CSX Corporation (CSX) Q4 2011 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen, and welcome to the CSX Corporation Fourth Quarter 2011 Earnings Call. As a reminder, today's call is being recorded. [Operator Instructions] For opening remarks and introduction, I would like to turn the call over to Mr. David Baggs, Vice President of Capital Markets and Investor Relations for CSX Corporation.

Thank you, Pat, and good morning everyone. And again, welcome to CSX Corporation's Fourth Quarter 2011 Earnings Presentation. The presentation material that we'll be reviewing this morning, along with our quarterly financial report and our safety and service measurements, are available on our website at csx.com under the Investors section. In addition, following the presentation, a webcast and podcast replay will be available on the same website. Here representing CSX this morning are Michael Ward, the company's Chairman, President and Chief Executive Officer; Clarence Gooden, Chief Sales and Marketing Officer; Cindy Sanborn, Chief Transportation Officer; and Oscar Munoz, Chief Operating Officer. Now before we begin the formal part of our program, let me remind everyone that the presentation and the other statements made by the company contain forward-looking statements. You are encouraged to review the company's disclosure in the accompanying presentation on Slide 2. This disclosure identifies forward-looking statements and risks and uncertainties that could cause actual performance to differ materially from the results anticipated by these statements. In addition, let me also remind everyone that at the end of the presentation, we will conduct a question-and-answer session with the research analysts. With nearly 30 analysts now covering CSX, I would ask, as a courtesy for everyone, to please limit your inquiries to one primary and one follow-up question. And with that, let me turn the presentation over to CSX Chairman, President and Chief Executive Officer, Michael Ward. Michael?

Well, thank you, David, and good morning, everyone. Last evening, we were pleased to report record earnings per share for the fourth quarter and full year 2011. Fourth quarter EPS was up 13% to a new fourth quarter record of $0.43 per share. These results were driven by top line growth, reflecting strong core pricing and fuel recovery, as well as an excellent service product. Service measures are now at high levels, thanks to the outstanding execution of our operating team and the resource investments we made in the second half of the year. We expect service levels to remain high going forward. Turning to Slide 5. For the full year 2011, CSX generated record performance in operating income, operating ratio and earnings per share. In addition, we strategically positioned the company for long-term growth and set the stage for our 65% operating ratio target. Yesterday, as you know, CSX announced changes to its senior management team. Oscar Munoz is now the company's Chief Operating Officer and Fredrik Eliasson is now our Chief Financial Officer. Both are proven leaders with a passion for driving compelling value for shareholders and customers. We have excellent momentum in our operations and combined with Oscar's broad leadership and business focus, we will ensure that outstanding team is even more successful for you, our shareholders. Fredrik is a proven and respected veteran in our company and will be working with the finance team, that has proven itself to be a strong business partner in helping drive excellent performance for investors. For today, I've asked Oscar to take you through the financials for the last time. And Cindy Sanborn, our Chief Transportation Officer, is here to report our operating performance. With that, let me turn the presentation over to Clarence to review our top line performance. Clarence?

Thank you, Michael, and good morning, everyone. As I get started on Slide 7, let me remind everyone that the fourth quarter of 2010 included an extra week. After removing that extra week, you can see more comparable 2010 fourth quarter results with revenue of $2.6 billion, volume of 1.6 million units and revenue per unit of $1,655. In the fourth quarter of 2011, total revenue increased 12%. Volume grew 1%, and RPU improved 10% versus the comparable 2010 results. For the remainder of my presentation, I will use comparable 13-week numbers to give you a better sense of the run rate of our business. Now let's turn to the next slide and take a closer look at the results. On a comparable basis, CSX revenue increased 12% to nearly $3 billion in the fourth quarter. As you can see on the chart, volume gains drove $51 million in year-over-year revenue growth. In addition, the combined effect of rate and mix accounted for $138 million of the increase, reflecting yield gains across all 3 major markets as we continue to sell the compelling value of rail transportation. Finally, as you look further to the right, increased fuel recovery of $117 million in the quarter helped offset the impact of higher fuel costs. The next slide shows the volume drivers in the quarter. Total volume increased 1% versus the comparable period from last year. Merchandise, which accounted for 41% of total volume, grew 5% reflecting gains in the majority of the market CSX serves. Intermodal, which accounted for 36% of total volume, was flat as strong domestic growth was offset by weakness in the international business. Finally, coal, which accounts for 23% of the total volume, declined 3%, reflecting strength in exports, that was more than offset by continued softness in demand from electric utilities. I will provide more detail on each of these markets after we look at the revenue per unit on Slide 10. Revenue per unit increased 10% to more than $1,800 driven by a combination of price, mix and fuel recovery. Same-store sales pricing increased 6.9%. Recall that the same-store sales are defined as shipments to the same customer, commodity and car type, and the same origin and destination. These shipments represent approximately 75% of the CSX traffic base. Mix also had a modest favorable impact on the revenue per unit change. Finally, increased fuel recovery, a result of higher fuel costs in the quarter, contributed to higher revenue per unit. Now let's take a look at each of the major markets that we serve starting with coal. Coal revenue improved 13% driven by an increase in revenue per unit reflecting improved yield and higher fuel recovery. Domestic volume declined 10% on a comparable basis as overall electrical generation declined in the eastern United States, and natural gas prices remained at low levels leading to the continued displacement of coal at some utilities. Export coal volume grew 31% on a comparable basis as demand was strong for U.S. coal shipments to Europe, Asia and South America. For the full year, we shipped a total of 40.2 million tons of export coal, up 33% versus 2010 and within our earlier guidance. Looking ahead, demand for export coal should remain strong on the strength of an expanding global economy, especially in Asia and South America. At the same time, domestic utility volumes are expected to remain soft, due to the low natural gas prices, above normal inventory levels in the Southeast and restrictive environmental regulations. Now let's turn to our intermodal results. Intermodal fourth quarter revenue increased 13% versus 2010 to $375 million driven by an increase in revenue per unit. Domestic volumes were up 5% as the overall truck market remains tight and higher fuel prices encouraged over-the-road convergence. International volume declined 6% largely due to a more moderate peak shipping season this year. Turning to revenue per unit, intermodal had higher fuel recoveries and increased yields in both sectors resulting in a 14% improvement versus the prior year. In 2012, we are seeing strong growth from the onboarding of Maersk. In addition, we anticipate growth from continued truck versions, new service offerings and further economic expansion. Strategic investments, such as our Northwest Ohio Intermodal Facility and the National Gateway initiative, will continue to support long-term growth by increasing capacity, while improving both transit times and service reliability. Turning to the next slide, let's look at our merchandise markets. Overall, merchandise revenue increased 11% driven by a 5% volume growth and a 5% increase in revenue per unit. Revenue per unit increased across nearly all of our markets due to higher yields and higher fuel recovery. In the agricultural sector, volume increased in the quarter as growth in fertilizer and ethanol shipments offset declines in feed grain resulting from higher corn prices and lower production of poultry and pork. Metals and automotive shipments were key drivers of growth in the industrial sector. North American light vehicle production grew by 13% in the quarter. In addition, domestic steel production remained high, due to strong demand from the automotive and the oil and gas markets. The construction sector growth was led by increased aggregate shipments as milder weather in the quarter contributed to a longer construction season. Looking forward, we expect continued growth in our agricultural and industrial sectors, although construction shipments will be challenged by the lower levels of highway investment in 2012. Now let me wrap up on the next slide. Looking ahead, CSX's outlook for 2012 is favorable with growth expected across all markets, and we expect CSX's overall rate of growth will again exceed that of the generally tough economy. Intermodal will lead the way as we onboard the Maersk business, grow with our other international customers and continue to attract domestic loads from the highway and partnership with our truckload customers. We expect strong demand for phosphate and fertilizer with the USDA's projection for planted acreage at high levels, projected strength in harvest levels and new ethanol terminals on CSX will drive growth in agricultural products. In chemicals, we anticipate growth in the overall chemical production. Oil and gas-related markets will drive additional growth as our frac sand business continues to expand, and we develop new products to deliver crude to Eastern refineries by rail. Continued demand from the oil and gas and automotive industries will drive further expansion of steel production and scrap demand and drive growth in our metals business. We expect export coal demand to remain at high levels although challenges remain in the domestic utility market, due to the low natural gas prices and restrictive environmental regulations. Overall, we expect coal volumes to be down modestly. Our emerging markets business, which includes aggregates used in concrete production, will also be challenged as a result of lower levels of highway investment. Bottom line, we expect solid growth across a significant majority of CSX's markets with 71% of our overall volume reflecting favorable market conditions. Thank you. Now let me turn the presentation over to Cindy to review our operating results.

