Arch Resources Inc (ARCH) 2006 Q1 法說會逐字稿

Good day, everyone, and welcome to this Arch Coal Incorporated first quarter 2006 earnings release conference call. As a reminder, today's call is being recorded. At this time, I would like to turn the call over to Mr. Deck Slone, Vice President of Investor Relations and Public Affairs. Please go ahead, sir.

Good afternoon from St. Louis. Thanks for joining us on today's call. Before we begin, I need to remind you that the remarks and comments that follow will contain forward-looking statements within the safe harbor provision of the Private Securities and Litigation Reform Act of 1995. We've based these forward-looking statements on our current expectations and projections about future events, some or all of which may be incorrect. These expectations and assumptions include risks and uncertainties detailed from time to time in the Company's reports filed with the Securities and Exchange Commission.

On the call this morning, we have Steve Leer, Arch's President and Chief Executive Officer, John Eaves, Executive Vice President and Chief Operating Officer, and Bob Messey, Senior Vice President and CFO. Steve will begin the call with some brief remarks about Arch's performance during the first quarter, current conditions in U.S. coal markets and our outlook for the future. Bob will follow with a more detailed discussion of the Company's financial performance. After that, Steve, John and Bob will be glad to take your questions. Steve?

Thank you, Deck, and good morning, and welcome to the call. We're pleased that you could join us this morning. Earlier this morning, Arch Coal reported sharply higher financial results for its first quarter ended March 31. EPS increased to $0.84 per diluted share from $0.07 in the prior year period. EBITDA rose 82% to $140 million. Operating income more than tripled to $94.1 million. Operating margins expanded nearly 300% to $3.65 per ton and even revenues were up 6% despite the sale of operations in Central Appalachia at the end of 2005. In short, it was a very strong quarter by almost every measure and a solid start to what we expect to be a very profitable year.

Following the many moves that we have made in recent years to strengthen the Company, culminating in the restructuring of our Central Appalachian operations at the end of 2005, we believe we are beginning to hit our stride. We expect an even stronger performance during the balance of 2006, particularly in the year's second half. As the year progresses, we expect the benefit from the return to form of the West Elk mine, the continued expiration of below market contracts, improving rail service in the Powder River Basin and the expected start-up of the Coal Creek and Skyline mines. Naturally, those events should deliver value well beyond this year. In fact, we believe the stage is set for a multi-year period of upward momentum in margins, earnings and cash flow.

It is particularly noteworthy that we achieve these results despite the outage at West Elk and mixed rail performance for the quarter. Increasingly, we expect our size and diverse portfolio of mines to enable us to overcome disruptions at one mine or challenges within a single region. That is precisely what happened during the first quarter.

I am pleased to report that our performance was quite balanced during the quarter just ended, with significant improvements across all operating regions. In the Powder River Basin, the average operating margin per ton rose nearly 150% on the strength of a substantial increase in average realized price per ton. We believe that the margin expansion would have been even greater if rail service had not constrained production and shipments particularly during the first two months of the year.

As we have noted, many times in our past, in the past, our costs have blacked under in the short term are largely fixed. As a result, unit costs tend to be very sensitive to changes in volume. During the first quarter, our PRB volumes declined by 1.4 million tons compared to the same period last year, and under shot the mine's productive capacity by an even larger factor. As a result, we still do not believe we have demonstrated the mine's full potential.

The good news is that rail service is improving and that should enable us to run the mine at a more optimum production level in the future. We are particularly encouraged by rail service levels over the past four weeks.

Additionally, the western carriers are investing capital that may result in still greater fluidity in the second half of the year. The rail project that carries perhaps the greatest potential benefit for Black Thunder is the addition of a third rail line on the 18-mile section of track south of Reno Junction where Black Thunder's rail spur ties into the main line. This section of line has been more susceptible to congestion in the past and particularly during periods of heavy maintenance or adverse weather. We expect the addition of the third track to enhance service levels at Black Thunder markedly during the second half.

We are also making good progress toward the restart of the idle Coal Creek mine. As you will recall, the infrastructure and much of the equipment remained in place at Coal Creek following its idling in 2000. The principal addition to this equipment fleet is a drag line which is being relocated or has been relocated from our former operations in southern Wyoming. We are currently in the process of upgrading and re-erecting that machine. We expect Coal Creek to begin test shipments soon with anticipated production of between 3 and 5 million tons during 2006. We view Coal Creek as a highly strategic addition to our PRB operations and we expect it to become a significant contributor to our financial performance and future periods.

