Good morning, ladies and gentlemen. And welcome to the CSX Corporation Second Quarter 2015 Earnings Call. As a reminder, today’s call is being recorded. During this call all participants will be in a listen-only mode. For opening remarks and introduction, I’d like to turn the call over to Mr. David Baggs, Vice President, Treasurer and Investor Relations Officer for CSX Corporation.

Thank you, Shirley, and good morning, everyone. And again, welcome to CSX Corporation’s second quarter 2015 earnings presentation. The presentation material we'll be reviewing this morning along with our quarterly financial report, and our safety and service measurements, are available on our website at csx.com under the Investor section. In addition, following the presentation a webcast and podcast replay will be available on that same website. This morning, our presentation will be led by Michael Ward, the company’s Chairman and Chief Executive Officer; and Fredrik Eliasson, our Chief Financial Officer. In addition, Oscar Munoz, our President and Chief Operating Officer; and Clarence Gooden, our Chief Marketing Officer will be available during the question-and-answer session. Now before I turn the presentation over to Michael, let me remind everyone that the presentation and other statements made by the company contain forward-looking statements. You are encouraged to review the company’s disclosures in the accompanying presentation on slide two. The disclosure identifies forward-looking statements, as well as the uncertainties and risks that could cause actual performance to differ materially from the results anticipated by these statements. In addition, at the end of the presentation, we will conduct a question-and-answer session with the research analysts. With approximately 30 analysts covering CSX today, and have to respect for everyone’s timing including our investors, I would ask as a courtesy for you to please limit your inquiries to one question and if necessary a clarifying question on that same topic. And with that, let me turn the presentation over to CSX Corporation's Chairman and Chief Executive Officer, Michael Ward. Michael?

Well, thank you, David, and good morning, everyone. I am pleased to report that yesterday CSX announced second quarter financial results for its shareholders that included all-time company records for operating income and operating ratio, as well as earnings per share, which were $0.56, up from $0.53 reported in 2014. Overall, significant operating efficiency helped offset year-over-year declines in revenue and volume. Starting with the topline, revenue in the quarter declined 6% to $3.1 billion. Pricing gains were more than offset by lower fuel recovery, a changing business mix, and a 1% volume decline as we cycled last year’s demand surge. At the same time, we have the resources in place to meet customer demand across the network, supporting improved service performance and operational efficiency. That efficiency coupled with lower fuel prices helped decrease expenses by 9% and delivered all-time records in operating income at $1 billion and an operating ratio of 66.8% for the quarter. We expect service momentum to continue as we progress toward the record service levels we saw in 2012 and 2013. That service is the foundation for driving long-term growth and value creation of our shareholders, as it also supports our ability to price to the value of rail transportation and produce ever more efficient operations. Now, I will turn the presentation over to Fredrik, who will take us through the top and bottomline results in more detail. Fredrik?

Thank you, Michael, and good morning, everyone. Let me begin by providing some more detail on our second quarter results. Revenue was down 6% versus the prior year, driven mainly by $183 million of lower fuel surcharge recoveries. At the same time, the impact of negative business mix and lower volume were essentially offset by core pricing gains. Volume decreased 1% from last year, with low commodity prices impacting coal and crude volumes and some of our merchandise markets, particular metals being challenged by the strong U.S. dollar. Core pricing continues to improve sequentially and for the quarter was up 3.5% overall and 3.9% excluding coal. Other revenue increased $46 million versus the prior year. The primary driver was the cycling of about $20 million negative impact to the in-transit reserve last year, coupled with the positive impact this quarter from a similar amount as network performance improved significantly. Expenses decreased 9% versus the prior year driven mainly by the impact of lower fuel prices. Our ongoing focus on efficiency drove $45 million in productivity gains in the quarter, but lower volume resulted in $32 million of cost reduction versus last year. In addition, we recorded a $17 million gain in the quarter associated with the sale of an operating rail corridor. Operating income exceeded $1 billion for the quarter for the first time in CSX's history and was up 2% versus the prior year. Looking below the line, interest expense was similar to last year, while other income was favorable as we cycled environmental charges for non-operating activities from the prior year period. And finally, income taxes were $334 million in the quarter, reflecting higher pre-tax earnings. The effective tax rate was about 38%, which is consistent with our expectation going forward. Overall, net earnings were $553 million and…

Well, thank you, Fredrik. As you’ve seen today, CSX produced excellent results in the second quarter for its shareholders in a challenging market environment by driving operating efficiency with the committed efforts of our 32,000 dedicated employees. And we continued to focus on the actions that are foundational to our long-term success. Delivering excellent service supports growth and operational efficiency, which in turn creates customer value that enable strong pricing for the value of the service we provide and allows us to continue driving earnings growth and margin improvement. We are pursuing new opportunities across our diverse portfolio and further improving network performances to our consumers and producers throughout the global supply chain and to create value for you, our shareholders. Thank you for your interest in CSX and we are now glad to take your questions.