Thank you, Clarence, and good morning, everyone. Our fourth quarter results are a clear reflection of our success and commitment to delivering excellent performance. Looking at safety, CSX once again delivered strong performance reflecting the fact that safety continues to be a top priority. At the same time, CSX is poised to handle 2012 volume growth given the employee and locomotive resource investments made in the latter half of 2011. With these resources, we expect to be able to handle much of CSX's volume growth this year within the existing train network. As a result, we are confident that operating leverage will return in 2012. These resources also increased reliability and fluidity across all 3 networks: coal, intermodal and merchandise. As a result, overall service was sustained at a high level this quarter. Now let's review the results in more detail starting with safety on Slide 17. This slide shows both fourth quarter and full year FRA personal injury and train accident rates over the last 4 years. On the left-hand side of the slide, you can see that personal injury results improved for both the fourth quarter and the full year. For the fourth quarter, the personal injury rate improved 10% to 0.93. For the full year, the frequency improved 10% to a rate of 0.91. Looking at train accidents on the right. The quarterly frequency increased slightly to 2.40 while the full year measure improved 14% to 2.32. Looking ahead, we remain committed to our goal of 0 injuries and accidents. Now let's turn to the next slide and review the operating performance. Here, you can see CSX's key service measures improved significantly in the quarter and are now at high levels. On the left-hand side of the slide, on-time originations improved to 82% and on-time arrivals improved to 72%. Looking to the right, overall train velocity increased to 21.7 miles per hour and dwell improved modestly, both contributing to the increase in on-time performance. We are pleased to see this level of performance and expect service levels to remain high going forward. As we move to the next few slides, let me give you a more detailed view of performance for each of the networks starting with coal. On the left-hand of the slide, you can see CSX's extensive network of coal receiving facilities along with full year 2011 traffic flows. The coal network operated well in the fourth quarter, as reflected in the key measures highlighted on the top right-hand side of the slide. During the fourth quarter, coal velocity improved to 17.4 miles per hour. This is a record in fourth quarter coal train velocity. Also, train length increased to 105 cars per train. This increase in efficiency translates to adding nearly 200,000 tons of incremental coal with the existing level of resources. As Clarence indicated, domestic coal shipments were down in the quarter. As a result, some of the resources devoted to this business were redeployed throughout the system to support service and growth in other markets, including our export coal market, where we handled over 10.4 million tons of coal in the quarter. Moving to Slide 20, let's take a look at the intermodal network. On the map to the left, you can see CSX's Intermodal Terminal network including the state-of-the-art Northwest Ohio Intermodal Terminal, and the 2011 intermodal traffic flows. The Intermodal Network also operated well in the fourth quarter, with velocity of the overall network improving slightly over 2010, while availability of the intermodal expedited service on CSX remained at extremely high levels. This operational improvement was partially driven by efficiencies gained with the Northwest Ohio terminal as streamlined routing of intermodal traffic led to shorter transit times. As Clarence mentioned, the onboarding of the new Maersk business began over the last 3 weeks and is going well, with no service issues. On the map, you can see the key lanes the Maersk traffic will utilize represented by the red arrows. At the same time, the efficiencies of Northwest Ohio have translated into strong service offerings for all of our customers including Maersk. During the first week of 2012, we operated our first run-through international train from Los Angeles to the Ohio Valley, in conjunction with one of our Western interline partners. This train avoided delays in Chicago running directly to the Northwest Ohio terminal, and effectively connecting CSX's network of terminals in the Ohio Valley. This strong service product allowed the train to reach its destination before it typically would have even cleared the Chicago interchange, an improvement of 1 to 2 days in transit time. Service reliability like this is allowing us to grow by meeting the needs and expectations of our customers. As we look ahead into 2012, we have a strong terminal network and adequate capacity on our train network to absorb much of our intermodal volume growth. Looking to Slide 21, let's now look at the merchandise network. Here, you can see CSX's merchandise network, which utilizes much of the system. CSX's largest terminals are indicated on the map along with the 2011 traffic flows. This network benefited by operational improvements in velocity and terminal dwell. This quarter's velocity is the best we have seen since the fourth quarter of 2009, despite carrying 10% more in merchandise carloads. These improvements allowed the merchandise network to handle higher volumes, while at the same time, maintaining a high level of reliability. Going forward, we expect service levels to remain high and to absorb much of 2012's volume growth within the current train network without adding resources. Now let's turn to the next slide and review resource levels. While active train and engine employees and locomotives have increased during the quarter, both remained below 2008 levels. As the chart on the left shows, CSX continued to hire additional train and engine employees in 2011, to both improve service and handle volume growth. It also highlights the fact that despite these increases, active T&E headcount is still down 12% from 2008 levels, with volume down only 5%. This reflects our commitment of providing a high level of service, while continuing to deliver sustained productivity. Looking to the right side of the page, this chart highlights the sequential increase in locomotives by quarter. It also showed that despite these increases, active locomotives also remain below 2008 levels. Going forward, it is important to remember that CSX continues to have the flexibility to both adjust the hiring pipeline and manage locomotives to meet changes as service, volume or attrition dictate. Now let's look at productivity on the next slide. Slide 23 shows annual year-over-year operations productivity savings. Since 2004, CSX has generated nearly $1.2 billion in productivity savings, which has helped to offset a significant portion of CSX's non-fuel inflation and drive operating ratio improvement. In 2011, productivity results fell short of historical levels as resources were ramped up to aid service reliability. Moving forward, CSX is now in a position to handle improving volumes without significant resource additions creating sustained operating leverage. As such, our productivity pipeline for 2012 is full, and CSX is well positioned to deliver $130 million in savings. Our goal is always to attain our productivity target, while at the same time maintaining high levels of service, and we intend to do that in 2012. Now let's wrap up on the next slide. Looking forward, CSX will build on its strong safety performance with a focus on continuous improvement in both personal injury and train accident rates. Network performance was high in the quarter. Key measures have improved and are now at high levels. This performance demonstrates that we are committed to providing a service product that meets the standard customers have come to expect from CSX. Additionally, resources are in place and flexibility remains to handle changes in attrition, peak volume and growth. Bottom line, CSX employees are committed to providing the high levels of service customers expect. And in doing so, we'll deliver strong foundation to our success and that of our shareholders. Now let me turn the presentation over to Oscar to review the financials.