In the Western Bituminous Region, the average operating margin increased 36% versus the prior year period. That number is particularly impressive when you consider that the West Elk longwell, which was idle following a heating event in the mine last year, didn't restart until early March. We estimate that the longwell outage cost the Company an estimated $30 million during the first quarter, partially offset by initial insurance recoveries of $10 million during the quarter. The outage inflated first quarter unit costs in the region by an estimated $2 per ton net of the insurance recovery. As you can probably surmise from the numbers, higher costs at West Elk were offset by a meaningful degree by very, very strong performance from Arch's longwell mines in Utah.

We continue to be enthusiastic about the long-term outlook for the Western Bituminous market and we are taking steps accordingly. In May, we plan to begin production at the Skyline mine in Utah which will bring our annualized production in the region to around 23 million tons. We expect the appetite for this high BTU, low sulfur coal to continue to grow and we believe that Arch's large, modern longwell mines rank among the most productive operations in the entire region.

We experienced perhaps the most dramatic improvement in performance in Central Appalachia. As most of you are aware, we sold select operations in that region at the end of 2005, sharpening our focus in the region and significantly reducing our legacy liability and the ongoing cost associated with those liabilities. We believe that our first quarter results are a good indication of the value inherent in this transaction. Naturally, our volumes were down substantially from the previous period with the sale but are all in operating margin rose to a positive $6.75 per ton compared to a negative $0.60 per ton in the prior year period.

In addition, that transaction transformed Arch into a unique entity in the U.S. coal space -- a large, national coal producer with an exceptionally clean balance sheet. At present, Arch's post-retirement medical and workers' compensation liabilities totaled just $108 million which is a small fraction of the total carried by many of our largest competitors.

We also added to our contract portfolio during the quarter, although we continue to take a very patient and selective posture in our marketing efforts. We are beginning to see the impact of some of the roll-off of our legacy contracts. Much of the coal we ship during the first quarter as well as the coal we expect to ship during the balance of this year was priced when coal markets were substantially less attractive than they are today. As a result, the ongoing contract exploration should have a very positive impact on our bottom line in the future, assuming the current market conditions continue.

During the quarter, we signed commitments for approximately 20 million tons of Powder River Basin coal for delivery through 2010. More importantly, we sold that coal at an average price approaching 150% higher than the Company's average realized price in that region during 2005. We still have significant percentage of our future volume unpriced at present and we regard that open market position as highly advantageous. Based on expected production rates over the next three years, Arch has unpriced volumes estimated at 13 million to 17 million tons in 2006, 55 million to 65 million tons in 2007 and 85 to 95 million tons in 2008.

Arch believes the market dynamics remain strong as the peak summer demand period approaches and we see a number of positive forces at work. Record high crude oil and natural gas futures provide compelling reference prices for coal-based energy. The amount of announced new coal fired, or fueled electric generating capacity has now climbed above 85 gigawatts and with TXU's announcement this week of another 6.5 gigawatts, that number continues to grow rapidly. Coal stockpiles at domestic power plants measured in days of supply are estimated to be 20% below the ten-year average. Coal production is up a modest 1.6% on the year-to-date, according to the Energy Information Administration, in spite of strong pricing environments certainly as compared to historical standards. World prices have strengthened or world coal prices have strengthened markedly of late with demand in China and India climbing rapidly.

Looking ahead, we believe the outlook for the balance of the year remains quite strong, particularly in the year's second half. We are narrowing our guidance to reflect that fact with revised guidance for EPS of between $3.75 per share and $4.25 per fully diluted share and revised guidance for EBITDA of between $570 million and $610 million. It is important to note that we are presently anticipating as many as four longwell moves in the second quarter with a combined total of only two longwell moves scheduled for the second half of the year. As a result, we expect the third and fourth quarters to be stronger than the second quarter. As you know, longwell moves are a normal part of the mining process that tend to make quarterly operating results for coal companies somewhat lumpier than you might see in other industries.

In summary, we continue to be very optimistic about the future direction of U.S. coal markets and we believe that Arch Coal is poised to capitalize. With that, I will now turn the call over to Bob Messey for further discussion of our financial results for the quarter. Bob?