Thank you. [Operator Instructions] Our first question comes from Brian Ossenbeck with J.P. Morgan. You may ask your question.

Good morning, Brian.

Hey, good morning and thanks for taking my call. So one thing that stood out is this is the first time in the quarter where you’ve put all-in numbers in core merchandise, intermodal same-store sales pricing results anywhere really close to one another including last quarter. So, I was wondering how much did the shift in the business mix impact those numbers, and could you have had even higher pricing trends if the commodity carloads didn’t drop off about 4% in the quarter. Is there any other -- any other color on that would be helpful? Thank you.

Brian, this is Fred Eliasson. The big driver here is that we’re cycling the actions we took last year in the export coal markets. And as a result, we’re seeing those two numbers harmonize more now and we expect that going forward as well.

Okay. So you expect them to be harmonized in the near future at the same level on that 3.5% to 4%.

No. What I am saying is that the gap between the two numbers, between our all-in pricing and the non-coal pricing has been exacerbated because of the actions we’ve taken over the last year or two in our export coal markets. We are now as we move into the third quarter moving past those actions from last year. I think, over time, we continue to expect strong pricing in all our markets as we continue to price to market and ensure reinvestment in the business. So, I think that gap will be much, much more narrow going forward.

Thank you, Brian.

Thank you. Our next question comes from Chris Wetherbee with Citi. You may ask your question.

Good morning, Chris.

Good morning, guys. Thanks. I wanted to talk about sort of the productivity gains that you’re getting. You’ve seen sort of the cost from efficiencies pickup 2Q to 3Q. Presumably, if service continues to improve, those numbers should get a bit better in the back half, but just wanted to get sort of an update on how you think about sort of the back half in terms of productivity and efficiency gains from the cost perspective?

Yes, this is Fredrik again. We’ve gone up to a good start here this year, obviously $45 million here in the second quarter, but $41 million in the first quarter. We have said that we still think we can approach $200 million for the full year, but probably not as close as we originally have thought because of what we saw in the first quarter, because of weather and also because of the fact that the volume environment is not as strong as we had originally anticipated. However, we’re very much focused on driving efficiency gains, but just implied by the first half performance and our guidance for the full year, we are going to have a strong second half as well.

Okay. Great. Thanks, guys.

Thank you. Our next question comes from Tom Wadewitz with UBS. You may ask your question.

Good morning, Tom.

Yes, good morning, Michael. I wanted to ask you a question on coal. I appreciate the commentary on third quarter and kind of how to look things. If you look beyond third quarter, how might we think about when coal volumes might bottom both on the utility and on the export side? I mean, do you think that kind of down 15% in fourth quarter and then maybe you are flat next year? Or how do we think about that, because it just seems like the pressures are in place both utility and export? And it’s hard to -- looking at a couple quarters, it’s just hard to know how to think about how coal volumes might play out? Thank you.

Well, Tom, this is Clarence. It’s looking like the fourth quarter could be -- easily if gas prices remain where they are now to be repeated in the third quarter, it is probably too soon to tell about what export is going to look like next year, but it certainly won’t be as strong as it is, has been this year as Australian benchmark stays where it is now. Australian dollar stays where it is now which is about $0.74, and the API 2 stays where it is now which is at the high 50s. Next year it won’t be a good export year.

So if you said the current conditions persist, do you think coal will down next year further or do you say well it’s already been down enough this year so it’s flat?

Well, there is certainly more upside than downside for next year, but it could be down.

So a lot depends I guess on the weather and where gas prices are.

Weather and where gas prices are, right. Weather and gas prices.

I think just to clarify what Clarence said, I think there is probably more downside to the coal volume next year than there is upside.

Right.

If the current -- if gas prices stay, and the exports markets kind of remain challenging.

