Operator: Good morning, ladies and gentlemen and welcome to the CSX Corporation Second Quarter 2013 Earnings Call. As a reminder, today's call is being recorded. During the call, all participants will be in a listen-only mode.
For opening remarks and introduction, I'd like to turn the call over to Mr. David Baggs, Vice President of Capital Markets and Investor Relations for CSX Corporation. Sir, you may begin.
David Baggs - VP Capital Markets and IR: Thank you, Gwen, and good morning, everyone, and welcome again to CSX Corporation's second quarter 2013 earnings presentation. The presentation material that we will review this morning along with our quarterly financial report and our safety and service measurements, are available on our website at csx.com under the Investors Section. In addition, following the presentation a webcast and podcast replay will be available on that same website.
Here, representing CSX Corporation this morning are Michael Ward, the Company's Chairman, President and Chief Executive Officer; Clarence Gooden, Chief Sales and Marketing Officer; Oscar Munoz, Chief Operating Officer; and Fredrik Eliasson, Chief Financial Officer.
Now before we begin the formal part of our program, let me remind everyone that the presentation and other statements made by the Company contain forward-looking statements. You're encouraged to review the Company's disclosure in the accompanying presentation on Slide 2. This disclosure identifies forward-looking statements as well as 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 now 31 analysts covering CSX, I would ask as a courtesy to everyone to please limit your enquiries to one primary and one follow-up question.
With that let me turn the presentation over to CSX Corporation's Chairman, President and Chief Executive Officer, Michael Ward. Michael?
Michael J. Ward - Chairman, President and CEO: Well, thank you, Dave and good morning everyone. Last evening, CSX reported second quarter earnings per share of $0.52, a 6% increase from the same period last year. The financials benefitted from overall revenue growth, excellent operating results and a few items that Fredrik will outline later in the presentation.
On the revenue side, we were encouraged by the solid growth across many of our markets offsetting the ongoing challenges in coal. Overall revenue was up slightly on 1% volume growth combined with the team's ability to drive solid core pricing for the service value CSX is providing. At the same time, we continued to deliver consistently high performances and safety, service and efficiency in the face of a broad range of economic and market conditions that continue to be dynamic.
Those results helped increase the operating income to a record $963 million for the quarter and improved the operating ratio to a record 68.7%. As you've view the presentation today, you will see a company that is capable of consistently delivering value by leveraging the diversity and value of its product offering and maintaining a relentless focus on running an excellent railroad.
Now I'll turn my presentation over to Clarence Gooden who will provide a more in depth analysis of the top line results and a forward outlook. Clarence?
Clarence W. Gooden - EVP, Sales and Marketing and CCO: Thank you, Michael and good morning. Looking at the key economic indicators that continue to slow steady growth in the U.S. economy. In June the Purchasing Manager's Index registered a rating of 50.9 reflecting a modest expansion of U.S. manufacturing.
At the same time, the Customer's Inventory Index registered a rating of 45 indicating responders believe their inventories are still below normal levels. Looking at the right side of the chart, both GDP and IDP rates reflected modest expansion in the quarter, though second quarter growth estimates were below April expectations, forward projection still showed slow steady growth for the second half.
Overall, demand across the diverse markets we serve was generally positive for the quarter, consistent with a broader economy.
Now, let's take a look at the overall revenue. Total revenue increased $57 million year-over-year, approaching $3.1 billion in the quarter. Starting to the left, the combination of rate and mix was favorable by $32 million in the quarter. Here, core pricing gains and liquidated damages, were partially offset by the unfavorable mix impact related to growth in intermodal and the decline in coal.
Moving to the right, volume had a favorable impact of $26 million in the quarter as volume declines in coal were more than offset by growth in the merchandise and intermodal markets. Finally, fuel recovery declined $1 million in the quarter.
Now, let's turn to pricing. Core pricing on a same-store sales basis remained solid across nearly all markets. Recall, the same-store sales are identified as shipments with the same customer, commodity and car type, and the same origin and destination. These shipments represented nearly 80% of CSX's traffic base for the quarter. Looking at the chart, overall pricing shown as the blue bars, improved 2.3% in the quarter, reflecting less difficult comparisons in the export coal market as we begin to cycle rate reductions put in place during 2012. The gold bars, which exclude export coal, show pricing gains of 4.1% in the quarter consistent with the performance in prior periods. On either basis, pricing exceeded rail inflation, which was low this quarter. A strong service product provides a solid foundation for pricing above rail inflation, which supports reinvestment over the long-term. We are confident in the value of our service product to remain focused on driving profitable growth.
Let's turn to the next slide and take a closer look at the volume. Total volume was up 1% in the quarter versus the same period last year, with increases across most of the broad sectors we serve.
The intermodal, industrial and construction sectors delivered solid growth in the quarter. High service levels helped drive growth in the domestic intermodal market and captured opportunities in both the growing domestic and oil and gas industry and the recovering construction markets.
The agricultural sector was flat with growth in phosphates and fertilizer offset by the ongoing challenges in feed grains, soybeans and ethanol. The coal story was mixed. Domestic volume was up 5% against a very weak second quarter last year while export volume was down sharply.
Now let's look at the individual markets in more detail and starting with coal.
Coal revenue declined 6% to $770 million. Domestic coal shipments benefited from higher natural gas prices on a year-over-year basis. Although domestic coal demand has stabilized inventory levels at southern utilities still remain high.
Export coal volume declined 23% on soft demand for U.S. thermal coal particularly in Europe where broader economic conditions remain weak.
Total revenue per unit was flat with strong domestic pricing gains offsetting lower export pricing. Domestic pricing continues to benefit from the ongoing implementation of a utility contract structure that splits the conventional rate into two components a fixed quarterly charge that does not vary with volume and a variable charge for each ton moved there in the quarter. As a result, revenue per unit will vary more under this structure. During periods of low volume, the revenue per unit will be higher as the fixed component will be spread across fewer units conversely. Revenue per unit will decline during the periods of high volume. That said these contrast continued to reinforce our overall philosophy of securing inflation plus pricing which supports reinvestment and reflects the value of the service we're providing to our customers.
Looking ahead, we expect third quarter domestic volume to be relatively stable on a sequential basis although down 5% to 10% for the quarter and the full year. At the same time, our best estimate for 2013 export coal volume remains about 40 million tons with a more unfavorable demand environment in the second half of the year.
Next, let's look at merchandise, overall merchandise revenue increased 4% to nearly $1.8 billion, chemicals was the key driver in the industrial sector growing 11% on strength and energy related products including crude oil, liquefied petroleum gas and frac sand. The agricultural sector was flat as increase phosphate and fertilizer shipments offset the continued weakness in the feed grain, soybean and ethanol shipments. Regarding the construction sector, building products and aggregates increased due to higher construction activity and the continued recovery in the residential housing market, this was partially offset by lower military and machinery shipments.
