CSX Corp (CSX) 2009 Q3 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the CSX Corporation third quarter 2009 earnings call. As a reminder, today's call is being recorded. During the call, all participants will be in a listen only mode. For opening remarks and introductions, I would like to turn the call over to Mr. David Baggs, Assistant Vice President, Investor Relations for CSX Corporation.

Thank you, Julie Ann. Again, good morning, everyone. Welcome to CSX Corporation's third quarter 2009 earnings presentation. The presentation that we will review this morning along with our quarterly financial report and our Safety and Service Measurements are available on our website at CSX.com under the Investor 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, Tony Ingram, Chief Operating Officer, Clarence Gooden, Chief Sales and Marketing Officer, and Oscar Munoz, 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, and actual performance could 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 quick question and answer session for the research analyst community. As a courtesy to everyone, please limit your inquiries to one primary and one follow-up question because the analyst community has expanded over the last quarter. 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. Good morning, everyone. Last evening, we reported third quarter earnings per share from continuing operations of $0.74, down 20% from the same period last year. Our story continues to feature two key elements -- a challenging environment and a team that's clearly up to the challenge. While volume and lower fuel recoveries reduced revenues 23% compared to the same period in 2008, we're seeing a sequential improvement in our markets overall. As such, we feel the worst of this recession is likely behind us. At the same time, core pricing remains strong. For the quarter, same store sales price increases remained above 6%, and we continue to believe in our ability to price above rail inflation on a long-term basis, reflecting excellent service product we are providing and the value of rail transportation. That, as you know, is an essential element of our ability to invest in our rail network and our nation's competitiveness well into the future.

The continued focus on yield management along with strong performance in safety, service, and productivity, all resulted in an operating ratio of 73.9%, a third quarter record. When the economy took its sharp turn for the worst, we set out to prove the resiliency, not only of our business, but also of our people and our core earning power. We saw this challenging environment as an opportunity to create a stronger Company, and we're doing just that. Year-to-date, in the midst of the most significant freight recession in the past half century, we are producing earnings above 2007, which speaks volumes about the committment and efforts of our 30,000 employees. Today, my colleagues and I are pleased to provide you with a closer look at our results in the third quarter. With that, let me turn the presentation over to Clarence to review our top line results.

Thank you, Michael, and good morning. In the third quarter of 2009, the impact of the economic downturn across most of the markets we serve began to moderate. At the same time, even as we right-size our network resources, we continue to deliver a reliable service product for our customers. And, we remain focused on pricing our services to reflect the value that we are providing to our customers. Now let's look at the change in revenue for the quarter on the next slide.

CSX revenue declined 23% to $2.3 billion due to the continued, broad-base, volume weakness. As you can see on the chart, the effect of our continued market base pricing partially offset the impact of declining fuel recoveries and reduced volumes. Price and mix accounted for $76 million in year-over-year revenue growth as pricing gains of $95 million offset a negative mix impact in the quarter of $19 million. Next, the impact from fuel prices further reduced revenues $292 million in the quarter. This includes a negative fuel lag impact which Oscar will speak to later in the presentation. Yet the primary revenue story this quarter continues to be the impact of volume. While volume declines moderated, they still resulted in $456 million less in year-over-year revenue.

Turning to Slide Seven, let's take a closer look at the overall volume changes across the markets we serve. Volume weaknesses continued across all key markets as the effect of the recession continued to impact our customers. Total volume in the quarter was over 1.4 million units, down 15% below the third quarter of 2008. Yet in each of the major markets that we serve, year-over-year volume declines moderated when compared to the second quarter. Some of the reasons for these improvements, which I will speak to in a moment, include government stimulus, inventory replenishment, and improved intermodal service. At the same time, our mix of traffic is gradually changing when comparing the third quarter to the first quarter of 2009. Specifically, the share of coal traffic to our overall book of business has declined while the share of other markets has increased. Before going further into the market specific drivers of this volume change let's look more closely at pricing results on the next slide.

This slide shows that overall revenue per unit declined as core pricing growth was more than offset by reduced fuel surcharge revenues. The line on this chart highlights the year-over-year change in total revenue per unit which includes the impact of price, fuel, and mix. On this basis, revenue per unit declined 8.7%. At the same time, the bars on the charts, which represent our same store sales price increases were approximately 6.3% for the quarter. Remember, that these shipments represent approximately 75% of our total traffic base.

For the full year, and based on the strength of our year-to-date performance, we continue to expect same store sales price increases to exceed 6%. Longer term, we still expect price increases to exceed rail inflation. Our improvements continue to reflect the value we are providing to our customers as well as the relative value of rail transportation. Rail customers are still paying only half of what they paid prior to deregulation, including the impact of significantly higher fuel costs. Now let's take a look at each of the major markets that we serve starting with coal.

Coal had third quarter revenue of $680 million, down 20% versus 2008, driven by an 18% decline in volume and 2% lower revenue per unit. Utility coal shipments declined on reduced demand, high inventories, and low natural gas prices. Lower domestic demand resulted from reduced electrical generation as well as declines in metallurgical coal, coke, and iron ore due to weaker steel production. Volume also declined on weakness in global demand for exports and an especially tough comparison from 2008 when worldwide coal supply was extremely tight. Looking forward to the fourth quarter, the decline in coal volumes are expected to continue as natural gas substitution will continue to be a factor, lower domestic and global demand will continue to affect coal shipments, and stockpiles remain at the highest levels seen this decade. Turning to the next slide, let's take a closer look at utility stockpiles.

Utility stockpiles will likely remain at these high levels well into 2010. The blue line on the chart labeled 'Coal Consumption' represents millions of tons consumed each month in the Eastern US power sector. The black line labeled 'Coal Inventories' represents millions of tons at utilities in the Eastern US. As you can see, the stockpile inventories are at record levels and over two times the monthly rate of consumption. Also on this chart, we have tried to depict a range for typical stockpile levels as represented by the green shaded area and line. Although typical levels vary by utility, coal price, seasonal and other factors, a rule of thumb that we have used here represents a 10-year, historical monthly average for coal consumption, plus or minus seven days worth of coal consumption. When coal inventories have exceeded this range, a correction period has usually followed. As a result, we expect demand for utility coal shipments will remain weak until stockpiles return to these historical levels and until coal consumption increases. Turning to the next slide, let's review the results and merchandise.