Yes. Based on seeing right now both between domestic and exports, probably more downside to our volumes for 2016 than there is upside in those two markets.

Okay. I know it’s a tough market to figure out, so I appreciate the color.

Thank you. Our next question comes from Allison Landry with Credit Suisse. You may ask your question.

Good morning, Allison. Q – Allison Landry: Good morning. Thanks for taking my question. I was wondering in terms of the fourth quarter, do you think that you could grow earnings year-over-year even if the volume environment remains soft, just given the acceleration in productivity gains, sort of getting the network back in balance and then continuing to see acceleration in the core pricing gains?

Well, I think Allison, this is Fredrik again. I think obviously we have two quarters behind us. We’ve given guidance for the third quarter and we’ve given guidance for the full year that range. So that range depends on what we’re seeing -- what we’re going to see in the fourth quarter. So, great momentum in terms of what we do on our productivity side. We continue to -- we see a strong pricing environment as well. But it really depends on how massive will this coal headwind be in the second half. And I think how those, kind of the positives and negatives work out, will allow us to see what we are ultimately going to be producing. We’re certainly targeting to produce earnings growth. But I think until we get through a little bit more of this summer to see where the stockpiles end up as we go into the shoulder season, it’s hard to exactly pinpoint where we’re going to end up.

Okay. So it seems like coal is really the wildcard or question mark for 4Q.

Yeah. I think coal is the wildcard and I also think as we have indicated in the prepared remarks that we also expect a sequential decline in our crude volumes based on what we see in the spread due. And I think we’ll going to have to follow that as well to see what the impact from that will be on our volumes there.

Okay. All right. Thank you for the time.

Thanks. Our next question comes from Rob Salmon with Deutsche Bank. You may ask your question.

Good morning, Rob.

Hey. Good morning. As a follow-up to some of the productivity discussions, could you talk a little bit about -- if we look back a couple years, the productivity is a couple of miles an hour stronger. Maybe could you speak to operationally kind of what additional adjustments need to be made across the network to get back to those levels? And then Fred describes from a financial perspective what the bottom line tailwind would be if CSX achieves those two miles an hour of roughly of improved velocity.

Rob, this is Oscar Munoz, nice to meet you. Listen, with regards to the recovery aspect of that, I think what we’ve said for sometime is the initial point of recovery was this quarter, second quarter and then the acceleration and continued performance and getting back to those record levels. I think the timing of that is related to a lot of the other activities that we've been talking about. But I think that’s the progression we’re making.

And yeah, we still have -- in the second quarter, obviously improved significant and sequentially throughout the quarter but we’re still at the place where we still have over time levels that we think will come down. We have re-crew levels that could be improved, equipment cycle times can be improved as well, which is part of why we see us very robust opportunity set, not just in the second half of 2015 but also going into ‘16 as well. And that is going to be critical for us, as we see a topline environment that from a volume perspective, perhaps not as strong and as robust as we would like it, at least based on what we’re seeing right now. So good momentum on our productivity side and should translate into some good numbers from a bottom line perspective as well.

Note. And just as a clarification with the productivity, should we be expecting another elevated productivity gains looking out into 2016, given those expected, continued improvements?

I like to think that we should be able to exceed our historical average, which has been somewhere around the 130, 140 as we move into 2016.

Perfect. Thank so much.

Yeah.

Thanks. The next question comes from Thomas Kim with Goldman Sachs. You may ask your question.

Good morning, Thomas.

Good morning. Thanks for your time. Last quarter, you dispose as an operating asset. And I’m curious if you could sort of frame out for us the opportunity set to monetize what management seem to be non-core or perhaps maybe less strategic going forward?

Yeah. This is Fredrik again. Yeah. So, we did have an operating property that we monetized here this quarter, was a deal that we worked on through an extended period of time frankly. And we do have some more, both operating and non-operating properties going forward and when they occur, we would be transparent with those. And of course, you will see them as I said when they’ll occur. I don't think that the opportunity set is big enough where it’s going to make a huge difference over time for us because we've done a lot of this over a last couple of decades frankly. But there is something that we constantly look at, to see if there are opportunities to rationalize some of the infrastructure we have, whether is operating or non-operating.

Okay. If I can just ask a follow-on question related to that, to what extent do these -- for example, the most recent asset sale improve your operating expense?

One more time?