Looking at the third quarter, growth is expected in the industrial sector driven by ongoing opportunities in chemicals, particularly in commodities related to oil and gas drilling. The automotive market will also remain strong although we continue cycling tough comparables. We expect the agricultural sector to recover with the anticipated improvement in crop yields supporting growth in grain shipments, primarily for animal feed. Finally we anticipate, the steady recovery in the construction sector will drive growth in building products and aggregates.
Moving to the next page, let's review intermodal. Intermodal revenue increased 4% to $425 million. Record domestic volume was up 4%, driven by growth with our existing customers and highway to rail conversions. International volume grew less than 1% as growth with existing customers and from new service offerings was partially offset by volume lost to a carrier port shift.
Total intermodal revenue per unit increased 2% on core pricing gains. Looking forward, we continue to make strategic investments in our intermodal network to drive profitable growth. Over 90% of CSX's intermodal volume currently operates in double stacked lanes. That number will grow into the mid-90s by the end of 2015, further improving efficiency and expanding capacity. New terminal construction is progressing as planned in Winter Haven, Florida and Montreal. In addition, expansions are underway in Atlanta and Louisville, and an expansion of our Northwest Ohio hub is already in the planning stages. These investments, will expand our network reach, increase capacity and will allow the introduction of new service offerings that support profitable growth.
At the same time, we continue to generate growth opportunities through our highway to rail or H2R initiative. We are working jointly with our channel partners to market the compelling value of intermodal rail transportation to targeted customers and further tap into an estimated 9 million truckload opportunity, which aligns very well with our network.
Let's turn to the outlook for the third quarter. For the third quarter, we expect stable to favorable conditions for 83% of our markets and the overall volume is neutral to slightly positive. The outlook for agricultural products is favorable with the anticipated improvement in crop yields supporting growth in grain shipments.
Automobile and light truck production will remain strong with annual production estimates now exceeding 16 million vehicles. We expect growth in chemicals as we continue to capture opportunities created by the expanding domestic oil and gas industry. Intermodal growth will continue as our strategic network investments and service reliabilities support the highway to rail conversions.
Domestic coal volumes is expected to be stable sequentially but down 5% to 10% for the third quarter and the full year. Finally, export coal volume will again be lower on softer demand for U.S. thermal coals.
Thank you. I'll now turn the presentation over to Oscar to review our operating results.
Oscar Munoz - EVP and COO, CSX Transportation Inc.: Thank you, Clarence, and good morning everybody. As is customary I discuss safety results at the beginning of each of these operations review to make it clear that safety is our first and foremost priority.
Unfortunately, I need to make everyone aware the tragic loss of two CSX employees this past week in separate incidents. The overriding focus of our safety programs to avoid such catastrophic events and we are rapidly completing our investing of how these events unfolded and the lessons learned will promptly be applied to our operation. I want the colleagues, friends, family of these two gentlemen who might be listening to this call this morning to know that our hearts go out to them. At CSX we are all passionate about sending each person home safely every day and we must never ever lose sight of this goal.
Now if you'll allow me, let me review the company's overall safety results on this Slide 15. The chart on the left shows FRA personal injury rate which was 0.93 for the quarter. This rate is higher than the prior period and underscores our need to remain focused on safety each and every day. The chart on the right shows the FRA train accident rate which improved by 7% to 1.81 and reflects our continued commitment to accident reduction. We will remain diligent in our efforts to keeping our employees and the communities where we work and serve.
Now, let's turn to the next slide and review the operating results for the quarter. Here on Slide 16, you can see the on-time originations on the left and on-time arrivals on the right. Both measures improved in the second quarter with on-time originations at 91% and on-time arrivals at 82%, both measures are at record levels.
I'm very pleased with these results that represent the culmination of hard work and dedication by all of CSX's 31,000 employees during a quite challenging second quarter. Furthermore, these results demonstrate our commitment to a shared purpose founded on customer service. Let's look at the system performance on the next slide. Terminal dwell and velocity provide a picture of how efficiently cars and locomotives are moving across the network. CSX's continued momentum in these two measures illustrates the Company's ongoing commitment to improved asset utilization.
Look at the chart on the left; we drove a 6% improvement in terminal dwell for the quarter to a record low of 21.9 hours. This means cars are spending less time sitting in terminals and thus more time in productive freight service.
Velocity also showed improvement once again, up 3% to 23 miles per hour with improvement across all three networks, coal, merchandize and intermodal. Strong on-time performance, dwell and velocity are a win-win as our customers received great service and you, our investors get ever improving ROA.
Now, let me review with you the Company's improvement in operating efficiency on Slide 18 which complements the better service we are providing to our customers. Carloads were up 1% in the second quarter and gross ton miles, the best measure of our true workload, was up nearly 2%. CSX absorbed this additional workload in the quarter with fewer resources on a year-over-year basis. Moving down the chart, you can see road crew starts were nearly 3% lower than last year as volume growth was largely incorporated into existing trains and we improved our train crew productivity. In fact, both active locomotive count and total operations employment were lower by over 4% in the quarter reflecting our improved operating environment.
Now, let me wrap up on the next slide. Safety remains a primary focus for us and we urge our employees every day to look out for and support one another in this endeavor. Service and customer satisfaction remain at high levels and we delivered these great operating results by simultaneously improving our resource utilization. As such, we remain on track to deliver over $150 million in efficiency savings this year. CSX remains committed to providing flexible solutions for customers to enable sustainable growth driving significant long-term value for our shareholders.
With that, let me turn the presentation over to Fredrik to review the financials.
Fredrik Eliasson - EVP and CFO: Thank you, Oscar, and good morning everyone. Looking at the top line revenue increased 2% in the second quarter, gains in merchandize and intermodal offset the declines in coal. At the same time, other revenue which included a $16 million increase in liquidated damages also contributed to the year-over-year improvement. Expenses also increased 2% as wage and material inflation, higher depreciation and volume related costs more than offset savings from improved efficiency. Operating income was a record $963 million up 2% versus the prior-year.
Looking below the line, interest expense was $140 million, other income was $9 million and income taxes were $297 million reflecting $17 million or $0.02 per share of tax benefits in the quarter. While this resulted in an effective tax rate of 35.7% for the quarter we continue to expect a tax rate of approximately 38% going forward. Overall net earnings were $535 million up 4% versus last year and EPS was $0.52 per share up 16% versus last year reflecting growth in net earnings and the impact of share repurchases.
As we turn to the next slide, let's briefly discuss how fuel lag impacted the quarter. On a year-over-year basis the effect of the lag in our fuel surcharge program was $4 million unfavorable. This reflects $13 million of positive in quarter lag during the second quarter of 2013 versus $17 million of positive in quarter lag for the same period last year. Based on the current forward curve the fuel lag impact would be slightly favorable next quarter primarily driven by the cycling of $16 million of unfavorable in quarter lag in the third quarter of last year.
