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Executives

David Baggs - Assistant Vice President, Investor Relations

Michael Ward - Chairman, President and Chief Executive Officer

Tony Ingram - Chief Operating Officer

Clarence Gooden - Chief Sales and Marketing Officer

Oscar Munoz - Chief Financial Officer

Analysts

Tom Wadewitz – JP Morgan

Ken Hoexter – Merrill Lynch

Bill Greene – Morgan Stanley

Ed Wolfe – Wolfe Research

John Barnes – BB&T Capital Markets

Chris Seraso – Credit Suisse

Jason Seidl – Dahlman Rose

Joshua Pollard – Goldman Sachs

John Larkin – Stifel, Nicolaus

Gary Chase – Barclay’s Capital

Walter Spracklin – RBC Capital Markets

Matt Troy – Citigroup

CSX Corporation (CSX) F4Q08 Earnings Call January 21, 2009 8:30 AM ET

Operator

(Operator Instructions) Welcome to the CSX Corporation Fourth Quarter 2008 Earnings Call. 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.

David Baggs

Welcome to our Fourth Quarter 2008 Earnings Presentation. The presentation material that we’ll be reviewing this morning along with our quarterly financial report and our safety and service measurements are available on our website at www.CSX.com under the investor section. In addition, following the presentation a webcast and podcast replay will be available for your review.

Here representing CSX 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.

Before begin the formal part of our presentation this morning 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.

With that let me turn the presentation over to CSX Corporation’s Chairman, President, and Chief Executive Officer, Michael Ward.

Michael Ward

As we confirmed yesterday in our press release, CSX completed 2008 with a 6% increase in fourth quarter earnings per share on a comparable basis. Revenues were up 4% to $2.7 billion as fuel recovery and strong core pricing offset the impact of lower volumes. At the same time sustained momentum in safety and continued high service levels combined to help increase operating income 16% on a comparable basis to $692 million. As a result, CSX drove its operating ratio to 74.1% a 270 basis point improvement.

In making the necessary changes to compete in this economy CSX employees stayed diligently focused on things we can control. Respond with a sense of urgency and in fact achieved record safety results and solid financial performance in the fourth quarter. For the year revenue increased to $11.3 billion while operating income increased 24% to $2.8 billion. We reached a new milestone for CSX driving our operating ratio to 75.4%.

Our commitment to excellence also enabled CSX to operate in 2008 in one of the best safety levels in company history and to maintain high service levels for our customers throughout the year. At the same time we sustained our shareholder focus by implementing over $1.5 billion of our share repurchase program and increasing our dividend by more than 45%.

As we look into 2009 make no mistake, our environment will be challenging. Low consumer confidence and high unemployment are stifling consumer demand. The housing and automotive market declines continue unabated. Manufacturing is stalled as businesses seek to correct inventories and volumes are declining. At the same time the service we provide and the relative value of rail versus other modes of transportation have never been more vital.

We recognize that we will have to make material adjustments to our business if we are going to continue to be successful. We will work diligently to right size our resources and control costs. We will maintain our focus on safety and the higher service levels will allow us to maintain strong pricing. Bottom line, this team remains relentlessly focused on maintaining a strong financial position and we enter the year with a strong balance sheet and committed employees.

Over the course of the presentation this morning Clarence, Tony and Oscar will provide more detail on the challenges we face in 2009 and the aggressive actions we are taking to sustain our momentum in this difficult economy. With that I’ll turn it over to Clarence.

Clarence Gooden

In the fourth quarter of 2008 we began to see the full impact of this recession across the many markets we serve. That said we delivered positive results due to a strong service product and our continued focus on yield management. This morning I’ll highlight our results for the quarter, the key driver of those results, and I’ll also give you a sense of what we see ahead in 2009. Now let us look at the results.

CSX achieved another quarter of revenue growth despite the broad based volume weakness and the significant downturn in the economy that occurred in the last part of the year. Revenues increased 4% to nearly $2.7 billion as fuel recovery and strong market based pricing more than offset the impact of the lower volume. These yield improvements continued to reflect the value we are providing to our customers through a consistently high level of service as well as the relative value of rail versus other modes of transportation.

Now let’s look at the key drivers affecting the volume on the next slide. As you can see in the chart a significant economic downturn during the middle of the fourth quarter drove volume lower by 9%. This was the result of several changes taking place in the economy four of which I will highlight here. First, the housing and automotive related markets weakened further in the quarter. Second, the global recession has significantly affected the industrial sector especially in metals as production was reduced by half during the quarter.

Third, we have experienced reduced demand for many commodities as buyers are waiting for commodity prices to further decline. This was especially true in the area of phosphates and fertilizers where CSX is the leading transportation provider in the industry. Finally, the intermodal market softened due to declining consumer spending and weakening international trade.

While we were experiencing a decline in volume during the quarter our pricing remained strong. As you can see on the next slide, as we reviewed with you in previous quarters the line on this chart highlights the year over year change in total revenue per unit which includes the impact to price, fuel and mix. During the fourth quarter overall revenue per unit increased 14%.

The bars on the chart show the increase in price on a same store sales basis. This excludes the impact of fuel and mix. Same store sales are defined as shipments with the same customer, commodity and car time and the same origin and destination. These shipments represent approximately 75% of our total traffic base. Same store sales price increases were 6.5% for the quarter consistent with the increases you’ve seen over the last few years. Based on the service and value we are providing our customers we expect our pricing momentum to continue in 2009.

Now let us look at each of the major markets we serve. Quarterly merchandise revenue decreased 2% to nearly $1.3 billion. Merchandise revenue per unit increased 15% as revenue per unit gains were achieved across all markets even when adjusted for fuel. Our housing related markets further weakness led to lower volumes in forest products, food and consumer and emerging markets.

We saw the most significant volume declines in our industrial markets as metals and chemicals experienced reduced demand and a major inventory correction. Phosphate and fertilizer volumes fell significantly due to the previously mentioned reasons. Finally, volume was flat in agricultural products as growth in ethanol offset the declines in feed grains and exports. Looking forward these trends are expected to continue along with a weaker global economy.

Turning to the next slide, let’s review the results in coal. Quarterly coal revenues were $849 million an increase of 24%. The yield environment for coal continues to be strong with revenue per unit increasing 24% in the fourth quarter. Price and fuel recovery were again the primary drivers. Volume was flat as continued strong demand for export coal offset the weakness in domestic utility coal.

In 2009 export coal is expected to weaken to approximately 2007 levels. While lower electrical generation will continue to impact utility demand. On a positive note additional legacy contract negotiations will create a favorable environment for price.

Turning to the next slide, quarterly automotive revenue of $182 million was 15% lower than last year. However, pricing actions and increased fuel recovery resulted in an increase in revenue per unit of 21% which helped to moderate the impact of the lower volume. Light vehicle production once again declined during the quarter and automotive plant shut downs and idling have accelerated. As a result CSX volume declined significantly.