With regard to -- for example the most recent asset sale, to what extent is the sale beneficial to reducing operating expense, is there some…

This sales specifically I don’t think is going to improve our operating expense because it essentially a line segment that we weren’t really operating much on it at all and so it really won’t have an impact. There could be instances in the future really would but this one specifically didn’t.

Okay. Thanks very much.

Thank you. Our next question comes from Bill Greene with Morgan Stanley. You may ask your question.

Good morning, Bill.

Hi. Good morning, Michael. Clarence, I have a question for you on pricing, because I get asked this a fair amount and that is, when we look at sort of what CSX chose to do in export coal as things got weaker there, why would you not take a similar approach in the domestic market? Could you or is it your view that you can or cannot sort of preserve some volume, save some utility plants given the low natural gas price? How do you think about the pricing in the coal market, because that's something, given what you've done in export that folks look to and say, how sustainable is the pricing dynamic there?

Bill, we have taken a look at it and frankly, the gas prices are so low, we just cannot materially impact it enough to make a difference.

Okay. And then on the export side, is there -- we said we would lap this. It's done. Is there any risk further that the markets kind of cause you to sort of rethink that at all or at this point have you kind of done what you can do and the volumes will just take care of themselves from here?

We have done what we can do in the volumes, so we just have to take care in the sales.

Yeah. Fair enough. Thanks for your time. Appreciate it.

Thank you.

Thank you. Our next question comes from Ken Hoexter with Merrill Lynch. You may ask your question.

Good morning, Ken.

Great. Good morning, Michael and team. And just on the labor cost here, you have dug into cost per employee was flat this quarter versus up 5% last quarter. Just your thoughts, I guess, on a couple things around that and further employee cuts, I think, you noticed down 1%, but if volumes continued to fall, how do you think about that, Oscar, maybe in advance? And then, cost per employee, what happens to that as we go forward here on your productivity?

Yeah. And this is Fredrik, let me take that one. So, yeah, cost per employee did fall here versus what we saw in the first quarter and that’s, obviously, part of that is, in fact that we now have close to 600 people on furlough and that reduced it. But also reduction in overtime, a little bit of reduction in training costs as well. So that helped. And as we move forward now, as we continue to run better, we probably have an opportunity, perhaps, that even greater number of furloughs and reduce overtime that reduce the crew, the recruits as well. I think there are opportunities to see efficiency gains that was obviously those have biggest expense component and therefore, the one that we focused relentlessly around, how do we reduce the number of people, how do we become more efficient, how do we become more efficient over the cost employee and so that, you should see continued improvement there. Thank you again.

Thank you.

Thank you. Our next question comes from Brandon Oglenski with Barclays. You may ask your question.

Good morning, Brandon.

Good morning, Michael. Good morning, team. Fredrik or Michael, think in the past, you have talked about how, you really need core to establish and I really want to hone in on the idea of that there is more downside risk 2016 closing that is probably is upside, where we have plenty shale gas in those countries, so I think we are resetting into this new reality that gas is just a lot cheaper than it used to be? But you are getting positive price, you are getting productivity, you are getting growth, especially in corridors like intermodal? So, in the longer term is it possible to get sustainable earnings growth and margin expansion to hit that a lot of target even if we are facing continued sequential core declines or is that still going to be too much headwind on the business? And maybe we don't understand how difficult it is to get the cost out of the core system, maybe that’s where we have been underestimated?

Well, obviously, coal is a very profitable business of ours in our portfolio. But I do think that the fact that we will be able to produce the 66.8% operating ratio here in the second quarter with coal being down more than $100 million year-over-year is a great testament to what our core strategy of service excellence to our customers is providing. Now, clearly, as we look forward, the impact of the coal declines is going to also impact the path of progression. We are going to make meaningful improvement here in 2015 and we feel very confident that overtime we can get to that mid 60s operating ratio. And I think this quarter as I said earlier is a great testament to that, but if coal is cooperating, we can get there faster and if coal is going to not cooperate is going to take us longer, which is why at this point I don't think we have enough clear around the coal picture to really put a flag down in the ground on when we actually get to that mid 60s operating ratio. Thank you.

Thanks.

Thank you. Our next question comes from Jason Seidl with Cowen and Company. You may ask your question.

Good morning, Jason.

Thank you. Good morning, guys. How is everything?

Great.