Thank you, Cindy. If I could, let me again remind everyone that our fourth quarter results in 2010 included an extra week associated with the company's fiscal reporting calendar. And while Clarence reviewed the quarterly volume and revenue results on that comparable basis, 13 weeks, I will present our consolidated financial results on more of a GAAP basis, which includes the impact of the extra week in 2010. And we won't have to worry about this for another 6 to 7 years. Okay. In the fourth quarter, CSX continued to achieve strong top line growth and has followed a disciplined approach of investing in resources to support improved customer service. If you look at the top of the slide, revenue improved 5% to nearly $3 billion on strong core pricing and the impact of higher fuel recovery. Operating income was $841 million in the quarter, a modest decline from the record fourth quarter of 2010, which as I mentioned earlier, includes the impact of an additional week. If you look below the line, interest expense was down $9 million due to the impact of last year's extra week, and other income was up $7 million, the details of which are available in that quarterly financial report. Additionally, income taxes were $255 million in the quarter for a tax rate of 35.8%. This primarily reflects a favorable state income tax impact in the quarter. Going forward, we can continue to expect a normalized tax rate of 38%. Finally, EPS was $0.43, an improvement of 13%. Turning to the next slide, let's begin to discuss expenses in more detail. Labor and fringe expense was essentially flat versus last year, up just $3 million. The impact of wage and healthcare inflation in this quarter was $28 million or about 4%. In 2012, we expect that labor inflation will moderate and average approximately $15 million, 1-5, per quarter. Turning to the chart on the left, headcount this quarter was up 6% as we've been adding resources over the course of the year. Now about half of this year-over-year change supports the improving levels of service. Another quarter or so, represents employees in training to help offset attrition and meet the peak demand levels that we'll see in 2012. And the remaining quarter, our field engineering forces for PTC and ongoing capital projects. This last group of employees, as you know, does not have a direct operating expense impact. Now looking at the first quarter, headcount should increase less than 1% sequentially, and this will reflect the additions -- reflecting the additions we've made to the workforce, training-related costs were up $9 million in the quarter. Partially offsetting these items was $22 million of lower incentive compensation and $12 million, primarily associated with lower volume due to the extra week in 2010. Turning to Slide 28. MS&O expense increased 17% or $84 million versus last year. Looking at the table to the right, inflation was $11 million. Next, casualty reserves were $41 million higher, primarily driven by last year's $40 million favorable reserve adjustment. Volume-related expenses increased $13 million in the quarter, reflecting cost related to our growing export coal and Domestic Intermodal business. And as you round out the table, other costs increased by $19 million this quarter. Now on the next slide, let's discuss the impact of fuel. Total fuel cost increased to 22% or $77 million versus last year. Looking at the chart on the left, CSX's average cost per gallon for locomotive fuel climbed to $3.05, an increase of 26%. This increase in fuel price accounted for $81 million of higher expense, as seen in the table on the right. Next, slightly lower fuel efficiency drove $6 million of increased costs. Volume-related savings were $16 million versus last year. And rounding out the table, non-locomotive fuel increased by an additional $6 million. On the next slide, we'll round out the fourth quarter expense review. Beginning with depreciation, these costs were down 8% or $21 million. While we saw the ongoing impact of a net increase in our asset base, this was offset by an extra week of depreciation expense last year and a favorable adjustment related to asset retirements. Going forward, you can expect depreciation to range between $260 million and $270 million a quarter in 2012, increasing throughout the year. Moving to rents. Expenses decreased 3% or $3 million, reflecting efficiency in the auto and merchandise networks. And that concludes the detailed expense review for the fourth quarter, and let's turn to full year results on Slide 31. On a full year basis, revenue was up 10% to a record $11.7 billion, of course, reflecting the impact of profitable volume growth, pricing above inflation and higher fuel recoveries. Total expense for the year was also up 10% with the biggest single driver being the increase in fuel price. Excluding fuel, total costs were up 5% versus last year. Full year operating income was up 11% off a base that includes an extra week, for a full year operating ratio of 70.9. As a reminder, while CSX has an effective fuel recovery program, higher fuel costs are recovered with an operating ratio of approximately 100%. When you adjust for this higher fuel price, CSX's full year operating ratio in 2011 would have been 69.8. Finally, earnings per share increased 24% due to strong quarter results and the impact of the share repurchase program. Now as we move to the next slide, let's take a moment and just stop back and reflect on the progress that we've made over the course of the year. As you look on that chart on the left, those solid blue bars present total reported nonfuel expense by quarter in 2011. As you can see, costs have increased throughout the year, but those increases have been relatively modest on a sequential basis. The red line represents gross ton-miles, which is a good proxy for our total workload, which we have indexed to the first quarter. As usual, our workload peaked in the second quarter. At the same time, our service measures began to decline, as you recall, and we made a conscious decision to begin to add the resources. Now as we began to add those resources and expenses increase to reflect that, we also saw a softening in the economy in the third quarter across the industry. This drove up our expense for gross ton-mile, represented by the gold line on the chart. Now as you look at those last fourth quarter, we see this as an incredibly good sign for things to come for 2012. GTMs increased sequentially, nonfuel costs were only up $14 million from the third quarter. And as a result, expense for gross ton-mile improved sequentially. And in addition, as Cindy spoke about earlier, service measures were at very high levels for the quarter. And all of this sets the stage for 2012. As we go forward into this year, and as I mentioned earlier, we expect to be able to handle growth with few additional resources. To be clear, and reflecting the fact that we've made most of the resource investments beginning in the second half of 2011, over the course of 2012, we fully expect incremental margins to return to the levels we saw in 2010 and the first half of 2011. Now let's turn our attention to capital investment on the next slide. The company's confidence in near and long-term profitable growth helps support CSX's continued balanced approach to cash deployment, beginning with capital investment. In 2012, CSX plans to invest $2.25 billion in our business. On the chart on the left, you can see that the bulk of the capital spending in 2012 will be used to maintain the infrastructure and invest in equipment to help ensure a fluid network for our customers. We will also continue to focus on strategic investments, supporting long-term profitable growth. These investments, coupled with a continued focus on operating efficiencies and inflation plus pricing, will help us grow to a 65% operating ratio no later than 2015. Finally, the investment needed to meet regulatory requirements will continue to be driven primarily by positive train control. Now let's turn to the next slide and discuss our dividend and share buyback approach. On the left-hand side of the page, dividends per share increased by 36% in 2011. Going forward, CSX is committed to a dividend payout range of 30% to 35% of the trailing 12-month earnings, and this will be reviewed annually every May. Moving to the chart on the right, CSX has now collectively repurchased $7.2 billion of shares since 2006, representing approximately 1/3 of total shares outstanding. Last year, we repurchased $1.6 billion worth of shares. This included $1.3 billion of our current $2 billion share repurchase program. This remaining $700 million of repurchases under the current program will be complete by the end of 2012, and will be funded primarily through free cash flow. As a reminder, once the current program is complete, we anticipate continued share repurchases of approximately $1 billion a year from 2013 through 2015, again funded primarily through free cash. Now let's turn to the next slide, and where I think is our wrap up. Recapping the fourth quarter, we delivered strong financial results, and while costs were up marginally on a sequential basis, service has returned to high levels. On a full year basis, EPS was up 24% on a combination of strong pricing, volume growth and resource investments translating to strong customer service by the year end. Now with this as background, the stage is set for CSX to deliver strong margin improvement in 2012. With resources in place today for growth, over the course of the year, we expect to deliver improving incremental margins. Our progress in 2011 gives us confidence that we will again deliver record results in 2012, which keeps us on track to grow to 65% operating ratio no later than 2015. So with that, let me turn that back to Michael for his remarks.