Turning to the next slide, let's review our expenses. Overall expenses increased 2% in the quarter. I will talk about the top three expense items in more detail over the next few slides, but let me briefly speak to the bottom two on this chart. Depreciation was up 5% to $276 million due to the increase in the net asset base. Going forward, we continue to expect depreciation to increase sequentially by few million dollars each quarter reflecting the ongoing investment in our business. Lastly, equipment rent was down 6% to $96 million driven by a reduction in locomotive leases and car hire expense.
Now let's discuss labor and fringe in more detail. Labor and fringe expense increased 4% or $33 million versus last year. Looking at the chart on the left, total headcount was down 3% versus last year and up 1% sequentially, reports a seasonal increase in demand and hiring ahead of attrition.
Moving to the table on the right, improved efficiencies more than offset high workload in the quarter to drive $19 million in net efficiencies and volume cost savings. Moving down the table, incentive compensation expense was up $24 million versus last year and labor inflation was up $18 million with core wage inflation remaining below 4%. Rounding out the table, other costs were $10 million higher for items that are not expected to reoccur.
Looking at the second half, headcount should be roughly flat on a sequential basis although as we've demonstrated over the past several quarters, we will continue to adjust our resources to reflect the current volume levels and drive efficiency.
In addition we expect labor inflation to continue to increase by $15 million to $20 million year-over-year for the remaining quarters and the quarterly incentive compensation headwind to be similar to what we experienced in the second quarter.
Next, let's review MS&O expenses on Slide 25. MS&O expense increased 2% or $10 million versus last year with the key driver shown in the table on the right. Total real estate gains reduced MS&O expenses by $16 million reflecting two items. The first one relates to $22 million gain on rail assets and easements. The second one relates to SunRail gain, which was $14 million in the period, or $6 million unfavorable year-over-year. As a remainder there will be no further material gains related to the SunRail transaction going forward.
Moving down the table, inflation increased by $10 million and train accidents and other increased by $16 million primarily driven by cost related to a few derailments including the accident in Rosedale, Maryland.
Moving to the next slide, let's discuss the impact of fuel. Total fuel cost decreased 3% or $13 million versus last year. Looking at the table to the right, fuel efficiency was favorable by $10 million reflecting a 3% year-over-year improvement in gallons consumed per gross ton mile.
Next, as shown in the chart on the left, CSX average cost per gallon for locomotive fuel decreased to $3.08, down 2% versus last year driving a decrease of $7 million as seen in the chart on the right. Rounding out the table, higher volume drove the $4 million increase in volume and other expenses with gross ton miles up 2%.
Now, let me wrap up on the next slide. Through the first half CSX has displayed the benefits of its diversified portfolio business by overcoming over $155 million of coal headwinds to achieve record financial results. This was achieved by ongoing strength in our merchandize and intermodal businesses and helped by $46 million in year-over-year gains from real estate transactions and nearly $50 million of year-over-year favorability related to liquidated damages. Looking to the second half, coal will continue to be a challenge, driven by depressed global coal environment and high domestic inventories.
In addition the year-over-year impact from real estate transactions which was positive in the first half would be negative by greater amount in the second half. At the same time liquidated damages which was positive in the first half are expected to be flat to slightly down on a year-over-year basis in the second half. Taking all together we're modifying our full-year earnings per share guidance slightly to now be roughly flat with 2012.
Looking longer term CSX will continue to focus on the same core elements that have driven the Company to record financial results by focusing on safety, service, pricing inflation and profitable volume growth CSX will emerge from this two year transition to a new coal environment as an even stronger company and remains on track to sustain high 60s operating ratio by 2015 and a mid-60s operating ratio longer-term.
With that let me turn the presentation back to Michael for his closing remarks.
Michael J. Ward - Chairman, President and CEO: Well, thank you Fredrik. It's been a pleasure to represent the great efforts of our 31,000 employees this morning. In addition to their positive results this past quarter this team has delivered earnings growth in five of the past six years and improved the operating ratio in each of the past six years. This in spite of the fact that CSX has launched over half of its domestic coal business over this period and its merchandise business is still down from pre-recession levels.
As I alluded to in my opening remarks, this team is all about consistency and execution making the right adjustments at the right time and focusing on the areas where we know we can make a difference. When we do these things well, the Company stands the best chance of making the most of its opportunities and meeting its challenges. At the same time we're able to return substantial value to our shareholders through dividends and share repurchases, while also investing in our network, which holds great opportunity for well-documented reasons including population growth, highway and trucking challenges and the value and sustainability needs of our customers and the nation.
In short, we like what we see relentless consistent performance and a promising future. The company is well positioned to drive strong earnings growth and margin expansion long-term as the economy continues its slow recovery and the energy environment evolves.
With that, we will be glad to take your questions.
Operator: Ken Hoexter, Merrill Lynch.
Ken Hoexter - Merrill Lynch: Just let me speak on Clarence with the export coal here, what gives you the confidence in the $40 million tons just given that API-2 is now at just over 86 coal on the low 100, just sound it like you're bit more negative on thermal coal I thought you were always more positive when not given contracts and just surprise a little bit more negative on met coal given that's more than half of the export side. So, if you can just kind of run up on that? Thanks.
Clarence W. Gooden - EVP, Sales and Marketing and CCO: Ken, most of the thermal coal that we'll have for the second half of the year was put under contract in prior period and so, it was either done earlier in this year before the API-2 index dropped so dramatically or was done last year. So, we feel pretty confident about being able to achieve those terminal numbers. And our met numbers as you can already see they've been declining on a sequential basis here from the first quarter to second quarter and we expect that there are pretty much going to stabilize at the level that they are now for the rest of the year. There's a lot of steel companies, particularly in Europe, can't afford to buy some of the high vol A. They're buying a lot of the high vol B coals which CSX has been blessed with abundance of and that gives us some confidence in that market.
Ken Hoexter - Merrill Lynch: No, it makes sense. I just thought you said in your presentation that you were more negative on thermal exports?
Clarence W. Gooden - EVP, Sales and Marketing and CCO: Going forward into the 2014 timeframe we would be.
Operator: Brandon Oglenski, Barclays Capital.
Brandon Oglenski - Barclays Capital: I wanted to address an issue that we've been hearing a little bit more about and seeing in the results here between you and your peer. It seems that some of these pricing discipline that's created so much value for this industry might be, I want to say slipping a little bit, but it looks like your competitor might be trading a little bit more volume per price. Can you talk about how that's impacting outcomes for CSX and what your view is going forward?
