CSX Corporation (CSX) Q2 2012 Earnings Report, Transcript and Summary

David Baggs - Vice President of Capital Markets and Investor Relations Michael Jon Ward - Chairman, Chief Executive Officer, President, Chairman of Executive Committee, Chief Executive Officer of Csx Transportation Inc and resident of Csx Transportation Inc Clarence W. Gooden - Chief Commercial Officer, Executive Vice President of Sales and Marketing, Chief Commercial Officer of Csx Transportation Inc and Executive Vice President of Csx Transportation Inc Oscar Munoz - Chief Operating Officer and Executive Vice President Fredrik J. Eliasson - Chief Financial Officer and Executive Vice President

William J. Greene - Morgan Stanley, Research Division Kevin Crissey - UBS Investment Bank, Research Division Ken Hoexter - BofA Merrill Lynch, Research Division Thomas R. Wadewitz - JP Morgan Chase & Co, Research Division Brandon R. Oglenski - Barclays Capital, Research Division Christian Wetherbee - Citigroup Inc, Research Division Christopher J. Ceraso - Crédit Suisse AG, Research Division Justin B. Yagerman - Deutsche Bank AG, Research Division Benjamin J. Hartford - Robert W. Baird & Co. Incorporated, Research Division Jason H. Seidl - Dahlman Rose & Company, LLC, Research Division David Vernon - Sanford C. Bernstein & Co., LLC., Research Division John G. Larkin - Stifel, Nicolaus & Co., Inc., Research Division Cherilyn Radbourne - TD Securities Equity Research Anthony P. Gallo - Wells Fargo Securities, LLC, Research Division H. Peter Nesvold - Jefferies & Company, Inc., Research Division Walter Spracklin - RBC Capital Markets, LLC, Research Division Jeffrey A. Kauffman - Sterne Agee & Leach Inc., Research Division Mark A. Levin - BB&T Capital Markets, Research Division Scott H. Group - Wolfe Trahan & Co.

Good morning, ladies and gentlemen, and welcome to the CSX Corporation Second Quarter 2012 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. Sir, you may begin.

Thank you, Lori, and good morning, again, and welcome to CSX Corporation's Second Quarter 2012 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 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; Oscar Munoz, Chief Operating Officer; and Fredrik Eliasson, Chief Financial Officer. Now before we begin the formal part of our program, let me remind everyone that the presentation and other statements made by the company contain forward-looking statements. You 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 covering CSX today, 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 Corporation's Chairman, President and Chief Executive Officer, Michael Ward. Michael?

Well, thank you, David, and good morning, everyone. Last night, CSX was pleased to report its 10th consecutive quarter of year-over-year earnings growth with earnings per share of $0.49, up 7% from the same period last year. We continued to be encouraged by how the business performs even in tough conditions. In this case, a very significant headwind in our utility coal business. In spite of that decline, volume and revenue essentially held flat, thanks in part to increases at Export Coal, Intermodal and Automotive. More importantly, our employees achieved at or near record performance in key measures of safety and service, continued to adjust resource levels in response to the utility coal decline and delivered significant productivity to both existing and new initiatives. As a result, we increased our operating income to $943 million and achieved a 60 basis point improvement in the operating ratio to 68.7%. And now we'll provide a more in-depth review of our results starting with Clarence, who will discuss what we are seeing in the marketplace. Clarence?

Thank you, Michael, and good morning, everyone. Total second quarter revenue of just over $3 billion was essentially flat compared to 2011 reflecting a more moderate economic environment. Starting at the left of the chart, fuel recovery increased $17 million in the quarter. Moving to the right, volume-related revenue had an unfavorable impact of $8 million in the quarter, as volume growth in Export Coal, Intermodal and merchandise was more than offset by the significant decline in utility coal. Continuing to the right, the combined effect of rate and mix was $16 million unfavorable in the second quarter. The benefit of core pricing gains was more than offset by unfavorable mix associated with higher Intermodal growth and declining coal volume. Now let's take a look at each of the major markets in more detail starting with merchandise. Overall, merchandise revenue increased 6% driven by a 1% growth in volume and a 6% increase in revenue per unit, reflecting rate increases across all markets due to higher yields and fuel recovery. Automotive was a key driver in the industrial sector, growing 27% as North American light vehicle production increased 25% in the quarter. The chemicals market grew 1% with frac sand and petroleum products being the primary drivers. In the construction sector, growth in building products was offset by a decline in aggregate shipments due to the completion of several stimulus projects. In the agricultural sector, volume declined across all major commodities. Corn shipments to the Southeast for animal feed were lower as a strong local wheat crop displaced Midwestern corn. Phosphate shipments declined as buyers delayed purchases in the expectation of moderating commodity prices. Finally, ethanol shipments softened as a result of lower gasoline demand. Looking forward, the Automotive market will continue to drive growth in the industrial sector. In addition, we continue to see growth opportunities in chemicals and Metals, particularly in commodities that support the oil and gas industry. In the construction sector, aggregate shipments will remain challenged, while recovering housing starts will drive continued growth in building products. Finally, we expect the agricultural sector to be stable with an increase of phosphate shipments being offset by a lower ethanol demand. Turning to the next slide, let's look at the Intermodal markets. Intermodal revenue increased 10% to $408 million driven by an 8% increase in volume. Domestic volume was up 7%, setting a second quarter record. Growth was driven by highway to rail intermodal conversions, the continued success of our UMAX interline container program and new markets and lanes generating growth with existing business partners. International volume grew 9% driven by the successful onboarding of the new Maersk business. Looking forward, strategic investments, such as the National Gateway initiative and our Northwest Ohio Terminal, position CSX to compete for an estimated 9 million truckload opportunity. These loads, with a length of haul exceeding 550 miles that originate or terminate in our service territory. Our state-of-the-art terminal in Northwest Ohio increases capacity, expands our service offering by enabling connections between new and existing markets, and improves transit times. For example, the container transit times in the West Coast via Chicago to the New York market has improved by over a day. We expect healthy growth to continue long term as new terminals such as Louisville and capacity expansions, including Columbus, Charlotte, and Cincinnati, drive further highway-to-rail conversions. Turning to the next slide, let's look at the coal markets. Coal revenue declined 14% as strength in Export Coal partially offset significant weakness in utility coal volume. Domestic utility tons declined 37% as natural gas prices remain low, leading to the continued displacement of coal at some utilities. In addition, electrical generation declined in the Eastern United States. Partially offsetting this weakness, export coal volume grew 41% to 14.7 million tons in the quarter as demand was strong for U.S. thermal coal. Looking ahead, even though the market for export coal is volatile, we clearly expect to exceed the tons shipped in 2011 as the demand for U.S. coal will remain strong in the second half although not at the level we saw in the first half. At the same time, domestic utility volumes are expected to face continued challenges due to low natural gas prices, above normal inventory levels and environmental regulations. Headwinds should begin to moderate somewhat through the balance of this year. Let's turn to the outlook for the third quarter. Looking forward to the third quarter, we recognize the economic environment has moderated but remain optimistic with a stable or favorable outlook in markets that represent nearly 80% of our total volume. Intermodal growth will lead the way, as our strategic network investments and strong service delivery will continue to support highway-to-rail conversions. We expect export coal shipments will grow, although at a more moderate pace as increased thermal coal volume is expected to more than offset softness in metallurgical coal demand. In the industrial sector, strong North American light vehicle production will drive increased automobile and light truck shipments. The chemicals market will also grow as our petrochemical customers benefit from low natural gas prices, and we capture the opportunities created by the growing domestic oil and gas industry. The overall outlook for the agricultural sector is neutral with dry conditions reducing an anticipated strong Midwest harvest and ethanol shipments impacted by lower demands and higher inventories. In the construction sector, we expect a continued recovery in demand for building materials, including lumber and panel products while aggregate and way shipments will remain challenged. And finally, utility and industrial coal shipments will remain well below the prior year levels. Let me wrap up on the next slide. Looking at the state of the economy, the Purchasing Managers' Index registered a reading of 49.7 in June, a significant decline from May's 53.5 reading. Please recall that a reading above 50 indicates continued expansion. At the same time, the customer inventories index registered a reading of 48.5, up from 43.5 in May, indicating inventories are growing, but still below normal levels. And while the broader economic backdrop still remains favorable, the broader indicators we follow are mixed. Although these indicators generally still point to continued growth, it is expected to be at a more modest pace. As such, our overall outlook for the third quarter is still positive as we anticipate stable to favorable conditions in the CSX markets that account for nearly 80% of our volume. While utility coal volume will continue to be challenged by low gas prices and high utility stockpiles, we expect these headwinds to moderate somewhat through the balance of the year. Finally, we are delivering high service levels and environmentally-friendly solutions which create compelling values for our customers and drives our long-term growth. Thank you, and let met turn the presentation over to Oscar to review our operating results.

