Greetings and welcome to the Kansas City Southern Second Quarter 2012 Earnings call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star, zero on your telephone keypad. As a reminder, this conference is being recorded. This presentation includes statements concerning potential future events involving the Company which could materially differ from the events that actually occur. The differences could be caused by a number of factors, including those factors identified in the Risk Factors section of the Company’s Form 10-K for the year ended December 31, 2011 filed with the SEC. The Company is not obligated to update any forward-looking statements in this presentation to reflect future events or developments. All reconciliations to GAAP can be found on the KCS website, www.kcsouthern.com. It is now my pleasure to introduce your host, David Starling, President and Chief Executive Officer for Kansas City Southern. Mr. Starling, you may begin.

Thank you. Good morning and thank you for joining us for Kansas City Southern’s second quarter earnings presentation. Joining me today will be Dave Ebbrecht, EVP of Operations; Pat Ottensmeyer, EVP of Sales and Marketing; and Mike Upchurch, EVP and Chief Financial Officer. Also joining us by phone this morning is José Zozaya, President and Executive Representative of KCM from Mexico. If you go to Page 5 on the overview, I’m going to keep my opening remarks brief and let Dave and Pat and Mike get into the specifics of the second quarter. However, I would like to say our profit in the face of the lower than anticipated utility coal carloads, some foreign exchange headwinds, and an uncertain economy, KCS had a good quarter and in certain areas a very good quarter. That we set second quarter records for revenues, carloads and operating incomes speaks to the overall strength of the KCS Rail franchise and underlines the fact that our growth story is very much intact, and that our key growth areas gained significant momentum. For example, look at our cross-border intermodal business. In 2011, cross-border intermodal carloads increased by 56%. We were very impressed by that until the first quarter of 2012 when carloads increased by 78%. Again, we were impressed with this growth until the second quarter when the year-over-year volume growth hit 106%. It’s very exciting to see the percentage growth nearly double from 56 to 106% as the base actually gets larger. This growth is extremely important for us for a number of reasons. First, it validates what we have said for a while now – there’s a huge market for a premium intermodal product between the U.S. and Mexico, and that market will continue to grow. KCS is in the enviable position of being…

Thanks, Dave. Turning to Slide 9, I want to start out by emphasizing the importance of our safety efforts at KCS and the value it has provided for the Company. We’re very proud of the recognition of our best-in-class safety award of May. Not having injuries, not having accidents and not having derailments is not only great for our employees and the public, but it also adds value to the bottom line. Our injury claims are down 43%, total liabilities down nearly 60%, and our total casualty expense is down 60% compared with the same period in 2008 when we had higher headcounts and higher train activity. Recognizing that the cost of failure in our business can be expensive, we continue to improve our standards in the future and ensure safety is at the forefront of every decision. Turning to Slide 10, I would like to re-emphasize our consistent ability to control costs. As you can see, ops costs, which is the bottom red line on the chart, has remained largely flat over the past three years as we have experienced a significant increase in line haul revenue. Our judicious expense management and cost control in these areas continues to be a major driver of our OR improvement. On Slide 11, you can see our headcount controls are still improving with growth. As I stated last quarter, we would see as seasonal dip in this efficiency metric due to the 13,000 less carloads shipped from the fourth quarter to the first quarter, but it would return to greater efficiency in the second quarter as carloadings improved. We still expect our efficiency to trends upwards throughout the year as our headcount will remain relatively flat in the future. On Slide 12, you can see our operating metrics continue to remain in a very good range for the second quarter. Velocity continues to be strong, averaging above 27 miles per hour. Dwell and car efficiency showed very good trends of fluidity with the increased volume handled. A slight uptick in maintenance away slow orders is due to the heavy maintenance away activity on the Shreveport and Saltillo subdivisions, but the slower track speed has had no material impact on velocity and dwell. Our main message from operations is that we will continue to scale costs well below volume and revenue growth projections. Now I’ll turn it over to Pat for sales and marketing.

Good morning, everyone. I will start my comments on Slide 14, which shows revenues, volumes and RPU by major business unit. As you can see overall, revenues were 545.3 million, a record for any second quarter and 2% above last year. Volumes increased by 4%, average RPU declined slightly, which was a function of mix. As you’ll see later, the very rapid intermodal growth had impact on that revenue per unit. As you’ll also see in a moment, adverse foreign exchange movements reduced our revenue growth by about 3% during the quarter. I’ll go quickly through the business unit details. First in the chemical and petroleum business, as we explained last quarter, one of the major contributors to the decline was the loss of one petroleum move due to a dispute between one of our customers and one of their shippers. This impact continued in the second quarter and represented about 3 points on volume and revenue for this business. This customer is beginning to gradually return in the third quarter, and the comps for the rest of the year should be pretty positive in this business. The industrial and consumer growth was driven largely by strength in metals and paper. It’s worth noting that we saw some strength in our lumber and building products business during the quarter, still nowhere close to where it was a few years ago but the trends certainly look good. Ag and mineral revenue and volume were lower than last year, due in part to tough comps as the second quarter of last year was the best ever in this business. Additionally, we did lose some cross-border business: a corn syrup move that went through a facility that we don’t serve, and then another loss of a cross-border customer due to an explosion at…