Michael J. Ward - Chairman, President and CEO: Well, where we've lost business, Brandon, we're confident it wasn't because of our service issues and consistent with our long-term strategy we've remain committed here to pricing above rail inflation, which is imperative for us, if we're to continue to invest in the business.
Brandon Oglenski - Barclays Capital: I guess it seems, especially in the intermodal business that there might be a little bit more aggressive behavior from the competitor. Is that creating problems for CSX and do you view this as a long-term issue that shareholders should be looking at?
Michael J. Ward - Chairman, President and CEO: I certainly can't address what other competitors are doing. I would tell you that most of our conversions are highway to rail. We have a very positive program in our highway to rail program. We've added sales personnel in order to do that with the beneficial cargo owners. We have a proprietary business model that we can use that will take the customers book of business into consideration and where it makes strategic fits for CSX, we think we offer a good product and where it doesn't we are very abrupt with the customer in that regard.
Clarence W. Gooden - EVP, Sales and Marketing and CCO: Domestic grew 4% this year to record levels, so we're continuing to see the growth, Brandon, in the intermodal.
Operator: Chris Wetherbee, Citi.
Chris Wetherbee - Citi Investment Research: I just had a question back on the thermal export coal side. Clarence, just kind of curious about the pricing dynamic, it sounds like most of the business is under contracts. So is it fair to assume that the pricing on that specific piece of the exports is going to remain relatively stable sequentially?
Clarence W. Gooden - EVP, Sales and Marketing and CCO: I think yes. I think you'll see it relatively stable sequentially.
Chris Wetherbee - Citi Investment Research: And then maybe just a follow-up on the utility side, you mentioned that the southern utility stockpiles were still kind of above average. When you think about the overall utility complex that you serve in the U.S., how do you think about stockpiles in general?
Clarence W. Gooden - EVP, Sales and Marketing and CCO: Stockpiles in the north are pretty much at normal levels. Stockpiles in the south are about where they were and they've sort of continued along that line. That's based on both the rate of burn as well as rate of resupply that the utilities are taking on an ongoing basis.
Operator: Allison Landry, Credit Suisse.
Allison Landry - Credit Suisse: I was wondering if you could help us bridge the roughly flat earnings in 2013 with the 10% to 15% growth in 2014 and from a high level are there specific business segments that you see getting materially better next year and I guess what's the risk to this guidance based on the very weak fundamentals that we are now seeing in the export coal markets?
Oscar Munoz - EVP and COO, CSX Transportation Inc.: I think what we said is the underlying the guidance are two basic macro assumptions that coal overall will be flat as we get through 2013 both between domestic and export we think it's going to be flat, we've also said that underlying that guidance of 10% to 15% CAGR and earnings is going to be an economy that is going to grow but albeit at the continuous modest pace. Clearly, export coal has gone weaker but inherence in the inventory overhang that we're dealing with on the domestic side, there is an opportunity perhaps for pickup as we get into 2014 as well. So, I think overall that's the macro assumptions that we have talked about and I think as we stand here today a quarter into the new guidance that we talked about, we still very comfortable with that guidance for 2014 and 2015.
Allison Landry - Credit Suisse: And just as a follow-up switching gears to crude by rail, just given the recent narrowing in spreads, your discussions with customers do you get the sense that eastern refineries have or will possibly switch back to coastal imports if the economics from the Bakken by rail don't necessarily work or is there generally a bias or a commitment to source domestically?
Clarence W. Gooden - EVP, Sales and Marketing and CCO: Allison, this is Clarence Gooden. When we talked to our customers as recently as this week about that, they're telling us is they don't see any significant need to change. Number one, they have commitments to the Bakken. Number two, a lot of the East Coast refineries get their oil off of the West African Coast and that is what's really the driving factor for these guys. So, we don't see any change right now in their behaviors as a result of the narrowing of the spread.
Operator: Justin Yagerman, Deutsche Bank.
Justin Yagerman - Deutsche Bank: A couple questions on coal shockingly enough. Where does Illinois Basin go over time as a percentage of utility coal for you guys from a sourcing standpoint? Where is it now and how much of a positive RPU impact did that have in the quarter, because when I look at RPU versus revenue per gross ton mile, it looks like maybe some of that longer haul had an influence on the RPU side for domestic utility?
Clarence W. Gooden - EVP, Sales and Marketing and CCO: Justin, Clarence again. About two years ago, three years ago 2010, about 12% of our coal originations on CSX were coming out of the Illinois Basin and this most recent quarter about 28%, and most of that coal has displaced Central Appalachian coal which is down fairly significantly. So we see the Illinois Basin continuing to grow over time, number one. Number two, for our southern utilities, Illinois Basin is a longer length of haul, therefore will tend to carry a higher RPU.
Justin Yagerman - Deutsche Bank: So positive mix shift, I mean where do you see that going over time, Clarence? Do you have an idea? 28%, is that kind of what you think the max would be or can it go higher than that?
Clarence W. Gooden - EVP, Sales and Marketing and CCO: It's going to go a lot higher than that.
Justin Yagerman - Deutsche Bank: Then as I think about the domestic coal franchise, you guys in the past have talked about the fact that you had a lot of contracts in Q4, I think 20% to 25% of the book was expiring. As that gets closer, I'm kind of curious because it sounds like you've had some of these conversations already and maybe the contracts are already built in. How much of that's already been addressed and how much of your book is left to repricing? How is that conversation going in terms of putting in the more variable cost structure or pricing structure that you guys have been talking to for a while now?
Michael J. Ward - Chairman, President and CEO: Well, I think the same amount of contracts still have to be finalized because you're correct in your assumption that we're in pretty serious negotiations with people. But we've had a lot of receptivity from a lot of the utilities for the fixed variable pricing. So, it's a learning experience for some to have it used as much as anything.
Justin Yagerman - Deutsche Bank: So, would that mean less liquidated damages on a go-forward basis and probably just more variability in terms of your overall pricing schematic?
Michael J. Ward - Chairman, President and CEO: Well, it's obvious that the fixed variable would obviate some of the need for liquidated damages.
Operator: Thomas Kim, Goldman Sachs.
Thomas Kim - Goldman Sachs: I want just ask you with regard to the long-term outlook and how are you growing the various markets or verticals strategically? Where do you think coal sort of fits in terms of the overall contribution to the mix, let's say in 2015 as the OR basically stabilizes as you say in a similar set of range of 69% or so or high – high 60% range? Thank you.
Michael J. Ward - Chairman, President and CEO: Well, 2015 which I guess is two years from now, I think coal now as we said earlier has stabilized on a sequential basis. I think as utility stock piles draw down in the South, you can see some growth occurring over that period of time and I think it's just too soon to assess what any further EPA regulations would be, because they will certainly have court considerations in those.