Thank you, Clarence, and good morning to everyone, our employees that are listening, our customers and of course, our investors and share owners. I'm actually very excited to talk about our performance this quarter. As you know, at CSX, operational success has been built on our employees' commitment to provide customer service at the highest levels and to drive greater efficiency while at the same time maintaining a constant focus on safety. The second quarter results is a clear reflection of that commitment as we, again, achieved record or near-record performance in both safety and service. Furthermore, CSX's more fluid network is driving greater operational efficiencies and further margin expansion. From a strategic perspective, we are constantly refining procedures and resource levels to create faster and more efficient ways to provide service excellence. This requires us to change and adapt to customer needs more quickly, especially in the more dynamic times that we face today. This also means allocating resources properly across the network to stay nimble and be ready to support new business opportunities. We believe that this will enable us to provide a better business product to our customers and stronger returns to our share owners in the near and the long term. So with that, let's review the results for the quarter and starting with safety. As you know, safety is critically important in our industry. It's ingrained in CSX's culture, which not only has made CSX a leader in one of the nation's safest industries, but it also translates into the high-quality service we provide customers. At the chart, look at the personal injury rate on the left, you can see that CSX employees produced an all-time record of 0.66, representing a 27% improvement year-over-year. This is a direct result of the company's strong safety culture. Chart on the right shows the FRA train accident rate, which improved 21% to 1.81. Much like the personal injury rate, this improvement is in part a result of our employees' efforts but also reflects CSX's continued development and the implementation of the early detection technologies that enable us to stay ahead of potential train accidents. Now if we turn on the next slide, let's review our on-time performance. Here, you can see on-time originations on the left and arrivals on the right. In addition, we've, again, overlaid 6- and 12-month trend lines. As a reminder, the on-time results for the quarter, what we fundamentally produced for our customers, are represented by the bars and the technicals are represented by the 6-month moving average in black and the 12-month moving average in red. When quarterly results are below the trend lines, it's an early indication that we need to take corrective action in order to avoid a longer-term negative trend. Likewise, when the results are above the trend line, it's a signal that CSX's strong momentum in its service performance. In the second quarter, we, again, achieved an all-time high of 89% in on-time originations and we are close to record highs in on-time arrivals at 78%. Our commitment to service continues to strengthen and is supported by the positive feedback we are receiving directly from our customers and indirectly through independent market research efforts conducted quarterly. Now turning to system performance on the next slide. Terminal dwell is a strong indicator of how well we are utilizing our assets. Looking at the chart on the left, you see dwell improved 11% to 23.2 hours and the trend lines, again reflect strong momentum. The chart on the right, velocity, again showed strong improvement, up 13% to 22.4 miles per hour. A more fluid network allows us to utilize assets more effectively and to be nimble in providing consistent levels of service to customers even while the environment around us is changing. Now let's discuss velocity by market in more detail on the next chart. Velocity was up across all 3 networks on a year-over-year basis as were both the 6- and 12-month trend lines. In coal, despite the continued domestic headwinds, we are seeing improvements in service and productivity. Train length, again, increased with 107 cars average for the quarter. Through improved productivity and network fluidity, CSX was also able to deliver a record 14.7 million tons of coal to the export market. Turning to Intermodal, velocity remained at high levels while supporting 8% volume growth. Higher velocity in the Intermodal network gives us the ability to reach markets more quickly, better utilize network capacity and be more responsive to the business demands of our growing Intermodal business. A key indicator of service quality is container and trailer availability, which improved to the mid-80s for the quarter and represents the percentage of loaded boxes ready for on-time pickup. Finally, the merchandise network continues to perform well. With terminal dwell down 11% and velocity up 12%, we are making more of the deliveries to customers on time and remain in a great position to support growth in these markets. Now let's look at productivity and resource alignment on the next slide. We entered 2012 with high expectations for customer service and allocated the appropriate amount of resources to drive that result. Moving through the year, the challenge has been to maintain its high level of service while improving productivity and be able to adjust resources to match the lower volume of utility coal. So let's talk on the productivity front. The goal at the beginning of 2012 was to deliver savings in excess of $130 million for the year. The operations team has exceeded expectations, and we are now targeting full year productivity levels in excess of $180 million. Train crews are operating more efficiently with less overtime and fewer re-crews. At the same time, our strong service product translates directly into faster cycle times for our assets. In addition, the implementation of new technology and other initiatives have improved fuel efficiency. On the resource front, as utility coal weakened, we continued to take aggressive steps to adjust T&E resources in those affected regions. In addition, after a smooth start to the spring, a peak shipping season, we continued to store locomotives. These targeted resource adjustments have reduced cost while maintaining service. Combined, the productivity benefits we are producing and the savings we are realizing from the resource adjustments helped drive the 60 basis point improvement in the company's second quarter operating ratio. On the next slide, let's talk more specifically about our resource adjustments. The chart on the left represents the total T&E workforce with the blue portion of the bars representing full-time employees and the gold portion representing those employees on furlough retention boards. While utilizing furlough retention boards result in a higher headcount than with traditional furloughs, CSX still realizes lower labor costs and retains the flexibility with its manpower to meet attrition and service demands. We have this flexibility because it's easier and quicker to bring an employee off the retention board than the longer process of bringing an employee back from traditional furlough. On the chart in the right, you can also see active locomotives peaked during the first quarter of this year. Since then, we've been storing excess power. Again, the decision to store locomotives is aimed at saving cost but not at the price of service or flexibility. Let me wrap up on the last slide. As I said at the start, the story of excellence at CSX has been developed over many years, and the commitment from our employees is as strong as ever, which is clearly indicated in our second quarter performance. Our safety results continue to reflect our position as an industry leader, with record results achieved with employee commitment and utilization of new technology. Service remained at high levels, and we will not stop on our pursuit of delivering value to customers. As Clarence mentioned, the strong service product drives value for customers, which in turn drives inflation plus pricing and volume growth and long-term value for you, our owners. While we continue to produce a superior service product for customers, we will also generate greater operational efficiency, and we fully expect to realize productivity savings that will exceed $180 million this year. So in summary, our employees are engaged and remain committed in driving safety, service and productivity excellence. So with that, let me turn the presentation over to Fredrik to review the financials.