Thank you, Steve. I would like to reiterate some of our forecast information. Again, we're raising our bottom part of our range for EPS $0.25 from $3.50 to $3.75 and we're also raising our bottom part of our EBITDA range from 550 to 570. Taxes, as you know, we're AMT tax [inaudible] %. We anticipate that the annual rate for the year will be 10% due to better utilization of our permanent difference which is excess depletion as our mines are more profitable in the latter part of the year.

CapEx, we had big CapEx expenditures in the first quarter, 263 million, of which 122 of that was our federal lease payment and a larger portion of close to 50 million was continued development at Mountain Laurel. Our guidance is still 525 to 575 billion in the CapEx area. Our tonnage guidance remains the same at 140 million to 150 million.

I would like to add a little color on the realization as Steve indicated earlier, our realizations in all of our basins were up significantly quarter to quarter. That is the first quarter of '06 through the first quarter of '05 is 46% PRB, 36% Western Bituminous, and 23% in Central Appalachia. If we take a look at the first quarter of '06 compared to the fourth quarter of '05, they were up significantly as well -- 37% in the PRB, 23% Western Bituminous and 20% Central Appalachia. All of our margins have gone up significantly. We're very proud of our income from operation numbers. They're 14.8% of revenues versus 4.3% last year and our net income is 9.6% versus 1.1% last year. Realizations basically overcame the disposition of Magnum as well as the reduced tons shipped during this quarter.

From an accounts receivable standpoint, we remain 32 days in the first quarter as well as at the end of the year. The first quarter -- or the fourth quarter of '05 though was 34 days so we've improved ourselves two days in '06. Our inventories are down. That's basically because of the pit inventory write-off, which was approximately $40 million and included approximately 14.8 million tons. Currently from a heads position but with diesel at 82% and we're hedged at $1.70 in '06. And Steve, I think -- Melinda? I think John, Steve and I are ready for questions.

Thank you, gentlemen. The question-and-answer session will be conducted electronically today. [OPERATOR INSTRUCTIONS] We would like to ask that all participants limit themselves to one question and one follow-up question. That is to allow for all participants to be able to ask a question. Once again, that's star one if you would like to ask a question or pose a comment. Our first question will come from Daniel Roling of Merrill Lynch.

Hi, it's Dave Lipschitz. Just a quick question. Your purchased coal revenues, obviously with the Magnum, were up significantly. Is that something we can forecast going forward at a 2 million ton per quarter rate?

Dave, this is Steve. You know, that's probably a reasonable number. We always have some purchase coal. It does bounce around given market conditions and situations but I think it if we would look past, we would always have a couple million tons of purchase coal or more really.

Will it be at that high -- I saw it in the first quarter was at $40 and change. Is that an approximate thing as well because of the Magnum situation?

I think you have to look at purchase coal as reflecting public stock market. Sometimes we might contract for a short period of time, a quarter or so forth. But a realistic pricing for purchase coal is going to be fairly close to whatever current spot pricing is.

Ok. Thank you.

Thank you, Mr. Roling. Next we'll hear from John Hill of Citigroup.

Congratulations on the great work, guys, and realizing the benefits of a lot of hard work.

Thank you.

Without engaging in too much rhetorical questioning here, just curious on the new PRB contracts, is this 150% of the realization or 150% higher? One means 12 and one means 20. I hate to debate what the meaning of "is" is.

150% higher.

Okay.

Not 150% up.

Very good.

Great discussion though sometime.

It can be quite illuminating, perhaps more interesting than this. Then very briefly, Central App costs obviously were down a little bit. The assets have been moving around quite a bit. They were still in the low $40 range. How should we look at that cost profile as we head through the rest of the year?

John, this is John Eaves. We had a very good start to the year. Our operations ran fairly well. We do have a longwell move at Mingle Logan our second quarter or so. I think we expect good performance. We need to see how we do second quarter. But we feel pretty good about the direction we're going with our operations in the east right now.

Okay. So a little bit higher in Q2 and then better through the rest of the year perhaps?

That's kind of the way we see it right now.

Great. Thank you very much.

And gentlemen, we'll be moving on to Jim Rollyson of Raymond James.

Fantastic quarter. Question: On the PRB, obviously your pricing realization has moved up nicely during the quarter even with little bit of growth in volumes, yet your costs actually came down a little bit. Can you kind of talk about what you're seeing on the cost side there and Steve, you had referenced just -- Black Thunder is not running full out yet. So can you kind of talk about your cost and where those might go with Black Thunder actually gets to your full run rate?

