchase program, a little under a $1 billion what do you expect the timing to be going forward? Do you expect there to be a large amount of repurchase like there was in Q2 or should it be more ratable over the course of the next several quarters?

I think as we look forward, there is no specific timing for that. We always talk about our balance deployment, of capital back to shareowners and we’ll continue that process over the next few quarters.

Okay. And David, in terms of service reliability and network performance going forward, as volumes come on but at a slower pace adding headcount to make sure that network fluidity is maintained when we look at originations and arrivals and velocity, going forward should we be looking at levels that are closer to ’07, ’08 levels? I mean, is it realistic just to believe that you can maintain these current levels going forward as you layer on incremental volume growth?

Ben, we really are pushing to try to push those measurements up as we can originations and arrivals in particular, there are things in it that reflect on productivity of our resources. We believe the levels you see now are levels we should improve, so we are not looking to go back in ‘08, ‘07 type of level, and most of those measurements we’re looking to go beyond where we are today and continue to improve those. To get them to the highest sustainable level we can that we’re really achieve a level of reliability that produces the best value we can for our customer.

If I could get a follow-up is ‘09 high watermark? Is that realistic? Can you go beyond that with additional volumes?

I think we can achieve similar level as ‘09, I mean it depends on the measurement that we are talking about. Like for example, the loss of ‘09 is a little different this year because the mix has changed somewhat with a little bit more coal involved but as we continue to grow on those various segments, I always encourage looking at the measurements for example, velocity looking at the segment velocity year-over-year and thinking about those volumes and how you see them changing as we report. And I think you can see that sort tells the story of fluidity that’s sustainable at the ‘09 type high watermarks but the number may not average to be exactly that number but overall the fluidity reflects that.

Our next request John Larkin, Stifel Nicolaus. Your line is open.

With respect to mix, this may be for Clarence. You mentioned that export coal was a big plus I guess the UMAX deal is sort of a negative with respect to revenue. Was there any other noise in there with respect to other commodities that would favorably or unfavorably impact the mix effect on price?

There was a couple of three areas that we had. Our export phosphate increased in terms of volume which would have a negative impact on mix.

Because of the length of haul?

That’s right. We threw the prototype [ph] out of the Bone Valley. Our aggregate shipments as a percent in the north picked up and they tend to be on an RPU basis slightly lower and we had less river coal versus our southern utility coal which carries a higher RPU. That had a positive impact.

That’s very helpful, thank you. And then maybe as a follow on, my sense was that there were some fuel tailwinds in the second quarter opposed to maybe some fuel headwinds in the first quarter due to the lag in the surcharge effect. Clarence or perhaps more appropriately Oscar, any color as to what the impact there might have been in the second quarter?

The tailwind that we experienced in the first quarter was roughly $30 million. I think probably the headwind we encountered in the second was equal of nature, so netting neutral for the first half of the year. I think as you look forward, I think the forward curve is fairly flat. So at least from our forward planning, we are not expecting a lot on the lag side over the next couple of quarters.

Did you mean to say tailwind for the second quarter of $30 million.

Yes, opposite of (inaudible) the first, I am sorry.

Okay very good. Thank you very much.

Our next request from Cherilyn Radbourne with TD Newcrest. Your line is open, ma’am.

Thanks very much and good morning. We have covered a lot of ground already, so maybe I will just ask a question related to the PTC mandate and ask whether you are on track for your budget for the year and whether you think the industry is being listened to when the rails warn that PTC spending is going to crowd out other growth CapEx?

We are basically on schedule for our implementation by 2015. There are still some equipment manufacture issues that are still being worked through. They probably need to pick up the pace a little bit. We are in dialog with them about that. We still continue to press with the FRA that we think 2008 is the appropriate benchmark for gauging the TIH traffic versus -- I mean, we are pressing for 2015 instead of 2008 as they’ve postured. We are still in dialog with them. We are continuing to push to see whether there is potential for an investment tax credit to provide some relief to this expense. But it’s the law, it’s a mandate, we will obey it and at this point we still think we are on schedule to meet those requirements.

Okay. Thank you. That’s all from me this morning.

Thank you. Our next, Walter Spracklin, RBC Capital Markets. Your line is now open.

Thank you very much. Good morning. I don’t think this has been, it’s on your 2011 book, can you give us a sense of what percent has been negotiated so far and do you have a sense or can you give us a sense on what rates are they pretty much in line with what you were guiding for 2010?

Very little of the 2011 business has been locked in and negotiated for 2011. Most of that will take place in the last half of this year.

Very little, less than 10%, would you say?

I don’t want to give you a percentage because I don’t know other than it’s not very much.

Okay. And just second question here, just sort of a broader question perhaps for Michael. When you are looking at some of your peers are talking a little bit about going into some focus on some of the ancillary operations supporting your rail network, last mile initiatives and so on. You are coming out of the recession and volumes are coming back nicely. You’ve got some good cost controls in place. What’s your next leg for new growth initiatives, for new productivity or efficiency initiatives as well once we get beyond the operating leverage that you are seeing from the volume rebound?

