Good morning, ladies and gentlemen, and welcome to the CSX Corporation third quarter 2010 earnings conference call. (Operator Instructions) For opening remarks and introductions, I would like to turn the call over to Mr. David Baggs, Assistant Vice President of Investor Relations for CSX Corporation.

Good morning, everyone, and again welcome to our third quarter earnings call. The presentation material that we will be reviewing this morning, along with our quarterly financial report and our safety and service measurements, are 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 that same website. Here representing CSX 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, Chief Financial Officer. Now, before 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. You are encouraged to review the company's disclosure in the carrying presentation on Slide 2. And again, as a reminder, the presentation slides are also available on our website. This disclosure identifies forward-looking statements and risks and uncertainties that could cause actual performance to 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 28 analysts covering CSX, I would ask, as a courtesy to everyone, to 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.

Thank you, David, and good morning everyone. Last evening, we were pleased to report record third quarter results, supported by an economy that continues to improve and another strong performance by our employees. Third quarter earnings per share were $1.08, up 48% from the same period last year. Revenues increased 16% to nearly $2.7 billion with approximately two-thirds of that increase coming from higher volumes. We adopted higher traffic levels profitably as our employees continued to improve safety and efficiency while delivering reliable service to our customers. The combination of higher revenues and continued productivity resulted in a 39% increase in operating income from the prior period and a 490 basis point improvement in our operating ratio to 69.1, a significant milestone for the company. This continued strong performance allows us to return value to our shareholders and we remain committed to delivering that value through our balanced approach. You will recall that on September 29, CSX Board of Directors announced an 8% increase in our quarterly dividend on the company's common stock. This marked the eighth increase during the past five years. By the end of the first quarter of 2011, we also expect to complete the repurchase of nearly $650 million worth of shares, representing the remaining balance under the $3 billion buyback plan announced in March of 2008. And finally, we are increasing our capital spending in 2010 from the previously announced $1.7 billion to approximately $1.8 billion for projects that will create competitive advantage for our customers, efficiently grow the business, create jobs and deliver shareholder value. The leaders with me today are proud of what CSX is accomplishing and we are confident that we are doing the right things to create even more value for our customers and investors. With that, let me turn it over to Clarence for an overview of our topline performance in the quarter.

Thank you, Michael, and good morning everyone. In the third quarter of 2010, an improving economy helped almost all of the markets that we serve recover from the lows experienced during 2009. As I did during our second quarter earnings call, let me share the latest results from two key business reports. As you can see in the chart over the left, the manufacturing sector expanded again in September, as reflected, and are reading 54.4 from the Institute for Supply Management's Manufacturing Purchasing Managers Index. Recall that a reading above 50 indicates growth. This is the 14th consecutive month that the index has reflected an expanding manufacturing sector. At the same time, inventories remained below target levels. And the chart to the right, the September ISM report on Customer Inventories, which assesses manufacturers' views of the adequacies of inventories, yielded an index score of 42.5; where a score below 50 indicates that respondents believe that customers' inventories are too low. As the economy and our traffic levels continue to improve, we are committed to delivering a safe and reliable service product and we remain focused on capturing the value of our services. Now, let's look at the change in revenue for the third quarter on the next slide. CSX revenue increased 16% to nearly $2.7 billion due to volume growth, core pricing gains and the impact of higher fuel costs reflected in our fuel surcharge program. As you can see on the chart, volume increases drove $225 million of year-over-year revenue growth. Also, the combined effect of rate and mix accounted for $114 million of the increase, reflecting yield gains across all markets as we continued to sell the value of rail transportation. Finally, as you look further to the right, the impact of higher fuel cost increased our fuel…

Thank you, Clarence, and good morning, everyone. As we have said before, leadership, discipline and execution continue to be the foundation of our company's strong operational and financial performance. During the third quarter, our operating team once again drove improved safety results, solid productivity and consistent network performance. We delivered another quarter of year-over-year improvement in FRA personal injury and train accident frequency as we continue to be a leader in one of the nation's safest industries. Productivity gains contributed to record fiannaical results, including the operating ratio, which as Michael mentioned, improved 490 basis points to a record 69.1%. Finally, our network remained fluid and key service measurements remain stable. Now let's look at some of the details. Slide 18 shows FRA personal injury and train accident rates over the last four years. In the third quarter, the personal injury rate improved 8% versus the prior year to 1.06%. This marks the sixth consecutive quarter that we have registered year-over-year improvements. Looking at train accidents, the third quarter frequency rate improved 13% to 2.25%. This quarter's excellent safety results were achieved through affective leadership and a sustained effort by all of our employees. While we are pleased with this progress, we hold ourselves mutually accountable for continuous improvement. And our goal for personal injuries and train accidents is zero. Now let's look at our service improvements on Slide 19. Overall, the network ran well during the quarter. On the left side of the chart, On-Time Originations and Arrivals both declined year-over-year, but remained within the ranges experienced over the last several year. And they continued to support efficient and reliable train operations for our customers. On the right side of the chart, Train Velocity fell slightly and Dwell increased modestly, but the network remained stable as volumes continued to…