Well, thank you, Oscar. When we stand back and look at 2012, it helps to think about the opportunity for our company against 3 criteria. First, what does the business environment look like? As Clarence noted, there are favorable conditions in nearly every major market we serve. CSX provide service to a diverse portfolio of businesses. And through them, we see an economy that continues to be favorable for growth. Second, are we able to grow in this environment? Yes. As stated earlier, we believe we'll be able to grow faster than the economy overall. In the merchandise business, which makes up more than 40% of our volume, we expect to achieve solid growth in line with the macro economy. We are also expecting strong growth in intermodal, which makes up more than 35% of our volumes. We have a significant head start coming into the year with the onboarding of Maersk, and there is every indication that highway conversions to rail will continue to drive further growth in intermodal. Third, can CSX grow profitably in this environment? Here again, the answer is yes. It is important to note that CSX was able to generate record earnings in 2011, at a time when we were making strategic resource investments that will position the company for future and drive long-term growth. Now we have a network that is more capable than it was a year ago and a workforce that still has a relentless focus on safety, service and productivity. In 2012, it's our job to leverage that capability of our network and our organization to deliver outstanding results for our customers and for you, our shareholders. As we do this, I'm confident CSX will once again deliver record financial performance in 2012, and continue to progress toward a 65% operating ratio by no later than 2015. Thank you for joining us this morning, and we look forward to taking your questions at this time.

[Operator Instructions] Our first question comes from Mr. Scott Group of Wolfe Trahan. Scott H. Group - Wolfe Trahan & Co.: So why don't I start a little bit with utility coal and try to understand with gas prices now well below $3, how much incremental switching do you expect at this point? And when we think about cheap gas regulations, a warm start to winter, what gives you the confidence that domestic coal volumes won't be down another, give or take, high-single digits in '12 like they were last year?

Thank you, Scott. That's an excellent question. This is Clarence. First, we saw a significant impact on our coal business already in 2011 because of natural gas prices. So most of the plants that are in our region that can convert either to the combined cycle gas or in the latter part, when gas prices got below $3, which would be the single figures, coming online, we have seen that conversion. Number two, most of the utilities that were impacted by the environmental regulation of CSAPR, which are our older plants and less efficient plants, the principal and preponderance of those plants had been off line. And we don't expect that to have any significant impact going forward for us. Third, is that gas prices, in our view, are nearing the end of where the bottom of the gas market is. As I'm sure you're aware, because your group follows it pretty closely, you're seeing the rig count start to do several things: One, they're changing. They're actually going down, particularly in the Marcellus Shale. Two, a lot of the drill rigging counts are moving from Eastern Pennsylvania over to Western Pennsylvania to go for the Utica oil reserves. So we see a stabilizing in the natural gas prices. Now having said that, sequentially on a year-over-year basis, will be a little softer than the first quarter, but nowhere near in our utility business like it was in 2011. Scott H. Group - Wolfe Trahan & Co.: Okay. That's good color. And then one for Oscar, I wanted to dig a little deeper on your guidance on the incremental margins getting back to 2010 and first half 2011 levels. Actually, a pretty big disparity I think between '10 and first half of '11. When you think about the guidance to get to a 65% OR, it feels like we need to get incrementals back into that 50% range. Is that something that's achievable in 2012?

I think, as I said, Scott, we will see those improve throughout the year as we cycle the resource investments in 2011. And on a full year basis, we'll return to the levels we saw back in there. To get to the 65%, obviously, the math says you have to get your incremental margins at least above 35% over the course of time. And the power of our pricing, the power of our service and productivity are the things that drive that. And so yes, we have good confidence over the course of the next couple of years along with an economic recovery that we can get to those numbers.

Mr. Ken Hoexter with Merrill Lynch.

I guess maybe if we could just start off with a little bit of insight on the management changes. And Oscar, as you move over to kind of the operations role, can you dig in on some of the projects that you target for that $130 million of annual savings, I guess, almost doubling from what you did this year.

Before that, let me just address it a little bit in general, this change. We have, I think, really good disciplined operation in our culture now. And that is in place. And what we really need to do is, to go to our grow to 65%, we've got to continue to get our productivity of $130 million to $140 million a year; we need to continue to get above rail inflation pricing, which I'm confident we will do; we also need to grow the business. And the primary driver for this is we can take that disciplined culture, put more rigor, better customer service, better margin expansion through those efficiencies to really take it to the next level. And in my view, Oscar was the guy. He’s been a proven leader here at CSX, a key business partner of me, 9-year veteran of the company. I think Oscar is the guy to take us to that next level. So that's primarily the reason for those changes. And as you know, Fredrik’s going to come in behind him, Fredrik Eliasson. Again, I think many of you know Fredrik from his years when he did Investor Relations for us. Again, another proven leader that brings great expertise and knowledge. So I just wanted to talk about that in general, so before -- Oscar, you talk some about the productivity.

Sure. And Ken, I'll actually take you back here to your specific question on $130 million, but I can't tell you how exciting this opportunity is for me for a host of different reasons, and there's a lot of initiatives. But before I start with that, I can't over emphasize, and frankly, we've all read the overnight critiques on the management changes and appreciate everyone's viewpoints, but you can't under emphasize the importance of how many people we have, 30,000, that over the course of the last few years have built a great disciplined culture around operating our business. Cindy Sanborn, who's in the room with us, is one of those. This is not a business about one person running trains. This is about an entire network and a whole group of people. That structure is in place and working through that. And so my role, as I'll talk about a little bit, is a broader one initially, as I kind of transition to the role. On the $130 million, the great news about it is that there's no new initiative that I have to bring. That plan is in place. As Cindy mentioned, that pipeline is built in. We're in the process of building the pipeline for the next couple of years. That's how the process has always worked. That’s how it will continue to work. So I'll clearly have more individual input into the outer years. But as far as this year, we have a great group of accountable individuals that are going to get at it and we'll pivot from that. So that's the long answer on the $130 million, Ken.

I appreciate the insight there. If I can just get a follow-up then on -- can you talk about what projects are on deck for this year in terms of the National Gateway? Obviously, the Northwest Ohio opened last year. Are there further projects that you see enhancing that ability, I guess, to grow intermodal and others?

Yes, Ken, this is Michael. You're right, the Northwest Ohio Terminal is up, running well. We're just working on expansion of our Columbus Intermodal Terminal. We just opened up a new one in Louisville at the end of last year. On the Clarence side of it, what we're calling phase one of Clarence, which is between Northwest Ohio over to our facility at Chambersburg, Pennsylvania is proceeding on plan. It's underway and we expect by early 2013 that route will be cleared. In addition, we're working very closely with the Maryland Department of Transportation to site a new Intermodal Terminal in Baltimore. And we have a very huge project in the District of Columbia, where we're working to double stack, clear and double track the Virginia Avenue Tunnel. We're in the environmental evaluation -- environmental assessment period at this time. We've been doing community outreach for about a year now. And we're hopeful that, that EA will be dug somewhere midyear this year, mid to late third quarter, and that we would be able to commence construction at that point on, to clear that from Norfolk over through to Chambersburg.