Clarence W. Gooden - EVP, Sales and Marketing and CCO: But in the meantime, we'll be growing our other businesses. So as a percentage, coal will probably be at somewhat smaller percentage because we'll continue to grow the intermodal, the crude by rail in the other markets where we have initiatives to grow the revenues.
Thomas Kim - Goldman Sachs: The reason why I asked you is because clearly part of the valuation differential between your good sales and some of your peers is to a good extent related to the coal side and so, and I'm just curious as to what some of your targets or internal set of goals would be to try to mitigate or I should say narrow that differential by addressing some of the market concerns around the coal as you think about the business, much more strategically and longer term?
Clarence W. Gooden - EVP, Sales and Marketing and CCO: I think just clarifying my answer to the guidance before, overall as we work off the 2013 base for the '14 and '15 years, we expect our coal business to be flat between domestic and export. I think that gives you a sense of what the coal picture will look like, and then you add onto Michael's comment around the fact that we do see good growth prospects in many of the other markets. So, that's the underlying assumption of our guidance.
Operator: Tom Wadewitz, JPMC.
Thomas Wadewitz - JPMorgan: A question on export coal, on the thermal side, Clarence, what level of API 2 pricing, European thermal pricing do you think is necessary for your customers to really make money and be sustainably in business, and if you stay at current pricing, which is pretty depressed, do you think it's reasonable to imply that you'd have a pretty significant step down in your thermal exports in 2014?
Clarence W. Gooden - EVP, Sales and Marketing and CCO: Well, let me give you two answers to that, Tom. The first answer is the number as a rule of thumb that we use with what is necessary just to participate in the market is going to be in the mid-80s, somewhere in that number, but to make it sustainable over a long period of time, some of our customers, probably needs to be in mid to upper 80s.
Thomas Wadewitz - JPMorgan: Okay. So then if you, I guess, we can just assume what we want on pricing and then if you're not at that level, then you'd have some impact from the customers in your tonnage?
Clarence W. Gooden - EVP, Sales and Marketing and CCO: Right. That's correct.
Thomas Wadewitz - JPMorgan: Okay. One more question for you, a follow-up question I guess on the crude by rail. I know you were asked this once, but I wanted to see if you could kind of talk about, I think you've got a couple of facilities, maybe two facilities that are scheduled to come online in second half of the year on the receiving side and I'm wondering if those facilities have been – are still on track to start-up for receiving crude by rail trains or whether there's been a delay in those facilities and in your volume expectation related to this spread compression that's been pretty significant?
Michael J. Ward - Chairman, President and CEO: No Tom, both facilities are still scheduled to come online here in the third quarter.
Operator: William Greene, Morgan Stanley.
William Greene - Morgan Stanley: Michael or even Oscar, I'm just wondering if I can ask you a little bit about productivity and cost. So if we look at the second half outlook, obviously still a bit challenged on longer term outlook on coal questionable. So, does it make sense to become now more aggressive on cost sort of, do almost a inflation plus productivity gain in addition to the inflation plus pricing, because it would seem to me that, that's the way to almost ensure outside the macro that you continue to see these goals on the longer term basis that you're targeting?
Oscar Munoz - EVP and COO, CSX Transportation Inc.: Bill, it's Oscar. I couldn't agree with you more and I think that's the path and initiative you've seen us take over many years.
Michael J. Ward - Chairman, President and CEO: And we started the year thinking we gave 130 in productivity, we're now saying in excess of 150. So, we're constantly striving to find ways to drive down the cost and I think the most interesting thing we're seeing as we provide this better service to the customers, it also has very favorable impacts on our cost structure. So, we're going to continue refining those resources and pulling them when they're not required and adding when they're required. But I think Oscar and his team are very focused on the productivity side.
William Greene - Morgan Stanley: Yeah. I guess, I was getting is there a world where you could say cost cutting could become a much bigger part and element to growing the actual earnings of the company as opposed to just kind of waiting for coal and macro to come back.
Oscar Munoz - EVP and COO, CSX Transportation Inc.: I think I would reiterate what Michael said. I think there is a delicate balance between the service we're providing to our customers. Clearly the safety of our employees and the valuation impact that you – which you discussed. And I think we balance all of those very well and I think there is on a good use front, there is a lot of efficiency to be gained in our industry and so in our business and we will pursue that.
William Greene - Morgan Stanley: Yes. Is there any element on CapEx that could come down then, given what the outlook on coal is?
Clarence W. Gooden - EVP, Sales and Marketing and CCO: I think that our CapEx guidance has inherent ability to flex depending on what we think the gross ton miles is going to be within our coal business. So, we have a revenue target out there. As a percentage of revenue in terms of what our CapEx is and depending on what we see with coal that CapEx as you get into '14 or '15 is going to flex, whatever we think that the underlying work load will be.
Oscar Munoz - EVP and COO, CSX Transportation Inc.: I can't underscore the amount of effort and work inside the Company with regards to asset utilization; we term it enterprise asset management about ensuring that the efficiency of our operating network creates such a more fluid environment where it does obviate the need for additional CapEx.
Operator: Scott Group of Wolfe Research.
Scott Group - Wolfe Trahan & Co: So, I wanted to ask first on export met. How much of the business right now is getting replaced on a quarterly basis? So we saw that the benchmark wins and rates dropped about 16%, 17% sequentially from second to third. Does your pricing go down that much? I think historically it goes down a little bit less, I just want to get some color there and may be at a high level if you think you can sustain flattish year-over-year overall coal yields in the back half of the year, given kind of the renewed pressure on met rates?
Michael J. Ward - Chairman, President and CEO: Well, the answer to both questions is yes. Our coal as we've said before, met coal and export coal does move with the market, but it doesn't move as much in either the upward direction or in the lower direction as the coal pricing itself does.
Scott Group - Wolfe Trahan & Co: And that was a yes also to you think coal yields can be flattish in the back half of the year?
Michael J. Ward - Chairman, President and CEO: Yes.
Scott Group - Wolfe Trahan & Co: Okay, great, and then just one on crude by rail, I understand your commentary that you're not seeing any kind of signs of changes in the demand environment. Are you seeing any changes in the pricing environment from you or the rail industry overall where you need to give up a little bit of price given the lower spreads or can you envision a scenario where pricing starts to become a little bit more flexible or get adjusted based on that spread on a quarterly or same period basis?
Michael J. Ward - Chairman, President and CEO: I cannot see such a scenario as that happen and we think we've got our product fairly priced. We think that particularly with the tightness that's in the tank car fleets that the things Oscar mentioned about the asset turns become a selling point and become very important and critical to keep the overall cost structure to the end user down.
Operator: Jason Seidl, Cowen.