In addition, through sales and production declines field vehicle inventories continues to rise for the most recent end of year domestic total exceeding 90 days with 60 being about optimal. In 2009 the key drivers will continue to be excess inventories as well as reduced vehicle production. As the latest North American light vehicle production forecast of 9.5 million units is 25% below the 2008 total. In contrast to the prior years when declines at the traditional big three were offset by gains at the new domestic manufacturers in 2009 the new domestic producers are also facing production cut backs.

Turning to our intermodal results, intermodal had fourth quarter revenue of $334 million down 7% versus 2008 driven primarily by 6% lower volume. Volume decreased as a result of the continued softness in imports and a leveling off of domestic growth from earlier in 2008 as consumer demand fell off sharply in the fourth quarter. Revenue per unit was flat for the quarter was the benefit of increased fuel recovery was offset by traffic mix impact.

As we look forward into 2009 the key drivers we are facing are lower global trade, weakening consumer demand and an increase in the all water traffic diversions as steam ship lines look to further reduce costs. Against this backdrop we will continue to look for ways to convert freight off the highway and on to intermodal and for ways to reduce costs as we continue to believe in the long term fundamentals for this business remaining strong.

As you are aware, we’re in the midst of an unprecedented economic downturn and there is still much uncertainty around the future. That said; let me share some of the latest estimates about the economy in 2009 and the implication for CSX and its customers.

As you can see in the chart on the left, the latest 2009 projections for industrial production and GDP are negative, with industrial production falling by more than 10% in the first quarter. In contrast to prior forecasts neither indicator is expected to turn positive in 2009. Each is expected to become less negative as inventories are reduced and as the anticipated stimulus package makes an impact on the economy.

As for CSX volumes, the chart to the right again shows our weakening traffic volume for the fourth quarter and for the first three weeks in 2009. As you can see, volume has continued at depressed levels into this year and we expect these double digit levels to continue through the first quarter. Based on these run rates and the current economic forecast we expect our volumes will remain unfavorable throughout the year.

As we turn the slide let’s look at the yield expectations for the year. Looking at the chart on the left, fuel recovery is expected to drop year over year resulting in an unfavorable revenue per unit change. At the same time, we expect to achieve a 5% to 6% improvement in same store sales pricing. Our core pricing is expected to remain strong in 2009 as over 80% of our pricing plan has already been negotiated. The remaining negotiations will occur in the first half of the year. It is also important to point out that rail prices are still significantly below the 1980 inflation adjusted levels.

We also believe that the rail value proposition versus other modes of transportation remains strong. The bottom line is that we remain committed to improving yields reflecting the excellent service and the value that we are providing our customers. Yet these yields are expected to only partially offset volume declines as you can see on the next slide.

Our first quarter revenue outlook is unfavorable. The outlook is unfavorable across seven markets, neutral for two and favorable for one. Value pricing will continue to be the key driver across all markets. Merchandise should see growth in agricultural products. Coal, coke and iron ore and emerging market revenue are expected to be neutral. The remaining markets are all expected to be unfavorable as the result of the global recession and continued weakness in housing and automotive.

Yet even with this challenging economy let me end my comments on our continuing focus on customer needs both now and in the future. First, we will continue to sell the value of rail transportation especially as shippers look for the most cost effective and environmentally friendly business solutions. Second, we will continue to pursue new industrial development as customers undergo change and prepare for an eventual turnaround in the economy. Finally, we continue to work closely with customers in these challenging times to coordinate traffic levels, make the appropriate resource adjustments to improve service and to look for new opportunities.

Thank you and now let me turn the presentation over to Tony to review our operating results.

Tony Ingram

Our focus on leadership, discipline and execution continues. That’s what drives results in this business even during challenging times. In 2008 our employees delivered the lowest injury rate in CSX history. This was achieved through leadership across all levels of the organization. Network performance recovered well in the fourth quarter and remained at high levels for the year. Finally, we continue to deliver productivity to deliver our operating ratio lower. Let’s look at the details.

Looking at slide 21 shows our safety performance for the quarter. First, our injuries were 1.07 for the quarter a 16% improvement from prior year and a fourth quarter performance record. Train accidents which came at 2.39 improved 17% compared to prior year. Continued improvements in both areas come through leadership and the relentless focus of our employees who are committed to work safely every day. Even at these strong performance levels our goal is to avoid all accidents. We can and will continue to improve.

Let’s look at our service performance on the next two slides. Looking at slide 22, train originations and arrivals recovered from a challenging third quarter and returned to historical high levels. Originations increased to 85% a 5% improvement from the same quarter in 2007. Train arrivals also improved 5% to 77% for the quarter. We remain focused on running the plan and will raise the bar higher in 2009.

Let’s turn to slide 23. Average dwell increased to 23.2 hours for the quarter but remained at good levels. Business conditions contribute to higher dwell in the quarter as lower demand for freight cars created a surplus. Average velocity remained stable at 21.2 mph in the quarter and was down slightly for the year. Overall our network is fluid and trains are running well.

Let’s look at slide 24. Productivity initiatives are delivering good results. In 2008 productivity gains offset 80% of inflation excluding fuel and helped to drive the operating ratio lower. During this period of lower demand our focus on productivity will be more intense. Our traditional process improvement efforts will continue. At the same time, we’re taking aggressive action to improve the efficiency of our network and reduce costs.

Now let’s turn to slide 25. In the fourth quarter we started reducing the size of our scheduled train network as volume declined. We do this by adjusting our One Plan not through tactical daily reductions. A smaller train network would require fewer resources and we continue to manage resource levels down and reduce costs. Finally, ongoing productivity initiatives will continue. We will look for opportunities across all cost areas including those that are not bearable over the short term.

Let look at slide 26. This chart shows weekly trans or carloads and road crews. You can see the crew starts, the gold line are moving lower as adjusted train network for lower carload volume, the blue bars. The schedule train network does not move directly with volume unlike our unit trains we must adjust the plan. We will continue to aggressively manage the scheduled train plan to business levels going forward.

Let’s turn to slide 27. To realize the value of a smaller network we right sized key resources which are the drivers of costs. This slide shows the trend for active locomotive and train and engine employees over the same time period. As you can see on the chart on the left the number of active locomotives has declined roughly 400 units or 10% since October. As the train network has been reduced all leased locomotives have been returned and we are storing the older CSX locomotives to reduce maintenance costs.

The chart on the right shows T&E employees including both engineering and conductors. Here again you see that a smaller train network requires fewer train crews and T&E employees. As show on the slide, we have furloughed over 1,100 employees. In total 1,600 operating employees have been impacted by declining volume. This in unfortunate but unavoidable in the current business environment. They’ll be called back to work when business conditions warrant.