Thank you, Oscar, and good morning, everyone. In the second quarter, CSX overcame significant challenges in the utility coal markets to once again produce year-over-year earnings growth. Looking at the top of this slide, revenue was essentially flat, at the same time expenses were down 1%, reflecting the productivity gains we have made, as well as the resource adjustments taken to adapt to changing conditions in coal while maintaining high levels of customer service. As a result, second quarter operating income was $943 million, up 2% versus the prior year. Looking below the line, higher interest expense was offset by the change in other income. Income taxes were $297 million in the quarter for an effective tax rate of 36.7%. This reflects the impact of the state legislative change and the resolution of other tax matters in the quarter. You may recall CSX recorded several unrelated favorable state legislative changes in last year's second quarter as well. Going forward, we continue to expect a normalized tax rate of about 38%. Finally, EPS was $0.49, an improvement of 7% reflecting the gain in net earnings and the impact of our share repurchase program. Turning to the next slide, let's begin to discuss expenses in more detail. As you can see on this slide, total expense was down 1% and flat, excluding fuel. While we made resource investments in the back half of last year, the high level of service that we are currently delivering for our customers is improving asset utilization and decreasing overtime cost. We're also seeing the positive impact of improved train accident performance through lower equipment repair and materials cost. I'll talk about the top 3 expense lines in more detail in the next few slides, but let me briefly speak to the last 2 items on the chart. Depreciation was up 7% to $263 million due to the increase in the net asset base. This is in line with our previous estimates and should continue to increase a few million dollars sequentially each quarter. Equipment rents were also up 7% to $102 million, primarily driven by strong volume increases in Automotive and Intermodal that was only partially offset by improved cycle times. Turning to Slide 24. Labor and fringe expense was down 3% versus last year or $20 million. Looking at the chart on the left, headcount was up 4% versus last year to 32,422 employees and flat sequentially, which is in line with what we previously shared with you. Reflecting the additions we have made to the workforce and looking at the table on the right, hiring and training costs were up $8 million in the quarter. Moving down the table, labor inflation was flat. While core wage inflation was between 2.5% to 3%, this is being offset by savings in health and welfare programs, as well as the impact of lower railroad unemployment tax rate. Next, incentive compensation was $18 million favorable in the quarter, which is in line with the expectation we outlined on the last quarter's call. Rounding out the table, volume and other costs were $10 million favorable, reflecting reductions related to fewer crew starts, as well as savings in overtime and relief crews. Looking forward, total headcount should continue to be relatively constant in 2012 although, as we have demonstrated once again this year, we will adjust it quarterly as business conditions warrant. In addition, we expect labor inflation will remain modest, though will likely increase to about $10 million per quarter in the back half of the year, reflecting the July 1 general wage increases for our union employees. Finally, incentive compensation should be flat to slightly unfavorable in the back half of the year. Turning to Slide 25. MS&O expense decreased 1% or $7 million versus last year. Looking at the table to the right, inflation was $12 million. Moving down the table, volume-related expenses increased $7 million in the quarter, reflecting primarily terminal-related costs associated with our growing Intermodal, Export Coal and Automotive businesses. Next, consistent with last quarter, CSX recognized a $20 million deferred gain related to the company's sale of property last year to the state of Florida, and we will continue to recognize a similar gain each quarter throughout the year. As a reminder, CSX recognized a $14 million gain in the fourth quarter of 2011, so the year-over-year favorable comparisons will mainly continue through the third quarter of this year. Finally, all other costs decreased $6 million this quarter, which in part reflects improved asset utilization and the impact of lower equipment repair costs. Moving to the next slide, let's discuss the impact of fuel. Total fuel cost decreased 5% or $21 million versus last year. Looking at the table to the right, lower volume reduced fuel expense by $10 million with gross ton miles down 2.6%. Next, as shown on the chart on the left, CSX's average cost per gallon for locomotive fuel fell $3.14 -- fell to $3.14, down 2% versus last year. This decrease in fuel price accounted for another $8 million of overall reduction in fuel expense as seen in the table on the right. And rounding out the table, fuel efficiency was favorable by $2 million and non-locomotive fuel expense was $1 million lower. Now let me turn your attention to CSX's credit profile on the next slide. CSX has remained committed to an improving credit profile, which is reflected by the favorable long-term trends in key measures used by S&P and Moody's that you can see on these charts. This improving credit profile supports the company's commitment to balanced approach for deploying capital to shareholders through capital investment, dividends and the share repurchases. For 2012, CSX remains on target to invest $2.25 billion. As we updated you on the first earnings call, first quarter earnings call, longer term, our capital investment target is 16% to 17% of revenue plus the additional investment required for PTC. In regard to dividends, the company continues to pay out 30% to 35% of trailing 12-month earnings as reflected in our latest 17% increase that became effective with the second quarter payment. Finally, we expect to fund share repurchases primarily through free cash flow. There are $434 million of repurchase remaining under the current program, which we expect to complete by the end of this year. Now let me wrap up on the next slide. Recapping the second quarter, CSX delivered earnings growth despite a significant headwind from utility coal. Gains in Intermodal, Automotive and Export Coal led the way with safety and service at or near record levels, all of which helped drive margin expansion. On a full year basis, CSX still expects to deliver earnings growth and margin expansion despite the mixed economic signals and continued utility coal headwinds. In doing so, we'll remain focused on the things we can control the most: maintaining an excellent service product, inflation plus pricing and productivity that we now expect to exceed $180 million. Looking forward, while more challenging CSX continues to have line of sight in achieving a 65% operating ratio by 2015, the foundation of which is an outstanding service product that drives volume growth, above inflation pricing and productivity gains. At the same time, we expect utility coal will stabilize later this year or early 2013 and for Export Coal to remain in the range of at least 40 million tons annually. Finally, as we continue delivering outstanding financial results for investors, CSX remains committed to a balanced approach in deploying cash, which includes capital investments to drive long-term value, as well as dividends and share repurchases that provide immediate return for investors. With that, let me turn the presentation back to Michael for his closing remarks.