Let's start with an overview of the quarter's results starting at the top of Slide 26. As Clarence discussed earlier, revenue improved 16% to nearly $2.7 billion. This, coupled with the continued strong cost management David and the operating teams delivered, yielded a 39% increase in operating income for a record $825 million. As you look below the line, interest expense was favorable by $9 million, primarily the result of lower average debt balances, and income taxes were $288 million in the quarter, mostly the result of higher earnings. Now while our normal effective tax rate is approximately 38%, this quarter's rate was about 41% due to a $22 million income tax charge, which is described in more detail in the quarterly financial report. All in, we finished the quarter with a reported EPS of $1.08, an improvement of 48% versus last year. So with that as background, let's review our expenses in more detail, starting with labor. Labor expense increased 12% or $78 million from last year. As mentioned in previous calls, CSX and the rail industry continue to face wage and healthcare costs that are well above inflation. The impact for CSX in this quarter was $34 million. The second driver was an increase in incentive compensation of $30 million, driven by our strong earnings performance this year. You may recall that this program is available to management employees and the portion of our union workforce that have performance-based agreements. Finally, we also incurred $14 million from cost associated with ongoing rules-based training over time and new hire training and development. Going forward, we expect headcount to increase by about 1% to 2% in the fourth quarter as we continue to hire ahead of attrition and support further volume growth. Moving to Slide 28, MS&O expenses increased 2%…

Well thank you, Oscar. For the past several years, CSX employees have been sharply focused on serving customers while delivering strong financial results by our share holders. As our markets continue to rebound, we're sticking to our game plan. And our excellent results in the third quarter reflect that commitment. We see even greater opportunity for CSX as the country relies more and more on environmentally friendly railroads to handle its trade. Just last month, the Federal Railway Administration highlighted the incredible efficiencies freight railroads have produced since the Staggers Act was enacted thirty years ago and the savings that have been passed on to shippers. Not surprisingly, hundreds of transportation experts and stakeholders who were consulted for the FRA report concluded that the freight system must not be harmed as a national rail policy is implemented. Thirty years ago freight railroads were bankrupt, and lacked the investment to operate safely, efficiently or reliably. Today they are healthy enterprises that are investing record levels of capital into their networks, helping drive the nation's economic recovery, and employing more than 150,000 people with excellent pay and benefits. Our customers and their customers have been the real winners as average adjusted rail rates have declined by half since the passage of the Staggers Act in 1980. In today's economy, the nation should embrace these benefits. Policymakers should make certain that future legislative and regulatory actions do not in any way recreate the dysfunction of the pre-Staggers years. We are committed to working to maintain a balanced regulatory environment that lets us create competitive advantage for our customers, good jobs for hardworking Americans and value for our shareholders. A steady improvement in the economy will give us an even greater opportunity to demonstrate outstanding results and to further deploy our capital to enhance our network and reward shareholders. We believe CSX delivers terrific value for investors. We provide a critical service to a wide range of customers. We have a cultural and a track record of results, and we are ideally positioned in the growing marketplace. With that, we'll be pleased to take your questions.

Thank you. We are now be conducting a question and answer session. Our first question comes from Ed Wolfe of Wolfe Trahan.

It's Scott Group in for Ed. First, Clarence, wanted to ask you about export coal. You talked about 30 million tons of coal for the year. At this point, what are you thinking about for 2011? Do you think it's up or down from that? And wondering if you think the coal that you sent to China this year and Asia, is that sustainable into 2011?