On slide 28 you can see that we’re taking a fresh look at the One Plan. This is already underway. Volume levels and traffic flows have changed since the original One Plan design was rolled out in 2004. While the plan has been adjusted many times over the years we expect to find the current plan is not optimal and that efficiencies can be improved. As we did in the original One Plan design we are using new modeling tools to maximize the efficiency of the plan. The process is underway and plan changes will be implemented in the second quarter.

Let’s look at slide 29. In summary, we’re operating high levels in safety, service and productivity. Safety performance is at record levels and we will raise the bar again in 2009. We will also continue the positive momentum in service and deliver even more reliable service to our customers. Our productivity initiatives are delivering as expected and current business conditions require us to do even more.

We’re aggressively adjusting resource levels and manage our cost structure. As always, we’ll deliver results with leadership, discipline and execution. Now let me turn the presentation over to Oscar to review the numbers.

Oscar Munoz

Today I’m going to review the quarter at a high level and spend more time focusing on the coming year and what we’re doing to ensure we remain strong through the current economic environment. Some of my normal presentation material that we detail has been put into the appendix for your review and we’ll welcome to take any questions on them but again we’ll focus mostly on the quarter.

The results of the quarter as shown on slide 31, revenue increased 4% to $2.7 billion reflecting favorable fuel lag benefit from continued core pricing gains partially offset by lower volume. This revenue growth along with flat operating expenses drove operating income of $692 million. As we move below the line other income decreased $252 million versus last year.

You may have noticed that our flash now separates real estate and resort operations. A review of that detail will show that income from resort operations decline $179 million in the quarter due to previously announced asset impairment charge and the quarterly operating losses at the Greenbrier resort. The other line item, income from real estate operations declined $48 million primarily driven by the cycling of large gains from property sales last year. As we look forward into 2009 you can expect this line item, other income, to be about $1 to $2 million per quarter from normal recurring activity.

Continuing down the slide, interest expense increased $21 million in the quarter as a result of incremental debt issued in 2008. These below the line items and our lower income tax base drove reported EPS of $0.63 which was down $0.23 versus last year. Additionally, the number of fully diluted share outstanding was 30 million lower than last year due to the impact of our share repurchase program.

Since 2006 the company has repurchased over four billion or more than 90 million share of its stock. As we look forward in this area any future repurchases would have to be supported by improved market and business conditions.

Let’s turn back to the quarter and look at our results on a comparable basis on slide 32. After removing the impairment charge this quarter and prior year insurance recoveries, EPS improved $0.05 to $0.90 representing an increase of 6% over last year’s results. Moving down the chart, after removing the gain on insurance recoveries from prior year operating income increased $95 million or 16%.

Now let me review the significant revenue events that impacted our fourth quarter results on the next slide. As Clarence outlined earlier volume declined 9% in the quarter, however, we continue to see strong core pricing gains reflecting the high quality service product we are providing our customers. Finally, fuel prices dropped significantly in the quarter creating a benefit due to the two month lag in our fuel recovery program.

As you can see from the graph to the right in times of rising fuel prices as experienced prior to the third quarter 2008 the lag in our fuel surcharge recovery yields a negative impact on our results. However, in recent times, as fuel prices have fallen the opposite affect has occurred resulting in a lag benefit of approximately $150 million in the fourth quarter.

Turning to expenses on slide 34, you can see from the chart that cost increases on a year over year basis were driven by two primary factors. First, we cycle $63 million in favorable casualty reserve adjustment and second, normal quarterly inflation increased $43 million associated with contract wage increases and higher material costs.

At the same time, these increases were largely offset by three items. A reduction in incentive compensation of $45 million and fuel price favorability as the average price per gallon declined $0.34 or 13% on a year over year basis and lastly volume related and other expenses which declined a net $14 million. With respect to the volume related savings we are actually able to realize about $40 million in areas such as fuel, car hire and crews but these savings were partially offset by increases in depreciation and in other fixed cost items.

This concludes our fourth quarter review and as a reminder you can find our normal expense detail and other charts in the appendix of this presentation. Given the environment we are operating in and reinforcing some of the things you’ve heard from Tony earlier let me give you a sense of how we are looking at our cost structure on the new few slides.

While the railroad industry has a relatively high fixed cost base all costs are variable in the long run. As we look at our business we can divide our cost structure into four broad categories. Direct operating costs such as crews and fuel, indirect operating costs including track maintenance and technology, asset base related expenses which include depreciation and amortization and support costs such as G&A and operating taxes.

As you would expect we are pursuing opportunities in all of these categories to generate payment in 2009 and beyond. To that end, let me further break down these expenses by A) degree of variability and B) the time it takes to affect those expenses on slide 36.

This is a busy chart so let me walk you through it. Starting on the left you can see the cost categories we discussed on the prior slide. You will note as well that we have further categorized direct operating costs into both a short and long term variable designation. Continuing towards the right you can see the breakdown into the individual drivers and the percent of the overall cost structure they represent. That cost structure is shown on a pro forma basis and normalizes fuel to reflect the current environment.

Generally speaking as you look at the chart we show a 50/50 split between fixed and variable expenses. Looking at the variable cost structure short term expenses such as fuel and car hire can be eliminated more quickly and you can expect us to address a good portion of these expenses during the first quarter. Long term variable costs such as crews for the scheduled network, yard and local service take more time to adjust.

This is in essence the analytical rigor and work that is being done. One example being the One Plan redesign that Tony mentioned. You can expect to begin to see savings in the second and third quarter related to these drivers.

For the remaining 50% of our cost base that is more fixed in nature 35% represents indirect operating and support costs and we are pursuing opportunities to further right size our resource in these areas as well. One example of this includes our G&A expense initiatives that we have previously outlined which targets over $50 million in savings driving G&A costs below 2007 levels. As we experience additional changes in the economic environment we will further adjust our resources to match current volume.

I could wrap up on the next slide. As you heard Michael mention earlier our core financial foundation remains very strong. Our key credit ratios continue to support our investment grade profile and this coupled with over $700 million in cash and short term investments at the end of 2008 and access to lines of credit totaling $1.25 billion all of these underscore our sound liquidity and position that will allow us to weather any economic downturn.

It should also be clear that at this point that managing our cost structure and right sizing our business to current levels will be a key focus for CSX during 2009. At the same time we remain very committed to pricing our service for the value we create for our customers and doing all of this will continue to support our margins.

Let me turn it the presentation back to Michael Ward for his closing remarks.

Michael Ward

This morning we have given you a more complete picture of our actions and our relentless commitment to excellence in these difficult economic times. We view this period as an opportunity to demonstrate once again that the fundamentals of our transportation network are sound. While volumes remain low we expect yields to reflect strong service we are providing. At the same time, we’re staying even more focused on safety and cost control and sizing our resources to match up with the demand.