Let me take the first part and then I'll turn it over to John on cost. But we've said many times in the past that one of the real benefits of the Trident Black Thunder merger was that the synergies allowed us to run a combination of the two mines at a higher level which was about 88 million tons to something closer to 100 million tons and we see that as a productive capacity of that mine. So if a year ago, I think we were in the 90 million ton range and principally due to rail service and if we can get up close to that 100 million, you can do the math. Because the dollar amounts really don't change all that much. The costs are pretty much fixed. As to individual cost components, I'll turn it over to John and let him address that.

Yes, a big piece of that was sales sensitive costs. If you carve those out, I think the biggest impact was probably reduced volume. We did bring some maintenance in from third and fourth quarter into first quarter since the volumes were down so we would expect as the railroads improve their performance this second half, that you should see some improvement in our cost.

Right. Certainly trended in the right direction even with the volume. Just follow-up question. You mentioned earlier that the second quarter would probably be light of the third and fourth quarters with the longwell moves. How do you see that relative to the first quarter given that you've got more longwell moves but at the same time, you don't have the West Elk issue?

Again, the hard part there, Jim, and we're not going to give you a hard number here, but you have those two you might say are close to each other. It is hard to say exactly. But we are just beginning the maintenance period in the PRB and we don't know how that's going to impact. We tend to think it will probably be harsher in the second quarter principally because third line or the third rail on that 18 mile section is expected to be completed by the end of the second quarter. We think Black Thunder benefits out of that. Additionally, as we look at the second compared to the third quarter, you're going to see the start-up of Skyline mine, start-up of Coal Creek. So we're -- we see some impact here in the second quarter that could go either way as compared to the first quarter, I guess. It depends on rail as much as anything.

Sure. Thank you very much. Nice work.

Thank you.

Brian Gamble of Simmons Company has our next question.

Yes, good morning. Couple of quick questions. First of all, talking about your Central App realizations for the quarter, very, very strong. In the prior quarter's guidance, you had mentioned margins probably increasing to $3 to $5 per ton in the run up range for full year '06. Do you still see that as an approximate range or given this increase in first quarter margins, do you see that being a little bit higher throughout the year?

Again, we need to see how second quarter goes. We got off to a very good start first quarter. We do have the longwell move. But we've been pleased with our realizations and performance and I would expect to see pretty attractive margins the second half of the year. We expect demand to continue to increase and there will be a very attractive pricing environment. If that occurs, I think you can continue to see these kinds of margins.

Have you had any rail issues in Central App?

For the most part, the railroads have been doing okay. We have experienced some with one of the eastern railroads with shortages and power shortages but we're starting to see some improvement there in the east.

Ok. And then on the PRB, you mentioned obviously rail constraints hindering your margins for the quarter. What do you think your margins could have been if rail had performed like it has for the first few weeks of April?

Oh, we indicated that we were down about two million tons and I think we would have shipped those two million tons. So kind of take the raw total cost and add additional two million tons. I haven't done the math exactly, but it would have been a meaningful number.

Fine. Thank you very much.

Thank you.

Paul Forward of Stifel Nicolaus has our next question.

Good morning. Pricing was just really outstanding during the quarter. Do you see any potential in later quarters, I guess, specifically in the second quarter, with the longwell moves that any of the regions might experience a drop-off relative to what we had in the first quarter or will the contract repricing be a more important factor?

I think the contract repricing moving forward is the most important factor when you look at the year and 2007 and 2008 in this pricing environment. Clearly, in the second half of the first quarter, you saw a softening with really the non-winter that most of the U.S. experienced, but at the same time, we seem to be seeing an early start to summer down in Texas. We're seeing announcements of new coal-fired power plants and there certainly have been press reports of various utilities, notably out of the PRB area, that are very short of coal still. So we see some pretty powerful pricing dynamics forming out there and $70 oil doesn't hurt.

Also, Paul, I think if you look at the global markets, you've got some of the other producing regions having trouble with rainfall infrastructure issues, transportation issues, and the Europeans just came off a very strong winter. So I think you're seeing some demand pull there. So we're seeing some pretty attractive market conditions as we go into the summer months.

But as far as looking at the second quarter, I guess what I was trying to get at was is the mix going to be -- is the mix going to maybe drag down on pricing a little just in the second quarter simply because you've got less high quality longwell mined coal coming out, just in the second quarter, that is?