Thank you, Fredrik. We were encouraged by the team's ability to deliver another strong quarter in spite of the substantial headwind, and we believe the things we did to get that result position us well for the future. CSX serves a broad array of transportation markets. That has significant advantages for our business as we saw, again, this quarter, even though conditions in all those markets may not always align perfectly in our favor. Our focus is on creating the best competitive advantage for our customers regardless of the environment as we've done consistently through the ebbs and flows of the economy over the past several years. When we do that, we're able to succeed across an array of conditions while consistently building our ability to deliver value when market conditions and the economy are stronger. For our team, delivering value translates into a relentless focus on the things we control the most: safety, service and productivity and the ability to pivot quickly and shift resources when market conditions change. As we said earlier, despite the headwinds in utility coal and some mixed signals we've seen in the economy recently, our overall outlook remains positive for the remainder of the year. We're working closely with our customers to support them with strong service while anticipating their needs for 2013 and beyond. We thank our shareholders for their investment in CSX, and now we look forward to answering your questions at this time.

[Operator Instructions] Our first question comes from Bill Greene with Morgan Stanley.

You've talked about this line of sight to 65% and when we think about the drivers there between volume, price and productivity, can you give us some sense for what's most important there? I think most of us would say volume probably not likely to grow all that much given the uncertainty although 2015 is still far away so who knows. But it really feels like you're really kind of knocking the cover off the ball in productivity. And so how do you think about those 3? Is it sort of 1/3, 1/3, 1/3, or is one more important than the other?

I don't think we have -- we know that on the last couple of years, obviously, price has been the key driver. And I think as we move forward, I think you're going to see more balance between the 3 levers. So if you look at price and productivity, which are the 2 things we can control the most, what we have said is inflation plus pricing is critical and continued productivity, at the minimum of $130 million is also critical. If you look at volume -- we talked in my prepared remarks about Export Coal continued to be up in that 40 million-ton range, at least, and then utility coal stabilizing. When you look at overall industrial outputs, we've seen a couple of years here of 3% to 4%, and I think we would like to see that continuing over this time period. So I think you'll see a bit more balance between the 3 levelers as we move forward versus what you've seen over the last 7 or 8 years.

Okay. Just 2 quick detailed questions. Clarence, can you give us same-store sales pricing? And on CapEx, when do you revisit CapEx given the coal decline?

Let me answer the first one on CapEx. We're staying at the same place as we've been before, with $2.25 billion for CapEx for this year, and we provided a long-term guidance of 16% to 17%. So as -- if utility coal changes, that will be reflected in our spending going forward.

Now our overall coal pricing gains in the second quarter were in the range of 3% to 4%, and that's excluding the decline obviously that we had in Export Coal. And our estimate for full year inflation, to give you a comparison there, is 2.4%.

Our next question is from Kevin Crissey with UBS.

Can you talk about the lag benefit that you saw in Q2 from fuel surcharges and maybe as we look forward, what your thoughts are?

We saw about $17 million in this quarter of lag benefits and, obviously, looking at the third quarter, depends on where fuel ultimately ends up, but right now there should be some sort of favorability in the third quarter as well based on what we're seeing the future curve doing.

Okay. And can you just remind me, the 65% OR target, does that exclude the SunRail?

The 65% target?

Yes, the OR target.

Yes, it does because we won't have a gain at that point from that transaction.

Our next question is from Ken Hoexter with Merrill Lynch.

Can you just talk on the volatility, is the thermal more fixed contractually? And given the concern on global demand, what drives that volatility and how quick can we see that change?

Well, Ken, this is Clarence. The volatility is in just about all of those markets. We have for this remaining part of 2012, less volatility in the thermal part of our business because most of those contracts were negotiated last year and are applicable in this calendar year. The metallurgical tends to be more volatile as the infrastructure demands and demands of both Europe and Asia for infrastructure is moving all over the place and particularly with some of the softening that we've seen in China.

So when you talk about contractually being fixed, are you set on volumes as well on the thermal side?

That's right, yes.

Okay, great. And then on fuel, WTI dropped $10 sequentially yet fuel per gallon fell only to $3.14 from $3.15. Last year from 3Q to 4Q when you had a similar $10 drop, your per gallon fell a lot faster. And I know the crack spreads were up a bit, but can you talk about why we didn't see kind of fuel per gallon fall maybe a bit faster?

Yes, I think we've seen a little bit of a divergence this quarter between our fuel price and WTI, which I think most people know. But if you look at HDF, highway diesel fuel, and our fuel price are very similar. So we have seen between heating oil and WTI a little bit of a divergence. But we're very consistent with what highway diesel fuel was in the quarter.

Our next question is from Tom Wadewitz with JPMorgan. Thomas R. Wadewitz - JP Morgan Chase & Co, Research Division: I wanted to delve a little further into the export question. When we think about the origination area you have for your export, to Central App primarily, it seems that that's a high-cost region that on a thermal side might have challenges if you look out a bit further. So can you give comments on how you think about that and think about sustainability of the thermal export side and, I guess, whether you have any contracted in -- when you look at 2013?

Well, a lot of our coal not only originates, as you're aware, for export in Central App but Northern App is now a growing part of our portfolio for Export Coal, a very significant part of it. So to that -- in that regard, it's been a very positive experience to what we've seen happen in Northern Appalachian. Going forward for 2013, we're not prepared to talk about today if we have any contractual commitments for thermal coal in 2013 because it's too early, just to be honest with you, to give any kind of sense to that. Thomas R. Wadewitz - JP Morgan Chase & Co, Research Division: Okay. Let's see, and then the second question. Last year, you had -- when you look at third quarter, there is, I think, volume was weaker than expected and you were hiring to -- you had some resource additions to address the fluidity and velocity. And so you had some challenges on incremental margin in the second half of the year last year gives you a somewhat easier comparison, I would think, on margins this year. So would you expect to see that come through in accelerating margin improvement in the second half and accelerating earnings? Or are there additional things that may offset that when you look to the second half?

Well, I think Tom, what we've said in terms of guidance has been our full year guidance both in terms of earnings growth and margin expansion, and I think -- so I think we're going to stick with that guidance. There are a couple of things, pluses and minuses as we move into the second half of the year, but we're going to, obviously, focus on the things that we control the most, which is to continue to drive productivity and inflation plus pricing. And I think we've laid out some of the things on the cost side that we have in the individual line items. So I don't think we're going to give the second half or quarterly guidance there, but we'll continue to drive value and I think our -- we've got off to a pretty good start in the first half of the year.

Our next question is from Brandon Oglenski with Barclays.

First, I'd just like to ask about the incentive compensation. So Fredrik, are you suggesting that the accrual is going to change in the third quarter or is it just that the year-on-year comparison has become less favorable?