CSX is a great company with a strong balance sheet, healthy margins and accountable culture and a network that serves two thirds of the US population. As stewards of one of the countries most critical assets we’ll be working diligently to demonstrate to the Obama administration and Congress the importance of balanced regulation to preserve the industries ability to invest and meet the long term demand for freight transportation.

Investment tax credit incentive legislation has been reintroduced in the current Congress and we believe that this, combined with public private partnerships are vital to stimulating investment and upgrading America’s infrastructure. CSX and the nations other railroads offer vital solutions to some of the most pressing issues facing our country; a growing population, the need to reduce emissions, highway traffic, and energy independence.

Our employees take a great deal of price in the fact that we’ve dramatically improved our ability to meet those needs and they’ll be fighting hard to protect and build on those gains. For us this isn’t just about withstanding a tough economy it’s about coming out on the other side more capable that we were before the recession.

With that we will now take your questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Tom Wadewitz – JP Morgan

Tom Wadewitz – JP Morgan

I appreciate your comments on pricing; I think that’s obviously a point of a lot of interest for people. I was wondering if you could give a little more granularity on how things are playing out near term because I think there’s probably some degree of skepticism about the realizability to maintain this positive pricing story given how weak the economy is. Can you give us any sense of recent contract re-pricings that you’ve had and the car load business and how the discussion has gone and whether the rates have actually been up on those contracts in line with what you’re talking about for the 5% to 6% in ’09?

Clarence Gooden

I would say the discussions this year have been more tense than they were in the past. As I said, we are getting price increases it looks like in the total aggregate in the 5% to 6% range which is pretty consistent with what we’ve gotten in the past. We have 80% of our contracts for next year already signed and in place and the remaining 20% of our contracts that we have left to negotiate are either in the process of being negotiated or will be renegotiated within the first half.

Significantly and specifically in coal we had two fairly large legacy contracts that we were able to renegotiate. We’re very, very positive about what we can do in our price.

Tom Wadewitz – JP Morgan

Have you seen a change in terms of a car load contract that you negotiated in August and what you were able to achieve and then a car load contract that you negotiated in November or December and what you were able to achieve in price or have those levels been pretty similar?

Clarence Gooden

Been pretty similar.

Tom Wadewitz – JP Morgan

On the margins side, we appreciate the transparency in terms of the fuel benefit obviously it was pretty significant with the timing lag. If you take that out that’s a pretty significant change to the margin so I get that it would have been down something like 290 basis points. Maybe you offset some of that with the casualty comparison that’s difficult. Is it fair to think that ex the fuel impact that margin deterioration would continue in first quarter, do you think that will get a lot worse given that it’s tough to react in the cost side? Any comments you can give us on margin near term.

Oscar Munoz

As you can imagine the numbers on a year over year basis when you adjust for the items that you said does have some impact and we did decrease and all are based upon that math. As you look forward that’s the challenge that we’re trying to outline. I think we’re going to continue to focus on the things that we’ve been able to do well and certainly that’s pricing. The cost structure is a big focus for us and one of the reasons we’re not giving a lot of future guidance is that the times are uncertain.

We do expect to continue to see the volume declines. We don’t see the fuel benefit coming in the future and hence our focus is on costs.

Tom Wadewitz – JP Morgan

Is it fair to assume that you’re going to have a pretty significant margin decline at least in first quarter because you really haven’t had enough time to do as much as you’d like on some of the variable or semi-variable costs is that a fair way to look at it?

Oscar Munoz

Clearly that’s going to have an impact.

Operator

Your next question comes from Ken Hoexter – Merrill Lynch

Ken Hoexter – Merrill Lynch

Can you quantify some of the pension impact potential coming up for 2009 just looking Conrail assets seem to have taken a beating on the balance sheet probably because of some pension impact? What about just for core CSX as well?

Oscar Munoz

There’s a lot of conversation going as to the valuation methods that may be used. As we look at all the various methods and do the calculation on an after tax basis it ranges from $10 to $60 million in the end year. Not overly significant. We have obviously until September to make those decisions. You’re right, on that Conrail line that is an accounting adjustment for our ownership with regards to their pension plan at Conrail.

Ken Hoexter – Merrill Lynch

You noted that you’re not going to start the One Plan adjustments until the second quarter. Any reason why you need to wait another three months to make those adjustments? Do you have to reengage multi-modal, anything that you can get started on a bit quicker just having run the program already.

Tony Ingram

We’re in the process of running the plans now at the current levels of business so we don’t know exactly yet what those are going to see. It will probably toward the end of the first quarter to get those things looked at and massaged and get them up and running and probably see some benefits in the second quarter.

Michael Ward

We are taking action. Tony’s been reducing the train network, taking out trains, furloughing people in anticipation of what we might expect to see out of the One Plan. Once we officially run it we think there’ll be even some further efficiencies and refinements but we’re not waiting for that to take action we’re responding to the volumes going down now.

Ken Hoexter – Merrill Lynch

What is the cost for a furloughed employee relative to either a layoff or keeping them on the books?

Oscar Munoz

A furloughed employee from a base wage perspective goes off the book relatively quickly. There is about a fourth month hail if you will for health and welfare benefits and that is about a $4,000 cost per employee. About a $4,000 for the time period, the four month period.

Ken Hoexter – Merrill Lynch

The Greenbrier did you ever quantify exactly what is going on, why the asset impairment charge is that marking to market the value of the property or have you inflated it previously? What is going on with the Greenbrier, it’s quite a large charge.

Michael Ward

That is writing down the asset to basically a zero base level. The accounting aspect of impairment is you think of the future cash flows that may be generated and you discount them back and you figure out the value of the property and recording adjustment was made to reduce it down to zero.

Ken Hoexter – Merrill Lynch

Are you putting it up for sale then now?

Michael Ward

We are reviewing all strategic options at this point.

Ken Hoexter – Merrill Lynch

You just took out a $500 million debt deal, I think you threw something in about buybacks you’ve now got $700 million of cash. Did I miss hear or are you going to stop your buybacks or use that $700 million to continue your buyback?

Oscar Munoz

What we said that future repurchases will have to be supported by improving market and business conditions. The cash that we have we found a great window, an opportunity at the time to take out some debt. We do have some refinancing to be done later in this year and so that cash level will be used for general corporate purposes.

Ken Hoexter – Merrill Lynch

How much do you have this year coming due?

Oscar Munoz

About $400 million.

Operator

Your next question comes from Bill Greene – Morgan Stanley

Bill Greene – Morgan Stanley

I wanted to ask a point of clarification. You mentioned 80% is signed. In answer to an earlier question you said for next year did you actually mean 2009.