Jason Seidl - Cowen Securities: I guess I'll shift gears and talk a little bit about the intermodal business. The hours of service obviously changes just upon the truckload industry and I think all people agree it's going to have some level of degradation of utilization, therefore impacting capacity. In terms of domestic intermodal, what is CSX seeing going forward and what do you expect in terms of a potential volume pickup because of HOS?
Michael J. Ward - Chairman, President and CEO: Jason, I met with two truckers last week and they're not seeing as much impact as some of the people have forecasted. So they're looking at some numbers around 5%. At times as I'm sure you know 5% loss of productivity and as I'm sure you know there has been a lot of projections about much larger impacts on productivity than those numbers. I think it's too early to tell and to people settle down at some type of working pattern of exactly what the impacts going to be. I think the more important thing in intermodal is the value that's being offered to the customers, both in terms of service and in terms of price that's available to them now and a better awareness of the beneficial cargos of what those values are.
Jason Seidl - Cowen Securities: In terms of the pricing, I mean, are you guys going to sort of take a balanced approach to this going forward if there is some impact and some spillover between price and volume?
Michael J. Ward - Chairman, President and CEO: I don't understand what you're asking.
Jason Seidl - Cowen Securities: If you have the opportunity to gain more market share especially in some of the lanes that you can increase your (indiscernible) is this going to be a situation where you're going to go for more volume initially or is this going to be more of a balanced approach and making sure you get properly compensated?
Michael J. Ward - Chairman, President and CEO: It's going to be a more balanced approached. The big thing I hope if we've made any one point here is we're about profitable growth.
Jason Seidl - Cowen Securities: My follow-up question just so I can understand sort of the longer term guidance. When you said that you're expecting sort of flattish coal, so we should assume that the export coal assumptions in the out years are for 40 million tons?
Oscar Munoz - EVP and COO, CSX Transportation Inc.: No, I said overall between domestic and export and obviously as we're looking at the market right now, there is more downward pressure on export and perhaps more upward opportunities on domestic. But we got 2.5 years until that endpoint, so a lot of things will change. There's one thing you know when you put guidance together and underlying assumptions most likely you're going to get there a different way than you originally assumed. So, we're going to continue to do what we do best which is focus on things that we control; safety service, efficiency and inflation plus pricing and we feel very comfortable with the guidance that we put in place.
Jason Seidl - Cowen Securities: When you talk about sort of an upward bias to domestic coal when you look at sort of the southern utility stockpiles, how long do you think it's going to take for them to sort of get where the southern utility starts seeing a decent amount of growth in domestic coal?
Oscar Munoz - EVP and COO, CSX Transportation Inc.: Well, as we said, on the northern part we feel that we're where we need to be in terms of stockpiles. In the southern end we think that by the end of the year thereabouts, we think we should be at a more normalized level.
Michael J. Ward - Chairman, President and CEO: And we would just like to send their heat down south.
Jason Seidl - Cowen Securities: I'll gladly send it, guys. It's going to be a brutal one here in New York. Thanks for the time as always.
Operator: Benjamin Hartford, Robert W. Baird.
Benjamin Hartford - Robert W. Baird: Can you remind us what you had assumed in terms of met and thermal within that 40 million tons targeted at the beginning of the year and where you sit today. And then maybe if you could provide some context as well a lot of discussion about the weakness in both thermal and met coal prices in the export market year-to-date, can you give us any order of magnitude of where that 40 million tons run rate might be presently if it weren't for the contracts that were struck late last year or early this year? Thanks.
Fredrik Eliasson - EVP and CFO: I'm going to leave the second part of the question to Clarence, but this is Fredrik. And I would say in terms of the mix between met and steam in our long-term guidance we have not given any sort of indication what we think that is because there is one thing we know, we do know that it's very difficult to forecast exactly what export coal is going to be and even more difficult is the forecast what the split is going to be between the two.
Clarence W. Gooden - EVP, Sales and Marketing and CCO: And in the current quarter, that was and in the first half it's been 57-43 has been the split to add. And I think our coal team and export team did nothing short of a brilliant job in getting a lot of these thermal contracts particularly in place before this API index has collapsed so much. The met was much more difficult to predict. The Australian dollar against U.S. dollar dropped 9% in the second quarter and that severely impacted the met imports along with the fact that the growth in China and the recessionary tendencies you've had in Europe have impacted those steel-making industry. So it's little hard for us to tell you what it's going to be doing here in the second half other than what we're confident that we've got committed now.
Benjamin Hartford - Robert W. Baird: Is there any context I guess in terms of the order of magnitude of where or how much lower that export coal number would be in total at present prices, I mean would it a 10% reduction, a 15% reduction I mean anything within that context might be helpful?
Clarence W. Gooden - EVP, Sales and Marketing and CCO: I don't have, I just don't know the Australians, they're going to control what happens to that met market in any event and they're probably as about as low as they want to go.
Operator: Cherilyn Radbourne, TD Securities.
Cherilyn Radbourne - TD Securities: I was just wondering if you could give us a bit more color on the impact of mix in an overall sense in the quarter, clearly but still negative but it did seem that maybe it was a little bit less negative than it has been because you did have some decent growth in some of your higher yielding merchandize segments?
Fredrik Eliasson - EVP and CFO: As we outlined in our presentation, RPU was up about 1%. Overall pricing when you include everything was a little bit above 2% on a same-store sale basis. That would indicate about 1% or so of negative mix and that is to be expected as our coal business continues to decline as a percentage of our portfolio and intermodal which is significantly lower RPU continues to grow. So the overall pricing, as you saw, if you take out export coal because that continues to be a drag of course on our pricing overall continues to be very solid right around 4%. So mix is going to be something that we're going to be dealing with for a long period of time, a negative mix as the intermodal business continues to become a bigger and bigger percentage of our portfolio.
Cherilyn Radbourne - TD Securities: Clarence, just wondering if you could offer some thoughts on the peak season and just whether you're seeing the housing recovery translate into any kind of a ripple effect into things like furniture?
Clarence W. Gooden - EVP, Sales and Marketing and CCO: Actually, what we've seen in the housing impacts has not been an impact on furniture. There was a lot of inventory, for example, for appliances, a couple of the major manufacturers, and we've seen that inventory actually drop as the housing starts have increased. What was your first part of your question? The phone went out.
Fredrik Eliasson - EVP and CFO: Peak season.
Michael J. Ward - Chairman, President and CEO: Peak season. I'm not sure I know if we're going to have a good peak season or just an average peak season and average being defined as what peak has been over the last few years. We'll certainly start to get an indication of that toward the end of this month, July, because a lot of the shipments that will be in the back to school area that will get ready for the holiday seasons and all stock here in early August, so we'll be able to tell by the lift in the vessels coming out of Asia what that peak is going to look like.
Operator: David Vernon, Bernstein.
David Vernon - Sanford C. Bernstein: Can we talk a little bit about the strength in domestic coal pricing, how much is that due to the move to fixed and variable pricing with utility equities right now?