Yes, sequentially going forward, the accrual will stay the same from what we're seeing right now. The big driver is going to be that last year, in the first half, we're accruing at a certain level and as the economy moderated in the second half and we made some of our resource additions, we had to reverse some of those accruals. So as you get to the second half, you will see that year-over-year comparison being very different than what you saw here in the first half.

Okay. And then Oscar, now that you've had some time in the operator's seat, obviously, you guys are taking your productivity targets up this year. Can you just highlight some of the biggest opportunities that you noticed after being in the seat for 6 or 7 months now and what you're really targeting going forward?

Brandon, it's not so much anything that I've noticed in the past month, and this has been a multi-year effort from CSX and in productivity is driven from basically all areas, specifically crew efficiencies, engineering and mechanical, and labor savings, fuel, improved car cycles, kind of a new initiative around service to customers that has been really, really effective. And so there's just a host of things around there. So nothing new and magical, just continued great work from that team.

Our next question is from Chris Wetherbee with Citi.

Maybe first one on the Export Coal side, can you just give us a sense of what the split is on exports now between thermal and met, or at least what it was in the second quarter?

Chris, this is Clarence. It's 60%-40% thermal. 60%, thermal; 40% meta -- second quarter.

Second quarter. Okay, is that likely to kind of, just given the demand patterns, to stay relatively fixed going forward?

Well, that's a good question. Right now for the first half, it's 50%-50%. So you saw a fairly dramatic shift in the second quarter. You could see something similar to that in the third quarter.

Okay, that's helpful. And then just switching gears onto the productivity side. Oscar, just wanted to get a sense if you could give us roughly where you are in the progress towards the $180 million or above through the first 2 quarters in the year.

We are significantly on the way there.

We have a good line of sight to it.

I have very clear and present sight of that.

Our next question is from Chris Ceraso with Crédit Suisse. Christopher J. Ceraso - Crédit Suisse AG, Research Division: Just a quick follow-up on that, how much of the productivity gains are a function of the really strong performance versus stuff that's more permanent like changes in your infrastructure, your headcount? In other words, if productivity in some future quarter erodes, will you lose some of what you've gained here?

It's a great question. I don't know that we break it out that way. But I can tell you that all the initiatives that we have are in effect designed to create sustainable advantage over the long term. They are not near term, onetime kind of events. And so if you look at, for instance, our productivity per employee over the many years, it's been improving significantly. So I'd say a majority of the things have long lasting value and there's some certainly...

It's probably the furlough retention board is about the only real temporal.

Yes. And there's a host of little things like that over the course of time, but these things are designed to create lasting value. So I would say the majority of our productivity is sustainable. Christopher J. Ceraso - Crédit Suisse AG, Research Division: Okay. And then as a follow-up, just a question on pricing. I think Clarence said core same-store pricing was running at 3% to 4%. It's a bit lower than where you have been. I think even in Q1, you said it was 5% to 6%. Can you give us a little more detail on what changed, maybe some categories where you had issues or what drove the apparent slowdown in your pricing growth in Q2 relative to the prior quarters?

The first quarter had a lot of impact of carryover from the previous years. Pricing was the main driver. We're still achieving above inflation and that's in the 3% to 4% range, excluding that decline we had in Export Coal. Christopher J. Ceraso - Crédit Suisse AG, Research Division: So to the extent that Q1 had some carryover, maybe the run rate going forward looks more like what you just achieved in Q2?

That's right, yes.

Our next question is from Justin Yagerman with Deutsche Bank.

I wanted a point of clarification on the ag outlook. When you're talking about stable, is that year-over-year or sequential? And then I guess, tagging onto that, I'm kind of curious as to how you think about ag or potential ag weakness in H2. We've seen you guys react really nimbly to the coal declines that we've obviously seen in the back half of last year, first half of this year. How -- are precipitous changes or declines in ag volumes different from coal volumes in your network and how can we think about that in terms of potential profitability drag?

Justin, this is Clarence. The ag comparison is on a year-over-year basis. If you look at the most recent data that the USDA has put out, they've taken the yield down, as you're aware, substantially. The official number is around 146. There's some forecast at 145. Now there's some that believe the number for yield per acre will come in around 140 to 142. So if it stays in that 142 to the 145 range, the crop this year, because of the acres planted, will essentially be the same size crop as last year, which would be the third largest crop on record. So it was down from where everyone thought it was going to be but it's roughly about where it was last year and what is impacting in our view, the price per bushel on the corn is that demand for corn itself has gone up. How that could possibly impact our cost? Most of our ag business, our grain business is running unit trains, and as Oscar has demonstrated his ability to adjust the resources in the crews for the unit train networks, coal being the specific example, is without question, something that he does very well, that our company does very well. So we feel very positive about what will happen in our ag business here in the last half.

Okay, that's really helpful. Curious on autos, I mean, when I think about the economy here, it definitely feels like we've got some sliding on the manufacturing side and you're getting backfilled by housing and autos and it's just showed up in the carload data not just for you guys but for most of the rails. Are you getting any forward read from your auto customers as to what the outlook is like there? I mean, can you give us a little bit more color over what your expectations are for the second half? I think that's probably, if there's one point of susceptibility in the economy domestically, that feels like it's it. So I'd be curious to hear your comments.

Well, our automotive customers, as we speak with them, are very encouraged to go forward. As you know, we started off with a much lower North American light vehicle manufacturing rate than what we're currently at, at 14.9. The manufacturers themselves have voiced concerns throughout the year in many forms about the rail's ability to have the car fleets that are necessary to support the volume growth that they anticipate having, which we and the other rail carriers in North America are working diligently, both in adding cars to the fleet, as well as sustaining these high-velocity numbers that you've seen from Oscar here to turn the fleet faster and to serve it. And if you look at the average age of the automobiles and the light trucks in the United States, they're some of the highest numbers that they've been post-World War II. The ability to secure financing and particularly longer-term financing in the range of 6 years has proved to be positive for the consumers as they go to purchase automobiles. Chrysler, for example, are adding third shift to their Belvidere plant. Hyundai Montgomery is adding third shifts to their plant. So I feel nothing but positive things about the automotive industry as we go forward.

All right. And just -- sorry, a quick point of clarification, I know I have to turn it over. You said the 3% to 4% core pricing includes or does not include the decline in the met tariff?

Does not include the decline in Export Coal.

So what would it have been with the decline?

It would have been much weaker.

Our next question is from Ben Hartford with Baird. Benjamin J. Hartford - Robert W. Baird & Co. Incorporated, Research Division: I was wondering if you could talk a little bit about some concerns about the ILA disputes here, with the September 30 deadline whether you're taking some proactive measures, whether shippers are addressing some of those concerns? Can you talk a little bit about the dynamics ahead of that?