Two things: one, we are not looking to acquire and become multimodal as we were in the past. We think the railroad that we have is the way we can best produce value for our shareholders. But similar to a lot of the other major roads, we are really looking intensively at that first and last mile, and David maybe you could speak to a little bit about some of the efforts you are making there.

Sure, Michael. Well, we are talking about a TSI initiative which really does focus on the first mile, last mile reliability for our customers and really with a intent to encourage growth because of an increasing reliability over time. So we are really kind of excited about this new initiative and we’ve got a lot of energy around it, a lot of teams have been started to begin working on that. We've gotten a lot of direct communication with our customers about the potential value of that. So that's something you will be hearing more about going forward and it’s something we believe will produce some results for us that are very exciting.

Thank you. Jeff Kauffman, Sterne, Agee.

Can you just provide a little clarity on the building and equipment line? It was down 9% year-on-year despite the 13% volume growth. How should we think about that for the second half? I know that there was the expiration of some long-term leases you mentioned earlier, is that something that, it's pretty much played out or does that continue for another couple of quarters?

No, it was a couple of unique items to the quarter, Sal, and so you are exactly right, the leases, some payments from other railroads that we settle up every once in a while all just happened ahead of the second quarter.

Okay. So, is there some guidance as to what we should look for?

Generally that line tends to move with volume. David has been running it so well that it doesn't always quite measure up. We usually do better than that.

Okay. And then on the fuel side, if I am looking at this right, I think thing GTMs per gallon was actually down about 8/10ths of a percent year-on-year. I think that interrupts several, a string of several quarters of improvement there. Was there anything in particular that happened in the second quarter that drove that?

There is one factor that's significant, and that is we did have our leased fuel-efficient locomotives and storage hit a fairly high number last year, about 500 more in storage in Q2 last year as opposed to this year. So as we got into additional volume and brought those locomotives back out of storage, they are less fuel efficient, very reliable but at the same time it did affect our fuel economy slightly.

Okay, that makes sense. And so does that mean that we should look for that fuel economy being a little degraded in the second half of this year?

We believe that we’ll continue to show very similar to our prior results and again the little change here in the sense that we had so many store last year, but otherwise we're going to continue forward with our fuel economy initiatives and doing things that continue to make our fleet more economical.

Okay, and then just on the coal side, just talking about the coal yield. You mentioned that export coal is the big driver of the ramp up in the same-store sales growth level from 4 to 5 to 6.5. If you extract that increase, what would the coal yield look like? Because it was 18%, so if you extract that increase, what was coal yield RPU, whole RPU?

If I extract the increase on the export coal?

Right. So the growth in the same-store sales that came from the export coal, if you would extract that, what would the coal RPU look like?

We'll have to get back to you on that question, because I just don’t know that answer.

Our next from Anthony Gallo with Wells Fargo.

Thank you, just one question on the export coal. If I strip out the two trough quarters of 2009, I get kind of a low end run rate of maybe 24 million tons to 25 million tons. You mentioned 30 million tons for this year. Appreciating that there’s a lot of factors that go into forecasting export coal over the intermediate term, is the 24 million to 25 million ton low-end bracket reasonable and what might the top-end bracket be given capacity constraints, et cetera?

Well, the capacity constraints, we are actually addressing some of those both at the port of Baltimore and at Newport News. So we think the number is north of 30 million, somewhere in the neighborhood of right as it exists today, around 35 million tons and that is [ph] the capacity. And that excludes any saying through any improvements that are being made through the Port of Mobile for Southern Appalachian coals that’s going out. So that covers your question on the capacity end. Now what's the question on the…

I think our expectation for this year, were very, very strong feelings in that 30 million ton range. We don’t think there’s significant downside from there.

Your other question was on the kind of a low end, you used the 24-25. We probably think of the normal run rate over the last couple of years in the export, more in the 21-ish kind of number.

So even if the 11 got really cloudy, we’ll get low 20s?

Yes. That’d probably be the best…

Our final question today John Mims with BB&T Capital Markets. Your line is now open.

If we turn back to Intermodal quickly, can you provide some commentary on box availability and where you stand as far as account of domestic boxes that you can access?

Our domestic box fleet right now is about 23,000, where our partner UP with the UMAX program is in the process of adding boxes around 4,000 to that fleet. Box availability on the West Coast is extremely tight right now as well as, trucking capacity being tight there. Our utilization in that UMAX fleet, as I mentioned earlier, is extremely good. So those are all positive factors.

Okay great, thank you. And then the follow on to that, if you look at the on time performance, I mean 71% across the network but can you comment specifically how Intermodal would stack up to that number?

We measure Intermodal several categories but generally higher up to our premium number runs in about the high 90s, 95s and 99% for more premium Intermodal service and other Intermodal services in the 80s range, so it’s certainly the high end of that average.

This concludes today’s teleconference. Thank you for your participation in today’s call. You may disconnect your lines.