Yes, I think you have a point there. Longwell coal tends to be the highest quality coal produced when you look at various operations. So it typically is the highest price. So as those longwell moves, you ship out of inventory, so you're not producing but the net effect is probably a little softening just given that mix. You make it back second, or third and fourth quarter with a much, much smaller amount of longwell moves, I guess.

And just, you mentioned the TXU plants, do you have any sense of are they going to be using 8400 PRB coal or 8800? I'm sure it's going to be some mix of everything. But any early indications on the quality that they're looking for?

Well, we don't. You know, TXU, of course, has a long history of using lignite. So, 8400 or 8800 looks like pure gold to those plants and my guess is they will go for the most economic pricing which would be natural to expect, and might lead them toward -- I would expect some combination. It is interesting that they indicated they were going to be units at all -- at existing plants which we have found usually has a more defined permitting period and construction period. I think that was a very encouraging announcement from a PRB producer's perspective.

I agree. Thanks very much.

Thank you.

Once again, as a reminder to our telephone audience, if you would like to ask a question, you may do so by pressing star one on your touch tone telephone. Additionally, we do ask that you please limit yourself to one question and one follow-up question today. Next we'll move on to David Gagliano of Credit Suisse.

Great. Thanks. I just wanted to ask a quick question on the first quarter of the realized price, somewhat related to Paul's question. Were there any spot coal sales in the first quarter. If so, what was the volume and in what region?

David, we had some spot sales first quarter but it was pretty minimal in the PRB and Central App and not a whole lot in Western Bit as well. I don't remember the exact number but it wasn't a significant amount of spot coal sold first quarter.

Okay. Switching gears then over to the western cost as a follow-up, and I want to switch around a bit. It looks to me like you had a 27% sequential decline in your Western Bit costs and a 3% sequential decline in your PRB cost and that's despite having West Elk longwell down and despite realized price gains of 23 to 37% which I thought would result in higher cash costs because of royalty taxes. It is a long way of getting to the question which is can you give me more detail how cost actually declined so much sequentially in the west with the issues of West Elk and the higher royalty taxes?

I think a big part of it, we had some challenges fourth quarter. As Steve mentioned in his opening comments, the Utah mines ran extremely well. We set records at Sufco in March and really set production records at Dugout as well. When you run those mines that efficiently with longwells, your costs come down pretty quickly.

So that is sustainable then?

Yes. And also, David, when we started the longwell back up in early March at West Elk, we had kind of a phase up with that longwell and actually ran a little bit better than we had forecasted. So we're real pleased with the way things are going there so far.

Perfect. Thank you.

Moving on to Justine Fisher of Goldman Sachs.

Hi. Just one more question regarding the Western Bituminous production. If you can't get this information, understandable. Can you give us a range of the cost per ton between the Colorado and the Utah mines?

Justine, we have not given that in the past and I think we're reluctant to do that here. So I think on that one, we're going to pass.

Okay. The second question I have is just to clarify the pricing comment earlier. When you said the 150% higher than last year's realization, those are long-term contracts that are being signed at the $20 range? 150% higher?

Well, the 150% higher are long-term contracts that some extending into 2010.

Okay. And then the next question that I had was regarding short-term debt and the revolver drawings. My inclination, or my read of the numbers is that the short-term debt is up significantly, it's 73 million. That represents revolver drawings that will be repaid over the year?

Yes. This is Bob. Yes. We should be out of the revolver in the third quarter, fourth quarter.

Okay. And then the last question that I had is just regarding the price of purchase coal. You said that you were selling the purchase coal at market prices but in the press release it says that you sold it at $40.71. My understanding was that that was the below market price coal that was the result of the Magnum transaction because the stock market price would have been higher had it been sold at spot, right?

These were -- basically the purchase coal was purchased previously and it matches basically the contracts that we have to cover with Magnum.

Okay, so you basically "bought" that coal, in quotations, at $40.71and then sold it at the current spot price, or your average Central App realized price?

Basically, we sold it at approximately the same price. It has no effect on our profitability.

Okay, great. Thank you.

And Leslie Rich of Columbia Management has our next question.

Yes, if you look at your unhedged volumes over the next couple of years, could you just talk directionally about how that's allocated between the different supply basins? I'm wondering if that's changed as a result of the Magnum transaction.

We've never really broken that out other than to say that it pretty much pro rata across each basin. That would continue to be a true statement. The largest perhaps impact would be the addition of Coal Creek when it is up at the 15 million ton level would have a shifting of the supply but when you adjust for that, it shows the same kind of relationship.