Mr. Tom Wadewitz with JPMorgan. Thomas R. Wadewitz - JP Morgan Chase & Co, Research Division: I know you gave us some comments on the management change, I wonder if there's anything else you can add in terms of the catalyst for why you made the decision, the timing of it? And Oscar, it sounds like the operation’s running well, but do you have any initial thoughts on what you may do to drive that kind of next leg of improvement that Michael was talking about?

Well, Tom, I think you can appreciate our not making further comments as to some of the reasons why David has chosen -- or David has left the company, it's the company decided that he should leave. And we're just going to leave it at that, we're not going to comment further on that at this point. I do think that this is a very positive thing with Oscar and Fredrik moving into the new positions. I think will really propel us into the next level.

Tom, and I'll be a little esoteric on this, because again I've been thinking about this for quite some time, just as a general part of the overall executive team. As we look forward, and as you know very well and as all of the people on the call, the markets in our business are becoming slightly more volatile. And that appears to be a trend that's going to continue for some time. And we will have questions on domestic and export coal and other markets over the course of time. And all our network structure, how we design and build, has to become more nimble and agile. And those are key things that I think I can help with, with regards to leveraging, the tools we already have, the technology organization that's coming along with me, which is why we married the 2. And of course, I can't emphasize the personal leadership of all the experienced people we have in our operating team. So it's about nimble and agility aspects going forward as we fine tune and take this network to the next level. Thomas R. Wadewitz - JP Morgan Chase & Co, Research Division: Okay. Great. I appreciate those comments. The second question for me is on export coal. There's some noise in the market that you may be discounting or perhaps, at the end of the year, were discounting some shipments of export thermal coal perhaps to get the coal flowing into the market, I think thermal coal prices globally had been down. So I don't know if you can comment on that or perhaps comment more broadly about how we should think about modeling your pricing in your export business in 2012, whether there is some risk that your pricing in export coal is down or whether you think that that's more likely to be flattish?

Tom, this is Clarence. Most of our thermal coal that we're selling into the market right now is actually physically sold in some cases, as late as -- or as early as 2010, but most cases, throughout the year in 2011. So they were all sold on forward curves at the time of the API 2 index. Our metallurgical coals are sold both in our tariff, which has not changed and is sold usually in most cases on an annualized basis beginning in April of each year. So one, nothing is materially changed on that metallurgical side. And two, we'll know more as we start to approach that April time frame. There was some things in the coal rags that talked about in December, the pricing for thermal coal into the export market. And there were some cases there where we were, in fact, pricing on what the API 2 index and its forward curve was based on the December numbers. But it was no price cutting at all that was going in there on any kind of existing business that we had. Thomas R. Wadewitz - JP Morgan Chase & Co, Research Division: Okay. So you think flattish pricing and take another look in April.

Yes.

Mr. Bill Greene with Morgan Stanley.

Clarence, just a point of clarification on the export coal. You sort of suggested the strength will continue. I assume that means sort of flattish, maybe slightly up volumes on export coal, but just some clarity there. And if that is the correct interpretation, what are the data points you look for that give you confidence export coal’s not going to fall?

Well, at this point, Bill, as we said earlier, it’s really too early for us to accurately forecast the full year ahead. But we do expect the export coal to be at strong levels and similar to what they were in 2011. And we predicate that on at least 2 of the markets that we're serving, both Asia, which China is still growing at a 6% to 7% clip. India's need, as well as South American need in our particular coal franchise. And then as I pointed out, for the foreseeable future, the thermal contracts that we have are in place or under contract. The shippers are required to take them. We've seen no indications that anyone plans not to take those shipments. So for at least the foreseeable future, we feel very positive.

All right. That's helpful. And then Oscar or Michael, just as we look at the buybacks, you didn't do any in the fourth quarter, I realize you probably had some debt that you were going to pay down. But as you look to '12, given the comments on incremental margins and the growth that you're expecting, it would seem that we should resume here and arguably on an aggressive rate, is that fair?

Bill, I think what we've said is that we have a remaining authority of $700 million, which we will complete this year.

Mr. Chris Ceraso with Crédit Suisse. Christopher J. Ceraso - Crédit Suisse AG, Research Division: A couple of areas. On the Maersk business, can you tell us how much of that is going on existing trains versus how much is going on new trains?

Yes, Chris, this is Clarence Gooden. The principal and preponderance of that Maersk business is going on existing trains. There are exceptions to that. So for example, we have a lot of volume that's coming out of Maersk's new facility called Commonwealth over in Virginia, and that required some new train starts. And then in the Chicago to New York lane, where we had some of our train capacity was filling up. We had to add incremental train starts there. But a lot of it was absorbed within the existing network, particularly in the Southeast. Christopher J. Ceraso - Crédit Suisse AG, Research Division: Okay. And then as a follow-up. You were pretty thorough on your comments about domestic coal, but one follow-up on that. Some of the folks that we've spoken to in the industry have mentioned the $2 level on gas as a price at which we might see it trigger some additional switching. Can you comment on that? Do you agree with that?

Well, I don't know is the truth. I know that below $2.50, it starts to impact the Powder River Basin coal. Having said that, when coal starts -- when natural gas starts approaching those $2 levels, as you're aware, there was a lot of speculation yesterday on that. One, the drill counts start coming down because it's very -- it's not as profitable to drill for the natural gas at that low a rate. Number two, you saw some of the energy companies announce that they will focus more on shale that can produce the liquids, the oil. Number three, then you have to start taking into consideration, what are the mineral leases? When do they expire? So Chris, it's a very complex formula. But let me just say it and conclude it like this, I don't like natural gas this cheap.

Mr. Justin Yagerman with Deutsche Bank.

Clarence, your comments on the response to Bill Greene on export coal, it sounded like the thermal side of that export is take-or-pay. And I was just curious that when we look at this year's export coal mix, how much ended up as thermal coal? How long did those contracts last for? So I guess what I'm trying to get at is, putting met coal aside, which sounds a bit more volatile, what's the baseline expectation for coal in 2012 on the export side?

Our thermal mix was about 38% last year. It is projected to be in that area to slightly higher this year, that's point number one. Point number two, those thermal contracts were on a yearly basis in general, and the prognostication for those thermal contracts, we really won't know until later in the year because as you're aware, there's been -- we have moderating temperatures in the United States, the Eastern part. We have moderating temperatures in Northern Europe. And we got drought conditions in South America. So a lot of this stuff is going to be influenced by the weather. And I guess your second part of it, Justin, help me, was on metallurgical?

No. No, it was more the duration of when does these take-or-pay contracts last through?

A lot of them will last through most of 2012.

All right. Great. And then, I guess, the next question is on the intermodal side. I was curious how long the trains that you're currently running are and what you see as capacity on those trains. And then you gave us some quantification on that on the coal side but not on the intermodal side. And then when I'm looking at the Maersk business coming on, and you resigned a contract with Schneider on the domestic side, should we expect any change in terms of the profitability of the overall business with these 2 new contracts being an influence this year?

Justin, this is Cindy. Let me address the question about capacity on the intermodal network. We see about 15% to 20% capacity capability on the existing trains that we're operating. So we see a great opportunity to take on the growth that we're anticipating and do so with the existing network. And I'll let Clarence answer the Schneider question.