Merchandise had a third quarter revenue of $1.1 billion, down 23% versus 2008, driven by a 17% decline in volume and 8% lower revenue per unit. We experienced the largest volume declines in metals as steel production continued to be weak and in forest products and emerging markets where continued housing and construction weakness lead to lower volumes. Phosphates also declined on reduced domestic demand and inventory corrections more than offsetting the growth in export shipments. Looking forward to the fourth quarter, transportation of agricultural shipments are expected to be strong on a near record corn and bean crops. We expect stabilization in several merchandise markets such as food and consumer, metals and phosphates and fertilizers. And, while year-over-year volume declines in several markets should be less severe due to easing 2008 comparisons, industrial and housing and construction-related markets are expected to remain weak.

Turning to the next slide, automotive had third quarter revenue of $127 million, down 35% versus 2008, driven by a 28% decline in volume and 10% lower revenue per unit. Lower consumer demand continued to impact automobile shipments when compared to 2008 levels. Yet, third quarter volumes did improve versus the second quarter as several assembly centers were brought back online. One of the primary drivers of this sequential improvement was the Cash for Clunkers stimulus program. As we look forward to the fourth quarter, volume levels are expected to continue to improve sequentially due to increases in light vehicle production and low inventories and year-over-year volume declines are expected to lessen on easier comparisons. At the same time, we continue to work closely with our customers to adapt to the many production changes taking place including the ongoing industry restructuring and the growth of foreign brands and imports.

Turning to our intermodal results. Intermodal had third quarter revenue of $303 million, down 24% versus 2008, driven by a 10% decline in volume and 16% lower revenue per unit. The international market continues to feel the effects of the global economy and low consumer spending. Domestic volumes were up slightly as the over-the-road conversion and new service offerings were able to help offset continued weak demand. Revenue per unit was down in the quarter on decreased fuel recovery and a challenging truck pricing environment. As we look forward to the remainder of 2009, we expect international volume to moderate slightly as consumer demand stabilizes and global trade begins to show signs of a slight rebound. On the domestic side, the pricing environment is expected to remain challenging due to the abundant truck capacity.

Now looking ahead. Based on the current economic forecast, we expect the decline in our volume will continue to moderate in the fourth quarter. While at the same time, year-over-year comparisons will become easier, especially after the Thanksgiving holiday. You may recall during the first half of the fourth quarter of 2008, our volumes were down roughly 3% versus the prior year, but they declined dramatically in the second half of the quarter by more than 15%. As a result of the volume and year-over-year comparison changes, and excluding the impact of fuel surcharge, our year-over-year fourth quarter revenue outlook is unfavorable in six of our 10 markets, flat in one, and now favorable in three, including agricultural products, chemicals, and phosphates and fertilizer. We continue to work closely with our customers in these challenging times to forecast traffic levels, to make appropriate resource adjustments, and to deliver reliable service. We also continue to sell the value of rail transportation especially as shippers look for the most cost effective and environmentally friendly business solutions, and we feel confident that our reliable service product and our attention to customer needs will position us for profitable volume growth as the economy rebounds. Thank you, and now, let me turn the presentation over to Tony to review our operating results.

Thank you, Clarence. And good morning, everyone. Our culture of leadership, discipline, and execution keeps delivering results, despite the challenging business environment. Our committment to safety remains strong, and our performance ranks CSX as a leader in one of the nation's safest industries. We continued to drive productivity while managing resource levels, which is helping to improve the operating ratio. And finally, the network is running well, and service reliability remains high for our customers. Now let's look at some of the details.

Slide 17 shows improved performance in both personal injury and trains' accident rates. As you can see, performance had improved dramatically over the last several years, and that trend has continued in the third quarter. FRA personal injuries improved 7% to 1.09 for the quarter. That's 21 fewer injuries compared to the previous year. FRA train accidents improved 21%, reducing the rate of 2.47 in the quarter with 31 fewer accidents versus prior year. Overall, we have made great progress, but we will strive to make a safe environment even safer for our employees, for our customers, and for the communities we serve. Now let's turn to productivity and cost management.

This graph shows the change in car loads and road crew starts over the last three quarters. When volume declined sharply in late 2008, we used the One Plan to align our scheduled train network to match lower business levels. As volume level improved slightly in the third quarter, we handled the business without adding trains to the network. As a result, road crew starts were down 19% in the quarter with volume down only 15%. When volume continues to improve, we will use the same One Plan tools to keep the network lean and efficient. Now let's turn to the next slide, Number 19.

A smaller train network requires fewer employees and assets, and we continue to aggressively manage all resource levels. Looking at train and engine employees on the left, the number of active employees was down 14% lower in the quarter. During the quarter, we recalled some employees for the peak vacation season. In addition, certain provisions of the Rail Safety Act required additional headcounts. The active locomotive fleet was down 18% versus prior year, and we currently have a significant number of serviceable locomotives in storage. We will continue to manage resource levels to meet the needs of the business. That said, we do not expect to add resources back on a one-to-one basis as business levels improve. Let's turn to the next slide.

As we manage resource levels, we strive to maintain constant and reliable service for our customers. Service reliability is measured by on time arrivals and originations, remain strong and continues to improve. Originations were 82% in the quarter, 6% higher than last year. In addition, arrivals improved to 79%, an 18% improvement. Looking at the network performance, train velocity improved to 21.8 miles per hour, and the system is running well. Average dwell increased slightly to 24 hours, and our terminals remain very fluid.

Now looking at Slide 21, as the economy recovers, we are prepared to handle increased volume. Today, we have over 1,600 train and engine employees furloughed, and most are ready to return to work on a short notice. We look forward to recalling these and furloughed employees in other crafts back to work when business conditions or attrition warrants. As attrition reduces our furlough rate, we will hire new employees ahead of projected attrition. It takes four to six months to train new employees to work safely on our railroad. A small number of employees will be hired at specific locations in the fourth quarter. Finally, there are currently 640 serviceable locomotives and over 26,000 freight cars in storage. These assets can return to service quickly to meet customers' demand.

Now let's wrap up on Slide 22. We delivered strong safety performance in the quarter, and we remain a leader in one of America's safest industries. We continue to drive productivity and control costs while managing resource levels as business conditions improve. The network is running well, and service reliability remains high. Our model of leadership, discipline, and execution delivered results through very challenging economic times. This same model will deliver when the economy, our customers, and our volumes grow. Now, let's turn the presentation over to Oscar to review the financials.