Quick question here, obviously, you mentioned a little bit on furloughs and you have some very good productivity numbers in the quarter? Is the network right sized for the current volumes or is there a little bit more work to do as you move throughout the third quarter?

Jason, it’s Oscar. We are always, always, reflecting on where our volume loaded and the capacity is. So it’s never perfectly right sized but we are working towards that. We have a lot of capacity. Importantly, I think, our train size initiatives have been really creating even more capacity and more productivity. So, we'll continue to work on that, teams done a great job of it. But I think there is still opportunity to right size.

Okay. Appreciate it, guys.

Thank you. The next question comes from Matt Troy with Nomura. You may ask your question.

Good morning, Matt.

Hey. Good morning. My question was on intermodal. Specifically, just if you could give us a sense in terms of the competitive environment you referenced in your press release some competitive share loss and I was wondering if you could just put that into context and then more specifically just looking at the rate trends whether you are looking at revenue per carload, a revenue per ton-mile, certainly we’ve seen a step down in those metrics over the last two quarters. Obviously, fuel is a big component of that traffic category. I just want to make it clear as to what’s going on with rates, if you could just answer those two. That’s all I got. Thank you.

On the competitive loss as you are aware, we don’t make particular comments for individual customers. On the revenue-ton mile as you summarized, it is all in fuel. On the rates of sales in the trucking market, we still find that these truckers are keeping their rate structures up this year into 3% to 5% range on the trucking renewal rates. Our particular spot markets in our trucking part of our door-to-door product has been very strong this year. Our transcon product has been down a little bit because we are still rebuilding our owner operator base in the L.A. Basin from the strike. But the core part of the intermodal business and the pricing this year has remained fairly strong as we've been able to price for the value of the service that we are offering into competitive markets for our reinvestments we've been very pleased with that. Clarence, you want to comment on the domestic volumes?

Yes. As you’ve seen the domestic intermodal volume themselves have been up around 9% in our intermodal business, so the highway to rail conversion programs that we’ve had in place have been quite successful this year.

Absolutely. That’s what I was pointing out. Thank you.

Thank you. The next question comes from Ben Hartford with Baird. You may ask your question.

Good morning, Ben.

Good morning. Clarence, maybe just to continue that point, there has been a lot of debate about the pace of conversions going forward as the truck load capacity situation has normalized a bit in ‘15 from ’14, fuel prices are lower, rail services has not fully been restored. What is your -- let’s take a timeframe, three year view on the pace of domestic intermodal conversions and the opportunity? What are shippers saying given some of the diverging trends with lower diesel fuel prices, with some of these looming capacity constraints? Has the outlook changed at all meaningfully over the past several quarters?

Ben, I don’t think it has. We -- in 2014, this crew that we lost some intermodal business back to the highway due to the service issues. But we are actually seeing some of that volume return in 2015 as services improve. As I mentioned in the highway to rail conversions, our estimates this year will be in excess of 40,000 new loads on CSX organically in addition to what our trucking partners are growing back to rail that will grow. As you know, the electronic reporting that we require next year and the legislation will kick in and we think that that's going to put more stress on the particularly small truck load carriers that will make intermodal more attractive. That has changed in the highway issues that are around, congestion that’s in the highway in America. We still have the driver issues and shortages that are facing the trucking companies as we go forward. If you look at what's happening in Congress today, we still will have a highway transportation bill probably be passed with the continuing resolutions and no new confusion of the money to rebuild the highways and the infrastructure in this country, so all the issues that we’ve talked about over the past few years still remain. So, intermodal to me looks, is a very positive thing going forward for the next two or three years.

Great. Thank you.

Thank you. Our next question comes from Cherilyn Radbourne with TD Securities. You may ask your question.

Hi Cherilyn.

Thanks very much and good morning. You saw good sequential improvement in both on-time originations and arrivals. But there was much more improvement in originations than arrivals, which I think is the normal order things as network velocity increases. Maybe you can just talk about that. And when we should expect to see the gap between those two metrics narrow?

Hey, Cherilyn. Thanks. It’s Oscar. Historically, as you probably know, there has always been a small gap between the arrivals and the originations, and we have seen both measures improve as we want to restore a service level. We would expect the improvement in arrivals to slight lag that of originations, again as that continuity of service improves. The key thing for us is to focus on how late the average train is. That is a metric we’ve seen substantial improvement over the last several months, so in effect spend. So while you will still see the optic on arrivals a little lagging, we actually look at it still more internally the number of hours that our late is improving. So I think over the next quarter and two and then certainly into next year, I think you will see that gap narrow to its historical average.