Justin, we feel very positive on the profitability of all of the Intermodal business that we're handling right now. In fact, it's helping us to justify the capital investments that we're putting into it. So in my view, it's a very positive story.

Okay. Great. And if I could ask one more. Just on the MS&O side, Oscar, as we look out at 2012, obviously this past quarter, you had a bit of a bogey if you didn't pick up on the $40 million from last year. As we look out sequentially for the first few quarters of this year, are there any of those types of items that we should be aware of as we’re modeling out?

We don't typically talk about a particular line item, Justin, particularly talk about that. But let me rephrase your question just a little bit. The MS&O line was the line item in this quarter that if I look at sequentially, operations ran well, volume ticked up, the operating expenses were well controlled. We had a host of small items in that MS&O line that, frankly, I own, we're not controlling as well as they should. And that was the blip this year. As we go forward, we got that under control. And again, that MS&O line, as you know, always moves around a little bit. But the sort of unique items that have hit us at year end are not going to be repeated.

Mr. Gary Chase with Barclays Capital.

I wondered if Michael or maybe Oscar could take a stab at this one. I wondered if you could give us the qualitative sense or how would you describe qualitatively what the difference in the network is today versus, say, where you were operating through the majority of 2010. I know the service levels have gotten back to where you like, but I also think the cost outcomes aren't quite what you would like. So I'm wondering, what is it qualitatively that describes it? And how do we get out of this? What gives you the confidence that you can get back to the right kinds of answers there?

Well, if you go back a little bit, as you know, in 2009, we very aggressively took out cost. Actually, had our second best operating year ever, operating income year, even with volumes down about 15%. As we moved into '10, Gary, we were very conscious to not bring those resources back more quickly than we needed to. And so we, through a good portion of '10, did not bring back many resources. And quite frankly, we may have been actually a little too stingy at that because then, when we got into the beginning of '11, especially the first quarter, volumes were up 7%. And we started off the year pretty well, but then we got hit with a sequence of storms. And I think that really showed that we probably didn't bring the resources back as quickly as we needed to. So then as we went into the second quarter, and especially the third quarter, what we were doing basically is restoring those resource levels to where they need to do to provide the service our customers needed. So that's why I think you saw our margins in both the third and fourth quarter somewhat less attractive. Because not only were we bringing the resources back, but the volumes really didn't behave as we expected them to in the fourth quarter. October and November were actually fairly weak. It rebounded in December, which was encouraging to us going into this year. So I think it's a matter of we were a little too tight in bringing back these resources quickly, and we had to correct that during the course of this year. That being said, it puts us in a very good position going into '12 because we have those resources in place. We have capacities on both our merchandise and intermodal trains to where we can get back to those incremental margins that you like to see and we like to see, quite frankly, and are necessary to get to our goal of 65%.

And I would just add one very simple thing. In all that process, over that course of time with those beyond the qualitative side, I think our teams have quantitatively and analytically understood what the drivers behind those issues. So when Michael talks about we're a little too stingy on resources, we know the pivot points as to where we reach that threshold. So we now have a lot of science both on the downside '09 and on the recovery. And I think that's exciting as we go through that. Getting back to the qualitative side, our increasingly younger management team that's out there has got to experience both ups and downs, and that is critical in running an operation. Because they've got to see both those sides, and that's going to bode well for us in the future.

And to get to these incrementals, is volume required or is it a situation where you could decide to take down the absolute level of resources to get to that cost outcome if the volumes disappoint a little bit?

Well, Gary, if the volumes aren't there, obviously, we'll adapt to that as we did in '10 -- I mean, '09. Sorry, they all meld together after a while. So some of it depends what business it is. So stuff that is unit train in nature, grain, coal, aggregates, it's very easy to pull those resources out very quickly, and we would if the markets weren't there. It's a little trickier in the scheduled networks of intermodal and merchandise. Small volume decreases, you really can't do much, bigger ones you can. All of that being said though, as Clarence stated, and as we believe, we actually see the economy continuing to grow. We see ourselves growing faster than that economy. So we really think we're well positioned to handle that growth. But again, should it not be there, we will make the actions to adjust the resource levels.

I think that's important. Our levers are price, volume and productivity. And so as we've shown before that we can do, we'll pull on all those, but volume, of course, is an important portion of that.

Mr. Chris Wetherbee with Citi.

Maybe sticking on the expense side. Oscar, you highlighted that the first quarter headcount likely to be up less than 1% sequentially in the first quarter. Assuming the volume plan kind of plays out as you would expect it for the full year, is that the absolute level of headcount that probably feels good for the volumes that you expect to move? Or how should we think about that as we go forward through the year?

Again, as you can appreciate, with the economy still fluid in a lot of the questions [indiscernible], we may need to adjust up or down. But right now, our sort of projection is that we would be up really only marginally above our year end 2011 levels. And certainly, less than a one-to-one basis with regards to volume.

Okay. And I think I missed your cost inflation on that. If you could just remind me what the cost inflation was on the headcount basis, I think you highlighted in your prepared remarks.

I think we said $15 million, 1-5, per quarter.

Okay. That's helpful. And then just a follow-up on the export coal side. It sounds like about 60% of the export coal has the opportunity for repricing kind of normally on the April 1 coal year. Now Clarence, just trying to get a sense in a flattish type of environment or maybe some growth, maybe some declines. How do you feel about the pricing opportunity for export coal as you move forward into the second quarter?

Well, obviously, if the demand is lacking some, the pricing opportunities that we have is lacking some. But I think it's important to note that there's not 100% direct correlation between the delivered price of the coal and what our transportation price is in the coal. So if the year pans out the way that we think it's going to pan out, we expect to have a year similar to what we had this past year.

Okay. So pricing up in that piece of the business, that’s helpful.

Mr. Jason Seidl with Dahlman Rose. Jason H. Seidl - Dahlman Rose & Company, LLC, Research Division: Two quick questions sticking on a common theme here on both coal and intermodal. How much backlog do you guys have for steam export that was priced off of API 2 in late 2010 and 2011, what percent should we be thinking about?

Help me on the question, when you say backlog, you mean coal that has been sold but not shipped? Jason H. Seidl - Dahlman Rose & Company, LLC, Research Division: Correct.

I don't know. Jason H. Seidl - Dahlman Rose & Company, LLC, Research Division: Looks like I stumped them all. If you get the number, maybe you can get back to me offline. On the next question, just help me through incremental margins on the intermodal product, because I've always understood it intermodal business that goes on existing trains tended to actually have pretty high incremental margins, which is contrary to people's historical belief on the intermodal product. Is that still the case as we think about some of this new Maersk business that is going on existing CSX trains?

It's Oscar, let me take that one if I could. You're absolutely right, and as Cindy mentioned with a 15% to 20% capacity level, where we can, we are filling up and lengthening trains. And of course, because it's a new customer win and sure [ph] service, we do have multiple train starts that support it. But yes, the incremental margins on the intermodal business is probably equal to some of the margins on some of our core business like coal. Jason H. Seidl - Dahlman Rose & Company, LLC, Research Division: Now Oscar, what percent did you say go on existing trains, did you say it was over 50%? I'm not sure if you gave a number or not.

Sorry, we have 15%, 1-5, to 20% capacity on our existing network. Where we can, that Maersk business is going into that capacity. In addition, we are having train starts in certain origin-destination pairs, as you can imagine, where we didn’t before. The percentage between the 2, I don't have exact knowledge but we work that into our network.

Do you have a read on that, how much is incremental on trains and how much is new starts?