Thanks Pat, and good morning everyone. I’m going to start my comments on Page 29. Pat’s already covered revenues, so let me focus on operating expenses and a few of the below-the-line expenses. Operating expenses in the quarter did include the benefit of a reversing a net deferred liability resulting from an organizational restructuring, and as we previously reported during our first quarter call, the net benefit results from the reversal of our profit sharing liability and represents a one-time credit of $43 million, which is net of transaction costs. On an adjusted basis, year-over-year operating expenses were essentially flat, and I’ll provide you with more color on that in the next few slides. Interest expense declined to 25.3 million or a reduction of 22% year-over-year, and since our peak annual interest expense back in 2009 we have been able to reduce interest by approximately $74 million, a more than 40% reduction. We did experience a $3.5 million foreign exchange loss during the quarter as a result of the peso deterioration. The FX rate was 12.8 at March 31 and closed the second quarter on June 30 at 13.7. We incurred a $5.9 million charge for debt retirement costs which relate to the refinancing of our 8% notes, and as a reminder, the annual interest expense savings from that refinancing we expect to be about $17 million, and we should exit 2012 with interest expense of about $100 million. Income tax was 53.1 million in the quarter for an effective rate of about 31%, and I’ll explain our lower than expected tax rate in more detail in a few slides. Reported EPS was $1.09, and that does include the one-time deferred liability reversal of 43 million and a $5 million debt retirement charge; so on an adjusted basis, our EPS…

Thanks, Mike. If you’ll turn to Slide 37, I’ll talk about Panama Canal Railway (inaudible). There were some labor issues at the Pacific port in Panama. There was a strike. It was resolved, and then there were a few days of strike again. That’s now been resolved, but it did affect volumes and create congestion in the port, which we are currently sorting out. Our run rate is already improving in this quarter. As you can see, it caused a slight deterioration in the operating ratio down to the low 50s – still, not a bad performance. In the closing remarks, I’d like to end with just a couple of comments about our immediate and long-term future. While we don’t profess to have any special ability to predict the economy, it feels to us that the second half of 2012 will be okay. There is certainly a fairly high degree of uncertainty out there, and while the majority of our customers think they’ll experience some level of growth in the back half, everyone is being very cautious. Though hardly a valid sample size, our carloadings through the first few days of July would suggest our customers are correct and that business will be okay. It certainly appears that the worst may be over this year as Pat spoke about coal. Of course, right now with the blistering heat in our region, the coal burns are quite good. We’re going to have to wait to see where natural gas prices are later in the year when temperatures moderate. Currently, natural gas pricing is moving toward a level which would make PRB coal price competitive, but we’ll have to see how that market develops over the next few months. The rest of our commodity groups look like they’ll be fine, and in…

Thank you. We will now be conducting a question and answer session. [Operator instructions] Our first question comes from the line of Bill Greene with Morgan Stanley Smith Barney. Please proceed with your question. Bill Greene – Morgan Stanley: Yeah, hi there. Good morning. You know Dave or perhaps Mike, just a couple of questions around some of the labor stuff. We have the new labor deal. I thought it was going to have a bigger impact on the P&L, the way we view the labor expense, but maybe I didn’t understand that. And within that, can you talk a little bit about maybe the productivity because, Dave, I think you mentioned the industry-leading productivity, but how much better can that get? What annual were in you in there?

Dave, do you want to start with the productivity?

Sure. On the productivity side, our headcount controls will continue to be flat, and we still have a lot of latent capacity within our train network, especially in Mexico, to grow within our current structure. So I don’t see any degradation at all in the productivity, and we’ll continue to see modest gains as our growth continues.

And Bill, this is Mike. With respect to what you may have had in your models for second quarter, I think it’s remarkable we kept our overall comp and benefits expense pretty flat on a year-over-year basis, and the guidance I gave for the full year is that our comp and benefits would only be up 2% and that has to cover certainly volume increases and inflationary cost pressures. But I think a combination of the efficiency that Dave talked about some of the reductions in our overall incentive-related expenses that we’ve already covered really help. And keep in mind that we took the credit all in a single line item, so it didn’t all run through comp and benefits. Bill Greene – Morgan Stanley: Okay, okay, got it. And then Dave Starling, your last comments just about your forward outlook, when you’re referring to growth, were these comments largely focused on volume or was that sort of an earnings comment? I just want to make sure we interpret what you’re trying to say there correctly.

Well if Pat does his job properly, we better have the revenue with the growth! No, I mean, when you get into the automotive industry and the growth in the intermodal, we certainly see volume growth, but with that, good revenue growth will go with it. And I think our ability to continue to leverage the network and the efficiencies we have are going to still make that bottom line look even better. I mean, we’re still able to onboard more volume at a very good margin. Bill Greene – Morgan Stanley: The incremental should keep these sort of levels we’ve seen, in other words?

They should. Bill Greene – Morgan Stanley: Okay. All right, thanks for the time.

Thank you. Our next question comes from the line of Chris Wetherbee with Citigroup. Please proceed with your question. Chris Wetherbee – Citigroup: Hey, thanks. Good morning. Maybe just a question on the cross-border intermodal. I think you mentioned that it’s up 5X from the opening of the Victoria Rosenberg extension there. I guess I just wanted to get a sense, first of all, kind of what you think the potential capacity is – you’re expanding your reach further into the U.S. – as far as incremental volume growth as we go forward.

Chris, this is Pat. Your question is what capacity issues do we expect to have? Chris Wetherbee – Citigroup: Do you have capacity issues going forward, or what is the level of capacity you might have for further growth?