Clarence Gooden

Right, 2009.

Bill Greene – Morgan Stanley

For 2010 do you have any locked in already?

Clarence Gooden

Not a lot. We’ve got a couple of multi-year contracts but nothing significant.

Bill Greene – Morgan Stanley

The pricing story in part started a few years ago on the basis of supply constraints and the notion that the corporation would be willing to walk from some business to get returns and margins higher. I would assume given what we’ve had happen with the volume that we can no longer argue for supply constraint. How are you going to balance the decision between walking away from volumes today to try to get pricing versus trying to keep some of it maybe at a little bit less of an increase in price? How do you weigh those two?

Clarence Gooden

We do it very carefully. It depends on what the contribution is of that business. Is it really high, does it fit into the network, is it something that we decide to keep for a longer period of time, does it help us maintain our pricing discipline?

Michael Ward

The overall thematic is not greatly changed from what we’ve been before which is we will sacrifice the volume for pricing in most cases.

Bill Greene – Morgan Stanley

If we return to the productivity question, the safety bill is obviously going to cause you to have to alter the operations a bit. I would think that that would limit your ability a little bit to reduce headcount. How much could that affect your ability to change your headcount going forward?

Clarence Gooden

The safety bill fits probably our operation a little better than some of the other guys. We don’t foresee a big problem of increasing the headcount, maybe a little bit, but not much to meet the requirements of the safety bill.

Bill Greene – Morgan Stanley

On 2009 CapEx how much is discretionary from here? How much could you cut if you needed to?

Oscar Munoz

Depending on what happens a lot of decisions can be made. As we look at our approved CapEx budget from our Board about 90% is maintenance oriented today and 10% strategic. That’s the makeup and what would be cut for various reasons is something we’d have to look through.

Operator

Your next question comes from Ed Wolfe – Wolfe Research

Ed Wolfe – Wolfe Research

You haven’t provided any CapEx guidance off the $1.74 billion from last year have you?

Oscar Munoz

Yes, generally we’ve said $1.6 billion and that’s where we stand.

Ed Wolfe – Wolfe Research

You noted 1,100 crew furloughed can you talk a little bit about the timing of when that’s occurred?

Tony Ingram

That’s 1,100 employees in the T&E side and we’re past that a little bit now. It’s probably going grow a little bit as we go along here. I gave you the number of 1,600 for total operating employees and that brings into the mechanical side primarily from the maintenance of locomotive and cars which has been greatly reduced.

Michael Ward

You’ve been taking those out basically over the last three to four weeks as we’ve seen the dramatic volume declines. It does take a little time to adjust that train network to get those reductions.

Ed Wolfe – Wolfe Research

If I think of 1,100 on the 13,000 you show that’s 8% or 9%. How do I think of the other 20,000 employees that you list? How should we think about that headcount?

Tony Ingram

I don’t follow your question can you clarify that a little bit. The 1,100 that we’ve already taken out is because we’ve reduced the number of train operations that has shrunk our train plan. With some support group of maintaining cars and locomotives is grown it up more. We are waiting to see what our One Plan will do. I think what we’ll see in our One Plan is more improved movement of cars, locomotive and crews and probably not reducing the train plan because we’ve been reducing it all along.

Michael Ward

I think you’re asking about the other crafts. In the engineering side probably limited opportunities there because we do need to maintain a safe infrastructure. There will be some opportunities in some of the mechanical crafts where we’re maintaining cars and locomotives.

Ed Wolfe – Wolfe Research

If I look at the 33,452 average employees in November how should I think of that? It was flat year over year as of November. When we look at that in three months should that be down where?

Oscar Munoz

It will be lower and it will be lower by at least the numbers you’re hearing today and possibly more I think is what Tony is saying. Other than that let’s see how the business continues and we’ll obviously adjust resources accordingly. It will be down.

Ed Wolfe – Wolfe Research

The two coal legacy contracts you noted what was the timing of them and what was the length of the contracts that came up and what’s the new length for them going forward?

Clarence Gooden

The length that came up for one was 10 years, 10 years for both as a matter of fact. The new contracts that are in place are for 10 years.

Ed Wolfe – Wolfe Research

What type of makeup do you get on a contract like that?

Clarence Gooden

Meaning the amount of price?

Ed Wolfe – Wolfe Research

Yes.

Clarence Gooden

That’s a secret.

Ed Wolfe – Wolfe Research

Is it fair to say that the amount to catch up to date hasn’t change but maybe the amount going forward given the climate is less good?

Clarence Gooden

That would not be fair.

Ed Wolfe – Wolfe Research

You’re saying both are equal to where they were six months ago and what you were getting?

Clarence Gooden

We got very significant and fair rate increases.

Ed Wolfe – Wolfe Research

You talked about as favorable Ag and phosphates what gives you confidence in those areas, can you give a little more specificity?

Clarence Gooden

In our agricultural business although poultry production in this country is down about 10% some of the capacity that’s been idle was idled on non-CSX served facilities. In addition to that, over the last five years we’ve opened up nine new feed mills on CSX and that in turn has started to pay off for us. Although ethanol’s growth is not as steep an incline as it was, it is in fact still growing under the mandated fuel so we feel fairly positive about that.

I think you asked me about phosphates. Phosphates is not good right now. Our orders are slightly staring to pick up in the last few weeks but because its commodity product and because as you are aware commodity prices have been declining significantly and people are hoping to find that bottom we expect to have a very short quick spurt in our phosphate business in the spring and hopefully things settle out for the fall movements.

Ed Wolfe – Wolfe Research

When I look at your intermodal EBIT down 27% and the rail car loadings EBIT up 20% how much of that is because you’ve got direct competition with truckload price on particularly the domestic intermodal how much of that is the timing of fuel and what other things are impacting the difference in profitability of the two businesses.

Clarence Gooden

Three major items. Our volume was down; we are seeing an impact on the trucking side and the pricing around the margins. Our fuel surcharge there has a much shorter lag period than does the rail side of the business. The combination of those three factors impacted the intermodal earnings.

Ed Wolfe – Wolfe Research

Can you give some general thoughts, has the new Board met yet and is there any changes in direction or thought or things that surprise you in those meetings?

Michael Ward

No, actually we’ve had several meeting with our new Board members and I’d say the entire Board is focused on how do we help the company with the aggressive steps necessary in this uncertain and dynamic economy. I would actually describe the relationship with the new Board members as being very constructive and very collegial.

Operator

Your next question comes from John Barnes – BB&T Capital Markets

John Barnes – BB&T Capital Markets

As you talked about going through the employee furloughs and that type of thing can you talk a little bit about the sacrifice of on time performance in order to maximize train start and crew utilization and do you give up a little bit on productivity or do you make up a little bit on productivity and give up a little bit on time. Can you walk us through how you balance those two out?