Most of it, all except the New York-Chicago and the Portsmouth-Chicago went on incremental trains.

More than half’s going on incremental trains.

Mr. David Vernon with Bernstein. David Vernon - Sanford C. Bernstein & Co., LLC., Research Division: Can you talk a little bit about the average duration of utility coal contracts? How many may be actually coming up for renewal in 2012 and whether or not take-or-pay -- or how the take-or-pay provisions of the utility contract may have affected volumes last year?

David, there's a couple of answers to that. Yes, we do have take-or-pay provisions that impacted our utility contracts last year. And there were, in fact, liquidated damages paid. We have no major legacy contracts in our coal coming up for renewal in 2012. David Vernon - Sanford C. Bernstein & Co., LLC., Research Division: But what about like sort of like an average duration? I would assume that some of the non-legacy stuff would also be coming up in this coming year?

Well, I'd prefer not to give you the average duration of our contracts with our customers because of the market conditions on that. And it varies, too. David Vernon - Sanford C. Bernstein & Co., LLC., Research Division: Okay. And then maybe just as a quick follow-up. To the extent the expectations of the volume for the Maersk business may have been priced on kind of a backward-looking basis, are you kind of still comfortable with what the market is kind of expecting on the volume growth side for the intermodal traffic you're going to get for Maersk, given the weakness in the international markets?

Yes, we are.

Mr. John Larkin with Stifel, Nicolaus. John G. Larkin - Stifel, Nicolaus & Co., Inc., Research Division: Could you help me understand why, when you use the 13-to-13 week comparison, volume was up only 1%, whereas if you use the AAR stats, volume was up 4% year-over-year, that was a little confusing.

John, this is David. When you think about the AAR reported basis versus the CSX reported basis, the AAR data was actually based on a consistent 13-week period for both 2011 and 2010, which included the Christmas week. When you look at our reported 1% on a comparable basis, what happens there is we, in essence, removed the 53rd week, which was the Christmas-New Year's week last year, which is a very weak year. That is the discrepancy between us being up 1% on our comparable basis versus the AAR being up close to 4%, where the Christmas week is included in both periods.

And you can give him the detail of that conversation or calculation offline if he wishes.

Yes. I can certainly do that. John G. Larkin - Stifel, Nicolaus & Co., Inc., Research Division: All right. And one other, maybe for Oscar, you had provided some insight as to what the operating ratio for the full year would have been without increased fuel cost and the surcharge effect. Do you have a similar estimate for the fourth quarter?

Yes. It would have been about 30 basis points. So maybe we would have been 71.2.

Mr. Peter Nesvold with Jefferies. H. Peter Nesvold - Jefferies & Company, Inc., Research Division: Maybe just a little bit of color on yields in Phosphates & Fertilizer, which took a step down. And then Metals, which took a big step up. And I just want to make sure I'm modeling this right going forward.

Peter, the yield in the Phosphates & Fertilizer is directly related to our mix. So you get involved in the short-haul phosphate just going to the export peers at Rockport for export. In the case of our Metals franchise, as you saw, our volumes went up in our Metals business pretty strongly. And so we simply took those covered coal cars and all that are in short supply and priced to the market, took the rates up. H. Peter Nesvold - Jefferies & Company, Inc., Research Division: So it sounds like the Metals one might be arguably sustainable since auto production has been improving. The Phosphates & Ferts one might be a little bit more temporary?

That's right.

Mr. Matt Troy with Susquehanna Financial.

Two questions. I guess, one, Clarence, I’ve always appreciated your very astute read on the economy. Just curious, we've seen some weakness in chemicals recently across the industry. Yours held up relatively well. Just wanted to get a sense on the chemical front where you're hearing about either destocking or inventory levels being okay or an intent to restock and then more broadly, what's your sense of optimism and intention with your customers in terms of restocking across other industries in 2012?

Matt, I was looking at some numbers yesterday and for the last 12 months, the inventory numbers that have come out from the Institute of Supply and Management have been one constant number. And that inventory number has been 1.27, and it's been pretty much like that for 12 months. So somebody's reached a new norm and has decided I'm not going to keep a lot of inventory around in my warehouses, and I'm going to order it and keep the logistics -- keep it in the logistics pipeline when I need it. Chemical side of our business, what we're seeing happening for chemical companies is because of the low natural gas prices, and the fact that the U.S. plastics markets is predicated on chemicals, natural gas as opposed to the rest of the world, which is as you know is on petroleum products, the U.S. chemical industry has been very competitive on a worldwide basis. That doesn't necessarily help CSX per se, but it does help our chemical customers. A lot of that's exported out of Texas ports and out of the Gulf ports directly into the world. So we don't see as much as probably we should see about it. The good news is long term, what's good for our customers is good for us.

Right. So is it fair to characterize the broader destocking of inventory policy as kind of a wait and see?

I think so.

Okay. And my second question would simply be just a straightforward one. In terms of the percentage of contracts that are booked for 2012, what percentage of revenues is now on paper with the ink dry?

70%.

Mr. Walter Spracklin with RBC Capital Markets.

Just a couple of questions, maybe Clarence, you could give us a little bit of color. You noted that 71% of your revenue or your volumes are in the favorable camp. Can you pick out 1 or 2 here that really give you the most, you get excited about the most if we were to sort of characterize some as a little bit more heavy growth than others. Which ones would you pick out there?

I think our automotive industry is in a very positive growth situation. The industry itself is projected to be at $13.8 million vehicles and light vehicle production. There are some analysts, more than not, that think that number could be a little low, it could go up. For us, in particular, a huge growth opportunity for us this year, we're going to be very proud of, is our intermodal franchise. We have business now under contract with 7 of the 10 largest steamship lines in the world, with 4 of the largest motor carrier operations in North America. Our IMC community -- intermodal marketing companies -- that we do business with is very strong. The connections that we have with the Western carriers are all positive in our intermodal business. So there's 2 that we feel very strongly about. And then it's a little too soon right now, Walter, to tell, but as we start looking to see what the crops are going to look like this spring and this summer, that too could be a very positive thing for us.

Okay. That's great color. And sticking with you, Clarence, the service levels were a challenge last year. You've done a great job already. We see it in the numbers, so congrats to your operations team on the success there. And I'm just wondering, Clarence, how does that feed into your customer perception of that service? In other words, did they let you hear it last year when it came to those service levels? And are you seeing that reception change with regards to the conversation you're having with your customers on that service standpoint?

Yes. I'll give you 2 answers to that. The first question was did our customers let us know when our service got bad? Every day. Number two is, have they seen a difference in it? And they started seeing that difference in it actually last fall. There's a time lag in our business with when things start getting better before people see it, but we really moving out. And we just had a customer advisory council meeting a couple weeks ago here in Jacksonville, where we bring in some of our customers both large, small and medium and talk about issues. And they had nothing but glowing remarks to make about Cindy and her team. And we have several internal initiatives that we kicked off to improve our service, all of them getting positive response from within our company from the ground level up to the ballast level, the men and women that actually make this place work. So to Oscar's point, earlier today, our operations team is extremely strong.

Mr. Ben Hartford with Baird. Benjamin J. Hartford - Robert W. Baird & Co. Incorporated, Research Division: I think this question is for Cindy. To what extent -- if volumes were to come back specifically on the domestic coal side quicker than expected, if we were to experience positive growth in that commodity, some of the resources that you have redeployed into other networks, to what extent can you return those resources back to service the domestic coal business? And maybe alternatively, how much do you have in the way of per load equipment and access to other equipment if volumes were to rebound more quickly than expected?