We are not prepared today to give guidance for 2011.Our export market is still strong. We are on track as we said to reach the 30 million tons. The coal volume levels this year are in line. We're in the process now putting together that 2011 plan and as that becomes more clear, we'll give you that information. Okay. And, Clarence, you talked about an early peak season in intermodal. Are you seeing any signs of an early end to peak season? Or do you think we stay strong through forth quarter? And then separately with the domestic intermodal, the lost contract, can you talk about the magnitude of that, and then the timing for when that grandfathers?

Well, first question there on peak intermodal season, we actually saw it started in a traditional timeframe. This year, it started in August, stayed strong in September. Continued strong in October and traditionally, Scott, as you know it tails off towards thanksgiving. And then our premium intermodal services start to kick in for their fall peak from thanksgiving into Christmas. So, we see that moving along those lines very well. As you know, we don't give particular information out on a single customer other than this case to say that customers decline, we would have been in double digits in our domestic intermodal growth.

Ken Hoexter of Bank of America Merrill Lynch, you may ask your questions.

Great job on the incremental margin, so let me dig into that a little bit, because I know, Oscar, last quarter you had talked about how strong you thought you were going to see that continue through the end of the year. So when you think about this capacity out on the sideline, how do you think about that as you bring on equipment? And I guess, I had there because it looked like on one of the slides that Dave was talking about, it looked like you are starting to get some lower fuel efficiency, is that because you are adding some lower efficient locomotives? If you can just talk a little bit about the incrementals?

First, on the fuel efficiency, that is correct. It's a little bit of the old equipment coming on board. But let me answer the broader question of incremental margin and what if that continues? The answers absolutely, unequivocally, yes. We'll be able to maintain that strong over the near term. And we'll provide kind of a longer term view early next year. But again, strong showing for us.

I guess maybe more to Mr. Brown on the service side, it looked like your numbers were starting to come in because the volumes are increasing. At what point does that start to concern you in terms of what Oscar's talking about on the incremental margins continuing? Where should we start looking and then saying well the volumes are driving that boat, but we got to start getting concerned because there's more congestion?

That's really not at the level we are today, concerned. I mean we feel we're like in a solid range in terms of those measurements, and our performance overall. So as we see volume come back where it is at this point, it's really at a level where we see it at a very sustainable high level of service.

Tom Wadewitz of JPMC, you may ask your question.

I guess I wanted to get your view in terms of insights on pricing for next year. I know you've maintained this inflation plus view. But I don't know if you can compare what you are seeing in contracts to what you would have seen in the last couple of years or any additional insight in terms of what the contract repricing looks like at this point for 2011?

We expect economy to have good slow steady growth in 2011. And we expect our pricing will remain above rail inflation.

Perhaps, a question on a different topic. You said you don't want to give guidance on export coal. Can you directionally talk about utility coal in 2011? If you're at target stockpiles now, is there pretty good chance that you see some growth in utility volumes as you look to 2011?

Again, we are in the process putting together the 2011 plan at a very high level. Stockpiles will begin to build in the shorter period as we're going through now. Having said that, it's going to be weather dependent on what happens in 2011 and we hope for a cold winter.

Scott Flower of Macquarie Research Equities, you may ask your questions.

Maybe, this is one for Clarence and following up to Tom's question. Stockpiles have come of their peaks from '09. But, still, if you look over the last over years in aggregate, there're still at fairly high level versus what they were mid decade. And obviously, you have more granularly in what you think your customers stockpiles are. How do you customers view what the right level of stockpiles are? So although they're down from '09, that seemed to be a zenith level. And I am just wondering how do they view what's the right level of stockpile?

Scott, it varies from utility-to-utility based upon their philosophy, is the first point. The second point in there is, is that if you look at where the stockpiles are currently, they're really at about 2008, late 2007 levels. And the third factor that comes in is the contractual commitments that the utilities had to take and to receive coal.

What I was wondering is, did they think '07-'08 is the right level? Or is earlier the right level? I am just trying to get a sense of do they want a higher level of inventories than where they've been, perhaps, in the middle part of the last decade?

I think the answer would be that, by and large, the broad base would be like a higher level of inventories that they had had in the middle of the decade.

And then one very quick follow up, I know you don't talk about specific customers, but the blip with that one asset base is that work its way through or is that going to continue into the fourth quarter?

It could be possibly in the early part of the fourth quarter before it fully cycles itself.

Bill Greene of Morgan Stanley, you may ask your questions.

Oscar, back in 2008 I think you said at the investor day you'd get to sub-70 OR. And we're there and we're talking about strong incremental margins from here. So how do we think about a sustainable margin level as you look out a few years? How much better can it get?