Tony Ingram

The first thing you may see a little degradation in our on time performance because remember we measure our train to the minute. When you take the locomotives down, the crews down, sometimes when you’re cutting it pretty tight so there may be a little bit of degradation in our one time performance but it’s not anything to hurt, we should make that up on line of road. Our arrivals should be a good, velocity should be good.

We should be okay here because you’re running less volumes on line of road. I don’t see a big issue in the service numbers other than maybe a little bit of decline in our on time performance just because we’re cutting it so close and we’re measuring it so tight.

John Barnes – BB&T Capital Markets

The on time performance that you’re measuring and reporting is really more of an internal measure. I’m trying to make sure that nothing you would do in on time would hinder your ability to realize the pricing gains that you’re seeing?

Tony Ingram

No, we’re just trying to keep the discipline to the one time because it drives everything else we do. If we start the train on time, we arrive it on time we get it on the road on time so those kinds of things are the way we drive that. I don’t think it’s going to have anything to do with our productivity as we’ve got it planned.

John Barnes – BB&T Capital Markets

In terms of the 20% of contracts that you’re in the process of renegotiating that will happen in ’09 are there any that have become contentious enough that you’re going to see some type of rate case filing or have you seen any of your customer trying to protract the negotiation process in order to get to a potentially more favorable administration in fighting some of the rate increases?

Clarence Gooden

I’m not aware of anyone who has waited for President Obama to come into office to negotiate any contracts. They are all contentious in this kind of environment. People posture themselves; they do everything that they can within the bounds of reasonability and common sense to try to mitigate what the price increases are.

What we try to do is price to the market. We try to price as fairly as we can for the values that we offer. I think it’s still important to note that our rail pricing are significantly below what they were more than 28 years ago in 1980. We’ve got a long way to go to get back to where rail pricing was nearly three decades ago. I still believe that it’s a very favorable pricing environment that we’re in.

John Barnes – BB&T Capital Markets

On your CapEx the $1.6 billion for 2009, with volumes already, I recognize that the first three weeks of January are probably not reflective of what we’re likely to see for the entirety of ’09 but how long would you have to go with volumes down as sharply as they are before you see a fairly major correction in your CapEx? Would you go six months and then make adjustment in the back half or is there likely to be a change in your CapEx strategy sooner if volumes don’t recover meaningfully?

Michael Ward

As Oscar said earlier, 90% of that CapEx is about doing the long term maintenance that we need to do on our railroad. In all likely cases unless something real dramatic happens we would be doing those investments because it is necessary for the long term future we see. I think the bigger risk to our CapEx spend would be on the regulatory side. If some sort of unbalanced, unfair regulation came in where we would not be getting adequate returns, not have a chance to earn a return on the replacement cost of those assets clearly that would be the thing most likely to affect our CapEx spending.

Operator

Your next question comes from Chris Seraso – Credit Suisse

Chris Seraso – Credit Suisse

The pricing story that you mentioned for 2009 still strong at plus 5% to 6% but that is a bit lower than what you’ve seen over the past few years at about 6.5%. Can you talk a little bit about where the delta is, where are things a little bit weaker? Is it any particular category; is it intermodal, can you help us with that?

Clarence Gooden

First let me say that I think 5% to 6% is really strong and pretty good because when you go back and you look at the rail industry over the last 20 years it was either no percent or 1% to 2%. We’ve been able to maintain that over some period of time. Secondly, most of the legacy contracts over the last three, four years have been priced, re-priced one or two times. Is it as strong as it was in 2004? Probably not. Is it strong by historical standards? Absolutely. Does it look like its going to stay strong for as far as we can reasonably see? Absolutely through 2009 we feel very confident about where we stand on our pricing.

Chris Seraso – Credit Suisse

It’s more a function of the fact that a lot of the legacy contracts have already turned over not necessarily pressure in particular categories?

Clarence Gooden

Correct.

Chris Seraso – Credit Suisse

Could you share a minute of your views on the new administration and the new Congress and how real do you think the risk is that we get some sort of increase in regulations for the industry?

Michael Ward

I'd say obviously there's going to be with the change in the congressional leadership we are going to see increased discussion of the role and regulation of freight rail transportation. We still believe though that there are leaders and many of them understand that going back to the old days would reduce investment and actually hurt the economy, hurt our national transportation infrastructure. As you know, these re-regulation discussions have been around since the Staggers Act passed in 1980.

I think if you really step back, the rail industry is a great example for the balance regulation that has benefited customers with the lower prices that Clarence talked about earlier and our ability to help the transportation infrastructure. We think there will be more dialogue but we believe that they will come up with balance regulation that does not hinder our ability to continue to invest for the future.

Chris Seraso – Credit Suisse

The car load declines just to clarify your comments the double digit decline do you think will carry through the first quarter and then we moderate after that but end up down for the full year am I reading that correctly?

Clarence Gooden

We’ll end up down for the full year. We’ve got a reasonable clear visibility here in the first quarter is why we’ve said the double digits beyond that we just don’t know.

Chris Seraso – Credit Suisse

On the stimulus program can you outline a few areas where you think this will have an impact and the timing on what that would be for the railroad?

Michael Ward

One we’re hoping, as you know the legislation was introduced last year for the investment tax incentives for new rail infrastructure. Last year I think it had 61 sponsors in the House, 17 in the Senate and had some pretty good traction. We’re hoping that might be passed as part of the stimulus package which I think all railroad would probably make some additional investments.

On the market side we might expect to see some growth in our aggregates and metals business if there’s a lot of infrastructure spend.

Operator

Your next question comes from Jason Seidl – Dahlman Rose

Jason Seidl – Dahlman Rose

If I can go back to the export coal commentary you made about going back to 2007 levels, can you break out the declines between that and thermal coal?

Clarence Gooden

It’s mostly in the thermal coal. It’s going to be down about five million tons in the thermal side and about three million in the metallurgical side.

Jason Seidl – Dahlman Rose

Do you guys run at about a 50/50 split?

Clarence Gooden

60/40. 60 metallurgical, 40 thermal.

Jason Seidl – Dahlman Rose

When you’re looking at how the first couple weeks started in January. Obviously you say you expect double digit declines for the quarter but there are some exacerbated decline in some line items particularly automotive which is down over 70% thus far and I haven’t seen any projections for production to be down anywhere near that for the year. Is there anything going on have you heard any news about plants being reopened or shifts restarting from not only automotive but some other businesses?

Clarence Gooden

Of the 71 automobile plants that we either directly serve or indirectly serve via the line haul 49 of those plants are either down or are idling. That doesn’t include the plants that have taken reductions on days of week. If you look at that chart that we had in both my presentation but more particularly in Oscar’s presentation what you saw was a fairly significant decline in December that has been followed by a fairly significant decline in January. We are equating that to really a couple of factors.