Could you repeat that again please. Benjamin J. Hartford - Robert W. Baird & Co. Incorporated, Research Division: Yes, sorry. Just talking about the ILA -- the port dispute here on the East Coast. I've heard some anecdotes about shippers being cognizant of potential stoppages here ahead of the September 30 contract expiration. I'm just wondering if you've heard anything to that end, whether you've seen some shippers on the international intermodal side that have taken proactive measures to adjust freight flows ahead of any sort of potential disruptions that might surround that event?

Yes. As a matter of fact, you'll recall that the ILA gave a fairly inflammatory speech at the Trans-Pacific Conference a couple of months ago about the potential of labor unrest on the East Coast. Some, not all, of our customers have begun to make adjustments in those flows of freight coming to the East Coast. The East Coast ports have taken the position that there's no issues here that can't be worked out. My own personal view is that I don't think it would be in labor's best interest to have a strike in the face of a presidential election but we've seen no material changes in our traffic flows up to this point. Benjamin J. Hartford - Robert W. Baird & Co. Incorporated, Research Division: Good. And then into that, and assuming that there is no disruption, what are your expectations for the "peak season" as we go through the back half of the year in terms of a build relative to normal seasonality?

We expect a peak season. We expect it to be a slight peak season, not a big spike but an appreciable increase as we move into the fall peak season.

Our next question is from Jason Seidl with Dahlman Rose. Jason H. Seidl - Dahlman Rose & Company, LLC, Research Division: I want to talk a little bit about the core pricing. Wasn't really a surprise to us as surveys sort of indicated that just before earnings season here. But as I think longer term about sort of rail cost inflation, hasn't it typically run above 3% longer term as opposed to just -- in sort of the recently -- last year.

Yes, I think longer term, when we look at inflation plus pricing, we estimate it to be somewhere between 3%, 3.5%, maybe 4% or so per year. So that is correct. This year, it's a little bit lower than it's been previously. Jason H. Seidl - Dahlman Rose & Company, LLC, Research Division: Okay. So with that backdrop, when you look at 3% to 4% core pricing, ex what had to be done on the export side, sort of getting to Chris's question, where has been the pressure points? And is it just competition from truck that's pressuring it? Is it the overall economy that's pressuring some of the pricing gains now? Could you walk us through that?

Well, my view is it's been the overall economy that's been pressuring some of the pricing gains that's in it. Pricing itself fundamentally is the law of supply and demand, and there's been a lot of excess transportation capacity not only on the rails but in the trucks and in the barges and in the pipeline systems in America. And so there has been some pressure on that pricing as we move forward. So that would be one point. The second point would be that earlier in the decade, we had a lot of legacy pricing particularly on our coal side that was coming due, and that has now begun to manifest itself and there's no new coal opportunities that's presenting itself in the utility segment of our business. Jason H. Seidl - Dahlman Rose & Company, LLC, Research Division: Okay. My follow-up question, Fred, you talked about the accrual for incentive compensation last year sort of reversing in the second half of the year. Are we to expect that in terms of a year-over-year comparison for this year to be higher than last year?

I think in terms of our labor line and I think I outlined the 2 key drivers earlier, which is headcount we expect essentially to be flat going forward, and we expect about a $10 million increase due to the inflationary pressure and the salary increase for our union employees. I think, so if you start with this quarter as a base and you factor those 2 things in, I think you have a good starting point for what the third quarter will look like. Jason H. Seidl - Dahlman Rose & Company, LLC, Research Division: So for that -- just to make sure I heard you right, so that $10 million hit, does that include accruals?

Well, I think I answered the question earlier around the fact that sequentially going forward, the accrual for incentive comp is essentially flat. It's just really last year that is driving the year-over-year comparison. Jason H. Seidl - Dahlman Rose & Company, LLC, Research Division: All right. So it will be essentially flat, but year-over-year it will look higher.

That's right.

The next question is from David Vernon with Bernstein. David Vernon - Sanford C. Bernstein & Co., LLC., Research Division: Quick question on -- well, for Fredrik, on clarifying the fuel benefit. You mentioned the $17 million lag. Was that the fuel surcharge revenue increase or the operating income benefit?

That was what we estimate the lag to be, which would be the operating income benefit. It happens to also be the same number, as in Clarence, that fuel surcharge change year-over-year. David Vernon - Sanford C. Bernstein & Co., LLC., Research Division: Yes. So is that a revenue number or is that...

So my lag benefit is an operating income number. David Vernon - Sanford C. Bernstein & Co., LLC., Research Division: But is Clarence's number a revenue number?

Clarence's revenue -- is a revenue number. They happened to be the same number, 2 different numbers but just $17 million. David Vernon - Sanford C. Bernstein & Co., LLC., Research Division: Okay. So we had $17 million more revenue and $21 million less expense. Wouldn't that be $38 million, or am I doing the math wrong?

You have to think about volume and efficiency as well. David Vernon - Sanford C. Bernstein & Co., LLC., Research Division: Okay, okay. So the other question, just broadly on Intermodal. Can you comment a little bit around how the length of haul may or may not be changing the business, with the recent growth and change in the mix with the Maersk business and domestic growth? And then how you guys think about the amount of capacity that's being brought into the Eastern market and how that will be affecting your pricing strategy, your pricing opportunities going forward?

Well, I'm not sure our length of haul has been impacted that much, because as we bring the Maersk business on board, a lot of it comes out of the West and so it really doesn't impact the length of haul because of the interchange points. Our length of haul for the originating business on our core railroad essentially has remained fairly stable over the years because of the lanes in which we operate. The additional capacity that's being brought on, I'm not sure that I understand your question so ask me that again. David Vernon - Sanford C. Bernstein & Co., LLC., Research Division: So you guys are building out the -- your quarter initiative, your competitors building out a quarter initiative. And if you add up the number of lifts that are going to be added or available to the Eastern marketplace, it's actually -- it's a substantial increase and it's a substantial opportunity. But I'm just wondering how you feel about that amount of capacity coming online, at roughly the same time in a weakening sort of consumer environment.

Well, we feel positive about that. And if you will recall in our prepared remarks, we said that there was an addressable market of, we call in the East of 9 million loads, that's in excess of 550 miles. So, for example, we have an initiative we call H2R, highway-to-rail, in which we are sitting down with beneficial cargo owners and we're reviewing their portfolio of business and looking at what is adaptable to Intermodal, intermodal in a generic sense, and what is adaptable specifically to CSX Intermodal. We've done that already with 56 different customers, and we have had a very high degree of success in converting both current users of intermodal and people who are first-time users of intermodal over to the product. So I think the capacity is pretty much in line with what the 9 million potential is. David Vernon - Sanford C. Bernstein & Co., LLC., Research Division: Okay. And then -- so in that H2R program then, are you guys -- you guys aren't actually marketing to the VCOs. That's going through your service partners, right?

We do it jointly with our service partners, yes.