Well, we're always trying to build on our great results as you know, and in this quarter it's certainly consistent with that. And so in the near term, we'll continue to focus on the fundamentals that have been driving us. And we're not going really project too much of a ratio. But having said that, longer-term, this railroad can and will operate below 70% on a consistent basis.

Clarence, just a couple of clarifications on pricing. Can you remind us, at this point in the year I think you usually have a fair amount of the business locked in already. Is that the case this year? And I have in my notes that you did start a little bit of legacy re-pricing, but has that all been taken care of now or is there anything left?

Bill, it's very negligible number on legacy pricing left and most of that's in out years, 2012, 2013. And we have about 75% of our pricing for next year locked up at this point, which is about typical for this time of the year.

Scott Malat of Goldman Sachs, you may ask your question.

You gave a very good positive outlook for coal. I just wanted to understand natural gas substitution impacts. As net gas prices have come down, it seems like electricity demand is up. So maybe that helps you out, and maybe won't be as much of an impact as you've seen before. But why don't you comment on that?

Well, in the fourth quarter we don't expect it to have a lot of material impact on what our utility coal is going to be, again because of the contractual commitments that our utilities have as well as the fact that the burn in our region is up. Now having said that going forward is going to be dependent on how much natural gas will replace the baseload coal.

At these prices, are we at the point now where it starts to have an effect or does it to have to go lower from here?

You're at a point now where it will have some impact.

And then just another question I just had on CapEx. If you can give a little more specifics, anything you can give us on intermodal investments you found that are incremental, and then maybe something on the number of locomotives you expect to purchase. That'd be helpful. Thanks.

On the intermodal side, it's a sort of broad-based investment from facilities, from yard expansions, from technology, from containers. So it's across those areas. We are not purchasing any new locomotives this year, 2010. We will purchase about 50 of them next year.

Gary Chase of Barclays Global, you may ask your questions.

If I could ask Oscar or David or maybe some combination to maybe just step back and walk us conceptually through what you think is enabling you to generate the cost outcomes that seem to be coming during the course of this year. And I think more importantly to me, the question I have is, is it really contingent on further volume gains? Or might we think even in a flattish volume environment, the kinds of productivity initiatives you're describing could actually drive unit costs down and you could relate it to inflation without having incremental volume on the network.

Those are a lot of questions. So let me stick with the broad-based question which is, what is contributing to our strong cost management that's there.

I mean, just what's the conceptual driver outside the mix in the line items. What is it broadly that's enabling you to generate this outcome?

This will sound trite, but it is a growing and great culture around running a great sound, efficient and safe business. And we've been doing that for a long period of time. And starting with Tony and continuing with David Brown, the culture around these cross-functional initiatives that David Brown mentioned in his talk, the levels of work that are going on, buying, areas of efficiency and asset utilization along with productivity are just throughout our entire system, and they are finding a ton of places to go find cost. And that just continues everyday and it's just a culture that we have. And that's something that's new over the last few years for this company. That's the fundamental driver.

As I hear you describe that though Oscar, it just kind of occurs to me that that doesn't necessarily require volume growth. I mean, is that a fair statement? So volumes are not that impressive; might we think you could continue to drive unit costs down?

I guess Gary, I would point to 2009 where our volumes were down 15%. And we got not only our normal productivity, but additional extraordinary productivity. So I think we've shown that in a down period we can drive the productivity and in an up period we can drive the productivity, and we will continue to do so.

And then even as a further reminder, back to 2008, before the financial meltdown, we gave you guidance of sub-70 by the end of 2010. And we said then very specifically that it was not necessarily predicated on lots of volume growth. And so it's certainly part of the equation, and we love to have it. And we love to grow our business organically. But cost management and the culture is all about being efficient and productive, regardless.

Chris Ceraso of Credit Suisse, you may ask your questions.

First, the intermodal business was one where you did see very strong incremental margins. Can you give us a feel for how much extra capacity you have left in that network in particular?

We are seeing that as we bring on additional business there, we still want to stick with about 15% to 20% more additional capacity available for productivity in our existing train network. And we're seeing that we can absorb these additional volumes very easily.

Okay. And then maybe a little bit longer term, you did mention that in the near term you expect about a 1% to 2% increase in headcount. But if you look at it over the next three years or so, what's the expected attrition rate? And how many of those, may be as a percentage do you have to replace? Can you replace less than 100% because you improved productivity, you take advantage of technology and so forth that we can kind of net shrink the headcount over the next few years.