Michael J. Ward - Chairman, President and CEO: Well, I would say that not a lot. It's been mostly impacted by the overall pricing to lost fee that we had about 20% of our revenue right now is covered by the fixed variable. So most of it has come off of either the escalators or renegotiated contracts.
David Vernon - Sanford C. Bernstein: So that 20% of the revenues move in on the fixed and variable, would that be including a bunch of fixed charge or was that sort of an average rate? I'm just trying to get a sense for how the RPU should move as volume flexes?
Michael J. Ward - Chairman, President and CEO: In this quarter, there's been no real material impact.
David Vernon - Sanford C. Bernstein: Okay. And then just one last question, Clarence, the IP numbers you guys put out on the macro side look like they're down a little bit, about 60 bps. And the general balance of the commodity outlook seems a little bit more favorable, is that just ag or are you hearing some more on the industrial side that would lead you to believe the cut in forward IP numbers is probably unwarranted?
Clarence W. Gooden - EVP, Sales and Marketing and CCO: Are you saying – ask me that again. I didn't understand it.
David Vernon - Sanford C. Bernstein: I looked at the industrial production growth rate which you guys add in the first quarter or second quarter and they're down about 60 bps?
Clarence W. Gooden - EVP, Sales and Marketing and CCO: Industrial products?
David Vernon - Sanford C. Bernstein: Yeah, industrial production, sort of the macro outlook, right?
Clarence W. Gooden - EVP, Sales and Marketing and CCO: These numbers are coming out of global insights and it's interesting to listen to this as we decide to do all the time about the IDP and the GDP numbers. Whatever some of these agencies predict they're going to be, I know they're not going to be that. I think the industrial growth has been a bit little bit stronger than what's some of these numbers have indicated here and for our business, it's certainly shown up in some of the construction materials that we had as oppose to the paper side of the business it's strong in our automotive business. It's not as strong in our steel business as we think it should be. But it looks to me like we're going to continue to have growth in the IDP numbers as we move forward.
Oscar Munoz - EVP and COO, CSX Transportation Inc.: And I guess Clarence what housing starts last year, we were about 780 or we think that might be in the 950 range. So, it is growing but from a very low pace because our normalized rate is more like 1.5 million at the peak, it was 2.5 million. So, we're seeing some growth there but from a real small base and I guess secondly at least at this point, there was a good planting of crop. So, we're hopeful that towards the end of the third quarter, we're going to see some very good growth in our ag shipments which have been down for the first half.
Operator: John Larkin, Stifel Nicolaus.
John Larkin - Stifel Nicolaus: By the way, there are some housing numbers out this morning you may want to check on that down 9.9% in June. Just as information that was a surprise to many people I think. First question, the incentive comp I think Fredrik you said it was up $24 million year-over-year. How do you reconcile that with the outlook for a flattish year in terms of EPS year-over-year?
Fredrik Eliasson - EVP and CFO: Yeah, I think really you've got to go back to last year when we set our plan for 2012 was really done in December. We had obviously anticipated 2012 to turn out to be very different than – (indiscernible) 2012 that was a very different coal environment, and as we moved through 2012 we took down our incentive compensation quite significantly and we also now have a much larger part of our unions participating in that incentive comp plan. So, as you get into 2013 and you reset the targets to properly motivate and incentivize your employees that headwind becomes a lot more significant and that's what you're seeing this year.
John Larkin - Stifel Nicolaus: Roughly how much of that incentive is related to the unionized labor force?
Fredrik Eliasson - EVP and CFO: It is relatively a large percent, but I don't have that here, but it's something that's been going on over the last couple of years.
John Larkin - Stifel Nicolaus: Then just on the large accident that unfortunately happened up in Quebec involving a crude by rail train, often regulators will if nothing else in a knee jerk reaction put in place some pretty onerous regulations, we saw that with the PTC mandate. Did you see anything like that coming out of that accident across North America and will that make it more expensive to move crude by rail and therefore less attractive vis-a-vis say a pipeline?
Michael J. Ward - Chairman, President and CEO: John, this is Michael and first off we just want to express our condolences to the people there in Quebec, I mean it was a terrible accident and the first responders did a great job of responding to that horrible accident. As you know, they're still investigating what the cause of it is, and I think until the cause is known it's a little hard to speculate whether there would be additional regulations or not. As you're well aware we moved these because we're a common carrier and we have a very good record of safety in handling these products. So I'm hopefully that as they determine the cause of this if there's something to be learnt to make us safer we want to learn from that because our ultimate goal is zero. We have a great record now we want it to be better. So I think until there is a causation here, it's going to be a little difficult to see whether there will be a push for further regulation or not.
Operator: Matthew Troy, Susquehanna International.
Matthew Troy - Susquehanna International: I think there's a question on coal economics, obviously exports have been kind of the perceptual albatross if you will for your story, and now for about two years they have been poised to drop, now that we're seeing that I was just wondering you implied flat guidance next year in terms of volumes but there's negative mix. What's the profitability relationship between exports and domestic? Some folks will say 2, 3x is profitable, but an export move versus domestic I think that's crazy, but if you can just help us in terms of what that negative mix shift might mean for profitability of coal as a whole that might help alleviate some concerns in the market about the decline in export tonnage?
Fredrik Eliasson - EVP and CFO: Yes, I'd say that in the past, products was taking – this is Fredrik by the way – products taking some of these rate reductions in our export portfolio, we would have said if you combine the met and the steam together on the export side, and you compare with domestic, they are relatively similar. Now with some of the reductions that we've had to make on the export side, I will say that perhaps the domestic portfolio is slightly more profitable. So, from that perspective at this point, it's not a bad thing. Overall, obviously coal is a profitable business for us because it's a very efficient way of moving things unit train that's a conveyor belt. So, it is not as big of a deal as perhaps some people might think.
Matthew Troy - Susquehanna International: The second question I had simply relates to intermodal capacity. You talked about the percentage of your traffic that's falling into double stack lanes, moving up into 2015. In terms of train length and some of the yard and asset productivity initiatives, what's the capacity to grow just average train length, where we know those incremental margins for the last cars at adding are pretty significant?
Clarence W. Gooden - EVP, Sales and Marketing and CCO: This is Clarence. Matt, I think it's fairly significant, we still have plenty of capacity as the length of the train, and to fill them up in the air, so it's a positive thing for us.
Operator: Jeff Kauffman, Buckingham Research.
Jeff Kauffman - Buckingham Research: Given the weaker global outlook on API 2 and you had mentioned the Australian exchange, these aren't things likely to turn on a dime, yet you maintained the 2013 to 2015 guidance, so something else I'm assuming got a little bit better to offset this, what would that have been?