We’ve got a lot of capacity in terms of space on the trains we are running today. One of the things we’ll have to do as we continue to extend our reach and increase the volumes over our gateways is add service, but we try to really stay ahead of that both in terms of terminal capacity, network capacity. You know, look three or four years out – you’re familiar with some of the investments we’ve made in the terminals in Mexico. That’s all with an eye toward looking at our volume projections and the increases, and staying well ahead of any potential bottlenecks, whether it’s locomotive, whether it’s line capacity, whether it’s terminal capacity, chassis’. You know, there are a lot of things that could provide bottlenecks, and we try very hard to understand where are all those are and make sure that we’re ahead of them as we bring the volume on.

Chris, this is Dave Starling. Let me give you just a couple of examples. We talked about how we model the capacity and continue to expand. We’re already pulling our 2013 expansion at the Monterey facility into 2012 because of the volume growth. We are in the second year of laying 136-pound welded rail between Laredo and Monterey – that’s a four-year project. We can accelerate it if we need to, but that will give us a 79 mile-an-hour railroad between Monterey and Laredo, so we are very consciously continuing to expand. Our commitment to Pat is, it’s there, fill it, we’re not going to restrict it. So we’ll continue to spend the money necessary and have the focus on that corridor to make sure we can handle the growth, because a lot of that growth, the automotive growth, will be in that same corridor. Chris Wetherbee – Citigroup: Okay. And so it sounds like that has the potential to lend itself to existing train starts, at least for the time being, so that the space is available on the existing trains that you’re running as opposed to incremental train starts for the most part?

Pat has more space to fill. Chris Wetherbee – Citigroup: Okay, fair enough. And then one quick question on the auto side – you just mentioned about the fact that most of that is currently running kind of on the Mexico specific side of the network. I guess what are the barriers to extending that into the U.S. and really doing it on a cross-border basis? Is it just waiting for existing contracts to kind of renew, or is there anything else to think about there as far as allowing that business to flow across the border more freely?

The primary gating factor is contracts. I mean, it is—the bulk of that business is under contract. Obviously when we look at the three new plants or four new plants that are being built, there are no contracts; so in that case, it’s a matter of getting those plants up and running and producing. That cross-border business will be available to us when those plants open, but a lot of the automotive business is locked up under contract and another piece of it is just continuing to improve the service options and getting the service together to get to the markets that we need to serve beyond just the KCS network. But the shortest answer and the best answer, really, is that business is locked up under contract, in some cases out to 2017.

And in some cases, some if it is actually up for bid as we speak.

Correct. Chris Wetherbee – Citigroup: All right, so it’s a rolling process.

That’s right. Chris Wetherbee – Citigroup: Great. Thanks for the time, guys. I appreciate it.

Thank you. Our next question comes from Ken Hoexter with Bank of America Merrill Lynch. Please proceed with your question. Ken Hoexter – Bank of America: Great, good morning. Just trying to dig into your decreased revenue outlook a bit. Can you walk though—are the utility customers now accepting coal again? Is that issue—you know, the two plants that had stopped for a while, can you walk us through an update on that?

Yes. Every utility we serve is now taking coal. Some of them still have very high stockpiles in spite of the fact that the heat is really causing the plants to all run at pretty high levels. But every one of our plants is now taking coal; and again, at the risk of being wrong twice, I’m just telling you exactly what we’re hearing from our customers, and what we’re hearing is that they expect—probably the best chart in the deck, in my opinion, is the one that shows the average daily carloading for the coal business. You can see how far that fell off in March, April and May, and where it’s come back to. And what we are hearing is that the expectation is that we will be in that sort of high 600, low 700, the range that you see in June and July for the rest of the year.

I might add, too, that we have one coal customer that their contract will be up for renewal at the first of the year, so they’re expecting a rate increase and we expect them to have as much coal delivered as they can possibly stand between now and the end of the year. Ken Hoexter – Bank of America: Okay. And then can you talk a bit about yields, kind of the optics of mix shifts that you experienced through the quarter with the growth of intermodal autos. You know, compare that will what you expect on the underlying—you know, just again trying to dig into this decreased revenue outlook.

Ken, really I’ve said it, and if you look at the two slides – and I don’t want to oversimplify it, but the decreased revenue outlook for the year is a function of the energy business. Every single business unit, if you go back to the first quarter presentation that we gave you, every single business unit other than energy, the outlook is exactly the same as it was at the end of the first quarter. Obviously the peso has an impact, and fuel; but as far as the core business, the only one that has changed from what the guidance we gave in the first quarter is energy. Ken Hoexter – Bank of America: So Pat, on that, are there corresponding costs that you can pull out as well, or is it moving equipment around that? How can you—

That’s the other thing, and I guess going back to—before I forget. I mean, you saw revenue per unit decline. We’ve kind of been saying this for the last couple of years that you might see some odd things happening in our revenue per unit as our intermodal business grows. And you understand, the RPU for the intermodal is different that it is particularly for coal, where what you saw happening in the second quarter was a huge kind of flip between coal and intermodal which drove the outcome in the RPU. We don’t think of revenue per unit as yield. You guys talk about it as yield – we really don’t think of it as yield because of the way the mix is going to change that. So we’re getting increased yields in intermodal as we add more containers to the train. That basically falls almost 100% to the bottom line, so as we build density and we build capacity on those intermodal trains, the profitability impact is going to be very positive. On the coal side, again, to see the kind of drop-off we saw in the coal business during the quarter and still show the kind of operating ratio improvement, and we’ve also talked about this – as you know, how the coal business runs, it’s all unit trains and the equipment in our case is—100% of the equipment is privately owned, so we don’t pay that cost. When we have the kind of reduction that we had in the coal business, unlike general merchandise or even intermodal, we have an immediate cost avoidance in terms of fuel, crews, locomotives, everything else, so the scaling that Dave Ebbrecht talked about in terms of the lost coal business is probably better and more immediate than it is in any other business unit. Ken Hoexter – Bank of America: Very helpful.