I would think, if we look at it a little bit, as you know, in our industry at age 60 with 30 years of service, one can retire, and many of our employees choose that option. So we expect probably attrition in the 6% to 7% range over the next several years. And obviously, we'll have to hire some of that back, but not fully, because Dave's going to continue to improve productivity and find better ways to run. So we're going to have strong attrition, do some strong hiring. This year actually, we're going to end up hiring about 2,000 people to replace that attrition. And next year, we may be more in the range of 3,000. So we do have a changing work force.

Justin Yagerman of Deutsche Bank, you may ask your questions.

This is (Rob) on for Justin. One of the things which jumped out to us is an increased CapEx to $1.8 billion. Could you give us a sense if we can read more into your decision to increase CapEx by $100 million and if this has any implications on the rail regulatory backdrop? I know Michael had alluded to kind of the regulatory environment briefly in his prepared comments. And we're also curious what else you're hearing right now?

Well, Rob, I think if we look at it, obviously we're very pleased with the results here. And as you know, we continue to have a balanced approach. We took up our dividend; we're increasing our buyback or completing our buybacks really. And we think investing in the business is pretty important. So we've told the policymakers all along as we make more, we'll invest more. Because there is a great future for our industry and for our company, and we have the cash flows to support it. On the broader aspect around potential regulation, we really do believe that policymakers are going to understand the importance of the railroads to this economy. Because if we are, in effect, hindered in our ability to invest, we're going to stop building, it'll stop job creation, it will be negative for the environment and really take away the competitive edge that some American companies have. Because we do have the best freight system in the world, great rail system in the world. So we have, when it's all said and done, the policymakers will understand that. So this is just consistent with what we've been doing all along which is, as we earn more, we invest more, and we return to our shareholders.

Shifting gears to intermodal. Certainly, we've got the headwind from the contract change. But looking sequentially from Q2, the intermodal yield declined modestly, I think this is primarily a business mix thing, given the increase in international car loads. Could you give us a sense how you balance the pricing improvement? And on international, with kind of getting longer term volume visibility?

Let me make sure I understand the question correctly. How do we balance what now?

I guess, how are you guys balancing the longer term volume visibility that you guys can get with getting new international contracts versus looking kind of near term to the pricing improvement? And how do you guys balance this, use dynamics?

First off, we were able this year to get pricing in both our international business as well as in our core business. And what we look at with the longer term contracts on our international traffic is the overall value it can bring not only to our sale, but to our customers. And with the network improvements we're making in our infrastructure, the National Gateway, for example being one, our Northwest Ohio terminal facility which we'll have completed in the first quarter of next year is giving us opportunities to get into markets that are very profitable to us, very attractive to us. And a density that is being created there has produced very strong economic results for us. So the bottomline for us is we feel very positive of that direction that intermodal is moving in.

John Larkin of Stifel Nicolaus, you may ask your questions.

I wanted to get a little more color on you thinking regarding the potential for a public policy here. A couple of weeks ago, Senator Rockefeller held a hearing and continued to suggest that he was going to push for a legislative adjustment here. If he couldn't get it done in this Congress he is going to push again in the next Congress. And sort of the suggestion was that if a legislative remedy wasn't possible he was going to suggest that perhaps the STB Commissioners' led by President Obama's appointee Dan Elliot would perhaps make some of these changes administratively within the STB. Is that a real worry? Is that something that the STB has the potential to do in terms of addressing issues like paper barriers, bottlenecks, terminal access, reciprocal switching, those sorts of complicated competitive issues?

Well, John, they address both issues. On the legislative side, we continue to be willing to work with Senator Rockefeller in the Congress Committee to see if there is a Bill that's possible that allows some of those desires to be met and still allows us to earn sufficient returns to continue to invest. And Senator Rockefeller himself has said he realized the importance of the rails making enough to make those investments for the long term. So we are still in a position as an industry where we are willing to engage in that dialogue and it probably will continue next year in the next Congress. On the regulatory side, I think we've seen over the last several years that the STB has been very balanced in how they work through these issues. As you know there have been a number of rate cases where their mediation process has worked extremely well in resolving some of these issues where the railroads and their customers have different points of view. Obviously they have the ability to look at issues like competitive access and exceptions and those sorts of things. I think Chairman Elliot did indicate that he would consider doing some of that next year. We do need to remember though that the Staggers Act, one of the key components of that is to ensure the revenue adequacy of the railroads. So that's going to have to be the overall backdrop in which those deliberations are made. And I think we obviously will be very well against an industry to make inputs into any proceeding that Chairman Elliot would initiate.