Fredrik Eliasson - EVP and CFO: Well, Jeff this Fredrik. Overall, I would say that the reason why we took the guidance up for 2013 was really what happened here in the second quarter. We had several onetime events that got a little a bit better than we expected and that's the foundation obviously then also for our long-term guidance. So, clearly the export coal market has gone a little bit weaker, but we continue to execute very well on the things that we do control which is what we're focusing on once again, safety, service, efficiency and inflation plus pricing and that's what gives us confidence to take up guidance slightly and really is a reflection more of what happened here in the second quarter than anything that's going to happen in the second half. The second half is still going to be very challenging consistent with the points that I had in my prepared remarks.
Jeff Kauffman - Buckingham Research: Okay, I'm sorry Fredrik. What I meant was not 2013, but kind of the 2014, 2015 view. If we're thinking the export markets could be weaker in 2014 what else got better to kind of keep the consistent 10% to 15% to 2015 view?
Fredrik Eliasson - EVP and CFO: So, two things; first of all what we have said here is that overall coal, we expect to be flat, and so I'm not sure the domestic coal necessarily has gone stronger during this last quarter since we issued the guidance originally. But where we're comfortable with is the fact that we're continuing to execute well and then second, in our guidance is a range of 10% to 15%. So within that range we're definitely more feel comfortable that we would be able to deliver our earnings growth according to that guidance.
Michael J. Ward - Chairman, President and CEO: And Jeff, this is Michael. The only thing I would add to that, is we have especially on the last couple of years, seen there is a lot of volatility in the market place out there but with the economy, the energy environment and it starts to feel like two and half years is a long time and many things happen. So where we're trying to position ourselves for whenever there is opportunities we're making sure we're flexible there. I mean if you think back three years ago, who would even been talking about crude by rail. So there is a lot of things that can move around in a two and half year period.
Operator: Justin Long, Stephens.
Justin Long - Stephens: A quick question. Outside of export coal, would you say that core pricing gains right now are pretty consistent among your different end markets or are you seeing any particular areas of strength or weakness? And you've touched on intermodal a little bit earlier but right now what would you say the pricing dynamics are in that market given some of the capacity expansions we have going on in the east?
Clarence W. Gooden - EVP, Sales and Marketing and CCO: Justin, this is Clarence Gooden. Our pricing has been pretty consistent across all of our lines of businesses. There's been a couple that obviously have one point or so better than others. Our intermodal pricing is always under a lot of intense pressure not only from other rail competition but the real competitor is the highway and is the trucker. And there's still a lot of trucking capacity out there, there's still a lot of unused trucking capacity that we see, so the pricing pressures that remain in intermodal remain from the highway and is probably one of our more difficult markets in which to price in, but the others are pretty consisted across the board. We feel very confident what we can get the inflation plus pricing.
Justin Long - Stephens: And as a quick follow-up, on your guidance for 2013 EPS to be roughly flat, year-over-year. there have been some gains and one-time items over the last year. So, I was wondering if you could clarify what you are using as both the base EPS number for 2012 as well as what you are using for the first two quarters of this year?
Fredrik Eliasson - EVP and CFO: So, the base that we have is $1.79 is what we had in 2012, so that's really what we are saying roughly flat, that's what we are expecting against. And you are right, we've had a fortune for – of several one-time items on our expense side and also of course had the liquidated damages, so the topline that helped us into first half which is why the second half is going to be more difficult than the first half, but the base is $1.79.
Justin Long - Stephens: And for the first half of 2013, what EPS numbers are you using there, are you using the GAAP numbers?
Fredrik Eliasson - EVP and CFO: Using the reported numbers.
Operator: Keith Schoonmaker, Morningstar.
Keith Schoonmaker - Morningstar: You mentioned the proportion of domestic coal (originating) in the Illinois basin, I think is doubled from 2010 levels. Other than a longer length of haul, are there aspects of this business that either benefit or constraint productivity or price, for example train length, car type, lower grade etcetera?
Clarence W. Gooden - EVP, Sales and Marketing and CCO: Keith this is Clarence Gooden. We know there are no other constraints.
Michael J. Ward - Chairman, President and CEO: It's a good move for us.
Clarence W. Gooden - EVP, Sales and Marketing and CCO: It's a good move for us.
Keith Schoonmaker - Morningstar: And are there more fixed variable contracts structures in this regions or is there no structural pricing difference?
Clarence W. Gooden - EVP, Sales and Marketing and CCO: The fixed variable is with the end receiver, so it's depending entirely on where they receive their coal from.
Keith Schoonmaker - Morningstar: Great, thank you.
Michael J. Ward - Chairman, President and CEO: So, it's Illinois Basin or Central App, either one.
Operator: Walter Spracklin, RBC Capital.
Walter Spracklin - RBC Capital Markets: Just a quick question on intermodal, I know that's been a big part of your underlying growth driver and I think it perhaps is getting a little dropped off in terms of context given coal. So, you've invested a lot in your intermodal network. You've talked a lot about that 9 million loads that are available in truck. When you look at your 4% domestic growth this year, is there any way to disaggregate where you're getting that growth in terms of success of converting? Then the follow-up to that is, let's just say it starts coming on line a lot quicker than you expect. Where is the next bottleneck? I know you've done a great job double stacking. You've got plenty of capacity on an average train length basis. If it really starts coming on line, where will we see the next bench point?
Michael J. Ward - Chairman, President and CEO: Walter, I would say the biggest growth has come vis-a-vis our channel partners from the beneficial cargo owners themselves, being able to say what the value of intermodal is and we have a pretty good handle around who those customers are and what some of their needs and all are. I think we've looked, in terms of where we could have potential capacity problems in the future going forward, so you've heard us mention in the prepared remarks number one, we've already got in the planning to expand our Northwest Ohio hub. We're looking at where we could have potential bottlenecks in the Southeast because there's a lot of growth both in terms of population as well as in terms of highway conversions in the Southeast.
Clarence W. Gooden - EVP, Sales and Marketing and CCO: We are expanding them now, right.
Michael J. Ward - Chairman, President and CEO: We're expanding that line as we speak. As you know we built our loadable terminal way of capacity over the capacity that terminal load will fairly quickly and so we had to get in and expand that pretty quick. As the Florida market is continuing to grow we had the foresight to get into the Winter Haven market on early basis. So, we feel like we are pretty well positioned in terms of capacity for intermodal growth.
Walter Spracklin - RBC Capital Markets: And segregating that 4% growth, how much would you attribute to that to conversion or your customers winning market share. And how much is it just simple growth or gaining market share against your rail competitor?
Clarence W. Gooden - EVP, Sales and Marketing and CCO: It's difficult for me to segregate that to be honest with you.
Operator: This concludes today's teleconference. Thank you for your participation in today's call. You may disconnect your lines.