And Ken, again – this is Mike Upchurch. Just to make one additional comment, despite the challenges in volume and on the coal side of the business, we improved our operating ratio on a year-over-year basis and sequential basis. That should tell you something about the ability to manage the costs. Ken Hoexter – Bank of America: Certainly. Thanks, Mike.

Thank you. Our next question comes from the line of Kevin Crissey with UBS. Please proceed with your question. Kevin Crissey with UBS, your line is live. I’m sorry. Our next question comes from the line of Jeff Kauffman with Sterne Agee. Please proceed with your question. Jeff Kauffman – Sterne Agee: Thank you very much, and thank you for clarifying the tax differences with the peso so clearly. Wanted to ask two different questions. The first is we’ve had record heat in a lot of your service regions. How does excessive heat affect your ability to operate?

Well the excessive heat, first of all, creates some conditions on the track with the rail temperature that we do have to monitor and we have to patrol ahead of some trains in some instances where we have to take precautionary measures. Other than that, the excessive heat does not pose immediate threat as far as just pure train operations, other than from a safety aspect of keeping the crews hydrated and making sure that we are conducting a consistent and safe operation. Jeff Kauffman – Sterne Agee: So maybe run slightly lighter, slightly slower?

Well, we do have heat orders where the track heats up, then we will place heat orders on those when the rail temperature’s in a certain range, until we can verify the track is stable. And when it stays above that temperature, we’re able to take those off; but we do go through a transitional period where we do have to run slower, especially down on our Laredo sub and sort of our hotter areas during that transition period.

This is Dave answer. I think one answer would be if you look at our service metrics today, you have not seen a deterioration, even with the consistent high heat. Jeff Kauffman – Sterne Agee: No, that’s what I was referring to. I’m a little surprised by that, but that’s great. A second quick follow-up is grain. You know, with the corn crop at 31%, I think you alluded to looking okay but let’s watch this for the second half. What percentage of your grain business is cross-border today?

Oh, I have that handy here. It’s a large portion of our business. It’s probably in the high 40% range, close to 50%. That’s by far the biggest segment of our cross-border traffic today is grain. Jeff Kauffman – Sterne Agee: Okay. And if for whatever reason the yields are poor—I mean, high corn prices are great for the farmer, but that’s going to be bad for volume later this year. Is the volume more at risk going to be the chickens in Arkansas or is it going to be more the cross-border grain moving down to Mexico?

Well, I wouldn’t say that there’s a different risk factor in either of those, but the thing we kind of believe about our grain business is because so much of it is based on human consumption, people will still want to eat and chickens will need to be fed, that what might happen even if prices are on the rise, that we have to draw from a broader region. But our end consumers will still need the grain, and we think that gives us a little more stability in our business than might otherwise be the case if we were selling into the world market and the prices would push that U.S. grain out of the market. Jeff Kauffman – Sterne Agee: Okay, well thank you and congratulations.

Thank you. Our next question comes from the line of John Barnes with RBC Capital Markets. Please proceed with your question. John Barnes – RBC Capital Markets: Hey, I want to follow back up on Jeff’s line of question around grain. Am I thinking about it right, if grain was to be weaker in the back half than expected because the crop yields come in light, is it similar to your coal franchise in that a lot of this stuff runs in unit trains, and if the volumes were to come in lighter, you could more aggressively attack the cost structure around that than if it was weakness in your general merchandise business?

Yes. I mean, all of our cross-border gain moves in shuttle service, which is very similar to the coal business. The only main difference would be the equipment cost, the car costs. We own a large percentage of our grain cars, which is different than the coal business, so our cost avoidance would not be exactly the same, but fuel, crew, locomotives – all of that, we would stop immediately. John Barnes – RBC Capital Markets: Okay, very good. And then going back to your comment around capital expenditures, I think you highlighted that you expected to still run at a similar pace or percentage of revenue that you’ve seen in the last several quarters. I’m just kind of curious as to is there a cliff that you’re finally getting to, or are you getting closer to maybe completing a lot of the projects that would have kept that elevated, and what we’re seeing now is that number still is up there because you are pulling forward? What I’m asking is, are we getting to a point where maybe that begins to ramp down by a couple of percentage points and we start to see more free cash flow generation?

That’s a CEO question – I’ll take that one. You know, we are long-term players. We’ve been in this business 125 years, and we owe it to our customers to have a good railroad. We owe it to our customers to have plenty of capacity for their expansion, and with the growth story that we see for our railroad in 2013 and 2014, the worst crime we could commit for a shareholder or our customers is not have the capacity to handle it. So I do not see us backing off of our 17 or 18%. We’ll continue to have the 10 to 11 for maintenance, but I think capacity expansion with our growth story is always going to be forefront in my mind of making sure that we have the capacity to grow.

Hey John, this is Mike Upchurch. I know you made a mention on free cash flow and generating more free cash flow. I might just make one clarifying comment there – while we reported 57 million for the year, and you may be looking at our investor report and see 92 there a year ago, I think it is important to understand that we initiated dividends this year, which we didn’t have last year, so that may have negatively impacted some comps. We also did a $23 million lease buy-out, and then a year ago of the 92 million, we had 30 million related to insurance recoveries sitting in there. So when you kind of look at it on a run rate basis, we’re really over 100 million year-to-date and about 60 a year ago, so that’s a pretty substantial increase in free cash flow. John Barnes – RBC Capital Markets: All right. Thanks for the clarification there.