We have the ability to redeploy people, locomotives and, of course, crews to handle the unit train network. As you know, domestic coal is a unit train business. And if we needed to be able to do that, we have the capacity to do that fairly well. At the present time, since domestic coal is moving throughout our network as opposed to specific lanes like maybe export coal, we have not needed to make any adjustments to headcount at this point or manpower at this point. But if we need to, we will. And we think we're able to handle what is coming our way and any more fairly, readily well.

And Cindy, don’t we have about 70 locomotives in active storage you could pull out very quickly if -- we would love to have that problem, Ben, and we would be able to handle it.

That’s right. We have 70 locomotives in storage still. Benjamin J. Hartford - Robert W. Baird & Co. Incorporated, Research Division: And what's the count on per load conductors, if any?

None at this time.

Mr. Jeff Kauffman with Sterne Agee. Jeffrey A. Kauffman - Sterne Agee & Leach Inc., Research Division: Two quick questions. The first may be more for Cindy. I see your on-time origination’s up to 82%, which is fantastic. But your on-time arrival’s still kind of in that 72% range. What's accounting for that difference and what's it take to get back to the 78%, 79% arrival range?

Well, as I mentioned on the presentation, all of our service measurements look extremely strong, both the ones we're displaying here and our internal ones as well. So we feel really good about the momentum that we have, that we've been able to drive from the third and into the fourth quarter. As far as the arrivals specifically, that's a measurement we'll continue to work on. I think it's still in front of us as the rest of our measurements are to continue our great progress in maintaining our service at very high levels.

So that's about a 10-point gap between originations and arrivals. And I'd say, historically, Jeff, the best we've probably done is something in the 6% to 7% gap. And I think as we move through this year, we'll probably move more toward that kind of spread. Jeffrey A. Kauffman - Sterne Agee & Leach Inc., Research Division: Okay. And then one quick follow-up on the coal pricing, I know a lot of guys hit it. If the API price is flat versus where it was, say, 12 months ago right now and the coal mine prices are down, are you basically implying that there's not as much pressure on the rail rate portion of that since the mines are bearing more the brunt of the API difference?

That's what we're implying is that there's less volatility in the transportation rates. There's some now, I don't want to mislead you, there is some, but not to the extent that it is on the commodity price itself.

And we didn't get the run up they did during the... Jeffrey A. Kauffman - Sterne Agee & Leach Inc., Research Division: Right. Right, you didn't get the heady run up either. But I just wanted to imply that you're saying the rail rates are holding reasonably steady.

Yes.

Mr. Anthony Gallo with Wells Fargo.

I want to refer to Oscar's Slide 32. If I look at the cost run rate in the fourth quarter versus the first 3 quarters, I come up with about $91 million of difference. Is that the right way to think about the cost associated with being under resourced?

I think I would use more -- it's tough to figure out on the points. I think a better barometer is probably on the operating productivity side chart that Cindy had, which is more like in the $50 million to $60 million. Again, there's a lot of math that goes between the 2, but I'd go more with the $60 million than what’s on this chart. This includes a whole host of other items, some are unique, some are not. I think that the productivity measure’s the more of the one that emphasizes how we're running as an operating company.

Okay. So when we think about your comment about first half 2011 incremental margins, we can use that as sort of a placeholder to maybe think about a more normalized number?

Yes. I think you could.

Okay. And then last question. The $130 million targeted productivity improvements, how much of that is volume leverage? And how much of that is actually cost coming out of the system?

I'll take that one. This is Cindy, the $130 million productivity amount is expected with the volume increases that we expect to see in 2012. So we feel very good about the areas that we've targeted. And we have good solid plans in place to execute.

But it all comes from basically volume growth?

No. No, the opposite. We should...

Obviously, we get some efficiencies from running more volume through there, and then we have actions that reduce the cost regardless of the volumes.

Correct.

Do you have a feel of the percentage between those 2 buckets?

No. No, not off the top of my head, Michael.

Anthony, I'm sorry. We don't have a good answer on that.

But I will reflect on the last question on productivity. To be clear -- I know that was a little, maybe, unclear -- our productivity measures are cost driven. It is -- the concept, the math behind it is doing more things with similar resources or a similar volume with less resources. That's how the math and algorithms are built in, so it is a cost driven function. There are efficiencies and all that, but the $130 million is a cost takeout.

Real dollars coming out.

Real dollars coming out across a host of departments.

Mr. Keith Schoonmaker with Morningstar.

Regulation compliance is pulling about 12% of budgeted CapEx for this year, somewhere north of, I guess, $250 million. How will this increase in the next couple of years as we get closer to the PTC implementation deadline? And second, if no PTC is required, would you reduce CapEx or deploy this capital elsewhere? And I guess, if the latter, what's being displaced?

Okay. Let me address that. So one, we're going to spend well over $1 billion deploying this over the next few years. I think our estimates this year about 250, we're going to be spending this year on that, probably similar amounts over the next several years. There is some possibility -- I think there's no possibility this will not be there. It's the law. I don't think there's momentum to repeal that law. So we will be spending those moneys. There is some possibility that the time to implement will be extended beyond 2015. The FRA has to give a report to the Congress in, I think, it's March of this year, March 1 actually, to say where is the industry on the implementation of this. And as a matter of fact, we're meeting with the FRA administrator, Szabo, tomorrow as an industry. Our view at CSX is that given the complications with developing the new technology and the delay in receipt of some of those new technologies, that it's unlikely that 2015 will be achievable, and that there will be a need to extend that deadline just because it cannot be implemented in that time frame. We would hope the FRA would have a similar view and recommend to Congress that, that time line be extended, which obviously would make it easier to do a more orderly implementation of it. On the question of what is being in effect pushed out by the PTC. Obviously, I think we would be doing additional purchase of certain car types, probably buy a few more locomotives, maybe a little bit more into our track structure, so we’ve had to trim each of those back some to accommodate this and stay within the 18% of our revenues, which we are going to spend over the next few years through 2015.

Mr. Donald Broughton with Avondale Partners.

This may be the most layup question I've ever given you. If I just heard you say, the opposite holds true, and as did they say, no, you must get your PTC in place by 2015. We would see, I'm guessing a significant ramp over the current PTC spend you're making right now?

No. Actually, we're doing some of the preparatory work that we have to do to our locomotives and to our signal systems. We are doing what we can absent the technology being ready yet. So for instance, we know how big the component is going to be on the locomotive. So we're making the space to plug it in when it comes. So we are spending the money to be ready. If they said it must be by 2015, we are working to have it done by 2015. However, there may be certain components that are being developed that will not be available in time to be deployed. And if that's the case, they can insist all they want we make 2015, it is not going be practically possible because the devices won't be available.

So at this juncture, the holdback would not be money or the workers to put it in place, it would be the actual technology.

We hired roughly 500 people to help in signal installation last year. That work is going on this year. We are certainly going to spend the money. It's the law. We're going to obey the law. The issue is the technology being developed is not coming as quickly as one would hope.

Thank you. And that concludes the question-and-answer session. I'll turn the call back over to the speakers.

Well, thank you all for your interest and attention. And we certainly appreciate all the good questions this morning. We'll see you next quarter.

This concludes today's teleconference. Thank you for your participation in today's call. You may disconnect your lines at this time.