Thanks for the answer. Just maybe one follow-on; keeping with the theme of government's interference, if that's the right word, on the TGC mandate, I've gotten the impression from some of the equipment manufacturers that they are not there yet with respect to sort of flushing out the complete plan in terms of meeting the requirements. Any thoughts on the timetable of the spending levels required to meet the requirements and whether the technology will be there to meet the requirements by 2015?

You are correct. There is a bit of delay across a couple of different areas with the development of the actual software and applications that are required for this. At this point in time we will make up the time; the mandate is out there, the deadline is out there, and we're focused on spending the money in that appropriate fashion. But, yes, in the near term, there's a little bit of delay.

Cherilyn Radbourne of TD Newcrest, you may ask your questions.

Want to ask a question on train starts. Your road crew starts in the quarter were up 8% year-over-year versus the 10% volume gain, which makes sense if we start to lap more difficult comps. But on the local and your crew starts, those are still very well-contained. So I wondered if you could just talk about some of the initiatives you have underway at the local level and in your yards to contain those costs.

Certainly, Cherilyn. We are looking closely at our starts and how we add additional service as customers grow their business and have needs for additional service. So we're looking at a very granular level and a very responsive level to particular customer needs, and that allows us to contain, especially in the local and the yard network where we serve customers on a carload basis, as well as contain those starts within the additional capacity we have within our existing local and yard network. So you see the results of that in the measurements.

And my second question, there was a bit of a year-over-year increase in the other revenue category, and I wonder if you could just indicate whether there was anything special going on in that line?

It's liquidated damages in a sense that is driving that up a little bit.

Jason Seidl of Dahlman Rose, you may ask your question.

A quick question, Oscar. Very impressive on the FRA personal injury and FRA train accidents that keep going down. Can you talk to us about expectations for maybe actuarial studies sort of lowering some cost going forward and when your next study is going to come up?

Yes, thanks Jason, and thank you for noticing that. We are very pleased with the safety trends that we do continue to improve. As you know, we do that adjustment process that you refer to twice a year, excellent, being in this fourth quarter, and that is currently being reviewed by our third party actuaries. So we'll provide an update on that as we finish through that in the fourth quarter call.

Well, based on the trends though, we would assume that it's not going to be just upwards based on these rates?

Again, that would be a layman's assumption, but actuaries are what they are. But yes, I think what we focus on is the safety trends improving. That's the most important thing. The accounting will take care of itself.

Okay. That's good. And my follow-up, Clarence, in relations to the North Ohio intermodal terminal and to the new markets that can open up, can you give us a little more color? I mean I know you guys are taking out a lot of time in intermodal into New England, but how big of a market could that be for you guys?

I think it could be extremely a big and important market for us, because what Northwest Ohio will allow us to do eastbound is overhead Chicago with much bigger and longer trains going into Northwest Ohio. And then we can serve both the entire Ohio valley, the Upper Midwest over to the mid-Atlantic and into the New England areas out of that. And conversely, on the reverse side of that as we come out of those same areas going back west, it allows us to consolidate freight back at the Northwest Ohio terminal and then overhead the Chicago lanes which will improve both in terms of capacity utilization as well as longer and better trains.

And the opening date on the terminal's at mid-2011?

It's end of first quarter 2011.

Art Hatfield of Morgan Keegan, you may ask your questions.

This is (Derek Riabian) for Art. I just want to look real quick at your rolling stock. Could you kind of talk about where you stand on your storage levels? Also, do you see any need for particular car types in the near term, and if so are those mainly still on the coal side?

On the cars that we have stored, we have about 2000 box cars that are still in the storage. But they are mostly Class C box cars which would be good for brick loading and bulk type loading. All of our Class As are out and being utilized. And the same is true in our multi-level fleet. There are a couple of thousand cars in the automotive fleet stored, but they tend to be bi-level cars as opposed to tri-level cars that are all in use. Then we have some gones and coal metal cars still under storage, but not as many as they were. That's driven mainly by the fact that steel capacity utilization's in the low to mid-70s. And the biggest number of cars we have still in the storage is centerbeam lumber cars as a result of the construction business being down. I guess the second part of your question was what are our car needs going forward.