To go back to specify the answer to the question on cross-border, it is 48% of our total ag and mineral line haul revenue cross-border.

Thank you. Our next question comes from the line of Anthony Gallo with Wells Fargo Advisors. Please proceed with your question. Anthony Gallo – Wells Fargo: Thank you. Good morning. First, a housekeeping question, a bigger picture question. Mike, what was the effective tax rate that you used in the $0.85 adjusted EPS number?

We used the statutory rate there. Anthony Gallo – Wells Fargo: Which was what?

About 38% or so on, you know, combined state and fed. Anthony Gallo – Wells Fargo: Perfect, thank you. And then a bigger picture question here, and I appreciate the encouraging comments you gave with respect to all the organic growth opportunities, which we certainly buy into, and the encouragement that you find in your customer discussions about a decent second half. But can you just remind us the two or three things that you watch internally and how quickly you can make adjustments to the extent that the macro picture deteriorates from here? Thank you.

I would say the most important thing we look at—you know, obviously in the coal and grain business, we kind of talked about that, and we get pretty good visibility from our customers what to expect. But I think the most important thing is feedback from customers, and we really try to keep our fingers on the pulse and actively engage in dialogue and outlook. When we do our forecasting and projections, we do it based on customer-specific. The top 200 customers in U.S. and Mexico represent over 80% of our total revenues, and we build our forecasts and our projections on customer-specific input for each of those. Anthony Gallo – Wells Fargo: And then the adjustments that you can make and how quickly you can make those?

Well, this is Dave Starling, and I’ll let Dave Ebbrecht speak to this as well. I think if you sat through our morning call and listened to the 80 people that are on the call in the U.S. and the second call at 8:30 in the morning, we’re in a very unique business. We know what our loadings were through yesterday. We know our customer orders. We know how many cars are stored. We know the turn times, the availabilities; so I’ve got to give Dave Ebbrecht and his team great credit. I mean, they are on top of it every day, and those decisions on whether to furlough crews, to put locomotives in what we call surge storage to start to adjust our costs can happen very quickly.

Yeah, and I’ll just add when we look at 48 hours out, 72 hours out, that’s how we adjust very quickly and nimbly to changes in demand, and then we look at some synergies that we can get to extend those changes and make sure that we have cost savings that go well beyond just a short term and extend through the rest of the quarter.

The paper mills, for instance – we know when their maintenance shutdowns are going to be from a week-to-week basis. We know if they delay one, if the orders are great. We know if they pull it forward, or they’ve either got a machine problem or their orders have dropped. It’s really a pretty unique business in knowing what our customers are doing and the forecasting. If they don’t order the cars, if they don’t provide us the forecast, we may short them cars; so we get great information from our customers. Anthony Gallo – Wells Fargo: That’s really helpful. Thank you, gentlemen.

Anthony, Mike Upchurch. Let me clarify that comment on the tax rate. Even though I just told you in the slide that the statutory rate in Mexico is lower than the U.S., I answered that with a U.S. statutory rate so you should look at a 30% rate. Anthony Gallo – Wells Fargo: Oh, it was 30%?

Yeah, yeah. I apologize for that. Anthony Gallo – Wells Fargo: That’s important. Thanks, Mike.

Thank you. Our next question comes from the line of Tom Wadewitz with JP Morgan Chase. Please proceed with your question. Tom Wadewitz – JP Morgan: Yeah, good morning. I think the first one I have is a question for Dave. You commented before we got into the Q&A about 2012 is a bridge year and 2013 and 2014, you would expect stronger revenue growth, and I think Pat gave more detail on some of the drivers behind that. How would we think about three utility coal and FX impact? I think you were saying, you know, like 10, 12% of revenue growth this year. How do you think about the range that you get to when you’re beyond this bridge year? Is it 15% revenue growth, or what—you know, based on the information you have, is there any kind of range you can put us in for 2013, 2014?

I’ll take a shot at that and then hand it over to the marketing guru here. We are spending a lot of time right now with the three customers in Mexico that have already committed to building auto plants – some are already under construction. I think it’s a moving picture right now. Some of the customers, some of the plants will service the U.S. and Canada. Some will actually go both directions – they’ll actually export through Lazaro to Central and South America. I mean, Mexico is a very unique geographic location that can serve markets in both directions, and then there’s also that growing middle class in Mexico itself. So that is a real tough question for us. I mean, Pat’s trying to quantify it, trying to put those numbers together. The operating guys definitely want them so we can still plan our capacity correctly, but I would say it’s still kind of a moving target. I know Pat’s done some work on trying to quantify the associated products that we enjoy as a result of manufacturing an automobile, and I know he’s taken a shot at it but we have not made it a science yet. I’m not sure we ever will. Pat, you want to take a shot from there?

The only thing I’d say, Tom, is what we’re trying to convey here is really that the outlook is very good for continued new business opportunities and new business growth for us, given our unique position and competitive advantage in Mexico. We haven’t quantified beyond this year. We’re really in the early stages of our planning and forecasting for 2013 and beyond. We’re trying to get more precise information, as Dave mentioned, from the auto companies, so we’re at the beginning of that process. At this point, I don’t think we are prepared to quantify what that growth rate range is, but the overall sort of big picture is that it looks very good.