Number one, industrial production itself is down, Global Insights has it down around 10% plus. Two, there have been fairly significant inventory corrections by virtually all businesses as you and I have been reading and following in the past few weeks. We don’t expect it will stay down at that level throughout the first quarter we think it will begin to moderate some as those inventory levels are finally reduced.

Jason Seidl – Dahlman Rose

On the pricing side have you had any shippers come back to you and try to renegotiate their existing contracts?

Clarence Gooden

I have not. I’m not aware of any. I had that question asked earlier this morning and I checked around briefly but I’m not aware of any.

Operator

Your next question comes from Joshua Pollard – Goldman Sachs

Joshua Pollard – Goldman Sachs

On pricing, can you walk me through the timing on 2010 pricing? How much should be booked by the end of 1Q, 2Q, etc. How have you booked that in the last two to three years and is there any reason to reword the timing given your forecast for the economy to worsen?

Clarence Gooden

Your question surrounded 2010?

Joshua Pollard – Goldman Sachs

Yes.

Clarence Gooden

Most of our contracts for 2010 will be renegotiated in the last half of the year. I’m not sure how pricing in 2010 will ultimately play out in early 2009. If I were a gambling person and suspected things here’s how I would see it playing out. If this economy moves up, meaning much better, as the result of stimulus or whatever in a fairly significant way I believe the rail industry will be in one of the best situations it’s found itself in years in pricing because capacity is the enemy of pricing. Transportation capacity is coming out of the transportation industry in large increases.

In March and April of this year as truckers go to renew their taxes and their tags you’re going to see major league bankruptcies in the trucking side of the business. There’s not a lot of investment going into rail car capacity this year. We will find ourselves in a very attractive position going into 2010 should the economy turn.

Joshua Pollard – Goldman Sachs

If the economy does not turn do you feel as confident in 2010 pricing as you do 2009 with 5% to 6% pricing?

Clarence Gooden

I do, yes.

Joshua Pollard – Goldman Sachs

On the locomotive side you’ve cut about 10% from October how deep could you go 2,500 locomotives?

Clarence Gooden

That depends on the car loading business. We’ve still trying to keep up our number of cars per train so that all depends on the volume. If the volume keeps shrinking to the point that we can reduce our train starts then we’ll put more locomotives up.

Joshua Pollard – Goldman Sachs

On incentive compensation there was a $45 million reduction relative to 2007 fourth quarter. How much was incentive comp in 2007 overall and were there accruals for incentive comp all throughout 2008 that you reversed in this quarter or was this a “straight cut”.

Oscar Munoz

It was more of the accrual process being reversed to a degree but also on a year over year basis that number represents and in essence a more lucrative payout we had last year. We accrued more last year for payment and we’ll be accruing less and have accrued less in 2008. That’s the majority of that and there is some also forward looking for some future performance objective which is a small part of it.

Joshua Pollard – Goldman Sachs

When we look forward to 2009 you’ll accrue less than you had originally accrued in 2008 and then when I think back to 2007 how much was incentive compensation in ’07?

Oscar Munoz

I don’t think we’ve ever reported that number publicly.

Operator

Your next question comes from John Larkin – Stifel, Nicolaus

John Larkin – Stifel, Nicolaus

On the national gateway strategy you mentioned that you are anticipating additional order diversions at East Coast. Does that give you a reason to continue with the national gateway strategy speed it up a little bit or is the volume decline so dramatic that you might actually push that out some.

Michael Ward

We’re going to continue to actively push that and we’re getting pretty good traction. As you probably know Governor Rendell recently announced his strong support for it, pledged the state funds for the work that’s going to happen in the State of Pennsylvania and we’re actively working with the other states to push forward, we’re hoping some of the infrastructure incentive monies can go toward these sort of projects with the various state DOTs.

We’re working on the new facility in northwest Ohio which we’re constructing. No, we’re not slowing down. We think it’s a great project for the future.

John Larkin – Stifel, Nicolaus

Your major Eastern railroad competitor has also unveiled another initiative to complement their heartland quarter called the crescent quarter which is more of New Orleans to Harrisburg initiative primarily to perhaps take traffic off I-81 and other congested interstates. Does CSX have a plan to respond to that with something of their own?

Michael Ward

I think we already have an infrastructure that allows us to make those kind of moves as we exist today.

John Larkin – Stifel, Nicolaus

No incremental CapEx required there?

Michael Ward

No.

John Larkin – Stifel, Nicolaus

You mentioned that the terminal dwell was up a little bit in the fourth quarter and mentioned that that was primarily due to surplus freight cars more or less clogging up the yards. What steps can you take here quickly to unclog the yards and essentially get those unneeded cars out of the way?

Tony Ingram

We started storing the cars as you know the volume really fell off in the last six or seven weeks so it was a real quick fall off. To see what the real impact was we have now stored over 24,000, 25,000 cars. A lot of that is multi level, it’s the automotive industry has took vacation and those kind of things. We’ll continue to take those cars out as volume goes down and defer some of the maintenance on those cars that’s not needed to sometime out in the future when the commercial guy says it needs the cars then we can put them back in in six months.

John Larkin – Stifel, Nicolaus

As you adjust to the reduced volume levels we might see a terminal dwell continue to decline and perhaps even system velocity increase is that a fair?

Tony Ingram

That’s our game plan as we go forward.

John Larkin – Stifel, Nicolaus

Obviously fuel prices have dropped precipitously. One of your competitors layered in some hedges at much higher prices. Is there a price point for fuel here where you think layering in some new hedges anticipating for perhaps fuel price increases over the next couple of years would make some sense for you?

Oscar Munoz

As we think of the forward curve and we think of the volatility and we think of our existing fuel recovery programs that we have within the industry we don’t see pursuing a hedge and a derivative instrument objective is a good idea for us at this point.

John Larkin – Stifel, Nicolaus

You do not think it’s a good idea?

Oscar Munoz

We do not think it’s a good idea.

John Larkin – Stifel, Nicolaus

Is there a price that perhaps it does become a good idea for you if it were to drop another $10 a barrel or something?

Oscar Munoz

We always review those issues but again our fuel recovery program that we have within the industry is a good way we feel with our customers to deal with that issue of fuel.

John Larkin – Stifel, Nicolaus

If I understand it correctly there is one rate case with the STB filed by a Florida utility is that correct?

Michael Ward

Actually there are two out there. One is Florida Utility, Seminole Electric. We made some very market based fair reasonable proposals to Seminole, they didn’t quite see it that way. That one will go to the STB. In addition DuPont has filed a rate case as well on numerous routes and commodities.

John Larkin – Stifel, Nicolaus

What is the time table for the resolution for those rate cases?