Thank you, Tony and again good morning to everyone. Let me first start with an overview of the quarter's results on Slide 24. I think as Clarence discussed earlier, the top line continues to be impacted by declining business levels. Overall revenue fell 23% to $2.3 billion, driven principally by the 15% drop in traffic level that you've heard about. Expenses in the quarter declined 24% to $1.7 billion. About half of this change was due to lower fuel expense with the remainder being driven by Tony and our operating team through productivity and cost management initiatives. Operating income declined 18% to $598 million as our continued cost discipline helped partially offset revenue losses. These results, combined with slightly higher interest expense and lower income taxes and shares outstanding, produced EPS from continuing operations of $0.74, a 20% decline versus last year.

Fuel once again played a significant role in our results, so let's look at the lag impact on Slide 25. Now as we have discussed in previous quarters, the lag in our fuel surcharge program produces favorable earnings impact in times of falling fuel prices and a head wind in periods of rising prices. As you know over the third quarter, fuel prices increased steadily, and this resulted in a $19 million unfavorable impact. If you take the forward curve, the projected change in fuel prices are expected to result in a neutral to slightly negative impact in this fourth quarter. However, as you can see also from the chart, we had a significant favorable lag impact of $150 million in the fourth quarter of last year. And so, we will face a tough year-over-year comparison as a result of that.

Now let's move over to the next slide and look at our expenses in more detail. And thus start with the fuel line, specifically. Total costs in fuel declined $285 million, or 56% versus last year. If you look at the table on the right, the primary driver is, of course, price which decreased expense by $181 million, resulting from $1.69 decrease in the average price per gallon. Adding to this favorability was the $68 million impact of lower volume in the quarter. Looking at the chart on the left, fuel efficiency as measured by gallons per thousand gross ton miles improved once again 3% in the quarter and resulted in $17 million of year-over-year savings. Finally, the remaining variance was driven by a $19 million decrease in non-locomotive fuel expense, which also reflects lower fuel prices and volume.

Now let's continue our expense review on Slide 27. MS&O expenses declined 25%, or $140 million versus last year. As you can see in the table on the right, we were able to realize $51 million in volume-related savings in areas such as locomotive and freight car repair and intermodal terminal expense. In addition, the favorable cycling of prior year storm and proxy-related costs yielded benefits of $30 million and $16 million respectively. Next, as we told you earlier, we realized about a $9 million savings due to the sustained improvement in our safety performance. Finally, there is a remaining $34 million variance which represents a collection of several smaller items, about $20 million of which were favorable current quarter items such as the settlement of legal disputes at a favorable credit resolution that we do not expect to repeat in the upcoming quarter.

Now if you turn to labor and fringe on the next slide, these costs decreased 13% or $101 million from last year. A majority of this variance is driven by labor productivity savings of over $100 million. This reflects lower overtime hours and the reduction in headcount that Tony discussed earlier. If you look at the chart on the left, average headcount for the quarter declined by over 3,500 people, reflecting our continued focus on adjusting our workforce to current business levels. Finishing out the table on the right, a year-over-year reduction in incentive compensation provided a benefit of $28 million in the quarter, which was offset by inflation in the cycling of some favorable prior year items contained in the other expense line. Now, as we look to the next quarter, please note that we do not expect to see a large, favorable year-over-year variance in incentive compensation, reflecting fact that we started reducing this expense in the fourth quarter of 2008.

On the next slide, let me review the remaining expenses. All other expenses collectively decreased 3%, or $11 million versus last year. This variance was primarily driven by lower rents, which decreased $14 million due to the cost savings associated with the decline in volume. Depreciation was up $1 million year-over-year as the net increase in our asset base was partially offset by lower depreciation rates from the life studies completed in the fourth quarter of 2008. Finishing out the slide, inland transportation expense was up $2 million, driven primarily by an increase in off-core, intermodal volume.

Now that we've reviewed our expense items in detail, I'd like to update you once again on our cost reduction scorecards on the next slide. Although the worst of the recession is likely behind us, it is still critically important that we continue to manage our costs in response to changing volume levels. As we have discussed, time and time again, we will not bring back resources on a one-for-one basis and will continue to be transparent with our cost performance as volume returns. With that, let me review the results within each cost category on the right hand side of the chart.

First, we were able to realize a 40% reduction in short-term, variable expenses versus last year. While fuel continues to be a large driver in this category, we do continue to produce strong savings in the other short-term cost as part of our overall right-sizing efforts. Next, our long-term, variable expenses declined 16%, driven primarily by the reduction in headcount and overtime in our terminals and schedule network. Finally, our fixed and indirect expenses also decreased 16%, driven primarily by the cycling of storm and proxy-related costs and the reduction in incentive comp. All of which should not repeat in the fourth quarter of this year. Now, finishing out the slide, collectively, we were able to reduce our expenses by 24%. And when normalizing for the impact of fuel price, total operating expenses declined 16% in the quarter.

Now I'd like to put this quarter's performance in perspective with the previous results on Slide 31. This chart is a little busy, but it depicts a sequential view of the cost reductions produced during the first three quarters of this year. For the intent purpose of simplicity, we have combined these short- and long-term variable expenses into one variable cost bar. The darker bars on the chart represent fixed cost and our variable and total cost adjusted for fuel price changes. And the lighter shaded portions of the blue and gray bars show the unadjusted variable and total cost. Now, when we first outlined our cost structure in the fourth quarter of 2008, we said we would be able to affect all variable costs within two to three quarters. As you can see on the chart, we've achieved that objective as we make great progress in each quarter toward our goal of variabilizing as much of our cost structure as possible. Now, in this third quarter, success is evident in the fact that variable cost has decreased in line with volume even after adjusting for declines in fuel price. Outstanding performance through a sustained focus on adjusting resources which include our scheduled network, our yard and local crews, our locomotives, our freight cars, our G&A functions -- across-the-board, everything has been adjusted to changes in business. And so if you turn to Slide 32, we can see how our right-sizing efforts have contributed to our improving margins.

This chart outlines our ability to consistently improve our operating ratio despite the tough economic environment we've experienced over the past year. We have taken the necessary steps to right-size our resources to current volume levels. And as Tony mentioned earlier, we were able to handle the sequential increase in volume during the third quarter without adding trains to the network. It is this relentless focus on efficiency and the capacity in our network that will continue to allow us to enjoy attractive margins on incremental volume in the near term. This will all benefit the operating ratio. Now, at the same time, I also need to offer a quick word of caution. As Clarence discussed earlier, due to the series of challenges facing the coal market, we expect this segment of our business to remain a head wind well into 2010. This projected mix change will represent a hurdle for margin improvement as well as earnings as we look ahead. So let me wrap up on Slide 33.