Yeah, I’ll add a couple more comments. We had breakfast with the CEO of Ternium in Mexico a couple of weeks ago, and the new plant that’s going to be built in Monterey, I think it’s over a billion dollars they’re spending in this plant. And I didn’t realize how much of the U.S. market that plant will serve. We just kind of assumed it was going to be for Mexico auto manufacturing and the growth of manufacturing in Mexico, but they clearly see the U.S. and Canada. It’s already a market for them. In fact, they actually have distribution centers in a couple of places in the U.S. already. But they clearly see themselves providing product going into the U.S. and Canada. And then we’ve got chemical plants that are going to be built on our system in the U.S. Railroads would get excited about an automobile being built on their system every couple of years, every five years. We’re going to have four in two years, so this is pretty dynamic. Tom Wadewitz – JP Morgan: Okay, great. That’s helpful. One more question along that theme – Pat, you gave us some helpful detail here on the steel plants. It looks like these are relatively near term in terms of end of ’12 and into 2013. Is there a framework for—you know, you’re saying 3.5 million tons of added steel. How much steel runs on your line today, or how many carloads? Because I don’t feel like I have a good feeling for what the base is when we consider the 3.5 million tons.

Yeah, I’d like to kind of hold off on giving any more specific guidance, again, as Dave mentioned, until we get a better handle on what these customers are expecting in terms of volumes and rail market share and routings and everything else to give maybe in the future some better guidance about what we think is going to do in terms of our own growth outlook. Tom Wadewitz – JP Morgan : Okay, fair enough.

And the other thing I’ll mention – some of these are mills, and some of these are processing centers so that’s important. As you look at the details on the slide, the Di Acero, Ternium and Steel Technologies in the north are new mills, and these are huge facilities. As Dave mentioned, each one of them is over a billion dollars of investment for the producer. Some of the others are processing centers. They will generate freight. You’ll have a coil going to a processing center to be stamped into an auto part and then moved to the plant, so we’re still trying to sort out exactly what this means in terms of our own outlook for volume and revenue. Tom Wadewitz – JP Morgan : Okay, great. Yeah, I appreciate it. Thanks for the time.

Thank you. Our next question comes from the line of Scott Group with Wolfe Trahan & Company. Please proceed with your question. Scott Group – Wolfe Trahan & Co.: Hey, good morning guys. How’s it going?

Good. How you doing, Scott? Scott Group – Wolfe Trahan & Co.: Good. So wanted to ask a question on coal. Pat, when you talk with your utility customers, what’s the gas price that you think you need in order to see some more switching back to coal? And then what’s the explanation you’re getting from your customers on why we’re going to see this continued strong run rate that we’re seeing in June and July, and why it won’t drop off again in the fall when we get to the shoulder months?

Well, if you look at the run rate, I mentioned high 600, low 700s, right around there. You know, that’s greatly improved from the spring but it’s still below the shoulder month last year. Just to go back and tick off your questions, what we’re hearing—and it’s different plant by plant, but what we’re hearing is gas prices kind of in the 3.50 and higher, our coal plants and our coal business will do pretty well. We’re below that now. Right now, everything is firing because of the intense heat, and everyone is taking coal; so when the temperatures moderate, if gas prices are where they are, we might see some drop-off at a couple of plants.

And regulated and deregulated makes a big difference as well.

Yeah – it makes a difference by market, by plants. The cost structure of the plants are different. What else was I going to say? Lost my train of thought. So I think the levels we’re at now, while they are improved from the spring, still below last year. We have some other things – Dave mentioned the fact that one of the coal moves that we’re in is going to be—it’s a joint line move with another western carrier. Our rates are set, and to provide a little bit more clarification to the point Dave made, our rates are set for this move going forward but the originating carrier bringing the coal to Kansas City, that contract is up for a renewal at the end of this year, and they are expecting the rates will increase and they are building a stockpile to the sky in anticipation of those rates increasing. So we’re seeing some unusually heavy movement for the rest of the year as they build their stockpile in anticipation of a rate increase. We won’t see that rate increase because this is what’s called a Rule 11 rate, where the rate for the two railroads are set separately directly to the customer. Our contract is not going to be affected, but the overall cost to the utility will be. Scott Group – Wolfe Trahan & Co.: Okay, that’s great color. Thanks. And then the second question on Lazaro, can you talk about the timing for the new concession opening up, and then what percent of the current concessions are being utilized? Is there need for the second concession yet where we see kind of an immediate volume benefit, and then maybe longer term, how does the opening of Panama Canal impact Lazaro and then the company overall?

Okay. Second concession was awarded in December, and as we understand it, all of the paperwork and the contracts and the agreements were signed in June. The concession was awarded to APM Terminals, which is an affiliate of Maersk Lines. The current concession, there’s only one concession operating at Lazaro today, and that’s Hutchinson. Hutchinson is running probably about—it’s a moving target, because they’re running about 65, 70% of capacity, but they’ve got a footprint and they are continuing to increase capacity. They’re adding paving, they added a new berthing crane earlier this year, so they are in the process of taking their capacity to roughly 1.5 million. They think the footprint that they have and the design that they have will allow them to build to about 2.2 million, so that capacity is going to continue to increase at Hutchinson. We met with APM earlier this year. They have an exact—the exact same footprint in terms of the size of the property as Hutchinson has, but they are going to design it differently and they think they can get capacity to something like 2.5 to 3 million once they are fully built out. It’s going to take years to get to that level, obviously. What we would expect, and Dave knows the lay of the land better than I do in terms of the way this rolls out generally, but we would expect that initially some of APM’s growth will come out of Hutchinson but that over time both of them will grow. I guess the important thing is we’re serving a port that has been the fastest growing container terminal in North America the last couple of years, and it’s going to go from something around 1.2 million TEUs today, and the capacity is on the board to go to 4.5 to 5 but that’s going to take several years. The good news is we are maintaining our market share at Lazaro in the 65 to 70% range versus truck, and as you know, we’re the only railroad that gets there.