Okay, great. Thank you.

Daniel Roling of Merrill Lynch has a follow-up question.

Thank you. Steve, on the longwell moves, could you give us a little more detail? Are they all in the east, all in the west? Which mines are they at?

I'm going to turn it over to John. I know one's at Mingle Logan. Other than that, it's his baby.

Good morning, Dan. The one, Mingle Logan, is actually going to start next week. The other moves would be in Utah at our Dugout mine and our Sufco mine.

Okay. And if I can sneak in a follow-up, with the weaker dollar that we're seeing, strong European demand for coal, what's the export market look like? I know you guys really don't play in it anymore. Is it something that might make an extra dollar or two?

We're currently in negotiations with a couple of our European customers on met so it very well could but I think it is a little bit early to tell. We haven't settled some of our metallurgical agreements yet.

Any interest in steam coal going out?

I don't think you're going to see a lot of steam coal going out of this country right now. You still have South Africa, South America that are very competitive as well as some Indonesian coal. So I guess I'm not real inclined to think there's going to be a lot of steam coal going out of the country except maybe some Pittsburgh steam coal that could go out of Baltimore.

Okay. Thank you.

Once again, as a reminder, if you would like to ask a question, you may do so by pressing star one on your touch tone telephone. Additionally, we ask that you please limit yourself to one question and one follow-up question. Next we'll hear from Gil Alexander of Darrfield Associates.

Good morning. If the real situation improves in the PRB, how much could your production be up close to 17, 20 million tons next year?

I think, with the addition of Coal Creek, you're adding approximately 15 million tons in 2007 and then, depending on where we might be at the big Black Thunder mine, there could be an additional four or five. It is hard to say. We've said Black Thunder production capacity is approximately 100 million tons. We feel with really sound rail performance and we are seeing good rail performance in the last 30 to 45 days and we hope that continues but having said that, we do know the heart of the maintenance period is starting right now. We watch that closely.

Thank you very much.

Paul Forward of Stifel Nicolaus has a follow-up question.

Of this 20 million tons of PRB sold at around $20 a ton, just wondering if you might be able to give us a breakdown. Was there any Coal Creek in there? Was that all Black Thunder that you're referring to?

Go ahead.

Most of that, Paul, was Black Thunder. Obviously we're out securing business for Coal Creek, as well. Typically, those agreements were three to five-year agreements and a couple of those would have been Coal Creek.

Okay. And also, on Mountain Laurel, five million tons per year, any sense right now just given where met and steam coal are the outlook is going to be for 2007? What's your inclination to think about what the mix might be at met versus steam out of Mountain Laurel?

We have the ability to go to either market. We continue to evaluate the market conditions and I think it is a little bit early to tell but running that coal mine at that level, we're going to have a lot of opportunity. It will just depend on which market is more attractive.

Okay. Thanks.

Justine Fisher of Goldman Sachs has a follow-up as well.

On the spot sales, you said that you sold very little coal on spot during the first quarter. Is it about an even percentage that you'll sell on spot through the rest of the year or do most of the unpriced tons come in the fourth quarter?

No, really, second quarter, there's not a lot of uncommitted coal but as we move into the third and fourth quarter, that's when a lot of the uncommitted coal will get placed.

Great. Thank you.

We'll take our final question from David Gagliano of Credit Suisse.

Thanks. Just on the 20 million tons sold in the first quarter, can you just give us a little clarity in terms of when you actually sold those 20 million tons? Was it in earlier or throughout the quarter?

David, most of that coal would have been placed early in the quarter.

All right. January type? Early January?

Yes.

Ok. Thanks.

At this time, there are no further questions. I would like to turn the conference back over to Mr. Leer for any additional or closing remarks.

Thank you. Thank you for joining us on today's call. As I think you can see, we have a lot of enthusiasm in both for the quarter just finished and looking out for not only the rest of this year but as we look at 2007 and 2008. The roll-off of the legacy contract will have a major positive impact we believe in this type of market environment. And as I closed last year or last quarter, I should say, in the last year, we feel that we've really trimmed out this race car to go very, very fast. We're starting to see some of that impact as indicated by the first quarter. So thank you for your interest in Arch. Thank you for joining us today and we look forward to continuing our communications with each of you. Thank you.

That does conclude today's conference. We do thank you for your participation. Have a wonderful day.