As we look at this next quarter, just a few closing comments. Remember, we will be cycling $150 million favorable fuel lag in the fourth quarter. Our cost structure focus has and will continue to be something we focus on, and we've made significant progress in all areas of this business. Just as important as controlling our cost, our balance sheet remains healthy. We have a strong liquidity position and solid investment grade profile, and it's allowed us to weather this economic downturn. So collectively as you heard the teammates before me are focused on maintaining an appropriate level of resources, our sustained improvements in safety and the superior value we provide to our customer underlie the resiliency in our earnings and margins which position us very nicely to emerge as an even stronger Company as the economy recovers. So with that, let me turn the presentation back to Michael.

Well thank you, Oscar. So today, we find ourselves in a still challenging economy. However, the worst appears to be behind us and our underlying performance is still getting better. While the regulatory environment remains uncertain, and we are seeing a growing appreciation in Washington for the role we play in improving the economy and the environment. Industry-wide, it will take about $135 billion of new freight, rail investment to keep pace with the outstanding growth in demand between now and 2035. At the same time, the industry is facing a multi-billion dollar, unfunded mandate for positive train control, as well as the potential for billions more in impacts from new economic regulation, environmental, and healthcare legislation. The time for investment in rail has never been more crucial. Congress has an opportunity to create a regulatory framework that not only encourages rail investment but economic growth and job creation as well. As we actively monitor and express our views in Washington, the employees of CSX are remaining relentlessly focused on our business. There are four key realities that drive us. First, we're in a great industry with a strong foundation and a terrific long-term potential. Second, we have a network that is positioned right where the action is serving two thirds of the American population where three quarters of all consumption occurs. Third, we have a great team. Since 2004, our growth and rate of improvement has been unmatched in the industry. We have developed a culture of accountability that is always driving for better performance. And finally, the improvements we have made in our business have allowed us to make capital decisions to benefit customers and investors in the near- and long-term. The employees of CSX are demonstrating in a very significant way that regardless of the economic environment, we are able to produce positive results while positioning ourselves to be a safer, leaner, and stronger Company. This, combined with the renaissance of freight railroads in the United States, gives us great confidence in the long-term future of our Company. With that, we'll now take your questions.

Thank you. (Operator Instructions) Our first question comes from Ken Hoexter of Banc of America - Merrill Lynch.

Good morning, Ken.

Great. Good morning. After years of eliminating unprofitable intermodal revenues, it seems like your operating ratio on the intermodal side is creeping up significantly. When we get this turnaround, and volumes obviously starting to improve sequentially, are we going to have to go through another period of culling some of these revenues? I just want to get your thoughts on the intermodal business, which is the one part that doesn't seem to have the rebound that the great rail cost cutting side is having.

Ken, this is Clarence Gooden. When you look at our operating ratio and our intermodal business in the third quarter of this year, please keep in mind a couple of factors. Number one, we're comparing against a third quarter last year which was a record quarter in our intermodal business. Secondly, some of the factors that is driving that intermodal profitability right now is a significantly reduced fuel surcharge revenue is coming in. Secondly, our volumes are down. We have tried to align our network capacity with what those volumes are being down. But in order to stay competitive with trucks, we have to run a certain fixed network and that fixed network in the near- and short-term has excess capacity on it. And that impacts the profitability on that. And third has been the over-the-road pricing from the trucks is as tough as I've ever seen it in the years I've been in this business, and that is impacting our ability to get price in that intermodal business. Now having said that, when the economy recovers, when the volumes come back, and truck capacity tightens up, we expect the profitability of the intermodal business to improve.

Great. Thanks, Clarence. If I can just get the follow-up on -- Oscar, you mentioned a couple times you don't expect costs to come back on a one-on-one basis. Can you walk through what level you would expect incremental margins on incremental revenues as they do start to turn around?

Hi, Ken. That's difficult, and it's across different market segments. But I can generally say they will be better margins with the incremental volume than they were as we went into this recession. So they will continue to be better, and you'll get to see that as the volume increases.

Okay. And just a quick one if I can. On cash, do you plan on doing any stock buybacks again soon? It looks like you're building up over $1 billion of cash reserves here.

It's nice that the business has been able to generate the amount of cash that it has in this kind of down market. But again, we continue to maintain a sort of prudent outlook. We will wait to see how the economy recovers, and I think continue our balanced approach to investing in the business, dealing with dividends and share repurchases when the right time happens. So nothing at this point to report.

Great. Thanks for the time.

Thank you. Tom Wadewitz of JPMorgan.

Good morning, Tom.

Yes, good morning. Let's see. So a lot of things working quite well for you so congratulations on the good results. I wanted to drill down a little bit more on coal. You had some pretty cautious comments on that. Can you give us a sense -- are you anticipating a further step down in coal volumes? Or are you just saying they stay at a similar level, and they don't show the improvement that you might see in other segments?

Tom, this is Clarence. We expect the fourth quarter run rate will be very similar to what the third quarter run rate was. 2010, we expect that we'll continue with headwind into 2010. You got to remember there's about four factors that will be affecting 2010 -- gas prices, whether or not industrial production comes back to robust levels or just continues the slow steady improvement it's got now, what will the winter weather be producing? And remember that these coal utility stockpiles that we have only represent about a 5% overhang, so as the utilities draw that down, you may see ups and downs in 2010.

So when you look at 2010, I guess one thing to consider would be minimum commitments that the utilities have either with the miners or with you. Do you think those minimum commitments step down in 2010 versus this year? Or is there not a big change in that?

I don't really -- I don't know how to answer that. We are not seeing any liquidated damages if that's your question from any of our customers right now. And as to what the utilities will negotiate with the individual coal companies, we just have no insight into that right now.

But a lot of our contracts with them are longer term in nature, so there are probably not going to be significant changes in our contracts.

Correct.

Okay, and do you have a quick comment on timing on legislation? And obviously, I'll pass it along to someone else.