I’ll add to Pat’s comment – generally what happens when you open a second port concession is there is a deterioration in the rates. You now have a competitor, so the rates will be more competitive—or the ocean carrier, not our rate. So the ocean carriers will have a little bit of leverage then because they have a two-port opportunity, and the company that may lose on that would be the Manzanillo International Terminal, that is the older facility. This will give the ocean carriers a little bit of chance to leverage into the new concession and get out of Manzanillo. The question on Panama, we get this frequently. The opening of the Canal should cause the pie to get bigger in Panama. You can bring in bigger ships. That’s more opportunity for trans-shipment. We are a cost avoidance model in Panama, and I think recently when they had the labor problems there, it created some congestion; and the ports right now are—there is a lot of growth in Panama, and they are realizing that they need more space and that they need more berths. So the government in Panama is now working on a U.S. model of adding another port on the Pacific side called Corazel, which is adjacent to our railroad. That could be a new modern facility that would be added to the Hutchinson facility. And at the same time, the ports on the Atlantic side, there is a new concession being discussed – I forget the name of it – but it’s east of the Evergreen facility by a couple of companies. They’ve come to us for service, so there’s still more growth that’s going to occur in Panama because of the third set of locks – again, just more ships, bigger ships, more opportunity for trans-shipment. On Lazaro Cardeñas, the effect on a canal with Lazaro, it’s a different market. Generally all you will see on the ships that in that deployment is maybe a stop in Panama to load or unload, but generally that allocation coming out of Asia and Mexico is for that market. We’re starting to get some inquiries as well, more inquiries that we’ve had in the past about the U.S. market. I think some of it could be related to the noise on the east coast about the potential strike, so we’re getting some inquiries for cross-border. Scott Group –Wolfe Trahan & Co.: All right, that’s great color. Thanks, guys.

Thank you. Our next question comes from the line of Tyler Brown with Raymond James Financial. Please proceed with your question. Tyler Brown – Raymond James: Hey, good morning guys. I’ve got just a couple quick cash flow questions. Mike, I know you’ve gone over this in the past, but can you refresh us on your cash tax paying status, both in U.S. and Mexico, given the NOL revaluations? Does that lengthen the non-cash tax paying status?

Yeah, it’s a different answer in Mexico and in the U.S. We are probably on a trend right now that by the end of the year, we could become a cash tax payer in Mexico, and then 2013 in the U.S. So we will have utilized the majority of our NOLs. Tyler Brown – Raymond James: Okay, perfect. And then just to clarify on the CAPEX, so is the guidance 17 to 18, or is it 17 to 18 plus the 2 to 3 for the locomotive pull forward?

It’s plus the 2 to 3, so look at a number roughly 500 million. Tyler Brown – Raymond James: Okay, perfect. I’ll just leave it at that. Thanks.

Thank you. Our next question comes from the line of Allison Landry with Credit Suisse. Please proceed with your question. Allison Landry – Credit Suisse: Thanks, good morning. So I was wondering if your outlook for non-coal energy has changed in light of lower oil prices. It looks like the pace of growth in frac sands slowed a little bit in the second quarter relative to Q1, and I was wondering if maybe that was a sign that drilling activity might be slowing down.

A bit, although what we’re seeing is that the pace of activity in the two—the Eagleford region and the Bakken region is still pretty high. We’ve seen more of a drop in activity in the Haynesville, for example, where there is a much higher percentage of dry gas versus oil. But the outlook really hasn’t changed. Still feel that the growth there is going to be very strong for several years to come, and then the ripple effect I think we talked about in the first quarter of these chemical—these ethane, polyethylene plants, that also looks very good. Based on what we have heard on production values or production estimates for most of those plants, any one of those could produce rail volumes equal to or larger than a coal plant. Allison Landry – Credit Suisse: Okay, that’s really helpful. And just following up on that question, you mentioned earlier that crude and frac didn’t quite offset the decline in coal this quarter, so I was wondering if maybe you could speak or provide some color behind the relative profitability of crude and frac versus utility, and if you think that the expectation for continued growth there could offset the utility volume declines in the second half.

Sure. All of those businesses are very attractive, high profit, high contribution business, and so the answer is we’re not diluting any of our contribution or operating ratio or profitability by shifting from utility coal to frac and crude. The second quarter—if you look at the first quarter, the offset was almost even. Utility coal was down and frac and crude were up by about the same amount. Utility coal, as you saw in the presentation, was weaker in the second quarter. We don’t expect that to happen, so it’s hard to know but I would expect maybe the offset would be closer to what we saw in the first quarter than what we saw in the second quarter going forward. Allison Landry – Credit Suisse: Okay. Fantastic. Thank you very much.

Thank you. Our next question comes from the line of Matt Troy with Susquehanna Financial Advisors. Please proceed with your question. Matt Troy – Susquehanna: Yeah, I just wanted to touch on Mexico given the strategic significance to your network, specifically in light of the change in the administration. If you could just maybe refresh us where your primary points of contact are, your stronger relationships, your dialogue with the outgoing administration, and where some of those relationships may change and what your engagement with the incoming group has been like so far.