Thank you. That’s my one.

Thank you. Our next question comes from David Vernon with Bernstein. You may ask your question.

Good morning, David.

Hey, good morning. Thanks for taking the question. Fredrik, may be just a bigger picture here. The volume growth is moderating. The GPMs are down a little bit. Do you see any opportunity deploy in the CapEx budget? And then longer-term, do you think we should be -- how should we be thinking about the impact of the reduced utilization of the coal network on depreciation going forward?

Yes. In terms of capital I think we have the $2.5 billion number out there. We are looking at that to see if it makes sense. But in general, a lot of those products have already been started. So I am not sure if there is many opportunities short term. We have a sales kind of corrective mechanism and then we tied it to revenue and I think that will be correcting it. Ultimately, that’s a proxy for gross ton miles because 80% of that we spend is a reflection of how much we run over the next network. So if that comes down, then our capital will come down. So we will look at that as we get into the planning for 2016. And then in terms of the coal network, I can assure you we had a very concerted effort in 2012 to see what we could do to drive our cost there. We’re excellent at taking out train starts and crew base to more than reflect the kind we saw in volume. And here now in 2015 and 2016, there is a renewed focus again because of the step function change that we’ve seen to further look not just train starts and look at the crew base and the locomotive assets we have deployed, but also the fixed infrastructure that is up there and to see what we can do. It is not as black and white as you would like because we do have growth up there as well and we run other traffic around there. We have seen a lot of growth in LPG and fraction in those same areas, but there should be more than we can do and our team is very much focused on those efforts.

Appreciate it. Thanks.

Thank you. Our next question comes from John Larkin with Stifel. You may ask your question.

Good morning, John.

Good morning, gentlemen. Clarence was very adamant on the first quarter call about how pricing was accelerating from the later stages of the first quarter into the second quarter. Is that going to continue into the third and fourth quarter? Or are we going to plateau at this relative high level where merchandising intermodal same store pricing is up say 3.9% year-over-year?

Well, John, as you can see in the past several quarters, we’ve improved the pricing sequentially. And here in the second quarter you can see that we had 3.5 all-in and 3.9% in the merchandising and in intermodal. As I look forward we remain focused on the strong pricing reflecting the value of the service we provide across all these competitive market which just defies the reinvestment in our business that drives a long-term value of our shareholders. So that’s what you will see.

Got it. Any pushback from customers given that service levels have been fully recovered, are they willing to absorb those even higher price increases given where service currently stands?

I think they see that the service that we’re providing right now has just defined that price levels for the reinvestment that they see that we’re doing.

Got it. Thank you.

Thank you. Our next question comes from Bascome Majors with Susquehanna Financial Group. You may ask your question.

Hi, Bascome.

Hey, good morning. So coal miner’s financial situation has continued to deteriorate here. And we’ve seen recent reports that one of your smaller customers is going to file for bankruptcy this week and other larger miners that were still working on restructurings here. Can you just talk a little bit about how you manage your risk in this business given financial situation on that side, maybe a little bit on the business side such as pricing pressure which you addressed a little bit already but counterparty risk as well?

Yes. This is Fredrik. So obviously from a credit perspective, we do monitor it very closely. Many times it’s actually utilities that pay the bill. But we do have some exposure to some of these producers that are going through a very difficult time. So we’ve already seen some of those go through restructuring. Generally, we are well protected through a variety of means through that process. And one of the most important thing is that if you do want to restructure out of it, you’re going need to need the rail service that we provide in order to be successful in transforming the company. And overall, from a broader perspective, clearly we're also looking at the capital deployment. And you heard in other previous question, we're really trying to make sure that as we look at reinvestment in coal-related assets that we’re really taking a long and hard look at whatever capital put in there to make sure that we’re not leaving capital stranded for 40 years, which is essentially the life of assets that we’re putting in. So we work very, very hard across our system to make sure that we’re making prudent decisions around that. So, great question. Thank you.

Yes. Do you have a sense for how much is paid to the -- or just percentage of your business where you’re paying the miners versus utilities were just balance with export versus utility mix or is it more complex in that?

Well, I think on the domestic side, I think the majority is clearly paid by the utilities and on the export side, I think there is little bit of a more mix and more perhaps the producer.