Ken, this is Michael. We really don't. As you know, the Senate Commerce Committee has been working on this for many months now, and they are really trying to strike the appropriate balance of how do we address some of the customers' concerns at the same time protecting the ability of the railroads to earn sufficient monies to get our cost of capital and continue to invest in the infrastructure. And I think that's been one of the challenges why they haven't come out with a bill yet. As you probably follow this as well, there's constantly -- in a couple weeks, something will be coming out. But at this point, we don't have any better visibility than they are working diligently on it.

Great. Thanks for the time.

Thanks, Tom.

William Greene of Morgan Stanley.

Yes, good morning. Clarence? How much of the 2010 business already has a price locked in?

Right now, it's going to be difficult for us to say because we're in the middle of the negotiations for next year. In fact, they just started in the last month or so. But at the fourth quarter conference call, we'll be able to give you some guidance on how much we've got locked in and what it looks like. But I would like to reaffirm, if I could, to you that we've strongly believe that we still have pricing power in this environment because of the service levels that we've got and the value that rail transportation brings to the marketplace. And we will exceed rail inflation next year on our pricing.

Clarence, I think on last year's third quarter call, you'd mentioned half your business comes up for renewal each year and at that point about a third had been negotiated and a third was in negotiations. Would it be different this year? Did you renegotiate things in a different way last year that would make that different? Or should that be about the same?

It should be about the same.

Okay. And then, can you just remind us legacy contracts? Are there any left at this point?

We have a few legacy contracts, about 5% to 7% of legacy contracts. Most of them start renewing in 2011 and some of them go out as far as 2013 and 2015.

Okay, and then one quick question for Oscar. Oscar, the network seems to have at this point -- I think you could say a fair amount of excess capacity? So would that suggest you can hold CapEx at these levels for at least a year or two? I know you haven't given guidance on CapEx for 2010. But just conceptually it would seem that we could run CapEx at these levels until the volumes come back to 2007 volume levels. Is that logical?

Bill, I think from a broader perspective, you need to remember that there is some programs that are going to be required on the industry that are going to put some pressure on CapEx into the next five years, namely positive train control issues. So it is that factor that makes that direct answer to your question a little bit difficult. So we're working through it, again over the course of the next few months we'll put the plans together and hopefully give you some sense of what CapEx will be next year. But again, we don't expect it to significantly move from the amounts we've been spending over the last couple of years.

Okay, thank you for the time.

Edward Wolfe of Wolfe Research.

Good morning, Ed.

Good morning. Can we just first start with some of the expense lines? Oscar, based on your comments on the MS&O line it seems like $20 million was what you referred to as not ongoing. So if we take the $428 million, and we add $20 million give or take -- is $448 million as good a placeholder as any for fourth quarter? Or is there a seasonal increase or anything else we should think about for that line?

You know that's a difficult question. I'm not going to give guidance on a range for a specific line item. That particular expense item is about roughly half variable costs that move up and down with business. The other half is generally fixed in nature until it's not. And again, issues like legal settlements, credit issues with regards to things that are current in the actuarial reserves which are upcoming in the fourth quarter. It's difficult to move or forecast that particular line item. So I can't give you an average because if you look back in history, it really hasn't been in that way. So think of it half and half on a normal basis, fixed versus variable. And it's about as much as I can give you. Sorry.

No, that's helpful. And directionally though, fourth quarter no different seasonally than the others?

As far as MS&O, again -- half of it being volume levels we've seen a little sequential increase in volume so you might see some of that uptick. But yes, it's nothing seasonal.

Okay, and then also directional. I'm not looking for precision in these expense lines. But if I look at labor costs down sequentially despite the 4% wage increase in July and higher volumes both sequentially. How do you account for that -- the sequential improvement and the year-over-year?

I tell you -- it's outstanding work from a very large group of people that are managing that expense in a spectacular way from what I've seen in my short time with the industry. So it is productivity to the nth degree. And again, I think you heard Tony talk about running the additional volume without incremental train starts -- that's how it starts. It's overtime management. It's all around that. So again, with more volume, a few more people will come back in, but we don't expect any kind of significant increase in the fourth quarter for headcount.

Somebody, I think it was Clarence noted about getting pricing above inflation. What's the expected rail inflation for 2010? How are you thinking about that?

Well, Ed, this is Clarence. Right now, our preliminary number that we're working with is 3%.

And that's an overall combination of labor and materials and everything?

Yes.

I guess the wildcard in there is fuel.

Fuel, right.

[SSG is in forward curve] with fuel.

Again, a directional number, Ed, as you'd expect that.

Yes. Can you talk a little bit about tariff expectations, Clarence? Everyone has asked you about pricing and what's locked in. But what's your expectation for getting tariffs in 2010 relative to not being able to get them in '09 so much?

Ed, before Clarence answers that, if you don't mind if you have additional questions if you could get back in at the end of the call. But Clarence if you could answer that for him?

Sure. Right now, we're evaluating what our tariff is going to look like going forward. We are getting a lot of pushback as you could expect from -- particularly the commodity groups in the tariff. But as we see how the business is stabilizing here in the fourth quarter, we'll make a decision on what we're going to do at the start of the year.

And lastly, this is just a follow-up to that, and then I'm done. But with the timing of when you make that decision is when?

We'll make that in the fourth quarter.

Okay, thanks a lot.

Gary Chase of Barclays Global.

Good morning, Gary.

Good morning. Clarence, could you just clarify when you said the current inventory levels represent a 5% overhang -- you mean you would have to take your current volume rates down 5% for a year to correct it? Could you just define what that 5% means?

Well if you look at what the utilities need in terms of inventory and you look at what they have there, they probably have somewhere in the neighborhood of 20 million tons more on the ground than they actually need to have. So either we're going to have to let that inventory work itself down or the burn rate for the utilities is going to have to increase.

Right, but that wouldn't be 5% on a year. That's just 5% relative to the inventory levels, right?

That's right.

Okay. I understand the desire to be conservative on this. How hard is it for coal to get incrementally more negative? I mean, it's not a bright spot now. Do you have customers that are trying to renegotiate these minimums whatever the contractual provisions? And then, as a follow-up to that, I guess the other side of it is, does the dynamic now with natural gas make you rethink how much value you can extract on the pricing side looking forward from some of these legacy situations?

The answer to your first question is no. And to the second question is, natural gas is a commodity and it's going to behave like a commodity behaves. And right now there's an abundant supply, relatively speaking, of natural gas with exploration particularly in the shale reserves in this country. But the drilling rig count is down. So eventually the price of that natural gas will go up. And when it does, the coal burn changes.