Our next question is from John Larkin with Stifel, Nicolaus. John G. Larkin - Stifel, Nicolaus & Co., Inc., Research Division: Question for you on the tremendous improvement in what I would call network velocity or fluidity, both velocity and terminal dwell improved over 10%. It's a little confusing when we talked about headcount being up 4%. I guess, if you just add the people on the retention board, it's only up 1% year-over-year. Is there still some room if volumes remain roughly where they are to, perhaps, tighten down on the headcount a bit, or am I missing something here?

There is, in our mind, always room for progress and improvement. And so I would answer that question affirmatively, yes. John G. Larkin - Stifel, Nicolaus & Co., Inc., Research Division: Okay, so there's room. And then could you describe, Oscar or Fredrik, the difference between putting an employee on retention furlough versus putting them on a full furlough? Is there an economic cost to keeping them sort of ready to jump back into the force if needed quickly?

I just gave you a quick definition of what we do on the retention boards. It's kind of a designation for our contract employee that guarantees 2 paid days of service per week as opposed to a full furlough, obviously, where you could have gone 7 days. And then so that's the 2/5 -- or 2/7s, I guess, is the best way of gathering that economic thing. The benefit, as you know, is we can bring them back a lot more quickly than we can with the traditional furloughs.

And just to build on that, while Oscar just said, we're obviously monitoring that very closely to see what makes the most sense if we have short-term changes in volume, we put them on the retention board because we just trained the employees and brought them on and then -- but if we do think that there are longer-term needs to draw down the resource levels we put them on furlough. But we monitor very closely.

And you also have the attrition coming in. So as attrition kicks in during the course of the year, obviously, these people would move off the furlough retention board to full-time employment.

So overall, we said our headcount for the rest of the year should remain relatively flat from what we have right now, obviously, up or down depending on ultimately what happens with volume. But our best guess right now is it's going to be relatively flat. John G. Larkin - Stifel, Nicolaus & Co., Inc., Research Division: Is there a difference in fringes based on whether someone is full-time retention board or furloughed?

When they are actually furloughed, John, they get 4 months of health and welfare coverage after the furlough. If they're on a retention board, they keep the health and welfare coverage the entire time.

Our next question is from Cherilyn Radbourne with TD Securities.

Just wanted to ask you a question on your outlook slide. If I compare that -- this quarter versus last quarter, you're still positive with respect to the outlook for about 60% of your volume, but there have been a fair number of changes in terms of the traffic segments that are characterized as favorable versus neutral with Export Coal and chemicals moving up and 3 of the categories, metals, forest products and ferts moving down. How should we interpret that?

Cherilyn, I would interpret it as normal market forces and changes throughout the year. The metals part of the business has started to show some decline, both on the sheet side although not related to automotive in terms of sheet but related to the oil and gas industry with a number of rigs that's coming down in there. And the forest products side, although, has been up and building products has been down in general paper side of the business. And then our fertilizer markets, as we said in our prepared remarks, we had actually expected a bigger first half than what we had. But a lot of people sat on the sidelines, waiting for the commodity prices to decline. That won't last forever.

Okay. And so would you say that things are a little more dynamic than usual in terms of market conditions? And is that impacting your ability to plan?

I would say the entire market is much more dynamic than usual because of some of the economic uncertainty you see as we approach the presidential elections.

Our next question is from Anthony Gallo with Wells Fargo.

I see $100 million in operating income improvement through the first half of the year. But if I strip out the deferred gain, I get $61 million. How much of that was from productivity? The $180 million that you mentioned, how much of that was achieved in the first half?

I think you got a lot of pluses and minuses in there. You got inflation, you got productivity, obviously. So it's hard to isolate how much is what. But as Oscar indicated before, the full year is $180 million. He's got great line of sight to that and so it's hard to isolate specifically how much of that $60 million was related to what.

But Anthony, it's Oscar. It's just -- we don't mean to be coy. The $180 million plus, the plus portion is things that we're still finalizing and documenting. We will update you on that as we can, whenever that final number is. If you think of a rateable spread across quarters of that final number, I think that's a good way of looking at how we've achieved the productivity first quarter, first half and so on and so forth. It'll deviate a little bit from that, but I think just a rateable spread is probably the best way of thinking through that.

Our next question is from Peter Nesvold with Jefferies. H. Peter Nesvold - Jefferies & Company, Inc., Research Division: So I thought the operating ratio this quarter was particularly impressive given the headwinds in coal. In the prepared comments you mentioned a couple of times that Export Coal is going to be down in the second half versus the first half. I think there's some market perception that Export Coal is a lot more profitable. And so question -- my first question would be, is there any reason to believe that you should not be able to defend your OR as well in the second half as you have in the first half given a decline, a sequential decline in Export Coal?

Well, as a said earlier, I think both in prepared remarks and to a question, we have a guidance for the full year to improve our operating ratio for this full year and we're not going to get into specific quarterly guidance or second half guidance, but we feel good about what we've done here in the first half. We've got off to a great start. We're going to continue to try to drive margin expansion any time we can, so -- but we're not going to give you a specific number for the second half. H. Peter Nesvold - Jefferies & Company, Inc., Research Division: Okay. Then my follow-up question is on Intermodal yields revenue per unit. So a little light, 2% or so in the quarter. How much of that might have been the timing of fuel surcharges? Does that differ in Intermodal versus other commodity categories? How much of that might be length of haul or the new contracts or some other dynamics such as truckload pricing?

There were 2 major factors in it, lower fuel prices and the business mix slowed the RPU growth in this quarter, so we had higher increase in the international versus the domestic.

And then the other thing is you are -- I think you were alluding to it, you have a little quicker adjustment on the fuel surcharge for Intermodal then you have on the rest of the business. So it just comes down a little quicker.

Our next question is from Walter Spracklin with RBC Capital.

Just a couple of clarification questions really. First on your guidance. When we look at 2012, you're guiding for growth this year, and I'm just curious, can you hit that guidance without the SunRail and tax benefits that you've incurred in the first half?

Well, we're not going to break down what is -- we're going to stick with the guidance that we have for the full year. The SunRail transaction is a transaction that we put in place because we think it's value accretive to CSX, and so that's part of our earnings picture for this year. It was part of earnings picture last year. It's going to be part of earnings picture next year. So we're going to stick with overall guidance that we're going to have earnings. So it's clearly it's helping this year. Clearly, a lot of things that are negative this year and so -- but given all of the things that's going on in the economy and everything else, we feel pretty good about what we've been able to accomplish so far and we feel pretty good about what we're going to be able to accomplish in the second half of the year.

Okay. Also on guidance here for the 2015, you'd indicated that your 65% OR at that time that you put it together did not include, of course, a significant drop in your thermal coal business. Do you need a full recovery to hit that 65%. If volumes stay reasonably within these levels for coal, how much -- I don't know if you can give a sensitivity or if you work the numbers into our current coal prices, would you still be able to hit your 65% if coal -- or coal volumes stayed at these levels?