All right. Thank you.

Thanks. Your next question comes from Jeff Kauffman with Buckingham Research. You may ask your question.

Good morning, Jeff.

Thank you. Good morning, everyone. Thanks for taking my question. With the revenue, well, I shouldn't say revenue, but the volume outlook taking another step down, have you rethought the capital program at all and can you talk a little bit about where the capital is going to help in terms of the productivity recovery and get the system back to fluidity?

Sure. So in terms of the capital, $2.5 billion is our capital plan here for 2015. We are looking to see if there’s some things that we would move out of this year. But as you -- so far into the year, it's hard to affect the current year because a lot of these things are well underway at this point. What we are looking at next year and we do have that kind of self-adjusting mechanism that it’s tied to percentage of revenue when we talk about it publicly, but internally we look at it from a gross ton mile perspective more perhaps. 80% of what we spend is on the maintenance side and 20% is productivity. And clearly this year our main focus has been to acquire additional locomotives. We’re acquiring about 200 locomotives new and rebuilding about a 150 and that has been the number one priority for us already starting last time this year -- last year this time, where that has been the focus of ours to make sure because that has been the linchpin in order for us to get back to the sort of service excellence levels that we've been looking for. Other productivity initiatives, we have plenty of them that not just is capital driven but is specific driven capital as locomotive. Fuel optimizer, for example to make sure we drive fuel efficiency. We have a variety of other technology products that we’re working on and also automation on some of the other back-office functions. So there is a wide variety of things that we put capital towards to drive productivity.

Thank you.

Thank you. Our next question comes from Scott Group with Wolfe Research. You may ask your question.

Good morning, Scott.

Hey, thanks. Good morning, guys. So I wanted to follow up Oscar, your comment about more to go in terms of right-sizing the network. Just given the volumes and now the service levels improving, is it possible ahead to start seeing some more material headcount reduction? I don’t know, 3%, 5%, 10%, I don’t know, is that possible?

Scott, I think I’d answer by the fact that we always make those adjustments commensurate with where we see the volume forecast. And so it's hard to detect specifically a number, but we’ll as you've seen us do before take the appropriate measures.

And to add to Oscar’s answer that we do expect and I said that in prepared remarks about a 1% decline sequentially in headcount and we already have 600 people in furlough and it is our largest expense base. So we’re going to be very, very prudent and very, very thoughtful about what we’re doing there, because we do need to reduce our labor expense in order to create a sort of productivity savings that we’ve outlined.

Yes. So just with that maybe Fredrick, so the volume environment changed most notably in the second quarter. How much of the cost response from you guys did we see in the second quarter versus how much are we going to see ahead? If there is a way to kind of bucket it out?

I guess, this is a pretty hard question to answer. I do say that from the overall productivity knowing our guidance for the full year and the fact that we’ve been done here about $86 million for the first half. Clearly, we have at least as much in the second half or somewhere around there and so there is a lot of opportunity still. We have done a lot of structural things that we have worked on for a period of times in terms of train length and of course some of the other ongoing initiatives as well. And well we have made some inroads in terms of driving the fluid into the network back. It was only kind of partly through the second quarter we really got traction around that. So as we move into the second half, we should expect more of that. And so we’re once again, we feel very strong and we feel very bullish about the opportunity set going forward on the productivity side. Thank you, Scott.

Thank you, guys.

Your next question comes from Donald Broughton with Avondale Partners. You may ask your question.

Good morning, Donald.

Good morning, gentlemen. Help me better understand your guidance of expecting meaningful full year OR improvement, because to the first half, the gross cost of diesel is down about $325 million. So you had a run rate, let’s call $650 million. If I just assume that the cost of diesel is down by $650 million for the full year, and the fuel surcharge is down by $650 million and all of your other operating costs remain constant on a year-over-year basis. That alone would create 150 basis points of OR improvement. So is meaningful full year OR improvement less than or greater than 150 basis points?

Well, that -- it have to be seen. It’s a good question. We have taken out in the first half, if you just look at our quarterly flash we’ve gone from about 72.3 last year in the first to 69.5. So that’s obviously very meaningful improvement in just one-year timeframe. As we think about this quarter specifically, the majority of our gain was actually not fuel related because fuel this quarter while it came down, we actually had a negative impact year-over-year because of the negative lag and the spread differential that we saw. So I'm not going to pinpoint exactly where we’re going to end up, but we do clearly expect meaningful improvement despite the fact that the volume environment is less than stellar. Thank you.