It's starting to approach $5 on the forward curve now.

It is. It's $4.50 on the current number, and the forward curve gets to $5 and $6 after January 1st.

So, it sounds like that would be a no to the second as well. You don't think it's going to change the dynamic?

Yes.

Looking forward on -- .

That is correct.

Okay. I appreciate it.

Thank you.

Matt Troy of Citigroup.

Yes, thank you. Back to the earlier question about legacy contracts. Just given the fluid situation in the automotive industry, I know Ford has got a big contract with Norfolk Southern that is supposed to reprice at a pretty favorable market-based rate in the fourth quarter. Could you just talk about your automotive book? Are you involved in that in renegotiation? Is there potential for share gain or loss? And what does the automotive side of the business look like? I would imagine the pricing opportunity there perhaps not as much as it was maybe two or three years ago when that was a healthier industry.

Well, Matt, first I don't really want to comment on any negotiations we're doing with a particular customer because of the confidentiality of that. But I think it's common knowledge that the Ford contracts are up for renewal. The automobile business is a tough business to be in right now. We don't have any significant contract renewals coming up other than the one that you've mentioned there. So it's going to be a year or so before we actually get really significantly impacted by any of those negotiations. And as is usually the case, the automotive industry is trying to push prices down as low as they can get them, and we're trying to push them up as high as we can get them. I don't mean that to be flippant. That's the truth.

Right. It's the classic immovable object versus the irresistible force.

Right.

I guess if I look at a question, because we were running long, and I'll keep it to two. A question I had for Oscar -- it's just a modeling question. I just want to make sure I understand something correctly. You had in your footnote that you had about $160 million of CapEx not running through the CapEx line but actually classified as financing activities because you used seller financing. Was just wondering what that was -- just to clarify. So we can come up with what the true full year CapEx number would be.

Yes. Simply said, it's the receipt of physical assets that we paid for in a later time frame.

Okay, so it's just a timing issue?

Yes.

So the full year CapEx guidance is unchanged?

Absolutely.

Absolutely. Thank you.

Thank you. Chris Ceraso from Credit Suisse.

Hi, Chris.

Good morning. Can you hear me?

Yes.

Barely, actually.

Is that better? You mentioned a lot about coal, and I understand the inventory issues as it relates to steam coal. But it looks like steel production is starting to ramp up a bit globally. Do you think that there's a chance that met coal and export coal can be up in 2010 versus '09?

Chris, this is Clarence. There's a possibility that it could be up. It's just a wildcard because there's very little metallurgical coal at the steel companies. Capacity utilization last week in the US was at 59%. So is it up from where -- it got down into the high 30s, the low 40s? Yes. Is it where it was last year at this time? No. So it's a wildcard for us.

Okay, and then you've got the union contract coming up at the end of the year. Do you think that the union appreciates the concept here that if wage increases get smaller then your need to raise prices much can also come down which might take some regulatory pressure off the industry?

This is Michael. I think that would be a highly unusual posture for them to take. I think their concern will be to push their wage increases as high as they possibly can. Just to remind the group, we do negotiate as the five class one railroads -- to four and KCS -- negotiate together against -- with the unions. Normally, that's a multi-year process, and I'll remind that in the last 30 years there has been six days lost of work due to strikes. So I think what you'll see is a protracted negotiation with them pushing for wage increases and us pushing to minimize those increases. But it's in the very early stages.

Okay. Thank you very much.

Justin Yagerman from Deutsche Bank.

Good morning, gentlemen.

Good morning.

Looking at the coal side of things, I just want to get back. I don't know if we got 100% clear answer. You said that you're not currently getting pushback in terms of the minimums there -- that the utilities have to take. If that's the case then what's going to drive further pressure on the mix from coal overall? And then I guess -- if in the worst case scenario, you did have to take liquidated damages because you weren't able to ship enough product. What does that mean in terms of how much you could make up for given the fact that margins on those liquidated damages would essentially be 100%?

Justin, this is Clarence. Typically, our utility contracts have minimums and maximums. So the trick for the utility is just to try to stay slightly above that minimum and not have to pay any liquidated damages. So they walk a very fine line there. As it relates to liquidated damages, most of our contracts have liquidated damages. So let me describe them to you, Justin, if you would allow me to in the following way. They cushion the impact, but they do not replace the contribution that we would make by hauling the coal. We would much rather haul the coal than receive liquidated damages.

And Clarence, isn't it also true we're not seeing instances where people are paying liquidated damages. They're meeting their minimum.

Have not seen any and have had no discussions that I'm aware of with anyone about it.

Justin, this is Oscar. Embedded in that question was a mix viewpoint as well. And again, the simplest way of looking at that is, even if coal volume will remain static and stable until the next quarter for instance, the rest of the business is beginning to show some signs of growth. And that's how the mix begins to shift. So it's not necessarily a further decline in coal. It's that the rest of the business actually grows. And Chart Seven, I think has a little bit of depiction from the first quarter to now that outlines that.

Okay, that's helpful. And then, I just -- a follow-up question on the cost side and thinking about the $20 million in MS&O. When we think about that as incorporated into continuing earnings, are there other offsets in your cost structure that maybe were opposite -- counteracting that? That we should be thinking about that are one-time in nature that would lead us to believe that on a net basis this is neutral from a continuing standpoint?

Justin, the way to think about that is we try to be as transparent as possible. The matters that are current in the quarter are normal business matters, they just happen to hit in that. And we don't naturally have those recurring. So that's what we're telling you. How you wish to offset that in your models versus other things, there's always things in the business that are impacting us one way or the other. You've got a fuel lag that happens both ways, and you could easily measure those two off. You have got mix impact. You have got a whole host of different things. So we offer it to you for your use and your analysis and again to be transparent that embedded in this -- in that particular line item there was a couple items that were unusual for us.

Got it. That's very fair, and I guess just lastly before I go. On the modest improvement that you saw in terms of volume declines in intermodal as we move forward. Do you think there's any leading indicator there? Are you getting a sense from your customers that this pretends -- is some kind of improvement in economic activity on an underlying basis? Are you seeing strength in consumer goods coming out as we're starting to hear about Asian export growth and all the rest. You mentioned a little bit of strengthening in the international business. Just any comments around that would be interesting to hear.

Justin, this is Clarence again. I think it's just a slight bump up in the traffic in anticipation of the holiday seasons that are coming up. I don't think that it's any type of major indicator of some surge in economic growth in Asia.