José, if you’re still on the call, would you like to take this question? José Zozaya: Yes, Dave, of course. The new administration – every six years when the administration changes, most of the top officials of the administration leaves the office. The ones that are directly related to us is the SCT, equivalent to the transportation board in the U.S., and the secretary. The new or the potential candidate to become the new secretaries of the SCT in Mexico are people we know and we have worked with them in the past five years, so we have a good and close relationship with most of them. Of course, nothing is certain until they are named for that position. And we have worked very—as Dave mentioned the beginning of the call, we have been working with the new president for six years now when he was Governor of the State of Mexico, very close, and we are confident that he will continue the way he was as governor, promoting for investment and supporting private business. Matt Troy – Susquehanna: Okay, so what I’m hearing loud and clear is that the line of sight visibility into the people with whom you’ll be dealing with, and also good working relationships which span years, ergo we should not expect any significant change. José Zozaya: That’s right, exactly. Matt Troy – Susquehanna: Okay, thank you. The second question I have – just more broadly as we think about rail property, (inaudible) coal domestically, you know, this is a property and what are, I think, in terms of expectations over time gravitate towards an OR in the mid-60 range over time. Is that something that is still attainable in, let’s call it a three to five-year time frame? Do you not manage it that way, or just what’s—you know, when you think about the dart board on a multi-year planning basis, is that’s something that’s reasonable or within your goalposts?

You know, I’m going to take this one, make this statement I’ve continued to make. We’re going to continue to grow our revenue and control our costs and improve our operating ratio on a year-to-year basis. Certainly we’ve said in the past, we want a six in front of the number. We feel like we’re headed in that direction, but we have not set any goals to say we’re going to be at 65 by some year. We’re going to continue to work on it. We don’t see any major obstacles. We set a goal before of 1.5 points every five years, and then we did—or every year, and then we did 10 points over a five-year period. So again, goals are good, but we’re going to continue to run our business and make the right investments and the right decisions, and I think the operating ratio will demonstrate that. Matt Troy – Susquehanna: Excellent. Thanks for the detailed answers, guys.

Thank you. We have time for one more question. Our last question comes from the line of Brad Delco with Stephens Inc. Please proceed with your question. Brad Delco – Stephens Inc.: Good morning gentlemen. I’ll make this quick. I guess it’s a question for you, Mike. If you look at your equipment, locomotives, I know you guys have taken some equipment off lease. How much more of that is available, or maybe asked another way, how much of the equipment you currently have is leased versus you own?

Yeah, our ownership of equipment is in the low 20s. We think that’s too low; we’d like to migrate that up over a period of years, but understand we have a lot of equipment under lease, long-term lease. And as they come up, we do engage in discussions with the lessors to try to attempt to buy that equipment to the extent we think we’ve got a use for that equipment for a number of years. And then certainly anything new, we’ve had a bias towards trying to purchase either through a financing or with cash and own the asset. I think you’ll see us continue to do that and chip away at maybe what’s a slight disadvantage today from an operating ratio perspective compared to the other railroads.

I think, Brad, if you look at our goals that we have set over the years, it’s certainly to become investment grade. It’s to push our maturities out at a lower interest rate and also in that list is a conversion from lease to own. We’re at 20%, as Mike said; the other railroads are about 50%, so we certainly are making decisions now that when the cash is available, rather than lease we’re going to purchase. But we don’t—you know, that’s going to be a long-term opportunity for the Company. Brad Delco – Stephens Inc.: Got you. And then Dave, if I could just ask you one question because everything I’ve heard on this call, it’s long-term growth sounds very good, particularly in Mexico. You know, the way that I thought about it, or think about it, and I’d love to get your thoughts – if Mexico is really where the growth is, I think you have some sort of—you have a cost advantage there relative to the U.S. You still have a lot of low-hanging fruit with the leased fleet that you can convert to owning. It seems like not only the top line should accelerate but there’s still good, very clear ways to improve the OR. How do you think about the balance between growth in Mexico versus U.S. and what that could do to your margins?

Well again, we’ve always stated that we have opportunities in Mexico. We’ve made it very clear we do have a lower cost structure there, but on the labor side we’re working very well with labor but there is opportunities where we can create win-wins for ourselves and labor where we don’t reduce any jobs, we just grow, and that’s a big opportunity for us. We’ve got another maintenance contract coming up this year that we’re reviewing that would be a fourth quarter event that we’re taking a hard look at, which would be another legacy contract that we can come out of. So we’ll continue to do that, and I do agree with you and still stand by the statement – I think we do have more opportunities for leverage and upside of revenue in Mexico.

Yeah, just a couple of things to tack onto that. Don’t lose sight of the fact that this, as I referred to the new energy market, is going to provide a lot of growth opportunities in the U.S., then go back to my comments on the auto industry. We have auto and intermodal, we have a significant opportunity to increase the U.S. side of some of that business by using our U.S. network, and that’s going to produce a lot of efficiencies in terms of longer length of haul, and that’s generally going to help the profitability on the U.S. side of the equation. Brad Delco – Stephens Inc.: Very well. Thanks, guys, for your time.

Thank you. Mr. Starling, I’d like to turn the floor back over to you for closing comments.

Okay, thank you very much. Thanks for joining us. We will see you in the third quarter.

Thank you. Ladies and gentlemen, this concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.