Thank you. Our next question comes from Cleo Zagrean with Macquarie. You may ask your question.

Hey, Cleo.

Good morning. I would like a little bit of help with fending the utility coal volume down side for the next year. Where do you see that coming from? We’re potentially hoping for some reversal of gas switching and inventories having normalized? So is that retirement driven? What are you hearing from your customers that drive your cautiousness on domestic utility? Thank you.

Well, the stockpiles are -- both in the north and south are higher than normal. So there is some inventory hang. We still expect that the gas prices will be relatively low as it would be the second point. And the third is there is some research that would indicate the installation of more gas acres in the region that we serve and are currently in service. So the combination of those three would lead us to believe that there could be a possibility that the utilities consumption of coal in our area would be slightly less than it is this year.

Okay. And then just as a quick clarifying follow-up, when you give guidance for domestic coal, do you include the domestic math or that refers to utility?

Includes both, everything.

Thank you very much. Thank you.

Thank you. Our next question comes from Rick Patterson with Topeka Capital Markets. You may ask your question.

Good morning, Rick.

Good morning, guys. Hi. Oscar, you put out a service update in May that listed your T&E trainees at 1,235. What's that number today?

The people -- by the way Rick nice to hear you, welcome back.

Thank you.

The number in training we have, approximately it’s about 800 right now.

Thanks a lot.

Thank you. The next question comes from Tyler Brown with Raymond James. You may ask your question.

Good morning, Tyler.

Hey good morning. Hey, I was just curious, if we could get a lot more detail on the acceleration of the non-coal pricing. And I appreciate this might be a bit of semantics but Clarence, was the sequential acceleration fairly broad based or was it more in thousand say intermodal than the other merchandise, just maybe some broad comments there?

No, it was very broad based across almost all of our commodity lines.

Perfect. Thank you.

Thank you. Our next question comes from John Barnes with RBC Capital Markets. You may ask your question.

Good morning, John.

Hey, thank you. Hey, good morning. Hey going back to the CapEx question -- I hate to beat this to death but how quickly can you really prioritize the project list and reallocate the capital? And then if volumes continue to be weaker, how aggressive are you willing to be on say maintenance CapEx? Is there any give and take there?

I think from a maintenance spread, the developer things that you can do that short term would save you money but long term would hurt you. So just for example, shutting off our teams that are out there replacing the rail right now is something that you could do. But long term doesn’t make sense because mobilizing and demobilizing something is more expensive than taking advantage of the fact that you have the teams out there right now. So there are things you can do but the key thing is that you do things that are smart. And so that’s why I think that making significant changes in you capital budget is not necessarily the right thing to do from a long-term economic perspective. But as we think about next year, we will always -- we always look at what the gross ton miles would be. We look at the line segments and so forth that we need to allocate capital to. And that’s where I think the coal example is a good place. We really are looking long and hard to make sure that what we’re putting in that makes sense, of course, without sacrificing safety in any way, shape or form. And so we constantly look at that and we will take a look at what next year capital budget would be in the context of what the gross ton mile picture will look like.

Thank you.

Thank you, John.

Thank you. Our final question comes from Justin Long with Stephens. You may ask your question.

Good morning Justin.

Good morning. Thank you. I was wondering if you could comment on me final tank car regulations that we got during the second quarter. Assuming everything in this regulation which stands legal pushback, how should we think about the impact these changes could have on your business going forward?

Justin, I think we are by and large very pleased with the new tank car standards they come out with, we think it’s a much safer vehicle. We were a little bit surprised that the thermal blanket was not included and we will continue to push for that as an industry because we think it gives some extra layer or safety at not a great expense. As far as the long-term impact on the business, obviously as you know, we don’t own the tank cars, the customers or leasing companies do. Our early read is that most plants retrofit their cars or buy new cars that meet those standards. Obviously, it impacts the economics of the movement somewhat and as Clarence alluded to earlier, there is already a little bit of pressure on the crude movement just because of the current spreads between Bakken and Brent. But we think longer term that this car is a better car or safer car and I think we’ll continue to see the movements of the crude as we go forward.

Okay. Great. Thanks for the time.

Thank you. Thank you everybody. We will see next quarter.

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