Well it would be the first time in a while that we have felt any seasonality so that's actually nice.

It is.

Appreciate it. Thanks for your time.

Donald Broughton of Avondale Partners.

Good morning gentlemen.

Good morning.

Let's go back and dwell a little bit on the labor line. I want to get a little bit more granularity -- a follow-up on what Ed was asking earlier. The number of T&E employees was actually higher sequentially. And in the second quarter, your train starts were down 20% and crew starts were down 20%, they were only down 19%. Still heroic in the third quarter, but they were down less in the third than they were in the second. So with the 4% inflation in wages halfway through the quarter, trying to get the 15.5% drop in wages to foot. What else is there? Has there been a change in management compensation or incentive payout?

I'm trying to -- that was a lot of math in your head there that I was having a hard time keeping up with.

Well you got T&E employees are up sequentially.

Okay.

And while your crew starts are still down, they're down less than they were than the second quarter. So if your T&E employees are up, they are getting paid 4% an hour more. And your crew starts are down less? Then why shouldn't -- why wouldn't I see -- how is it that nominally, sequentially the wage number could actually fall?

Incentive comp is a big number that we outlined in the chart. I don't see the sequential drop in headcount -- .

Well, the headcount is up sequentially.

Right. So here are the factors that I think we talked about in the script. The vacation aspect is an impact, overtime reductions, and of course, a very large number in incentive comp is a reduction as well which all drove that number down. Are we answering your question?

So incentive comp is part of it. Bigger than a bread box, smaller than a railcar? What are we talking about in the amount of swing in incentive comp?

$28 million.

I'm sorry?

$28 million. It's on our chart. I'm just trying to -- if you look on Chart Number -- .

If I could learn to read?

Yes.

You know what Mark Twain said about that. Okay, that explains the variance then. Thank you.

Okay, great. Thanks.

John Mims of BB&T Capital Markets.

Good morning. Most of my questions have been answered. Not to beat this coal horse to death, but just to make sure I'm looking at it right. When you talk about the headwinds you see in Q4 and going into 2010, on a sequential basis, are we going to see carloads stay about the same as Q3? Or were you going to see those decline in Q4 and into Q1?

Q4 should be sequentially about the same as Q3.

And in 2010, can you venture that far?

It's iffy in 2010. Because your year-over-year comparison are going to be different, particularly in that first quarter and into some degree in the second quarter you may see some decline in those quarters but -- .

As Clarence pointed out there's lots of variables here. How cold is the winter? Where's natural gas prices? What's the demand for electricity? So all those things weigh in there that's a little hard to gauge that, but what we do know is theres 20 million tons or so more on the ground than they would like to have. And that's really I guess the best visibility we can give.

Yes, and this is just kind of on that same line, and I know this is difficult to answer. But finger in the wind, would you say this is a three quarter headwind, a five quarter headwind? How have similar situations typically played out?

Well it's interesting I was talking with our Investor Relations last night. It's a headwind, it's not a hurricane. We're going to load 4,000 or 5,000 carloads of coal a week -- originated loads less than we have historically loaded throughout the years. That's essentially what it is.

Great. Thanks for the time. Great quarter.

Thank you. Randy Cousins, BMO Capital Markets.

Good morning.

Good morning, Randy.

Oscar, I wonder if you could speak to the casualty reserves for the fourth quarter, given the great FRA statistics that you are producing. Normally, you take the Q ups in Q2 and Q4? Can you give us some sense as to -- obviously, you're probably not going to repeat what you did in Q2. But is it going to be $10 million to $20 million as a true-up?

Yes, Randy, it's hard to say. But here is my sense of it. Because again, it's performed -- the work, by an outside actuarial service and until we open the envelope we don't know ourselves. Given the short duration of time and thank you for noting the improvement and continuing improvement in safety. I think generally it's too short of time has passed to have any real meaningful impact in this fourth quarter given what would happen in the second. So I would not expect a very large number in general.

Okay, and then my second question has to do with the surcharge legacy. You talked about as a headwind year-over-year. And if I look at your Slide Number 25 because I'm more interested in the quarter to quarter issue as opposed to the year-over-year number because last years number is in a totally different environment than what we've got today. So as the way to think of this as I think it shows up as $33 million headwind this quarter, or in the Q3. And a $19 million, I think you're looking for in terms of sort of the next quarter so the swing is we should think of that as a $14 million favorable adjustment?

Just to clarify and clear the chart a little bit, if you look at it, the last bar is the actual current period Q3. So we're not -- .

Sorry, yes.

So the way to look at it I think your question is regarding Q4?

Yes.

I think what I've said is that given the current forward curve, we don't expect to see the lag -- kind of neutral to slightly negative. So we wouldn't expect to see a very large number impacting us.

So in terms of thinking about Q3 versus Q4, that then on a $19 million positive?

Yes, but then remember we have got this year-over-year issue where we had that. If you look back at Q4 of 08 -- .

I'm just thinking quarter to quarter as opposed to year-over-year?

Yes.

So $19 million positive?

Yes.

If the forward curve is correct.

Thank you.

Jason Seidl from Dahlman Rose.

Good morning, Jason

Good morning, gentlemen. I'll keep this quick. Tony, how much additional freight can the network handle before you are going to have to start adding train sets?

Well, we've lost about 20% in volume, so we can handle that. Our trains right now -- we've adjusted our trains to maximize our train size. So there's still plenty of volume out there to take what's left that we've lost there, but I'm thinking intermodal is greater as Clarence mentioned earlier. You got more room on the intermodal trains. And coal -- your coal and grain trains will be one -for-one type stuff on your unit trains. But there's still plenty of volume out there for our trains.

Okay. And Clarence? You noted that you're still seeing a little bit of pricing pressure on the domestic and intermodal. Have you started to see that ease any in the last -- call it, month or two? Because we've noted sort of a sequential uptick in truckload pricing. Not much of one, but a sequential one. Is that flowing through to you yet? Or no, not yet?

It has, particularly coming off the West Coast. Most intermodal carriers are out of boxes on the West Coast so we've been able to get some price coming off the West Coast.

Okay. Gentlemen, thank you for your time as always.

Thank you.

Walter Spracklin, RBC Capital Markets.

Good morning Walter.