Michael Ward

Both of these are the stand alone railroad cost type cases. Normally these have a two to three year timeframe to complete the work and get the ruling.

John Larkin – Stifel, Nicolaus

Those are not filed under the so called streamline system?

Michael Ward

No, both of them are the stand alone costs.

John Larkin – Stifel, Nicolaus

The DuPont case was separate from the series of smaller moves that they contested a year or two ago. That’s in addition to that?

Michael Ward

That’s correct.

Operator

Your next question comes from Gary Chase – Barclay’s Capital

Gary Chase – Barclay’s Capital

As you think about the quarter there were a couple of factors that influenced earnings power you had the fuel tailwind but you also got caught certainly in the month of December with quite a bit less volume than you anticipated. I think you sized the fuel impact at $150 million, I might have heard that wrong, does the cost impact of the volume surprise does it come close to offsetting that?

In other words, I think you sized the fuel impact at $150 million but volume also surprised you in a big negative way for the month of December so you wouldn’t have had time to resize the network as you were talking about earlier in the call. If you had the opportunity to resize the network would it have been enough cost drag to offset the $150 million positive you got out of fuel?

Oscar Munoz

That’s a hard one to answer. That $150 million was a pretty significant amount of benefit. I don’t know that in a given quarter with all the right information we might have been able to catch that must cost up.

Gary Chase – Barclay’s Capital

One of the areas that I think you’ve experienced a lot of inflation over the years on the cost side is in the MS&O line. I noticed in your appendix as you go through the variances year on year you don’t even mention volume and there’s an inflation entry in there. As you look into 2009 how much volume related impact should we expect in MS&O if any? Additionally how much benefit could you get out of a much lower commodity price environment?

Oscar Munoz

MS&O as you know is mostly O. The material and supplies component of that line is relatively minimal. Yes, inflation is in there and yes volume would affect it to a degree but not as significant given that the other is our really big line items; property taxes, legal issues, environmental and safety issues all flow into that number which aren’t necessarily volume related. Some but not a lot.

Gary Chase – Barclay’s Capital

Is there a way to think about how much savings you might get out of a much different commodity price environment?

Oscar Munoz

As you’d think about our overall inflationary rates absent labor and fuel which are the two big components we’ve seen them spike over the last couple of year up into the 6% to 8% range. I would certainly see those coming down to a more normalized basis, in some cases maybe in the low 3% over the next 12 to 18 months.

Operator

Your next question comes from Walter Spracklin – RBC Capital Markets

Walter Spracklin – RBC Capital Markets

On the pricing question asked a little while ago whether a customer can come back on a contract I know you said that you don’t remember that having happened. Is this a legal aspect, what hoops would they need to jump through to come back on a contract that’s already been signed and delivered for you guys.

Clarence Gooden

First they would contact their sales person and go through the reasons of why they felt such a change is necessary and we would in turn evaluate that. We want to work with our customers. At the end of the day it all starts with the customer. Essentially once you’ve got a deal done you move forward.

Michael Ward

It’s no different than any other contract you’d have with somebody. There’s no legal proceeding they can bring or anything like that it’s a binding contract between two parties.

Walter Spracklin – RBC Capital Markets

A lot of other industries obviously we’re hearing reneging, we’re hearing people cut backing down, things in railroad is obviously a little bit different and I just wanted to confirm that you haven’t heard a lot of push back in terms of contracts already signed that customers are coming back want to reopen.

Michael Ward

Correct.

Walter Spracklin – RBC Capital Markets

In terms of the slide that you showed us on the favorable and unfavorable can you talk to us just a little bit about the varying degrees on that unfavorable side, particularly the ones where you would see the most area of concern? Perhaps on the flip side are there some unfavorable out there, I’m thinking maybe the housing sector where this is something that pre-dated the current economic recession that we’re in? Can you get a sense; are you seeing any visibility on a bottoming in any of those unfavorable segments?

Clarence Gooden

The three sectors that we see that are experiencing the most difficulty is first carbon steel. It is significantly down. The second area that we’re seeing the biggest downturn in is in our phosphates and fertilizer business because it is a commodity it is behaving like a commodity and people are looking at the bottom. The third sector which is related to a lot of things that we do in this country everything from PVC pipe to some applications in the fertilizer business to plastic bottles to packaging is in our chemicals business. Those three areas seem to be suffering the most.

Walter Spracklin – RBC Capital Markets

When you guys look at right sizing yourselves, I know you’ve shown us some good graphs on an overall aggregate basis. Are there particular product segments that for whatever reason due to high margin or regulatory aspects or geography that are more difficult to right size on a product segment basis than other areas?

Michael Ward

Probably the toughest is the automotive because the volumes are down so dramatically and we did run a network in effect dedicated to the automotive. Tony and his team have been doing what they can to shrink that network some perhaps run them on an intermodal train or a regular merchandise train. That’s probably the toughest one to adjust.

Tony Ingram

Our biggest issue is in house capacity for a certain line or certain subdivision where we tried to size the maximum train size or the number of trains through an area or the downturn in business or the up tick in business would cause us to have to go back and regroup and readjust. We’ve got systems models we’ve got some very high sophisticated type of models that we can do a testing environment then switch it over. We feel pretty comfortable that we can adjust to those pretty quick.

Operator

Your last question comes from Matt Troy – Citigroup

Matt Troy – Citigroup

Now that you’ve got those two legacy coal contracts nailed down how much of the remaining traffic base of your total traffic base would you classify still under legacy contracts? What the total opportunity going forward?

Clarence Gooden

There’s about 7% of our contracts are still under legacy, what you and I would refer to as legacy. They are spread out between now and 2013, 14, 15, so more or less what’s left is onesies, twosies.

Matt Troy – Citigroup

When we talk about legacy everyone defines it differently what is it for CSX, is it a contract that hasn’t come up for air in five years, seven years, what’s the cutoff? How are you defining a contract as legacy at this point?

Clarence Gooden

Hasn’t come up for renewal since 2004.

Matt Troy – Citigroup

On the $160 million of strategic growth CapEx for 2009 is there a short list of major projects we’re thinking about in that number or is it a whole bunch of smaller projects, what are the key initiatives under that $160 million or 10% of your total CapEx?

Oscar Munoz

It’s probably roughly half a couple major projects and the other half is smaller issues.

Matt Troy – Citigroup

There is discretion within that 10% need there be in the back half of the year?

Michael Ward

One thing to clarify, about half of that amount is technology deployment to increase our productivity. We think there will still be wise investments to make to deploy that technology to help our productivity. The other is probably more on intermodal terminals which again for the long term we think are important.

Operator

This concludes today’s conference. Thank you for your participation in today’s call you may disconnect your line.

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Source: CSX Corporation F4Q08 (Qtr End 12/26/08) Earnings Call Transcript
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