When we put out the original guidance a year ago, we had, like any company would do, given ourselves a little bit of a cushion to make sure that we can absorb different things that occur along the way in such a long time period. Obviously, with the utility coal coming down as much as it has, that cushion to a large degree is gone, which is why we say there's still a line of sight but it's going to be more challenging. So when you -- specific to your question about utility coal, I think what we're expecting that utility coal will stabilize. We're not banking on a significant recovery. It will be great if it did, but right now, we want it to stabilize and perhaps, just come up a little bit from where we're seeing in the run rate being right now.

If I could build around that for a minute, the other thing, Walter, is when we were building that forecast and obviously that's for 2015, as you know, a lot of the EPA regulations were certainly going to impact a lot of the coal plants by 2015. What we're really seeing now is those have kicked in earlier because of the gas prices. So we had already factored into that guidance the fact there would be a reduced coal burn solely from EPA regulations.

That's very helpful. That makes a lot of sense. And just for my last question. I don't want to sound obtuse about this or anything, but on the pricing side when you -- it sounds like 3% to 4% excluding the coal, but we were including it when it was going up. And just, I'd like to look at a number -- a lot of investors are very focused on your pricing, so they're very conscious to any kind of non-apples-to-apples comparison, so really would -- and this is just, perhaps, for future reference, would really like to get that pure pricing same-store number, which includes your entire business, not just areas that are weak like Export Coal. I'll just throw that out there. I'm not sure if you can provide any color on that.

Our quarter 1 and quarter 2 pricing was very similar with the exception of Export Coal, that's where I'd like to leave it if I could.

Our next question is from Jeff Kauffman with Sterne Agee. Jeffrey A. Kauffman - Sterne Agee & Leach Inc., Research Division: Just 2 quick questions. What are you paying today for diesel fuel?

I don't have that in front of me what we're paying today, but obviously it's come down a little bit further from where it was been. And I think the recent days also ticked up a little bit. So I don't have that in front of me. Jeffrey A. Kauffman - Sterne Agee & Leach Inc., Research Division: Okay, I'll get that from you offline then. But are we talking about a number south of $3?

As I said, I don't have that, but we can get that to you offline. Jeffrey A. Kauffman - Sterne Agee & Leach Inc., Research Division: Okay. And second question, which kind of backs up on an earlier question, when I look at the change in yield on the coal business, some of it's length of haul, some of it's pricing, but an awful lot of it's mix. Can you help us understand going from 40%-60% met to steam on export to 60%-40%, how many -- how much that might have affected the yield comp versus what was going on domestically?

Well, I don't have a specific number for that, but I would tell you that it's strong because the utility coal is moving at a higher RPU and the thermal part of the Export Coal is moving at a lower RPU than is the met. So when you see that mix increase with the thermal, it's going to significantly impact that RPU depending on the percentage that the mix changes.

All right. So I guess the point would be if you're talking about staying at more of a 60%. -40% rate going forward and maybe domestic utilities bottomed, we don't know how quickly it recovers, then the incremental damage to the mix effect on yields has probably occurred at this point, maybe get better, who knows?

That's right. I think it -- yes.

And Jeff, just getting back to your fuel question, based on the numbers we have right now, what we're looking at, it's about $2.97?

Our next question is from Mark Levin with BB&T. Mark A. Levin - BB&T Capital Markets, Research Division: Just a couple of quick questions sort of as they relate to coal. On the export side, in kind of thinking about this in 2013, maybe versus 2012, API-2 prices right now are 90 when you kind of look at the net backs back to the Central App guys, and obviously it's very hard to make coal move profitably into Europe. When you think about like 2013 exports or even the second half of the year, how does sort of where API-2 prices factor into it? And I mean, can the exports sort of sustain themselves at 40 million-ton-plus levels and API-2 price consistent where we are today?

Well, as we've said earlier, most of the coal that we're selling in the thermal market is being governed by the API-2 index in Europe was sold last year or the year before and forward curve contracts against that. So we feel pretty confident about the numbers we've given you for 2012. It's just too soon to tell for 2013 because the market is volatile, the mix could change between thermal and met, something could go on different in Asia. So toward the third quarter, into the third quarter, first and fourth quarter, we'll have a clear line of sight into that. Mark A. Levin - BB&T Capital Markets, Research Division: Got it. And then the second question has to do more with your met exports. When you look kind of at some of the lower-quality met grades, the high vol Bs, even some of the PCI stuff, a lot of the Central App guys are not able to get prices that cover their cash costs given the weakness in those markets. Have you seen that manifest itself in export volumes? And again, how does that -- when you think about your mix in terms of what you're exporting from a quality perspective on the met side, how exposed are you guys to sort of the lower-quality met coal grades versus some of the higher-quality met coal grades, which will, obviously, find a home regardless of what the overall backdrop looks like?

Well, as I've said earlier, a lot of our export coal now is coming out of Northern App as much as out of Central App and a fairly high-quality is coming out of the lower Appalachians. So our exposure mainly is in the mid and high vols.

Our final question will come from Scott Group with Wolfe Trahan. Scott H. Group - Wolfe Trahan & Co.: Clarence, can you tell us what percent of the business is moving in association with one of the rail inflation indexes. I guess I'm just trying to understand how much of the deceleration in yield growth is because inflation indexes are moderating, and then how much, I guess, could reaccelerate assuming inflation reaccelerates?

I don't have a number that I can give you off the top of my head that's with a high -- you're talking about export now, or are you talking about all business? Scott H. Group - Wolfe Trahan & Co.: No, I'm just talking about what percent of the total business is based on either the Arcalf [ph] or the Alif [ph] or one of those inflation indexes that have moderated this year.

It's probably 30%, the range of 30%, 25%, 30% is moving on the -- on one of those indices. Scott H. Group - Wolfe Trahan & Co.: Okay. So part of the deceleration in yield growth is just because inflation has moderated?

That's correct. Scott H. Group - Wolfe Trahan & Co.: Okay. And then on the coal side, when you talk about the export growth slowing, is that because the export steam coal is slowing or are you expecting met to take another step down? And then overall with the coal business, if exports are moderating and utility domestically is stabilizing, do you expect overall coal volumes and yields to be better or worse in the second half or the first half?

I think I understand the question, ask me that one more time, make sure I got it. Scott H. Group - Wolfe Trahan & Co.: Okay, sure. So I guess, there was 2 parts. One is on the export side, are you expecting the utility exports to get worse or to slow or the met exports to take another step down? And then overall with coal, with the moving parts, do you think that coal volumes and yields are better in the second half or first half?

Well, I would -- I expect the decline in the export will come from the met side of the business. Anything I told you for the second half right now in that question would be a pure guess because you're going to have a mix coming in of the utility coals start to pick up, which will carry a higher RPU. You'll have the impact in the export of some of the met going down and the thermal staying the same. So I'm just unclear of what to tell you, to be honest with you. Scott H. Group - Wolfe Trahan & Co.: Would you think coal yields are positive or negative in the back half of the year?

I think -- I don't know, I'm unclear on that. But look, if I had to make a bet, I feel positive about what coal looks like in the second half.

Thank you, everybody, for your attention and your time today.

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