Thank you, good morning. Just to follow-up on the regulatory front here. There's some news articles, and I don't know to what extent you can really comment on this. But talking about a bill having been run past you guys and you seem to be okay with it, and it just sounds like some of the shippers have a few qualms about it. Is there anything you can speak to about that? And is there any truth to that?

Well, what I can say is this, Walter. It's Michael. We have been in constant dialogue with the Senate Commerce Committee staff. They've sort of imposed a cone of silence upon us because they're trying to work through this balance of the ability for us to continue to earn appropriate monies and invest and some of the concerns -- some of the select customer base has. And so, they're working to strike that balance, and I think they've shared some tentative ideas with us which depending on how it shapes up may be something the industry can live with. But until they actually produce something, it's really hard to comment on it.

Okay, understood, but that's good color. I appreciate it. Just last question, you mentioned the positive trend control being an unfunded liability out there. Do you have any -- assuming that there's no update in the next year or two on how any government funding might come in. How do you approach the funding of those initiatives given that deadline you have? In other words, how much CapEx can we see devoted toward PTC in the next couple years?

As Clarence noted earlier, it's going to be a challenge. We are going to have to look carefully at our capital spend and where we spend it. But our current estimates between now and 2015 when it needs to be in place is about a $750 million expense and potentially more. All of the regulations haven't been finalized at this point. We're working as an industry to minimize the number of miles that we have to apply this technology to, and there are some ideas we're exploring with the FRA that will minimize while still protecting the public. And so, it's still in the definitional phase, but we are going to have some hard tradeoffs to look at there of where do we spend our capital, as we go forward.

Implicit in that, Walter, is the fact that the money comes from us. Now we are trying to work in some areas to potentially defray some of that cost, but it largely will come out of our operating cash flow.

Okay, understood. Those are my two questions. Thanks very much.

Jon Langenfeld of Robert Baird & Company.

Good morning. On the domestic intermodal side, can you talk about where the areas of relative strength are? Is it Transcon? Is it IntraEastern region, and-or, how is the spot market business doing?

Well, the quick answer is yes to all three. Our Transcon business has been up, mainly as a result of the transloading off of the West Coast of the international boxes. And that's been the case just about all year. Some of our truckload partners on the Eastern core have been converting a lot of their over-the-road business in a fairly aggressive way to intermodal, and that's produced growth for us. And then, our spot market business that we do through truck brokers and all have businesses remain strong all year long.

So, across the board?

Yes.

Okay, thanks. And then, the follow-up is you have a couple larger partnerships with intermodal marketing companies. And then, you have a number of smaller partnerships. How does your strategy look if one of the larger partners no longer is able to service your needs? How does your -- just generically, how does your strategy look out over the next three to five years under that type of scenario? Where are the offsets? What are your options?

Well, I'm not exactly sure where you're headed with the question, but let me say that our intermodal strategy if one of our larger partners was to change carriers. Somebody was to buy them or whatever. The freight capacity in this country is still going to move. The business itself is still going to move, and we think that we'll earn our fair share of the business as it moves. We've got an excellent service product that Tony and his team is delivering right now. It's just absolutely fantastic service that we can offer. We have box availability that's in the marketplace that we're doing good. We think we're priced right. We think we serve a lot of the eastern markets where most of the consuming population in this country lives. We've got projects such as the National Gateway and things that we're moving out in New England that are going to provide a lot of value to what the shipping public needs. We have new terminals coming online in Northwest Ohio. In Bessemer, Alabama, we just opened up a new terminal. We've had expansions of terminals in Charlotte and new terminals in Chambersburg. We've got most of our network now cleared completely for the double stacks. National Gateway will be the crowning jewel for it. So Jon, we feel pretty good about where our intermodal strategy is.

Great, and does the core pricing on domestic intermodal -- can you give us some sense of what that looks like for you?

The core pricing on domestic intermodal?

Correct.

It's tough. The truck environment -- a lot of the mid-size truckers that have been in the intermodal business have had to take intermodal off of the rail and put it back on to the highway to protect the driver base, and that's been tough for us. There's a lot of capacity out in the marketplace still, even though you hear the stories that people are taking capacity out. The banks are not foreclosing on these trucking companies because what are they going to do with 700 or 800 or 1,000 or whatever the math is with the trucks. So you've got between the artificial financing that's propping up some of these companies and the need for them just to get freight to stay in business, it is a tough pricing environment.

But would you care to quantify that for us? Is it down a couple percent? Is it down 6%? What would be the range we're looking at?

Oh, I don't know off the top of my head. I don't want to guess a number, but it's down.

Okay, very good. Thank you.

Our final question comes from John Larkin of Stifel Nicolaus.

Good morning, John.

Yes, good morning, everyone. I had a question that's a little longer term in nature -- related to target margins in the three to five year time horizon. If we are in the early stages of volume recovery which I think is an accurate assessment, and you are able to bring costs on at a less rapid rate than the volumes recover and pricing outstrips inflation, you ought to have a pretty good run of margin expansion here. Do you think over that three to five year time horizon that it's possible to get down into a consistent sustainable operating ratio with a six in front of it?

John, this is Michael. Absolutely. We've put out guidance about a year and a half ago that we felt by 2010 we would be sub 70 in our operating ratio. Obviously, this downturn impacts the timing. It does not impact where we think we can and should be and will be which is sub 70 operating ratio Company.

Okay, and then just maybe another final question here. There's been a lot written and talked about with respect to natural gas prices being low and how long they will be low and so forth. Do you have a handle, Clarence, on how many of the power plants that you serve, actually have the technology in place to switch over to natural gas? And how many of those have actually either totally or partially switched over to natural gas at this point?

Couldn't give you a number off the top of my head, but I would remind you, John -- something I'm sure you are already aware of -- when electrical utilities convert to natural gas, it's not the coal-fired plant that converts. They just fire up the combined cycle gas turbine engines that they have idled -- so-called peakers. Now we do have one power plant that I'm aware of that is changing its fuel mix from coal to biomass, but it's a very small plant in South Georgia that's doing that and probably won't have that much impact on our coal business.

Okay, so is it safe to say that really the issue is the stockpiles and the reduced electricity demand and once that stockpile as an industry gets drawn down, we will return to a more of a normal level of coal movements?

Yes, absolutely.

Thanks very much.

Thank you. Well, thank you, everyone for their participation today. We appreciate your interest. See you next quarter.

Thank you. This concludes today's conference call. Thank you for participating. You may disconnect your lines.