Yes, both on a short-term and long-term basis.

We're looking at replenishing some of our coal fleet in the near term. We're making some plans right now to go back and do some rework on our automotive cars. We're acquiring some box cars through TTX's national fleet to help us improve in our Class A box car side of the house. That's principally and preponderantly where those numbers are. And our jumbo covered hoppers, we're adding in a new 286 short wheelbase capacity covered hoppers.

Walter Spracklin of RBC Capital Markets, you may ask your questions.

The first question here is for Clarence. You are pretty optimistic, in your 10 segments there you've got is favorable, and the shippers we've been talking to, not that they're much less optimistic, it's just their crystal balls are lot more cloudy. I am just curious, are you getting some insights from your investors, perhaps more recently as to how the volume, the demand level is going to be developing into 2011 that gives you (occasion) for optimism?

Yes Walter, before we do a forecast of the type that you're seeing here on an internal basis, we canvas all of our customers to see what they see in the short term as well as longer term. And the customer base we're dealing with has been very positive to us in the growth and just in all of those segments that we've mentioned there. As you know the automotive market is still strong for us. Our intermodal business is strong for us right now. In fact last week in our intermodal business we almost had a record week; we were very close in terms of volume in doing that. And we're still very optimistic in both our export coal and our utility coal.

Switching gears, Oscar, obviously debt rates on cost of debt is certainly dropping and quite low here. Just curious how this might have affected your view on what CSX's optimal capital structure is? Is it possible that we see that a return to sort of a debt financed share buyback or raising debt to increase your share buyback in 2011?

As you know, our capital deployment over the last few years has been sort of sourced by two things, our strong operating cash flow and of course our even stronger balance sheet. So I think as we go forward, we'll continue that same approach and always stay in investment grade. So we'll always look at all those options.

Jeff Kauffman of Sterne, Agee & Leach, you may ask your questions.

Hi, it's actually (inaudible) in for Jeff Kauffman. I had a quick question on the labor side. Were there any sort of accruals that helped labor expense? I guess you were surprised to see your incremental margins go from a 45% range in Q1 and Q2 up to 60%?

No. Nothing in particular. We actually increased expense in there because of incentive comp. And so that's I guess a reserve adjustment. But we're negative.

And then on the coal side, I guess we're kind of curious if you could provide some more color on the 20% increase in the RPU and how much the length of how it might have boosted that?

Well there were three primary drivers that drove the positive revenue per unit not coal. First and principal was in our pricing itself. Second was in our favorable mix both with long haul southern utility coal as well as in our expert coal which carries one of our higher rates. And the third was our fuel recovery, although that was to a lesser extent.

And our last question, John Mims of BB&T Capital Markets. John Mims - BB&T Capital Markets: First, what percentage of the exports is the low ball Southern App coal versus higher volume Central App?

I don't know off the top of my head. Are you talking about the ones that are coming out of Birmingham versus the ones coming off the Pittsburgh (inaudible)? John Mims - BB&T Capital Markets: Right.

I just don't know off the top of my head.

We'll get back to you with the exact answer. John Mims - BB&T Capital Markets: No, that's fine. We have just been hearing from out of China that there is more demand for that higher quality, lower vol stuff that were coming out of the south. So was just curious to know what kind of market share is there. What percentage are you all shipping directly to China versus kind of back filling other areas?

We have three major markets that we are serving right now in a very broad sense now, the very high level. And they are the Ukraine, China and Brazil. John Mims - BB&T Capital Markets: And percentages on this?

I don't know the percentages of the top in my head. Brazil will probably end up being one of the larger though. John Mims - BB&T Capital Markets: And then just as a follow-up, just final question. We're seeing kind of this fuzzy trends out of China and just kind of global demand in the near-term on the net coal. So I am curious what's really behind your bullish stance on this 30 million ton target? I mean because that would imply a 20% sequential increase over this quarter which seemed to be pretty strong, but in my indication my thoughts were that export trends have sequentially slowed throughout the third quarter. So curious to know what's really driving the, call it 8 million tons for Q4?

A couple of factors in there. Number one, as I mentioned, our coal is going to three major markets. So China is not the only driver in that market is number one. And number two is that we base this forecast at this time on the vessel lineup that's lined up to come in the (forced) projection of the shippers on when the vessels will arrive.

Thank you everyone for joining us.

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